Noble
Annual Report 2012

Plain-text annual report

Noble Corporation Dorfstrasse 19a 6340 Baar Switzerland www.noblecorp.com Charting a new Course N o b l e C o r p o r a t i o n 2 0 1 2 A n n u a l R e p o r t Noble Corporation 2012 Annual Report Noble Corporation Financial Highlights (In thousands, except per share amounts and percentages) Operating revenues Operating income Income before income taxes Net income attributable to Noble Corporation Net income per diluted share Year Ended December 31, 2012 2011 2010 $3,547,012 $2,695,832 $2,807,176 783,800 703,225 522,344 2.05 490,493 436,250 370,898 1.46 916,080 916,509 773,429 3.02 Net cash provided by operating activities 1,381,693 740,240 1,636,902 Capital expenditures 1,669,811 2,621,235 1,406,010 At year end: Total assets Property and equipment, net Total debt Total shareholders equity Book value per share $14,607,774 $13,495,159 $11,302,387 13,025,972 12,130,345 10,213,158 4,634,375 4,071,964 2,766,697 7,723,166 7,406,521 7,163,003 30.56 29.35 28.39 On the cover: As part of the largest fleet expansion program in the Company’s history, the Noble Don Taylor is one of 11 new units scheduled to enter the Noble fleet in the next two years. Board of Directors Michael A. Cawley 2, 3, 5 Former President & Chief Executive Officer – The Samuel Roberts Noble Foundation, Inc. Director since 1985. Lawrence J. Chazen 1, 3 Chief Executive Officer – Lawrence J. Chazen, Inc. Director since 1994. Julie H. Edwards 2, 3 Former Senior Vice President & Chief Financial Officer – Southern Union Company. Director since 2006. Gordon T. Hall 1, 4 Chairman of the Board – Exterran Holdings, Inc. Director since 2009. Jack E. Little 2, 4 Former President & Chief Executive Officer – Shell Oil Company. Director since 2000. Jon A. Marshall 2, 4 Former President & Chief Operating Officer – Transocean Inc. Director since 2009. Mary P. Ricciardello 1, 3 Former Senior Vice President & Chief Accounting Officer – Reliant Energy, Inc. Director since 2003. David W. Williams Chairman, President & Chief Executive Officer Noble Corporation Director since 2008. 1 Audit Committee 2 Compensation Committee 3 Nominating and Corporate Governance Committee 4 Health, Safety, Environment and Engineering Committee 5 Lead Director Corporate Information Transfer Agent and Registrar Computershare Trust Company, N.A. Canton, Massachusetts Independent Auditors PricewaterhouseCoopers AG Zug, Switzerland PricewaterhouseCoopers LLP Houston, Texas Shares Listed on New York Stock Exchange Trading Symbol “NE” . c n I s e c i v r e S g n i l l i r D e l b o N , e n a l r a F c M t t o c S : n g i s e D Form 10-K A copy of Noble Corporation’s 2012 Annual Report on Form 10-K, as filed with the U.S. Securities and Exchange Commission, will be furnished without charge to any shareholder upon written request to: Julie J. Robertson - Executive Vice President and Corporate Secretary Noble Corporation Dorfstrasse 19a 6340 Baar, Switzerland Annual Meeting The Annual Meeting of Shareholders of Noble Corporation will be held on April 26, 2013, at 3:00 p.m. local time at the Parkhotel Zug in Zug, Switzerland. Contact the Board If you would like to contact the Noble Corporation Board of Directors, write to: Noble Corporation Board of Directors Dorfstrasse 19a 6340 Baar, Switzerland or send an e-mail to: Nobleboard@noblecorp.com For additional information about Noble Corporation, please refer to our proxy statement which is being mailed or made available with this Annual Report. Corporate Officers David W. Williams Chairman, President & Chief Executive Officer Julie J. Robertson Executive Vice President & Corporate Secretary James A. MacLennan Senior Vice President & Chief Financial Officer William E. Turcotte Senior Vice President & General Counsel Roger B. Hunt Senior Vice President – Marketing & Contracts Lee M. Ahlstrom Senior Vice President – Strategic Development Scott W. Marks Senior Vice President – Engineering Bernie G. Wolford Senior Vice President – Operations Dennis J. Lubojacky Vice President & Controller Investor Information Shareholders, brokers, securities analysts or portfolio managers seeking information about Noble Corporation should contact Jeff Chastain, Vice President–Investor Relations, Noble Drilling Services Inc., by phone at: 281-276-6100 or by e-mail at: jchastain@noblecorp.com. Forward Looking Statements Any statements included in this 2012 Annual Report that are not historical facts, including without limitation regarding future market trends and results of operations are forward-looking statements within the meaning of applicable securities law. Please see “Forward-Looking Statements” in this 2012 Annual Report for more information. To Our Shareholders Over the intercom, the words were heard loud and clear by the crew of the Noble Don Taylor, a newbuild ultra-deepwater drillship being constructed for Noble. “Attention all Hands! This is the Captain speaking. We have been given a great opportunity to be onboard the Noble Don Taylor for this maiden voyage. To quote Henry Ward Beecher, ‘It is not the going out of port, but the coming in that determines the success of a voyage’. The safe arrival of this fine drilling vessel into the Gulf of Mexico is the responsibility of all hands onboard. Take no shortcuts, work safely and, as Noble employees, do it right the first time.” Moments later as the ship readies for sea trials, the Captain’s departure message is greeted with cheers as he gives the command, “Marine team, secure for sea and stand by fore and aft to make fast tug boats and let go lines. Chief Mate, bring thrusters around 20 degrees to Port and give me 10 percent. Marine team, throw off the last lines. Chief Mate, dead slow ahead, steady as she goes. Attention all hands! Job well done! Now the adventure begins! That is all…” One might conclude from the Captain’s message that this is the start of something big for Noble. That conclusion would be only part of the story, however, as the effort that is driving the modernization of the Noble fleet spans back several years and embodies a new approach and vision for the Company. That vision’s focus is on high-grading Noble — and not just our fleet. Units like the Noble Don Taylor are a highly visible indicator of our progress toward that goal. leading-edge Our newbuilds are also a indicator of fundamental changes happening within Noble — both from an operating perspective and as an investment opportunity. With each new milestone we reach, we are making progress on the course the we charted for Noble and moving forward into what we believe is a very promising future for the Company. For much of our 90 plus year history, Noble benefited from riding out the ever present cycles in the industry by upgrading units purchased from other drillers. This was a sound business model that generated good returns and we were able to meet the needs of our customers with equipment that was made “more than fit for purpose” by Noble. But like many business models, it had its limits. the solution as With each passing year, modernizing and modifying older units became an increasingly challenging technical requirements of a maturing industry grew. This does not imply that the older units in our fleet aren’t valuable; in fact, the reverse is true. Utilization of our older units remains at or near an all-time high. Dayrates as well as resulting backlog on these units are significant. The question, however, is not about today, but the future and what sort of company Noble will be in our next 100 years. To this end, we are taking steps to balance our fleet by adding measurably to the high- specification side while considering options for some of the standard specification units. Our newbuild program, which saw the successful integration of three new ultra- deepwater drillships into the fleet in 2012, will see the addition of six more units this year and nearly an equal number in 2014 when five more units join the ranks. As a result, Noble’s fleet mix will be significantly enhanced over the next two years. The backlog underpinning this fleet modernization is unprecedented. It is our expectation that it will also position us to share the benefits of the new Noble model with our shareholders. Our Board has requested shareholders approve increasing the dividend on our shares for the 2013-2014 cycle, further illustrating the direction we are going in terms of creating shareholder value and the overall positive outlook for the Company. Noble is assembling one of the most technologically advanced and operationally capable fleets in the industry. The members of the Noble team who will manage, operate and maintain these units are also being high- graded through training and occupational the proficiency efforts designed standard in our industry. to set employees who were hired in the 1980s or earlier. This demographic reality, known as the “great crew change” in industry circles, dictates that we would have had significant hiring needs even without the current newbuild cycle. With the addition of an ongoing newbuild program industry-wide, competition for the best people is nothing short of extraordinary. to more A significant achievement for 2012 was the recruitment of over 1,000 new team members, which brought our total employee head count than 7,600. This recruitment effort enabled us to successfully staff our existing and newbuild rigs with the skilled and competent personnel required to maintain the exceptional caliber of our global workforce. To reach this milestone, we significantly enhanced our recruitment process during the year by leveraging the capability and functionality of a new web-based human resource information system and recruitment modules, enabling us to identify, assess and onboard top candidates at previously unattainable speed. Additionally, Noble’s referral program continues to be a source candidates, with existing of excellent employees generating more than 2,000 referrals last year. the One of significant challenges facing Noble and our industry is the hiring, development and retention of top-flight team members. The drivers of this challenge are two-fold. First, there is the coming exodus from the industry of longer-served to As we continue reinforce our commitment to employee development by providing opportunities for advancement, we have also seen our offshore employee attrition rate continue to decline for the third consecutive year. We believe the brand loyalty we enjoy with our teammates is among the best in our industry and in the current environment this is something of which we can all be proud. Once a new employee joins Noble, our goal is to ensure that the team member begins a steady and deliberate training and development process that will continue throughout that individual’s Noble career. In 2012, Noble continued its increase in significant learning and development for employees. Last year alone, our investments in employee development increased by more than 27 percent over 2011, setting a new record for the Company. investment in state-of-the-art We also made significant progress toward the completion of our U.S.-based Offshore Operations Training Center, which will open in mid-2013. This facility will house computer-based simulation environments for drilling, well control, dynamic positioning, stability and ballast control, power management, crane operations and emergency management. The technology being built into this facility mirrors the technology in our new fleet and will provide the best learning, competency development, and assessment environment in the industry. The Center will be home for training new employees in the Noble way of working and for continuing education, learning and competency assessment for rig crews throughout their careers. Noble also is adding drilling and crane simulators in Brazil, Korea and Singapore to support the ramp-up of our expanding cyber- based fleet. In addition to the simulation its environments, Noble increasing is relevant learning and investments in the technology infrastructure reach our offshore employees with to timely, training. learning, performance and Our new talent management systems will support each employee across his or her career development at Noble and give the Company better visibility of its talent pools and high performers. These investments will ensure Noble continues to be the leader in process safety among offshore drilling contractors. We continue to expand our competency assurance program, Noble PATH (Promotion and Advancement Through Hard work). PATH tracks positional competency across four criteria: mandatory training, standards of competence, in position and time performance evaluation. Together with our investments in learning and development, PATH will help us to ensure we have a top notch workforce. To complement the technical competencies of PATH, the Company also leadership competencies that will help us continue to develop operational and business leaders for the future. launched a full set of Finally, in 2012 we expanded our focus on core operational and safety skills development programs, launching our Noble Dynamic Positioning skills course, a customized Major Emergency Management class, and completing the pilot of our new in Brazil. Driller Development Program Together, these efforts and investments in our people complement our upgraded fleet to deliver the safest, most efficient offshore drilling operations possible. As we enter this next chapter of our history, Noble is more than just a company with a nine decade-long heritage. It’s a great company with staying power, flexibility and a commitment to operational excellence. It is also a company that we believe is on a course to deliver excellent service to our customers and real value for our shareholders. On both points, Noble is positioned for a promising future, one that we are defining today through our outstanding workforce, fleet composition enhancements and expanding global reach. With our increasingly modern fleet, operated by our highly-trained, motivated and experienced to operational integrity, I am excited about the Company’s prospects and confident in our ability to deliver service to our customers and value to our shareholders in the years ahead. committed teams Thank you for your continued support. David W. Williams Chairman, President and Chief Executive Officer Noble has long had a worldwide customer base, however, we enter 2013 truly operating on a global basis. Geographic efforts in our marketing program have been expanded and our operating portfolio now includes the Asia Pacific region, Australia and Alaska. More resources will be added to this effort as we continue to gain scale in these important drilling venues. than At the risk of making it sound as though the path we have chosen has been free from bumps, it has not. During 2012 we acceptable experienced greater operational downtime, diminishing the impact of our strategic efforts. I can assure you that increasing uptime has our full attention. A major company-wide initiative has been launched to attack the root causes of downtime. Known internally as “SUPER” (Subsea Uptime Performance – Enhanced Reliability), this program requires, among other things, unwavering compliance to Noble Subsea Standards and Well Control Policy, strict adherence to our end-of-well preventative maintenance procedures and quality oversight, and assurance of maintenance and repairs on all subsea control systems and associated equipment. The SUPER initiative will support the efforts of that team by setting company-wide standards for managing these assets. Solving the issue of excess downtime won’t be easy, but Noble has committed the resources needed to dramatically impact this situation going forward. From better training for our teams to setting higher standards for support and quality from our suppliers, we will not rest until we improve our uptime. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2012  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: 000-53604 NOBLE CORPORATION (Exact name of registrant as specified in its charter) Switzerland (State or other jurisdiction of incorporation or organization) Dorfstrasse 19A, Baar, Switzerland (Address of principal executive offices) 98-0619597 (I.R.S. employer identification number) 6340 (Zip Code) Registrant’s telephone number, including area code: 41 (41) 761-65-55 Securities registered pursuant to Section 12(b) of the Act: Title of each class Shares, Par Value 3.15 CHF per Share Name of each exchange on which registered New York Stock Exchange Commission file number: 001-31306 NOBLE CORPORATION (Exact name of registrant as specified in its charter) Cayman Islands (State or other jurisdiction of incorporation or organization) 98-0366361 (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 Securities registered pursuant to Sections 12(b) and 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  No  Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  No  Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes  No  Indicate by check mark whether the 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 during the preceding 12 months. Yes  No  Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Noble Corporation (Switzerland): Large accelerated filer Noble Corporation (Cayman Islands): Large accelerated filer  Accelerated filer  Accelerated filer  Non-accelerated filer  Non-accelerated filer  Smaller reporting company  Smaller reporting company   Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No  As of June 29, 2012, the aggregate market value of the registered shares of Noble Corporation (Switzerland) held by non-affiliates of the registrant was $8.1 billion based on the closing sale price as reported on the New York Stock Exchange. Number of shares outstanding and trading at February 11, 2013: Noble Corporation (Switzerland) – 253,225,668 Number of shares outstanding: Noble Corporation (Cayman Islands) – 261,245,693 DOCUMENTS INCORPORATED BY REFERENCE The proxy statement for the 2013 annual general meeting of the shareholders of Noble Corporation (Switzerland) will be incorporated by reference into Part III of this Form 10-K. This Form 10-K is a combined annual report being filed separately by two registrants: Noble Corporation, a Swiss corporation (“Noble-Swiss”), and its wholly-owned subsidiary Noble Corporation, a Cayman Islands company (“Noble-Cayman”). Noble-Cayman meets the conditions set forth in General Instructions I (1) of Form 10-K and is therefore filing this Form 10-K with the reduced disclosure format contemplated by paragraphs (a) and (c) of General Instruction I(2) of Form 10-K. TABLE OF CONTENTS Business Risk Factors Unresolved Staff Comments Properties Legal Proceedings Mine Safety Disclosures Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Selected Financial Data Management’s Discussion and Analysis of Financial Condition and Results of Operations Quantitative and Qualitative Disclosures About Market Risk Financial Statements and Supplementary Data Changes in and Disagreements With Accountants on Accounting and Financial Disclosure Controls and Procedures Other Information Directors, Executive Officers and Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships, Related Transactions and Director Independence Principal Accounting Fees and Services Exhibits, Financial Statement Schedules PART I Item 1. Item 1A. Item 1B. Item 2. Item 3. Item 4. PART II Item 5. Item 6. Item 7. Item 7A. Item 8. Item 9. Item 9A. Item 9B. PART III Item 10. Item 11. Item 12. Item 13. Item 14. PART IV Item 15. SIGNATURES PAGE 1 7 15 15 18 19 19 23 23 39 41 96 96 96 97 98 98 98 99 99 100 This combined Annual Report on Form 10-K is separately filed by Noble Corporation, a Swiss corporation (“Noble-Swiss”), and Noble Corporation, a Cayman Islands company (“Noble-Cayman”). Information in this filing relating to Noble-Cayman is filed by Noble-Swiss and separately by Noble-Cayman on its own behalf. Noble-Cayman makes no representation as to information relating to Noble-Swiss (except as it may relate to Noble-Cayman) or any other affiliate or subsidiary of Noble-Swiss. This report should be read in its entirety as it pertains to each Registrant. Except where indicated, the Consolidated Financial Statements and the Notes to the Consolidated Financial Statements are combined. References in this Annual Report on Form 10-K to “Noble,” the “Company,” “we,” “us,” “our” and words of similar meaning refer collectively to Noble-Swiss and its consolidated subsidiaries, including Noble-Cayman. PART I Item 1. General Business. Noble Corporation, a Swiss corporation, is a leading offshore drilling contractor for the oil and gas industry. We perform contract drilling services with our fleet of 79 mobile offshore drilling units located worldwide. We also own one floating production storage and offloading unit. Our fleet consists of 14 semisubmersibles, 14 drillships, 49 jackups and two submersibles, including 11 units under construction as follows: • • five dynamically positioned, ultra-deepwater, harsh environment drillships and six high-specification, heavy-duty, harsh environment jackups. For additional information on the specifications of our fleet, see “Item 2. Properties.—Drilling Fleet.” As of February 7, 2013, approximately 85 percent of our fleet was located outside the United States in the following areas: Mexico, Brazil, the North Sea, the Mediterranean, West Africa, the Middle East, India and Australia. Noble and its predecessors have been engaged in the contract drilling of oil and gas wells since 1921. Business Strategy Our goal is to be the preferred offshore drilling contractor for the oil and gas industry based upon the following overriding principles: • • • operate in a manner that provides a safe working environment for our employees while protecting the environment and our assets; provide an attractive investment vehicle for our shareholders; and deliver exceptional customer service through a large, diverse and technically advanced fleet operated by competent personnel. We have actively expanded our offshore drilling and deepwater capabilities in recent years through the construction and acquisition of rigs. As part of this technical and operational expansion, we plan to continue pursuing opportunities to upgrade our fleet to achieve greater technological capability, which we believe will lead to increased drilling efficiencies and the ability to complete the increasingly more complex well programs required by our customers. Our business strategy also focuses on the active expansion of our worldwide deepwater capabilities through upgrades and modifications, acquisitions and divestitures of our standard specification drilling units, as well as the deployment of our drilling assets in important oil and gas producing areas throughout the world. During 2012, we continued our newbuild program with the following 14 projects: • we commenced operations on three dynamically positioned ultra-deepwater, harsh environment drillships: two Bully-class drillships currently operating in the U.S. Gulf of Mexico and Brazil, respectively, and one Globetrotter-class drillship currently operating in the U.S. Gulf of Mexico; • we continued construction on one dynamically positioned, ultra-deepwater, harsh environment Globetrotter-class drillship, which is scheduled to be delivered to our customer in the fourth quarter of 2013; • we continued construction on four dynamically positioned, ultra-deepwater, harsh environment drillships at Hyundai Heavy Industries Co. Ltd., the first of which is estimated to be delivered from the shipyard in the second quarter of 2013; and • we continued construction on six high-specification, heavy duty, harsh environment jackups, the first of which is estimated to be delivered from the shipyard in the second quarter of 2013. Capital expenditures, including expenditures related to the items noted above, totaled $1.7 billion during 2012. As part of our ongoing strategic planning process, we review our fleet and the strategic benefits of our drilling rigs. As part of this process, we continue to analyze potential divestment of certain of our standard specification units and related assets in one or more transactions. These dispositions may include sales of assets to third parties, a spin-off, or other distribution or separation of assets or a combination of such transactions. In analyzing our disposition alternatives, we consider the strategic benefit to our ongoing operations while seeking to secure what we consider appropriate value for our shareholders. While we may continue to operate some or all standard specification drilling rigs, we have taken certain preliminary steps to put ourselves in a better position to pursue a potential spin-off and/or sale should we decide to do so. These include analyzing the internal restructuring steps necessary for a 1 potential spin-off or sale and related tax considerations, seeking certain preparatory tax rulings and commencing preparation of financial statements for a potential separate group that could be spun off or sold. We have not completed the preliminary work to effect, nor has our board of directors approved, any such transactions. We make no assurance that we will ultimately undertake or consummate any sale, spin-off or separation transactions involving our standard specification assets. We have entered into an agreement to sell our jackup, the Noble Lewis Dugger, to a third party that owns and operates supply vessels, platform drilling rigs and jackups in Mexico. This unit is being sold for $61 million and the closing is expected to occur in the second quarter of 2013 after the unit has completed its contract with its current customer. The transaction is subject to customary closing conditions. We had entered into an agreement to sell the Noble Don Walker for $18 million. The buyer was unable to close the transaction, although we remain in discussions to potentially extend the sale agreement. The unit has been cold-stacked in Cameroon since 2009. Demand for our services is a function of the worldwide supply of mobile offshore drilling units. Industry analysts widely acknowledge that a significant expansion of industry supply of both jackups and ultra-deepwater units has commenced, the majority of which currently have no contract. The introduction of non-contracted rigs into the marketplace will increase the supply of rigs which compete for drilling service contracts, which could negatively impact the dayrates we are able to achieve. Our strategy on newbuild construction has generally been to expand our drilling fleet in connection with a long-term drilling contract that covers a substantial portion of our capital investment and provides an acceptable return on our capital employed. However, in response to the addition of a significant number of new, technologically advanced units in the global fleet and changes in customer requirements and preferences, we believe that in order to maintain long-term competitiveness, it has become both necessary and desirable for us to engage in building speculative highly advanced jackups and floating units. Of the units we currently have under construction, two of the ultra- deepwater drillships and two of the heavy-duty, harsh environment jackups are being constructed without customer contracts. We will attempt to secure contracts for these units prior to their completion. We may continue speculative building, even in the absence of contracts for our units already under construction. From time to time, we evaluate individual rig transactions and business combinations with other parties where we believe we can create shareholder value. We will continue to consider business opportunities that promote our growth strategy and optimize shareholder value. In previous years, the drilling industry has experienced significant increases in dayrates for drilling services in most markets, coupled with higher demand for drilling equipment and shortages of personnel. This environment drove operating costs higher and magnified the importance of recruiting, training and retaining skilled personnel. While there continues to be instability in the global financial markets we believe the current market offers limited supply and high demand for both our drilling units and the pool of qualified labor to operate our rigs. In recognition of the importance of our offshore operations personnel in achieving a safety record that has historically outperformed the offshore drilling industry sector and to retain such personnel, we have implemented a number of key operations personnel retention programs. We believe these programs are necessary to complement our other short and long-term incentive programs to attract and retain the skilled personnel we need to maintain safe and efficient operations. Drilling Contracts We typically employ each drilling unit under an individual contract. Although the final terms of the contracts result from negotiations with our customers, many contracts are awarded based upon a competitive bidding process. Our drilling contracts generally contain the following terms: • • • • • • contract duration extending over a specific period of time or a period necessary to drill a defined number wells; provisions permitting early termination of the contract by the customer (i) if the unit is lost or destroyed or (ii) if operations are suspended for a specified period of time due to breakdown of equipment; provisions allowing the impacted party to terminate the contract if specified “force majeure” events beyond the contracting parties’ control occur for a defined period of time; payment of compensation to us (generally in U.S. Dollars although some customers, typically national oil companies, require a part of the compensation to be paid in local currency) on a “daywork” basis, so that we receive a fixed amount for each day (“dayrate”) that the drilling unit is operating under contract (a lower rate or no compensation is payable during periods of equipment breakdown and repair or adverse weather or in the event operations are interrupted by other conditions, some of which may be beyond our control); payment by us of the operating expenses of the drilling unit, including labor costs and the cost of incidental supplies; and provisions that allow us to recover certain cost increases from our customers in certain long-term contracts. 2 The terms of some of our drilling contracts permit early termination of the contract by the customer, without cause, generally exercisable upon advance notice to us and in some cases without requiring an early termination payment to us. Our drilling contracts with Petróleos Mexicanos (“Pemex”) in Mexico, for example, allow early cancellation with 30 days or less notice to us without Pemex making an early termination payment. Generally, our contracts allow us to recover our mobilization and demobilization costs associated with moving a drilling unit from one regional location to another. When market conditions require us to assume these costs, our operating margins are reduced accordingly. We cannot predict our ability to recover these costs in the future. For shorter moves, such as “field moves,” our customers have generally agreed to assume the costs of moving the unit by paying us a reduced dayrate or “move rate” while the unit is being moved. For a discussion of our backlog of commitments for contract drilling services, please read “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Contract Drilling Services Backlog.” Acquisition of Frontier Holdings Limited On July 28, 2010, Noble-Swiss and Noble AM Merger Co., a Cayman Islands company and indirect wholly-owned subsidiary of Noble-Swiss (“Merger Sub”), completed the acquisition of FDR Holdings Limited, a Cayman Islands company (“Frontier”). The Frontier acquisition was for a purchase price of approximately $1.7 billion in cash plus liabilities assumed. The acquisition strategically expanded and enhanced our global fleet. Frontier’s results of operations were included in our results beginning July 28, 2010. Offshore Drilling Operations Contract Drilling Services We conduct offshore contract drilling operations, which accounted for over 97 percent of our operating revenues for the years ended December 31, 2012, 2011 and 2010. We conduct our contract drilling operations principally in the U.S. Gulf of Mexico and Alaska, Mexico, Brazil, the North Sea, the Mediterranean, West Africa, the Middle East, India and Australia. Revenues from Royal Dutch Shell, PLC (“Shell”) and its affiliates accounted for approximately 32 percent, 24 percent and 12 percent of our total operating revenues in 2012, 2011 and 2010, respectively. Revenues from Petróleo Brasileiro S.A. (“Petrobras”) accounted for approximately 14 percent, 18 percent and 19 percent of our total operating revenues in 2012, 2011 and 2010, respectively. Pemex did not account for more than 10 percent of our total operating revenues in 2012. Revenues from Pemex accounted for approximately 15 percent and 20 percent of our total operating revenues in 2011 and 2010, respectively. No other single customer accounted for more than 10 percent of our total operating revenues in 2012, 2011 or 2010. Labor Contracts We perform services for drilling and workover activities covering two platforms off the east coast of Canada; this contract extends through April 2013. We do not own or lease these platforms. Under our labor contracts, we provide the personnel necessary to manage and perform the drilling operations from a drilling platform owned by the operator. During 2011, we commenced a refurbishment project with our customer, Shell, for one of its rigs. Under the contract, we provided the management and oversight of the project, as well as the personnel necessary to complete the refurbishment. During 2012, the construction phase of the project was completed and the rig began operating off the coast of Alaska. As with the Canadian labor contract noted above, we provide labor personnel and management services on the project but do not own or lease the related rig. Competition The offshore contract drilling industry is a highly competitive and cyclical business characterized by high capital and maintenance costs. Some of our competitors may have access to greater financial resources than we do. In the provision of contract drilling services, competition involves numerous factors, including price, rig availability and suitability, experience of the workforce, efficiency, safety performance record, condition and age of equipment, operating integrity, reputation, industry standing and client relations. We believe that we compete favorably with respect to all of these factors. We follow a policy of keeping our equipment well maintained and technologically competitive. However, our equipment could be made obsolete by the development of new techniques and equipment, regulations or customer preferences. We compete on a worldwide basis, but competition may vary by region at any particular time. Demand for offshore drilling equipment also depends on the exploration and development programs of oil and gas producers, which in turn are influenced by the financial condition of such producers, by general economic conditions, prices of oil and gas and by political considerations and policies. 3 In addition, industry-wide shortages of supplies, services, skilled personnel and equipment necessary to conduct our business have historically occurred. We cannot assure that any such shortages experienced in the past will not happen again in the future. Governmental Regulations and Environmental Matters Political developments and numerous governmental regulations, which may relate directly or indirectly to the contract drilling industry, affect many aspects of our operations. Our contract drilling operations are subject to various laws and regulations in countries in which we operate, including laws and regulations relating to the equipping and operation of drilling units, the reduction of greenhouse gas emissions to address climate change, currency conversions and repatriation, oil and gas exploration and development, taxation of offshore earnings and earnings of expatriate personnel and use of local employees and suppliers by foreign contractors. A number of countries actively regulate and control the ownership of concessions and companies holding concessions, the exportation of oil and gas and other aspects of the oil and gas industries in their countries. In addition, government action, including initiatives by the Organization of Petroleum Exporting Countries (“OPEC”), may continue to contribute to oil price volatility. In some areas of the world, this governmental activity has adversely affected the amount of exploration and development work done by oil and gas companies and their need for drilling services, and likely will continue to do so. The regulations applicable to our operations include provisions that regulate the discharge of materials into the environment or require remediation of contamination under certain circumstances. Many of the countries in whose waters we operate from time to time regulate the discharge of oil and other contaminants in connection with drilling operations. Failure to comply with these laws and regulations, or failure to obtain or comply with permits, may result in the assessment of administrative, civil and criminal penalties, imposition of remedial requirements and the imposition of injunctions to force future compliance. We have made, and will continue to make, expenditures to comply with environmental requirements. To date we have not expended material amounts in order to comply, and we do not believe that our compliance with such requirements will have a material adverse effect upon our results of operations or competitive position or materially increase our capital expenditures. Although these requirements impact the energy and energy services industries, generally they do not appear to affect us in any material respect that is different, or to any materially greater or lesser extent, than other companies in the energy services industry. However, our business and prospects could be adversely affected by regulatory activity that prohibits or restricts our customers’ exploration and production activities, results in reduced demand for our services or imposes environmental protection requirements that result in increased costs to us, our customers or the oil and natural gas industry in general. The following is a summary of some of the existing laws and regulations which apply to our operations in the U.S. Gulf of Mexico to serve as an example of the various laws and regulations to which we are subject. While laws vary widely in each jurisdiction, each of the laws and regulations below addresses environmental issues similar to those in most of the other jurisdictions in which we operate. Spills and Releases. The Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”), and similar state laws and regulations, impose joint and several liabilities, without regard to fault or the legality of the original act, on certain classes of persons that contributed to the release of a “hazardous substance” into the environment. These persons include the “owner” and “operator” of the site where the release occurred, past owners and operators of the site, and companies that disposed or arranged for the disposal of the hazardous substances found at the site. Responsible parties under CERCLA may be liable for the costs of cleaning up hazardous substances that have been released into the environment and for damages to natural resources. In the course of our ordinary operations, we may generate waste that may fall within CERCLA’s definition of a “hazardous substance.” However, we have to date not received any notification that we are, or may be, potentially responsible for cleanup costs under CERCLA. Offshore Regulation. The U.S. government has indicated that before any recipient of a deepwater drilling permit may commence drilling, (i) the operator must demonstrate that containment resources are available promptly in the event of a deepwater blowout, (ii) the chief executive officer of the operator seeking to perform deepwater drilling must certify that the operator has complied with all applicable regulations and (iii) the Bureau of Ocean Energy Management (“BOEM”) and the Bureau of Safety and Environmental Enforcement (“BSEE”) will conduct inspections of such deepwater drilling operation for compliance with the applicable regulations. We cannot predict when the applicable government agency will determine that any deepwater driller is in compliance with the new regulations. Third party challenges to industry operations in the U.S. Gulf of Mexico may also serve to further delay or restrict activities. Further, in 2010 and 2011, the BSEE and its predecessor agency issued initial regulations on the design and operation of well control and other equipment at offshore production sites, implementation of safety and environmental management systems (“SEMS”), and mandatory third-party compliance audits. On August 22, 2012, BSEE published a final rule amending the regulations regarding design and operation of well control and other equipment, and a new SEMS rule was sent to the Office of Management and Budget for a 90-day review on January 31, 2013. BSEE has indicated that there will be an additional, separate rulemaking to govern the design, performance and maintenance of blowout preventers but that rule has not yet been published. BSEE has also published a draft statement of policy on safety culture with nine proposed characteristics of a robust safety culture. If the new regulations, policies, operating procedures and possibility of increased legal liability are viewed by our current or future customers as a significant impairment to expected profitability on projects, then they could discontinue or curtail their offshore operations, thereby adversely affecting our operations by limiting drilling opportunities or imposing materially increased costs. 4 The Oil Pollution Act. The U.S. Oil Pollution Act of 1990 (“OPA”) and similar regulations impose certain operational requirements on offshore rigs operating in the U.S. Gulf of Mexico and govern liability for leaks, spills and blowouts involving pollutants. The OPA imposes strict, joint and several liabilities on “responsible parties” for damages, including natural resource damages, resulting from oil spills into or upon navigable waters, adjoining shorelines or in the exclusive economic zone of the United States. A “responsible party” includes the owner or operator of an onshore facility and the lessee or permittee of the area in which an offshore facility is located. The OPA establishes a liability limit for onshore facilities of $350 million, while the liability limit for offshore facilities is equal to all removal costs plus up to $75 million in other damages. These liability limits may not apply if a spill is caused by a party’s gross negligence or willful misconduct, if the spill resulted from violation of a federal safety, construction or operating regulation, or if a party fails to report a spill or to cooperate fully in a clean-up. Regulations under the OPA require owners and operators of rigs in United States waters to maintain certain levels of financial responsibility. The failure to comply with the OPA’s requirements may subject a responsible party to civil, criminal, or administrative enforcement actions. We are not aware of any action or event that would subject us to liability under the OPA, and we believe that compliance with the OPA’s financial assurance and other operating requirements will not have a material impact on our operations or financial condition. Waste Handling. The U.S. Resource Conservation and Recovery Act (“RCRA”), and similar state and local laws and regulations govern the management of wastes, including the treatment, storage and disposal of hazardous wastes. RCRA imposes stringent operating requirements, and liability for failure to meet such requirements, on a person who is either a “generator” or “transporter” of hazardous waste or an “owner” or “operator” of a hazardous waste treatment, storage or disposal facility. RCRA specifically excludes from the definition of hazardous waste drilling fluids, produced waters, and other wastes associated with the exploration, development, or production of crude oil and natural gas. A similar exemption is contained in many of the state counterparts to RCRA. As a result, we are not required to comply with a substantial portion of RCRA’s requirements as our operations generate minimal quantities of hazardous wastes. However, these wastes may be regulated by the United States Environmental Protection Agency (“EPA”) or state agencies as solid waste. In addition, ordinary industrial wastes, such as paint wastes, waste solvents, laboratory wastes, and waste compressor oils may be regulated under RCRA as hazardous waste. We do not believe the current costs of managing our wastes, as they are presently classified, to be significant. However, a petition is currently before the EPA to revoke the oil and natural gas exploration and production exemption. Any repeal or modification of this or similar exemption in similar state statutes, would increase the volume of hazardous waste we are required to manage and dispose of, and would cause us, as well as our competitors, to incur increased operating expenses with respect to our U.S. operations. Water Discharges. The U.S. Federal Water Pollution Control Act of 1972, as amended, also known as the “Clean Water Act,” and similar state laws and regulations impose restrictions and controls on the discharge of pollutants into federal and state waters. These laws also regulate the discharge of storm water in process areas. Pursuant to these laws and regulations, we are required to obtain and maintain approvals or permits for the discharge of wastewater and storm water. We do not anticipate that compliance with these laws will cause a material impact on our operations or financial condition. Air Emissions. The U.S. Federal Clean Air Act and associated state laws and regulations restrict the emission of air pollutants from many sources, including oil and natural gas operations. New facilities may be required to obtain permits before operations can commence, and existing facilities may be required to obtain additional permits, and incur capital costs, in order to remain in compliance. Federal and state regulatory agencies can impose administrative, civil and criminal penalties for non- compliance with air permits or other requirements of the Clean Air Act and associated state laws and regulations. In general, we believe that compliance with the Clean Air Act and similar state laws and regulations will not have a material impact on our operations or financial condition. Climate Change. There is increasing attention concerning the issue of climate change and the effect of greenhouse gas (“GHG”) emissions. In December 2009, the EPA determined that current and projected concentrations of six key GHG’s in the atmosphere threaten public health and welfare. The EPA subsequently finalized GHG standards for motor vehicles, the effect of which could reduce demand for motor fuels refined from crude oil, and a final rule to address permitting of GHG emissions from stationary sources under the Clean Air Act’s Prevention of Significant Deterioration (“PSD”) and Title V permitting programs, which require the use of “best available control technology” for GHG emissions from new and modified major stationary sources, which can sometimes include drillships. EPA regulations known as the “Tailoring Rule” also require the PSD program to address GHG emissions from relatively smaller stationary sources in the future. The EPA has also adopted rules requiring the monitoring and reporting of GHG emissions from specified sources in the United States, including, among other things, certain onshore and offshore oil and natural gas production facilities, on an annual basis. Facilities containing petroleum and natural gas systems that emit 25,000 metric tons or more of CO2 equivalent per year are now required to report annual GHG emissions to the EPA. 5 Further, proposed legislation has been introduced in Congress that would establish an economy-wide cap on emissions of GHG’s in the United States and would require most sources of GHG emissions to obtain GHG emission “allowances” corresponding to their annual emissions of GHG’s. Moreover, in 2005, the Kyoto Protocol to the 1992 United Nations Framework Convention on Climate Change, which establishes a binding set of emission targets for greenhouse gases, became binding on all countries that had ratified it. Recent international discussions following the United Nations Climate Change Conference in Doha, Qatar in December 2012 are exploring options to replace the Kyoto Protocol. While it is not possible at this time to predict how new treaties and legislation that may be enacted to address GHG emissions would impact our business, the modification of existing laws or regulations or the adoption of new laws or regulations curtailing exploratory or developmental drilling for oil and gas could materially and adversely affect our operations by limiting drilling opportunities or imposing materially increased costs. Moreover, incentives to conserve energy or use alternative energy sources could have a negative impact on our business if such incentives reduce the worldwide demand for oil and gas. Safety. The U.S. Occupational Safety and Health Act (“OSHA”) and other similar laws and regulations govern the protection of the health and safety of employees. The OSHA hazard communication standard, EPA community right-to-know regulations under Title III of CERCLA and similar state statutes require that information be maintained about hazardous materials used or produced in our operations and that this information be provided to employees, state and local governments and citizens. We believe that we are in substantial compliance with these requirements and with other applicable OSHA requirements. Insurance and Indemnification Matters Our operations are subject to many hazards inherent in the drilling business, including blowouts, fires and collisions or groundings of offshore equipment, and damage or loss from adverse weather and sea conditions. These hazards could cause personal injury or loss of life, loss of revenues, pollution and other environmental damage, damage to or destruction of property and equipment and oil and natural gas producing formations, and could result in claims by employees, customers or third parties. Our drilling contracts provide for varying levels of indemnification from our customers and in most cases also require us to indemnify our customers for certain losses. Under our drilling contracts, liability with respect to personnel and property is typically assigned on a “knock-for-knock” basis, which means that we and our customers assume liability for our respective personnel and property, irrespective of the fault or negligence of the party indemnified. In addition, our customers may indemnify us in certain instances for damage to our down-hole equipment and, in some cases, our subsea equipment. Our customers typically assume responsibility for and indemnify us from loss or liability resulting from pollution or contamination, including third-party damages and clean-up and removal, arising from operations under the contract and originating below the surface of the water. We are generally responsible for pollution originating above the surface of the water and emanating from our drilling units. Additionally, our customers typically indemnify us for liabilities incurred as a result of a blow-out or cratering of the well and underground reservoir loss or damage. In addition to the contractual indemnities described above, we also carry protection and indemnity (“P&I”) insurance, which is a comprehensive general liability insurance program covering liability resulting from offshore operations. Our P&I insurance includes coverage for liability resulting from personal injury or death of third parties and our offshore employees, third party property damage, pollution, spill clean-up and containment and removal of wrecks or debris. Our insurance policy does not exclude losses resulting from our gross negligence or willful misconduct. Our P&I insurance program is renewed in March of each year and currently has a standard deductible of $10 million per occurrence, with maximum liability coverage of $750 million. Our insurance policies and contractual rights to indemnity may not adequately cover our losses and liabilities in all cases. For additional information, please read “We may have difficulty obtaining or maintaining insurance in the future and our insurance coverage and contractual indemnity rights may not protect us against all of the risks and hazards we face” included in Item 1A of this Annual Report on Form 10-K. The above description of our insurance program and the indemnification provisions of our drilling contracts is only a summary as of the time of preparation of this report, and is general in nature. Our insurance program and the terms of our drilling contracts may change in the future. In addition, the indemnification provisions of our drilling contracts may be subject to differing interpretations, and enforcement of those provisions may be limited by public policy and other considerations. Employees At December 31, 2012, we had approximately 5,600 employees, excluding approximately 2,000 persons engaged through labor contractors or agencies. Approximately 75 percent of our employees were engaged in operations outside of the U.S. We are not a party to any material collective bargaining agreements, and we consider our employee relations to be satisfactory. 6 Financial Information About Segments and Geographic Areas Information regarding our revenues from external customers, segment profit or loss and total assets attributable to each segment for the last three fiscal years is presented in “Part II Item 8. Financial Statements and Supplementary Data, Note 17 — Segment and Related Information.” Information regarding our operating revenues and identifiable assets attributable to each of our geographic areas of operations for the last three fiscal years is presented in “Part II Item 8. Financial Statements and Supplementary Data, Note 17 — Segment and Related Information.” Available Information Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the U.S. Securities Exchange Act of 1934 are available free of charge at our website at http://www.noblecorp.com. These filings are also available to the public at the U.S. Securities and Exchange Commission’s (“SEC”) Public Reference Room at 100 F Street, NE, Room 1580, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Electronic filings with the SEC are also available on the SEC’s website at http://www.sec.gov. You may also find information related to our corporate governance, board committees and company code of ethics (and any amendments or waivers of compliance) at our website. Among the documents you can find there are the following: • Corporate Governance Guidelines; • Audit Committee Charter; • Nominating and Corporate Governance Committee Charter; • Health, Safety, Environment and Engineering Committee Charter; • Compensation Committee Charter; and • Code of Business Conduct and Ethics. Item 1A. Risk Factors. You should carefully consider the following risk factors in addition to the other information included in this Annual Report on Form 10-K. Each of these risk factors could affect our business, operating results and financial condition, as well as affect an investment in our shares. Risk Factors Relating to Our Business Our business depends on the level of activity in the oil and gas industry, which is significantly affected by volatile oil and gas prices. Demand for drilling services depends on a variety of economic and political factors and the level of activity in offshore oil and gas exploration and development and production markets worldwide. Commodity prices, and market expectations of potential changes in these prices, may significantly affect this level of activity. However, higher prices do not necessarily translate into increased drilling activity since our clients’ expectations of future commodity prices typically drive demand for our rigs. Oil and gas prices are extremely volatile and are affected by numerous factors beyond our control, including: • • laws and regulations related to environmental or energy security matters, including those addressing alternative energy sources and the risks of global climate change; the political environment of oil-producing regions, including uncertainty or instability resulting from civil disorder, an outbreak or escalation of armed hostilities or acts of war or terrorism; • worldwide demand for oil and gas, which is impacted by changes in the rate of economic growth in the global economy; • the ability of OPEC to set and maintain production levels and pricing; the level of production in non-OPEC countries; the laws and regulations of governments regarding exploration and development of their oil and gas reserves or speculation regarding future laws or regulations; the cost of exploring for, developing, producing and delivering oil and gas; the discovery rate of new oil and gas reserves; the rate of decline of existing and new oil and gas reserves; • • • • • 7 • • • • • • • available pipeline and other oil and gas transportation capacity; the ability of oil and gas companies to raise capital; adverse weather conditions (such as hurricanes and monsoons) and seas; the development and exploitation of alternative fuels; tax laws, regulations and policies; advances in exploration, development and production technology; and the availability of, and access to, suitable locations from which our customers can produce hydrocarbons. Demand for our drilling services may decrease due to events beyond our control and some of our customers could seek to cancel, terminate or renegotiate their contracts. Our business could be impacted by events beyond our control including changes in our customers’ drilling programs or budgets or their liquidity (including access to capital), changes in, or prolonged reductions of, prices for oil and gas, or shifts in the relative strength of various geographic drilling markets brought on by economic slowdown, or regional or worldwide recession, any of which could result in deterioration in demand for our drilling services. In addition, our customers may cancel drilling contracts or letter agreements or letters of intent for drilling contracts, or exercise early termination rights found in some of our drilling contracts or available under local law, for a variety of reasons, many of which are beyond our control. Depending upon market conditions, our customers may also seek renegotiation of firm drilling contracts to reduce their obligations. If the level of demand for our drilling services or conditions in the offshore contract drilling industry declines, our financial position, results of operations and cash flows could be adversely affected. We may not be able to renew or replace expiring contracts or obtain contracts for our uncontracted newbuilds. We have a number of customer contracts that will expire in 2013 and 2014. Our ability to renew these contracts or obtain new contracts and the terms of any such contracts will depend on market conditions and our customers. Also, of the units we currently have under construction as part of our newbuild program, two of the ultra-deepwater drillships and two of the heavy-duty, harsh environment jackups are being constructed without customer contracts. We will attempt to secure contracts for these units prior to their completion. We may be unable to renew our expiring contracts or obtain new contracts for our newbuilds or the rigs under contracts that have expired or been terminated, and the dayrates under any new contracts may be below, perhaps substantially below, the existing dayrates, which could have a material adverse effect on our results of operations and cash flows. We may continue speculative building, even in the absence of contracts for our units already under construction. Our global operations involve additional risks. We operate in various regions throughout the world that may expose us to political and other uncertainties, including risks of: • • terrorist acts, war, revolution and civil disturbances; seizure, nationalization or expropriation of property or equipment; • monetary policies, government debt downgrades and potential defaults, and foreign currency fluctuations and devaluations; the inability to repatriate income or capital; complications associated with repairing and replacing equipment in remote locations; piracy; import-export quotas, wage and price controls, imposition of trade barriers and other forms of government regulation and economic conditions that are beyond our control; regulatory or financial requirements to comply with foreign bureaucratic actions; and changing taxation policies. • • • • • • Our operations are subject to various laws and regulations in countries in which we operate, including laws and regulations relating to: • • • the importing, exporting, equipping and operation of drilling units; repatriation of foreign earnings; currency exchange controls; 8 • • • oil and gas exploration and development; taxation of offshore earnings and earnings of expatriate personnel; and use and compensation of local employees and suppliers by foreign contractors. Our ability to do business in a number of jurisdictions is subject to maintaining required licenses and permits and complying with applicable laws and regulations. For example, as of December 31, 2012, our two rigs operating in Nigeria were operating under temporary import permits and the Department of Petroleum Resources had not yet issued our Nigerian subsidiary a permit to operate as an oil industry service company or licenses to operate the two rigs for the year 2013. It is customary in Nigeria that permits and licenses are issued well into the year to which they pertain and, to date, we have been successful in obtaining new, or extending existing, temporary import permits and other permits and licenses. However, there can be no assurance that we will be able to obtain new permits or further extensions of permits necessary to continue the operation of our rigs in Nigeria. If we cannot obtain a new permit or an extension necessary to continue operations of any rig, we may need to cease operations under the drilling contract for such rig and relocate such rig from Nigerian waters. We cannot predict what impact these events may have on any such contract or our business in Nigeria, and we could face additional fines and sanctions in Nigeria. Furthermore, we cannot predict what changes, if any, relating to temporary import permit policies and procedures may be established or implemented in Nigeria in the future, or how any such changes may impact our business there. For additional information regarding our completed internal investigation of our Nigerian operations and the status of our temporary import permits in Nigeria, see “Part II Item 8. Financial Statements and Supplementary Data, Note 16 — Commitments and Contingencies.” Changes in, compliance with, or our failure to comply with the laws and regulations of the countries where we operate, including Nigeria, may negatively impact our operations in those countries and could have a material adverse effect on our results of operations. In 2010 the Nigerian Oil and Gas Industry Content Development Bill was signed into law. The law is designed to create Nigerian content in operations and transactions within the Nigerian oil and gas industry. The law sets forth certain requirements for asset ownership and the utilization of Nigerian human resources and goods and services in oil and gas projects and creates a Nigerian Content Development and Monitoring Board to implement and monitor the law and develop regulations pursuant to the law. The Nigerian Content Development and Monitoring Board has indicated that it will require all non-Nigerian offshore drilling companies to reorganize their local operations to include Nigerian indigenous minority interests in the operating assets and to obtain the approval of the Nigerian Content Development and Monitoring Board for future work in Nigeria. The law also establishes a Nigerian Content Development Fund to fund the implementation of the law, and requires that 1 percent of the value of every contract awarded in the Nigerian oil and gas industry be paid into the fund. We continue to closely monitor the implementation of the law and we are in the process of reviewing our structural and strategic alternatives and the associated cost as the law continues to be applied. We cannot predict what impact the law will ultimately have on the drilling industry and our future operations in Nigeria, but the effect on our operations and profitability in the region could be significant. In addition, other governmental actions, including initiatives by OPEC, may continue to cause oil price volatility. In some areas of the world, this governmental activity has adversely affected the amount of exploration and development work done by major oil companies, which may continue. In addition, some governments favor or effectively require the awarding of drilling contracts to local contractors, require use of a local agent or require foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction. These practices may adversely affect our ability to compete and our results of operations. The U.S. government’s regulations and permitting process could have a prolonged and material adverse impact on our U.S. Gulf of Mexico operations. Subsequent to the April 2010 fire and explosion on the Deepwater Horizon, a competitor’s drilling rig in the U.S. Gulf of Mexico, U.S. governmental authorities implemented a moratorium on and suspension of specified types of drilling activities in the U.S. Gulf of Mexico. In October 2010, the U.S. government lifted the moratorium following adoption of new regulations including a drilling safety rule and a workplace safety rule, each of which imposed multiple obligations relating to offshore drilling operations. These obligations relate to, among other things; additional certifications and verifications relating to compliance with applicable regulations, compatibility of blowout preventers with drilling rigs and well design, third-party inspections and design review of blowout preventers, testing of casing installations, minimum requirements for personnel operating blowout preventers, training in deepwater well control and mandates of maintenance inspections. BSEE’s predecessor agency also proposed to further strengthen these regulations in September 2011. These additional regulations led to additional costs and increased downtime in our U.S. Gulf of Mexico fleet. The U.S. government mandated that before beginning a well in the U.S. Gulf of Mexico an operator must: (i) demonstrate that containment resources are available promptly in the event of a deepwater blowout, (ii) have the chief executive officer of the operator seeking to perform deepwater drilling certify that the operator has complied with all applicable regulations and (iii) allow BSEE to conduct inspections of such deepwater drilling operation for compliance with the applicable regulations. Our customers and other operators struggled to implement these new regulations, which resulted in increased downtime and decreased rates for a number of our contracted units when these regulations were instituted. While it appears that operators have become accustomed to these 9 regulations, we cannot predict whether the permitting will continue at the current rate. Increased costs for our customers’ operations and permitting delays could negatively impact their planned or future exploration and development activities, which could result in reduced demand for our services. Governmental laws and regulations, including environmental laws and regulations, may add to our costs or limit our drilling activity. Our business is affected by public policy and laws and regulations relating to the energy industry and the environment in the geographic areas where we operate. The drilling industry is dependent on demand for services from the oil and gas exploration and production industry, and accordingly, we are directly affected by the adoption of laws and regulations that for economic, environmental or other policy reasons curtail exploration and development drilling for oil and gas. We may be required to make significant capital expenditures to comply with governmental laws and regulations. Governments in some foreign countries are increasingly active in regulating and controlling the ownership of concessions, the exploration for oil and gas, and other aspects of the oil and gas industries. There is increasing attention in the United States and worldwide concerning the issue of climate change and the effect of greenhouse gases. Our operations are also subject to numerous laws and regulations controlling the discharge of materials into the environment or otherwise relating to the protection of the environment. The modification of existing laws or regulations or the adoption of new laws or regulations that result in the curtailment of exploratory or developmental drilling for oil and gas could materially and adversely affect our operations by limiting drilling opportunities or imposing materially increased costs. As a result, the application of these laws could have a material adverse effect on our results of operations by increasing our cost of doing business, discouraging our customers from drilling for hydrocarbons or subjecting us to liability. For example, we, as an operator of mobile offshore drilling units in navigable U.S. waters and certain offshore areas, including the U.S. Outer Continental Shelf, are liable for damages and for the cost of removing oil spills for which we may be held responsible, subject to certain limitations. Our operations may involve the use or handling of materials that are classified as environmentally hazardous. Laws and regulations protecting the environment have generally become more stringent and in certain circumstances impose “strict liability”, rendering a person liable for environmental damage without regard to negligence or fault. Environmental laws and regulations may expose us to liability for the conduct of or conditions caused by others or for acts that were in compliance with all applicable laws at the time they were performed. In November 2012, the U.S. Coast Guard in Alaska conducted an inspection of our drillship, the Noble Discoverer, and cited a number of deficiencies that needed to be remediated, including issues relating to the main propulsion and safety management system. We began an internal investigation in conjunction with the Coast Guard inspection, and the Coast Guard began their own investigation. We reported certain potential violations of applicable law to the Coast Guard as a result of our internal investigation. These related to what we believe were certain unauthorized disposals of collected deck and sea water from the Noble Discoverer and potential record-keeping issues with the oil record books for the Noble Discoverer and other rigs. The Coast Guard has referred the Noble Discoverer matter to the U.S. Department of Justice (“DOJ”) for further investigation. For additional information regarding these actions relating to the Alaska investigation, see “Part II, Item 8. Financial Statements and Supplementary Data, Note 16— Commitments and Contingencies.” Worldwide instability in the financial and credit sectors and economic recession could have a material adverse effect on our financial position, results of operations and cash flows. Worldwide instability in the financial and credit sectors could reduce the availability of liquidity and credit to fund the continuation and expansion of industrial business operations worldwide. The shortage of liquidity and credit combined with substantial losses in worldwide equity markets could lead to another global economic recession. A slowdown in economic activity caused by a worldwide recession, combined with lower prices for oil and gas, would reduce worldwide demand for energy and demand for drilling services. If demand for drilling services declines again, we could experience a decline in dayrates for new contracts and a slowing in the pace of new contract activity. Demand for our services depends on oil and natural gas industry activity and expenditure levels that are directly affected by trends in oil and natural gas prices. Demand for our services is particularly sensitive to the level of exploration, development, and production activity of, and the corresponding capital spending by, oil and natural gas companies. Any prolonged reduction in oil and natural gas prices or material impairment of our customers’ cash flow or liquidity, including their access to capital, could result in lower levels of exploration, development and production activity. Lower levels of exploration activity could result in a corresponding decline in the demand for our drilling services, which could have a material adverse effect on our financial position, results of operations and cash flows. The financial situation may also adversely affect the ability of shipyards to meet scheduled deliveries of our newbuilds and our ability to renew our fleet through new vessel construction projects and conversion projects. 10 We are substantially dependent on several of our customers including Shell and Petrobras, and the loss of these customers could have a material adverse effect on our financial condition and results of operations. We estimate Shell and Petrobras represented approximately 61 percent and 14 percent, respectively, of our backlog at December 31, 2012 and revenues from Shell and Petrobras accounted for approximately 32 percent and 14 percent, respectively, of our total operating revenue for the year ended December 31, 2012. This concentration of customers increases the risks associated with any possible termination or nonperformance of contracts in addition to our exposure to credit risk. If either of these customers were to terminate or fail to perform their obligations under their contracts and we were not able to find other customers for the affected drilling units promptly, our financial condition and results of operations could be materially adversely affected. Construction, conversion or upgrades of rigs are subject to risks, including delays and cost overruns, which could have an adverse impact on our available cash resources and results of operations. We currently have multiple new construction and conversion projects underway and we may undertake additional projects in the future. In addition, we make significant upgrade, refurbishment and repair expenditures to our fleet from time to time, particularly as our rigs become older. Some of these expenditures are unplanned. Our customers may also require certain shipyard reliability upgrade projects for our drillships. These projects and other efforts of this type are subject to risks of cost overruns or delays inherent in any large construction project as a result of numerous factors, including the following: shortages of equipment, materials or skilled labor; • • work stoppages and labor disputes; • unscheduled delays in the delivery of ordered materials and equipment; local customs strikes or related work slowdowns that could delay importation of equipment or materials; • • weather interferences; • difficulties in obtaining necessary permits or approvals or in meeting permit or approval conditions; design and engineering problems; inadequate regulatory support infrastructure in the local jurisdiction; latent damages or deterioration to hull, equipment and machinery in excess of engineering estimates and assumptions; unforeseen increases in the cost of equipment, labor and raw materials, particularly steel; unanticipated actual or purported change orders; client acceptance delays; disputes with shipyards and suppliers; delays in, or inability to obtain, access to funding; shipyard availability, failures and difficulties, including as a result of financial problems of shipyards or their subcontractors; and failure or delay of third-party equipment vendors or service providers. • • • • • • • • • • The failure to complete a rig upgrade or new construction on time, or the inability to complete a rig conversion or new construction in accordance with its design specifications, may result in loss of revenues, penalties, or delay, renegotiation or cancellation of a drilling contract or the recognition of an asset impairment. Additionally, capital expenditures for rig upgrade, refurbishment and construction projects could materially exceed our planned capital expenditures. Moreover, our rigs undergoing upgrade, refurbishment and repair may not earn a dayrate during the period they are out of service. We could be adversely affected by violations of applicable anti-corruption laws and our failure to comply with the terms of our settlement agreements with the DOJ and SEC. We operate in a number of countries throughout the world, including countries known to have a reputation for corruption. We are committed to doing business in accordance with applicable anti-corruption laws and our code of business conduct and ethics. We are subject, however, to the risk that we, our affiliated entities or their respective officers, directors, employees and agents may take action determined to be in violation of such anti-corruption laws, including the U.S. Foreign Corrupt Practices Act of 1977 (“FCPA”) and similar laws in other countries. Any violation of the FCPA or other applicable anti-corruption laws could result in substantial fines, sanctions, civil and/or criminal penalties and curtailment of operations in certain jurisdictions and might adversely affect our business, results of operations or financial condition. In addition, actual or alleged violations could damage our reputation and ability to do business. Further, detecting, investigating, and resolving actual or alleged violations is expensive and can consume significant time and attention of our senior management. 11 In 2007, we began an internal investigation of the legality under the FCPA of certain activities in Nigeria. In November 2010, we finalized settlements of this matter with each of the SEC and the DOJ. Under the settlements with the DOJ and SEC, we agreed to, among other things, pay certain fines and interest and disgorge certain profits, cooperate with the DOJ, comply with the FCPA, comply with certain self-reporting and annual reporting obligations and comply with an injunction restraining us from violating the anti-bribery, books and records and internal controls provisions of the FCPA. Our ability to comply with the terms of the settlements is dependent on the success of our ongoing compliance program, including our ability to continue to manage our agents and supervise, train and retain competent employees, and the efforts of our employees to comply with applicable law and our code of business conduct and ethics. Also, in January 2011, the Nigerian Economic and Financial Crimes Commission and the Nigerian Attorney General Office initiated an investigation into these same activities. A subsidiary of Noble-Swiss resolved this matter through the execution of a non-prosecution agreement dated January 28, 2011. Pursuant to this agreement, the subsidiary paid $2.5 million to resolve all charges and claims of the Nigerian government. Any additional investigation by these or other agencies could damage our reputation and result in substantial fines, sanctions, civil and/or criminal penalties and curtailment of operations in certain jurisdictions and might adversely affect our business, results of operations or financial condition. Further, resolving any additional investigations could be expensive and consume significant time and attention of our senior management. For instance, in February 2012, the SEC charged one current and two former employees of ours with violating the FCPA in connection with the events that were the subject of the internal investigations we began in 2007, as described above. We do not believe that the SEC pleadings against these individuals introduce material facts that were not addressed in our internal investigation, which we resolved with the SEC and the DOJ in November 2010. We are not a party to the SEC proceedings against these individuals, and we do not believe the charges against the individuals will result in fines, sanctions or civil or criminal penalties against us. However, these actions may consume the attention of management and damage our reputation. Possible changes in tax laws could affect us and our shareholders. We operate through various subsidiaries in numerous countries throughout the world. Consequently, we are subject to changes in tax laws, treaties or regulations or the interpretation or enforcement thereof in Switzerland, the U.S. or jurisdictions in which we or any of our subsidiaries operate or are incorporated. Tax laws and regulations are highly complex and subject to interpretation. Consequently, we are subject to changing tax laws, treaties and regulations in and between countries in which we operate. Our income tax expense is based upon our interpretation of the tax laws in effect in various countries at the time that the expense was incurred. If these laws, treaties or regulations change or other taxing authorities do not agree with our assessment of the effects of such laws, treaties and regulations, this could have a material adverse effect on us, including the imposition of a higher effective tax rate on our worldwide earnings or a reclassification of the tax impact of our significant corporate restructuring transactions. In addition, the manner in which our shareholders are taxed on distributions on, and dispositions of, our shares could be affected by changes in tax laws, treaties or regulations or the interpretation or enforcement thereof in Switzerland, the U.S. or other jurisdictions in which our shareholders are resident. Any such changes could result in increased taxes for our shareholders and affect the trading price of our shares. Our business involves numerous operating hazards. Our operations are subject to many hazards inherent in the drilling business, including blowouts, fires and collisions or groundings of offshore equipment, and damage or loss from adverse weather and seas. These hazards could cause personal injury or loss of life, suspend drilling operations or seriously damage or destroy the property and equipment involved, result in claims by employees, customers or third parties and, in addition to causing environmental damage, could cause substantial damage to oil and natural gas producing formations or facilities. Operations also may be suspended because of machinery breakdowns, abnormal drilling conditions, and failure of subcontractors to perform or supply goods or services, or personnel shortages. Damage to the environment could also result from our operations, particularly through oil spillage or extensive uncontrolled fires. We may also be subject to damage claims by oil and gas companies. The contract drilling industry is a highly competitive and cyclical business with intense price competition. If we are unable to compete successfully, our profitability may be reduced. The offshore contract drilling industry is a highly competitive and cyclical business characterized by high capital and maintenance costs. Drilling contracts are traditionally awarded on a competitive bid basis. Intense price competition, rig availability, location and suitability, experience of the workforce, efficiency, safety performance record, technical capability and condition of equipment, operating integrity, reputation, industry standing and client relations are all factors in determining which contractor is awarded a job. Mergers among oil and natural gas exploration and production companies from time to time may reduce the number of available clients, resulting in increased price competition. 12 Our industry has historically been cyclical. There have been periods of high demand, short rig supply and high dayrates, followed by periods of lower demand, excess rig supply and low dayrates. Periods of excess rig supply intensify the competition in the industry and may result in some of our rigs being idle for long periods of time. Prolonged periods of low utilization and low dayrates could result in the recognition of impairment charges on certain of our drilling rigs if future cash flow estimates, based upon information available to management at the time, indicate that the carrying value of these rigs may not be recoverable. For example, in 2012 our submersible rig fleet, consisting of two cold stacked rigs, was partially impaired due to the declining market outlook for drilling services for this rig type. We estimated the fair value of the rigs based on the salvage value of the rigs and a recent transaction involving a similar unit owned by a peer company (Level 2 fair value measurement). Based on these estimates, we recognized a charge of approximately $13 million for the year ended December 31, 2012. The increase in supply created by the number and types of rigs being built, as well as changes in our competitors’ drilling rig fleets, could intensify price competition and require higher capital investment to keep our rigs competitive. In addition, the supply attributable to newbuild rigs, especially those being built on speculation, could cause a reduction in future dayrates. We are experiencing competition from newbuild jackups that are scheduled to enter the market in 2013 and beyond. The entry of these newbuild jackups into the market may result in lower dayrates for jackups than currently expected. Similarly, there are a number of deepwater newbuilds that are scheduled to enter the market over the next several years, which could also adversely affect the dayrates for these units. As a result of our significant cash flow needs, we may be required to incur additional indebtedness, or delay or cancel discretionary capital expenditures. Our currently anticipated cash flow needs, both in the short-term and long-term, may include the following: • committed capital expenditures, including expenditures for newbuild projects currently underway; normal recurring operating expenses; • • discretionary capital expenditures, including various capital upgrades; • payments of dividends; and repayment of maturing debt. • In order to fund our capital expenditures, we may need funding beyond the amount available to us from cash generated by our operations, cash on hand and borrowings under our existing bank credit facilities and commercial paper program. We may raise such additional capital in a number of ways, including accessing capital markets, obtaining additional lines of credit or disposing of assets. However, we can provide no assurance that any of these options will be available to us on terms acceptable to us or at all. Our ability to obtain financing or to access the capital markets may be limited by our financial condition at the time of any such financing and the covenants in our existing debt agreements, as well as by adverse market conditions resulting from, among other things, general economic conditions and uncertainties that are beyond our control. Even if we are successful in obtaining additional capital through debt financings, incurring additional indebtedness may significantly increase our interest expense and may reduce our flexibility to respond to changing business and economic conditions or to fund working capital needs, because we will require additional funds to service our outstanding indebtedness. We may delay or cancel discretionary capital expenditures, which could have certain adverse consequences including delaying upgrades or equipment purchases that could make the affected rigs less competitive, adversely affect customer relationships and negatively impact our ability to contract such rigs. We may have difficulty obtaining or maintaining insurance in the future and our insurance coverage and contractual indemnity rights may not protect us against all of the risks and hazards we face. We generally identify the operational hazards for which we will procure insurance coverage based on the likelihood of loss, the potential magnitude of loss, the cost of coverage, the requirements of our customer contracts and applicable legal requirements. We do not procure insurance coverage for all of the potential risks and hazards we may face. Furthermore, no assurance can be given that we will be able to obtain insurance against all of the risks and hazards we face or that we will be able to obtain or maintain adequate insurance at rates and with deductibles or retention amounts that we consider commercially reasonable. Although we maintain what we believe to be an appropriate level of insurance covering hazards and risks we currently encounter during our operations, we do not insure against all possible hazards and risks. Furthermore, our insurance carriers may interpret our insurance policies such that they do not cover losses for which we make claims. Our insurance policies may also have exclusions of coverage for some losses. Uninsured exposures may include expatriate activities prohibited by U.S. laws, radiation hazards, certain loss or damage to property onboard our rigs and losses relating to shore-based terrorist acts or strikes. 13 In addition, the damage sustained to offshore oil and gas assets as a result of hurricanes in recent years has negatively impacted the energy insurance market, resulting in more restrictive and expensive coverage for U.S. named windstorm perils. Accordingly, we have elected to significantly reduce the named windstorm insurance on our rigs operating in the U.S. Gulf of Mexico. Presently, we insure the Noble Jim Thompson, Noble Amos Runner and Noble Driller for “total loss only” when caused by a named windstorm. Our customer assumes the risk of loss on the Noble Bully I due to a named windstorm event up to $450 million per occurrence pursuant to the terms of the drilling contract relating to such vessel, provided that we are responsible for the first $25 million per occurrence for such named windstorm events. The remaining rigs in the U.S. Gulf of Mexico are self-insured for named windstorm perils. Our rigs located in the Mexico portion of the Gulf of Mexico remain covered by commercial insurance for windstorm damage. If one or more future significant weather-related events occur in the Gulf of Mexico, or in any other geographic area in which we operate, we may experience increases in insurance costs, additional coverage restrictions or unavailability of certain insurance products. Under our drilling contracts, liability with respect to personnel and property is customarily assigned on a “knock-for- knock” basis, which means that we and our customers assume liability for our respective personnel and property, irrespective of the fault or negligence of the party indemnified. Although our drilling contracts generally provide for indemnification from our customers for certain liabilities, including liabilities resulting from pollution or contamination originating below the surface of the water, enforcement of these contractual rights to indemnity may be limited by public policy and other considerations and, in any event, may not adequately cover our losses from such incidents. There can also be no assurance that those parties with contractual obligations to indemnify us will necessarily be in a financial position to do so. Although we maintain insurance in the geographic areas in which we operate, pollution, reservoir damage and environmental risks generally are not fully insurable. Our insurance policies may not adequately cover our losses or may have exclusions of coverage for some losses. We do not have insurance coverage or rights to indemnity for all risks, including loss of hire insurance on most of the rigs in our fleet. Uninsured exposures may include expatriate activities prohibited by U.S. laws and regulations, radiation hazards, certain loss or damage to property onboard our rigs and losses relating to shore-based terrorist acts or strikes. If a significant accident or other event occurs and is not fully covered by insurance or contractual indemnity, it could adversely affect our financial position, results of operations or cash flows. Failure to attract and retain highly skilled personnel or an increase in personnel costs could hurt our operations. We require highly skilled personnel to operate and provide technical services and support for our drilling units. As the demand for drilling services and the size of the worldwide industry fleet increases, shortages of qualified personnel have occurred from time to time. These shortages could result in our loss of qualified personnel to competitors, impair our ability to attract and retain qualified personnel for our new or existing drilling units, impair the timeliness and quality of our work and create upward pressure on personnel costs, any of which could adversely affect our operations. Fluctuations in exchange rates and nonconvertibility of currencies could result in losses to us. We may experience currency exchange losses where revenues are received or expenses are paid in nonconvertible currencies or where we do not hedge an exposure to a foreign currency. We may also incur losses as a result of an inability to collect revenues because of a shortage of convertible currency available to the country of operation, controls over currency exchange or controls over the repatriation of income or capital. We are subject to litigation that could have an adverse effect on us. We are, from time to time, involved in various litigation matters. These matters may include, among other things, contract disputes, personal injury claims, asbestos and other toxic tort claims, environmental claims or proceedings, employment matters, governmental claims for taxes or duties, and other litigation that arises in the ordinary course of our business. Although we intend to defend these matters vigorously, we cannot predict with certainty the outcome or effect of any claim or other litigation matter, and there can be no assurance as to the ultimate outcome of any litigation. Litigation may have an adverse effect on us because of potential negative outcomes, costs of attorneys, the allocation of management’s time and attention, and other factors. Forward-Looking Statements This report on Form 10-K includes “forward-looking statements” within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended, and Section 21E of the U.S. Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts included in this report regarding the Frontier transaction and integration, contract backlog, fleet status, our financial position, business strategy, timing or results of acquisitions or dispositions, backlog, completion and acceptance of our newbuild rigs, contract commitments, dayrates, contract commencements, extension or renewals, contract tenders, the outcome of any dispute, litigation or investigation, plans and objectives of management for future operations, foreign currency requirements, results of joint ventures, indemnity and other contract claims, construction of rigs, industry conditions including the effect of disruptions of drilling in the U.S. Gulf of Mexico, access to financing, impact of competition, governmental regulations and 14 permitting, availability of labor, worldwide economic conditions, taxes and tax rates, indebtedness covenant compliance, and timing for compliance with any new regulations are forward-looking statements. When used in this report, the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “should” and similar expressions are intended to be among the statements that identify forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we cannot assure you that such expectations will prove to be correct. These factors include those described in “Risk Factors” above, or in our other SEC filings, among others. Such risks and uncertainties are beyond our ability to control, and in many cases, we cannot predict the risks and uncertainties that could cause our actual results to differ materially from those indicated by the forward-looking statements. You should consider these risks when you are evaluating us. Item 1B. Unresolved Staff Comments. None. Item 2. Drilling Fleet Properties. Our drilling fleet is composed of the following types of units: semisubmersibles, drillships, jackups and submersibles. Each type of drilling rig is described further below. We also own one floating production storage and offloading unit (“FPSO”). Several factors determine the type of unit most suitable for a particular job, the most significant of which include the water depth and the environment of the intended drilling location, whether the drilling is being done over a platform or other structure, and the intended well depth. Semisubmersibles Semisubmersibles are floating platforms which, by means of a water ballasting system, can be submerged to a predetermined depth so that a substantial portion of the hull is below the water surface during drilling operations. These units maintain their position over the well through the use of either a fixed mooring system or a computer controlled dynamic positioning system and can drill in many areas where jackups cannot drill. However, semisubmersibles normally require water depth of at least 200 feet in order to conduct operations. Certain of our semisubmersibles are capable of drilling in water depths of up to 12,000 feet. The semisubmersible fleet consists of 14 units, including: five Noble EVA-4000™ semisubmersibles; three Friede & Goldman 9500 Enhanced Pacesetter semisubmersibles; two Pentagone 85 semisubmersibles; two Bingo 9000 design unit semisubmersibles; one Aker H-3 Twin Hull S1289 Column semisubmersible; and one Offshore Co. SCP III Mark 2 semisubmersible. • • • • • • Drillships Our drillships are self-propelled vessels. These units maintain their position over the well through the use of either a fixed mooring system or a computer controlled dynamic positioning system. Our drillships are capable of drilling in water depths from 1,000 to 12,000 feet. The maximum drilling depth of our drillships ranges from 20,000 feet to 40,000 feet. The drillship fleet consists of 14 units, including: four dynamically positioned, ultra-deepwater, harsh environment drillships currently under construction, the first of which is estimated to be delivered from the shipyard in the second quarter of 2013; three dynamically positioned Gusto Engineering Pelican Class drillships; two dynamically positioned Bully-class drillships operated by us through a 50 percent joint venture with a subsidiary of Shell; one dynamically positioned Globetrotter-class drillship; one dynamically positioned Globetrotter-class drillship currently under construction, which is scheduled to be delivered to our customer in the fourth quarter of 2013; one conventionally moored Sonat Discoverer Class drillship capable of drilling in Arctic environments; one dynamically positioned NAM Nedlloyd-C drillship; and one conventionally moored conversion class drillship. • • • • • • • • 15 Jackups We currently have 49 jackups in our fleet, including six high-specification, heavy duty, harsh environment jackups currently under construction. Jackups are mobile, self-elevating drilling platforms equipped with legs that can be lowered to the ocean floor until a foundation is established for support. The rig hull includes the drilling rig, jacking system, crew quarters, loading and unloading facilities, storage areas for bulk and liquid materials, helicopter landing deck and other related equipment. All of our jackups are independent leg (i.e., the legs can be raised or lowered independently of each other) and cantilevered. A cantilevered jackup has a feature that permits the drilling platform to be extended out from the hull, allowing it to perform drilling or workover operations over pre-existing platforms or structures. Moving a rig to the drill site involves jacking up its legs until the hull is floating on the surface of the water. The hull is then towed to the drill site by tugs and the legs are jacked down to the ocean floor. The jacking operation continues until the hull is raised out of the water, and drilling operations are conducted with the hull in its raised position. Our jackups are capable of drilling to a maximum depth of 30,000 feet in water depths up to 400 feet. Submersibles We have two submersibles in the fleet which are currently cold-stacked. Submersibles are mobile drilling platforms that are towed to the drill site and submerged to drilling position by flooding the lower hull until it rests on the sea floor, with the upper deck above the water surface. Our submersibles are capable of drilling to a maximum depth of 25,000 feet in water depths up to 70 feet. 16 Drilling Fleet Table The following table sets forth certain information concerning our offshore fleet at February 7, 2013. The table does not include any units owned by operators for which we had labor contracts. We operate and own all of the units included in the table. Name Semisubmersibles—14 Noble Amos Runner ...................................................... Noble Clyde Boudreaux .................................................. Noble Danny Adkins ....................................................... Noble Dave Beard ........................................................... Noble Driller ................................................................... Noble Homer Ferrington ................................................. Noble Jim Day ................................................................ Noble Jim Thompson ..................................................... Noble Lorris Bouzigard ................................................. Noble Max Smith ........................................................... Noble Paul Romano ........................................................ Noble Paul Wolff ........................................................... Noble Therald Martin ..................................................... Noble Ton van Langeveld (3) ........................................... Drillships—14 Noble Bob Douglas ......................................................... Noble Bully I (3)(5) ........................................................... Noble Bully II (3)(5) .......................................................... Noble Discoverer (3) ........................................................ Noble Don Taylor ........................................................... Noble Duchess ................................................................ Noble Globetrotter I (3) .................................................... Noble Globetrotter II (3) ................................................... Noble Leo Segerius ........................................................ Noble Muravlenko .......................................................... Noble Phoenix ................................................................ Noble Roger Eason ........................................................ Noble Sam Croft ............................................................. Noble Newbuild Drillship #4 (3) ...................................... Independent Leg Cantilevered Jackups—49 (Continued to next page) Dhabi II ........................................................................... Noble Al White (3) ........................................................... Noble Alan Hay .............................................................. Noble Bill Jennings ........................................................ Noble Byron Welliver (3) ................................................ Noble Carl Norberg ........................................................ Noble Charles Copeland ................................................. Noble Charlie Yester ....................................................... Noble Chuck Syring ........................................................ Noble David Tinsley ....................................................... Noble Dick Favor ............................................................ Noble Don Walker .......................................................... Noble Earl Frederickson ................................................. Noble Ed Holt ................................................................. Noble Ed Noble .............................................................. Noble Eddie Paul ........................................................... Noble Gene House .......................................................... Noble Gene Rosser ......................................................... Noble George McLeod.................................................... Noble George Sauvageau (3) ........................................... Noble Gus Androes ......................................................... Noble Hans Deul (3) ......................................................... Make Year Built or Rebuilt (1) Water Depth Rating (feet) Drilling Depth Capacity (feet) Location Status (2) 8,000 10,000 12,000 10,000 5,000 7,200 12,000 6,000 4,000 7,000 6,000 9,200 4,000 1,500 12,000 8,200 8,200 1,000 12,000 1,500 10,000 10,000 5,600 4,900 5,000 7,200 12,000 12,000 150 360 300 390 300 250 280 300 250 300 150 150 250 300 250 390 300 300 300 250 300 400 32,500 U.S. Gulf of Mexico Active 35,000 Australia Active 35,000 U.S. Gulf of Mexico Active 35,000 Brazil Active 30,000 U.S. Gulf of Mexico Active 30,000 Israel Active 35,000 U.S. Gulf of Mexico Active 32,500 U.S. Gulf of Mexico Active 25,000 U.S. Gulf of Mexico Stacked 30,000 Brazil Active 32,500 Malta Active 30,000 Brazil Active 25,000 Brazil Active 25,000 U.K. Active Shipyard 40,000 South Korea 40,000 U.S. Gulf of Mexico Active 40,000 Brazil Active 20,000 Alaska Active 40,000 South Korea Shipyard 25,000 India Active 30,000 U.S. Gulf of Mexico Active 30,000 The Netherlands Shipyard 20,000 Brazil Active 20,000 U.S. Gulf of Mexico Stacked 25,000 Brazil Active 25,000 Brazil Active 40,000 South Korea Shipyard 40,000 South Korea Shipyard 20,000 U.A.E. 30,000 The Netherlands 25,000 U.A.E. 25,000 Mexico 30,000 U.K. 20,000 Mexico 20,000 Saudi Arabia 25,000 India 20,000 Qatar 25,000 U.A.E. 20,000 U.A.E. 20,000 Cameroon 20,000 Mexico 25,000 India 20,000 Nigeria 25,000 Mexico 25,000 Saudi Arabia 25,000 Mexico 25,000 U.A.E. 25,000 Denmark 30,000 Qatar 30,000 U.K Active Active Active Active Active Active Active Active Active Active Active Stacked Active Active Active Active Active Active Active Active Active Active Noble EVA-4000™ F&G 9500 Enhanced Pacesetter Bingo 9000—DP F&G 9500 Enhanced Pacesetter—DP Aker H-3 Twin Hull S1289 Column F&G 9500 Enhanced Pacesetter Bingo 9000—DP Noble EVA-4000™ Pentagone 85 Noble EVA-4000™ Noble EVA-4000™ Noble EVA-4000™—DP Pentagone 85 Offshore Co. SCP III Mark 2 1999 R/2008 M 2007 R/M 2009R 2009 R 2007 R 2004 R 2010 R 1999 R/2006 M 2003 R 1999 R 1998 R/2007 M 2006 R 2004 R 2000 R Hyundai Gusto P 10000 GustoMSC Bully PRD 12000 GustoMSC Bully PRD 12000 Sonat Discoverer Class Hyundai Gusto P 10000 Conversion Globetrotter Class Globetrotter Class Gusto Engineering Pelican Class Gusto Engineering Pelican Class Gusto Engineering Pelican Class NAM Nedlloyd—C Hyundai Gusto P 10000 Hyundai Gusto P 10000 Baker Marine BMC 150 CFEM T-2005-C Levingston Class 111-C MLT Class 84—E.R.C. CFEM T-2005-C MLT Class 82-C MLT Class 82-SD-C MLT Class 116-C MLT Class 82-C Modec 300C-38 Baker Marine BMC 150 Baker Marine BMC 150-SD MLT Class 82-SD-C Levingston Class 111-C MLT Class 82-SD-C MLT Class 84—E.R.C. Modec 300C-38 Levingston Class 111-C F&G L-780 MOD II NAM Nedlloyd-C Levingston Class 111-C F&G JU-2000E 2013 N 2011 N 2011 N 2009 R 2013 N 2012 R 2011 N 2013 N 2012 R 1997 R 2009 R 2013 R 2014 N 2014 N 2006 R 2005 R 2005 R 1997 R 1982 2003 R 2001 R 1980 1996 R 2010 R 2004 R 1992R 1999 R 2003 R 2003 R 1995 R 1998 R 1996 R 1995 R 1981 2004 R 2009 N See footnotes on the following page. 17 Name Independent Leg Cantilevered Jackups—49 (Continued from previous page) Make Year Built or Rebuilt (1) Water Depth Rating (feet) Drilling Depth Capacity (feet) Location Status (2) Noble Harvey Duhaney ................................................................ Noble Houston Colbert (3) ............................................................ Noble Jimmy Puckett .................................................................. Noble Joe Beall ............................................................................ Noble John Sandifer ..................................................................... Noble Johnnie Hoffman ............................................................... Noble Julie Robertson (3) (4) ......................................................... Noble Kenneth Delaney ............................................................... Noble Leonard Jones ................................................................... Noble Lewis Dugger .................................................................... Noble Lloyd Noble ...................................................................... Noble Lynda Bossler (3) ............................................................... Noble Mick O’Brien (3) ................................................................ Noble Percy Johns ....................................................................... Noble Piet van Ede (3) .................................................................. Noble Regina Allen (3) ................................................................. Noble Roger Lewis ...................................................................... Noble Ronald Hoope (3) ............................................................... Noble Roy Butler ......................................................................... Noble Roy Rhodes ....................................................................... Noble Sam Noble ......................................................................... Noble Sam Turner (3) ................................................................... Noble Scott Marks (3) ................................................................... Noble Tom Jobe ........................................................................... Noble Tom Prosser (3) .................................................................. Noble Tommy Craighead ............................................................. Noble Newbuild Jackup #6 (3) ...................................................... Submersibles—2 Noble Joe Alford .......................................................................... Noble Lester Pettus ...................................................................... FPSO- 1 Seillean ........................................................................................ Levingston Class 111-C F&G JU-3000N F&G L-780 MOD II Modec 300C-38 Levingston Class 111-C Baker Marine BMC 300 BMC 300 Harsh Weather Class F&G L-780 MOD II MLT Class 53—E.R.C. Levingston Class 111-C MLT Class 82-SD-C MSC/CJ-46 F&G JU-3000N F&G L-780 MOD II MSC/CJ-46 F&G JU-3000N F&G JU-2000E MSC/CJ-46 F&G L-780 MOD II MLT Class 116-C Levingston Class 111-C F&G JU-3000N F&G JU-2000E MLT Class 82-SD-C F&G JU-3000N F&G L-780 MOD II F&G JU-3000N Pace Marine 85G Pace Marine 85G 2001 R 2013 N 2002 R 2004 R 1995 R 1993 R 2001 R 1998 R 1998 R 1997 R 1990 R 1982 2013 N 1995 R 1982 2013 N 2007 1982 1998 R 2009 R 1982 2014 N 2009 N 1982 2014 N 2003 R 2014 N 2006 R 2007 R 300 400 300 300 300 300 390 300 390 300 250 250 400 300 250 400 400 250 300 300 300 400 400 250 400 300 400 70 70 25,000 Qatar 30,000 Singapore 25,000 Qatar 25,000 Saudi Arabia 25,000 Mexico 25,000 Mexico 25,000 U.K. 25,000 India 25,000 Mexico 25,000 Mexico 20,000 Cameroon 25,000 The Netherlands 30,000 Singapore 25,000 Nigeria 25,000 The Netherlands 30,000 Singapore 30,000 Saudi Arabia 25,000 The Netherlands 25,000 Mexico 25,000 Oman 25,000 Mexico 30,000 Singapore 30,000 Saudi Arabia 25,000 Mexico 30,000 Singapore 25,000 Gabon 30,000 Singapore Active Shipyard Active Active Active Active Active Active Active Active Active Active Shipyard Active Active Shipyard Active Active Active Active Active Shipyard Active Active Shipyard Active Shipyard 25,000 U.S. Gulf of Mexico Stacked 25,000 U.S. Gulf of Mexico Stacked Harland & Wolf Shipbuilding 2008 R N/A N/A U.S. Gulf of Mexico Stacked Footnotes to Drilling Fleet Table 1. 2. 3. 4. Rigs designated with an “R” were modified, refurbished or otherwise upgraded in the year indicated by capital expenditures in an amount deemed material by management. Rigs designated with an “N” are newbuilds. Rigs designated with an “M” have been upgraded to the Noble NC-5SM mooring standard. Rigs listed as “active” were either operating under contract or were actively seeking contracts; rigs listed as “shipyard” are in a shipyard for construction, repair, refurbishment or upgrade; rigs listed as “stacked” are idle without a contract and are not actively marketed in present market conditions. Harsh environment capability. Although designed for a water depth rating of 390 feet of water in a non-harsh environment, the rig is currently equipped with legs adequate to drill in approximately 200 feet of water in a harsh environment. We own the additional leg sections required to extend the drilling depth capability to 390 feet of water. 5. We own and operate the Noble Bully I and Noble Bully II through joint ventures with a subsidiary of Shell. Under the terms of the joint venture agreements, each party has an equal 50 percent ownership stake in both vessels. Facilities Our corporate headquarters is located in Baar, Switzerland, and we maintain offices for executive officers and selected personnel in Geneva, Switzerland. We also maintain office space in Sugar Land, Texas, where significant worldwide global support activity occurs. In addition, we own and lease administrative and marketing offices, and sites used primarily for storage, maintenance and repairs, and research and development for drilling rigs and equipment in various locations worldwide. Item 3. Legal Proceedings. Information regarding legal proceedings is set forth in Note 16 to our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K. 18 Item 4. Mine Safety Disclosures. Not applicable. PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market for Shares and Related Shareholder Information Noble-Swiss shares are listed and traded on the New York Stock Exchange under the symbol “NE”. The following table sets forth for the periods indicated the high and low sales prices and dividends or returns of capital declared and paid in U.S. Dollars per share: 2012 Fourth quarter ............................................................................ Third quarter .............................................................................. Second quarter ........................................................................... First quarter ................................................................................ 2011 Fourth quarter ............................................................................ Third quarter .............................................................................. Second quarter ........................................................................... First quarter ................................................................................ High Low $ $ 39.81 38.60 38.82 41.25 38.42 39.70 46.10 46.12 $ $ 33.51 32.21 29.13 30.29 28.58 27.68 37.51 35.64 $ $ Dividends Declared and Paid 0.13 0.13 0.14 0.14 0.14 0.17 0.15 0.14 The declaration and payment of dividends or returns of capital require authorization of the shareholders of Noble-Swiss. The amount of such dividends, distributions and returns of capital 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 and our shareholders. On February 11, 2013, there were 253,225,668 shares outstanding held by 794 shareholder accounts of record. Swiss Tax Consequences to Shareholders of Noble-Swiss The tax consequences discussed below are not a complete analysis or listing of all the possible tax consequences that may be relevant to shareholders of Noble. Shareholders should consult their own tax advisors in respect of the tax consequences related to receipt, ownership, purchase or sale or other disposition of our shares and the procedures for claiming a refund of withholding tax. Swiss Income Tax on Dividends and Similar Distributions A non-Swiss holder will not be subject to Swiss income taxes on dividend income and similar distributions in respect of our shares, unless the shares are attributable to a permanent establishment or a fixed place of business maintained in Switzerland by such non-Swiss holder. However, dividends and similar distributions are subject to Swiss withholding tax. See “—Swiss Withholding Tax–Dividends to Shareholders.” Swiss Wealth Tax A non-Swiss holder will not be subject to Swiss wealth taxes unless the holder’s shares are attributable to a permanent establishment or a fixed place of business maintained in Switzerland by such non-Swiss holder. Swiss Capital Gains Tax upon Disposal of Shares A non-Swiss holder will not be subject to Swiss income taxes for capital gains unless the holder’s shares are attributable to a permanent establishment or a fixed place of business maintained in Switzerland by such non-Swiss holder. In such case, the non- Swiss holder is required to recognize capital gains or losses on the sale of such shares, which will be subject to cantonal, communal and federal income tax. 19 Swiss Withholding Tax—Dividends to Shareholders A Swiss withholding tax of 35 percent is due on dividends to our shareholders from us, regardless of the place of residency of the shareholder (subject to the exceptions discussed under “—Exemption from Swiss Withholding Tax–Distributions to Shareholders” below). We will be required to withhold at such rate and remit on a net basis any payments made to a holder of our shares and pay such withheld amounts to the Swiss federal tax authorities. Please see “—Refund of Swiss Withholding Tax on Dividends and Other Distributions.” Exemption from Swiss Withholding Tax—Distributions to Shareholders Under present Swiss tax law, distributions to shareholders in relation to a reduction of par value are exempt from Swiss withholding tax. Since January 1, 2011, distributions to shareholders out of qualifying additional paid-in capital for Swiss statutory purposes are exempt from the Swiss withholding tax. Consequently, we expect that a substantial amount of any potential future distributions, whether distributed as a reduction of par value or directly out of qualifying additional paid-in capital may be exempt from Swiss withholding tax. Repurchases of Shares Under present Swiss tax law, repurchases of shares for the purposes of capital reduction are treated as a partial liquidation subject to the 35 percent Swiss withholding tax. However, for shares repurchased for capital reduction, the portion of the repurchase price attributable to the par value of the shares repurchased will not be subject to the Swiss withholding tax. Since January 1, 2011, the portion of the repurchase price attributable to the qualifying additional paid-in capital for Swiss statutory reporting purposes of the shares repurchased will also not be subject to the Swiss withholding tax. We would be required to withhold at such rate the tax from the difference between the repurchase price and the related amount of par value and the related amount of qualifying additional paid-in capital. We would be required to remit on a net basis the purchase price with the Swiss withholding tax deducted to a holder of our shares and pay the withholding tax to the Swiss federal tax authorities. With respect to the refund of Swiss withholding tax from the repurchase of shares, see “—Refund of Swiss Withholding Tax on Dividends and Other Distributions.” In most instances, Swiss companies listed on the SIX Swiss Exchange (“SIX”), carry out share repurchase programs through a “second trading line” on the SIX. Swiss institutional investors typically purchase shares from shareholders on the open market and then sell the shares on the second trading line back to the company. The Swiss institutional investors are generally able to receive a full refund of the withholding tax. Due to, among other things, the time delay between the sale to the company and the institutional investors’ receipt of the refund, the price companies pay to repurchase their shares has historically been slightly higher (but less than 1 percent) than the price of such companies’ shares in ordinary trading on the SIX first trading line. We do not expect to be able to use the SIX second trading line process to repurchase our shares because we do not currently intend to list our shares on the SIX. However, we have in the past and intend to continue to follow an alternative process whereby we expect to be able to repurchase our shares in a manner that should allow Swiss institutional market participants selling the shares to us to receive a refund of the Swiss withholding tax and, therefore, accomplish the same purpose as share repurchases on the second trading line at substantially the same cost to us and such market participants as share repurchases on a second trading line. The repurchase of shares for purposes other than capital reduction, such as to retain as treasury shares for use in connection with stock incentive plans, convertible debt or other instruments within certain periods, will generally not be subject to Swiss withholding tax. Refund of Swiss Withholding Tax on Dividends and Other Distributions Swiss holders – A Swiss tax resident, corporate or individual, can recover the withholding tax in full if such resident is the beneficial owner of our shares at the time the dividend or other distribution becomes due and provided that such resident reports the gross distribution received on such resident’s income tax return, or in the case of an entity, includes the taxable income in such resident’s income statement. Non-Swiss holders – If the shareholder that receives a distribution from us is not a Swiss tax resident, does not hold our shares in connection with a permanent establishment or a fixed place of business maintained in Switzerland, and resides in a country that has concluded a treaty for the avoidance of double taxation with Switzerland for which the conditions for the application and protection of and by the treaty are met, then the shareholder may be entitled to a full or partial refund of the withholding tax described above. The procedures for claiming treaty refunds (and the time frame required for obtaining a refund) may differ from country to country. Switzerland has entered into bilateral treaties for the avoidance of double taxation with respect to income taxes with numerous countries, including the U.S., whereby under certain circumstances all or part of the withholding tax may be refunded. 20 U.S. residents – The Swiss-U.S. tax treaty provides that U.S. residents eligible for benefits under the treaty can seek a refund of the Swiss withholding tax on dividends for the portion exceeding 15 percent (leading to a refund of 20 percent) or a full refund in the case of qualified pension funds. As a general rule, the refund will be granted under the treaty if the U.S. resident can show evidence of: beneficial ownership, • • U.S. residency, and • meeting the U.S.-Swiss tax treaty’s limitation on benefits requirements. The claim for refund must be filed with the Swiss federal tax authorities (Eigerstrasse 65, 3003 Berne, Switzerland), no later than December 31 of the third year following the year in which the dividend payments became due. The relevant Swiss tax form is Form 82C for companies, 82E for other entities and 82I for individuals. These forms can be obtained from any Swiss Consulate General in the U.S. or from the Swiss federal tax authorities at the address mentioned above or at www.estv.admin.ch. Each form needs to be filled out in triplicate, with each copy duly completed and signed before a notary public in the U.S. Evidence that the withholding tax was withheld at the source must also be included. Stamp duties in relation to the transfer of shares – The purchase or sale of our shares may be subject to Swiss federal stamp taxes on the transfer of securities irrespective of the place of residency of the purchaser or seller if the transaction takes place through or with a Swiss bank or other Swiss securities dealer, as those terms are defined in the Swiss Federal Stamp Tax Act and no exemption applies in the specific case. If a purchase or sale is not entered into through or with a Swiss bank or other Swiss securities dealer, then no stamp tax will be due. The applicable stamp tax rate is 0.075 percent for each of the two parties to a transaction and is calculated based on the purchase price or sale proceeds. If the transaction does not involve cash consideration, the transfer stamp duty is computed on the basis of the market value of the consideration. Purchases of Shares The following table sets forth for the periods indicated certain information with respect to repurchases by Noble-Swiss of its shares: Period October 2012 ...................................................... November 2012 .................................................. December 2012 .................................................. Total Number of Shares Purchased (2) Average Price Paid per Share 189 $ — $ 2,200 $ 38.09 0.00 34.28 Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1) — — — 6,769,891 6,769,891 6,769,891 (1) All share purchases made in the open market and were pursuant to the share repurchase program which our Board of Directors authorized and adopted and our shareholders approved. Our repurchase program has no date of expiration. (2) Amounts represent shares surrendered by employees for withholding taxes payable upon the vesting of restricted stock or exercise of stock options. 21 Stock Performance Graph This graph shows the cumulative total shareholder return of our shares over the five-year period from January 1, 2008 to December 31, 2012. The graph also shows the cumulative total returns for the same five-year period of the S&P 500 Index and the Dow Jones U.S. Oil Equipment & Services Index. The graph assumes that $100 was invested in our shares and the two indices on January 1, 2008 and that all dividends or distributions and returns of capital were reinvested on the date of payment. Company Name / Index Noble Corporation .......................................................................................... S&P 500 Index ................................................................................................ Dow Jones U.S. Oil Equipment & Services .................................................... INDEXED RETURNS Year Ended December 31, 2010 2011 2009 2008 $ 39.76 $ 73.66 $ 66.55 $ 57.12 $ 93.61 74.96 91.68 85.60 63.00 40.70 79.67 67.22 2012 66.82 108.59 75.20 Investors are cautioned against drawing any conclusions from the data contained in the graph, as past results are not necessarily indicative of future performance. The above graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that we specifically incorporate it by reference into such filing. 22 Item 6. Selected Financial Data. The following table sets forth selected financial data of us and our consolidated subsidiaries over the five-year period ended December 31, 2012, which information is derived from our audited financial statements. This information should be read in connection with, and is qualified in its entirety by, the more detailed information in our financial statements included in Item 8 of this Annual Report on Form 10-K. Statement of Income Data Operating revenues ............................................ Net income attributable to Noble Corporation .......................................... Net income per share: ............................... Basic ............................................... Diluted ............................................ Balance Sheet Data (at end of period) Cash and marketable securities ................ Property and equipment, net ..................... Total assets ............................................... Long-term debt ......................................... Total debt (1) ............................................ Total equity .............................................. Other Data Net cash from operating activities ............ Net cash from investing activities ............ Net cash from financing activities ............ Capital expenditures ................................. Working capital ........................................ Cash dividends/par value reduction declared per share (2) (3) ..................... 2012 2011 Year Ended December 31, 2010 (In thousands, except per share amounts) 2009 2008 $ 3,547,012 $ 2,695,832 $ 2,807,176 $ 3,640,784 $ 3,446,501 522,344 370,898 773,429 1,678,642 1,560,995 2.05 2.05 1.46 1.46 3.03 3.02 6.44 6.42 5.85 5.81 $ $ 282,092 $ 13,025,972 14,607,774 4,634,375 4,634,375 8,488,290 239,196 $ 12,130,345 13,495,159 4,071,964 4,071,964 8,097,852 337,871 $ 10,213,158 11,302,387 2,686,484 2,766,697 7,287,634 735,493 $ 6,815,637 8,396,896 750,946 750,946 6,788,432 513,311 5,647,017 7,106,799 750,789 923,487 5,290,715 1,381,693 $ (1,790,888) 452,091 1,669,811 393,876 740,240 $ (2,521,546) 1,682,631 2,621,235 232,432 1,636,902 $ (2,896,469) 861,945 1,406,010 110,347 2,131,267 $ (1,489,610) (419,475) 1,426,049 1,049,243 1,888,192 (1,129,293) (406,646) 1,231,321 561,348 0.54 0.60 0.88 0.18 0.91 (1) Consists of Long-Term Debt and Current Maturities of Long-Term Debt. (2) From the third quarter of 2009 through the second quarter of 2012, we paid a return on capital in the form of par value reductions, in lieu of dividends, based upon an amount in Swiss Francs. In the third and fourth quarters of 2012, we paid a dividend from the capital contribution reserve. Amounts listed are in U.S. Dollars at the exchange rate that the dividend was paid. (3) The par value reductions or cash dividends declared in 2010 and 2008 includes a special dividend of approximately $0.56 and $0.75 per share, respectively. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion is intended to assist you in understanding our financial position at December 31, 2012 and 2011, and our results of operations for each of the years in the three-year period ended December 31, 2012. You should read the accompanying consolidated financial statements and related notes in conjunction with this discussion. Executive Overview Our 2012 financial and operating results include: operating revenues totaling $3.5 billion; • • net income of $522 million or $2.05 per diluted share; • • net cash from operating activities totaling $1.4 billion; and an increase in debt to 35.3 percent of total capitalization at the end of 2012, up from 33.5 percent at the end of 2011 due to the issuance of $1.2 billion in senior notes partially offset by a $635 million decrease in the amount of debt being drawn on our credit facilities and commercial paper program. 23 During 2012, we continued to see modest improvement in the offshore drilling market even as the underlying commodity markets were subject to short-term volatility. In the U.S. Gulf of Mexico, the granting of permits and publication of new safety rules during the latter half of 2011, has led to increased activity levels within the industry. The activity reflects the positive long-term outlook for commodity prices, which has led to increased activity by our customers and contributed to improved dayrates for deepwater and ultra-deepwater rigs worldwide, and excellent geologic success, which is leading to a backlog of appraisal and development projects. There continues to be doubt regarding the sustainability of the global economic recovery, which is proceeding unevenly in different geographic regions. There is also hesitation regarding recovery in the credit markets, particularly in Europe, which some analysts predict could be the catalyst for a worldwide recession. Finally, political instability, especially in the Middle East and North Africa, has further created uncertainty within the marketplace. These factors may continue to impact the price of oil and gas commodities for the foreseeable future, and in turn, could impact the offshore drilling market. Despite the instability in the global economy and commodity prices noted above, the market for offshore drilling services has continued the upward trend that began during the second half of 2011. We believe both the short-term and long-term outlook for the deep and ultra-deepwater markets continues to strengthen. Market dayrates for new ultra-deepwater units consistently remained above $500,000 throughout the year, which is higher than rates seen in recent years. A number of fixtures have exceeded $550,000, and in certain cases even exceeded $600,000. Our market analysis indicates that there is little, if any, availability of ultra-deepwater units for 2013. In addition, availability of ultra-deepwater units in 2014 continues to decrease. Utilization rates for jackups stabilized in 2011, and improved in most regions during 2012. We have seen tangible market activity and anticipate a favorable environment for these rigs in the short-term. We continue to see differentiation in the jackup market, with newer units having utilization rates and dayrates exceeding those for units that entered service before 2000. We continue to see improvement in the older jack-up market with increased utilization and competitive dayrates for these rigs as well, with most regions experiencing market utilization of 90 percent or higher. As part of our strategic planning process, we review our fleet and the strategic benefits of our drilling rigs. As part of this process, we continuously analyze the potential divestment of certain of our standard specification units and related assets in one or more transactions. These dispositions may include sales of assets to third parties, a spin-off or other distribution or separation of assets or a combination of such transactions. In analyzing our disposition alternatives, we consider the strategic benefit to our ongoing operations while seeking to secure what we consider appropriate value for our shareholders. While we could continue to operate some or all standard specification drilling rigs, we have taken certain preliminary steps to put ourselves in a better position to pursue a potential spin-off and/or sale should we decide to do so. These include analyzing the internal restructuring steps necessary for a potential spin-off or sale and related tax considerations, seeking certain preparatory tax rulings and commencing preparation of financial statements for a potential separate group that could be spun off or sold. We have not completed the preliminary work to effect, nor has our board approved, any such transactions. We make no assurance that we will ultimately undertake any sales or spin- off or separation transactions involving standard specification assets. We have actively expanded our offshore drilling and deepwater capabilities in recent years through the construction and acquisition of new rigs. As part of this technical and operational enhancement, we plan to continue pursuing opportunities to upgrade our fleet to achieve greater technological capability, which should increase our operational efficiencies. During 2012, we continued our newbuild program as indicated by the following activities: • we commenced operations on three dynamically positioned ultra-deepwater, harsh environment drillships: two Bully-class drillships currently operating in the U.S. Gulf of Mexico and Brazil, respectively, and one Globetrotter-class drillship currently operating in the U.S. Gulf of Mexico; • we continued construction on one dynamically positioned, ultra-deepwater, harsh environment Globetrotter-class drillship, which is scheduled to be delivered to our customer in the fourth quarter of 2013; • we continued construction on four dynamically positioned, ultra-deepwater, harsh environment drillships at Hyundai Heavy Industries Co. Ltd., the first of which is estimated to be delivered from the shipyard in the second quarter of 2013; and • we continued construction on six high-specification, heavy duty, harsh environment jackups, the first of which is estimated to be delivered from the shipyard in the second quarter of 2013. While we cannot predict the future level of demand or dayrates for our drilling services or future conditions in the offshore contract drilling industry, we continue to believe we are well positioned within the industry and believe our continued newbuild activity will further strengthen our position, especially in deepwater drilling. 24 We have entered into an agreement to sell our jackup, the Noble Lewis Dugger, to a third party that owns and operates supply vessels, platform drilling rigs and jackups in Mexico. This unit is being sold for $61 million and the closing is expected to occur in the second quarter of 2013 after the unit has completed its contract with its current customer. The transaction is subject to customary closing conditions. We had entered into an agreement to sell the Noble Don Walker for $18 million. The buyer was unable to close the transaction, although we remain in discussions to potentially extend the sale agreement. The unit has been cold-stacked in Cameroon since 2009. Contract Drilling Services Backlog We maintain a backlog (as defined below) of commitments for contract drilling services. The following table sets forth as of December 31, 2012 the amount of our contract drilling services backlog and the percent of available operating days committed for the periods indicated: Contract Drilling Services Backlog Semisubmersibles/Drillships (1) (5) .................... Jackups (2)........................................................... Total (3) ........................................................................ Percent of Available Days Committed (4) $ 11,903 $ 2,648 1,372 $ 14,346 $ 4,020 2,443 $ 2,622 827 $ 3,449 $ 1,880 237 $ 2,117 $ 1,334 7 $ 1,341 $ 74% 50% 22% 2017-2023 3,419 — 3,419 5% $ 10% Total 2013 Year Ending December 31, 2015 2016 2014 (In millions) (1) Our drilling contracts with Petrobras provide an opportunity for us to earn performance bonuses based on downtime experienced for our rigs operating offshore Brazil. With respect to our semisubmersibles operating offshore Brazil for Petrobras, we have included in our backlog an amount equal to 75 percent of potential performance bonuses for such semisubmersibles. With respect to our drillships presently operating offshore Brazil for Petrobras, we have included in our backlog an amount equal to 75 percent of potential performance bonuses for periods after the estimated completion of certain upgrade projects that are designed to enhance the reliability and operational performance of the drillships. Our backlog for semisubmersibles/drillships includes approximately $197 million attributable to these performance bonuses. The drilling contracts with Shell for the Noble Globetrotter I, Noble Globetrotter II, Noble Jim Thompson, Noble Clyde Boudreaux, Noble Max Smith, Noble Don Taylor and the Noble Jim Day, provide opportunities for us to earn performance bonuses based on key performance indicators as defined by Royal Dutch Shell, PLC (“Shell”). With respect to these contracts, we have included in our backlog an amount equal to 50 percent of the potential performance bonuses for these rigs. Our backlog for these rigs includes approximately $409 million attributable to these performance bonuses. (2) Pemex has the ability to cancel its drilling contracts on 30 days or less notice without Pemex’s making an early termination payment. At December 31, 2012, we had 12 rigs contracted to Pemex in Mexico, and our backlog includes approximately $613 million related to such contracts. (3) Our drilling contracts generally provide the customer an early termination right in the event we fail to meet certain performance standards, including downtime thresholds. For example, Petrobras has the right to terminate its contracts in the event of excessive downtime. While we have exceeded downtime thresholds in the past on certain rigs contracted with Petrobras, we have not received any notification concerning contract cancellations nor do we anticipate receiving any such notifications. (4) Percentages take into account additional capacity from the estimated dates of deployment of our newbuild rigs that are scheduled to commence operations during 2013 through 2015. (5) Noble and a subsidiary of Shell are involved in joint ventures that own and operate both the Noble Bully I and the Noble Bully II. Under the terms of the joint venture agreements, each party has an equal 50 percent share in both vessels. As of December 31, 2012, the combined amount of backlog for these rigs totals $2.28 billion, all of which is included in our backlog. Noble’s proportional interest in the backlog for these rigs was $1.14 billion. Our contract drilling services backlog reported above reflects estimated future revenues attributable to both signed drilling contracts and letters of intent that we expect to realize. A letter of intent is generally subject to customary conditions, including the execution of a definitive drilling contract. It is possible that some customers that have entered into letters of intent will not enter into signed drilling contracts. We calculate backlog for any given unit and period by multiplying the full contractual operating dayrate for such unit by the number of days remaining in the period. The reported contract drilling services backlog does not include amounts representing revenues for mobilization, demobilization and contract preparation, which are not expected to be significant to our contract drilling services revenues, amounts constituting reimbursables from customers or amounts attributable to uncommitted option periods under drilling contracts or letters of intent. 25 The amount of actual revenues earned and the actual periods during which revenues are earned may be materially different than the backlog amounts and backlog periods set forth in the table above due to various factors, including, but not limited to, shipyard and maintenance projects, unplanned downtime, achievement of bonuses, weather conditions and other factors that result in applicable dayrates lower than the full contractual operating dayrate. In addition, amounts included in the backlog may change because drilling contracts may be varied or modified by mutual consent or customers may exercise early termination rights contained in some of our drilling contracts or decline to enter into a drilling contract after executing a letter of intent. As a result, our backlog as of any particular date may not be indicative of our actual operating results for the periods for which the backlog is calculated. Nigerian Operations As previously disclosed, in November 2010 we finalized settlements with the SEC and the DOJ as the result of an internal investigation of the legality under the United States Foreign Corrupt Practices Act (“FCPA”) and local laws of certain reimbursement payments made by our Nigerian affiliate to our customs agents in Nigeria. In January 2011, a subsidiary of Noble-Swiss resolved an investigation by the Nigerian Economic and Financial Crimes Commission and the Nigerian Attorney General Office into these same activities. Any additional investigation by these or other agencies could damage our reputation and result in substantial fines, sanctions, civil and/or criminal penalties and curtailment of operations in certain jurisdictions and might adversely affect our business, results of operations or financial condition. Further, resolving any additional investigations could be expensive and consume significant time and attention of our senior management. Acquisition of Frontier Holdings Limited On July 28, 2010, Noble-Swiss and Noble AM Merger Co., a Cayman Islands company and indirect wholly-owned subsidiary of Noble-Swiss (“Merger Sub”), completed the acquisition of FDR Holdings Limited, a Cayman Islands company (“Frontier”). Under the terms of the Agreement and Plan of Merger with Frontier and certain of Frontier’s shareholders, Merger Sub merged with and into Frontier, with Frontier surviving as an indirect wholly-owned subsidiary of Noble-Swiss and a wholly-owned subsidiary of Noble-Cayman. The Frontier acquisition was for a purchase price of approximately $1.7 billion in cash plus liabilities assumed and strategically expanded and enhanced our global fleet. Frontier’s results of operations were included in our results beginning July 28, 2010. We funded the cash consideration paid at closing of approximately $1.7 billion using proceeds from our July 2010 offering of senior notes and existing cash on hand. RESULTS OF OPERATIONS 2012 Compared to 2011 General The consolidated financial statements of Noble-Swiss include the accounts of Noble-Cayman, and Noble-Swiss conducts substantially all of its business through Noble-Cayman and its subsidiaries. As a result, the financial position and results of operations for Noble-Cayman, and the reasons for material changes in the amount of revenue and expense items between 2012 and 2011, would be the same as the information presented below regarding Noble-Swiss in all material respects, except operating income for Noble- Cayman for the year ended December 31, 2012 was $58 million higher than operating income for Noble-Swiss for the same period, primarily as a result of costs directly attributable to Noble-Swiss for operations support and stewardship related services. Net income attributable to Noble Corporation for 2012 was $522 million, or $2.05 per diluted share, on operating revenues of $3.5 billion, compared to net income for 2011 of $371 million, or $1.46 per diluted share, on operating revenues of $2.7 billion. 26 Rig Utilization, Operating Days and Average Dayrates Operating revenues and operating costs and expenses for our contract drilling services segment are dependent on three primary metrics: rig utilization, operating days and dayrates. The following table sets forth the average rig utilization, operating days and average dayrates for our rig fleet for 2012 and 2011 (dollars in thousands): Jackups ................................. Semisubmersibles ................. Drillships .............................. Other ..................................... Total ........................... Average Rig Utilization (1) 2012 82% 86% 69% 0% 78% 2011 75% 82% 59% 0% 72% Operating Days (2) 2011 2012 4,382 2,023 12,966 11,794 4,176 1,284 — — 19,371 17,254 % Change 10% 5% 58% — 12% $ Average Dayrates 2011 85,510 296,331 242,019 — $ 172,904 $ 148,185 2012 96,696 $ 349,205 279,432 — % Change 13% 18% 15% — 17% (1) (2) Information reflects our policy of reporting on the basis of the number of actively marketed rigs in our fleet excluding newbuild rigs under construction. Information reflects the number of days that our rigs were operating under contract. Contract Drilling Services The following table sets forth the operating revenues and the operating costs and expenses for our contract drilling services segment for 2012 and 2011 (dollars in thousands): Operating revenues: Contract drilling services ................................................. Reimbursables (1) ............................................................ Other ................................................................................ Operating costs and expenses: Contract drilling services ................................................. Reimbursables (1) ............................................................ Depreciation and amortization ......................................... Selling, general and administrative .................................. Loss on impairment ......................................................... Gain on contract settlements/extinguishments, net .......... $ $ $ Operating income .................................................................... $ 2012 2011 Change $ 3,349,362 $ 112,956 265 3,462,583 $ 2,556,758 $ 77,278 875 2,634,911 $ 792,604 35,678 (610) 827,672 1,776,481 $ 91,646 745,027 97,967 12,710 (33,255) 2,690,576 772,007 $ 1,384,200 $ 56,589 647,142 90,262 — (21,202) 2,156,991 477,920 $ 392,281 35,057 97,885 7,705 12,710 (12,053) 533,585 294,087 % 31% 46% -70% 31% 28% 62% 15% 9% ** 57% 25% 62% (1) We record reimbursements from customers for out-of-pocket expenses as operating revenues and the related direct costs as operating expenses. Changes in the amount of these reimbursables generally do not have a material effect on our financial position, results of operations or cash flows. ** Not a meaningful percentage. Operating Revenues. Changes in contract drilling services revenues for the current year as compared to the prior year were driven by increases in both average dayrates and operating days. The 17 percent increase in average dayrates increased revenues by approximately $479 million while the 12 percent increase in operating days increased revenues by an additional $314 million. The increase in contract drilling services revenues relates to our semisubmersibles, drillships and jackups, which generated approximately $293 million, $255 million and $245 million more revenue, respectively, in 2012. The 18 percent increase in semisubmersible average dayrates resulted in a $232 million increase in revenues from the prior year while the increase in operating days of 5 percent resulted in an additional $61 million increase in revenues. The increase in semisubmersibles revenue is a result of our rigs returning to standard operating dayrates after experiencing lower standby rates due to drilling restrictions in the U.S. Gulf of Mexico in the prior year, as well as the Noble Paul Romano returning to work after being 27 stacked for most of the prior year. The increase in operating days is primarily from the Noble Jim Day, the Noble Homer Ferrington, the Noble Paul Romano, the Noble Clyde Boudreaux and the Noble Amos Runner, which all operated during the current year after being off contract for the majority of the prior year. The increase in drillship revenues was driven by a 58 percent increase in operating days and a 15 percent increase in average dayrates, resulting in a $179 million and a $76 million increase in revenues, respectively, from the prior year. The increase in both average dayrates and operating days was the result of the Noble Bully I, Noble Bully II and Noble Globetrotter I, which commenced their contracts with Shell in March 2012, April 2012 and July 2012, respectively. These increases were partially offset by the Noble Phoenix, which completed its shipyard project and was substituted for the Noble Muravlenko in Brazil during the current year, and a reduced rate on the Noble Roger Eason while it is in the shipyard to undergo its reliability upgrade project. The 13 percent increase in jackup average dayrates resulted in a $145 million increase in revenues, which was coupled with a 10 percent increase in jackup operating days, resulting in a $100 million increase in revenues from the prior year. The increase in average dayrates resulted from improved market conditions in the global shallow water market throughout the jackup fleet. The increase in utilization primarily related to rigs in Mexico, West Africa and the Middle East, which experienced less downtime during the current year. Operating Costs and Expenses. Contract drilling services operating costs and expenses increased $392 million for the current year as compared to the prior year. A portion of the increase is due to the crew-up and operating expenses for the recently completed rigs noted above, which have added approximately $139 million in expense in the current year. Excluding the additional expenses related to these rigs, our contract drilling costs increased $253 million in the current year from the prior year. This change was primarily driven by a $75 million increase in labor due to rigs returning, or preparing to return, to work and salary increases effective in the second and third quarters of the prior year, a $47 million increase in shorebase support due to salary increases in the current year and increased project-related costs, a $44 million increase in maintenance and rig-related expense, a $26 million increase in mobilization due to the amortization of certain rig moves and the demobilization of rigs primarily in Mexico, a $20 million increase in insurance costs related to increased premiums on our policy renewed in March 2012, a $14 million increase in rig catering and communications, a $13 million increase in safety, training and regulatory inspections, a $6 million increase in agency and other miscellaneous expenses, a $5 million increase in fuel and transportation costs and a $3 million increase in rotation costs. Depreciation and amortization increased $98 million in 2012 over 2011, which is primarily attributable to assets placed in service during the current year, including the Noble Bully I, Noble Bully II and the Noble Globetrotter I. Loss on impairment during the current year related to an impairment charge on our submersible fleet, primarily as a result of the declining market outlook for drilling services for this rig type. Gain on contract settlements/extinguishments during the current year related to a $28 million gain on the settlement of an action with certain vendors for damages sustained during Hurricane Ike. Additionally, we received $5 million from a claims settlement on the Noble David Tinsley, which had experienced a “punch-through” while being positioned on location in 2009. 28 Other The following table sets forth the operating revenues and the operating costs and expenses for our other services for 2012 and 2011 (dollars in thousands): Operating revenues: Labor contract drilling services ..................................................... Reimbursables (1) .......................................................................... Operating costs and expenses: Labor contract drilling services ..................................................... Reimbursables (1) .......................................................................... Depreciation and amortization ....................................................... Selling, general and administrative ................................................ Loss on impairment ....................................................................... $ $ $ Operating income .................................................................................. $ 2012 2011 Change $ % 81,890 $ 2,539 84,429 $ 59,004 $ 1,917 60,921 $ 22,886 622 23,508 46,895 $ 2,450 13,594 2,023 7,674 72,636 11,793 $ 33,885 $ 1,850 11,498 1,115 — 48,348 12,573 $ 13,010 600 2,096 908 7,674 24,288 (780) 39% 32% 39% 38% 32% 18% 81% ** 50% -6% (1) We record reimbursements from customers for out-of-pocket expenses as operating revenues and the related direct costs as operating expenses. Changes in the amount of these reimbursables generally do not have a material effect on our financial position, results of operations or cash flows. ** Not a meaningful percentage. Operating Revenues and Costs and Expenses. The increase in both revenue and expense primarily relates to a project with our customer, Shell, for one of its rigs operating under a labor contract in Alaska. Loss on impairment during the current year related to an impairment charge on certain corporate assets, as a result of a declining market for, and the potential disposal of, the assets. Other Income and Expenses Selling, general and administrative expenses. Overall selling, general and administrative expenses increased $9 million in 2012 from 2011 primarily as a result of increased legal and tax expenses related to ongoing projects of $5 million, coupled with increases in employee-related costs of $4 million. Interest Expense, net of amount capitalized. Interest expense, net of amount capitalized, increased $30 million in 2012 from 2011. The increase is a result of the $1.2 billion of senior notes issued in February 2012, coupled with lower capitalized interest due primarily to the completion of construction on three of our newbuild drillships. During the current year, we capitalized approximately 61 percent of total interest charges versus approximately 69 percent during the prior year. Income Tax Provision. Our income tax provision increased $74 million in 2012 compared to 2011 primarily as a result of a higher pre-tax earnings and effective tax rate during the current year. Pre-tax earnings increased approximately 61 percent in 2012 compared to 2011 resulting in a $45 million increase in income tax expense. The higher effective tax rate, which was 20.9 percent in 2012 compared to 16.7 percent in 2011, increased income tax expense by approximately $29 million. The increase in the effective tax rate was a result of a change in our geographic mix of our revenues and the resolution of certain discrete tax items. 2011 Compared to 2010 General The consolidated financial statements of Noble-Swiss include the accounts of Noble-Cayman, and Noble-Swiss conducts substantially all of its business through Noble-Cayman and its subsidiaries. As a result, the financial position and results of operations for Noble-Cayman, and the reasons for material changes in the amount of revenue and expense items between 2011 and 2010, would be the same as the information presented below regarding Noble-Swiss in all material respects, except operating income for Noble- Cayman for the year ended December 31, 2011 was $49 million higher than operating income for Noble-Swiss for the same period, primarily as a result of costs directly attributable to Noble-Swiss for operations support and stewardship related services. 29 Net income attributable to Noble Corporation for 2011 was $371 million, or $1.46 per diluted share, on operating revenues of $2.7 billion, compared to net income for 2010 of $773 million, or $3.02 per diluted share, on operating revenues of $2.8 billion. Rig Utilization, Operating Days and Average Dayrates Operating revenues and operating costs and expenses for our contract drilling services segment are dependent on three primary metrics: rig utilization, operating days and dayrates. The following table sets forth the average rig utilization, operating days and average dayrates for our rig fleet for 2011 and 2010 (dollars in thousands): Jackups ................................. Semisubmersibles ................. Drillships .............................. Other ..................................... Total ........................... Average Rig Utilization (1) 2011 75% 82% 59% 0% 72% 2010 79% 86% 89% 11% 78% Operating Days (2) 2010 2011 11,794 12,376 3,837 4,176 1,392 1,284 — 95 17,254 17,700 % Change -5% 9% -8% -100% -3% $ Average Dayrates 2010 96,935 288,163 256,067 355,986 $ 148,185 $ 152,292 2011 85,510 $ 296,331 242,019 — % Change -12% 3% -5% -100% -3% (1) (2) Information reflects our policy of reporting on the basis of the number of actively marketed rigs in our fleet excluding newbuild rigs under construction. Information reflects the number of days that our rigs were operating under contract. Contract Drilling Services The following table sets forth the operating revenues and the operating costs and expenses for our contract drilling services segment for 2011 and 2010 (dollars in thousands): Operating revenues: Contract drilling services ................................................ Reimbursables (1) ........................................................... Other ............................................................................... Operating costs and expenses: Contract drilling services ................................................ Reimbursables (1) ........................................................... Depreciation and amortization ........................................ Selling, general and administrative ................................. Gain on contract extinguishments, net ............................ $ $ $ Operating income ................................................................... $ 2011 2010 Change $ % 2,556,758 $ 77,278 875 2,634,911 $ 2,695,493 $ 73,959 2,332 2,771,784 $ (138,735) 3,319 (1,457) (136,873) 1,384,200 $ 56,589 647,142 90,262 (21,202) 2,156,991 477,920 $ 1,177,800 $ 56,674 528,011 91,094 — 1,853,579 918,205 $ 206,400 (85) 119,131 (832) (21,202) 303,412 (440,285) -5% 4% -62% -5% 18% 0% 23% -1% ** 16% -48% (1) We record reimbursements from customers for out-of-pocket expenses as operating revenues and the related direct costs as operating expenses. Changes in the amount of these reimbursables generally do not have a material effect on our financial position, results of operations or cash flows. ** Not a meaningful percentage. Operating Revenues. Decreased contract drilling services revenues for the current year as compared to the prior year was driven by reductions in both average dayrates and operating days. The 3 percent decrease in average dayrates reduced revenues by approximately $71 million, and the 3 percent decrease in operating days decreased revenues by an additional $68 million. The decrease in contract drilling services revenues primarily relates to our jackups, drillships and FPSO, which generated approximately $191 million, $46 million and $34 million less revenue, respectively, in 2011. The decrease in jackup average dayrates of 12 percent resulted in a $135 million decrease in revenues from the prior year. The reduction in average dayrates was primarily from the contractual repricing of rigs in the Middle East, the North Sea, and Mexico for changes in market conditions in the global shallow water market. The 5 percent decline in jackup operating days resulted in a $56 30 million decline in revenues. The decrease in utilization primarily related to rigs coming off contract in Mexico and the Middle East during 2011, the majority of which did not return to work until the latter part of the year. The decrease in drillship revenue was primarily driven by reduced dayrates of 5 percent and an 8 percent decrease in operating days, which resulted in decreased revenues of $18 million and $28 million, respectively, from the prior year. The decrease in drillship revenue is primarily the result of increased downtime in Brazil, as rigs entered the shipyard for upgrades and repairs. Revenue from the Noble Seillean decreased $34 million as it was not under contract in 2011. The decreases in revenue for the above rig classes were partially offset by an increase in revenue of $132 million from our semisubmersibles. The increase was primarily attributable to a 9 percent increase in operating days and 3 percent increase in average dayrates, which contributed additional revenue in 2011 of $98 million and $34 million, respectively. The increase is primarily attributable to operations from the newbuilds, Noble Dave Beard and Noble Jim Day, which were added to the fleet in March 2010 and January 2011, respectively. Additionally, the Noble Driller was added to the fleet in July 2010 as part of the Frontier acquisition. Operating Costs and Expenses. Contract drilling services operating costs and expenses increased $206 million for the current year as compared to the prior year. The rigs added to the fleet as part of the Frontier acquisition and the Noble Dave Beard and the Noble Jim Day added approximately $120 million of operating costs in the current year. Excluding the additional expenses related to these rigs, our contract drilling costs increased $86 million in the current year from the prior year. This increase was primarily driven by a $22 million increase in maintenance and rig-related expenses, $20 million increase in mobilization costs, $18 million increase in labor costs, and an $11 million increase in safety and training costs. These cost increases were primarily for our rigs returning, or preparing to return, to work in Brazil and Mexico. Additionally, rotation costs and operations support costs increased $10 million and $5 million, respectively. Depreciation and amortization increased $119 million in 2011 over 2010 as a result of depreciation on newbuilds placed into service, rigs added to the fleet as part of the Frontier acquisition and additional depreciation related to other capital expenditures on our fleet since the beginning of 2010. Other The following table sets forth the operating revenues and the operating costs and expenses for our other services for 2011 and 2010 (dollars in thousands): Operating revenues: Labor contract drilling services .................................................. Reimbursables (1) ....................................................................... Operating costs and expenses: Labor contract drilling services .................................................. Reimbursables (1) ....................................................................... Depreciation and amortization .................................................... Selling, general and administrative ............................................. $ $ $ Operating income ............................................................................... $ 2011 2010 $ Change 59,004 $ 1,917 60,921 $ 32,520 $ 2,872 35,392 $ 26,484 (955) 25,529 33,885 $ 1,850 11,498 1,115 48,348 12,573 $ 22,056 $ 2,740 11,818 903 37,517 (2,125) $ 11,829 (890) (320) 212 10,831 14,698 % 81% -33% 72% 54% -32% -3% 23% 29% -692% (1) We record reimbursements from customers for out-of-pocket expenses as operating revenues and the related direct costs as operating expenses. Changes in the amount of these reimbursables generally do not have a material effect on our financial position, results of operations or cash flows. Operating Revenues and Costs and Expenses. The increase in both revenue and expense primarily relates to the commencement of a refurbishment project with our customer, Shell, for one of its rigs to be operated under a labor contract in Alaska, combined with operational increases and foreign currency fluctuations in our Canadian operations. Other Income and Expenses Selling, general and administrative expenses. Overall selling, general and administrative expenses were consistent with 2010 as a $6 million increase primarily related to ongoing legal and tax expenses in the current year was offset by a $6 million decrease resulting from the absence of costs related to our completed FCPA investigation in the prior year. 31 Interest Expense, net of amount capitalized. Interest expense, net of amount capitalized, increased $46 million in 2011 from 2010. The increase is a result of $1.25 billion of debt issued in July 2010, which was used to partially fund the Frontier acquisition, $1.1 billion of debt issued in February 2011, which was primarily used to repay the outstanding balance on our revolving credit facility and to repay our portion of outstanding debt under the joint venture credit facilities, and current year drawdowns on the credit facilities. Income Tax Provision. Our income tax provision decreased $70 million in 2011 compared to 2010 primarily due to a reduction in pre-tax earnings, which was partially offset by a higher effective tax rate. Pre-tax earnings decreased approximately 52 percent in 2011 compared to 2010 resulting in a reduction of approximately $75 million in income tax expense. The higher effective tax rate, which was 16.7 percent in 2011 compared to 15.6 percent in 2010, increased income tax expense by approximately $5 million. The increase in the effective tax rate was a result of a change in our geographic revenue mix primarily resulting from drilling restrictions in the U.S. Gulf of Mexico, partially offset by the resolution of discrete tax items. LIQUIDITY AND CAPITAL RESOURCES Overview Net cash from operating activities in 2012 was $1.4 billion, which compared to $740 million and $1.6 billion in 2011 and 2010, respectively. The increase in net cash from operating activities in 2012 compared to 2011 was primarily attributable to a significant increase in net income coupled with favorable changes in deferred taxes and other current liabilities, partially offset by an increase in accounts receivable. We had working capital of $394 million and $232 million at December 31, 2012 and 2011, respectively. Our total debt as a percentage of total debt plus equity increased to 35.3 percent at December 31, 2012 from 33.5 percent at December 31, 2011, primarily as a result of our $1.2 billion senior notes offering in February 2012, partially offset by a net reduction in indebtedness outstanding on our credit facilities and commercial paper program during the year. Our principal sources of capital in 2012 were the $1.4 billion in cash generated from operating activities noted above and our $1.2 billion senior notes offering in February 2012. Cash generated during the current year was primarily used to fund our capital expenditure program and to repay borrowings outstanding under our credit facilities and commercial paper program. Our currently anticipated cash flow needs, both in the short-term and long-term, include the following: committed capital expenditures, including expenditures for newbuild projects currently underway; • • normal recurring operating expenses; • • payments of dividends; and repayment of maturing debt. • discretionary capital expenditures, including various capital upgrades; We currently expect to fund these cash flow needs with cash generated by our operations, cash on hand, borrowings under our existing credit facilities and commercial paper program and issuances of unsecured long-term debt. However, to adequately cover our expected cash flow needs, we may require capital in excess of the amount provided through these sources, and we may delay or cancel certain discretionary capital expenditures as necessary. At December 31, 2012, we had a total contract drilling services backlog of approximately $14.3 billion. Our backlog as of December 31, 2012 reflects a commitment of 74 percent of available days for 2013. See “Contract Drilling Services Backlog” for additional information regarding our backlog. Capital Expenditures Our primary use of available liquidity during 2013 will be for capital expenditures. Capital expenditures, including capitalized interest, totaled $1.7 billion, $2.6 billion and $1.4 billion for 2012, 2011 and 2010, respectively. Capital expenditures for 2010 do not include the fair value of assets acquired as part of the Frontier acquisition. 32 At December 31, 2012, we had 11 rigs under construction, and capital expenditures, excluding capitalized interest, for new construction during 2012 totaled $587 million, as follows (in millions): Rig type/name Currently under construction Drillships Noble Globetrotter II ................................................................................. Noble Don Taylor (formerly HHI Drillship I) ............................................ Noble Bob Douglas (formerly HHI Drillship II) ........................................ Noble Sam Croft (formerly HHI Drillship III) ........................................... HHI Drillship IV ........................................................................................ $ Jackups Noble Sam Turner (formerly Noble Jackup IV) ......................................... Noble Tom Prosser (formerly Noble Jackup V) ......................................... Noble Jackup VI ......................................................................................... Noble Regina Allen (formerly Noble Jackup I) .......................................... Noble Houston Colbert (formerly Noble Jackup III) ................................. Noble Mick O’Brien (formerly Noble Jackup II) ....................................... Recently completed construction projects Noble Globetrotter I ................................................................................... Noble Bully II ............................................................................................. Noble Bully I .............................................................................................. Total Newbuild Capital Expenditures $ 203.8 86.7 62.3 4.8 3.3 47.5 46.2 46.2 11.9 5.9 5.4 44.1 17.0 1.6 586.7 In addition to the newbuild expenditures noted above, capital expenditures during 2012 consisted of the following: • $693 million for major projects, including subsea-related expenditures; • $254 million for other capitalized expenditures, including upgrades and replacements to drilling equipment that generally have a useful life ranging from 3 to 5 years; and • $136 million in capitalized interest. Our total capital expenditures budget for 2013 is approximately $2.7 billion, which is currently anticipated to be spent as follows: • • • approximately $1.5 billion in newbuild expenditures; approximately $870 million in major projects, including subsea-related expenditures; and approximately $320 million in sustaining capitalized expenditures. In addition to the amounts noted above, we anticipate incurring additional capitalized interest, which may fluctuate as a result of the timing of completion of ongoing projects. In connection with our capital expenditure program, we have entered into certain commitments, including shipyard and purchase commitments, for approximately $2.8 billion at December 31, 2012, of which we expect to spend approximately $1.7 billion in 2013. From time to time we consider possible projects that would require capital expenditures or other cash expenditures that are not included in our capital budget, and such unbudgeted capital or cash expenditures could be significant. In addition, we will continue to evaluate acquisitions of drilling units from time to time. Other factors that could cause actual capital expenditures to materially exceed planned capital expenditures include delays and cost overruns in shipyards (including costs attributable to labor shortages), shortages of equipment, latent damage or deterioration to hull, equipment and machinery in excess of engineering estimates and assumptions, changes in governmental regulations and requirements and changes in design criteria or specifications during repair or construction. Distributions of Capital and Dividends Our most recent quarterly dividend payment to shareholders, which was declared on February 1, 2013 and paid on February 21, 2013 to holders of record on February 11, 2013, was $0.13 per share, or an aggregate of approximately $33 million. The declaration and payment of dividends, or returns of capital in the form of par value reductions, require authorization of the shareholders of Noble-Swiss. The amount of such dividends, distributions and returns of capital will depend on our results of 33 operations, financial condition, cash requirements, future business prospects, contractual restrictions and other factors deemed relevant by our Board of Directors and shareholders. Recently, our Board of Directors approved as a proposal to shareholders at our upcoming annual general meeting scheduled for April 26, 2013 the payment of a dividend funded from our capital contribution reserve in a total amount equal to $1.00 per share to be paid in four equal installments scheduled for August 2013, November 2013, February 2014 and May 2014. Credit Facilities and Senior Unsecured Notes Credit Facilities and Commercial Paper Program Noble currently has a maximum available capacity of $800 million on our credit facility maturing in 2015 and $1.5 billion on our credit facility maturing in 2017 (together referred to as the “Credit Facilities”). Our total debt related to the Credit Facilities and commercial paper program was $340 million at December 31, 2012 as compared to $975 million at December 31, 2011. During 2012, we undertook a series of transactions that increased our liquidity. We see this as a necessary step to finance our future capital commitments. The following summarizes the recent activity regarding our Credit Facilities and commercial paper program: • • • in June 2012, we replaced our $575 million credit facility scheduled to mature in 2013, with a new $1.2 billion credit facility, which matures in 2017; in September 2012, we established a commercial paper program, which will allow us to issue up to $1.8 billion in unsecured commercial paper notes. Amounts issued under the commercial paper program are supported by the unused committed capacity under our Credit Facilities and, as such, are classified as long- term on our Consolidated Balance Sheet; and in January 2013, we increased the maximum amount available under our Credit Facilities from $1.8 billion to $2.3 billion. The maximum amount available under our credit facility maturing in 2015 was increased from $600 million to $800 million and the maximum amount available under our credit facility maturing in 2017 was increased from $1.2 billion to $1.5 billion. The Credit Facilities provide us with the ability to issue up to $375 million in letters of credit in the aggregate. The issuance of letters of credit does not increase our borrowings outstanding under the Credit Facilities, but it does reduce the amount available. At December 31, 2012, we had no letters of credit issued under the Credit Facilities. Senior Unsecured Notes Our total debt related to senior unsecured notes was $4.3 billion at December 31, 2012 as compared to $3.1 billion at December 31, 2011. The increase in debt is a result of the issuance of $1.2 billion aggregate principal amount of senior notes in February 2012, which we issued through our indirect wholly-owned subsidiary, Noble Holding International Limited (“NHIL”). These senior notes were issued in three separate tranches, with $300 million of 2.50% Senior Notes due 2017, $400 million of 3.95% Senior Notes due 2022, and $500 million of 5.25% Senior Notes due 2042. The weighted average coupon of all three tranches is 4.13%. The net proceeds of approximately $1.19 billion, after expenses, were primarily used to repay the then outstanding balance on our Credit Facilities. Our 5.875% Senior Notes mature during the second quarter of 2013. We anticipate using availability under our Credit Facilities or commercial paper program to repay the outstanding balance; therefore, we continue to report the balance as long-term at December 31, 2012. Covenants The Credit Facilities and commercial paper program are guaranteed by our indirect wholly-owned subsidiaries, NHIL and Noble Drilling Corporation (“NDC”). The covenants and events of default under the Credit Facilities are substantially similar, and each facility contains a covenant that limits our ratio of debt to total tangible capitalization, as defined in the Credit Facilities, to 0.60. At December 31, 2012, our ratio of debt to total tangible capitalization was less than 0.36. We were in compliance with all covenants under the Credit Facilities as of December 31, 2012. In addition to the covenants from the Credit Facilities noted above, the indentures governing our outstanding senior unsecured notes contain covenants that place restrictions on certain merger and consolidation transactions, unless we are the surviving entity or the other party assumes the obligations under the indenture, and on the ability to sell or transfer all or substantially all of our assets. In addition, there are restrictions on incurring or assuming certain liens and sale and lease-back transactions. At December 31, 2012, we were in compliance with all our debt covenants. We continually monitor compliance with the covenants under our notes and, based on our expectations for 2013, expect to remain in compliance during the year. 34 Other At December 31, 2012, we had letters of credit of $48 million and performance and tax assessment bonds totaling $264 million supported by surety bonds outstanding. Additionally, certain of our subsidiaries issue guarantees to the temporary import status of rigs or equipment imported into certain countries in which we operate. These guarantees are issued in-lieu of payment of custom, value added or similar taxes in those countries. Summary of Contractual Cash Obligations and Commitments The following table summarizes our contractual cash obligations and commitments at December 31, 2012 (in thousands): Contractual Cash Obligations Long-term debt obligations (1)............ Interest payments ................................ Operating leases .................................. Pension plan contributions .................. Purchase commitments (2) .................. Dividends ............................................ Tax reserves (3) .................................. Total contractual cash obligations ....... $ $ Total 2013 2014 Payments Due by Period 2016 2015 2017 Thereafter Other 4,634,375 $ 2,949,927 79,808 136,220 2,758,833 66,369 124,972 10,750,504 $ 639,794 $ 205,343 28,182 8,166 1,730,862 66,369 — 2,678,716 $ 249,799 $ 186,353 22,756 7,388 1,027,971 — — 1,494,267 $ 350,000 $ 177,902 10,420 8,123 — — — 546,445 $ 299,952 $ 161,252 4,062 10,200 — — — 475,466 $ 299,852 $ 153,240 3,567 10,232 — — — 466,891 $ 2,794,978 $ 2,065,837 10,821 92,111 — — — 4,963,747 $ — — — — — — 124,972 124,972 (1) In 2013, our 5.875% senior notes and amounts outstanding under our commercial paper program mature. We anticipate using availability on our Credit Facilities or commercial paper program to repay these outstanding balances; therefore, we have shown the entire $300 million senior notes balance and $340 million commercial paper program balance as long-term on our December 31, 2012 Consolidated Balance Sheet. (2) Purchase commitments consist of obligations outstanding to external vendors primarily related to future capital purchases. (3) Tax reserves are included in “Other” due to the difficulty in making reasonably reliable estimates of the timing of cash settlements to taxing authorities. See Note 12 to our accompanying consolidated financial statements. At December 31, 2012, we had other commitments that we are contractually obligated to fulfill with cash if the obligations are called. These obligations include letters of credit and surety bonds that guarantee our performance as it relates to our drilling contracts, tax and other obligations in various jurisdictions. These letters of credit and surety bond obligations are not normally called, as we typically comply with the underlying performance requirement. The following table summarizes our other commercial commitments at December 31, 2012 (in thousands): Total 2013 Amount of Commitment Expiration Per Period 2017 2016 2015 2014 Contractual Cash Obligations Letters of Credit ................................. Surety bonds ...................................... Total commercial commitments......... $ 47,652 $ 263,978 — $ 16,207 $ 311,630 $ 225,346 $ 4,199 $ 43,933 $ 21,945 $ 16,207 $ 47,514 $ 177,832 138 $ 43,795 — $ 21,945 — $ 4,199 Thereafter — — — CRITICAL ACCOUNTING POLICIES AND ESTIMATES Our consolidated financial statements are impacted by the accounting policies used and the estimates and assumptions made by management during their preparation. Critical accounting policies and estimates that most significantly impact our consolidated financial statements are described below. Principles of Consolidation The consolidated financial statements include our accounts, those of our wholly-owned subsidiaries and entities in which we hold a controlling financial interest. Our consolidated financial statements include the accounts of two joint ventures, in each of which we own a 50 percent interest. Our ownership interest meets the definition of variable interest under Financial Accounting Standards Board (“FASB”) codification and we have determined that we are the primary beneficiary. Intercompany balances and transactions have been eliminated in consolidation. 35 The combined joint venture carrying amount of the Bully-class drillships at December 31, 2012 totaled $1.4 billion, which was primarily funded through partner equity contributions. During 2012, these rigs commenced the operating phases of their contracts. Current year revenues and net income related to these joint ventures totaled $237 million and $71 million, respectively. Property and Equipment Property and equipment is stated at cost, reduced by provisions to recognize economic impairment in value whenever events or changes in circumstances indicate an asset’s carrying value may not be recoverable. At December 31, 2012 and 2011, we had $2.7 billion and $4.4 billion of construction-in-progress, respectively. Such amounts are included in “Drilling equipment and facilities” in the accompanying Consolidated Balance Sheets. Major replacements and improvements are capitalized. When assets are sold, retired or otherwise disposed of, the cost and related accumulated depreciation are eliminated from the accounts and the gain or loss is recognized. Drilling equipment and facilities are depreciated using the straight-line method over their estimated useful lives as of the date placed in service or date of major refurbishment. Estimated useful lives of our drilling equipment range from three to thirty years. Other property and equipment is depreciated using the straight-line method over useful lives ranging from two to twenty-five years. Interest is capitalized on construction-in-progress at the interest rate on debt incurred for construction or at the weighted average cost of debt outstanding during the period of construction. Capitalized interest for the years ended December 31, 2012, 2011 and 2010 was $136 million, $122 million and $83 million, respectively. Scheduled maintenance of equipment is performed based on the number of hours operated in accordance with our preventative maintenance program. Routine repair and maintenance costs are charged to expense as incurred; however, the costs of the overhauls and asset replacement projects that benefit future periods and which typically occur every three to five years are capitalized when incurred and depreciated over an equivalent period. These overhauls and asset replacement projects are included in “Drilling equipment and facilities” in the Consolidated Balance Sheets. Such amounts, net of accumulated depreciation, totaled $303 million and $233 million at December 31, 2012 and 2011, respectively. Depreciation expense related to overhauls and asset replacement totaled $113 million, $103 million and $102 million for the years ended December 31, 2012, 2011 and 2010, respectively. We evaluate the realization of property and equipment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In addition, on an annual basis, we complete an impairment analysis on all of our assets. An impairment loss on our property and equipment exists when the estimated undiscounted cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. Any impairment loss recognized represents the excess of the asset’s carrying value over the estimated fair value. As part of this analysis, we make assumptions and estimates regarding future market conditions. To the extent actual results do not meet or exceed our estimated assumptions, for a given rig class, we may take an impairment loss in the future. During the current year we determined that our submersible rig fleet, consisting of two cold stacked rigs, was partially impaired due to the declining market outlook for drilling services for this rig type. We estimated the fair value of the rigs based on the salvage value of the rigs and a recent transaction involving a similar unit owned by a peer company (Level 2 fair value measurement). Based on these estimates, we recognized a charge of approximately $13 million for the year ended December 31, 2012. Also, during the current year, we determined that certain corporate assets were partially impaired due to a declining market for, and the potential disposal of, the assets. We estimated the fair value of the asset based on a signed letter of intent to sell the asset (Level 2 fair value measurement). Based on these estimates, we recognized a charge of approximately $7 million for the year ended December 31, 2012. Insurance Reserves We maintain various levels of self-insured retention for certain losses including property damage, loss of hire, employment practices liability, employers’ liability, and general liability, among others. We accrue for property damage and loss of hire charges on a per event basis. Employment practices liability claims are accrued based on actual claims during the year. Maritime employer’s liability claims are generally estimated using actuarial determinations. General liability claims are estimated by our internal claims department by evaluating the facts and circumstances of each claim (including incurred but not reported claims) and making estimates based upon historical experience with similar claims. At December 31, 2012 and 2011, loss reserves for personal injury and protection claims totaled $20 million and $21 million, respectively, and such amounts are included in “Other current liabilities” in the accompanying Consolidated Balance Sheets. 36 Revenue Recognition Revenues generated from our dayrate-basis drilling contracts and labor contracts are recognized as services are performed. Revenues from bonuses are recognized when earned. We may receive lump-sum fees for the mobilization of equipment and personnel. Mobilization fees received and costs incurred to mobilize a drilling unit from one market to another are recognized over the term of the related drilling contract. Absent a contract, the initial mobilization costs of newbuild rigs from the shipyard are deferred and amortized over the life of the rig. Subsequent costs incurred to relocate drilling units to more promising geographic areas in which a contract has not been secured are expensed as incurred. Lump-sum payments received from customers relating to specific contracts, including equipment modifications, are deferred and amortized to income over the term of the drilling contract. Upon completion of our drilling contracts, any demobilization revenues received are recognized as income, as are any related expenses. Deferred revenues under drilling contracts totaled $252 million and $139 million at December 31, 2012 and 2011, respectively. Such amounts are included in either “Other Current Liabilities” or “Other Liabilities” in our Consolidated Balance Sheets, based upon our expected time of recognition. We record reimbursements from customers for “out-of-pocket” expenses as revenues and the related direct cost as operating expenses. Income Taxes We operate through various subsidiaries in numerous countries throughout the world including the United States. Income taxes have been provided based on the laws and rates in effect in the countries in which operations are conducted or in which we or our subsidiaries are considered resident for income tax purposes. The income and withholding tax rates and methods of computing taxable income vary significantly for each jurisdiction. Consequently, we are subject to changes in tax laws, treaties or regulations or the interpretation or enforcement thereof in the U.S., Switzerland or jurisdictions in which we or any of our subsidiaries operate or are resident. Our income tax expense is based upon our interpretation of the tax laws in effect in various countries at the time that the expense was incurred. If the U.S. Internal Revenue Service (“IRS”) or other taxing authorities do not agree with our assessment of the effects of such laws, treaties and regulations, this could have a material adverse effect on us, including the imposition of a higher effective tax rate on our worldwide earnings or a reclassification of the tax impact of our significant corporate restructuring transactions. Our income tax expense is expected to fluctuate from year to year as our operations and income fluctuates in the different taxing jurisdictions. 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. The IRS has completed its examination of our tax reporting for the taxable year ended December 31, 2008. The examination team has proposed adjustments with respect to certain items that were reported by us for the 2008 tax year. We believe that we have accurately reported all amounts included in our 2008 tax returns, and have filed protests with the IRS Appeals Office contesting the examination team’s proposed adjustments, and we are still waiting on a final resolution of these issues. We intend to vigorously defend our reported positions. The IRS has begun its examination of our tax reporting for the taxable year ended December 31, 2009. We believe that we have accurately reported all amounts in our 2009 tax returns. During the third quarter of 2012, a U.S. subsidiary of Frontier concluded its audit with the IRS for its 2007 and 2008 tax returns, resulting in no change to income tax expense. Furthermore, we are currently contesting several non-U.S. tax assessments and may contest future assessments when we disagree with those assessments based on the technical merits of the positions established at the time of the filing of the tax return. We believe the ultimate resolution of the outstanding assessments, for which we have not made any accrual, will not have a material adverse effect on our consolidated financial statements. 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 the existing or future assessments. Our Mexican income tax returns have been examined for the 2002 through 2007 periods and audit claims have been assessed for approximately $321 million (including interest and penalties). During 2011, we received from the Regional Chamber of the Federal Tax Court adverse decisions with respect to approximately $6 million in assessments related to depreciation deductions, which we are appealing. We are also contesting all other assessments in Mexico. Tax authorities in Mexico and other jurisdictions may issue additional assessments or pursue legal actions as a result of tax audits and we cannot predict or provide assurance as to the ultimate outcome of such assessments and legal actions. Additional audit claims of approximately $123 million attributable to income, customs and other business taxes have been assessed against us in other jurisdictions. We have contested, or intend to contest, these assessments, including through litigation if necessary, and we believe the ultimate resolution, for which we have not made any accrual, will not have a material adverse effect on our consolidated financial statements. 37 Applicable income and withholding taxes have not been provided on undistributed earnings of our subsidiaries. We do not intend to repatriate such undistributed earnings except for distributions upon which incremental income and withholding taxes would not be material. In certain jurisdictions we have recognized deferred tax assets and liabilities. Judgment and assumptions are required in determining whether deferred tax assets will be fully or partially utilized. When we estimate that all or some portion of certain deferred tax assets such as net operating loss carryforwards will not be utilized, we establish a valuation allowance for the amount ascertained to be unrealizable. We continually evaluate strategies that could allow for future utilization of our deferred assets. Any change in the ability to utilize such deferred assets will be accounted for in the period of the event affecting the valuation allowance. If facts and circumstances cause us to change our expectations regarding future tax consequences, the resulting adjustments could have a material effect on our financial results or cash flow. In certain circumstances, we expect that, due to changing demands of the offshore drilling markets and the ability to redeploy our offshore drilling units, certain units will not reside in a location long enough to give rise to future tax consequences. As a result, no deferred tax asset or liability has been recognized in these circumstances. Should our expectations change regarding the length of time an offshore drilling unit will be used in a given location, we will adjust deferred taxes accordingly. Certain Significant Estimates and Contingent Liabilities The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Certain accounting policies involve judgments and uncertainties to such an extent that there is reasonable likelihood that materially different amounts could have been reported under different conditions, or if different assumptions had been used. We evaluate our estimates and assumptions on a regular basis. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates and assumptions used in preparation of our consolidated financial statements. In addition, we are involved in several litigation matters, some of which could lead to potential liability to us. We follow FASB standards regarding contingent liabilities which are discussed in “Part II Item 8. Financial Statements and Supplementary Data, Note 16- Commitments and Contingencies” of our annual report on form 10-K. New Accounting Pronouncements In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-04, which amends FASB Accounting Standards Codification (“ASC”) Topic 820, “Fair Value Measurements and Disclosures.” This amended guidance clarifies the wording used to describe many of the requirements in accounting literature for measuring fair value and for disclosing information about fair value measurements. The goal of the amendment is to create consistency between the United States and international accounting standards. The guidance is effective for annual and interim reporting periods beginning on or after December 15, 2011. Our adoption of this guidance did not have a material impact on our financial condition, results of operations, cash flows or financial disclosures. In June 2011, the FASB issued ASU No. 2011-05, which amends ASC Topic 220, “Comprehensive Income.” This ASU allows an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The amendment no longer allows an entity to show changes to other comprehensive income solely through the statement of equity. For publicly traded entities, the guidance is effective for annual and interim reporting periods beginning on or after December 15, 2011. In December 2011, the FASB issued ASU No. 2011-12, which defers only those changes in ASU 2011-05 that relate to the presentation of reclassification adjustments. Our adoption of this guidance did not have a material impact on our financial condition, results of operations, cash flows or financial disclosures. 38 Item 7A. Quantitative and Qualitative Disclosures About Market Risk. Market risk is the potential for loss due to a change in the value of a financial instrument as a result of fluctuations in interest rates, currency exchange rates or equity prices, as further described below. Interest Rate Risk We are subject to market risk exposure related to changes in interest rates on borrowings under the Credit Facilities and commercial paper program. Interest on borrowings under the Credit Facilities is at an agreed upon percentage point spread over LIBOR, or a base rate stated in the agreement. At December 31, 2012, we had $340 million in borrowings outstanding under our commercial paper program, which is supported by the Credit Facilities. Assuming our current level of debt, a change in LIBOR rates of 1 percent would increase our interest charges by approximately $3 million per year. We maintain certain debt instruments at a fixed rate whose fair value will fluctuate based on changes in interest rates and market perceptions of our credit risk. The fair value of our total debt was $5.1 billion and $4.3 billion at December 31, 2012 and 2011, respectively. The increase was primarily a result of our issuance of $1.2 billion in debt in February 2012, partially offset by the net repayment of $635 million on our Credit Facilities coupled with changes in fair value related to changes in interest rates and market perceptions of our credit risk. Foreign Currency Risk Although we are a Swiss corporation, we define foreign currency as any non-U.S. denominated currency. Our functional currency is primarily the U.S. Dollar, which is consistent with the oil and gas industry. However, outside the United States, some of our expenses are incurred in local currencies. Therefore, when the U.S. Dollar weakens (strengthens) in relation to the currencies of the countries in which we operate, our expenses reported in U.S. Dollars will increase (decrease). We are exposed to risks on future cash flows to the extent that local currency expenses exceed revenues denominated in local currency that are other than the functional currency. To help manage this potential risk, we periodically enter into derivative instruments to manage our exposure to fluctuations in currency exchange rates, and we may conduct hedging activities in future periods to mitigate such exposure. These contracts are primarily accounted for as cash flow hedges, with the effective portion of changes in the fair value of the hedge recorded on the Consolidated Balance Sheet and in “Accumulated other comprehensive loss” (“AOCL”). Amounts recorded in AOCL are reclassified into earnings in the same period or periods that the hedged item is recognized in earnings. The ineffective portion of changes in the fair value of the hedged item is recorded directly to earnings. 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. Our North Sea and Brazil operations have a significant amount of their cash operating expenses payable in local currencies. To limit the potential risk of currency fluctuations, we have historically maintained short-term forward contracts settling monthly in their respective local currencies. At December 31, 2012, we had no outstanding derivative contracts. At December 31, 2011, total unrealized loss related to forward contracts was $3 million, which was recorded as part of AOCL in our Consolidated Balance Sheet. Depending on market conditions, we may elect to utilize short-term forward currency contracts in the future. Market Risk We sponsor the Noble Drilling Corporation 401(k) Savings Restoration Plan (“Restoration Plan”). The Restoration Plan is a nonqualified, unfunded employee benefit plan under which certain highly compensated employees may elect to defer compensation in excess of amounts deferrable under our 401(k) savings plan. The Restoration Plan has no assets, and amounts withheld for the Restoration Plan are kept by us for general corporate purposes. The investments selected by employees and the associated returns are tracked on a phantom basis. Accordingly, we have a liability to employees for amounts originally withheld plus phantom investment income or less phantom investment losses. We are at risk for phantom investment income and, conversely, benefit should phantom investment losses occur. At December 31, 2012, our liability under the Restoration Plan totaled $7 million. We have purchased investments that closely correlate to the investment elections made by participants in the Restoration Plan in order to mitigate the impact of the phantom investment income and losses on our consolidated financial statements. The value of these investments held for our benefit totaled $6 million at December 31, 2012. A 10 percent change in the fair value of the phantom investments would change our liability by approximately $0.6 million. Any change in the fair value of the phantom investments would be mitigated by a change in the investments held for our benefit. We also have a U.S. noncontributory defined benefit pension plan that covers certain salaried employees and a U.S. noncontributory defined benefit pension plan that covers certain hourly employees, whose initial date of employment is prior to August 1, 2004 (collectively referred to as our “qualified U.S. plans”). These plans are governed by the Noble Drilling Corporation Retirement Trust (the “Trust”). The benefits from these plans are based primarily on years of service and, for the salaried plan, 39 employees’ compensation near retirement. These plans are designed to qualify under the Employee Retirement Income Security Act of 1974 (“ERISA”), and our funding policy is consistent with funding requirements of ERISA and other applicable laws and regulations. We make cash contributions, or utilize credits available to us, for the qualified U.S. plans when required. The benefit amount that can be covered by the qualified U.S. plans is limited under ERISA and the Internal Revenue Code (“IRC”) of 1986. Therefore, we maintain an unfunded, nonqualified excess benefit plan designed to maintain benefits for all employees at the formula level in the qualified salary U.S. plan. We refer to the qualified U.S. plans and the excess benefit plan collectively as the “U.S. plans”. In addition to the U.S. plans, each of Noble Drilling (Land Support) Limited, Noble Enterprises Limited and Noble Drilling (Nederland) B.V., all indirect, wholly-owned subsidiaries of Noble-Swiss, maintains a pension plan that covers all of its salaried, non-union employees (collectively referred to as our “non-U.S. plans”). Benefits are based on credited service and employees’ compensation near retirement, as defined by the plans. Changes in market asset value related to the pension plans noted above could have a material impact upon our Consolidated Statements of Comprehensive Income and could result in material cash expenditures in future periods. 40 Item 8. Financial Statements and Supplementary Data. The following financial statements are filed in this Item 8: Report of Independent Registered Public Accounting Firm (Noble-Swiss) ................................................................................... Noble Corporation (Noble-Swiss) and Subsidiaries Consolidated Balance Sheet as of December 31, 2012 and 2011 ................. Noble Corporation (Noble-Swiss) and Subsidiaries Consolidated Statements of Income for the Years Ended December 31, 2012, 2011 and 2010 .................................................................................................................................................................. Noble Corporation (Noble-Swiss) and Subsidiaries Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2012, 2011 and 2010 ........................................................................................................................................... Noble Corporation (Noble-Swiss) and Subsidiaries Consolidated Statements of Cash Flows for the Years Ended December 31, 2012, 2011 and 2010 ........................................................................................................................................... Noble Corporation (Noble-Swiss) and Subsidiaries Consolidated Statements of Equity for the Years Ended December 31, 2012, 2011 and 2010 .................................................................................................................................................................. Report of Independent Registered Public Accounting Firm (Noble-Cayman) ............................................................................... Noble Corporation (Noble-Cayman) and Subsidiaries Consolidated Balance Sheet as of December 31, 2012 and 2011 ............. Noble Corporation (Noble-Cayman) and Subsidiaries Consolidated Statements of Income for the Years Ended December 31, 2012, 2011 and 2010 .................................................................................................................................................................. Noble Corporation (Noble-Cayman) and Subsidiaries Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2012, 2011 and 2010 ................................................................................................................................ Noble Corporation (Noble-Cayman) and Subsidiaries Consolidated Statements of Cash Flows for the Years Ended December 31, 2012, 2011 and 2010 ........................................................................................................................................... Noble Corporation (Noble-Cayman) and Subsidiaries Consolidated Statements of Equity for the Years Ended December 31, 2012, 2011 and 2010 .................................................................................................................................................................. Notes to Consolidated Financial Statements ................................................................................................................................... Page 42 43 44 45 46 47 48 49 50 51 52 53 54 41 Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of Noble Corporation, a Swiss Corporation (“Noble-Swiss”) In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, comprehensive income, equity and cash flows present fairly, in all material respects, the financial position of Noble-Swiss and its subsidiaries at December 31, 2012 and 2011, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2012 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Noble-Swiss’ management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements and on Noble-Swiss’ internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ PricewaterhouseCoopers LLP Houston, Texas February 25, 2013 42 NOBLE CORPORATION (NOBLE-SWISS) AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (In thousands) ASSETS Current assets Cash and cash equivalents ........................................................................................................... Accounts receivable .................................................................................................................... Taxes receivable .......................................................................................................................... Prepaid expenses ......................................................................................................................... Other current assets ..................................................................................................................... Total current assets ............................................................................................................................... Property and equipment Drilling equipment and facilities ................................................................................................. Other ............................................................................................................................................ Accumulated depreciation ........................................................................................................... Other assets ........................................................................................................................................... Total assets ....................................................................................................................... LIABILITIES AND EQUITY Current liabilities Accounts payable ........................................................................................................................ Accrued payroll and related costs ................................................................................................ Interest payable ........................................................................................................................... Taxes payable .............................................................................................................................. Dividends payable ....................................................................................................................... Other current liabilities ................................................................................................................ Total current liabilities Long-term debt ..................................................................................................................................... Deferred income taxes .......................................................................................................................... Other liabilities ..................................................................................................................................... Total liabilities .................................................................................................................. Commitments and contingencies Equity Shares; 253,348 shares and 252,639 shares outstanding ............................................................. Treasury shares, at cost; 589 shares and 287 shares .................................................................... Additional paid-in capital ............................................................................................................ Retained earnings ........................................................................................................................ Accumulated other comprehensive loss ...................................................................................... Total shareholders’ equity .............................................................................................. Noncontrolling interests Total equity ....................................................................................................................... Total liabilities and equity ............................................................................................... December 31, 2012 December 31, 2011 $ 282,092 $ 743,673 112,423 43,962 123,175 1,305,325 239,196 587,163 75,284 35,796 122,173 1,059,612 16,777,013 194,653 16,971,666 (3,945,694) 13,025,972 276,477 15,243,861 197,485 15,441,346 (3,311,001) 12,130,345 305,202 $ 14,607,774 $ 13,495,159 $ 350,147 $ 132,728 68,436 135,257 66,369 158,512 911,449 4,634,375 226,045 347,615 6,119,484 436,006 117,907 54,419 94,920 — 123,928 827,180 4,071,964 242,791 255,372 5,397,307 710,130 (21,069) 83,531 7,066,023 (115,449) 7,723,166 765,124 8,488,290 766,595 (10,553) 48,356 6,676,444 (74,321) 7,406,521 691,331 8,097,852 $ 14,607,774 $ 13,495,159 See accompanying notes to the consolidated financial statements. 43 NOBLE CORPORATION (NOBLE-SWISS) AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) Year Ended December 31, 2011 2012 2010 Operating revenues Contract drilling services ....................................................................................... Reimbursables ....................................................................................................... Labor contract drilling services ............................................................................. Other ...................................................................................................................... Operating costs and expenses Contract drilling services ....................................................................................... Reimbursables ....................................................................................................... Labor contract drilling services ............................................................................. Depreciation and amortization .............................................................................. Selling, general and administrative ....................................................................... Loss on impairment ............................................................................................... Gain on contract settlements/extinguishments, net ............................................... Operating income Other income (expense) Interest expense, net of amount capitalized ........................................................... Interest income and other, net ............................................................................... Income before income taxes Income tax provision ............................................................................................. Net income Net loss (income) attributable to noncontrolling interests ..................................... Net income attributable to Noble Corporation Net income per share attributable to Noble Corporation Basic ...................................................................................................................... Diluted ................................................................................................................... Weighted-Average Shares Outstanding: Basic ...................................................................................................................... Diluted ................................................................................................................... $ $ $ 3,349,362 $ 2,556,758 $ 2,695,493 76,831 32,520 2,332 2,807,176 79,195 59,004 875 2,695,832 115,495 81,890 265 3,547,012 1,776,481 94,096 46,895 758,621 99,990 20,384 (33,255) 2,763,212 783,800 1,384,200 58,439 33,885 658,640 91,377 — (21,202) 2,205,339 490,493 (85,763) 5,188 703,225 (147,088) 556,137 (33,793) 522,344 $ (55,727) 1,484 436,250 (72,625) 363,625 7,273 370,898 $ 1,177,800 59,414 22,056 539,829 91,997 — — 1,891,096 916,080 (9,457) 9,886 916,509 (143,077) 773,432 (3) 773,429 2.05 $ 2.05 1.46 $ 1.46 3.03 3.02 252,435 252,791 251,405 251,989 253,123 253,936 See accompanying notes to the consolidated financial statements. 44 NOBLE CORPORATION (NOBLE-SWISS) AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) Year Ended December 31, 2011 2012 2010 Net income .............................................................................................................................. $ 556,137 $ 363,625 $ 773,432 Other comprehensive income (loss), net of tax Foreign currency translation adjustments ............................................................. Gain (loss) on foreign currency forward contracts................................................ Gain (loss) on interest rate swaps ......................................................................... Net pension plan loss (net of a tax benefit of $3,777 in 2012, $12,845 in 2011 and $2,888 in 2010) ......................................................................................... Amortization of deferred pension plan amounts (net of tax provision of $2,841 in 2012, $1,146 in 2011 and $1,286 in 2010) ................................................... Other comprehensive income (loss), net ........................................................................ Total comprehensive income ................................................................................................... (8,076) 3,061 — (2,566) (4,665) (366) 2,456 1,187 366 (41,658) (18,551) (1,898) 5,545 (41,128) 515,009 2,047 (24,101) 339,524 2,550 4,661 778,093 Less: Loss (income) attributable to noncontrolling interests ................................................... (33,793) 7,273 (3) Less: Noncontrolling portion of gain (loss) on interest rate swaps .......................................... (183) Comprehensive income attributable to Noble Corporation ............................................... $ 481,216 $ 346,980 $ 777,907 — 183 See accompanying notes to the consolidated financial statements. 45 NOBLE CORPORATION (NOBLE-SWISS) AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Cash flows from operating activities Net income ........................................................................................................ Adjustments to reconcile net income to net cash from operating activities: ..... Depreciation and amortization ................................................................. Loss on impairment ................................................................................. Gain on contract extinguishments, net ..................................................... Deferred income taxes ............................................................................. Amortization of share-based compensation ............................................. Net change in other assets and liabilities ................................................. Net cash from operating activities .................................................. Cash flows from investing activities Capital expenditures .......................................................................................... Change in accrued capital expenditures ............................................................ Refund from contract extinguishments .............................................................. Acquisition of FDR Holdings, Ltd., net of cash acquired ................................. Net cash from investing activities .................................................. Cash flows from financing activities Net change in borrowings on bank credit facilities ........................................... Proceeds from issuance of senior notes, net of debt issuance costs ................... Contributions from joint venture partners ......................................................... Payments of joint venture debt .......................................................................... Settlement of interest rate swaps ....................................................................... Financing costs on credit facilities .................................................................... Proceeds from employee stock transactions ...................................................... Repurchases of employee shares surrendered for taxes..................................... Par value reduction/dividend payments ............................................................. Repurchases of shares ....................................................................................... Net cash from financing activities .................................................. Net change in cash and cash equivalents ........................................ Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period Year Ended December 31, 2011 2010 2012 $ 556,137 $ 363,625 $ 773,432 758,621 20,384 — (20,119) 35,930 30,740 1,381,693 658,640 — (21,202) (82,325) 31,904 (210,402) 740,240 539,829 — — (41,409) 34,930 330,120 1,636,902 (1,669,811) (121,077) — — (1,790,888) (2,621,235) 81,047 18,642 — (2,521,546) (1,406,010) 139,185 — (1,629,644) (2,896,469) (635,192) 1,186,636 40,000 — — (5,221) 14,677 (10,516) (138,293) — 452,091 42,896 239,196 282,092 $ 935,000 1,087,833 536,000 (693,494) (29,032) (2,835) 9,924 (10,233) (150,532) — 1,682,631 (98,675) 337,871 239,196 $ 40,000 1,238,074 35,000 — (6,186) — 11,828 (10,116) (227,325) (219,330) 861,945 (397,622) 735,493 337,871 $ See accompanying notes to the consolidated financial statements. 46 NOBLE CORPORATION (NOBLE-SWISS) AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EQUITY (In thousands) Shares Balance Par Value Capital in Excess of Par Value Retained Earnings Treasury Shares Noncontrolling Interests Accumulated Other Comprehensive Loss Total Equity Balance at January 1, 2010 261,975 $1,130,607 $ — $ 5,855,737 $ (143,031) $ — $ (54,881) $ 6,788,432 Employee related equity activity........................................ Amortization of share-based compensation .......... Issuance of share-based compensation shares ....... Exercise of stock options ...................................... Tax benefit of stock options exercised .................. Restricted shares forfeited or repurchased for taxes .............................................................. Repurchases of shares ........................................................ Net income ........................................................................ Par value reduction/dividend payments ............................. Noncontrolling interests from FDR Holdings, Ltd. acquisition .................................................................. Other comprehensive income, net ...................................... — 86 538 — (184) — — — — — — 343 2,119 — (809) — — (214,576) — — 34,930 (117) 9,483 6,494 965 — — (12,749) — — — — — — 1,334 — 773,429 — — — — — — — (11,606) (219,330) — — — — Balance at December 31, 2010 262,415 $ 917,684 $ 39,006 $ 6,630,500 $ (373,967) $ Employee related equity activity........................................ Amortization of share-based compensation .......... Issuance of share-based compensation shares ....... Exercise of stock options ...................................... Tax benefit of stock options exercised .................. Restricted shares forfeited or repurchased for taxes .............................................................. Retirement of treasury shares............................................. Settlement of FIN 48 provision .......................................... Net income ........................................................................ Equity contribution by joint venture partner ...................... Par value reduction payments ............................................ Other comprehensive loss, net ........................................... — 252 501 — — 848 1,661 — (413) (10,116) — — — — — (1,401) (33,035) — — — (119,162) — 31,904 (838) 7,303 950 1,401 — — — — (31,370) — — — — — — (340,612) 15,658 370,898 — — — — — — — (10,233) 373,647 — — — — — Balance at December 31, 2011 252,639 $ 766,595 $ 48,356 $ 6,676,444 $ (10,553) $ Employee related equity activity........................................ Amortization of share-based compensation .......... Issuance of share-based compensation shares ....... Exercise of stock options ...................................... Tax benefit of stock options exercised .................. Restricted shares forfeited or repurchased for taxes .............................................................. Net income ........................................................................ Equity contribution by joint venture partner ...................... Par value reduction/dividend payments ............................. Dividends payable ............................................................. Other comprehensive loss, net ........................................... — 437 646 — (374) — — — — — — 1,307 1,836 — (1,138) — — (58,470) — — 35,930 (1,299) 11,705 1,128 1,138 — — (13,427) — — — — — — — 522,344 — (66,396) (66,369) — — — — — (10,516) — — — — — — — — — — — 3 — 124,628 — 124,631 — — — — — — — (7,273) 573,973 — — 691,331 — — — — — 33,793 40,000 — — — — — — — — — — — — 4,661 34,930 226 11,602 6,494 (10,116) (219,330) 773,432 (227,325) 124,628 4,661 $ (50,220) $ 7,287,634 $ — — — — — — — — — — (24,101) (74,321) — — — — — — — — — (41,128) 31,904 10 8,964 950 (10,233) — 15,658 363,625 573,973 (150,532) (24,101) $ 8,097,852 35,930 8 13,541 1,128 (10,516) 556,137 40,000 (138,293) (66,369) (41,128) Balance at December 31, 2012 253,348 $ 710,130 $ 83,531 $ 7,066,023 $ (21,069) $ 765,124 $ (115,449) $ 8,488,290 See accompanying notes to the consolidated financial statements. 47 Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholder of Noble Corporation, a Cayman Islands Company (“Noble-Cayman”) In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, comprehensive income, equity and cash flows present fairly, in all material respects, the financial position of Noble-Cayman and its subsidiaries at December 31, 2012 and 2011, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2012 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Noble-Cayman’ management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements and on Noble-Cayman’ internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ PricewaterhouseCoopers LLP Houston, Texas February 25, 2013 48 NOBLE CORPORATION (NOBLE-CAYMAN) AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (In thousands) ASSETS Current assets Cash and cash equivalents ........................................................................................................... Accounts receivable .................................................................................................................... Taxes receivable .......................................................................................................................... Prepaid expenses ......................................................................................................................... Other current assets ..................................................................................................................... Total current assets ............................................................................................................................... Property and equipment Drilling equipment and facilities ................................................................................................. Other ............................................................................................................................................ Accumulated depreciation ........................................................................................................... Other assets ........................................................................................................................................... Total assets ....................................................................................................................... LIABILITIES AND EQUITY Current liabilities Accounts payable ........................................................................................................................ Accrued payroll and related costs ................................................................................................ Taxes payable .............................................................................................................................. Interest payable ........................................................................................................................... Other current liabilities ................................................................................................................ Total current liabilities .......................................................................................................................... Long-term debt ..................................................................................................................................... Deferred income taxes .......................................................................................................................... Other liabilities ..................................................................................................................................... Total liabilities .................................................................................................................. Commitments and contingencies Equity Ordinary shares; 261,246 shares outstanding .............................................................................. Capital in excess of par value ...................................................................................................... Retained earnings ........................................................................................................................ Accumulated other comprehensive loss ...................................................................................... Total shareholder equity ................................................................................................. Noncontrolling interests .............................................................................................................. Total equity ....................................................................................................................... Total liabilities and equity ............................................................................................... December 31, 2012 December 31, 2011 $ 277,375 $ 743,673 112,310 41,232 122,649 1,297,239 235,056 587,163 75,284 33,105 120,109 1,050,717 16,776,208 158,939 16,935,147 (3,938,518) 12,996,629 276,558 15,243,861 163,301 15,407,162 (3,305,757) 12,101,405 305,283 $ 14,570,426 $ 13,457,405 $ 349,594 $ 123,936 130,844 68,436 158,499 831,309 4,634,375 226,045 347,615 6,039,344 435,729 108,908 91,190 54,419 123,399 813,645 4,071,964 242,791 255,372 5,383,772 26,125 470,454 7,384,828 (115,449) 7,765,958 765,124 8,531,082 26,125 450,616 6,979,882 (74,321) 7,382,302 691,331 8,073,633 $ 14,570,426 $ 13,457,405 See accompanying notes to the consolidated financial statements. 49 NOBLE CORPORATION (NOBLE-CAYMAN) AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) Year Ended December 31, 2011 2012 2010 Operating revenues Contract drilling services ....................................................................................... Reimbursables ....................................................................................................... Labor contract drilling services ............................................................................. Other ...................................................................................................................... Operating costs and expenses Contract drilling services ....................................................................................... Reimbursables ....................................................................................................... Labor contract drilling services ............................................................................. Depreciation and amortization .............................................................................. Selling, general and administrative ....................................................................... Loss on impairment ............................................................................................... Gain on contract settlements/extinguishments, net ............................................... Operating income Other income (expense) Interest expense, net of amount capitalized ........................................................... Interest income and other, net ............................................................................... Income before income taxes Income tax provision ............................................................................................. Net income Net loss (income) attributable to noncontrolling interests ..................................... Net income attributable to Noble Corporation ........................................................... $ $ 3,349,362 $ 2,556,758 $ 2,695,493 76,831 32,520 2,332 2,807,176 79,195 59,004 875 2,695,832 115,495 81,890 265 3,547,012 1,760,965 94,096 46,895 756,689 59,366 20,384 (33,255) 2,705,140 841,872 1,371,415 58,439 33,885 657,205 56,787 — (21,202) 2,156,529 539,303 (85,763) 4,695 760,804 (146,088) 614,716 (33,793) 580,923 $ (55,727) 2,480 486,056 (71,286) 414,770 7,273 422,043 $ 1,172,801 59,414 22,056 539,004 55,568 — — 1,848,843 958,333 (9,457) 8,527 957,403 (141,866) 815,537 (3) 815,534 See accompanying notes to the consolidated financial statements. 50 NOBLE CORPORATION (NOBLE-CAYMAN) AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) Net income Other comprehensive income (loss), net of tax Foreign currency translation adjustments ............................................................. Gain (loss) on foreign currency forward contracts................................................ Gain (loss) on interest rate swaps ......................................................................... Net pension plan loss (net of a tax benefit of $3,777 in 2012, $12,845 in 2011 and $2,888 in 2010) ......................................................................................... Amortization of deferred pension plan amounts (net of tax provision of $2,841 in 2012, $1,146 in 2011 and $1,286 in 2010) ................................................... Other comprehensive income (loss), net ........................................................................ Total comprehensive income .......................................................................................... Less: Loss (income) attributable to noncontrolling interests ................................................... Less: Noncontrolling portion of gain (loss) on interest rate swaps .......................................... Comprehensive income attributable to Noble Corporation ............................................... Year Ended December 31, 2011 $ 614,716 $ 414,770 $ 815,537 2010 2012 (8,076) 3,061 — (2,566) (4,665) (366) 2,456 1,187 366 (41,658) (18,551) (1,898) 5,545 (41,128) 573,588 (33,793) — 2,550 4,661 820,198 (3) (183) $ 539,795 $ 398,125 $ 820,012 2,047 (24,101) 390,669 7,273 183 See accompanying notes to the consolidated financial statements. 51 NOBLE CORPORATION (NOBLE-CAYMAN) AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Cash flows from operating activities Net income ........................................................................................................ Adjustments to reconcile net income to net cash from operating activities: ..... Depreciation and amortization ................................................................. Loss on impairment ................................................................................. Gain on contract extinguishments, net ..................................................... Deferred income taxes ............................................................................. Capital contribution by parent—share-based compensation .................... Net change in other assets and liabilities ................................................. Net cash from operating activities .................................................. Cash flows from investing activities Capital expenditures .......................................................................................... Change in accrued capital expenditures ............................................................ Refund from contract extinguishments .............................................................. Acquisition of FDR Holdings, Ltd., net of cash acquired ................................. Net cash from investing activities .................................................. Cash flows from financing activities Net change in borrowings on bank credit facilities ........................................... Proceeds from issuance of senior notes, net of debt issuance costs ................... Contributions from joint venture partner ........................................................... Payments of joint venture debt .......................................................................... Settlement of interest rate swaps ....................................................................... Financing costs on credit facilities .................................................................... Distributions to parent company, net ................................................................. Net cash from financing activities .................................................. Net change in cash and cash equivalents ........................................ Cash and cash equivalents, beginning of period..................................................... Cash and cash equivalents, end of period ............................................................... $ Year ended December 31, 2011 2010 2012 $ 614,716 $ 414,770 $ 815,537 756,689 20,384 — (20,119) 19,838 29,119 1,420,627 657,205 — (21,202) (82,325) 18,726 (216,687) 770,487 539,004 — — (41,409) 20,604 325,157 1,658,893 (1,667,477) (121,077) — — (1,788,554) (2,615,943) 81,047 18,642 — (2,516,254) (1,405,181) 139,185 — (1,629,644) (2,895,640) (635,192) 1,186,636 40,000 — — (5,221) (175,977) 410,246 42,319 235,056 277,375 $ 935,000 1,087,833 536,000 (693,494) (29,032) (2,835) (186,048) 1,647,424 (98,343) 333,399 235,056 $ 40,000 1,238,074 35,000 — (6,186) — (462,967) 843,921 (392,826) 726,225 333,399 See accompanying notes to the consolidated financial statements. 52 Capital contributions by parent- Share- based compensation ........... Net income ................... Noncontrolling interests from FDR Holdings, Ltd. acquisition................ Other comprehensive NOBLE CORPORATION (NOBLE-CAYMAN) AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EQUITY (In thousands) Shares Balance Par Value Capital in Excess of Par Value Retained Earnings Noncontrolling Interests Accumulated Other Comprehensive Loss Total Equity Balance at January 1, 2010................................... 261,246 $ 26,125 $ 395,628 $ 6,391,320 $ — $ (54,881) $ 6,758,192 Distributions to parent ....................... — — — (462,967) — — (462,967) — — — — 20,604 — — 815,534 — 3 — — 20,604 815,537 income, net .............. — — — Balance at December 31, — — — — — 124,628 — 124,628 — 4,661 4,661 2010................................... 261,246 $ 26,125 $ 416,232 $ 6,743,887 $ 124,631 $ (50,220) $ 7,260,655 Distributions to parent ....................... — — — (186,048) — — (186,048) Capital contributions by parent- Share- based compensation ........... Net income ................... Settlement of FIN 48 provision .................. Noncontrolling interest contributions ............ Other comprehensive — — — — 18,726 — — 422,043 — (7,273) — — 15,658 — — — — 573,973 — — — — — 18,726 414,770 — 15,658 — 573,973 loss, net .................... — — — Balance at December 31, — (24,101) (24,101) 2011................................... 261,246 $ 26,125 $ 450,616 $ 6,979,882 $ 691,331 $ (74,321) $ 8,073,633 Distributions to parent ....................... — — — (175,977) — — (175,977) Capital contributions by parent- Share- based compensation ........... Net income ................... Noncontrolling interest contributions ............ Other comprehensive — — — — 19,838 — — 580,923 — — — — 33,793 40,000 — — 19,838 614,716 — 40,000 — (41,128) (41,128) — — loss, net .................... — — — Balance at December 31, 2012................................... 261,246 $ 26,125 $ 470,454 $ 7,384,828 $ 765,124 $ (115,449) $ 8,531,082 See accompanying notes to the consolidated financial statements. 53 NOBLE CORPORATION (NOBLE-SWISS) AND SUBSIDIARIES NOBLE CORPORATION (NOBLE-CAYMAN) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data) Note 1 – Organization and Significant Accounting Policies Organization and Business Noble Corporation, a Swiss corporation (“Noble-Swiss”), is a leading offshore drilling contractor for the oil and gas industry. We perform contract drilling services with our fleet of 79 mobile offshore drilling units located worldwide. We also own one floating production storage and offloading unit. Our fleet consists of 14 semisubmersibles, 14 drillships, 49 jackups and two submersibles, including 11 units under construction as follows: • • five dynamically positioned, ultra-deepwater, harsh environment drillships and six high-specification, heavy-duty, harsh environment jackups. As of February 7, 2013, approximately 85 percent of our fleet was located outside the United States in the following areas: Mexico, Brazil, the North Sea, the Mediterranean, West Africa, the Middle East, India and Australia. Noble and its predecessors have been engaged in the contract drilling of oil and gas wells since 1921. Noble Corporation, a Cayman Islands company (“Noble-Cayman”) is a direct, wholly-owned subsidiary of Noble-Swiss, our publicly-traded parent company. Noble-Swiss’ principal asset is all of the shares of Noble-Cayman. Noble-Cayman has no public equity outstanding. The consolidated financial statements of Noble-Swiss include the accounts of Noble-Cayman, and Noble-Swiss conducts substantially all of its business through Noble-Cayman and its subsidiaries. Principles of Consolidation The consolidated financial statements include our accounts, those of our wholly-owned subsidiaries and entities in which we hold a controlling financial interest. Our consolidated financial statements include the accounts of two joint ventures, in each of which we own a 50 percent interest. Our ownership interest meets the definition of variable interest under Financial Accounting Standards Board (“FASB”) codification and we have determined that we are the primary beneficiary. Intercompany balances and transactions have been eliminated in consolidation. Foreign Currency Translation Although we are a Swiss corporation, we define foreign currency as any non-U.S. denominated currency. In non-U.S. locations where the U.S. Dollar has been designated as the functional currency (based on an evaluation of factors including the markets in which the subsidiary operates, inflation, generation of cash flow, financing activities and intercompany arrangements), local currency transaction gains and losses are included in net income. In non-U.S. locations where the local currency is the functional currency, assets and liabilities are translated at the rates of exchange on the balance sheet date, while income statement items are translated at average rates of exchange during the year. The resulting gains or losses arising from the translation of accounts from the functional currency to the U.S. Dollar are included in “Accumulated other comprehensive loss” in the Consolidated Balance Sheets. We did not recognize any material gains or losses on foreign currency transactions or translations during the three years ended December 31, 2012. Cash and Cash Equivalents Cash and cash equivalents include cash on hand, demand deposits with banks and all highly liquid investments with original maturities of three months or less. Our cash, cash equivalents and short-term investments are subject to potential credit risk, and certain of our cash accounts carry balances greater than the federally insured limits. Cash and cash equivalents are primarily held by major banks or investment firms. Our cash management and investment policies restrict investments to lower risk, highly liquid securities and we perform periodic evaluations of the relative credit standing of the financial institutions with which we conduct business. Cash flows from our labor contract drilling services in Canada are calculated based on the Canadian Dollar. As a result, amounts related to assets and liabilities reported on the Consolidated Statements of Cash Flows will not necessarily agree with changes in the corresponding balances on the Consolidated Balance Sheets. The effect of exchange rate changes on cash balances held in foreign currencies was not material for all periods presented. Property and Equipment Property and equipment is stated at cost, reduced by provisions to recognize economic impairment in value whenever events or changes in circumstances indicate an asset’s carrying value may not be recoverable. At December 31, 2012 and 2011, there 54 NOBLE CORPORATION (NOBLE-SWISS) AND SUBSIDIARIES NOBLE CORPORATION (NOBLE-CAYMAN) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data) was $2.7 billion and $4.4 billion of construction-in-progress, respectively. Such amounts are included in “Drilling equipment and facilities” in the accompanying Consolidated Balance Sheets. Major replacements and improvements are capitalized. When assets are sold, retired or otherwise disposed of, the cost and related accumulated depreciation are eliminated from the accounts and the gain or loss is recognized. Drilling equipment and facilities are depreciated using the straight-line method over their estimated useful lives as of the date placed in service or date of major refurbishment. Estimated useful lives of our drilling equipment range from three to thirty years. Other property and equipment is depreciated using the straight-line method over useful lives ranging from two to twenty-five years. Included in accounts payable was $141 million and $256 million of capital accruals as of December 31, 2012 and 2011, respectively. Interest is capitalized on construction-in-progress at the interest rate on debt incurred for construction or at the weighted average cost of debt outstanding during the period of construction. Capitalized interest for the years ended December 31, 2012, 2011 and 2010 was $136 million, $122 million and $83 million, respectively. Scheduled maintenance of equipment is performed based on the number of hours operated in accordance with our preventative maintenance program. Routine repair and maintenance costs are charged to expense as incurred; however, the costs of the overhauls and asset replacement projects that benefit future periods and which typically occur every three to five years are capitalized when incurred and depreciated over an equivalent period. These overhauls and asset replacement projects are included in “Drilling equipment and facilities” in the Consolidated Balance Sheets. Such amounts, net of accumulated depreciation, totaled $303 million and $233 million at December 31, 2012 and 2011, respectively. Depreciation expense related to overhauls and asset replacement totaled $113 million, $103 million and $102 million for the years ended December 31, 2012, 2011 and 2010, respectively. We evaluate the realization of property and equipment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In addition, on an annual basis, we complete an impairment analysis on all of our assets. An impairment loss on our property and equipment exists when the estimated undiscounted cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. Any impairment loss recognized represents the excess of the asset’s carrying value over the estimated fair value. As part of this analysis, we make assumptions and estimates regarding future market conditions. To the extent actual results do not meet or exceed our estimated assumptions, for a given rig class, we may take an impairment loss in the future. During the current year we determined that our submersible rig fleet, consisting of two cold stacked rigs, was partially impaired due to the declining market outlook for drilling services for this rig type. We estimated the fair value of the rigs based on the salvage value of the rigs and a recent transaction involving a similar unit owned by a peer company (Level 2 fair value measurement). Based on these estimates, we recognized a charge of approximately $13 million for the year ended December 31, 2012. Also, during the current year, we determined that certain corporate assets were partially impaired due to a declining market for, and the potential disposal of, the assets. We estimated the fair value of the assets based on a signed letter of intent to sell the assets (Level 2 fair value measurement). Based on these estimates, we recognized a charge of approximately $7 million for the year ended December 31, 2012. Deferred Costs Deferred debt issuance costs are being amortized through interest expense over the life of the debt securities. Insurance Reserves We maintain various levels of self-insured retention for certain losses including property damage, loss of hire, employment practices liability, employers’ liability, and general liability, among others. We accrue for property damage and loss of hire charges on a per event basis. Employment practices liability claims are accrued based on actual claims during the year. Maritime employer’s liability claims are generally estimated using actuarial determinations. General liability claims are estimated by our internal claims department by evaluating the facts and circumstances of each claim (including incurred but not reported claims) and making estimates based upon historical experience with similar claims. At December 31, 2012 and 2011, loss reserves for personal injury and protection claims totaled $20 million and $21 million, respectively, and such amounts are included in “Other current liabilities” in the accompanying Consolidated Balance Sheets. 55 NOBLE CORPORATION (NOBLE-SWISS) AND SUBSIDIARIES NOBLE CORPORATION (NOBLE-CAYMAN) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data) Revenue Recognition Revenues generated from our dayrate-basis drilling contracts and labor contracts are recognized as services are performed. Revenues from bonuses are recognized when earned. We may receive lump-sum fees for the mobilization of equipment and personnel. Mobilization fees received and costs incurred to mobilize a drilling unit from one market to another are recognized over the term of the related drilling contract. Absent a contract, the initial mobilization costs of newbuild rigs from the shipyard are deferred and amortized over the life of the rig. Subsequent costs incurred to relocate drilling units to more promising geographic areas in which a contract has not been secured are expensed as incurred. Lump-sum payments received from customers relating to specific contracts, including equipment modifications, are deferred and amortized to income over the term of the drilling contract. Upon completion of our drilling contracts, any demobilization revenues received are recognized as income, as are any related expenses. Deferred revenues under drilling contracts totaled $252 million at December 31, 2012 as compared to $139 million at December 31, 2011. Such amounts are included in either “Other Current Liabilities” or “Other Liabilities” in our Consolidated Balance Sheets, based upon our expected time of recognition. We record reimbursements from customers for “out-of-pocket” expenses as revenues and the related direct cost as operating expenses. Income Taxes Income taxes are based on the laws and rates in effect in the countries in which operations are conducted or in which we or our subsidiaries are considered resident for income tax purposes. Applicable income and withholding taxes have not been provided on undistributed earnings of our subsidiaries. We do not intend to repatriate such undistributed earnings except for distributions upon which incremental income and withholding taxes would not be material. In certain circumstances, we expect that, due to changing demands of the offshore drilling markets and the ability to redeploy our offshore drilling units, certain of such units will not reside in a location long enough to give rise to future tax consequences. As a result, no deferred tax asset or liability has been recognized in these circumstances. Should our expectations change regarding the length of time an offshore drilling unit will be used in a given location, we will adjust deferred taxes accordingly. We operate through various subsidiaries in numerous countries throughout the world including the United States. Consequently, we are subject to changes in tax laws, treaties or regulations or the interpretation or enforcement thereof in the U.S., Switzerland or jurisdictions in which we or any of our subsidiaries operate or are resident. Our income tax expense is based upon our interpretation of the tax laws in effect in various countries at the time that the expense was incurred. If the U.S. Internal Revenue Service (“IRS”) or other taxing authorities do not agree with our assessment of the effects of such laws, treaties and regulations, this could have a material adverse effect on us including the imposition of a higher effective tax rate on our worldwide earnings or a reclassification of the tax impact of our significant corporate restructuring transactions. Net Income per Share Our unvested share-based payment awards, which contain non-forfeitable rights to dividends, are participating securities and are included in the computation of earnings per share pursuant to the “two-class” method. The “two-class” method allocates undistributed earnings between common shares and participating securities. The diluted earnings per share calculation under the “two- class” method also includes the dilutive effect of potential shares issued in connection with stock options. The dilutive effect of stock options is determined using the treasury stock method. Share-Based Compensation Plans We record the grant date fair value of share-based compensation arrangements as compensation cost using a straight-line method over the service period. Share-based compensation is expensed or capitalized based on the nature of the employee’s activities. Certain Significant Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Certain accounting policies involve judgments and uncertainties to such an extent that there is reasonable likelihood that materially different amounts could have been reported under different conditions, or if different assumptions had been used. We evaluate our estimates and assumptions on a regular basis. We base our estimates on historical 56 NOBLE CORPORATION (NOBLE-SWISS) AND SUBSIDIARIES NOBLE CORPORATION (NOBLE-CAYMAN) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data) experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates and assumptions used in preparation of our consolidated financial statements. Reclassifications Certain amounts in prior periods have been reclassified to conform to the current year presentation. In connection with a review of the “Other Assets” caption in our financial statements, we determined that drilling equipment replacements and upgrades should be included in “Property and equipment”. As a result, we reclassified these amounts in our Consolidated Balance Sheet for the year ended December 31, 2011. We believe these reclassifications are immaterial as they do not have a material impact on our financial position, results of operations or cash flows. Accounting Pronouncements In May 2011, the FASB issued Accounting Standards Update (“ASU”) No. 2011-04, which amends FASB Accounting Standards Codification (“ASC”) Topic 820, “Fair Value Measurements and Disclosures.” This amended guidance clarifies the wording used to describe many of the requirements in accounting literature for measuring fair value and for disclosing information about fair value measurements. The goal of the amendment is to create consistency between the United States and international accounting standards. The guidance is effective for annual and interim reporting periods beginning on or after December 15, 2011. Our adoption of this guidance did not have a material impact on our financial condition, results of operations, cash flows or financial disclosures. In June 2011, the FASB issued ASU No. 2011-05, which amends ASC Topic 220, “Comprehensive Income.” This ASU allows an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The amendment no longer allows an entity to show changes to other comprehensive income solely through the statement of equity. For publicly traded entities, the guidance is effective for annual and interim reporting periods beginning on or after December 15, 2011. In December 2011, the FASB issued ASU No. 2011-12, which defers only those changes in ASU 2011-05 that relate to the presentation of reclassification adjustments. Our adoption of this guidance did not have a material impact on our financial condition, results of operations, cash flows or financial disclosures. Note 2 – Acquisition of FDR Holdings Limited On July 28, 2010, Noble-Swiss and Noble AM Merger Co., a Cayman Islands company and indirect wholly-owned subsidiary of Noble-Swiss (“Merger Sub”), completed the acquisition of FDR Holdings Limited, a Cayman Islands company (“Frontier”). Under the terms of the Agreement and Plan of Merger with Frontier and certain of Frontier’s shareholders, Merger Sub merged with and into Frontier, with Frontier surviving as an indirect wholly-owned subsidiary of Noble-Swiss and a wholly-owned subsidiary of Noble-Cayman. The Frontier acquisition was for a purchase price of approximately $1.7 billion in cash plus liabilities assumed and strategically expanded and enhanced our global fleet. Frontier’s results of operations were included in our results beginning July 28, 2010. We funded the cash consideration paid at closing using proceeds from our July 2010 offering of senior notes and existing cash on hand. The pro forma financial information for the year ended December 31, 2010 includes pro forma results for the period prior to the closing date of July 28, 2010 and actual results for the period from July 28, 2010 through December 31, 2010. The pro forma results are based on historical data and are not intended to be indicative of the results of future operations. Total operating revenues.......................................... Net income to Noble Corporation ............................ Net income per share (Diluted) ................................ $ $ 2010 2,985,439 716,875 2.80 Revenues and operating expenses from the Frontier rigs totaled $147 million and $98 million, respectively, from the closing date of July 28, 2010 through December 31, 2010. Consolidated joint ventures In connection with the Frontier acquisition, we acquired Frontier’s 50 percent interest in two joint ventures, each with a subsidiary of Shell, for the construction and operation of the two Bully-class drillships. We have determined that we are the primary 57 NOBLE CORPORATION (NOBLE-SWISS) AND SUBSIDIARIES NOBLE CORPORATION (NOBLE-CAYMAN) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data) beneficiary. Accordingly, we consolidate the entities in our consolidated financial statements after eliminating intercompany transactions. Shell’s equity interests are presented as noncontrolling interests on our Consolidated Balance Sheets. In the first quarter of 2011, the joint venture credit facilities, which had a combined outstanding balance of $693 million, were repaid in full through contributions to the joint ventures from Noble and Shell. Shell contributed $361 million in equity to fund their portion of the repayment of joint venture credit facilities and related interest rate swaps, which were settled concurrently with the repayment and termination of the joint venture credit facilities. In January 2011, the Bully joint ventures issued notes to the joint venture partners totaling $70 million. The interest rate on these notes was 10%, payable semi-annually in arrears and in kind on June 30 and December 31 commencing in June 2011. The purpose of these notes was to provide additional liquidity to the joint ventures in connection with the shipyard construction of the Bully vessels. In April 2011, the Bully joint venture partners entered into a subscription agreement, pursuant to which each partner was issued equity in each of the Bully joint ventures in exchange for the cancellation of all outstanding joint venture partner notes. The subscription agreement converted all joint venture partner notes into equity of the respective joint venture. The total capital contributed as a result of these agreements was $146 million, which included $142 million in outstanding notes, plus accrued interest. Our portion of the capital contribution, totaling $73 million, was eliminated in consolidation. In April 2011, the Bully joint venture partners also entered into capital contribution agreements whereby capital calls up to a total of $360 million can be made for funds needed to complete the projects. All contributions under these agreements were made during 2011 and the first quarter of 2012. No amounts remain available under these agreements. The combined carrying amount of the Bully-class drillships at both December 31, 2012 and 2011 totaled $1.4 billion. These assets were primarily funded through partner equity contributions. During 2012, these rigs commenced the operating phases of their contracts. Current year revenues and net income related to these joint ventures totaled $237 million and $71 million, respectively. 58 NOBLE CORPORATION (NOBLE-SWISS) AND SUBSIDIARIES NOBLE CORPORATION (NOBLE-CAYMAN) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data) Note 3- Earnings per Share The following table sets forth the computation of basic and diluted net income per share for Noble-Swiss: Allocation of income from continuing operations Basic Net income attributable to Noble Corporation ..... Earnings allocated to unvested share-based payment awards .............................................. Net income to common shareholders— basic ...................................................... Diluted Net income attributable to Noble Corporation .................................................... Earnings allocated to unvested share-based payment awards .............................................. Net income to common shareholders— diluted ................................................... Weighted average shares outstanding—basic ........... Incremental shares issuable from assumed exercise of stock options ................................. Weighted average shares outstanding—diluted ....... Weighted average unvested share-based payment awards ...................................................... Year Ended December 31, 2011 2010 2012 $ 522,344 $ 370,898 $ 773,429 (5,309) (3,727) (7,497) $ 517,035 $ 367,171 $ 765,932 $ 522,344 $ 370,898 $ 773,429 (5,302) (3,719) (7,481) $ 517,042 $ 252,435 367,179 251,405 $ 356 252,791 584 251,989 765,948 253,123 813 253,936 2,592 2,552 2,438 Earnings per share Basic .............................................................................. Diluted ........................................................................... $ $ 2.05 $ 2.05 $ 1.46 1.46 $ $ 3.03 3.02 Only those items having a dilutive impact on our basic net income per share are included in diluted net income per share. For the years ended December 31, 2012, 2011 and 2010, stock options totaling 1.2 million, 1.1 million and 0.8 million, respectively, were excluded from the diluted net income per share calculation as they were not dilutive. Note 4- Marketable Securities Marketable Equity Securities We have investments that closely correlate to the investment elections made by participants in the Noble Drilling Corporation 401(k) Savings Restoration Plan (“Restoration Plan”) in order to mitigate the impact of the investment income and losses from the Restoration Plan on our consolidated financial statements. The value of these investments held for our benefit totaled $6 million and $5 million at December 31, 2012 and 2011, respectively. These assets were classified as trading securities and carried at fair value in “Other current assets” with the realized and unrealized gain or loss included in “Other income” in the accompanying Consolidated Statements of Income. We recognized a gain of $0.6 million during 2012, a loss of $0.4 million during 2011 and a gain of $0.7 million during 2010. Note 5- Receivables from Customers At December 31, 2012, we had receivables of approximately $14 million related to the Noble Max Smith, which are being disputed by our customer, Pemex Exploracion y Produccion (“Pemex”). These receivables have been classified as long-term and are included in “Other assets” on our Consolidated Balance Sheet. The disputed amount relates 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. In January 2012, we filed a lawsuit against Pemex in Mexican court seeking recovery of these amounts. While we can make no assurances as to the outcome of this dispute, we believe we are entitled to the disputed amounts. 59 NOBLE CORPORATION (NOBLE-SWISS) AND SUBSIDIARIES NOBLE CORPORATION (NOBLE-CAYMAN) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data) Note 6- Property and Equipment Property and equipment, at cost, as of December 31, 2012 and 2011, consisted of the following: Drilling equipment and facilities .............................. Construction in progress........................................... Other ........................................................................ 2012 14,099,628 2,677,385 194,653 16,971,666 $ $ 2011 10,876,111 4,367,750 197,485 15,441,346 $ $ Capital expenditures, including capitalized interest, totaled $1.7 billion and $2.6 billion for the years ended December 31, 2012 and 2011, respectively. Capital expenditures for 2012 consisted of the following: • • • • $587 million for newbuild construction; $693 million for major projects, including subsea-related expenditures; $254 million for other capitalized expenditures, including upgrades and replacements to drilling equipment, that generally have a useful life ranging from 3 to 5 years; and $136 million in capitalized interest. Interest is capitalized on construction-in-progress at the weighted average cost of debt outstanding during the period of construction. Note 7- Debt Long-term debt consists of the following at December 31, 2012 and 2011: December 31, 2012 December 31, 2011 $ Wholly-owned debt instruments: 5.875% Senior Notes due 2013 ....................... 7.375% Senior Notes due 2014 ....................... 3.45% Senior Notes due 2015 ......................... 3.05% Senior Notes due 2016 ......................... 2.50% Senior Notes due 2017 ......................... 7.50% Senior Notes due 2019 ......................... 4.90% Senior Notes due 2020 ......................... 4.625% Senior Notes due 2021 ....................... 3.95% Senior Notes due 2022 ......................... 6.20% Senior Notes due 2040 ......................... 6.05% Senior Notes due 2041 ......................... 5.25% Senior Notes due 2042 ......................... Credit facilities ................................................ Commercial paper program ............................. Total long-term debt ............................... $ 299,985 249,799 350,000 299,952 299,852 201,695 498,900 399,527 399,095 399,891 397,613 498,257 — 339,809 4,634,375 $ $ 299,949 249,647 350,000 299,938 — 201,695 498,783 399,480 — 399,890 397,582 — 975,000 — 4,071,964 Credit Facilities and Commercial Paper Program Noble currently has a maximum available capacity of $800 million on our credit facility maturing in 2015 and $1.5 billion on our credit facility maturing in 2017 (together referred to as the “Credit Facilities”). Our total debt related to the Credit Facilities and our commercial paper program was $340 million at December 31, 2012 as compared to $975 million at December 31, 2011. During 2012, we undertook a series of transactions that increased our liquidity. The following summarizes the recent activity regarding our Credit Facilities: • in June 2012, we replaced our $575 million credit facility scheduled to mature in 2013, with a new $1.2 billion credit facility, which matures in 2017; 60 NOBLE CORPORATION (NOBLE-SWISS) AND SUBSIDIARIES NOBLE CORPORATION (NOBLE-CAYMAN) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data) • • in September 2012, we established a commercial paper program, which will allow us to issue up to $1.8 billion in unsecured commercial paper notes. Amounts issued under the commercial paper program are supported by the unused committed capacity under our Credit Facilities and, as such, are classified as long- term on our Consolidated Balance Sheet; and in January 2013, we increased the maximum amount available under our Credit Facilities from $1.8 billion to $2.3 billion. The maximum amount available under our credit facility maturing in 2015 was increased from $600 million to $800 million and the maximum amount available under our credit facility maturing in 2017 was increased from $1.2 billion to $1.5 billion. The Credit Facilities provide us with the ability to issue up to $375 million in letters of credit in the aggregate. The issuance of letters of credit does not increase our borrowings outstanding under the Credit Facilities, but it does reduce the amount available. At December 31, 2012, we had no letters of credit issued under the Credit Facilities. Senior Unsecured Notes Our total debt related to senior unsecured notes was $4.3 billion at December 31, 2012 as compared to $3.1 billion at December 31, 2011. The increase in debt is a result of the issuance of $1.2 billion aggregate principal amount of senior notes in February 2012, which we issued through our indirect wholly-owned subsidiary, Noble Holding International Limited (“NHIL”). These senior notes were issued in three separate tranches, with $300 million of 2.50% Senior Notes due 2017, $400 million of 3.95% Senior Notes due 2022, and $500 million of 5.25% Senior Notes due 2042. The weighted average coupon of all three tranches is 4.13%. The net proceeds of approximately $1.19 billion, after expenses, were primarily used to repay the then outstanding balance on our Credit Facilities. In February 2011, we issued, through NHIL, $1.1 billion aggregate principal amount of senior notes in three separate tranches, comprising $300 million of 3.05% Senior Notes due 2016, $400 million of 4.625% Senior Notes due 2021, and $400 million of 6.05% Senior Notes due 2041. The weighted average coupon of all three tranches is 4.71%. A portion of the net proceeds of approximately $1.09 billion, after expenses, was used to repay the then outstanding balance on our revolving credit facility and to repay our portion of outstanding debt under the joint venture credit facilities discussed below. Our 5.875% Senior Notes mature during the second quarter of 2013. We anticipate using availability under our Credit Facilities or commercial paper program to repay the outstanding balance; therefore, we continue to report the balance as long-term at December 31, 2012. Covenants The Credit Facilities are guaranteed by our indirect wholly-owned subsidiaries, NHIL and Noble Drilling Corporation (“NDC”). The covenants and events of default under the Credit Facilities are substantially similar, and each facility contains a covenant that limits our ratio of debt to total tangible capitalization, as defined in the Credit Facilities, to 0.60. At December 31, 2012, our ratio of debt to total tangible capitalization was less than 0.36. We were in compliance with all covenants under the Credit Facilities as of December 31, 2012. In addition to the covenants from the Credit Facilities noted above, the indentures governing our outstanding senior unsecured notes contain covenants that place restrictions on certain merger and consolidation transactions, unless we are the surviving entity or the other party assumes the obligations under the indenture, and on the ability to sell or transfer all or substantially all of our assets. In addition, there are restrictions on incurring or assuming certain liens and sale and lease-back transactions. At December 31, 2012, we were in compliance with all our debt covenants. We continually monitor compliance with the covenants under our notes and, based on our expectations for 2013, expect to remain in compliance during the year. Joint Venture Debt In the first quarter of 2011, the joint venture credit facilities, which had a combined outstanding balance of $693 million, were repaid in full through contributions to the joint ventures from Noble and Shell. Shell contributed $361 million in equity to fund their portion of the repayment of joint venture credit facilities and related interest rate swaps, which were settled concurrently with the repayment and termination of the joint venture credit facilities. In January 2011, the Bully joint ventures issued notes to the joint venture partners totaling $70 million. The interest rate on these notes was 10%, payable semi-annually in arrears, and in kind, on June 30 and December 31 commencing in June 2011. The 61 NOBLE CORPORATION (NOBLE-SWISS) AND SUBSIDIARIES NOBLE CORPORATION (NOBLE-CAYMAN) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data) purpose of these notes was to provide additional liquidity to the joint ventures in connection with the shipyard construction of the Bully vessels. In April 2011, the Bully joint venture partners entered into a subscription agreement, pursuant to which each partner was issued equity in each of the Bully joint ventures in exchange for the cancellation of all outstanding joint venture partner notes. The subscription agreement has the effect of converting all joint venture partner notes into equity of the respective joint venture. The total capital contributed as a result of these agreements was $146 million, which included $142 million in outstanding notes, plus accrued interest. Our portion of the capital contribution, totaling $73 million, was eliminated in consolidation. Other At December 31, 2012, we had letters of credit of $48 million and performance and tax assessment bonds totaling $264 million supported by surety bonds outstanding. Additionally, certain of our subsidiaries issue guarantees to the temporary import status of rigs or equipment imported into certain countries in which we operate. These guarantees are issued in-lieu of payment of custom, value added or similar taxes in those countries. Aggregate principal repayments of total debt for the next five years and thereafter are as follows: 2013 (1) (2) $ 639,794 2014 249,799 $ 2015 350,000 $ $ 2016 2017 Thereafter Total 299,952 $ 299,852 $ 2,794,978 $ 4,634,375 (1) In May 2013, our 5.875% senior notes mature. We anticipate using availability on our Credit Facilities or commercial paper program to repay the outstanding balance; therefore, we have shown the entire balance as long-term on our December 31, 2012 Consolidated Balance Sheet. (2) Amounts outstanding under our commercial paper program mature during 2013. As amounts issued under the commercial paper program are supported by the unused committed capacity under our Credit Facilities, they are classified as long-term on our Consolidated Balance Sheet at December 31, 2012. Fair Value of Financial Instruments 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). The following table presents the estimated fair value of our long-term debt as of December 31, 2012 and 2011. December 31, 2012 December 31, 2011 Carrying Value Estimated Fair Value Carrying Value Estimated Fair Value Wholly-owned debt instruments 5.875% Senior Notes due 2013 ..................................................... 7.375% Senior Notes due 2014 ..................................................... 3.45% Senior Notes due 2015 ....................................................... 3.05% Senior Notes due 2016 ....................................................... 2.50% Senior Notes due 2017 ....................................................... 7.50% Senior Notes due 2019 ....................................................... 4.90% Senior Notes due 2020 ....................................................... 4.625% Senior Notes due 2021 ..................................................... 3.95% Senior Notes due 2022 ....................................................... 6.20% Senior Notes due 2040 ....................................................... 6.05% Senior Notes due 2041 ....................................................... 5.25% Senior Notes due 2042 ....................................................... Credit facilities .............................................................................. Commercial paper program ........................................................... Total long-term debt ............................................................ 62 $ 299,985 $ 249,799 350,000 299,952 299,852 201,695 498,900 399,527 399,095 399,891 397,613 498,257 — 339,809 317,586 278,966 363,571 306,057 — 248,623 531,437 416,847 — 450,017 443,308 — 975,000 — $ 4,634,375 $ 5,065,245 $ 4,071,964 $ 4,331,412 305,594 $ 269,008 368,824 316,268 309,846 249,358 562,530 442,776 422,227 477,327 468,256 533,422 — 339,809 299,949 $ 249,647 350,000 299,938 — 201,695 498,783 399,480 — 399,890 397,582 — 975,000 — NOBLE CORPORATION (NOBLE-SWISS) AND SUBSIDIARIES NOBLE CORPORATION (NOBLE-CAYMAN) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data) Note 8- Equity Share Capital The following table provides a detail of Noble-Swiss’ share capital as of December 31, 2012 and 2011: Shares outstanding and trading Treasury shares .......................................................... Total shares outstanding Treasury shares held for share-based compensation plans ...................................................................... Total shares authorized for issuance Par value (in Swiss Francs) ........................................ 2012 252,759 589 253,348 12,802 266,150 3.15 December 31, 2011 252,352 287 252,639 13,511 266,150 3.41 Shares authorized for issuance by Noble-Swiss at December 31, 2012 totaled 266.2 million shares and include 0.6 million shares held in treasury by Noble-Swiss and 12.8 million treasury shares held by a wholly-owned subsidiary. Repurchased treasury shares are recorded at cost, and relate to shares surrendered by employees for taxes payable upon the vesting of restricted stock. Our Board of Directors may further increase Noble-Swiss’ share capital through the issuance of up to 133.1 million authorized shares without obtaining shareholder approval. The issuance of these authorized shares is subject to certain conditions regarding their use. The current authority to issue these shares will expire in April 2013. We will recommend at the 2013 annual general meeting of shareholders that shareholders extend this authority for two years until April 2015. In April 2012, our shareholders approved the payment of a dividend aggregating $0.52 per share to be paid in four equal installments. As of December 31, 2012, we had $66 million of dividends payable outstanding on this obligation. Any additional issuances of shares would further increase our obligation. Share Repurchases Share repurchases made in the open market are made pursuant to the share repurchase program, which our Board of Directors authorized and adopted. At December 31, 2012, 6.8 million shares remained available under this authorization. Future repurchases will be subject to the requirements of Swiss law, including the requirement that we and our subsidiaries may only repurchase shares if and to the extent that sufficient freely distributable reserves are available. Also, the aggregate par value of all registered shares held by us and our subsidiaries, including treasury shares, may not exceed 10 percent of our registered share capital without shareholder approval. Our existing share repurchase program received the required shareholder approval prior to completion of our 2009 Swiss migration transaction. Share repurchases for each of the three years ended December 31, 2012 are as follows: Year Ended December 31, 2012 ........................................................................................... 2011 ........................................................................................... 2010 ........................................................................................... Total Number of Shares Purchased (1) 302,150 261,721 6,390,488(2) $ Total Cost Average Price Paid per Share 10,516 $ 10,233 230,936 34.80 39.10 36.14 Includes shares surrendered by employees for taxes payable upon the vesting of restricted stock. (1) (2) Share repurchases under the share repurchase program totaled 6.1 million for 2010. Share-Based Compensation Plans Stock Plans The Noble Corporation 1991 Stock Option and Restricted Stock Plan, as amended (the “1991 Plan”), provides for the granting of options to purchase our shares, with or without stock appreciation rights, and the awarding of restricted shares or units to selected employees. In general, all options granted under the 1991 Plan have a term of 10 years, an exercise price equal to the fair market value of a share on the date of grant and generally vest over a three-year period. The 1991 Plan limits the total number of 63 NOBLE CORPORATION (NOBLE-SWISS) AND SUBSIDIARIES NOBLE CORPORATION (NOBLE-CAYMAN) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data) shares issuable under the plan to 50.1 million. As of December 31, 2012, we had 7.6 million shares remaining available for grants to employees under the 1991 Plan. Prior to October 25, 2007, the Noble Corporation 1992 Nonqualified Stock Option and Share Plan for Non-Employee Directors (the “1992 Plan”) provided for the granting of nonqualified stock options to our non-employee directors. We granted options at fair market value on the grant date. The options are exercisable from time to time over a period commencing one year from the grant date and ending on the expiration of 10 years from the grant date, unless terminated sooner as described in the 1992 Plan. On October 25, 2007, the 1992 Plan was amended and restated to, among other things, eliminate grants of stock options to non-employee directors and modify the annual award of restricted shares from a fixed number of restricted shares to an annually-determined variable number of restricted or unrestricted shares. The 1992 Plan limits the total number of shares issuable under the plan to 2.0 million. As of December 31, 2012, we had 0.6 million shares remaining available for award to non-employee directors under the 1992 Plan. Stock Options A summary of the status of stock options granted under both the 1991 Plan and 1992 Plan as of December 31, 2012, 2011 and 2010 and the changes during the year ended on those dates is presented below: 2012 2011 2010 Outstanding at beginning of year ............................. Granted .................................................................... Exercised (1) ............................................................ Forfeited ................................................................... Outstanding at end of year (2).................................. Exercisable at end of year (2) .................................. Number of Shares Underlying Options 2,498,662 $ 358,772 (645,731) (184,614) 2,027,089 1,453,945 $ Number of Shares Underlying Options Weighted Average Exercise Price 29.22 2,767,486 $ 322,567 36.04 (506,149) 20.97 (85,242) 35.92 32.44 2,498,662 30.70 2,004,370 $ Number of Shares Underlying Options Weighted Average Exercise Price 26.22 3,121,317 $ 212,730 37.71 (549,405) 17.89 (17,156) 31.33 29.22 2,767,486 27.55 2,310,614 $ Weighted Average Exercise Price 24.39 39.46 21.12 20.78 26.22 24.79 (1) The intrinsic value of options exercised during the year ended December 31, 2012 was $14 million. (2) The aggregate intrinsic value of options outstanding and exercisable at December 31, 2012 was $8 million. The following table summarizes additional information about stock options outstanding at December 31, 2012: $16.06 to $26.46 ........................................................................... $26.47 to $35.79 ........................................................................... $35.80 to $43.01 ........................................................................... Total .............................................................................................. Number of Shares Underlying Options 736,408 297,936 992,745 2,027,089 Options Outstanding Weighted Average Remaining Life (Years) Options Exercisable Number Exercisable Weighted Average Exercise Price 736,408 $ 24.06 253,133 32.69 38.59 464,404 32.44 1,453,945 $ Weighted Average Exercise Price 24.06 33.06 39.95 30.70 3.26 $ 4.56 7.23 5.40 $ Fair value information and related valuation assumptions for stock options granted are as follows: Weighted average fair value per option granted ............................. Valuation assumptions: Expected option term (years) .......................................................... Expected volatility .......................................................................... Historical dividend yield ................................................................. Risk-free interest rate ...................................................................... 2012 13.41 $ 2011 13.20 2010 16.14 $ $ 6 43.0% 1.4% 1.1% 6 38.6% 1.5% 2.6% 6 44.6% 1.2% 2.6% 64 NOBLE CORPORATION (NOBLE-SWISS) AND SUBSIDIARIES NOBLE CORPORATION (NOBLE-CAYMAN) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data) The fair value of each option is estimated on the date of grant using a Black-Scholes pricing model. Assumptions used in the valuation are shown in the table above. The expected term of options granted represents the period of time that the options are expected to be outstanding and is derived from historical exercise behavior, current trends and values derived from lattice-based models. Expected volatilities are based on implied volatilities of traded options on our shares, historical volatility of our shares, and other factors. The expected dividend yield is based on historical yields on the date of grant. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant. A summary of the status of our non-vested stock options at December 31, 2012, and changes during the year ended December 31, 2012, is presented below: Non-Vested Options at January 1, 2012 ................... Granted ..................................................................... Vested....................................................................... Forfeited ................................................................... Non-Vested Options at December 31, 2012 ............. Shares Under Outstanding Options Weighted-Average Grant-Date Fair Value 494,292 $ 358,772 (265,780) (74,501) 512,783 $ 13.24 13.13 12.54 14.76 13.25 At December 31, 2012, there was $4 million of total unrecognized compensation cost remaining for option grants awarded under the 1991 Plan. We attribute the service period to the vesting period and the unrecognized compensation is expected to be recognized over a weighted-average period of 1.7 years. Compensation cost recognized during the years ended December 31, 2012, 2011 and 2010 related to stock options totaled $4 million, $3 million and $3 million, respectively. We issue new shares to meet the share requirements upon exercise of stock options. We have historically repurchased shares in the open market from time to time, which minimizes the dilutive effect of share-based compensation. Restricted Stock We have awarded both time-vested restricted stock and market based performance-vested restricted stock under the 1991 Plan. The time-vested restricted stock awards generally vest over a three year period. The number of performance-vested restricted shares which vest will depend on the degree of achievement of specified corporate performance criteria over a three-year performance period. These criteria are strictly market based criteria as defined by FASB standards. The time-vested restricted stock is valued on the date of award at our underlying share price. The total compensation for shares that ultimately vest is recognized over the service period. The shares and related par value are recorded when the restricted stock vests and additional paid-in capital is adjusted as the share-based compensation cost is recognized for financial reporting purposes. The market based performance-vested restricted stock is valued on the date of grant based on the estimated fair value. Estimated fair value is determined based on numerous assumptions, including an estimate of the likelihood that our stock price performance will achieve the targeted thresholds and the expected forfeiture rate. The fair value is calculated using a Monte Carlo Simulation Model. The assumptions used to value the performance-vested restricted stock awards include historical volatility, risk- free interest rates, and expected dividends over a time period commensurate with the remaining term prior to vesting, as follows: Valuation assumptions: Expected volatility ..................................................................................... Expected dividend yield............................................................................. Risk-free interest rate ................................................................................. 2012 2011 2010 41.4% 0.6% 0.3% 57.7% 0.6% 1.3% 57.2% 0.5% 1.3% Additionally, similar assumptions were made for each of the companies included in the defined index and the peer group of companies in order to simulate the future outcome using the Monte Carlo Simulation Model. 65 NOBLE CORPORATION (NOBLE-SWISS) AND SUBSIDIARIES NOBLE CORPORATION (NOBLE-CAYMAN) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data) A summary of the restricted share awards for each of the years in the period ended December 31 is as follows: Time-vested restricted shares: Shares awarded (maximum available) ................................. Weighted-average share price at award date ........................ Weighted-average vesting period (years) ............................ Performance-vested restricted shares: Shares awarded (maximum available) ................................. Weighted-average share price at award date ........................ Three-year performance period ended December 31 ........... Weighted-average award-date fair value ............................. 2012 2011 2010 932,274 36.53 3.0 481,206 36.90 2014 20.05 $ $ $ 660,124 37.68 3.0 508,206 37.60 2013 16.77 $ $ $ 537,269 39.69 3.0 349,784 39.73 2012 17.76 $ $ $ We award unrestricted shares under the 1992 Plan. During the years ended December 31, 2012, 2011 and 2010, we awarded 65,329, 69,711 and 78,714 unrestricted shares to non-employee directors, resulting in related compensation cost of $2 million, $3 million and $3 million, respectively. A summary of the status of non-vested restricted shares at December 31, 2012 and changes during the year ended December 31, 2012 is presented below: Non-vested restricted shares at January 1, 2012 .... Awarded ................................................................ Vested .................................................................... Forfeited ................................................................ Non-vested restricted shares at December 31, 2012 .................................................................. Time-Vested Restricted Shares Outstanding Weighted Average Award-Date Fair Value Performance-Vested Restricted Shares Outstanding (1) Weighted Average Award-Date Fair Value 1,139,903 $ 932,274 (587,972) (128,484) 36.16 36.53 34.25 37.44 1,242,205 $ 481,206 (101,745) (470,328) 15.79 20.05 13.56 14.42 1,355,721 $ 37.13 1,151,338 $ 18.32 (1) The number of performance-vested restricted shares shown equals the shares that would vest if the “maximum” level of performance is achieved. The minimum number of shares is zero and the “target” level of performance is 67 percent of the amounts shown. At December 31, 2012 there was $30 million of total unrecognized compensation cost related to the time-vested restricted shares which is expected to be recognized over a remaining weighted-average period of 1.6 years. The total award-date fair value of time-vested restricted shares vested during the year ended December 31, 2012 was $20 million. At December 31, 2012, there was $8 million of total unrecognized compensation cost related to the performance-vested restricted shares which is expected to be recognized over a remaining weighted-average period of 1.5 years. The total potential compensation for performance-vested restricted stock is recognized over the service period regardless of whether the performance thresholds are ultimately achieved. During the year ended December 31, 2012, 374,864 performance-vested shares for the 2009-2011 performance period were forfeited. In February 2013, all performance-vested shares for the 2010-2012 performance period were forfeited. Share-based amortization recognized during the years ended December 31, 2012, 2011 and 2010 related to all restricted stock totaled $36 million ($31 million net of income tax), $32 million ($28 million net of income tax) and $35 million ($30 million net of income tax), respectively. Capitalized share-based amortization totaled approximately $1 million for each year in 2012, 2011 and 2010, respectively. 66 NOBLE CORPORATION (NOBLE-SWISS) AND SUBSIDIARIES NOBLE CORPORATION (NOBLE-CAYMAN) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data) Note 9- Accumulated Comprehensive Loss The following table sets forth the components of “Accumulated other comprehensive loss” (“AOCL”), net of deferred taxes: $ Foreign currency translation adjustments ......................... Loss on foreign currency forward contracts ..................... Deferred pension amounts ................................................ Accumulated other comprehensive loss, net .................... Less: Noncontrolling interest portion of gain on interest rate swaps ....................................................... Other comprehensive loss, net attributable to Noble 2012 (20,378) — (95,071) (115,449) — December 31, $ 2011 (12,302) (3,061) (58,958) (74,321) 183 Corporation .................................................................. $ (115,449) $ (74,138) Note 10- Gain on Contract Settlements/Extinguishments, Net During the second quarter of 2012, we received approximately $5 million from the settlement of a claim relating to the Noble David Tinsley, which had experienced a “punch-through” while being positioned on location in 2009. We had originally recorded a $17 million charge during 2009 related to this incident. Additionally, during the second quarter of 2012, we settled an action against certain vendors for damages sustained during Hurricane Ike. We recognized a net gain of approximately $28 million related to this settlement. We also resolved all outstanding matters with Anadarko Petroleum Company (“Anadarko”) related to the previously disclosed force majeure action, Hurricane Ike matters and receivables relating to the Noble Amos Runner. In January 2011, we announced the signing of a MOU with Petrobras regarding operations in Brazil. Under the terms of the MOU, we agreed to substitute the Noble Phoenix, then under contract with Shell in Southeast Asia, for the Noble Muravlenko. In connection with the cancellation of the contract on the Noble Phoenix, we recognized a non-cash gain of approximately $52.5 million during the first quarter of 2011, which represented the unamortized fair value of the in-place contract at acquisition. As a result of the substitution, we reached a decision not to proceed with the previously announced reliability upgrade to the Noble Muravlenko that was scheduled to take place in 2013, and therefore, incurred a non-cash charge of approximately $32.6 million related to the termination of outstanding shipyard contracts. The substitution was completed during the fourth quarter of 2012. In February 2011, the outstanding balances of the Bully joint venture credit facilities, which totaled $693 million, were repaid in full and the credit facilities terminated using a portion of the proceeds from our February 2011 debt offering and equity contributions from our joint venture partner. In addition, the related interest rate swaps were settled and terminated concurrent with the repayment and termination of the credit facilities. As a result of these transactions, we recognized a gain of approximately $1.3 million during the first quarter of 2011. Note 11- Loss on Impairment During the second quarter of 2012, our submersible rig fleet, consisting of two cold stacked rigs, was partially impaired due to the declining market outlook for drilling services for this rig type. We estimated the fair value of the rigs based on the salvage value of the rigs and a recent transaction involving a similar unit owned by a peer company (Level 2 fair value measurement). Based on these estimates, we recognized a charge of approximately $13 million in 2012. Also, during the second quarter of 2012, we determined that certain corporate assets were partially impaired due to a declining market for, and the potential disposal of, the assets. We estimated the fair value of the assets based on recent transactions involving similar units in the market (Level 2 fair value measurement). Based on these estimates, we recognized a charge of approximately $7 million in 2012. Note 12- Income Taxes Noble-Swiss is exempt from Swiss cantonal and communal income tax on its worldwide income, and is also granted participation relief from Swiss federal tax for qualifying dividend income and capital gains related to the sale of qualifying participations. It is expected that the participation relief will result in a full exemption of participation income from Swiss federal income tax. 67 NOBLE CORPORATION (NOBLE-SWISS) AND SUBSIDIARIES NOBLE CORPORATION (NOBLE-CAYMAN) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data) We operate through various subsidiaries in numerous countries throughout the world, including the United States. Consequently, income taxes have been provided based on the laws and rates in effect in the countries in which operations are conducted, or in which we or our subsidiaries are considered resident for income tax purposes. The components of the net deferred taxes are as follows: 2012 2011 Deferred tax assets United States .................................................................. Deferred pension plan amounts ............................ Accrued expenses not currently deductible .......... Other .................................................................... Non-U.S. ........................................................................ Net operating loss carry forwards ........................ Deferred pension plan amounts ............................ Other .................................................................... $ Deferred tax assets .................................................................. Net deferred tax assets ............................................................ $ 14,382 20,431 259 43,314 3,832 3,631 85,849 85,849 Deferred tax liabilities United States .................................................................. Excess of net book basis over remaining tax basis ................................................................. Other .................................................................... Non-U.S. ........................................................................ Excess of net book basis over remaining tax basis ................................................................. Deferred tax liabilities ............................................................. Net deferred tax liabilities ....................................................... $ (254,724) (2,102) (38,726) (295,552) (209,703) $ $ $ $ $ $ $ 17,768 33,145 343 62,351 4,104 139 117,850 117,850 (290,074) (5,499) (52,117) (347,690) (229,840) Income before income taxes consists of the following: United States ........................................................................ Non-U.S. .............................................................................. Total ..................................................................................... The income tax provision consists of the following: Current- United States ........................................................... Current- Non-U.S. ................................................................. Deferred- United States ......................................................... Deferred- Non-U.S. ............................................................... Total ....................................................................................... 2012 209,662 493,563 703,225 $ $ 2012 88,183 79,024 (21,228) 1,109 147,088 $ $ 68 Year Ended December 31, 2011 142,922 293,328 436,250 $ $ $ $ $ Year Ended December 31, 2011 68,254 86,696 (39,167) (43,158) 72,625 $ $ $ 2010 132,326 784,183 916,509 2010 80,895 101,192 (36,403) (2,607) 143,077 NOBLE CORPORATION (NOBLE-SWISS) AND SUBSIDIARIES NOBLE CORPORATION (NOBLE-CAYMAN) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data) The following is a reconciliation of our reserve for uncertain tax positions, excluding interest and penalties: Gross balance at January 1, .................................................. $ Additions based on tax positions related to current year ....................................................................... Additions for tax positions of prior years ................... Reductions for tax positions of prior years ................. Expiration of statutes (1) ............................................... Tax settlements ........................................................... Gross balance at December 31, ............................................ Related tax benefits........................................... Net reserve at December 31, ................................................ $ 2012 108,036 2011 128,581 $ $ 2010 87,668 3,704 16,432 (7,917) (1,903) (3,343) 115,009 (9,981) 105,028 5,130 5,718 (2,354) (28,846) (193) 108,036 (8,127) 99,909 6,942 40,264 — (6,293) — 128,581 (7,693) 120,888 $ $ (1) $(15.7) million and $(4.9) million relate to transactions recorded directly to equity for the years ended December 31, 2011 and December 31, 2010, respectively. There were no transactions recorded directly to equity for the year ended December 31, 2012. The liabilities related to our reserve for uncertain tax positions are comprised of the following: 2012 2011 Reserve for uncertain tax positions, excluding interest and penalties ................................................................ Interest and penalties included in “Other liabilities” ........................................................... Reserve for uncertain tax positions, including interest and penalties ................................................................ $ 105,028 $ 99,909 19,944 18,202 $ 124,972 $ 118,111 If these reserves of $125 million are not realized, the provision for income taxes will be reduced by $125 million. We include, as a component of our “Income tax provision”, potential interest and penalties related to recognized tax contingencies within our global operations. Interest and penalties resulted in an income tax expense of $5 million in 2012, an income tax benefit of $5 million in 2011 and an income tax expense of $6 million in 2010. It is reasonably possible that our existing liabilities related to our reserve for uncertain tax positions may increase or decrease in the next twelve 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. We conduct business globally and, as a result, we file numerous income tax returns in the U.S. and non-U.S. jurisdictions. In the normal course of business we are subject to examination by taxing authorities throughout the world, including major jurisdictions such as Brazil, India, Mexico, Nigeria, Norway, Qatar, Saudi Arabia, Switzerland, the United Kingdom and the United States. We are no longer subject to U.S. Federal income tax examinations for years before 2008 and non-U.S. income tax examinations for years before 2002. 69 NOBLE CORPORATION (NOBLE-SWISS) AND SUBSIDIARIES NOBLE CORPORATION (NOBLE-CAYMAN) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data) Noble-Swiss conducts substantially all of its business through Noble-Cayman and its subsidiaries. Earnings are taxable in Switzerland at the Swiss statutory rate of 8.5 percent. This statutory rate is not material due to our participation exemption, and the Cayman Islands does not impose a corporate income tax. A reconciliation of tax rates outside of Switzerland and the Cayman Islands to our Noble-Swiss effective rate is shown below: Year Ended December 31, 2011 2012 2010 Effect of: Tax rates which are different than the Swiss and Cayman Island rates ............................................................................................. Reserve for (resolution of) tax authority audits ................................ Total ........................................................................................................... 20.7% 0.2% 20.9% 18.9% -2.2% 16.7% 14.6% 1.0% 15.6% In 2012, we generated and fully utilized $22 million of U.S. foreign tax credits. In 2011, we generated and fully utilized $21 million of U.S. foreign tax credits. In 2010, we fully utilized our foreign tax credits of $17 million. Deferred income taxes and the related dividend withholding taxes have not been provided on approximately $2.1 billion of undistributed earnings of our subsidiaries. We consider such earnings to be permanently reinvested. Due to complexities in the tax laws and the manner of repatriation, it is not practicable to estimate the amount of deferred income taxes associated with these unremitted earnings. If such earnings were to be distributed, we would be subject to tax, which would have a material impact on our results of operations. Note 13- Employee Benefit Plans Defined Benefit Plans We have two U.S. noncontributory defined benefit pension plans: one which covers certain salaried employees and one which covers certain hourly employees, whose initial date of employment is prior to August 1, 2004 (collectively referred to as our “qualified U.S. plans”). These plans are governed by the Noble Drilling Corporation Retirement Trust (the “Trust”). The benefits from these plans are based primarily on years of service and, for the salaried plan, employees’ compensation near retirement. These plans qualify under the Employee Retirement Income Security Act of 1974 (“ERISA”), and our funding policy is consistent with funding requirements of ERISA and other applicable laws and regulations. We make cash contributions, or utilize credit balances available to us under the plan, for the qualified U.S. plans when required. The benefit amount that can be covered by the qualified U.S. plans is limited under ERISA and the Internal Revenue Code (“IRC”) of 1986. Therefore, we maintain an unfunded, nonqualified excess benefit plan designed to maintain benefits for all employees at the formula level in the qualified salary U.S. plan. We refer to the qualified U.S. plans and the excess benefit plan collectively as the “U.S. plans”. Each of Noble Drilling (Land Support) Limited, Noble Enterprises Limited and Noble Drilling (Nederland) B.V., all indirect, wholly-owned subsidiaries of Noble-Swiss, maintains a pension plan which covers all of its salaried, non-union employees (collectively referred to as our “non-U.S. plans”). Benefits are based on credited service and employees’ compensation near retirement, as defined by the plans. A reconciliation of the changes in projected benefit obligations (“PBO”) for our non-U.S. and U.S. plans is as follows: Benefit obligation at beginning of year .................................... Service cost ..................................................................... Interest cost ..................................................................... Actuarial loss .................................................................. Benefits paid ................................................................... Plan participants’ contributions ...................................... Foreign exchange rate changes ....................................... $ Benefit obligation at end of year .............................................. $ 70 2012 Non-U.S. 111,164 $ 4,461 5,372 28,442 (2,442) 747 4,037 151,781 $ Year Ended December 31, U.S. 192,042 $ 9,612 8,719 19,115 (3,603) — — 225,885 $ 2011 Non-U.S. 101,133 $ 4,545 5,586 3,202 (2,810) 781 (1,273) 111,164 $ U.S. 157,903 8,608 8,570 20,643 (3,682) — — 192,042 NOBLE CORPORATION (NOBLE-SWISS) AND SUBSIDIARIES NOBLE CORPORATION (NOBLE-CAYMAN) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data) A reconciliation of the changes in fair value of plan assets is as follows: Fair value of plan assets at beginning of year .......................... Actual return on plan assets ............................................ Employer contributions ................................................... Benefits and expenses paid ............................................. Plan participants’ contributions ...................................... Foreign exchange rate changes ....................................... $ Fair value of plan assets at end of year ..................................... $ The funded status of the plans is as follows: Funded status ................................................................................... 2012 Non-U.S. 143,110 $ 935 5,647 (2,442) 747 3,822 151,819 $ Year Ended December 31, U.S. 140,828 $ 19,251 10,694 (3,603) — — 167,170 $ 2011 Non-U.S. 128,695 $ 13,228 5,543 (2,810) 781 (2,327) 143,110 $ U.S. 144,542 (5,063) 5,031 (3,682) — — 140,828 Year Ended December 31, 2012 2011 Non-U.S. $ 38 $ U.S. (58,715) $ Non-U.S. 31,946 $ U.S. (51,214) Amounts recognized in the Consolidated Balance Sheets consist of: Other assets (noncurrent) ................................................................ Other liabilities (current) ................................................................ Other liabilities (noncurrent) .......................................................... $ Net amount recognized ................................................................... $ 2012 2011 Non-U.S. U.S. Non-U.S. 3,486 $ — (3,448) 38 $ — $ (1,988) (56,727) (58,715) $ 31,946 $ — — 31,946 $ U.S. 596 (1,630) (50,180) (51,214) Amounts recognized in the “Accumulated other comprehensive loss” consist of: Net actuarial loss ............................................................................ Prior service cost ............................................................................ Transition obligation ...................................................................... Deferred income tax asset .............................................................. $ Accumulated other comprehensive loss ......................................... $ Year Ended December 31, 2012 Non-U.S. 40,288 $ — — (3,832) 36,456 $ U.S. 89,046 $ 1,131 — (31,562) 58,615 $ 2011 Non-U.S. 6,691 $ — — (4,104) 2,587 $ U.S. 85,366 1,359 — (30,354) 56,371 71 NOBLE CORPORATION (NOBLE-SWISS) AND SUBSIDIARIES NOBLE CORPORATION (NOBLE-CAYMAN) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data) Pension cost includes the following components: Service Cost .................................................................... Interest Cost .................................................................... Return on plan assets ...................................................... Pension obligation settlement ......................................... Amortization of prior service cost .................................. Amortization of transition obligation .............................. Recognized net actuarial loss .......................................... $ Net pension expense ....................................................... $ 2012 Non-U.S. 4,461 $ 5,372 (5,344) — — — 803 5,292 $ Year Ended December 31, 2011 U.S. 9,612 $ 8,719 (11,171) — 227 — 7,356 14,743 $ Non-U.S. 4,545 $ 5,586 (5,647) — 483 74 — 5,041 $ U.S. 8,608 $ 8,570 (11,072) — 227 — 3,374 9,707 $ 2010 Non-U.S. U.S. 4,260 $ 7,648 4,926 7,829 (9,568) (5,321) 227 718 — 70 — — 2,821 — 4,653 $ 8,957 The estimated prior service cost, transition obligation and net actuarial loss that will be amortized from “Accumulated other comprehensive loss” into net periodic pension cost in 2013 are $0 million, $0 million and $1.7 million, respectively, for non- U.S. plans and $0.2 million, $0 million and $7.6 million, respectively, for U.S. plans. Defined Benefit Plans—Disaggregated Plan Information Disaggregated information regarding our non-U.S. and U.S. plans is summarized below: Projected benefit obligation ....................................................... Accumulated benefit obligation ................................................ Fair value of plan assets ............................................................ $ 2012 Non-U.S. 151,781 $ 146,612 151,819 Year Ended December 31, 2011 U.S. 225,885 $ 185,961 167,170 Non-U.S. 111,164 $ 107,832 143,110 U.S. 192,042 155,484 140,828 The following table provides information related to those plans in which the PBO exceeded the fair value of the plan assets at December 31, 2012 and 2011. The PBO is the actuarially computed present value of earned benefits based on service to date and includes the estimated effect of any future salary increases. Projected benefit obligation ........................................................... Fair value of plan assets ................................................................ $ 87,455 $ 84,007 2012 Non-U.S. Year Ended December 31, U.S. 225,885 $ 167,170 2011 Non-U.S. — $ — U.S. 169,733 117,924 The PBO for the unfunded excess benefit plan was $14 million at December 31, 2012 as compared to $13 million in 2011, and is included under “U.S.” in the above tables. The following table provides information related to those plans in which the accumulated benefit obligation (“ABO”) exceeded the fair value of plan assets at December 31, 2012 and 2011. The ABO is the actuarially computed present value of earned benefits based on service to date, but differs from the PBO in that it is based on current salary levels. Accumulated benefit obligation .................................................... Fair value of plan assets ................................................................ $ 6,481 $ 5,074 2012 Non-U.S. Year Ended December 31, U.S. 185,961 $ 167,170 2011 Non-U.S. — $ — U.S. 133,175 117,924 The ABO for the unfunded excess benefit plan was $13 million at December 31, 2012 as compared to $10 million in 2011, and is included under “U.S.” in the above tables. 72 NOBLE CORPORATION (NOBLE-SWISS) AND SUBSIDIARIES NOBLE CORPORATION (NOBLE-CAYMAN) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data) Defined Benefit Plans—Key Assumptions The key assumptions for the plans are summarized below: 2012 Non-U.S. Year Ended December 31, U.S. Non-U.S. 2011 U.S. Weighted-average assumptions used to determine benefit obligations: Discount Rate ....................................................... Rate of compensation increase............................. 3.6%-4.5% 3.6%-4.1% 3.1%-4.2% 5.0% 4.7%-5.0% 3.9%-4.0% 4.3%-4.7% 5.0% Non-U.S. 2012 U.S. Year Ended December 31, 2011 Non-U.S. U.S. 2010 Non-U.S. U.S. Weighted-average assumptions used to determine periodic benefit cost: Discount Rate ................................ Expected long-term return on 4.7%-5.0% 4.3%-4.7% 5.3%-5.4% 5.0%-5.8% 5.3%-5.4% 5.8%-6.0% assets ......................................... Rate of compensation increase ...... 3.9%-5.4% 2.3%-4.4% 7.8% 2.2%-6.3% 5.0% 3.9%-4.6% 7.8% 3.0%-6.5% 5.0% 3.9%-4.0% 7.8% 5.0% The discount rate used to calculate the net present value of future benefit obligations for our U.S. plan is based on the average of current rates earned on long-term bonds that receive a Moody’s rating of “Aa” or better. We have determined that the timing and amount of expected cash outflows on our plan reasonably match this index. For non-U.S. plans, the discount rates used to calculate the net present value of future benefit obligations are determined by using a yield curve of high quality bond portfolios with an average maturity approximating that of the liabilities. We employ third-party consultants for our U.S. and non-U.S. plans that use a portfolio return model to assess the initial reasonableness of the expected long-term rate of return on plan assets. To develop the expected long-term rate of return on assets, we considered the current level of expected returns on risk free investments (primarily government bonds), the historical level of risk premium associated with the other asset classes in which the portfolio is invested and the expectations for future returns of each asset class. The expected return for each asset class was then weighted based on the target asset allocation to develop the expected long- term rate of return on assets for the portfolio. Defined Benefit Plans—Plan Assets Non-U.S. Plans Both the Noble Enterprises Limited and Noble Drilling (Nederland) B.V. pension plans have a targeted asset allocation of 100 percent debt securities. The investment objective for the Noble Enterprises Limited U.S. Dollar plan assets is to earn a favorable return against the Citigroup World Governmental Bond Index for all maturities greater than one year. The investment objective for both the Noble Enterprises Limited (“NEL”) and the Noble Drilling (Nederland) B.V. (“NDNBV”) Euro plan assets is to earn a favorable return against the Barclays Capital Euro Aggregate Unhedged index and the Customized Benchmark for Long Duration Fund for all maturities greater than one year. We evaluate the performance of these plans on an annual basis. The Noble Drilling (Land Support) Limited pension plan has a target asset allocation of 70 percent equity securities and 30 percent debt securities. The investment objective of the plan, as adopted by the plan’s trustees, is to achieve a favorable return against a benchmark of blended United Kingdom market indices. By achieving this objective, the trustees believe the plan will be able to avoid significant volatility in the contribution rate and provide sufficient plan assets to cover the plan’s benefit obligations were the plan to be liquidated. To achieve these objectives, the trustees have given the plan’s investment managers full discretion in the day-to- day management of the plan’s assets. The plan’s assets are invested with two investment managers. The performance objective communicated to one of these investment managers is to exceed a blend of FTSE A Over 15 Year Gilts index and iBoxx Sterling Non Gilts index by 1.25 percent per annum. The performance objective communicated to the other investment manager is to exceed a blend of FTSE’s All Share index, North America index, Europe index and Pacific Basin index by 1.00 to 2.00 percent per annum. This investment manager is prohibited by the trustees from investing in real estate. The trustees meet with the investment managers periodically to review and discuss their investment performance. 73 NOBLE CORPORATION (NOBLE-SWISS) AND SUBSIDIARIES NOBLE CORPORATION (NOBLE-CAYMAN) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data) The actual fair values of Non-U.S. pension plans as of December 31, 2012 and 2011 are as follows: Quoted Prices in Active Markets (Level 1) Carrying Amount December 31, 2012 Estimated Fair Value Measurements Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Cash ........................................................................................ $ 7,158 $ 7,158 $ — $ — Equity securities: International companies ................................................. Fixed income securities: Corporate bonds ............................................................. Other .............................................................................. Total ........................................................................................ $ 45,560 $ 45,560 $ — $ — $ $ 22,189 $ 76,912 151,819 $ — $ — 52,718 $ 22,189 $ — 22,189 $ — 76,912 76,912 Quoted Prices in Active Markets (Level 1) Carrying Amount December 31, 2011 Estimated Fair Value Measurements Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Cash ....................................................................................... $ 50 $ 50 $ — $ Equity securities: International companies ................................................. Fixed income securities: Corporate bonds ............................................................. Other .............................................................................. Total ....................................................................................... $ 38,842 $ 38,842 $ — $ $ $ 20,196 $ 84,022 143,110 $ — $ — 38,892 $ 20,196 $ 84,022 104,218 $ — — — — — For the year ended December 31, 2011, we presented the $20 million in fixed income securities in the December 31, 2011 table above as a Level 1 measurement. While the underlying investments are traded in active markets, which is a Level 1 measurement, the funds we own the investments through are not themselves actively traded, and therefore are being presented as a Level 2 measurement at both December 31, 2012 and 2011. The change in presentation for December 31, 2011 does not affect the fair value of the investment, nor does it have a material impact on our funding status as of December 31, 2011. 74 NOBLE CORPORATION (NOBLE-SWISS) AND SUBSIDIARIES NOBLE CORPORATION (NOBLE-CAYMAN) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data) At December 31, 2012, assets of both NEL and NDNBV are invested in instruments that are similar in form to a guaranteed insurance contract. There are no observable market values for these assets (Level 3); however, the amounts listed as plan assets were materially similar to the anticipated benefit obligations that were anticipated under the plan. Amounts were therefore calculated using actuarial assumptions completed by third-party consultants employed by Noble. The following table details the activity related to these investments during the year. Balance as of December 31, 2011 Assets purchased ........................................................................... Assets sold/benefits paid ............................................................... Gain on exchange rate ................................................................... Loss on investment ........................................................................ Balance as of December 31, 2012 Market Value — 77,891 (591) 1,274 (1,662) 76,912 $ $ U.S. Plans The Trust invests in equity securities, fixed income debt securities, and cash equivalents and other short-term investments. The Trust may invest in these investments directly or through pooled vehicles, including mutual funds. The Company’s overall investment strategy, or target range, is to achieve a mix of approximately 65 percent in equity securities, 32 percent in debt securities and 3 percent in cash holdings. Actual results may deviate from the target range, however any deviation from the target range of asset allocations must be approved by the Trust’s governing committee. The performance objective of the Trust is to outperform the return of the Total Index Composite as constructed to reflect the target allocation weightings for each asset class. This objective should be met over a market cycle, which is defined as a period not less than three years or more than five years. U.S. equity securities (common stock, convertible preferred stock and convertible bonds) should achieve a total return (after fees) that exceeds the total return of an appropriate market index over a full market cycle of three to five years. Non-U.S. equity securities (common stock, convertible preferred stock and convertible bonds), either from developed or emerging markets, should achieve a total return (after fees) that exceeds the total return of an appropriate market index over a full market cycle of three to five years. Fixed income debt securities should achieve a total return (after fees) that exceeds the total return of an appropriate market index over a full market cycle of three to five years. Cash equivalent and short-term investments should achieve relative performance better than the 90-day Treasury bills. When mutual funds are used by the Trust, those mutual funds should achieve a total return that equals or exceeds the total return of each fund’s appropriate Lipper or Morningstar peer category over a full market cycle of three to five years. Lipper and Morningstar are independent mutual fund rating and information services. For investments in equity securities, no individual options or financial futures contracts are purchased unless approved in writing by the Trust’s governing committee. In addition, no private placements or purchases of venture capital are allowed. The maximum commitment to a particular industry, as defined by Standard & Poor’s, may not exceed 20 percent. The Trust’s equity managers vote all proxies in the best interest of the Trust without regards to social issues. The Trust’s governing committee reserves the right to comment on and exercise control over the response to any individual proxy solicitation. For fixed income debt securities, corporate bonds purchased are primarily limited to investment grade securities as established by Moody’s or Standard & Poor’s. At no time shall the lowest investment grade make up more than 20 percent of the total market value of the Trust’s fixed income holdings. The total fixed income exposure from any single non-government or government agency issuer shall not exceed 10 percent of the Trust’s fixed income holdings. The average duration of the total portfolio shall not exceed seven years. All interest and principal receipts are swept, as received, into an alternative cash management vehicle until reallocated in accordance with the Trust’s core allocation. For investments in mutual funds, the assets of the Trust are subject to the guidelines and limits imposed by such mutual fund’s prospectus and the other governing documentation at the fund level. For investments in cash equivalent and short-term investments, the Trust utilizes a money market mutual fund which invests in U.S. government and agency obligations, repurchase agreements collateralized by U.S. government or agency securities, commercial paper, bankers’ acceptances, certificate of deposits, delayed delivery transactions, reverse repurchase agreements, time 75 NOBLE CORPORATION (NOBLE-SWISS) AND SUBSIDIARIES NOBLE CORPORATION (NOBLE-CAYMAN) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data) deposits and Euro obligations. Bankers’ acceptances shall be made in larger banks (ranked by assets) rated “Aa” or better by Moody’s and in conformance with all FDIC regulations concerning capital requirements. Equity securities include our shares in the amounts of $4 million (2.3 percent of total U.S. plan assets) and $3 million (2.4 percent of total U.S. plan assets) at December 31, 2012 and 2011, respectively. The actual fair values of U.S. pension plan assets as of December 31, 2012 and 2011 are as follows: . Carrying Amount Quoted Prices in Active Markets (Level 1) December 31, 2012 Estimated Fair Value Measurements Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Cash ................................................................................... $ 1,609 $ 1,609 $ — $ — Equity securities: U.S. Companies ........................................................ $ Fixed income securities: Corporate bonds ........................................................ Total ................................................................................... $ $ 113,730 $ 94,578 $ 19,152 $ 51,831 $ 167,170 $ 51,831 $ 148,018 $ — $ 19,152 $ — — — December 31, 2011 Estimated Fair Value Measurements Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Quoted Prices in Active Markets (Level 1) Carrying Amount Cash ..................................................................................... $ 1,345 $ 1,345 $ — $ Equity securities: U.S. Companies ........................................................... $ Fixed income securities: Corporate bonds ........................................................... Total ..................................................................................... $ $ 95,931 $ 78,822 $ 17,109 $ 43,552 $ 140,828 $ 43,552 $ 123,719 $ — $ 17,109 $ — — — — For the year ended December 31, 2011, we presented the $17 million in equity securities in the December 31, 2011 table above as a Level 1 measurement. While the underlying investments are traded in active markets, which is a Level 1 measurement, the funds we own the investments through are not themselves actively traded, and therefore are being presented as a Level 2 measurement at both December 31, 2012 and 2011. The change in presentation for December 31, 2011 does not affect the fair value of the investment, nor does it have a material impact on our funding status as of December 31, 2011. As of December 31, 2012, no single security made up more than 10 percent of total assets of either the U.S. or the Non- U.S. plans. Defined Benefit Plans—Cash Flows In 2012, we made total contributions of $6 million and $11 million to our non-U.S. and U.S. pension plans, respectively. In 2011, we made total contributions of $6 million and $5 million to our non-U.S. and U.S. pension plans, respectively. In 2010, we made total contributions of $6 million and $10 million to our non-U.S. and U.S. pension plans, respectively. We expect our aggregate minimum contributions to our non-U.S. and U.S. plans in 2013, subject to applicable law, to be $8 million and $10 million, respectively. We continue to monitor and evaluate funding options based upon market conditions and may increase contributions at our discretion. 76 NOBLE CORPORATION (NOBLE-SWISS) AND SUBSIDIARIES NOBLE CORPORATION (NOBLE-CAYMAN) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data) The following table summarizes our estimated benefit payments at December 31, 2012: Total 2013 2014 2015 2016 2017 Thereafter Payments by Period Estimated benefit payments Non U.S. plan.................................................... U.S. plan ........................................................... Total estimated benefit payments ..................... Other Benefit Plans $ 43,901 $ 2,138 $ 2,249 $ 2,403 $ 5,720 92,319 2,779 $ 7,453 $ 136,220 $ 8,166 $ 7,388 $ 8,123 $ 10,200 $ 10,232 $ 2,547 $ 7,653 6,028 5,139 31,785 60,326 92,111 We sponsor the Restoration Plan, which is a nonqualified, unfunded employee benefit plan under which certain highly compensated employees may elect to defer compensation in excess of amounts deferrable under our 401(k) savings plan. The Restoration Plan has no assets, and amounts withheld for the Restoration Plan are kept by us for general corporate purposes. The investments selected by employees and associated returns are tracked on a phantom basis. Accordingly, we have a liability to the employee for amounts originally withheld plus phantom investment income or less phantom investment losses. We are at risk for phantom investment income and, conversely, benefit should phantom investment losses occur. At December 31, 2012 and 2011, our liability for the Restoration Plan was $7 million and $6 million, respectively, and is included in “Accrued payroll and related costs.” In 2005 we enacted a profit sharing plan, the Noble Drilling Corporation Profit Sharing Plan, which covers eligible employees, as defined. Participants in the plan become fully vested in the plan after five years of service, or three years beginning in 2007. Profit sharing contributions are discretionary, require Board of Directors approval and are made in the form of cash. Contributions recorded related to this plan totaled $4 million, $2 million and $2 million in 2012, 2011 and 2010, respectively. We sponsor a 401(k) savings plan and other plans for the benefit of our employees. The cost of maintaining these plans aggregated $84 million, $61 million and $45 million in 2012, 2011 and 2010, respectively. We do not provide post-retirement benefits (other than pensions) or any post-employment benefits to our employees. Note 14- 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 were we a party to leveraged derivatives. During the period, we maintained certain foreign currency forward contracts that did not qualify under the FASB standards for hedge accounting treatment and therefore, changes in fair values were recognized as either income or loss in our consolidated income statement. 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. For interest rate swaps, we evaluate all material terms between the swap and the underlying debt obligation, known in FASB standards as the “long-haul method”. Any change in fair value resulting from ineffectiveness is recognized immediately in earnings. No income or loss was recognized during 2012 due to hedge ineffectiveness. During 2011 and 2010, we recognized a loss of $1.2 million and $0.3 million, respectively, in other income due to interest rate swap hedge ineffectiveness. Cash Flow Hedges Our North Sea and Brazil operations have a significant amount of their cash operating expenses payable in local currencies. To limit the potential risk of currency fluctuations, we have historically maintained short-term forward contracts settling monthly in their respective local currencies. At December 31, 2012, we had no outstanding derivative contracts. At December 31, 2011 total unrealized loss related to forward contracts was $3 million, which was recorded as part of AOCL in our Consolidated Balance Sheet. Our two joint ventures had maintained interest rate swaps which were classified as cash flow hedges. The purpose of these hedges was to satisfy bank covenants of the then outstanding credit facilities and to limit exposure to changes in interest rates. In February 2011, the outstanding balances of the joint venture credit facilities and the related interest rate swaps were settled and terminated. As a result of these transactions, we recognized a gain of $1 million during the year ended December 31, 2011. 77 NOBLE CORPORATION (NOBLE-SWISS) AND SUBSIDIARIES NOBLE CORPORATION (NOBLE-CAYMAN) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data) The balance of the net unrealized gain/(loss) related to our cash flow hedges included in AOCL in the Consolidated Balance Sheets and related activity is as follows: Net unrealized gain (loss) at beginning of period ......................... Activity during period: $ Settlement of foreign currency forward contracts during the period ........................................................................ Settlement of interest rate swaps during the period ............. Net unrealized gain/(loss) on outstanding foreign currency forward contracts ............................................. Net unrealized gain on outstanding interest rate swaps ....... Net unrealized gain/(loss) at end of period ................................... $ 2012 (3,061) 2011 1,970 2010 417 $ $ 3,061 — — — — (1,604) (366) (3,061) — (3,061) $ (417) — 1,604 366 1,970 $ Foreign Currency Forward Contracts The Bully 2 joint venture maintained foreign currency forward contracts to help mitigate the risk of currency fluctuation of the Singapore Dollar for the construction of the Noble Bully II drillship. These contracts were not designated for hedge accounting treatment under FASB standards, and therefore, changes in fair values were recognized as either income or loss in our Consolidated Income Statement. These contracts are referred to as non-designated derivatives in the tables to follow, and all were settled during the first quarter of 2011. For the year ended December 31, 2011, we recognized a loss of $0.5 million related to these foreign currency forward contracts. Financial Statement Presentation The following tables, together with Note 15, summarize the financial statement presentation and fair value of our derivative positions as of December 31: Balance sheet classification Estimated fair value 2012 2011 Liability derivatives Cash flow hedges Short-term foreign currency forward contracts ......................................... Other current liabilities $ — $ 3,061 To supplement the fair value disclosures in Note 15, the following summarizes the recognized gains and losses of cash flow hedges and non-designated derivatives through AOCL or through “other income” for the years ended December 31, 2012 and 2011: Gain/(loss) recognized through AOCL 2012 2011 Gain reclassified from AOCL to “other income” 2011 2012 Gain/(loss) recognized through “other income” 2012 2011 Cash flow hedges Foreign currency forward contracts ............................. Interest rate swaps ....................................................... Non-designated derivatives Foreign currency forward contracts ............................. $ — $ (3,061) $ 3,061 $ (1,604) $ — $ — — — (366) — — — $ — $ — $ — $ — $ — $ (546) During the year ended December 31, 2011, in connection with the settlement of our interest rate swaps, $1 million was reclassified from AOCL to “gain on contract extinguishments, net”. For cash flow presentation purposes, cash outflows of $29 million were recognized in the financing activities section related to the settlement of interest rate swaps in 2011. All other amounts are recognized through changes in operating activities and are recognized through changes in other assets and liabilities. 78 NOBLE CORPORATION (NOBLE-SWISS) AND SUBSIDIARIES NOBLE CORPORATION (NOBLE-CAYMAN) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data) Note 15- Financial Instruments and Credit Risk The following table presents the carrying amount and estimated fair value as of December 31, 2012 and 2011 of our financial instruments recognized at fair value on a recurring basis: December 31, 2012 Estimated Fair Value Measurements Quoted Prices in Active Markets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Carrying Amount Assets - Marketable securities ....................................................... $ 5,816 $ 5,816 $ — $ — December 31, 2011 Estimated Fair Value Measurements Quoted Prices in Active Markets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Carrying Amount Assets - Marketable securities ....................................................... $ Liabilities - Foreign currency forward contracts ................................. $ 4,701 $ 4,701 $ — $ 3,061 $ — $ 3,061 $ — — The derivative instruments have been valued using actively quoted prices and quotes obtained from the counterparties to the derivative agreements. Our cash and cash equivalents, accounts receivable and accounts payable are by their nature short-term. As a result, the carrying values included in the accompanying Consolidated Balance Sheets approximate fair value. Concentration of Credit Risk The market for our services is the offshore oil and gas industry, and our customers consist primarily of government-owned oil companies, major integrated oil companies and independent oil and gas producers. We perform ongoing credit evaluations of our customers and generally do not require material collateral. We maintain reserves for potential credit losses when necessary. Our results of operations and financial condition should be considered in light of the fluctuations in demand experienced by drilling contractors as changes in oil and gas producers’ expenditures and budgets occur. These fluctuations can impact our results of operations and financial condition as supply and demand factors directly affect utilization and dayrates, which are the primary determinants of our net cash provided by operating activities. In 2012, two customers combined for approximately 46 percent of our consolidated operating revenues. In 2011, three customers combined for approximately 57 percent of our consolidated operating revenues. In 2010, three customers accounted for approximately 50 percent of consolidated operating revenues. No other customer accounted for more than 10 percent of consolidated operating revenues in 2012, 2011 and 2010. Note 16- Commitments and Contingencies The Noble Homer Ferrington was under contract with a subsidiary of ExxonMobil Corporation (“ExxonMobil”), which entered into an assignment agreement with BP for a two-well farmout of the rig in Libya after successfully drilling two wells with the rig for ExxonMobil. In August 2010, BP attempted to terminate the assignment agreement claiming that the rig was not in the required condition, and ExxonMobil informed us that we must look to BP for payment of the dayrate during the assignment period. In August 2010, we initiated arbitration proceedings under the drilling contract against both BP and ExxonMobil. We do not believe BP had the right to terminate the assignment agreement and believe the rig was ready to operate under the drilling contract. The rig operated under farmout arrangements from March 2011 to the conclusion of the contract in the second quarter of 2012. We believe we are owed dayrate by either or both of these clients. The operating dayrate was approximately $538,000 per day for the work in Libya. The arbitration process is proceeding, and we intend to vigorously pursue these claims. As a result of the uncertainties noted above, we 79 NOBLE CORPORATION (NOBLE-SWISS) AND SUBSIDIARIES NOBLE CORPORATION (NOBLE-CAYMAN) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data) have not recognized any revenue during the assignment period and the matter could have a material positive effect on our results of operations or cash flows in the period the matter is resolved should the arbitration panel ultimately rule in our favor. In August 2007, we entered into a drilling contract with Marathon Oil Company (“Marathon”) for the Noble Jim Day to operate in the U.S. Gulf of Mexico. On January 1, 2011, Marathon provided notice that it was terminating the contract. Marathon’s stated reason for the termination was that the rig had not been accepted by Marathon by December 31, 2010, and Marathon also maintained that a force majeure condition existed under the contract. The contract contained a provision allowing Marathon to terminate if the rig had not commenced operations by December 31, 2010. We believe the rig was ready to commence operations and should have been accepted by Marathon. The contract term was for four years. No revenue has been recognized under this contract. We have contracted the rig for much of the original term with other customers. In March 2011, we filed suit in Texas State District Court against Marathon seeking damages for its actions. The suit is proceeding and we expect the trial to occur in the third quarter of 2013. We cannot provide assurance as to the outcome of this lawsuit. In November 2012, the U.S. Coast Guard in Alaska conducted an inspection of our drillship, the Noble Discoverer, and cited a number of deficiencies that needed to be remediated, including issues relating to the main propulsion and safety management system. We initiated a comprehensive effort to address the deficiencies identified by the Coast Guard and commenced an ongoing dialogue with the agency to keep it apprised of our progress. We began an internal investigation in conjunction with the Coast Guard inspection, and the Coast Guard then began their own investigation. We reported certain potential violations of applicable law to the Coast Guard identified as a result of our internal investigation. These related to what we believe were certain unauthorized disposals of collected deck and sea water from the Noble Discoverer, as well as potential record-keeping issues with the oil record books for the Noble Discoverer and other rigs. The Coast Guard has referred the Noble Discoverer matter to the U.S. Department of Justice (“DOJ”) for further investigation. We are cooperating with the DOJ and Coast Guard in connection with their investigation. We cannot predict when the DOJ and Coast Guard will conclude the investigation and cannot provide any assurances with respect to the outcome. If the DOJ or Coast Guard determines that violations of applicable law have occurred, they could seek civil and criminal sanctions, including monetary penalties, against us and/or certain of our employees, as well as oversight of our operational compliance programs. Based on information obtained to date, we believe it is probable that we will have to pay an amount to resolve this matter. However, we are not in a position to estimate the potential liability that may result and have not made any accrual in our consolidated financial statements at December 31, 2012. In January 2012, we were assessed a fine by the Brazilian government in the amount of R$1.8 million (approximately $878,000) in connection with the inadvertent discharge of drilling fluid from one of our rigs offshore Brazil in September 2011. We have accepted and paid the assessment. In October 2011, we were assessed a fine by the Brazilian government in the amount of R$238,000 (approximately $116,000) in connection with the inadvertent discharge of approximately 200 barrels of drilling fluid from one of our vessels offshore Brazil in November 2010. We plan on appealing this judgment to the full extent permissible by law. We are from time to time a party to various lawsuits that are incidental to our operations in which the claimants seek an unspecified amount of monetary damages for personal injury, including injuries purportedly resulting from exposure to asbestos on drilling rigs and associated facilities. At December 31, 2012, there were approximately 29 of these lawsuits in which we are one of many defendants. These lawsuits have been filed in the United States in the states of Louisiana, Mississippi and Texas. We intend to defend vigorously against the litigation. We do not believe the ultimate resolution of these matters will have a material adverse effect on our financial position, results of operations or cash flows. We are a defendant in certain claims and litigation arising out of operations in the ordinary course of business, including certain disputes with customers over receivables discussed in Note 5, 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. 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. The IRS has completed its examination of our tax reporting for the taxable year ended December 31, 2008. The examination team has proposed adjustments with respect to certain items that were reported by us for the 2008 tax year. We believe that we have accurately reported all amounts included in our 2008 tax returns, and have filed protests with the IRS Appeals Office contesting the examination team’s proposed adjustments, and we are still waiting on a final resolution of these issues. We intend to vigorously defend our reported positions. The IRS has begun its examination of our tax reporting for the taxable year ended December 31, 2009. We believe that we have accurately reported all amounts in our 2009 tax returns. During the third quarter of 2012, a U.S. subsidiary of Frontier concluded its audit with the IRS for its 2007 and 2008 tax 80 NOBLE CORPORATION (NOBLE-SWISS) AND SUBSIDIARIES NOBLE CORPORATION (NOBLE-CAYMAN) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data) returns, resulting in no change to income tax expense. Furthermore, we are currently contesting several non-U.S. tax assessments and may contest future assessments when we disagree with those assessments based on the technical merits of the positions established at the time of the filing of the tax return. We believe the ultimate resolution of the outstanding assessments, for which we have not made any accrual, will not have a material adverse effect on our consolidated financial statements. 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 the existing or future assessments. Our Mexican income tax returns have been examined for the 2002 through 2007 periods and audit claims have been assessed for approximately $321 million (including interest and penalties). During 2011, we received from the Regional Chamber of the Federal Tax Court adverse decisions with respect to approximately $6 million in assessments related to depreciation deductions, which we are appealing. We are also contesting all other assessments in Mexico. Tax authorities in Mexico and other jurisdictions may issue additional assessments or pursue legal actions as a result of tax audits and we cannot predict or provide assurance as to the ultimate outcome of such assessments and legal actions. Additional audit claims of approximately $123 million attributable to income, customs and other business taxes have been assessed against us in other jurisdictions. We have contested, or intend to contest, these assessments, including through litigation if necessary, and we believe the ultimate resolution, for which we have not made any accrual, will not have a material adverse effect on our consolidated financial statements. We maintain certain insurance coverage against specified marine perils, which includes physical damage and loss of hire. Damage caused by hurricanes has negatively impacted the energy insurance market, resulting in more restrictive and expensive coverage for U.S. named windstorm perils. Accordingly, we have elected to significantly reduce the named windstorm insurance on our rigs operating in the U.S. Gulf of Mexico. Presently, we insure the Noble Jim Thompson, Noble Amos Runner and Noble Driller for “total loss only” when caused by a named windstorm. Our customer assumes the risk of loss on the Noble Bully I due to a named windstorm event up to $450 million per occurrence pursuant to the terms of the drilling contract relating to such vessel, provided that we are responsible for the first $25 million per occurrence for such named windstorm events. The remaining rigs in the U.S. Gulf of Mexico are self-insured for named windstorm perils. Our rigs located in the Mexico portion of the Gulf of Mexico remain covered by commercial insurance for windstorm damage. In addition, we maintain physical damage deductibles on our rigs ranging from $15 million to $25 million per occurrence, depending on location. The loss of hire coverage applies only to our rigs operating under contract with a dayrate equal to or greater than $200,000 a day and is subject to a 45-day waiting period for each unit and each occurrence. Although we maintain insurance in the geographic areas in which we operate, pollution, reservoir damage and environmental risks generally are not fully insurable. Our insurance policies and contractual rights to indemnity may not adequately cover our losses or may have exclusions of coverage for some losses. We do not have insurance coverage or rights to indemnity for all risks, including loss of hire insurance on most of the rigs in our fleet. Uninsured exposures may include expatriate activities prohibited by U.S. laws and regulations, radiation hazards, certain loss or damage to property on board our rigs and losses relating to shore-based terrorist acts or strikes. If a significant accident or other event occurs and is not fully covered by insurance or contractual indemnity, it could materially adversely affect our financial position, results of operations or cash flows. Additionally, there can be no assurance that those parties with contractual obligations to indemnify us will necessarily be financially able to indemnify us against all these risks. We carry protection and indemnity insurance covering marine third party liability exposures, which also includes coverage for employer’s liability resulting from personal injury to our offshore drilling crews. Our protection and indemnity policy currently has a standard deductible of $10 million per occurrence, with maximum liability coverage of $750 million. In connection with our capital expenditure program, we had outstanding commitments, including shipyard and purchase commitments of approximately $2.8 billion at December 31, 2012. 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-Swiss (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. Nigerian Operations During the fourth quarter of 2007, our Nigerian subsidiary received letters from the Nigerian Maritime Administration and Safety Agency (“NIMASA”) seeking to collect a 2 percent surcharge on contract amounts under contracts performed by “vessels,” 81 NOBLE CORPORATION (NOBLE-SWISS) AND SUBSIDIARIES NOBLE CORPORATION (NOBLE-CAYMAN) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data) within the meaning of Nigeria’s cabotage laws, engaged in the Nigerian coastal shipping trade. Although we do not believe that these laws apply to our ownership of drilling units, NIMASA is seeking to apply a provision of the Nigerian cabotage laws (which became effective on May 1, 2004) to our offshore drilling units by considering these units to be “vessels” within the meaning of those laws and therefore subject to the surcharge, which is imposed only upon “vessels.” Our offshore drilling units are not engaged in the Nigerian coastal shipping trade and are not in our view “vessels” within the meaning of Nigeria’s cabotage laws. In January 2008, we filed an originating summons against NIMASA and the Minister of Transportation in the Federal High Court of Lagos, Nigeria seeking, among other things, a declaration that our drilling operations do not constitute “coastal trade” or “cabotage” within the meaning of Nigeria’s cabotage laws and that our offshore drilling units are not “vessels” within the meaning of those laws. In February 2009, NIMASA filed suit against us in the Federal High Court of Nigeria seeking collection of the cabotage surcharge. In August 2009, the court issued a favorable ruling in response to our originating summons stating that drilling operations do not fall within the cabotage laws and that drilling rigs are not vessels for purposes of those laws. The court also issued an injunction against the defendants prohibiting their interference with our drilling rigs or drilling operations. NIMASA has appealed the court’s ruling, although the court dismissed NIMASA’s lawsuit filed against us in February 2009. We intend to take all further appropriate legal action to resist the application of Nigeria’s cabotage laws to our drilling units. The outcome of any such legal action and the extent to which we may ultimately be responsible for the surcharge is uncertain. If it is ultimately determined that offshore drilling units constitute vessels within the meaning of the Nigerian cabotage laws, we may be required to pay the surcharge and comply with other aspects of the Nigerian cabotage laws, which could adversely affect our operations in Nigerian waters and require us to incur additional costs of compliance. NIMASA had previously informed the Nigerian Content Division of its position that we were not in compliance with the cabotage laws. The Nigerian Content Division makes determinations of companies’ compliance with applicable local content regulations for purposes of government contracting, including contracting for services in connection with oil and gas concessions where the Nigerian national oil company is a partner. The Nigerian Content Division had previously barred us from participating in new tenders as a result of NIMASA’s allegations, although the Division reversed its actions based on the favorable Federal High Court ruling. However, no assurance can be given with respect to our ability to bid for future work in Nigeria until our dispute with NIMASA is resolved. In 2007, we began, and voluntarily contacted the U.S. Securities and Exchange Commission (“SEC”) and the DOJ to advise them of an internal investigation of the legality under the United States Foreign Corrupt Practices Act (“FCPA”) and local laws of certain reimbursement payments made by our Nigerian affiliate to our customs agents in Nigeria. In 2010, we finalized settlements of this matter with each of the SEC and the DOJ. Pursuant to these settlements, we agreed to pay fines and penalties to the DOJ and the SEC and to certain undertakings, including refraining from violating the FCPA and other anti-corruption laws, self-reporting any violations of the FCPA or such laws to the DOJ and reporting to the DOJ on an annual basis our progress on anti-corruption compliance matters. Our ability to comply with the terms of the settlements is dependent on the success of our ongoing compliance program, including our ability to continue to manage our agents and supervise, train and retain competent employees, and the efforts of our employees to comply with applicable law and our code of business conduct and ethics. In January 2011, the Nigerian Economic and Financial Crimes Commission and the Nigerian Attorney General Office initiated an investigation into these same activities. A subsidiary of Noble-Swiss resolved this matter through the execution of a non- prosecution agreement dated January 28, 2011. Pursuant to this agreement, the subsidiary paid $2.5 million to resolve all charges and claims of the Nigerian government. Any additional investigation by these or other agencies could damage our reputation and result in substantial fines, sanctions, civil and/or criminal penalties and curtailment of operations in certain jurisdictions and might adversely affect our business, results of operations or financial condition. Further, resolving any additional investigations could be expensive and consume significant time and attention of our senior management. Under the Nigerian Industrial Training Fund Act of 2004, as amended, (the “Act”), Nigerian companies with five or more employees must contribute annually 1 percent of their payroll to the Industrial Training Fund (“ITF”) established under the Act to be used for the training of Nigerian nationals with a view towards generating a pool of indigenously trained manpower. We have not paid this amount on our expatriate workers employed by our non-Nigerian employment entity in the past as we did not believe the contribution obligation was applicable to them. In October 2012, we received a demand from the ITF for payments going back to 2004 and associated penalties in respect of these expatriate employees. We do not believe that we owe the amount claimed and that, in the event we were to have any liability, it would not have a material adverse effect on our financial position or cash flows. We continue to investigate the matter and have also had discussions with the ITF to resolve the issue. 82 NOBLE CORPORATION (NOBLE-SWISS) AND SUBSIDIARIES NOBLE CORPORATION (NOBLE-CAYMAN) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data) Note 17- Segment and Related Information We report our contract drilling operations as a single reportable segment, Contract Drilling Services, which reflects how we manage our business, and the fact that all of our drilling fleet is dependent upon the worldwide oil industry. The mobile offshore drilling units comprising our offshore rig fleet operate in a single, global market for contract drilling services and are often redeployed globally due to changing demands of our customers, which consist largely of major non-U.S. and government owned/controlled oil and gas companies throughout the world. Our contract drilling services segment conducts contract drilling operations in U.S. Gulf of Mexico and Alaska, Mexico, Brazil, the North Sea, the Mediterranean, West Africa, the Middle East, India, Australia and the Asian Pacific. The accounting policies of our reportable segment are the same as those described in the summary of significant accounting policies (see Note 1). We evaluate the performance of our operating segment based on revenues from external customers and segment profit. Summarized financial information of our reportable segment for the years ended December 31, 2012, 2011 and 2010 is shown in the following table. The “Other” column includes results of labor contract drilling services in Canada and Alaska, as well as corporate related items. The consolidated financial statements of Noble-Swiss include the accounts of Noble-Cayman, and Noble-Swiss conducts substantially all of its business through Noble-Cayman and its subsidiaries. As a result, the summarized financial information for Noble-Cayman is substantially the same as Noble-Swiss. 2012 Revenues from external customers ............................. Depreciation and amortization .................................... Segment operating income .......................................... Interest expense, net of amount capitalized ................ Income tax (provision)/ benefit ................................... Segment profit/ (loss) ................................................. Total assets (at end of period) ..................................... 2011 Revenues from external customers ............................. Depreciation and amortization .................................... Segment operating income .......................................... Interest expense, net of amount capitalized ................ Income tax (provision)/ benefit ................................... Segment profit/ (loss) ................................................. Total assets (at end of period) ..................................... 2010 Revenues from external customers ............................. Depreciation and amortization .................................... Segment operating income/ (loss) ............................... Interest expense, net of amount capitalized ................ Income tax (provision)/ benefit ................................... Segment profit/ (loss) ................................................. $ $ $ Contract Drilling Services 3,462,583 745,027 772,007 (394) (163,346) 580,468 13,971,189 2,634,911 647,142 477,920 (1,959) (80,317) 406,112 13,028,751 2,771,784 528,011 918,205 (1,123) (144,220) 779,609 Other Total $ $ $ $ $ $ 84,429 13,594 11,793 (85,369) 16,258 (58,124) 636,585 60,921 11,498 12,573 (53,768) 7,692 (35,214) 466,408 35,392 11,818 (2,125) (8,334) 1,143 (6,180) 3,547,012 758,621 783,800 (85,763) (147,088) 522,344 14,607,774 2,695,832 658,640 490,493 (55,727) (72,625) 370,898 13,495,159 2,807,176 539,829 916,080 (9,457) (143,077) 773,429 83 NOBLE CORPORATION (NOBLE-SWISS) AND SUBSIDIARIES NOBLE CORPORATION (NOBLE-CAYMAN) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data) The following table presents revenues and identifiable assets by country based on the location of the service provided: Identifiable Assets As of December 31, United States .............................................................. Australia ..................................................................... Bahrain ....................................................................... Brunei ........................................................................ Brazil.......................................................................... Cameroon ................................................................... Canada ....................................................................... China (1) ...................................................................... Congo ......................................................................... Cyprus ........................................................................ Denmark .................................................................... Egypt .......................................................................... Gabon ......................................................................... India ........................................................................... Israel .......................................................................... Libya .......................................................................... Malta .......................................................................... Mexico ....................................................................... Morocco ..................................................................... New Zealand .............................................................. Nigeria ....................................................................... Oman.......................................................................... Philippines ................................................................. Qatar .......................................................................... Saudi Arabia .............................................................. Singapore (1) ................................................................ South Korea (1) ............................................................ Switzerland (2) ............................................................. The Netherlands ......................................................... Togo ........................................................................... United Arab Emirates ................................................ United Kingdom ........................................................ Other .......................................................................... Total ........................................................................... _______________ (1) China, Singapore and South Korea consist primarily of asset values for newbuild rigs under construction in shipyards. (2) Switzerland assets consist of general corporate assets, which generate no external revenue for the Company. 2011 5,205,343 — 20,282 — 3,785,412 62,465 12,398 321,352 — — — 180,570 — 111,103 229,725 — — 746,592 — — 77,442 84,726 — 136,136 659,634 494,578 651,266 35,839 159,053 — 156,953 364,290 — $ 3,547,012 $ 2,695,832 $ 2,807,176 $ 14,607,774 $ 13,495,159 2012 $ 1,061,255 $ 42,353 15,726 — 714,798 — 38,709 — 3,376 4,962 14,119 103,380 3,035 58,355 118,485 — 35,776 329,896 — 9,563 149,082 35,400 4,460 78,047 220,657 — — — 210,598 7,359 79,945 207,667 9 Revenues Year Ended December 31, 2011 524,750 $ — 4,252 35,574 572,015 17,029 39,186 — — 32,713 — 11,261 — 102,432 25,566 4,378 44,713 402,129 43,228 68,153 58,501 4,607 6,472 132,917 96,655 — — — 220,489 — 84,253 164,559 — 2012 5,259,294 $ 635,171 17,254 — 3,851,387 9,220 13,952 552,721 53,793 — 21,999 — 63,859 216,686 203,442 — 165,297 537,931 — — 65,340 72,637 — 94,151 654,551 586,510 858,909 37,432 95,465 — 190,440 350,333 — 2010 550,683 $ — — 49,487 527,678 21,991 35,292 — — — — — — 108,190 — 75,390 — 553,209 — — 135,096 — — 158,107 — 32,212 — — 317,530 — 56,388 185,821 102 84 NOBLE CORPORATION (NOBLE-SWISS) AND SUBSIDIARIES NOBLE CORPORATION (NOBLE-CAYMAN) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data) Note 18 — Supplemental Cash Flow Information (Noble-Swiss) The net effect of changes in other assets and liabilities on cash flows from operating activities is as follows: Accounts receivable ............................................................ Other current assets ............................................................. Other assets ......................................................................... Accounts payable ................................................................ Other current liabilities ....................................................... Other liabilities ................................................................... Additional cash flow information is as follows: 2012 (143,010) (43,246) (385) 28,565 108,385 80,431 30,740 $ $ December 31, 2011 (283,268) (51,409) (23,821) (12,502) 72,861 87,737 (210,402) $ $ 2010 343,844 (77,090) (18,054) (43,938) 97,041 28,317 330,120 $ $ Year Ended December 31, 2011 2010 2012 Cash paid during the period for: ...................................... Interest, net of amounts capitalized ............................ Income taxes (net of refunds) ..................................... $ $ 56,144 148,612 $ $ 46,180 128,162 $ $ 4,044 194,423 Note 19 — Supplemental Cash Flow Information (Noble-Cayman) The net effect of changes in other assets and liabilities on cash flows from operating activities is as follows: Accounts receivable ............................................................ Other current assets ............................................................. Other assets ......................................................................... Accounts payable ................................................................ Other current liabilities ....................................................... Other liabilities ................................................................... Additional cash flow information is as follows: 2012 (143,010) (44,632) (385) 28,289 108,425 80,432 29,119 $ $ December 31, 2011 (283,268) (49,044) (26,800) (12,524) 67,238 87,711 (216,687) $ $ 2010 343,844 (75,737) (17,967) (44,105) 90,864 28,258 325,157 $ $ 2012 Year Ended December 31, 2011 2010 Cash paid during the period for: Interest, net of amounts capitalized ............................ Income taxes (net of refunds) ..................................... $ $ 56,144 148,612 $ $ 46,180 128,162 $ $ 4,044 194,423 85 NOBLE CORPORATION (NOBLE-SWISS) AND SUBSIDIARIES NOBLE CORPORATION (NOBLE-CAYMAN) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data) Note 20- Other Financial Information The following are Swiss statutory disclosure requirements: (i) Expenses Total personnel expenses amounted to $699 million, $746 million and $649 million for the years ended December 31, 2012, 2011 and 2010, respectively. (ii) Fire Insurance Total fire insurance values of property and equipment amounted to $13.1 billion and $12.2 billion at December 31, 2012 and 2011, respectively. (iii) Risk assessment and Management The Board of Directors, together with the management of Noble, is responsible for assessing risks related to the financial reporting process and for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed by, or under the supervision of the Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of Noble’s consolidated financial statements for external purposes in accordance with GAAP. The Board, operating through its Audit Committee composed entirely of directors who are not officers or employees of the Company, is responsible for oversight of the financial reporting process and safeguarding of assets against unauthorized acquisition, use, or disposition. The Audit Committee meets with management, the independent registered public accountants and the internal auditor; approves the overall scope of audit work and related fee arrangements; and reviews audit reports and findings. In addition, the independent registered public accountants and the internal auditor meet separately with the Audit Committee, without management representatives present, to discuss the results of their audits; the adequacy of the Company’s internal control; the quality of its financial reporting; and the safeguarding of assets against unauthorized acquisition, use, or disposition. Note 21- Information about Noble-Cayman Guarantees of Registered Securities Noble-Cayman, or one or more wholly-owned subsidiaries of Noble-Cayman, are a co-issuer or full and unconditional guarantor or otherwise obligated as of December 31, 2012 as follows: Notes $300 million 5.875% Senior Notes due 2013 $250 million 7.375% Senior Notes due 2014 $350 million 3.45% Senior Notes due 2015 $300 million 3.05% Senior Notes due 2016 $300 million 2.50% Senior Notes due 2017 $202 million 7.50% Senior Notes due 2019 $500 million 4.90% Senior Notes due 2020 $400 million 4.625% Senior Notes due 2021 $400 million 3.95% Senior Notes due 2022 $400 million 6.20% Senior Notes due 2040 $400 million 6.05% Senior Notes due 2041 $500 million 5.25% Senior Notes due 2042 Issuer (Co-Issuer(s)) Noble-Cayman NHIL NHIL NHIL NHIL NDC; NHIL NHIL NHIL NHIL NHIL NHIL Guarantor(s) NDC NHIL Noble-Cayman Noble-Cayman Noble-Cayman Noble-Cayman Noble-Cayman; Noble Drilling Holding LLC (“NDH”) Noble-Cayman Noble-Cayman Noble-Cayman Noble-Cayman Noble-Cayman Noble-Cayman Noble Drilling Services 6 LLC (“NDS6”) Noble Holding (U.S.) Corporation (“NHC”); The following consolidating financial statements of Noble-Cayman, NHC and NDH combined, NDC, NHIL, NDS6 and all other subsidiaries present investments in both consolidated and unconsolidated affiliates using the equity method of accounting. 86 ASSETS Current assets Cash and cash equivalents .................... Accounts receivable ............. Taxes receivable .................. Prepaid expenses.................. Short-term notes receivable from affiliates ................ Accounts receivable from affiliates ......................... Other current assets.............. Total current assets ........................... Property and equipment, at cost ....... Accumulated depreciation ................... Property and equipment, net ............. Notes receivable from affiliates ........ Investments in affiliates ................... Other assets ...................................... Total assets .............. LIABILITIES AND EQUITY Current liabilities Short-term notes payables from affiliates ................ Accounts payable ................. Accrued payroll and related costs .............................. Accounts payable to affiliates ......................... Taxes payable ...................... Interest payable .................... Other current liabilities ........ Total current liabilities ..................... Long-term debt ................................. Notes payable to affiliates ................ Deferred income taxes ...................... Other liabilities ................................. Total liabilities ........ Commitments and contingencies Total shareholder equity ................ Noncontrolling interest ..................... Total equity ............. Total liabilities and equity ................ NOBLE CORPORATION (NOBLE-CAYMAN) AND SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEET December 31, 2012 (in thousands) Noble- Cayman NHC and NDH Combined NDC NHIL NDS6 Other Non-guarantor Subsidiaries of Noble Consolidating Adjustments Total $ 1,003 $ — — — — 664,375 235 665,613 — — — 3,816,463 7,770,066 5,798 $ 12,257,940 $ $ 90,314 $ — — 900,063 — 1,594 — 991,971 639,794 2,840,287 — 19,930 4,491,982 639 — $ 904 $ 3,335 14,885 — 8,341 9 396 — 119,476 140,014 1,015,204 196 284,655 1,018,744 76,428 2,735,223 (58,411) (283,028) 18,017 2,452,195 — 1,206,000 9,170,923 3,386,879 543 — $ 2 $ — — — — — — 586,769 — 38,895 526,483 — — 625,664 526,485 — — — — — — 479,107 3,524,814 7,413,361 1,977,906 759 13,114,093 $ 4,424,183 $ 11,490,555 $ 3,083,436 $ 25,895 320 275,466 $ 725,453 103,969 40,827 252,138 5,855,066 121,579 7,374,498 14,123,496 (3,597,079) 10,526,417 2,171,875 — 243,243 20,316,033 $ — $ — — — (958,383) (8,240,037) — (9,198,420) 277,375 743,673 112,310 41,232 — — 122,649 1,297,239 — 16,935,147 — (3,938,518) — 12,996,629 — — 276,558 (50,115,814) $ 14,570,426 (11,198,259) (29,719,135) — 51,054 $ 6,522 6,176 4,806,235 9,152 — — 4,879,139 — 648,475 — 17,815 5,545,429 110,770 $ 1,183 7,611 5,444 — — 240 125,248 — — 15,731 — 140,979 — $ — $ — — — — 77,075 165,065 — — 4,412 62,430 — — 81,487 227,495 3,792,886 201,695 975,000 1,342,000 — — 4,995,381 1,625,182 — — 706,245 $ 341,889 110,149 2,286,155 121,692 — 158,259 3,724,389 — 5,392,497 210,314 309,870 9,637,070 (958,383) $ — — (8,240,037) — — — (9,198,420) — (11,198,259) — — (20,396,679) — 349,594 123,936 — 130,844 68,436 158,499 831,309 4,634,375 — 226,045 347,615 6,039,344 7,765,958 — 7,765,958 7,568,664 4,283,204 — 7,568,664 4,283,204 — 6,495,174 1,458,254 — 6,495,174 1,458,254 — 9,913,839 765,124 10,678,963 (29,719,135) — (29,719,135) 7,765,958 765,124 8,531,082 $ 12,257,940 $ 13,114,093 $ 4,424,183 $ 11,490,555 $ 3,083,436 $ 20,316,033 $ (50,115,814) $ 14,570,426 87 ASSETS Current assets Cash and cash equivalents ... Accounts receivable............. Taxes receivable .................. Prepaid expenses ................. Short-term notes receivable from affiliates ................ Accounts receivable from affiliates ........................ Other current assets ............. Total current assets .......................... Property and equipment, at cost ....... Accumulated depreciation ... Property and equipment, net............. Notes receivable from affiliates ....... Investments in affiliates ................... Other assets ...................................... Total assets ............ LIABILITIES AND EQUITY Current liabilities Short-term notes payables from affiliates ................ Accounts payable ................ Accrued payroll and related costs .............................. Accounts payable to affiliates ........................ Taxes payable ...................... Interest payable ................... Other current liabilities ........ Total current liabilities ..................... Long-term debt ................................ Notes payable to affiliates ................ Deferred income taxes ..................... Other liabilities ................................ Total liabilities ....... Commitments and contingencies Total shareholder equity ............... Noncontrolling interest .................... Total equity ........... Total liabilities and equity ........ NOBLE CORPORATION (NOBLE-CAYMAN) AND SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEET December 31, 2011 (in thousands) Noble- Cayman NHC and NDH Combined NDC NHIL NDS6 Other Non-guarantor Subsidiaries of Noble Consolidating Adjustments Total $ 146 $ — — — — 1,683,740 — 1,683,886 — — — 3,842,062 6,969,201 3,230 $ 12,498,379 $ $ 72,298 $ — — 2,079,719 — 1,891 — 2,153,908 1,274,949 1,667,291 — 19,929 5,116,077 7,382,302 — 7,382,302 — $ 3,371 — 19 — 879,581 196 883,167 74,752 (54,350) 20,402 — $ — — — — 159,132 93 159,225 — — — — 2,336,527 — $ 385 $ — 10,810 — 4,566 — 453 — 119,476 33,905 99,202 — 643 33,905 235,535 — 2,734,437 — (229,294) — 2,505,143 675,000 572,107 9,101,938 3,450,212 6,605,771 2,141,450 880 12,518,089 $ 4,354,264 $ 9,120,071 $ 2,748,342 $ 18,548 483 473 50,000 $ 5,577 2,897 4,166,021 10,032 — — 4,234,527 — 1,147,500 — 24,878 5,406,905 — $ 985 6,518 27,341 — — 240 35,084 — $ — $ — — — — 34,107 112,953 — — 4,412 48,116 — — 38,519 161,069 201,695 — 2,595,320 811,000 975,000 — — — — 135,815 3,731,389 1,051,214 85,000 15,731 — 7,111,184 4,218,449 5,388,682 1,697,128 — 7,111,184 4,218,449 5,388,682 1,697,128 — — — 234,525 $ 572,982 70,718 32,633 122,298 6,372,657 119,177 7,524,990 12,597,973 (3,022,113) 9,575,860 2,678,192 — 281,669 20,060,711 $ — $ — — — (241,774) (9,228,217) — (9,469,991) 235,056 587,163 75,284 33,105 — — 120,109 1,050,717 — 15,407,162 (3,305,757) — — 12,101,405 — — 305,283 (47,842,451) $ 13,457,405 (10,103,888) (28,268,572) — 119,476 $ 429,167 99,493 2,808,076 81,158 — 123,159 3,660,529 — 5,418,097 227,060 210,565 9,516,251 (241,774) $ — — (9,228,217) — — — (9,469,991) — (10,103,888) — — (19,573,879) — 435,729 108,908 — 91,190 54,419 123,399 813,645 4,071,964 — 242,791 255,372 5,383,772 9,853,129 691,331 10,544,460 (28,268,572) — (28,268,572) 7,382,302 691,331 8,073,633 $ 12,498,379 $ 12,518,089 $ 4,354,264 $ 9,120,071 $ 2,748,342 $ 20,060,711 $ (47,842,451) $ 13,457,405 88 NOBLE CORPORATION (NOBLE-CAYMAN) AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENT OF INCOME Year Ended December 31, 2012 (in thousands) Noble- Cayman NHC and NDH Combined NDC NHIL NDS6 Other Non-guarantor Subsidiaries of Noble Consolidating Adjustments Total Operating revenues Contract drilling services ........................ Reimbursables ........................................ Labor contract drilling services .............. Other....................................................... Total operating revenues ............ $ Operating costs and expenses Contract drilling services ........................ Reimbursables ........................................ Labor contract drilling services .............. Depreciation and amortization ................ Selling, general and administrative ................................... Loss on impairment ................................ Gain on contract settlements/extinguishments, net .................................................... Total operating costs and expenses ............................................. Operating income (loss) .................................... Other income (expense) Equity earnings in affiliates, net of tax ... Interest expense, net of amounts capitalized ......................................................... Interest income and other, net ................. Income before income taxes .............................. Income tax provision .............................. Net Income ......................................................... Net income attributable to noncontrolling interests ............................................ Net income attributable to Noble Corporation Other comprehensive loss, net ................ Comprehensive income attributable to Noble Corporation ................................................. — $ — — — — 2,646 — — — 3,036 — 161,577 $ 20,033 $ — — — 20,033 6,637 — — 168,214 — $ — — — — 63,025 5,886 — 60,738 7,786 — 7,476 — — 4,526 — — 82,736 — — — 35,606 — — $ — — — — — — — — 1 — 3,246,332 $ 108,858 81,890 1,196 3,438,276 1,684,593 88,210 46,895 691,425 12,937 20,384 — — (931) (78,580) $ 3,349,362 115,495 81,890 265 (79,511) 3,547,012 (79,511) 1,760,965 94,096 46,895 756,689 59,366 20,384 — — — — — — (4,869) — — — (28,386) — (33,255) 5,682 (5,682) 132,566 35,648 12,002 8,031 118,342 (118,342) 1 (1) 2,516,058 922,218 (79,511) 2,705,140 841,872 — 684,446 472,509 110,820 807,590 (184,163) — (1,891,202) — (105,147) 7,306 580,923 — 580,923 — 580,923 (41,128) (3,892) (44,055) 40,845 8 504,947 114,967 — (46,644) 458,303 114,967 — 458,303 114,967 — — — (120,361) 135,001 703,888 — 703,888 — 703,888 — (43,090) 594,328 367,074 — 367,074 — 367,074 — (663,076) 121,065 380,207 (99,444) 280,763 (33,793) 246,970 (41,128) 893,858 (893,858) (1,891,202) — (1,891,202) — (1,891,202) 41,128 (85,763) 4,695 760,804 (146,088) 614,716 (33,793) 580,923 (41,128) $ 539,795 $ 458,303 $ 114,967 $ 703,888 $ 367,074 $ 205,842 $ (1,850,074) $ 539,795 89 NOBLE CORPORATION (NOBLE-CAYMAN) AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENT OF INCOME Year Ended December 31, 2011 (in thousands) Noble- Cayman NHC and NDH Combined NDC NHIL NDS6 Other Non-guarantor Subsidiaries of Noble Consolidating Adjustments Total Operating revenues Contract drilling services ............................ Reimbursables ............................................ Labor contract drilling services ................... Other ........................................................... Total operating revenues ................ $ — $ — — — — 4,351 134,602 $ 19,913 $ 12 4 — — — 138,957 19,925 — $ — — — — — $ — — — — Operating costs and expenses Contract drilling services ............................ Reimbursables ............................................ Labor contract drilling services ................... Depreciation and amortization .................... Selling, general and administrative ............. Gain on contract settlements/extinguishments, net......................................................... Total operating costs and expenses . Operating income (loss) ........................................ Other income (expense) Equity earnings in affiliates, net of tax........................................................ Interest expense, net of amounts capitalized Interest income and other, net ..................... Income before income taxes .................................. Income tax provision .................................. Net Income ............................................................. Net loss attributable to noncontrolling interests ............................................................. Net income attributable to Noble Corporation.... Other comprehensive loss, net .................... Noncontrolling portion of gain on interest rate swaps .................................................... Comprehensive income attributable to Noble Corporation ..................................................... 3,038 — — — 1,242 — 4,280 (4,280) 488,735 (69,180) 6,768 422,043 — 422,043 — 422,043 (24,101) 183 7,478 46,305 4,125 — — — 3,767 50,462 1 5,025 — — 105,917 11,246 8,679 33,040 59,865 — — — 33,355 — 93,220 (93,220) — — — — 1 — 1 (1) (6,110) (11) 296,751 64,626 579,730 328,443 (29,050) (61,271) 26,291 8,709 294,811 67,184 461,721 308,101 (14,933) — — 279,878 67,184 461,721 308,101 (88,396) 63,607 — — — — — 279,878 67,184 461,721 308,101 — — — — — — — — 2,466,701 $ 74,832 59,000 875 2,601,408 1,319,187 54,314 33,885 602,976 17,163 (21,202) 2,006,323 595,085 — — — (64,458) $ 2,556,758 79,195 59,004 875 (64,458) 2,695,832 — — — — — (64,458) 1,371,415 58,439 33,885 657,205 56,787 (21,202) (64,458) 2,156,529 539,303 — — (38,778) 134,174 690,481 (56,353) 634,128 7,273 641,401 (24,101) 183 (1,758,285) 237,058 (237,058) (1,758,285) — (1,758,285) — (1,758,285) 24,101 (183) — (55,727) 2,480 486,056 (71,286) 414,770 7,273 422,043 (24,101) 183 $ 398,125 $ 279,878 $ 67,184 $ 461,721 $ 308,101 $ 617,483 $ (1,734,367) $ 398,125 90 NOBLE CORPORATION (NOBLE-CAYMAN) AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENT OF INCOME Year Ended December 31, 2010 (in thousands) Noble- Cayman NHC and NDH Combined NDC NHIL NDS6 Other Non-guarantor Subsidiaries of Noble Consolidating Adjustments Total Operating revenues Contract drilling services .................... Reimbursables .................................... Labor contract drilling services .......... Other .................................................. Total operating revenues ........ Operating costs and expenses Contract drilling services .................... Reimbursables .................................... Labor contract drilling services .......... Depreciation and amortization ............ Selling, general and administrative ..... Total operating costs and expenses .......................... Operating income (loss) ................................ Other income (expense) Equity earnings in affiliates, net of tax ................................................ Interest expense, net of amounts capitalized .................................... Interest income and other, net ............. Income before income taxes ......................... Income tax provision .......................... Net Income ..................................................... Net income attributable to noncontrolling interests ................ Net income attributable to Noble Corporation ............................................. Other comprehensive income, net....... Noncontrolling portion of loss on interest rate swaps ........................ $ — $ — — — — 94,027 $ 17,942 $ 71 1,483 — — 78 — 95,588 18,013 — $ — — — — — $ — — — — 24,103 — — — 7,979 32,082 (32,082) 870,322 (29,459) 6,753 815,534 — 815,534 — 815,534 4,661 (183) 6,363 40,994 1,641 66 — — 3,449 2 37,324 4,674 42,932 — — — 30,210 84,633 10,955 9,880 8,133 73,142 (73,142) — — — — 1 1 (1) 620,747 24,898 1,040,110 407,435 (7,956) (7,375) (65,056) (43,988) 19,980 28,452 9,416 3 942,960 408,894 595,098 25,659 — (32,878) — 942,960 408,894 562,220 25,659 — — — — — 562,220 25,659 — — — — 942,960 408,894 — — — — 2,621,424 $ 75,277 32,520 2,254 2,731,475 1,096,309 57,707 22,056 498,231 12,702 1,687,005 1,044,470 — (1,888) 90,188 1,132,770 (108,988) 1,023,782 (3) 1,023,779 4,661 (183) — — — (37,900) $ 2,695,493 76,831 32,520 2,332 (37,900) 2,807,176 (37,900) 1,172,801 59,414 22,056 539,004 55,568 — — — — (37,900) 1,848,843 958,333 — (2,963,512) 146,265 (146,265) (2,963,512) — (2,963,512) — (2,963,512) (4,661) 183 — (9,457) 8,527 957,403 (141,866) 815,537 (3) 815,534 4,661 (183) Comprehensive income attributable to Noble Corporation .................................. $ 820,012 $ 562,220 $ 25,659 $ 942,960 $ 408,894 $ 1,028,257 $ (2,967,990) $ 820,012 91 NOBLE CORPORATION (NOBLE-CAYMAN) AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS Year Ended December 31, 2012 (in thousands) Noble- Cayman NHC and NDH Combined NDC NHIL NDS6 Other Non-guarantor Subsidiaries of Noble Consolidating Adjustments Total Cash flows from operating activities Net cash from operating activities.......................... $ (86,784) $ 35,177 $ 9,950 $ (96,642) $ 551,358 $ 1,007,568 $ — $ 1,420,627 Cash flows from investing activities New construction and capital expenditures ................................ Notes receivable from affiliates ......... Net cash from investing activities.......................... — — — (682,477) (2,106) — — — (1,188,287) — — (1,103,971) — — 1,188,287 (1,788,554) — (682,477) (2,106) (1,188,287) — (1,103,971) 1,188,287 (1,788,554) Cash flows from financing activities Net change in borrowings on bank Contributions from joint venture Proceeds from issuance of senior (635,192) credit facilities ............................. — notes, net ..................................... — partners ........................................ (5,221) facilities ....................................... Distributions to parent company, net . (175,977) Advances (to) from affiliates ............. (284,256) Notes payable to affiliates.................. 1,188,287 Financing cost on credit — — — — — — — — — — 647,819 (7,844) — — — 1,186,636 — — — 98,295 — — — — — — (551,358) — — — 40,000 — — 97,344 — — — — — — — (1,188,287) (635,192) 1,186,636 40,000 (5,221) (175,977) — — Net cash from financing activities.......................... 87,641 647,819 (7,844) 1,284,931 (551,358) 137,344 (1,188,287) 410,246 Net change in cash and cash Cash and cash equivalents, beginning of equivalents ...................... period ....................................................... 857 146 519 — 385 — 2 — — — 40,941 234,525 — — 42,319 235,056 Cash and cash equivalents, end of period ....................................................... $ 1,003 $ 904 $ — $ 2 $ — $ 275,466 $ — $ 277,375 92 Cash flows from operating activities Net cash from operating activities ....................... Cash flows from investing activities New construction and capital expenditures .............................. Notes receivable from affiliates ....... Refund from contract extinguishments ........................ Net cash from investing activities ....................... Cash flows from financing activities Net change in borrowings on bank credit facilities ........................... Proceeds from issuance of senior notes, net ................................... Contributions from joint venture partners ..................................... Payments of joint venture debt ........ Settlement of interest rate swaps...... Financing cost on credit facilities .... Distributions to parent company, net ............................................. Advances (to) from affiliates ........... Notes payable to affiliates ............... Net cash from financing activities ....................... Net change in cash and cash equivalents ............ Cash and cash equivalents, beginning of period..................................................... Cash and cash equivalents, end of period ..... $ NOBLE CORPORATION (NOBLE-CAYMAN) AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS Year Ended December 31, 2011 (in thousands) Noble- Cayman NHC and NDH Combined NDC NHIL NDS6 Other Non-guarantor Subsidiaries of Noble Consolidating Adjustments Total $ (48,906) $ 17,107 $ (5,616) $ (109,171) $ (20,222) $ 937,295 $ — $ 770,487 — 20,000 — (1,495,056) (1,380) — — — — — — (1,096,927) — — — (1,038,460) 172,302 18,642 — 904,625 — (2,534,896) — 18,642 20,000 (1,495,056) (1,380) (1,096,927) — (847,516) 904,625 (2,516,254) 935,000 — — — — (2,835) (186,048) (597,305) (119,802) — — — — — — — — — — — — — — 1,495,688 41,996 (17,500) (35,000) — — 1,087,833 — — — — — — — — — — — 118,265 20,222 — — — — 536,000 (693,494) (29,032) — — (1,078,866) 1,076,927 — — — — — — — — (904,625) 935,000 1,087,833 536,000 (693,494) (29,032) (2,835) (186,048) — — 29,010 1,478,188 6,996 1,206,098 20,222 (188,465) (904,625) 1,647,424 104 42 146 $ 239 — 146 — — $ 385 $ — — — — — $ — $ (98,686) 333,211 234,525 $ — — — $ (98,343) 333,399 235,056 93 NOBLE CORPORATION (NOBLE-CAYMAN) AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS Year Ended December 31, 2010 (in thousands) Cash flows from operating activities Net cash from operating activities .......................................... Cash flows from investing activities New construction and capital expenditures ....................................................... Notes receivable from affiliates ........... Acquisition of FDR Holdings, Ltd., net of cash acquired ................................. Net cash from investing activities .......................................... Cash flows from financing activities Net change in borrowings on bank credit facilities ......................................... Proceeds from issuance of senior notes, net ....................................................... Contributions from joint venture partners ....................................................... Settlement of interest rate swaps .......... Distributions to parent company, net ................................................. Advances (to) from affiliates................ Notes payable to affiliates .................... Net cash from financing activities .......................................... Noble- Cayman NHC and NDH Combined NDC NHIL NDS6 Other Non-guarantor Subsidiaries of Noble Consolidating Adjustments Total $ (33,316) $ (9,331) $ 2,701 $ (80,151) $ 1,581 $ 1,777,409 $ — $ 1,658,893 — — (1,629,644) (566,503) (1,575) — — — — — — (1,239,600) — — — (697,918) (490,000) — — 1,729,600 — (1,265,996) — (1,629,644) (1,629,644) (566,503) (1,575) (1,239,600) — (1,187,918) 1,729,600 (2,895,640) 40,000 — — — (462,967) 356,366 1,729,600 — — — — — — 1,238,074 — — — — 40,000 — 1,238,074 — — — — — — 575,712 (1,126) — — — — — — — — 81,677 (1,581) — — 35,000 (6,186) — (1,011,048) — — — — — (1,729,600) 35,000 (6,186) (462,967) — — 1,662,999 575,712 (1,126) 1,319,751 (1,581) (982,234) (1,729,600) 843,921 Net change in cash and cash equivalents ........................ Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period ......... $ 39 3 42 $ (122) — 268 — — $ 146 $ — — — — — $ — $ (392,743) 725,954 333,211 $ — — $ (392,826) 726,225 333,399 94 NOBLE CORPORATION (NOBLE-SWISS) AND SUBSIDIARIES NOBLE CORPORATION (NOBLE-CAYMAN) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIALS STATEMENTS (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data) Note 22 - Unaudited Interim Financial Data Unaudited interim consolidated financial information for the years ended December 31, 2012 and 2011 is as follows: 2012 Operating revenues .................................................................... $ Operating income ...................................................................... Net Income attributable to Noble Corporation .......................... Net income per share attributable to Noble Corporation (1) Basic ................................................................................ Diluted ............................................................................. 2011 Operating revenues .................................................................... $ Operating income ...................................................................... Net Income attributable to Noble Corporation .......................... Net income per share attributable to Noble Corporation (1) Basic ................................................................................ Diluted ............................................................................. Mar. 31 Jun. 30 Sep. 30 Dec. 31 Quarter Ended 797,690 $ 143,643 120,175 898,923 $ 244,495 159,818 884,032 $ 178,924 114,774 966,367 216,738 127,577 0.47 0.47 0.63 0.63 0.45 0.45 0.50 0.50 Mar. 31 Jun. 30 Sep. 30 Dec. 31 Quarter Ended 578,888 $ 86,264 54,495 627,997 $ 79,045 54,083 737,902 $ 163,582 135,317 751,045 161,602 127,003 0.22 0.21 0.21 0.21 0.53 0.53 0.50 0.50 (1) Net income per share is computed independently for each of the quarters presented. Therefore, the sum of the quarters’ net income per share may not equal the total computed for the year. 95 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures. Evaluation of Disclosure Controls and Procedures David W. Williams, Chairman, President and Chief Executive Officer of Noble Corporation, a Swiss corporation (“Noble- Swiss”), and James A. MacLennan, Senior Vice President and Chief Financial Officer of Noble-Swiss, have evaluated the disclosure controls and procedures of Noble-Swiss as of the end of the period covered by this report. On the basis of this evaluation, Mr. Williams and Mr. MacLennan have concluded that Noble-Swiss’ disclosure controls and procedures were effective as of December 31, 2012. Noble-Swiss’ disclosure controls and procedures are designed to ensure that information required to be disclosed by Noble-Swiss in the reports that it files with or submits to the SEC are recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure. David W. Williams, President and Chief Executive Officer of Noble Corporation, a Cayman Islands company (“Noble- Cayman”), and Dennis J. Lubojacky, Vice President and Chief Financial Officer of Noble-Cayman, have evaluated the disclosure controls and procedures of Noble-Cayman as of the end of the period covered by this report. On the basis of this evaluation, Mr. Williams and Mr. Lubojacky have concluded that Noble-Cayman’s disclosure controls and procedures were effective as of December 31, 2012. Noble-Cayman’s disclosure controls and procedures are designed to ensure that information required to be disclosed by Noble-Cayman in the reports that it files with or submits to the SEC are recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure. Changes in Internal Control over Financial Reporting There was no change in either Noble-Swiss’ or Noble-Cayman’s internal control over financial reporting that occurred during the quarter ended December 31, 2012 that has materially affected, or is reasonably likely to materially affect, the internal control over financial reporting of each of Noble-Swiss or Noble-Cayman. Management’s Annual Report on Internal Control Over Financial Reporting The management of Noble-Swiss and Noble-Cayman is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) promulgated under the U.S. Securities Exchange Act of 1934, as amended. Internal control over financial reporting includes the controls themselves, monitoring (including internal auditing practices), and actions taken to correct deficiencies as identified. There are inherent limitations to the effectiveness of internal control over financial reporting, however well designed, including the possibility of human error and the possible circumvention or overriding of controls. The design of an internal control system is also based in part upon assumptions and judgments made by management about the likelihood of future events, and there can be no assurance that an internal control will be effective under all potential future conditions. As a result, even an effective system of internal controls can provide no more than reasonable assurance with respect to the fair presentation of financial statements and the processes under which they were prepared. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the management of Noble-Swiss and Noble-Cayman assessment, both Noble-Swiss and Noble-Cayman maintained effective internal control over financial reporting as of December 31, 2012. PricewaterhouseCoopers LLP, the independent registered public accounting firm that audited our financial statements included in this Annual Report on Form 10-K, has audited the effectiveness of internal control over financial reporting as of December 31, 2012 as stated in their report, which is provided in this Annual Report on Form 10-K. Item 9B. Other Information. None. 96 PART III Item 10. Directors, Executive Officers and Corporate Governance. The sections entitled “Election of Directors”, “Additional Information Regarding the Board of Directors”, “Section 16(a) Beneficial Ownership Reporting Compliance”, and “Other Matters” appearing in the proxy statement for the 2013 annual general meeting of shareholders (the “2013 Proxy Statement”), will set forth certain information with respect to directors, certain corporate governance matters and reporting under Section 16(a) of the Securities Exchange Act of 1934, and are incorporated in this report by reference. Executive Officers of the Registrant The following table sets forth certain information as of February 25, 2013 with respect to our executive officers: Name Position David W. Williams ........................ 55 Chairman, President and Chief Executive Officer Age Julie J. Robertson ........................... 57 Executive Vice President and Corporate Secretary James A. MacLennan ..................... 53 Senior Vice President and Chief Financial Officer William E. Turcotte ....................... 49 Senior Vice President and General Counsel Roger B. Hunt ................................ 63 Senior Vice President – Marketing and Contracts Lee M. Ahlstrom ............................ 45 Senior Vice President – Strategic Development Scott W. Marks .............................. 53 Senior Vice President – Engineering Bernie G. Wolford ......................... 53 Senior Vice President – Operations Dennis J. Lubojacky....................... 60 Vice President and Controller David W. Williams was named Chairman, President and Chief Executive Officer effective January 2, 2008. Mr. Williams served as Senior Vice President—Business Development of Noble Drilling Services Inc. from September 2006 to January 2007, as Senior Vice President—Operations of Noble Drilling Services Inc. from January to April 2007, and as Senior Vice President and Chief Operating Officer of Noble from April 2007 to January 2, 2008. Prior to September 2006, Mr. Williams served for more than five years as Executive Vice President of Diamond Offshore Drilling, Inc., an offshore oil and gas drilling contractor. Julie J. Robertson was named Executive Vice President effective February 10, 2006. In this role, Ms. Robertson is responsible for overseeing human resources, procurement and supply chain, learning and development, health, safety and environmental functions, and information technology. Ms. Robertson served as Senior Vice President—Administration from July 2001 to February 10, 2006. Ms. Robertson has served continuously as Corporate Secretary since December 1993. Ms. Robertson served as Vice President—Administration of Noble Drilling from 1996 to July 2001. In 1994, Ms. Robertson became Vice President—Administration of Noble Drilling Services Inc. From 1989 to 1994, Ms. Robertson served consecutively as Manager of Benefits and Director of Human Resources for Noble Drilling Services Inc. Prior to 1989, Ms. Robertson served consecutively in the positions of Risk and Benefits Manager and Marketing Services Coordinator for a predecessor subsidiary of Noble, beginning in 1979. James A. MacLennan was named Senior Vice President and Chief Financial Officer effective January 9, 2012. Prior to joining Noble, Mr. MacLennan served as Chief Financial Officer and Corporate Secretary of Ennis Traffic Safety Solutions, a leading producer of pavement marking materials, from January 2011 to December 2011. From June 2010 to January 2011, Mr. MacLennan did not hold a principal employment. Mr. MacLennan served as Executive Vice President and Chief Financial Officer of Lodgian, Inc., a publicly-traded independent owner and operator of hotels in the United States from March 2006 until Lodgian was acquired by and merged into Lone Star Funds in May 2010. Prior to joining Lodgian, Mr. MacLennan was Chief Financial Officer and Treasurer of Theragenics Corporation, a New York Stock Exchange-listed company that manufactures medical devices. Previously, Mr. MacLennan was Executive Vice President and Chief Financial Officer of Lanier Worldwide, Inc., a publicly-traded technical products company. Mr. MacLennan spent much of his early career in financial positions of increasing responsibility in the oil and gas industry, most notably with Exxon Corporation and later with Noble Corporation. Mr. MacLennan is a Chartered Accountant. William E. Turcotte was named Senior Vice President and General Counsel effective December 16, 2008. Prior to joining Noble, Mr. Turcotte served as Senior Vice President, General Counsel and Corporate Secretary of Cornell Companies, Inc., a private corrections company, since March 2007. He served as Vice President, Associate General Counsel and Assistant Secretary of Transocean, Inc., an offshore oil and gas drilling contractor, from October 2005 to March 2007 and as Associate General Counsel and 97 Assistant Secretary from January 2000 to October 2005. From 1992 to 2000, Mr. Turcotte served in various legal positions with Schlumberger Limited in Houston, Caracas and Paris. Mr. Turcotte was in private practice prior to joining Schlumberger. Roger B. Hunt was named Senior Vice President – Marketing and Contracts effective July 20, 2009. Prior to joining Noble, Mr. Hunt served as Senior Vice President—Marketing at GlobalSantaFe Corporation, an offshore oil and gas drilling contractor, from 1997 to 2007. In that capacity, Mr. Hunt was responsible for marketing and pricing strategy, sales and contract activities for the company’s fleet of 57 offshore drilling units. Mr. Hunt did not hold a principal employment from December 2007 to July 2009. Lee M. Ahlstrom was named Senior Vice President – Strategic Development effective May 5, 2011. Mr. Ahlstrom served as Vice President of Investor Relations and Planning from May 2006 to May 2011. Prior to joining Noble, Mr. Ahlstrom served as Director of Investor Relations at Burlington Resources, held various management positions at UNOCAL Corporation and served as an Engagement Manager with McKinsey & Company. Scott W. Marks was named Senior Vice President – Engineering effective January 2007. Mr. Marks served as Vice President – Project Management and Construction from August 2006 to January 2007, as Vice President – Support Engineering from September 2005 to August 2006 and as Director of Engineering from January 2003 to September 2005. Mr. Marks has been with Noble since 1991, serving as a Project Manager and as a Drilling Superintendent prior to 2003. Bernie G. Wolford was named Senior Vice President – Operations effective February 6, 2012. Mr. Wolford served as Vice President—Operational Excellence from March 2010 to February 2012. From January 2003 until March 2010, Mr. Wolford was self-employed. During that time, he provided consulting services to Noble as a contractor on the construction of the Noble Dave Beard from March 2009 to December 2009. He also supported the operations of Mass Technology Corp., an independent downstream refining and storage company, as a significant shareholder of that company, from February 2007 to February 2009. Mr. Wolford began his career in the offshore drilling industry with Transworld Drilling in 1981, which was acquired by Noble in 1991. From 1981 through December 2002, he served in various roles in engineering, project management and operations with Transworld and Noble. Dennis J. Lubojacky was named Vice President and Controller effective April 27, 2012. In this position, Mr. Lubojacky also serves as principal accounting officer of Noble-Swiss. Since February 2010, Mr. Lubojacky has also served as Vice President and Chief Financial Officer of Noble-Cayman. Mr. Lubojacky has also served as Vice President and Controller of a subsidiary of Noble- Swiss from July 2007 through October 2011 and from January 2012 until his new appointment. Mr. Lubojacky served as principal financial officer and principal accounting officer of Noble Corporation from October 2011 through January 2012. From April 2006 to June 2007, he served as Controller and Chief Accounting Officer of TODCO, a public oil and gas contract drilling company. Mr. Lubojacky is a Certified Public Accountant. We have adopted a Code of Business Conduct and Ethics that applies to directors, officers and employees, including our principal executive officer, principal financial officer and principal accounting officer. Our Code of Business Conduct and Ethics is posted on our website at http://www.noblecorp.com in the “Governance” area. Changes to and waivers granted with respect to our Code of Business Conduct and Ethics related to the officers identified above, and our other executive officers and directors, that we are required to disclose pursuant to applicable rules and regulations of the SEC will also be posted on our website. Item 11. Executive Compensation. The sections entitled “Executive Compensation” and “Compensation Committee Report” appearing in the 2013 Proxy Statement set forth certain information with respect to the compensation of our management and our compensation committee report, and are incorporated in this report by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The sections entitled “Equity Compensation Plan Information”, “Security Ownership of Certain Beneficial Owners” and “Security Ownership of Management” appearing in the 2013 Proxy Statement set forth certain information with respect to securities authorized for issuance under equity compensation plans and the ownership of our voting securities and equity securities, and are incorporated in this report by reference. Item 13. Certain Relationships and Related Transactions and Director Independence. The sections entitled “Additional Information Regarding the Board of Directors—Board Independence” and “Policies and Procedures Relating to Transactions with Related Persons” appearing in the 2013 Proxy Statement set forth certain information with respect to director independence and transactions with related persons, and are incorporated in this report by reference. 98 Item 14. Principal Accounting Fees and Services. The section entitled “Auditors” appearing in the 2013 Proxy Statement sets forth certain information with respect to accounting fees and services, and is incorporated in this report by reference. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES. (a) The following documents are filed as part of this report: (1) A list of the financial statements filed as a part of this report is set forth in Item 8 on page 41 and is incorporated herein by reference. (2) Financial Statement Schedules: All schedules are omitted because they are either not applicable or required information is shown in the financial statements or notes thereto. (3) Exhibits: The information required by this Item 15(a)(3) is set forth in the Index to Exhibits accompanying this Annual Report on Form 10-K and is incorporated herein by reference. 99 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SIGNATURES Date: February 25, 2013 NOBLE CORPORATION, a Swiss Corporation By: /s/ DAVID W. WILLIAMS David W. Williams Chairman, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature /s/ DAVID W. WILLIAMS David W. Williams /s/ JAMES A. MACLENNAN James A. MacLennan /s/ MICHAEL A. CAWLEY Michael A. Cawley /s/ LAWRENCE J. CHAZEN Lawrence J. Chazen /s/ JULIE H. EDWARDS Julie H. Edwards /s/ GORDON T. HALL Gordon T. Hall /s/ JACK E. LITTLE Jack E. Little /s/ JON A. MARSHALL Jon A. Marshall /s/ MARY P. RICCIARDELLO Mary P. Ricciardello Capacity In Which Signed Chairman, President and Chief Executive Officer (Principal Executive Officer) Senior Vice President and Chief Financial Officer (Principal Financial Officer) Director Director Director Director Director Director Director Date February 25, 2013 February 25, 2013 February 25, 2013 February 25, 2013 February 25, 2013 February 25, 2013 February 25, 2013 February 25, 2013 February 25, 2013 100 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SIGNATURES Date: February 25, 2013 NOBLE CORPORATION, a Cayman Islands company By: /s/ DAVID W. WILLIAMS David W. Williams President, Chief Executive Officer and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature /s/ DAVID W. WILLIAMS David W. Williams /s/ DENNIS J. LUBOJACKY Dennis J. Lubojacky Capacity In Which Signed President, Chief Executive Officer and Director (Principal Executive Officer) Vice President, Chief Financial Officer and Director (Principal Financial Officer) /s/ ALAN P. DUNCAN Alan P. Duncan /s/ DAVID M.J. DUJACQUIER David M.J. Dujacquier /s/ ALAN R. HAY Alan R. Hay Director Director Director Date February 25, 2013 February 25, 2013 February 25, 2013 February 25, 2013 February 25, 2013 101 Exhibit Number 2.1 2.2 3.1 3.2 3.3 4.1 4.2 4.3 4.4 4.5 INDEX TO EXHIBITS Exhibit Agreement and Plan of Merger, Reorganization and Consolidation, dated as of December 19, 2008, among Noble Corporation, a Swiss corporation (“Noble-Swiss”), Noble Corporation, a Cayman Islands company (“Noble-Cayman”), and Noble Cayman Acquisition Ltd. (filed as Exhibit 1.1 to Noble-Cayman’s Current Report on Form 8-K filed on December 22, 2008 and incorporated herein by reference). Amendment No. 1 to Agreement and Plan of Merger, Reorganization and Consolidation, dated as of February 4, 2009, among Noble-Swiss, Noble-Cayman and Noble Cayman Acquisition Ltd. (filed as Exhibit 2.2 to Noble-Cayman’s Current Report on Form 8-K filed on February 4, 2009 and incorporated herein by reference). Articles of Association of Noble-Swiss (filed as Exhibit 3.1 to Noble-Swiss’ Quarterly Report on Form 10-Q filed on August 6, 2012 and incorporated herein by reference). By-laws of Noble-Swiss (filed as Exhibit 3.2 to Noble-Swiss’ Current Report on Form 8-K filed on March 27, 2009 and incorporated herein by reference). Memorandum and Articles of Association of Noble-Cayman (filed as Exhibit 3.1 to Noble-Cayman’s Current Report on Form 8-K filed on March 30, 2009 and incorporated herein by reference). Indenture dated as of March 1, 1999, between Noble Drilling Corporation and JP Morgan Chase Bank, National Association (formerly Chase Bank of Texas, National Association), as trustee (filed as Exhibit 4.1 to the Form 8-K of Noble Drilling Corporation filed on March 23, 1999 and incorporated herein by reference). Supplemental Indenture dated as of March 16, 1999, between Noble Drilling Corporation and JP Morgan Chase Bank, National Association (formerly Chase Bank of Texas, National Association), as trustee, relating to 7.50% senior notes due 2019 of Noble Drilling Corporation (filed as Exhibit 4.2 to Noble Drilling Corporation’s Form 8-K filed on March 23, 1999 and incorporated herein by reference). Second Supplemental Indenture, dated as of April 30, 2002, between Noble Drilling Corporation, Noble Holding (U.S.) Corporation and Noble Corporation, and JP Morgan Chase Bank, National Association, as trustee, relating to 7.50% senior notes due 2019 of Noble Drilling Corporation (filed as Exhibit 4.6 to the Noble-Cayman Quarterly Report on Form 10-Q for the three-month period ended March 31, 2002 and incorporated herein by reference). Third Supplemental Indenture, dated as of December 20, 2005, between Noble Drilling Corporation, Noble Drilling Holding LLC, Noble Holding (U.S.) Corporation and Noble Corporation and JP Morgan Chase Bank, National Association, as trustee, relating to 7.50% senior notes due 2019 of Noble Drilling Corporation (filed as Exhibit 4.14 to Noble-Cayman’s Registration Statement on Form S-3 (No. 333-131885) and incorporated herein by reference). Fourth Supplemental Indenture, dated as of September 25, 2009, among Noble Drilling Corporation, as Issuer, Noble Drilling Holding LLC, as Co-Issuer, Noble Drilling Services 1 LLC, as Co-Issuer, Noble Holding (U.S.) Corporation, as Guarantor, Noble-Cayman, as Guarantor, and The Bank of New York Mellon Trust Company, N.A., as Trustee (relating to Noble Drilling Corporation 7.50% Senior Notes due 2019) (filed as Exhibit 4.1 to Noble-Swiss’ Form 8-K filed on October 1, 2009 and incorporated herein by reference). 102 4.6 4.7 4.8 4.9 4.10 4.11 4.12 4.13 4.14 4.15 4.16 Fifth Supplemental Indenture, dated as of October 1, 2009, among Noble Drilling Corporation, as Issuer, Noble Drilling Holding LLC, as Co-Issuer, Noble Drilling Services 6 LLC, as Co-Issuer, Noble Holding (U.S.) Corporation, as Guarantor, Noble-Cayman, as Guarantor, and The Bank of New York Mellon Trust Company, N.A., as Trustee (relating to Noble Drilling Corporation 7.50% Senior Notes due 2019) (filed as Exhibit 4.2 to Noble-Swiss’ Form 8-K filed on October 1, 2009 and incorporated herein by reference). Indenture, dated as of May 26, 2006, between Noble Corporation, as Issuer, and JPMorgan Chase Bank, National Association, as trustee (filed as Exhibit 4.1 to Noble-Cayman’s Current Report on Form 8-K filed on May 26, 2006 and incorporated herein by reference). First Supplemental Indenture, dated as of May 26, 2006, between Noble Corporation, as Issuer, Noble Drilling Corporation, as Guarantor, and JP Morgan Chase Bank, National Association, as trustee, relating to 5.875% senior notes due 2013 of Noble Corporation (filed as Exhibit 4.2 to the Noble-Cayman’s Current Report on Form 8-K filed on May 26, 2006 and incorporated herein by reference). Second Supplemental Indenture, dated as of October 1, 2009, among Noble-Cayman, as Issuer, Noble Drilling Corporation, as Guarantor, Noble Holding International Limited, as Guarantor, and The Bank of New York Mellon Trust Company, N.A., as Trustee (relating to Noble-Cayman’s 5.875% Senior Notes due 2013) (filed as Exhibit 4.3 to Noble-Swiss’ Form 8-K filed on October 1, 2009 and incorporated herein by reference). Revolving Credit Agreement dated as of February 11, 2011 among Noble Corporation, a Cayman Islands company; the Lenders from time to time parties thereto; Wells Fargo Bank, National Association, as Administrative Agent, Swingline Lender and an Issuing Bank; Barclays Capital, a division of Barclays Bank PLC, and HSBC Securities (USA) Inc., as Co- Syndication Agents; and Wells Fargo Securities, LLC, Barclays Capital, a division of Barclays Bank PLC, and HSBC Securities (USA) Inc., as Joint Lead Arrangers and Joint Lead Bookrunners (filed as Exhibit 4.1 to Noble-Cayman’s Current Report on Form 8-K filed on February 17, 2011 and incorporated by reference herein). First Amendment to Revolving Credit Agreement dated as of March 11, 2011 among Noble Corporation, a Cayman Islands company; the Lenders from time to time parties thereto; Wells Fargo Bank, National Association, as Administrative Agent, Swingline Lender and an Issuing Bank; Barclays Capital, a division of Barclays Bank PLC and HSBC Securities (USA) Inc., as Co-Syndication Agents; and Wells Fargo Securities, LLC, Barclays Capital, a division of Barclays Bank PLC, and HSBC Securities (USA) Inc., as Joint Lead Arrangers and Joint Lead Bookrunners (filed as Exhibit 4.2 to Noble-Swiss’ Quarterly Report on Form 10-Q filed on May 6, 2011 and incorporated by reference herein). Second Amendment to Revolving Credit Agreement dated as of January 11, 2013 among Noble Corporation, a Cayman Islands company; the Lenders from time to time parties thereto; Wells Fargo Bank, National Association, as Administrative Agent, Swingline Lender and an Issuing Bank; Barclays Capital, a division of Barclays Bank PLC and HSBC Securities (USA) Inc., as Co-Syndication Agents; and Wells Fargo Securities, LLC, Barclays Capital, a division of Barclays Bank PLC, and HSBC Securities (USA) Inc., as Joint Lead Arrangers and Joint Lead Bookrunners. Indenture, dated as of November 21, 2008, between Noble Holding International Limited, as Issuer, and The Bank of New York Mellon Trust Company, N.A., as Trustee (filed as Exhibit 4.1 to Noble-Cayman’s Current Report on Form 8-K filed on November 21, 2008 and incorporated herein by reference). First Supplemental Indenture, dated as of November 21, 2008, among Noble Holding International Limited, as Issuer, Noble Corporation, as Guarantor, and The Bank of New York Mellon Trust Company, N.A., as Trustee, relating to 7.375% senior notes due 2014 of Noble Holding International Limited (filed as Exhibit 4.2 to Noble-Cayman’s Current Report on Form 8-K filed on November 21, 2008 and incorporated herein by reference). Second Supplemental Indenture, dated as of July 26, 2010, among Noble Holding International Limited, as Issuer, Noble Corporation, as Guarantor, and The Bank of New York Mellon Trust Company, N.A., as Trustee, relating to 3.45% senior notes due 2015 of Noble Holding International Limited, 4.90% senior notes due 2020 of Noble Holding International Limited, and 6.20% senior notes due 2040 of Noble Holding International Limited (filed as Exhibit 4.2 to Noble-Cayman’s Current Report on Form 8-K filed on July 26, 2010 and incorporated herein by reference). Third Supplemental Indenture, dated as of February 3, 2011, among Noble Holding International Limited, as Issuer, Noble Corporation, as Guarantor, and The Bank of New York Mellon Trust Company, N.A., as Trustee, relating to 3.05% senior notes due 2016 of Noble Holding International Limited, 4.625% senior notes due 2021 of Noble Holding International Limited, and 6.05% senior notes due 2041 of Noble Holding International Limited (filed as Exhibit 4.1 to Noble-Cayman’s Current Report on Form 8-K filed on February 3, 2011 and incorporated herein by reference). 103 4.17 4.18 4.19 4.20 Fourth Supplemental Indenture, dated as of February 10, 2012, among Noble Holding International Limited, as Issuer, Noble Corporation, as Guarantor, and The Bank of New York Mellon Trust Company, N.A., as Trustee, relating to 2.5% senior notes due 2017 of Noble Holding International Limited, 3.95% senior notes due 2022 of Noble Holding International Limited, and 5.25% senior notes due 2042 of Noble Holding International Limited (filed as Exhibit 4.2 to Noble-Cayman’s Current Report on Form 8-K filed on February 13, 2012 and incorporated herein by reference). Revolving Credit Agreement dated as of June 8, 2012 among Noble Corporation, a Cayman Islands company; the Lenders from time to time parties thereto; Wells Fargo Bank, National Association, as Administrative Agent, Swingline Lender and an Issuing Bank; SunTrust Bank, as Syndication Agent; Barclays Bank PLC, HSBC Securities (USA) Inc. and The Bank of Tokyo-Mitsubishi UFJ, Ltd., as Co-Documentation Agents; and Wells Fargo Securities, LLC, SunTrust Robinson Humphrey, Inc., Barclays Bank PLC, HSBC Securities (USA) Inc. and The Bank of Tokyo-Mitsubishi UFJ, Ltd., as Joint Lead Arrangers and Joint Lead Bookrunners (filed as Exhibit 4.1 to Noble-Swiss’ Current Report on Form 8-K filed on June 11, 2012 and incorporated by reference herein). Guaranty Agreement dated as of June 8, 2012, between Noble Drilling Corporation, a Delaware corporation, and Wells Fargo Bank, National Association (filed as Exhibit 4.2 to Noble-Swiss’ Current Report on Form 8-K filed on June 11, 2012 and incorporated herein by reference). Guaranty Agreement dated as of June 8, 2012, between Noble Holding International Limited, a Cayman Islands company, and Wells Fargo Bank, National Association (filed as Exhibit 4.3 to Noble-Swiss’ Current Report on Form 8-K filed on June 11, 2012 and incorporated herein by reference). 10.1* Noble Drilling Corporation Equity Compensation Plan for Non-Employee Directors (filed as Exhibit 4.1 to Noble Drilling Corporation’s Registration Statement on Form S-8 (No. 333-17407) dated December 6, 1996 and incorporated herein by reference). 10.2* Amendment, effective as of May 1, 2002, to the Noble Drilling Corporation Equity Compensation Plan for Non-Employee Directors (filed as Exhibit 10.1 to Post-Effective Amendment No. 1 to Noble-Cayman’s Registration Statement on Form S- 8 (No. 333-17407) and incorporated herein by reference). 10.3* Amendment No. 2 to the Noble Corporation Equity Compensation Plan for Non-Employee Directors dated February 4, 2005 (filed as Exhibit 10.20 to Noble-Cayman’s Annual Report on Form 10-K for the year ended December 31, 2004 and incorporated herein by reference). 10.4* Amendment to the Noble Corporation Equity Compensation Plan for Non-Employee Directors dated December 31, 2008 (filed as Exhibit 10.29 to Noble-Cayman’s Annual Report on Form 10-K for the year ended December 31, 2008 and incorporated herein by reference). 10.5* Amended and Restated Noble Corporation Equity Compensation Plan for Non-Employee Directors effective March 27, 2009 (filed as Exhibit 10.5 to Noble-Swiss’ Annual Report on Form 10-K for the year ended December 31, 2010 and incorporated herein by reference). 10.6* Noble Drilling Corporation 401(k) Savings Restoration Plan (filed as Exhibit 10.1 to Noble Drilling Corporation’s Registration Statement on Form S-8 dated January 18, 2001 (No. 333-53912) and incorporated herein by reference). 10.7* Amendment No. 1 to the Noble Drilling Corporation 401(k) Savings Restoration Plan (filed as Exhibit 10.1 to Post- Effective Amendment No. 1 to Noble-Cayman’s Registration Statement on Form S-8 (No. 333-53912) and incorporated herein by reference). 10.8* Amendment No. 2 to the Noble Drilling Corporation 401(k) Savings Restoration Plan dated February 25, 2003 (filed as Exhibit 10.30 to Noble-Cayman’s Annual Report on Form 10-K for the year ended December 31, 2005 and incorporated herein by reference). 10.9* Amendment No. 3 to the Noble Drilling Corporation 401(k) Savings Restoration Plan dated March 9, 2005 (filed as Exhibit 10.31 to Noble-Cayman’s Annual Report on Form 10-K for the year ended December 31, 2005 and incorporated herein by reference). 10.10* Amendment No. 4 to the Noble Drilling Corporation 401(k) Savings Restoration Plan dated March 30, 2007 (filed as Exhibit 10.41 to Noble-Cayman’s Annual Report on Form 10-K for the year ended December 31, 2007 and incorporated herein by reference). 10.11* Amendment No. 5 to the Noble Drilling Corporation 401(k) Savings Restoration Plan effective May 1, 2010 (filed as Exhibit 10.11 to Noble-Swiss’ Annual Report on Form 10-K for the year ended December 31, 2010 and incorporated herein by reference). 104 10.12* Noble Drilling Corporation Retirement Restoration Plan dated April 27, 1995 (filed as Exhibit 10.2 to Noble Drilling Corporation’s Quarterly Report on Form 10-Q for the three-month period ended March 31, 1995 and incorporated herein by reference). 10.13* Amendment No. 1 to the Noble Drilling Corporation Retirement Restoration Plan dated January 29, 1998 (filed as Exhibit 10.18 to Noble Drilling Corporation’s Annual Report on Form 10-K for the year ended December 31, 1997 and incorporated herein by reference). 10.14* Amendment No. 2 to the Noble Drilling Corporation Retirement Restoration Plan dated June 28, 2004, effective as of July 1, 2004 (filed as Exhibit 10.32 to Noble-Cayman’s Annual Report on Form 10-K for the year ended December 31, 2005 and incorporated herein by reference). 10.15* Noble Drilling Corporation Retirement Restoration Plan dated December 29, 2008, effective January 1, 2009 (filed as Exhibit 10.32 to Noble-Cayman’s Annual Report on Form 10-K for the year ended December 31, 2008 and incorporated herein by reference). 10.16* Amendment No. 1 to Noble Drilling Corporation Retirement Restoration Plan dated July 10, 2009 (filed as Exhibit 10.16 to Noble-Swiss’ Annual Report on Form 10-K for the year ended December 31, 2010 and incorporated herein by reference). 10.17* Amended and Restated Noble Corporation 1992 Nonqualified Stock Option and Restricted Share Plan for Non-Employee Directors dated February 4, 2005 (filed as Exhibit 10.21 to Noble-Cayman’s Annual Report on Form 10-K for the year ended December 31, 2004 and incorporated herein by reference). 10.18* Second Amended and Restated Noble Corporation 1992 Nonqualified Stock Option and Share Plan for Non-Employee Directors (filed as Exhibit 10.2 to Noble-Cayman’s Quarterly Report on Form 10-Q for the three-month period ended September 25, 2007 and incorporated herein by reference). 10.19* Amendment to the Second Amended and Restated Noble Corporation 1992 Nonqualified Stock Option and Share Plan for Non-Employee Directors dated December 31, 2008 (filed as Exhibit 10.28 to Noble-Cayman’s Annual Report on Form 10- K for the year ended December 31, 2008 and incorporated herein by reference). 10.20* Third Amendment to Second Amended and Restated Noble Corporation 1992 Nonqualified Stock Option and Share Plan for Non-Employee Directors effective March 27, 2009 (filed as Exhibit 10.20 to Noble-Cayman’s Annual Report on Form 10-K for the year ended December 31, 2010 and incorporated herein by reference). 10.21* Fourth Amended and Restated Noble Corporation 1992 Nonqualified Stock Option and Share Plan for Non-Employee Directors effective February 1, 2013 (filed as Exhibit 10.1 to Noble-Swiss’ Current Report on Form 8-K filed on February 5, 2013 and incorporated herein by reference). 10.22* Composite copy of the Noble Corporation 1991 Stock Option and Restricted Stock Plan dated as of February 6, 2010 (filed as Exhibit 10.18 to Noble-Cayman’s Annual Report on Form 10-K for the year ended December 31, 2009 and incorporated herein by reference). 10.23* Third Amendment to the Noble Corporation 1991 Stock Option and Restricted Stock Plan, effective as of February 3, 2012 (filed as Exhibit 10.2 to Noble-Cayman’s Current Report on Form 8-K filed on February 7, 2012 and incorporated herein by reference). 10.24* Amended and Restated 1991 Stock Option and Restricted Stock Plan (filed as Exhibit 10.2 to Noble-Cayman’s Current Report on Form 8-K filed on April 30, 2012 and incorporated herein by reference). 10.25* Noble Drilling Corporation 2009 401(k) Savings Restoration Plan effective January 1, 2009 (filed as Exhibit 10.31 to Noble-Cayman’s Annual Report on Form 10-K for the year ended December 31, 2008 and incorporated herein by reference). 10.26* Amendment No. 1 to the Noble Drilling Corporation 2009 401(k) Savings Restoration Plan effective May 1, 2010 (filed as Exhibit 10.23 to Noble-Swiss’ Annual Report on Form 10-K for the year ended December 31, 2010 and incorporated herein by reference). 10.27* Noble Corporation Summary of Directors’ Compensation. 10.28* Form of Noble Corporation Performance-Vested Restricted Stock Agreement under the Noble Corporation 1991 Stock Option and Restricted Stock Plan (filed as Exhibit 10.34 to Noble-Cayman’s Annual Report on Form 10-K for the year ended December 31, 2008 and incorporated herein by reference). 105 10.29* Form of Noble Corporation Time-Vested Restricted Stock Agreement under the Noble Corporation 1991 Stock Option and Restricted Stock Plan (filed as Exhibit 10.35 to Noble-Cayman’s Annual Report on Form 10-K for the year ended December 31, 2008 and incorporated herein by reference). 10.30* Form of Noble Corporation Nonqualified Stock Option Agreement under the Noble Corporation 1991 Stock Option and Restricted Stock Plan (filed as Exhibit 10.36 to Noble-Cayman’s Annual Report on Form 10-K for the year ended December 31, 2008 and incorporated herein by reference). 10.31* Form of Noble Corporation Restricted Stock Agreement under the Amended and Restated Noble Corporation 1992 Nonqualified Stock Option and Share Plan for Non-Employee Directors (filed as Exhibit 10.37 to Noble-Cayman’s Annual Report on Form 10-K for the year ended December 31, 2008 and incorporated herein by reference). 10.32* Form of Noble Corporation Performance-Vested Restricted Stock Unit Agreement under the Noble Corporation 1991 Stock Option and Restricted Stock Plan (filed as Exhibit 10.1 to Noble-Cayman’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 and incorporated herein by reference). 10.33* Form of Noble Corporation Time-Vested Restricted Stock Unit Agreement under the Noble Corporation 1991 Stock Option and Restricted Stock Plan (filed as Exhibit 10.2 to Noble-Cayman’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 and incorporated herein by reference). 10.34* Form of Noble Corporation Nonqualified Stock Option Agreement under the Noble Corporation 1991 Stock Option and Restricted Stock Plan (filed as Exhibit 10.3 to Noble-Cayman’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 and incorporated herein by reference). 10.35* Form of Noble Corporation Performance-Vested Restricted Stock Agreement under the Noble Corporation 1991 Stock Option and Restricted Stock Plan (filed as Exhibit 10.2 to Noble-Cayman’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2011 and incorporated herein by reference). 10.36* Form of Noble Corporation Time-Vested Restricted Stock Unit Agreement under the Noble Corporation 1991 Stock Option and Restricted Stock Plan (filed as Exhibit 10.2 to Noble-Cayman’s Current Report on Form 8-K filed on January 13, 2012 and incorporated herein by reference). 10.37* Form of Noble Corporation Nonqualified Stock Option Agreement under the Noble Corporation 1991 Stock Option and Restricted Stock Plan (filed as Exhibit 10.3 to Noble-Cayman’s Current Report on Form 8-K filed on January 13, 2012 and incorporated herein by reference). 10.38* Form of Noble Corporation Performance-Vested Restricted Stock Unit Agreement under the Noble Corporation 1991 Stock Option and Restricted Stock Plan (filed as Exhibit 10.7 to Noble-Cayman’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 and incorporated herein by reference). 10.39* Form of Noble Corporation Performance-Vested Restricted Stock Unit Agreement under the Noble Corporation 1991 Stock Option and Restricted Stock Plan. 10.40* Noble Corporation 2012 Short Term Incentive Plan (filed as Exhibit 10.6 to Noble-Cayman’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 and incorporated herein by reference). 10.41* Noble Corporation 2013 Short Term Incentive Plan. 10.42* Form of Employment Agreement and Guaranty Agreement (filed as Exhibit 10.1 to Noble-Swiss’ Current Report on Form 8-K filed on December 4, 2009 and incorporated herein by reference). 10.43* Form of Employment Agreement and Guaranty Agreement (filed as Exhibit 10.1 to Noble-Cayman’s Current Report on Form 8-K filed on January 13, 2012 and incorporated herein by reference). 10.44* Form of Employment Agreement and Guaranty Agreement (filed as Exhibit 10.1 to Noble-Cayman’s Current Report on Form 8-K filed on February 7, 2012 and incorporated herein by reference). 10.45* Form of Commercial Paper Dealer Agreement dated as of September 19, 2012 between Noble Corporation, a Cayman Islands company, Noble Holding International Limited, a Cayman Islands company, Noble Drilling Corporation, a Delaware corporation, and certain investment banks (filed as Exhibit 10.1 to Noble-Swiss’ Current Report on Form 8-K filed on September 19, 2012 and incorporated herein by reference). 10.46* Form of Issuing and Paying Agent Agreement dated as of September 19, 2012 between Noble Corporation, a Cayman Islands company, and the Issuing and Paying Agent (filed as Exhibit 10.2 to Noble-Swiss’ Current Report on Form 8-K filed on September 19, 2012 and incorporated herein by reference). 106 21.1 23.1 23.2 31.1 31.2 31.3 32.1+ 32.2+ 32.3+ Subsidiaries of Noble-Swiss and Noble-Cayman. Consent of PricewaterhouseCoopers LLP. Consent of PricewaterhouseCoopers LLP. Certification of David W. Williams pursuant to SEC Rule 13a-14(a) or Rule 15d-14(a). Certification of James A. MacLennan pursuant to SEC Rule 13a-14(a) or Rule 15d-14(a). Certification of Dennis J. Lubojacky pursuant to SEC Rule 13a-14(a) or Rule 15d-14(a). Certification of David W. Williams pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Certification of James A. MacLennan pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Certification of Dennis J. Lubojacky pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101+ Interactive data files * Management contract or compensatory plan or arrangement. + Furnished in accordance with Item 601(b)(32)(ii) of Regulation S-K. 107 Report of the statutory auditor to the general meeting of Noble Corporation Baar Report of the statutory auditor on the financial statements As statutory auditor, we have audited the accompanying financial statements of Noble Corporation, which comprise the balance sheet, statement of income and notes (pages S2 to S16), for the year ended December 31, 2012. Board of Directors’ Responsibility The Board of Directors is responsible for the preparation of the financial statements in accordance with the requirements of Swiss law and the company’s articles of incorporation. This responsibility includes designing, implementing and maintaining an internal control system relevant to the preparation of finan- cial statements that are free from material misstatement, whether due to fraud or error. The Board of Directors is further responsible for selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances. Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Swiss law and Swiss Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the as- sessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to the entity’s preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control system. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements for the year ended December 31, 2012 comply with Swiss law and the company’s articles of incorporation. PricewaterhouseCoopers AG, Grafenauweg 8, Postfach, CH-6304 Zug, Switzerland Telephone: +41 58 792 68 00, Facsimile: +41 58 792 68 10, www.pwc.ch PricewaterhouseCoopers AG is a member of the global PricewaterhouseCoopers network of firms, each of which is a separate and independent legal entity. Report on other legal requirements We confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA) and independence (article 728 CO and article 11 AOA) and that there are no circumstances incom- patible with our independence. In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists which has been designed for the preparation of financial statements according to the instructions of the Board of Directors. We further confirm that the proposed appropriation of legal reserves from capital contribution complies with Swiss Law and the Company's articles of association. We recommend that the financial statements submitted to you be approved. PricewaterhouseCoopers AG Joanne Burgener Audit expert Auditor in charge Zug, February 25, 2013 Claudia Muhlinghaus NOBLE CORPORATION SWISS STATUTORY FINANCIAL STATEMENTS December 31, 2012 S-1 NOBLE CORPORATION SWISS STATUTORY BALANCE SHEET (In thousands of Swiss Francs) ASSETS Current assets Cash and cash equivalents Prepaid expenses and other current assets Total current assets Fixed assets Treasury shares Investment in subsidiaries Valuation allowance Total fixed assets December 31, 2012 December 31, 2011 870 1,724 2,594 19,809 10,676,111 (1,300,000) 9,395,920 273 1,175 1,448 10,115 10,676,111 - 10,686,226 Total assets 9,398,514 10,687,674 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable and accrued liabilities Accrued capital taxes Provision for unrealized exchange gains Other current liabilities Shareholders Intercompany Total liabilities Shareholders' equity Share capital Legal reserves Capital contribution Reserve for own shares, funded from capital contribution Reserve for own shares, funded from retained earnings Dividend reserve Retained earnings (Loss) / profit for the period Total shareholders' equity Total liabilities and shareholders' equity 1,298 109 6,556 63,177 331,985 403,125 869 106 - - 190,282 191,257 838,373 907,572 9,006,909 9,273,871 10,115 10,115 9,694 137,460 295,165 (1,302,327) 8,995,389 9,398,514 - - 179,307 125,552 10,496,417 10,687,674 S-2 NOBLE CORPORATION SWISS STATUTORY STATEMENT OF INCOME (In thousands of Swiss Francs) Revenues Dividend income Total revenues Expenses Provision for valuation allowance on investment in subsidiary Administrative and other expenses - recharged from group companies Administrative and other expenses - charged from third parties Financial expenses Total expenses (Loss) / profit for the period Year Ended December 31, 2012 2011 57,856 57,856 (1,300,000) (60,010) (172) (1) (1,360,183) (1,302,327) 191,447 191,447 - (52,669) (1,101) (12,125) (65,895) 125,552 S-3 1. Basis of presentation Noble Corporation, a Swiss Corporation (“Noble”, “Noble-Swiss”, the “Company”, “we”, “our” and words of similar import), is a holding company listed on the New York Stock Exchange (“NYSE”), engaged in the management of companies which provide offshore drilling contract services for the oil and gas industry. On March 26, 2009, pursuant to the previously announced Agreement and Plan of Merger, Reorganization and Consolidation, dated as of December 19, 2008 (as amended, the “Merger Agreement”), among Noble-Swiss, Noble Corporation, a Cayman Island Company, (“Noble-Cayman”), and Noble Cayman Acquisition Ltd., a Cayman Islands company and a wholly-owned subsidiary of Noble-Swiss (“Noble-Acquisition”), Noble-Cayman merged by way of schemes of arrangement under Cayman Islands law (the “Schemes of Arrangement”) with Noble-Acquisition, with Noble-Cayman as the surviving company (the “Transaction”). Under the terms of the Schemes of Arrangement, each holder of Noble- Cayman ordinary shares outstanding immediately prior to the Transaction received, through an exchange agent, one Noble-Swiss registered share in exchange for each outstanding Noble-Cayman ordinary share, and Noble-Cayman received, through an exchange agent, a number of newly issued Noble-Cayman ordinary shares equal to the number of Noble-Cayman ordinary shares outstanding immediately prior to the Transaction. Shares of Noble-Swiss trade on the NYSE under the symbol “NE”. This transaction became effective under Swiss law on March 27, 2009. The financial statements present the financial position of the holding company on a standalone basis and do not represent the consolidated financial position of the holding company and its subsidiaries. The accounts are prepared in accordance with Swiss Law (Swiss Code of Obligations). All amounts in the notes are shown in thousands of Swiss Francs, unless otherwise stated. 2. Significant accounting policies a) Cash and cash equivalents Cash and cash equivalents includes cash on hand and deposits with an original maturity of three months or less at time of purchase. b) Treasury shares Treasury shares are classified as long-term assets on the balance sheet and are valued at the cost of the shares which are purchased. This classification in the balance sheet is consistent with management’s intent to hold the shares for a period outside of one year. c) Investments in subsidiaries Investments in subsidiaries are equity interests, which are held on a long-term basis for the purpose of the holding company’s business activities. They are carried at a value no higher than their cost, determined via reference to fair market value or amounts paid for the investment, less adjustments for impairment, if any. The cost of the Company's primary investment in Noble-Cayman was determined by reference to fair market value of the contributed share capital of Noble-Cayman, on the basis of the closing price of the ordinary shares of Noble-Cayman as reported on the NYSE on the date of transaction, plus a premium, which was determined via a discounted cash flow analysis. At December 31, 2012, the fair market value of the investment in Noble-Cayman was determined to be below the historical cost basis of the investment. Accordingly, a valuation allowance of CHF 1.3 billion consisting primarily of the impact of the decline in the U.S. dollar against the Swiss franc was recorded in the 2012 statement of income to reduce the cost basis of the investment in Noble-Cayman to fair market value. The investment value and the associated valuation allowance have been recorded on the balance sheet. S-4 d) Translation of foreign currencies Assets, other than investments in subsidiaries, and liabilities denominated in foreign currencies are converted at year end exchange rates. Revenues and expenses denominated in foreign currencies are converted using an average exchange rate. Unrealized exchange losses are recorded in the statement of income and unrealized exchange gains are deferred until realized. e) Dividends Our shareholders approve the payment of dividends at the annual shareholder meeting, which are funded from capital contribution. Subject to shareholder approval, a dividend reserve is established, from which the expected liability to shareholders is funded. Amounts are translated to CHF prior to the respective payment dates (in each case subject to the availability of a sufficient amount in the dividend reserve), and the dividend reserve is adjusted for exchange rate differences at the respective payment dates. Any amount of the dividend reserve remaining after the payment of the final quarterly installment of the dividend will be reallocated to the capital contribution reserve. 3. Significant investments As no changes occurred in the direct investment held by Noble Corporation in the year 2012, the chart below details significant investments of the Company as of both December 31, 2012 and 2011: Company Noble Services (Switzerland), LLC Noble Financing Services, Limited Noble Corporation Country Switzerland Cayman Islands Cayman Islands % of Possession 100% 100% 100% Currency CHF USD USD Purpose Management Services Financing Company Holding Company Nominal share capital CHF 100 USD 50 USD 26,125 At December 31, 2012, the fair market value of the investment in Noble-Cayman was determined to be below the historical cost basis of the investment. Accordingly, a valuation allowance of CHF 1.3 billion consisting primarily of the impact of the decline in the U.S. dollar against the Swiss franc was recorded in the 2012 statement of income to reduce the cost basis of the investment in Noble-Cayman to fair market value. The investment value and the associated valuation allowance have been recorded on the balance sheet. S-5 4. Shareholders’ equity The following chart details our share capital as of December 31, 2012 and 2011, respectively: As of December 31, 2012 As of December 31, 2011 Shares 252,758,924 588,666 253,347,590 12,802,410 266,150,000 133,075,000 138,132,846 Par Value (CHF) 796,191 1,854 798,045 Shares 252,352,223 286,516 252,638,739 Par Value (CHF) 860,522 977 861,499 40,328 838,373 13,511,261 266,150,000 419,186 435,118 133,075,000 138,132,846 46,073 907,572 453,786 471,033 Shares traded Treasury Shares Subtotal Shares held by wholly owned subsidiary Total shares issued Authorized capital Conditional capital a) Authorized capital As of both December 31, 2012 and 2011, we had a total of 266,150,000 shares issued. As of December 31, 2012 and 2011, we had 252,758,924 and 252,352,223 shares traded, respectively. During July 2011, after making the required filings with the Swiss Commercial Register, 10,115,693 repurchased shares held in treasury were cancelled. As of December 31, 2012, the board of directors is authorized to issue new registered shares at any time during the two-year period ending on April 28, 2013 and thereby increase the share capital, without shareholder approval, by a maximum amount of CHF 419,186,250 divided into 133,075,000 registered shares, each with a par value CHF 3.15 per share. After the expiration of the initial two-year period, and each subsequent two-year period, authorized share capital will be available to the board of directors for issuance of additional registered shares only if the authorization is reapproved by shareholders. The Company’s Board of Directors will recommend to the annual general meeting of shareholders that this authority be extended for two years until April 25, 2015. The amounts as of December 31, 2012 above include a return in capital of CHF 0.26 in the form of a par value reduction and $0.26 in the form of a dividend funded from our dividend reserve. The amounts as of December 31, 2011 above include a return in capital in the form of a par value reduction of CHF 0.52. b) Conditional capital As of December 31, 2012, the share capital of the Company may be increased by an amount not exceeding CHF 435,118,465 through the issuance from time to time of a maximum of 138,132,846 registered shares, payable in full, each with a par value of CHF 3.15, in connection with the exercise of option or restricted share unit rights granted to any employee by the Company or a subsidiary. S-6 c) Treasury shares Treasury shares are valued at cost and are treated as a part of long term assets as Management intends to hold the shares for a period outside of one year. The chart below details the shares held in treasury for the period December 31, 2010 through December 31, 2012. Company Number of Shares Lowest Cost Highest Cost Average Cost Total Costs For the year ended December 31, 2011 Opening balance First quarter Second quarter Third quarter Cancellation Fourth quarter Ending balance 10,140,488 147,560 90,168 18,157 (10,115,693) 5,836 286,516 CHF 31.69 CHF 34.06 CHF 31.69 CHF 24.27 * CHF 29.00 CHF 24.27 CHF 47.25 CHF 41.46 CHF 39.00 CHF 30.63 * CHF 33.61 CHF 41.46 CHF 38.64 CHF 36.59 CHF 35.26 CHF 29.27 * CHF 30.35 CHF 35.49 CHF 385,771 CHF 5,400 CHF 3,179 CHF 532 (CHF 382,198) CHF 177 CHF 12,861 Less: Par reduction on Treasury Shares (CHF 2,746) Value of Treasury Shares at December 31, 2011 CHF 10,115 For the year ended December 31, 2012 First quarter Second quarter Third quarter Fourth quarter Ending balance 176,548 105,381 17,832 2,389 588,666 CHF 28.47 CHF 29.80 CHF 35.56 CHF 31.29 CHF 35.80 CHF 34.92 CHF 37.33 CHF 35.51 CHF 33.43 CHF 30.00 CHF 36.80 CHF 32.03 CHF 5,902 CHF 3,162 CHF 656 CHF 76 CHF 9,796 Less: Par reduction on Treasury Shares (CHF 102) Value of Treasury Shares at December 31, 2012 CHF 19,809 _________ ‘* Not applicable. In addition to these treasury shares, as of December 31, 2012, a subsidiary holds a total 12,802,410 (13,511,261 as of December 31, 2011) shares with a par value of CHF 40,327,592 (CHF 46,073,400 as of December 31, 2011) which are reserved for employee plans. As noted under “Note 4a) Authorized capital” above, the cancellation of 10,115,693 (CHF 382,198) treasury shares was registered with the Swiss Commercial Registry in July 2011. d) Share repurchase authorization In March 2009, the Board of Directors (the Board) authorized the plan of the predecessor company to repurchase common shares, up to an aggregate total of 50,000,000 shares. At March 27, 2009, a total of 16,619,891 shares remained available under this authorization. These purchases may take place from time to time in the open market or in private purchase transactions. From March 27, 2009 through December 31, 2012 a total of 9,850,000 shares were purchased under this authorization leaving a total of 6,769,891 shares which could be repurchased under this authorization as of December 31, 2012. e) Dividend payments In both February 2012 and May 2012, we made dividend payments, including dividend payments on shares held by one of our subsidiaries, in the amount of CHF 34,599,500, in the form of a par value S-7 reduction. In August 2012 and November 2012, we made dividend payments, including dividend payments on shares held by one of our subsidiaries, in the amount of CHF 33,759,949 and CHF 32,565,791, respectively, out of capital contribution. 5. Contingent liability The company is a member of a VAT group and is therefore jointly and severally liable for the payment of the VAT liabilities of the other members of the Swiss VAT group. 6. Remuneration of the Board of Directors and the Group Executives a) Basis of presentation The following information sets forth the compensation for the years ended December 31, 2012 and 2011 for the members of the Board of Directors of Noble and Group Executives for all of the functions that they have performed for the Company. Compensation is presented for the years ended December 31, 2012 and 2011. Compensation of the Board is paid by Noble or one of its subsidiaries. Compensation of the Group Executives is paid by Noble and the group entities where they are employed. Compensation is paid as a combination of both U.S. dollars and Swiss francs, though the following tables express all remuneration details in whole Swiss francs with totals in both Swiss francs and U.S. dollars. b) Remuneration of the Board of Directors The compensation committee of our Board sets the compensation of our directors. In determining the appropriate level of compensation for our directors, the compensation committee considers the commitment required from our directors in performing their duties on behalf of the Company, as well as comparative information the committee obtains from compensation consulting firms and from other sources. During the years ended December 31, 2012 and 2011, no directors received benefits in kind or waivers of claims and no compensation was paid to any related party of current or former directors nor did any related parties of current or former directors receive any benefits in kind or waivers of claim. As of December 31, 2012 and 2011, no current or former directors or any related party of current or former directors had any outstanding loans or credits from the Company. Set forth below is a description of the compensation of our directors. i) Annual Retainers and Other Fees and Expenses. We pay our non-employee directors an annual retainer of $50,000 (CHF 46,735 in 2012 and CHF 43,923 in 2011) of which 20 percent is paid in shares under the Noble Corporation Equity Compensation Plan for Non-Employee Directors. Under this plan, non-employee directors may elect to receive up to all of the remaining 80 percent in shares or cash. Non-employee directors make elections on a quarterly basis. The number of shares to be issued under the plan in any particular quarter is generally determined using the average of the daily closing prices of the shares for the last 15 consecutive trading days of the previous quarter. No options are issuable under the plan, and there is no “exercise price” applicable to shares delivered under the plan. In addition, we pay our non-employee directors a Board meeting fee of $2,000 (CHF 1,869 in 2012 and CHF 1,757 in 2011). We pay each member of our audit committee a committee fee of $2,500 (CHF 2,337 in 2012 and CHF 2,196 in 2011) per meeting and each member of our other committees a committee meeting fee of $2,000 (CHF 1,869 in 2012 and CHF 1,757 in 2011) per meeting. In 2011, the chair of the audit committee, as well as the chair of the nominating and corporate governance committee, each received an annual retainer of $15,000 (CHF 13,177) and the chair of the compensation committee received an annual retainer of $12,500 (CHF 10,981). In 2012, the chair of the audit committee received an annual retainer of $25,000 (CHF 23,368), the chair of the compensation committee received an annual retainer of $20,000 (CHF 18,694) and the chair of S-8 the nominating and corporate governance committee, as well as the chair of each other standing Board committee, each received an annual retainer of $15,000 (CHF 14,021). The lead director also received an annual fee of $20,000 (CHF 18,694). We also reimburse directors for travel, lodging and related expenses they may incur in attending Board and committee meetings. ii) Non-Employee Director Stock Options and Restricted Shares. Under the 1992 Plan, each annually-determined award of a variable number of Restricted Shares or unrestricted shares is made on a date selected by the Board, or if no such date is selected by the Board, the date on which the Board action approving such award is taken. Any future award of Restricted Shares will be evidenced by a written agreement that will include such terms and conditions not inconsistent with the terms and conditions of the 1992 Plan as the Board considers appropriate in each case. On July 29, 2011, an award of 7,888 unrestricted shares under the 1992 Plan was made to each non-employee director serving on that date. Based on a review of market data provided by the compensation consultant, the market value of this award approximated the 75th percentile of the compensation paid to non-employee directors in the comparator groups. The value of the 63,104 unrestricted share award was $2.3 million (CHF 2.0 million) which was immediately recognized by the Company at the time of the award. On July 27, 2012, an award of 8,332 unrestricted shares under the 1992 Plan was made to each non-employee director serving on that date. Based on a review of market data provided by the compensation consultant, the market value of this award approximated the 75th percentile of the compensation paid to non-employee directors in the comparator groups. The value of the 58,324 unrestricted share award was $2.2 million (CHF 2.1 million) which was immediately recognized by the Company at the time of the award. The following table shows the compensation of our directors for the years ended December 31, 2012 and 2011. Although David W. Williams is Chairman of the Board, details of Mr. Williams' compensation are included in Section C. For the Year Ended December 31, 2012 Director Name Michael A. Cawley Lawrence J. Chazen Julie H. Edwards Gordon T. Hall Marc E. Leland (1) Jack E. Little Jon A. Marshall Mary P. Ricciardello Total Board Function Lead Director Director Director Director Former Director Director Director Director Fee Earned or Paid in Cash 93,470 82,721 80,852 80,852 48,838 73,023 74,542 99,078 633,376 Stock Awards 292,904 292,904 292,904 292,904 - 292,904 292,904 292,904 2,050,328 All Other - - - - - - - - - Total in CHF 386,374 375,625 373,756 373,756 48,838 365,927 367,446 391,982 2,683,704 Total in USD 413,367 $ 401,867 399,867 399,867 52,250 391,492 393,117 419,367 2,871,194 $ _________ (1) Marc E. Leland retired effective April 27, 2012, therefore, his 2012 compensation earned in the above table is through that date. S-9 For the Year Ended December 31, 2011 Director Name Michael A. Cawley Lawrence J. Chazen Julie H. Edwards Gordon T. Hall Marc E. Leland Jack E. Little Jon A. Marshall Mary P. Ricciardello Total Board Function Lead Director Director Director Director Director Director Director Director Fee Earned or Paid in Cash 79,941 72,913 79,941 72,913 77,745 59,736 59,736 86,090 589,015 Stock Awards 255,486 255,486 255,486 255,486 255,486 255,486 255,486 255,486 2,043,888 All Other - - - - - - - - - Total in CHF 335,427 328,399 335,427 328,399 333,231 315,222 315,222 341,576 2,632,903 Total in USD 381,831 $ 373,831 381,831 373,831 379,331 358,831 358,831 388,831 2,997,148 $ c) Remuneration of Group Executives The compensation committee of our Board is responsible for determining the compensation of our directors and executive officers and for establishing, implementing and monitoring adherence to our executive compensation philosophy. The compensation committee provides guidance to our Board in incentive and equity-based the compensation programs, benefits, reviewing and administering compensation plans. The compensation committee operates independently of management and receives compensation advice and data from outside advisors. The Company believes that its executive compensation program reflects the Company’s philosophy that executive compensation should be structured so as to closely align each executive’s interests with the interests of our shareholders. The program is designed to emphasize equity-based incentive and performance-based pay and, in order to promote an atmosphere of teamwork, fairness and motivation; these concepts extend beyond the named executive officers to other key employees throughout the Company. The primary objectives of the Company’s total compensation package are to motivate our executives to assist the Company in achieving certain operating and financial performance goals that enhance shareholder value, to reward outstanding performance in achieving these goals and to establish and maintain a competitive executive compensation program that enables the Company to attract, retain and motivate high caliber executives who will contribute to the long-term success of the Company. When used in this Remuneration section, the term “Group Executives” means those persons listed in the Summary Compensation Table below. Effective October 2011, Thomas Mitchell resigned as Chief Financial Officer, Treasurer and Controller and Dennis Lubojacky was designated as principal financial officer and principal accounting officer until a replacement was appointed. Messrs. Mitchell and Lubojacky are included as Group Executives in the 2011 table below, as is Lee Ahlstrom, Senior Vice President-Strategic Development. Their compensation has been included on a pro-rata basis in the 2011 table below. Effective January 9, 2012, James MacLennan was appointed Chief Financial Officer. From January 1, 2012 through January 9, 2012, Dennis Lubojacky was designated as principal financial officer and principal accounting officer, and effective April 27, 2012; he was appointed principal accounting officer and controller. Effective February 6, 2012, Bernie Wolford was appointed Senior Vice President- Operations, replacing Don Jacobsen who served in this role from January 1, 2012 through February 6, 2012. Compensation for Messrs. Lubojacky, Wolford and Jacobsen has been included on a pro-rata basis in the 2012 table below. As of December 31, 2012 and 2011, there have been no payments to former Group Executives nor has any such person received benefits in kind from the Company. Additionally, no current or former Group Executives or any related party of current or former Group Executives had outstanding loans or credits S-10 from the Company. The below chart details the compensation, based upon an accrual basis of accounting, of the Group Executives: For the Year Ended December 31, 2012 Title Chairman, President and Chief Executive Officer Employee Name David W. Williams Other Group Executives Total Title Chairman, President and Chief Executive Officer Employee Name David W. Williams Other Group Executives Total Salary Bonus Stock Award (1) Option Award (2) All Other Compensation (3) Total in CHF Total in USD 934,700 467,350 4,813,510 1,119,341 1,547,348 8,882,249 $ 9,502,780 2,718,214 3,652,914 992,930 1,460,280 9,055,303 13,868,813 2,248,145 3,367,486 5,721,979 7,269,327 20,736,571 29,618,820 22,185,269 31,688,049 $ For the Year Ended December 31, 2011 Salary Bonus Stock Award (1) Option Award (2) All Other Compensation (3) Total in CHF Total in USD 878,469 483,158 4,204,258 1,050,184 1,525,708 8,141,777 $ 9,268,144 2,381,290 3,259,759 704,435 1,187,593 6,910,896 11,115,154 1,674,977 2,725,161 4,247,852 5,773,560 15,919,450 24,061,227 18,121,813 27,389,957 $ (1) Valued based upon the fair value at the date of grant for all time vested awards and based upon a Monte Carlo Simulation for all performance vested awards. (2) Value based upon a Black-Scholes model on the date of the option grant. (3) All other compensation primarily consists of foreign service premium and other expatriate related expenses. 7. Common Share ownership of the Board of Directors and Group Executives a) Board of Directors The following table sets forth information, as of December 31, 2012 and 2011, with respect to the beneficial ownership of Common Shares by each of our directors. No related parties own shares in the Company. Although David W. Williams is Chairman of the Board, details of Mr. Williams share ownership are included in Section B. Director Name Michael A. Cawley Lawrence J. Chazen Julie H. Edwards Gordon T. Hall Marc E. Leland (1) Jack E. Little Jon A. Marshall Mary P. Ricciardello Total Function Lead Director Director Director Director Former Director Director & Compensation Committee Chair Director Director & Audit Committee Chair _________ (1) Marc E. Leland retired effective April 27, 2012. As of December 31, 2012 Common Shares Beneficially Owned Outstanding Options Weighted Average Option Exercise Price in CHF Weighted Average Option Exercise Years 19.17 31.05 37.74 - 31.06 19.17 - 21.24 1.24 2.83 3.33 - 2.83 1.24 - 1.74 77,421 52,966 49,892 26,955 113,470 73,970 28,455 60,908 38,000 8,000 20,000 - 8,000 38,000 - 28,000 484,037 140,000 S-11 As of December 31, 2011 Common Shares Beneficially Owned Outstanding Options Weighted Average Option Exercise Price in CHF Weighted Average Option Exercise Years 69,567 45,787 42,736 19,776 98,214 66,116 20,601 53,983 53,000 8,000 20,000 - 53,000 38,000 - 28,000 416,780 200,000 19.70 31.73 38.57 - 19.70 19.59 - 21.71 1.70 3.83 4.33 - 1.70 2.24 - 2.75 Director Name Michael A. Cawley Lawrence J. Chazen Julie H. Edwards Gordon T. Hall Marc E. Leland Jack E. Little Jon A. Marshall Mary P. Ricciardello Total Function Lead Director Director Director Director Director & Compensation Committee Chair Director Director Director & Audit Committee Chair b) Group Executives Effective October 2011, Thomas Mitchell resigned as Chief Financial Officer, Treasurer and Controller and Dennis Lubojacky was designated as principal financial officer and principal accounting officer until a replacement was appointed. Messrs. Mitchell and Lubojacky are included as Group Executives in the 2011 table below, as is Lee Ahlstrom, Senior Vice President-Strategic Development. Effective January 9, 2012, James MacLennan was appointed Chief Financial Officer. From January 1, 2012 through January 9, 2012, Dennis Lubojacky was designated as principal financial officer and principal accounting officer, and effective April 27, 2012; he was appointed principal accounting officer and controller. Effective February 6, 2012, Bernie Wolford was appointed Senior Vice President- Operations, replacing Don Jacobsen who served in this role from January 1, 2012 through February 6, 2012. Messrs. MacLennan, Lubojacky and Wolford are included as Group Executives in the 2012 table below. S-12 No related persons own shares as of December 31, 2012 and 2011, respectively. The following table sets forth information, as of December 31, 2012 and 2011, with respect to the beneficial ownership of Common Shares by each of our Group Executives. As of December 31, 2012 Director Name David W. Williams Julie J. Robertson James A. MacLennan Dennis J. Lubojacky William E. Turcotte Bernie G. Wolford Roger B. Hunt Scott W. Marks Lee M. Ahlstrom Total Director Name David W. Williams Julie J. Robertson Thomas L. Mitchell Dennis J. Lubojacky William E. Turcotte Donald E. Jacobsen Roger B. Hunt Scott W. Marks Lee M. Ahlstrom Total Function Chairman of the Board, President and Chief Executive Officer Executive Vice President and Corporate Secretary Senior Vice President and Chief Financial Officer Vice President and Controller Senior Vice President and General Counsel Senior Vice President- Operations Senior Vice President – Marketing and Contracts Senior Vice President- Engineering Senior Vice President- Strategic Development Common Shares Beneficially Owned 247,761 Outstanding Options 529,295 556,948 249,066 4,000 4,651 37,689 5,986 25,404 50,009 19,674 65,640 22,739 61,495 20,900 57,172 40,155 27,699 Weighted Average Option Exercise Price in CHF Option Exercise Years 31.60 30.28 29.79 31.83 32.41 33.86 34.55 32.33 31.98 6.44 5.47 9.05 7.12 7.90 8.88 8.25 6.92 6.74 952,122 1,074,161 As of December 31, 2011 Function Chairman of the Board, President and Chief Executive Officer Executive Vice President and Corporate Secretary Senior Vice President, Chief Financial Officer, Treasurer and Controller Principal Financial Officer Senior Vice President and General Counsel Senior Vice President- Operations Senior Vice President – Marketing and Contracts Senior Vice President- Engineering Senior Vice President- Strategic Development Common Shares Beneficially Owned 395,174 Outstanding Options 439,993 566,054 104,070 19,542 49,196 26,753 20,779 58,585 29,757 364,833 145,658 18,274 42,146 39,354 36,335 39,736 22,490 1,269,910 1,148,819 Weighted Average Option Exercise Price in CHF Option Exercise Years 31.87 23.89 32.66 32.07 32.53 35.77 35.81 28.04 32.28 6.91 3.70 0.28 7.63 8.35 8.80 8.77 5.50 7.19 Restricted Stock 520,629 188,219 96,199 26,384 107,301 48,748 119,925 50,280 30,426 1,188,111 Restricted Stock 217,138 83,894 - 14,311 22,208 9,839 7,425 16,039 14,805 385,659 S-13 8. Significant Shareholders The following table sets forth information regarding each person, including corporate groups, known to the Company to own beneficially or of record more than five percent of the Company’s outstanding Trading Shares as of December 31, 2012 and 2011, respectively. Name of Beneficial Owner Fidelity Management and Research, LLC Wentworth, Hauser & Violich, Inc. Franklin Resources, Inc. Name of Beneficial Owner Fidelity Management and Research, LLC Wentworth, Hauser & Violich, Inc. BlackRock, Inc. Franklin Resources, Inc. 9. Risk assessment and management As of December 31, 2012 Number of Shares Beneficially Owned 14,739,027 14,816,802 16,386,485 Percent of Class 5.83% 5.86% 6.48% As of December 31, 2011 Number of Shares Beneficially Owned 19,185,524 16,130,954 16,720,869 15,645,699 Percent of Class 7.60% 6.39% 6.63% 6.20% The Board of Directors, together with the management of Noble, is responsible for assessing risks related to the financial reporting process and for establishing and maintaining adequate internal control over financial reporting. The Corporate Risk Management function coordinates and aligns the risk management process and reports to the Board, the Audit Committee, and the Corporate Governance Committee on a regular basis on risk assessment and risk management. Organizational and process measures have been designed to identify and mitigate risks. Organizationally the responsibility for risk assessment and management is allocated to the Divisions with specialized Corporate Functions such as Financial Reporting & Accounting, Treasury, Health Safety and Environment, and Business Continuity providing support and controlling the effectiveness of the risk management by the Divisions. Internal control over financial reporting is a process designed by, or under the supervision of the Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of Noble’s consolidated financial statements for external purposes in accordance with GAAP. The Board, operating through its Audit Committee composed entirely of directors who are not officers or employees of the Company, is responsible for oversight of the financial reporting process and safeguarding of assets against unauthorized acquisition, use, or disposition. The Audit Committee meets with management, the independent registered public accountants and the internal auditor; approves the overall scope of audit work and related fee arrangements; and reviews audit reports and findings. In addition, the independent registered public accountants and the internal auditor meet separately with the Audit Committee, without management representatives present, to discuss the results of their audits; the adequacy of the Company’s internal control; the quality of its financial reporting; and the safeguarding of assets against unauthorized acquisition, use, or disposition. 10. Other disclosures required by Swiss law Expenses Total personnel expenses and depreciation expenses related to property totaled CHF 0 and CHF 0 for the years ended December 31, 2012 and 2011, respectively. S-14 11. Movements on (accumulated deficit) retained earnings The total (accumulated deficit) / retained earnings is as follows: Retained earnings at beginning of period (Loss) / profit Allocation to legal reserve - reserves for own shares funded from retained earnings Allocation from legal reserve - reserves for own shares funded from retained earnings (Accumulated deficit) / retained earnings at end of period Year Ended December 31, 2012 2011 304,859 (1,302,327) 513,595 125,552 (9,694) (345,073) - 10,785 (1,007,162) 304,859 S-15 Proposal of the Board of Directors for appropriation of retained earnings Proposal of the Board of Directors for appropriation of retained earnings Retained earnings as of January 1, 2012 and 2011, respectively: Allocation from legal reserve -- reserves for own shares funded from retained earnings Allocation to legal reserve -- reserves for own shares funded from retained earnings (Loss)/profit for the period January 1, 2012 thru December 31, 2012 and January 1, 2011 thru December 31, 2011, respectively: (Accumulated deficit)/retained earnings at the disposal of the annual general meeting (Accumulated deficit)/retained earnings to be carried forward 2012 Proposal of the Board of Directors 2011 Resolution of the annual general meeting (CHF in thousands) 304,859 - (9,694) (1,302,327) (1,007,162) (1,007,162) 168,522 10,785 - 125,552 304,859 304,859 Proposal of the Board of Directors for appropriation of legal reserves from capital contribution The Board of Directors proposes that our shareholders approve (A) the release and allocation of CHF 524,624,771.44, which is equal to approximately USD $563,143,807.90 using the currency exchange rate as published by the Swiss National Bank on February 21, 2013 (CHF 0.9316/1.0 USD), from the Company’s capital contribution reserve to a dividend reserve, (the “Dividend Reserve”), (B) a dividend in the amount of USD $1.00 per share to be distributed out of the Dividend Reserve and paid in four installments of USD $0.25 per share (each, an “Installment”) in August 2013, November 2013, February 2014 and May 2014 with amounts to be translated to CHF prior to the respective payment dates (in each case subject to the availability of a sufficient amount in the Dividend Reserve) provided that the Board of Directors shall have the authority to accelerate the payment of any Installment or portions thereof in its sole discretion at any time prior to payment of the final Installment and (C) the automatic re-allocation to the capital contribution reserve of any amount of the Dividend Reserve remaining after payment of the final quarterly Installment of the dividend. S-16 Report of the statutory auditor to the general meeting of Noble Corporation Baar Report of the statutory auditor on the consolidated financial statements As statutory auditor, we have audited the consolidated financial statements of Noble Corporation, which comprise the consolidated balance sheet (page 43), consolidated statement of income (page 44), consolidated statement of comprehensive income (page 45), consolidated statement of cash flows (page 46), consolidated statement of equity (page 47) and notes (pages 54 to 95, excluding Notes 19 and 21, which solely relate to Noble Corporation, Cayman), for the year ended December 31, 2012. Board of Directors’ Responsibility The Board of Directors is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (US GAAP) and the requirements of Swiss law. This responsibility includes designing, implementing and maintaining an internal control system relevant to the preparation and fair presen- tation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. The Board of Directors is further responsible for selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances. Auditor’s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with Swiss law, Swiss Auditing Standards, and auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial state- ments, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control system. An audit also includes evaluating the appropriateness of the accounting policies used and the reasona- bleness of accounting estimates made, as well as evaluating the overall presentation of the consolidat- ed financial statements. We believe that the audit evidence we have obtained is sufficient and appro- priate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements for the year ended December 31, 2012 present fairly, in all material respects, the financial position, the results of operations and the cash flows in PricewaterhouseCoopers AG, Grafenauweg 8, Postfach, CH-6304 Zug, Switzerland Telephone: +41 58 792 68 00, Facsimile: +41 58 792 68 10, www.pwc.ch PricewaterhouseCoopers AG is a member of the global PricewaterhouseCoopers network of firms, each of which is a separate and independent legal entity. accordance with accounting principles generally accepted in the United States of America (US GAAP) and comply with Swiss law. Report on other legal requirements We confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA) and independence (article 728 CO and article 11 AOA) and that there are no circumstances incompatible with our independence. In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists which has been designed for the preparation of consolidated financial statements according to the instructions of the Board of Directors. We recommend that the consolidated financial statements submitted to you be approved. PricewaterhouseCoopers AG Joanne Burgener Audit expert Auditor in charge Zug, February 25, 2013 Claudia Muhlinghaus Noble Corporation Financial Highlights (In thousands, except per share amounts and percentages) Operating revenues Operating income Income before income taxes Net income attributable to Noble Corporation Net income per diluted share Year Ended December 31, 2012 2011 2010 $3,547,012 $2,695,832 $2,807,176 783,800 703,225 522,344 2.05 490,493 436,250 370,898 1.46 916,080 916,509 773,429 3.02 Net cash provided by operating activities 1,381,693 740,240 1,636,902 Capital expenditures 1,669,811 2,621,235 1,406,010 At year end: Total assets Property and equipment, net Total debt Total shareholders equity Book value per share $14,607,774 $13,495,159 $11,302,387 13,025,972 12,130,345 10,213,158 4,634,375 4,071,964 2,766,697 7,723,166 7,406,521 7,163,003 30.56 29.35 28.39 On the cover: As part of the largest fleet expansion program in the Company’s history, the Noble Don Taylor is one of 11 new units scheduled to enter the Noble fleet in the next two years. Board of Directors Michael A. Cawley 2, 3, 5 Former President & Chief Executive Officer – The Samuel Roberts Noble Foundation, Inc. Director since 1985. Lawrence J. Chazen 1, 3 Chief Executive Officer – Lawrence J. Chazen, Inc. Director since 1994. Julie H. Edwards 2, 3 Former Senior Vice President & Chief Financial Officer – Southern Union Company. Director since 2006. Gordon T. Hall 1, 4 Chairman of the Board – Exterran Holdings, Inc. Director since 2009. Jack E. Little 2, 4 Former President & Chief Executive Officer – Shell Oil Company. Director since 2000. Jon A. Marshall 2, 4 Former President & Chief Operating Officer – Transocean Inc. Director since 2009. Mary P. Ricciardello 1, 3 Former Senior Vice President & Chief Accounting Officer – Reliant Energy, Inc. Director since 2003. David W. Williams Chairman, President & Chief Executive Officer Noble Corporation Director since 2008. 1 Audit Committee 2 Compensation Committee 3 Nominating and Corporate Governance Committee 4 Health, Safety, Environment and Engineering Committee 5 Lead Director Corporate Information Transfer Agent and Registrar Computershare Trust Company, N.A. Canton, Massachusetts Independent Auditors PricewaterhouseCoopers AG Zug, Switzerland PricewaterhouseCoopers LLP Houston, Texas Shares Listed on New York Stock Exchange Trading Symbol “NE” . c n I s e c i v r e S g n i l l i r D e l b o N , e n a l r a F c M t t o c S : n g i s e D Form 10-K A copy of Noble Corporation’s 2012 Annual Report on Form 10-K, as filed with the U.S. Securities and Exchange Commission, will be furnished without charge to any shareholder upon written request to: Julie J. Robertson - Executive Vice President and Corporate Secretary Noble Corporation Dorfstrasse 19a 6340 Baar, Switzerland Annual Meeting The Annual Meeting of Shareholders of Noble Corporation will be held on April 26, 2013, at 3:00 p.m. local time at the Parkhotel Zug in Zug, Switzerland. Contact the Board If you would like to contact the Noble Corporation Board of Directors, write to: Noble Corporation Board of Directors Dorfstrasse 19a 6340 Baar, Switzerland or send an e-mail to: Nobleboard@noblecorp.com For additional information about Noble Corporation, please refer to our proxy statement which is being mailed or made available with this Annual Report. Corporate Officers David W. Williams Chairman, President & Chief Executive Officer Julie J. Robertson Executive Vice President & Corporate Secretary James A. MacLennan Senior Vice President & Chief Financial Officer William E. Turcotte Senior Vice President & General Counsel Roger B. Hunt Senior Vice President – Marketing & Contracts Lee M. Ahlstrom Senior Vice President – Strategic Development Scott W. Marks Senior Vice President – Engineering Bernie G. Wolford Senior Vice President – Operations Dennis J. Lubojacky Vice President & Controller Investor Information Shareholders, brokers, securities analysts or portfolio managers seeking information about Noble Corporation should contact Jeff Chastain, Vice President–Investor Relations, Noble Drilling Services Inc., by phone at: 281-276-6100 or by e-mail at: jchastain@noblecorp.com. Forward Looking Statements Any statements included in this 2012 Annual Report that are not historical facts, including without limitation regarding future market trends and results of operations are forward-looking statements within the meaning of applicable securities law. Please see “Forward-Looking Statements” in this 2012 Annual Report for more information. Noble Corporation Dorfstrasse 19a 6340 Baar Switzerland www.noblecorp.com Charting a new Course N o b l e C o r p o r a t i o n 2 0 1 2 A n n u a l R e p o r t Noble Corporation 2012 Annual Report 

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