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Section 1: 10-Q (10-Q)

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Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2019

    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-32657

NABORS INDUSTRIES LTD.

(Exact name of registrant as specified in its charter)

Bermuda

98-0363970

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

Crown House

Second Floor

4 Par-la-Ville Road

Hamilton, HM08

Bermuda

(Address of principal executive office)

(441) 292-1510

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common shares, $.001 par value per share

NBR

NYSE

Preferred shares, 6.00% Mandatory Convertible Preferred Shares, Series A, $.001 par value per share

NBR.PRA

NYSE

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer 

Accelerated Filer 

Non-accelerated Filer 

Smaller reporting company 

Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 

The number of common shares, par value $.001 per share, outstanding as of October 25, 2019 was 363,415,783, excluding 52,800,203 common shares held by our subsidiaries, or 416,215,986 in the aggregate.

Table of Contents

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

Index

PART I FINANCIAL INFORMATION

Item 1.

Financial Statements

Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018

3

Condensed Consolidated Statements of Income (Loss) for the Three and Nine Months Ended September 30, 2019 and 2018

4

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2019 and 2018

5

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018

6

Condensed Consolidated Statements of Changes in Equity for the Three and Nine Months Ended September 30, 2019 and 2018

7

Notes to Condensed Consolidated Financial Statements

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

43

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

53

Item 4.

Controls and Procedures

53

PART II OTHER INFORMATION

Item 1.

Legal Proceedings

54

Item 1A.

Risk Factors

54

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

54

Item 3.

Defaults Upon Senior Securities

55

Item 4.

Mine Safety Disclosures

55

Item 5.

Other Information

55

Item 6.

Exhibits

55

Signatures

57

2

Table of Contents

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

September 30,

December 31,

    

2019

    

2018

 

(In thousands, except per

 

share amounts)

 

ASSETS

Current assets:

Cash and cash equivalents

$

396,937

$

447,766

Short-term investments

 

22,000

 

34,036

Accounts receivable, net

 

613,527

 

756,320

Inventory, net

 

186,124

 

165,587

Assets held for sale

 

8,037

 

12,250

Other current assets

 

153,723

 

177,604

Total current assets

 

1,380,348

 

1,593,563

Property, plant and equipment, net

 

5,152,236

 

5,467,870

Goodwill

 

90,543

 

183,914

Deferred income taxes

 

353,181

 

345,091

Other long-term assets

 

297,189

 

263,506

Total assets (1)

$

7,273,497

$

7,853,944

LIABILITIES AND EQUITY

Current liabilities:

Current portion of debt

$

1,058

$

561

Trade accounts payable

 

364,658

 

392,843

Accrued liabilities

279,181

 

417,912

Income taxes payable

 

23,837

 

20,761

Current lease liabilities

 

13,570

 

Total current liabilities

 

682,304

 

832,077

Long-term debt

 

3,516,592

 

3,585,884

Other long-term liabilities

 

284,388

 

274,485

Deferred income taxes

 

29,109

 

6,311

Total liabilities (1)

 

4,512,393

 

4,698,757

Commitments and contingencies (Note 8)

Redeemable noncontrolling interest in subsidiary (Note 3)

420,217

 

404,861

Equity:

Shareholders’ equity:

Preferred shares, par value $0.001 per share:

Series A 6% Cumulative Mandatory Convertible; $50 per share liquidation preference; issued 5,746 and 5,750, respectively

 

6

 

6

Common shares, par value $0.001 per share:

Authorized common shares 800,000; issued 416,209 and 409,652, respectively

 

416

 

410

Capital in excess of par value

 

3,410,731

 

3,392,937

Accumulated other comprehensive income (loss)

 

(16,567)

 

(29,325)

Retained earnings

 

171,139

 

650,842

Less: treasury shares, at cost, 52,800 and 52,800 common shares, respectively

 

(1,314,020)

 

(1,314,020)

Total shareholders’ equity

 

2,251,705

 

2,700,850

Noncontrolling interest

 

89,182

 

49,476

Total equity

 

2,340,887

 

2,750,326

Total liabilities and equity

$

7,273,497

$

7,853,944

(1)The condensed consolidated balance sheet as of September 30, 2019 and December 31, 2018 include assets and liabilities of variable interest entities. See Note 3—Joint Ventures for additional information.

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

Table of Contents

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(Unaudited)

Three Months Ended

Nine Months Ended

    

September 30,

    

September 30,

2019

2018

2019

2018

(In thousands, except per share amounts)

Revenues and other income:

Operating revenues

$

758,076

$

779,425

$

2,329,122

$

2,275,539

Earnings (losses) from unconsolidated affiliates

(5)

1

Investment income (loss)

 

(1,437)

 

(1,342)

 

8,709

 

(4,041)

Total revenues and other income

756,639

778,083

2,337,826

2,271,499

Costs and other deductions:

Direct costs

475,461

497,194

1,493,082

1,466,572

General and administrative expenses

63,577

66,813

196,159

209,207

Research and engineering

 

12,004

 

14,458

 

37,444

 

42,703

Depreciation and amortization

 

221,557

 

208,517

 

650,267

 

640,227

Interest expense

51,291

51,415

155,134

173,393

Impairments and other charges

 

3,629

 

13,770

 

106,007

 

90,434

Other, net

5,005

9,137

30,598

24,163

Total costs and other deductions

832,524

861,304

2,668,691

2,646,699

Income (loss) from continuing operations before income taxes

 

(75,885)

 

(83,221)

 

(330,865)

 

(375,200)

Income tax expense (benefit):

Current

 

18,117

 

5,016

 

50,483

 

17,251

Deferred

 

5,786

 

5,473

 

14,617

 

40,061

Total income tax expense (benefit)

 

23,903

 

10,489

 

65,100

 

57,312

Income (loss) from continuing operations, net of tax

 

(99,788)

 

(93,710)

 

(395,965)

 

(432,512)

Income (loss) from discontinued operations, net of tax

 

157

 

(13,933)

 

(34)

 

(14,592)

Net income (loss)

 

(99,631)

 

(107,643)

 

(395,999)

 

(447,104)

Less: Net (income) loss attributable to noncontrolling interest

 

(19,297)

 

(6,934)

 

(44,202)

 

(10,426)

Net income (loss) attributable to Nabors

(118,928)

(114,577)

(440,201)

(457,530)

Less: Preferred stock dividend

 

(4,310)

 

(4,313)

 

(12,935)

 

(7,993)

Net income (loss) attributable to Nabors common shareholders

$

(123,238)

$

(118,890)

$

(453,136)

$

(465,523)

Amounts attributable to Nabors common shareholders:

Net income (loss) from continuing operations

$

(123,395)

$

(104,957)

$

(453,102)

$

(450,931)

Net income (loss) from discontinued operations

157

(13,933)

(34)

(14,592)

Net income (loss) attributable to Nabors common shareholders

$

(123,238)

$

(118,890)

$

(453,136)

$

(465,523)

Earnings (losses) per share:

Basic from continuing operations

$

(0.37)

$

(0.31)

$

(1.33)

$

(1.39)

Basic from discontinued operations

 

 

(0.04)

 

 

(0.05)

Total Basic

$

(0.37)

$

(0.35)

$

(1.33)

$

(1.44)

Diluted from continuing operations

$

(0.37)

$

(0.31)

$

(1.33)

$

(1.39)

Diluted from discontinued operations

 

 

(0.04)

 

 

(0.05)

Total Diluted

$

(0.37)

$

(0.35)

$

(1.33)

$

(1.44)

Weighted-average number of common shares outstanding:

Basic

 

352,026

 

350,194

 

351,444

 

329,118

Diluted

 

352,026

 

350,194

 

351,444

 

329,118

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

Table of Contents

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

Three Months Ended

Nine Months Ended

 

    

September 30,

    

September 30,

 

2019

2018

2019

2018

(In thousands)

 

Net income (loss) attributable to Nabors

$

(118,928)

$

(114,577)

$

(440,201)

$

(457,530)

Other comprehensive income (loss), before tax:

Translation adjustment attributable to Nabors

(3,225)

5,309

12,314

(9,604)

Pension liability amortization and adjustment

 

54

 

54

 

162

 

162

Unrealized gains (losses) and amortization on cash flow hedges

 

142

 

143

 

424

 

425

Adoption of ASU No. 2016-01

 

 

 

 

(9,144)

Other comprehensive income (loss), before tax

 

(3,029)

 

5,506

 

12,900

 

(18,161)

Income tax expense (benefit) related to items of other comprehensive income (loss)

 

48

 

48

 

142

 

139

Other comprehensive income (loss), net of tax

 

(3,077)

 

5,458

 

12,758

 

(18,300)

Comprehensive income (loss) attributable to Nabors

 

(122,005)

 

(109,119)

 

(427,443)

 

(475,830)

Net income (loss) attributable to noncontrolling interest

 

19,297

 

6,934

 

44,202

 

10,426

Translation adjustment attributable to noncontrolling interest

 

(4)

 

58

 

55

 

(101)

Comprehensive income (loss) attributable to noncontrolling interest

 

19,293

 

6,992

 

44,257

 

10,325

Comprehensive income (loss)

$

(102,712)

$

(102,127)

$

(383,186)

$

(465,505)

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

Table of Contents

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Nine Months Ended September 30,

    

2019

    

2018

(In thousands)

Cash flows from operating activities:

Net income (loss)

$

(395,999)

$

(447,104)

Adjustments to net income (loss):

Depreciation and amortization

 

650,280

 

641,841

Deferred income tax expense (benefit)

 

14,565

 

36,164

Impairments and other charges

 

98,869

 

16,530

Amortization of debt discount and deferred financing costs

23,197

 

22,311

Losses (gains) on debt buyback

 

1,752

 

10,476

Losses (gains) on long-lived assets, net

 

8,410

 

74,388

Losses (gains) on investments, net

 

(2,400)

 

7,198

Provision (recovery) of bad debt

379

 

(2,568)

Share-based compensation

 

19,489

 

20,371

Foreign currency transaction losses (gains), net

 

18,681

 

7,870

Noncontrolling interest

(44,202)

 

(10,427)

Other

 

511

 

561

Changes in operating assets and liabilities, net of effects from acquisitions:

Accounts receivable

 

136,266

 

(82,195)

Inventory

 

(21,500)

 

(1,478)

Other current assets

 

18,085

 

21,724

Other long-term assets

 

(37,977)

 

12,883

Trade accounts payable and accrued liabilities

 

(129,375)

 

(160,018)

Income taxes payable

 

3,459

 

(23,717)

Other long-term liabilities

 

68,338

 

(67,891)

Net cash provided by (used for) operating activities

 

430,828

 

76,919

Cash flows from investing activities:

Purchases of investments

 

(5,008)

 

(676)

Sales and maturities of investments

 

14,466

 

2,962

Cash paid for acquisition of businesses, net of cash acquired

 

(2,929)

 

Capital expenditures

 

(366,594)

 

(338,968)

Proceeds from sales of assets and insurance claims

 

26,365

 

86,666

Net cash (used for) provided by investing activities

 

(333,700)

 

(250,016)

Cash flows from financing activities:

Increase (decrease) in cash overdrafts

 

(130)

 

(261)

Proceeds from issuance of long-term debt

 

 

800,000

Debt issuance costs

 

(48)

 

(13,262)

Proceeds from revolving credit facilities

 

975,000

 

905,000

Reduction in revolving credit facilities

(690,000)

 

(1,200,000)

Proceeds from issuance of common shares, net of issuance costs

 

 

301,835

Proceeds from issuance of preferred stock, net of issuance costs

 

278,358

Distributions to noncontrolling interest

(4,552)

 

(4,676)

Reduction in long-term debt

(379,193)

 

(774,802)

Dividends to common and preferred shareholders

 

(41,643)

 

(61,341)

Proceeds from (payment for) commercial paper

 

(40,000)

Repurchase of preferred shares

(79)

 

Proceeds from (payments for) short-term borrowings

497

 

252

Other

(1,611)

 

(3,722)

Net cash (used for) provided by financing activities

 

(141,759)

 

187,381

Effect of exchange rate changes on cash and cash equivalents

(4,421)

 

(5,320)

Net increase (decrease) in cash and cash equivalents and restricted cash

 

(49,052)

8,964

Cash and cash equivalents and restricted cash, beginning of period

451,080

 

342,029

Cash and cash equivalents and restricted cash, end of period

$

402,028

$

350,993

RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH

Cash and cash equivalents, beginning of period

447,766

 

336,997

Restricted cash, beginning of period

3,314

 

5,032

Cash and cash equivalents and restricted cash, beginning of period

$

451,080

$

342,029

Cash and cash equivalents, end of period

396,937

 

347,525

Restricted cash, end of period

5,091

 

3,468

Cash and cash equivalents and restricted cash, end of period

$

402,028

$

350,993

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

Table of Contents

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)

Mandatory Convertible

Capital

Accumulated

Preferred Shares

Common Shares

in Excess

Other

Non-

    

    

Par

    

    

Par

    

of Par

    

Comprehensive

    

Retained

    

Treasury

    

controlling

    

Total

(In thousands, except per share amounts)

Shares

Value

Shares

Value

Value

Income

Earnings

Shares

Interest

Equity

As of June 30, 2018

 

5,750

$

6

410,252

$

410

$

3,382,711

$

(12,573)

$

1,006,500

$

(1,314,020)

$

25,614

$

3,088,648

Net income (loss)

(114,577)

6,934

(107,643)

Dividends to shareholders ($0.06 per share)

(21,445)

(21,445)

Dividends to preferred shareholders ($0.75 per share)

(4,313)

(4,313)

Common share issuance

(180)

(180)

Convertible preferred share issuance

(214)

(214)

Other comprehensive income (loss), net of tax

 

5,458

58

5,516

Share-based compensation

5,639

5,639

Accrued distribution on redeemable noncontrolling interest in subsidiary

(2,146)

(2,146)

Other

 

(92)

(34)

(34)

As of September 30, 2018

 

5,750

$

6

410,160

$

410

$

3,387,922

$

(7,115)

$

864,019

$

(1,314,020)

$

32,606

$

2,963,828