Toggle SGML Header (+)


Section 1: 10-Q (10-Q)

nbr_Current folio_10Q

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 March 31, 2019

 

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)

 

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 April 26, 2019 was 363,156,097, excluding 52,800,203 common shares held by our subsidiaries, or 415,956,300 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 March 31, 2019 and December 31, 2018

3

 

 

 

 

Condensed Consolidated Statements of Income (Loss) for the Three Months Ended March 31, 2019 and 2018

4

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2019 and 2018

5

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2018

6

 

 

 

 

Condensed Consolidated Statements of Changes in Equity for the Three Months Ended March 31, 2019 and 2018

7

 

 

 

 

Notes to Condensed Consolidated Financial Statements

8

 

 

 

Item 2. 

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

35

 

 

 

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

41

 

 

 

Item 4. 

Controls and Procedures

41

 

 

 

PART II OTHER INFORMATION 

 

 

 

Item 1. 

Legal Proceedings

42

 

 

 

Item 1A. 

Risk Factors

42

 

 

 

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

42

 

 

 

Item 3. 

Defaults Upon Senior Securities

43

 

 

 

Item 4. 

Mine Safety Disclosures

43

 

 

 

Item 5. 

Other Information

43

 

 

 

Item 6. 

Exhibits

43

 

 

 

Signatures 

44

 

 

 

 

 

 

2


 

Table of Contents

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

 

    

2019

    

2018

 

 

 

(In thousands, except per

 

 

 

share amounts)

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

429,127

 

$

447,766

 

Short-term investments

 

 

40,590

 

 

34,036

 

Accounts receivable, net

 

 

743,528

 

 

756,320

 

Inventory, net

 

 

166,139

 

 

165,587

 

Assets held for sale

 

 

12,330

 

 

12,250

 

Other current assets

 

 

164,189

 

 

177,604

 

Total current assets

 

 

1,555,903

 

 

1,593,563

 

Property, plant and equipment, net

 

 

5,399,514

 

 

5,467,870

 

Goodwill

 

 

184,104

 

 

183,914

 

Deferred income taxes

 

 

344,531

 

 

345,091

 

Other long-term assets

 

 

289,632

 

 

263,506

 

Total assets (1)

 

$

7,773,684

 

$

7,853,944

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Current portion of debt

 

$

850

 

$

561

 

Trade accounts payable

 

 

399,802

 

 

392,843

 

Accrued liabilities

 

 

298,059

 

 

417,912

 

Income taxes payable

 

 

26,100

 

 

20,761

 

Current lease liabilities

 

 

10,991

 

 

 —

 

Total current liabilities

 

 

735,802

 

 

832,077

 

Long-term debt

 

 

3,677,580

 

 

3,585,884

 

Other long-term liabilities

 

 

280,591

 

 

274,485

 

Deferred income taxes

 

 

19,749

 

 

6,311

 

Total liabilities (1)

 

 

4,713,722

 

 

4,698,757

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

 

Redeemable noncontrolling interest in subsidiary (Note 3)

 

 

409,923

 

 

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 5,750

 

 

 6

 

 

 6

 

Common shares, par value $0.001 per share:

 

 

 

 

 

 

 

Authorized common shares 800,000; issued 415,916 and 409,652, respectively

 

 

416

 

 

410

 

Capital in excess of par value

 

 

3,400,110

 

 

3,392,937

 

Accumulated other comprehensive income (loss)

 

 

(19,987)

 

 

(29,325)

 

Retained earnings

 

 

519,810

 

 

650,842

 

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

 

 

(1,314,020)

 

 

(1,314,020)

 

Total shareholders’ equity

 

 

2,586,335

 

 

2,700,850

 

Noncontrolling interest

 

 

63,704

 

 

49,476

 

Total equity

 

 

2,650,039

 

 

2,750,326

 

Total liabilities and equity

 

$

7,773,684

 

$

7,853,944

 


(1)

The condensed consolidated balance sheet as of March 31, 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

 

 

 

    

March 31,

 

 

 

 

2019

 

2018

 

 

(In thousands, except per share amounts)

Revenues and other income:

 

 

 

 

 

 

 

 

Operating revenues

 

 

$

799,640

 

$

734,194

 

Earnings (losses) from unconsolidated affiliates

 

 

 

(5)

 

 

 2

 

Investment income (loss)

 

 

 

9,677

 

 

465

 

Total revenues and other income

 

 

 

809,312

 

 

734,661

 

 

 

 

 

 

 

 

 

 

Costs and other deductions:

 

 

 

 

 

 

 

 

Direct costs

 

 

 

520,957

 

 

475,403

 

General and administrative expenses

 

 

 

68,167

 

 

74,571

 

Research and engineering

 

 

 

13,520

 

 

15,806

 

Depreciation and amortization

 

 

 

210,391

 

 

213,448

 

Interest expense

 

 

 

52,352

 

 

61,386

 

Other, net

 

 

 

17,502

 

 

14,089

 

Total costs and other deductions

 

 

 

882,889

 

 

854,703

 

Income (loss) from continuing operations before income taxes

 

 

 

(73,577)

 

 

(120,042)

 

Income tax expense (benefit):

 

 

 

 

 

 

 

 

Current

 

 

 

15,862

 

 

8,771

 

Deferred

 

 

 

13,937

 

 

14,774

 

Total income tax expense (benefit)

 

 

 

29,799

 

 

23,545

 

Income (loss) from continuing operations, net of tax

 

 

 

(103,376)

 

 

(143,587)

 

Income (loss) from discontinued operations, net of tax

 

 

 

(157)

 

 

(75)

 

Net income (loss)

 

 

 

(103,533)

 

 

(143,662)

 

Less: Net (income) loss attributable to noncontrolling interest

 

 

 

(14,176)

 

 

(539)

 

Net income (loss) attributable to Nabors

 

 

 

(117,709)

 

 

(144,201)

 

Less: Preferred stock dividend

 

 

 

(4,313)

 

 

 —

 

Net income (loss) attributable to Nabors common shareholders

 

 

$

(122,022)

 

$

(144,201)

 

 

 

 

 

 

 

 

 

 

Amounts attributable to Nabors common shareholders:

 

 

 

 

 

 

 

 

Net income (loss) from continuing operations

 

 

$

(121,865)

 

$

(144,126)

 

Net income (loss) from discontinued operations

 

 

 

(157)

 

 

(75)

 

Net income (loss) attributable to Nabors common shareholders

 

 

$

(122,022)

 

$

(144,201)

 

 

 

 

 

 

 

 

 

 

Earnings (losses) per share:

 

 

 

 

 

 

 

 

Basic from continuing operations

 

 

$

(0.36)

 

$

(0.46)

 

Basic from discontinued operations

 

 

 

 —

 

 

 —

 

Total Basic

 

 

$

(0.36)

 

$

(0.46)

 

Diluted from continuing operations

 

 

$

(0.36)

 

$

(0.46)

 

Diluted from discontinued operations

 

 

 

 —

 

 

 —

 

Total Diluted

 

 

$

(0.36)

 

$

(0.46)

 

Weighted-average number of common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

 

350,764

 

 

308,788

 

Diluted

 

 

 

350,764

 

 

308,788

 

 

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

 

 

 

 

    

March 31,

 

 

 

 

 

2019

 

2018

 

 

 

(In thousands)

 

Net income (loss) attributable to Nabors

 

 

$

(117,709)

 

$

(144,201)

 

 

Other comprehensive income (loss), before tax:

 

 

 

 

 

 

 

 

 

Translation adjustment attributable to Nabors

 

 

 

9,190

 

 

(9,343)

 

 

Pension liability amortization and adjustment

 

 

 

54

 

 

54

 

 

Unrealized gains (losses) and amortization on cash flow hedges

 

 

 

140

 

 

140

 

 

Adoption of ASU No. 2016-01

 

 

 

 —

 

 

(9,144)

 

 

Other comprehensive income (loss), before tax

 

 

 

9,384

 

 

(18,293)

 

 

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

 

 

 

46

 

 

43

 

 

Other comprehensive income (loss), net of tax

 

 

 

9,338

 

 

(18,336)

 

 

Comprehensive income (loss) attributable to Nabors

 

 

 

(108,371)

 

 

(162,537)

 

 

Net income (loss) attributable to noncontrolling interest

 

 

 

14,176

 

 

539

 

 

Translation adjustment attributable to noncontrolling interest

 

 

 

52

 

 

(96)

 

 

Comprehensive income (loss) attributable to noncontrolling interest

 

 

 

14,228

 

 

443

 

 

Comprehensive income (loss)

 

 

$

(94,143)

 

$

(162,094)

 

 

 

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)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

    

2019

    

2018

 

 

 

(In thousands)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income (loss)

 

$

(103,533)

 

$

(143,662)

 

Adjustments to net income (loss):

 

 

 

 

 

 

 

Depreciation and amortization

 

 

210,397

 

 

214,008

 

Deferred income tax expense (benefit)

 

 

13,949

 

 

14,361

 

Impairments and other charges

 

 

82

 

 

 —

 

Amortization of debt discount and deferred financing costs

 

 

7,730

 

 

7,302

 

Losses (gains) on debt buyback

 

 

(2,667)

 

 

 —

 

Losses (gains) on long-lived assets, net

 

 

3,633

 

 

2,257

 

Losses (gains) on investments, net

 

 

(7,688)

 

 

723

 

Provision (recovery) of bad debt

 

 

(419)

 

 

(3,400)

 

Share-based compensation

 

 

8,424

 

 

8,628

 

Foreign currency transaction losses (gains), net

 

 

8,548

 

 

2,522

 

Noncontrolling interest

 

 

(14,176)

 

 

(540)

 

Other

 

 

212

 

 

166

 

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

 

 

 

 

 

 

 

Accounts receivable

 

 

14,914

 

 

(34,381)

 

Inventory

 

 

(685)

 

 

(7,835)

 

Other current assets

 

 

13,458

 

 

22,600

 

Other long-term assets

 

 

(23,907)

 

 

6,011

 

Trade accounts payable and accrued liabilities

 

 

(95,669)

 

 

(143,050)

 

Income taxes payable

 

 

6,107

 

 

836

 

Other long-term liabilities

 

 

31,144

 

 

(28,229)

 

Net cash (used for) provided by operating activities

 

 

69,854

 

 

(81,683)

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchases of investments

 

 

(4,221)

 

 

(676)

 

Sales and maturities of investments

 

 

1,134

 

 

1,148

 

Cash paid for acquisition of businesses, net of cash acquired

 

 

(2,929)

 

 

 —

 

Capital expenditures

 

 

(141,070)

 

 

(94,026)

 

Proceeds from sales of assets and insurance claims

 

 

2,642

 

 

3,076

 

Net cash (used for) provided by investing activities

 

 

(144,444)

 

 

(90,478)

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from issuance of long-term debt

 

 

 —

 

 

800,000

 

Debt issuance costs

 

 

(35)

 

 

(12,928)

 

Proceeds from revolving credit facilities

 

 

180,000

 

 

615,000

 

Reduction in revolving credit facilities

 

 

(50,000)

 

 

(680,000)

 

Reduction in long-term debt

 

 

(43,540)

 

 

(460,837)

 

Dividends to common and preferred shareholders

 

 

(25,765)

 

 

(17,148)

 

Proceeds from (payment for) commercial paper

 

 

 —

 

 

(40,000)

 

Proceeds from (payments for) short-term borrowings

 

 

289

 

 

194

 

Other

 

 

(1,493)

 

 

(2,245)

 

Net cash provided by financing activities

 

 

59,456

 

 

202,036

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(2,791)

 

 

(867)

 

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

 

 

(17,925)

 

 

29,008

 

Cash and cash equivalents and restricted cash, beginning of period

 

 

451,080

 

 

342,029

 

Cash and cash equivalents and restricted cash, end of period

 

$

433,155

 

$

371,037

 

 

 

 

 

 

 

 

 

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

 

 

429,127

 

 

367,039

 

Restricted cash, end of period

 

 

4,028

 

 

3,998

 

Cash and cash equivalents and restricted cash, end of period

 

$

433,155

 

$

371,037

 

 

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)

 

Shares

 

Value

 

Shares

 

Value

 

Value

 

Income

 

Earnings

 

Shares

 

Interest

 

Equity

 

As of December 31, 2017

 

 —

 

$

 —

 

367,510

 

$

368

 

$

2,791,129

 

$

11,185

 

$

1,423,154

 

$

(1,314,020)

 

$

26,957

 

$

2,938,773

 

Net income (loss)

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(144,201)

 

 

 —

 

 

539

 

 

(143,662)

 

Dividends to shareholders ($0.06 per share)

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(19,050)

 

 

 —

 

 

 —

 

 

(19,050)

 

Other comprehensive income (loss), net of tax

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(18,336)

 

 

 —

 

 

 —

 

 

(96)

 

 

(18,432)

 

Issuance of common shares for stock options exercised, net of surrender of unexercised stock options

 

 —

 

 

 —

 

 —

 

 

 —

 

 

8,628

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

8,628

 

Adoption of ASU No. 2016-01

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

9,144

 

 

 —

 

 

 —

 

 

9,144

 

Adoption of ASU No. 2016-16

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(34,132)

 

 

 —

 

 

 —

 

 

(34,132)

 

Accrued distribution on redeemable noncontrolling interest in subsidiary

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(2,399)

 

 

 —

 

 

 —

 

 

(2,399)

 

Other

 

 —

 

 

 —

 

2,810

 

 

 2

 

 

(1,864)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(1,862)

 

As of March 31, 2018

 

 —

 

$

 —

 

370,320

 

$

370

 

$

2,797,893

 

$

(7,151)

 

$

1,232,516

 

$

(1,314,020)

 

$

27,400

 

$

2,737,008

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2018

 

5,750

 

$

 6

 

409,652

 

$

410

 

$

3,392,937

 

$

(29,325)

 

$

650,842

 

$

(1,314,020)

 

$

49,476

 

$

2,750,326

 

Net income (loss)

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(117,709)

 

 

 —

 

 

14,176

 

 

(103,533)

 

Dividends to common shareholders ($0.01 per share)

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(3,947)

 

 

 —

 

 

 —

 

 

(3,947)

 

Dividends to preferred shareholders ($0.75 per share)

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(4,313)

 

 

 —

 

 

 —

 

 

(4,313)

 

Other comprehensive income (loss), net of tax

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

9,338

 

 

 —

 

 

 —

 

 

52

 

 

9,390

 

Share-based compensation

 

 —

 

 

 —

 

 —

 

 

 —

 

 

8,424

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

8,424

 

Accrued distribution on redeemable noncontrolling interest in subsidiary

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(5,063)

 

 

 —

 

 

 —

 

 

(5,063)

 

Other

 

 —

 

 

 —

 

6,264

 

 

 6

 

 

(1,251)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(1,245)

 

As of March 31, 2019

 

5,750

 

$

 6

 

415,916

 

$

416

 

$

3,400,110

 

$

(19,987)

 

$

519,810

 

$

(1,314,020)

 

$

63,704

 

$

2,650,039

 

 

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

 

 

7


 

Table of Contents

Nabors Industries Ltd. and Subsidiaries

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1 Nature of Operations

 

Unless the context requires otherwise, references in this report to “we,” “us,” “our,” “the Company,” or “Nabors” mean Nabors Industries Ltd., together with our subsidiaries where the context requires. References in this report to “Nabors Delaware” mean Nabors Industries, Inc., a wholly owned subsidiary of Nabors.

 

Our business is comprised of our global land-based and offshore drilling rig operations and other rig related services and technologies, consisting of equipment manufacturing, rig instrumentation and optimization software. We also specialize in tubular services, wellbore placement solutions and are a leading provider of directional drilling and MWD systems and services

 

With operations in approximately 25 countries, we are a global provider of drilling and drilling-related services for land-based and offshore oil and natural gas wells, with a fleet of rigs and drilling-related equipment which, as of March 31, 2019 included:

 

·

378 actively marketed rigs for land-based drilling operations in the United States, Canada and approximately 18 other countries throughout the world; and

 

·

33 actively marketed rigs for offshore drilling operations in the United States and multiple international markets.

 

Note 2 Summary of Significant Accounting Policies

 

Interim Financial Information

 

The accompanying unaudited condensed consolidated financial statements of Nabors have been prepared in conformity with generally accepted accounting principles in the United States (“U.S. GAAP”). Pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been omitted. Therefore, these financial statements should be read together with our annual report on Form 10-K for the year ended December 31, 2018 (“2018 Annual Report”). In management’s opinion, the unaudited condensed consolidated financial statements contain all adjustments necessary to state fairly our financial position as of March 31, 2019 and the results of operations, comprehensive income (loss), cash flows and changes in equity for the periods presented herein. Interim results for the three months ended March 31, 2019 may not be indicative of results that will be realized for the full year ending December 31, 2019.

 

Principles of Consolidation

 

Our condensed consolidated financial statements include the accounts of Nabors, as well as all majority owned and non-majority owned subsidiaries required to be consolidated under U.S. GAAP. All significant intercompany accounts and transactions are eliminated in consolidation.

 

In addition to the consolidation of our majority owned subsidiaries, we also consolidate variable interest entities (“VIE”) when we are determined to be the primary beneficiary of a VIE. Determination of the primary beneficiary of a VIE is based on whether an entity has (1) the power to direct activities that most significantly impact the economic performance of the VIE and (2) the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. Our joint venture, SANAD, which is equally owned by Saudi Aramco and Nabors, has been consolidated. As we have the power to direct activities that most significantly impact SANAD’s economic performance, including operations, maintenance and certain sourcing and procurement, we have determined Nabors to be the primary beneficiary. See Note 3—Joint Ventures.

 

8


 

Table of Contents

 

Inventory

 

Inventory is stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out or weighted-average cost methods and includes the cost of materials, labor and manufacturing overhead. Inventory included the following:

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

 

    

2019

    

2018

 

 

 

(In thousands)

 

Raw materials

 

$

119,480

 

$

116,840

 

Work-in-progress

 

 

12,877

 

 

20,329

 

Finished goods

 

 

33,782

 

 

28,418

 

 

 

$

166,139

 

$

165,587

 

 

Recently Adopted Accounting Pronouncements

 

In February 2016, the FASB issued ASU No. 2016-02, Leases, relating to leases to increase transparency and comparability among companies. This standard requires that all leases with an initial term greater than one year be recorded on the balance sheet as an asset and a lease liability. Additionally, this standard requires disclosures designed to give financial statement users information on the amount, timing, and uncertainty of cash flows arising from leases. We adopted this guidance under the modified retrospective approach as of January 1, 2019. We preliminarily determined that our drilling contracts contained a lease component, and the adoption would require us to separately recognize revenue associated with the lease and services components. In July 2018, the FASB issued ASU No. 2018-11, which provides a practical expedient that allows entities to combine lease and non-lease components where the revenue recognition pattern is the same and where the lease component, when accounted for separately, would be considered an operating lease. Our drilling contracts contain a lease component related to the underlying drilling equipment, in addition to the service component provided by our crews and our expertise to operate such drilling equipment. We have determined that the non-lease service component of our drilling contracts is the predominant element of the combined component and will account for the combined components as a single performance obligation under Topic 606, Revenue from Contracts with Customers. We have elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allows us to carry forward the historical accounting relating to lease identification and classification for existing leases upon adoption. With respect to leases whereby we are the lessee, we recognized upon adoption on January 1, 2019 lease liabilities and offsetting "right of use" assets of approximately $33.1 million based on the present value of the remaining minimum rental payments. See Note 12 — Leases.

 

Recent Accounting Pronouncements Not Yet Adopted

 

In February 2018, the FASB issued ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017. In addition, the standard requires certain disclosures regarding stranded tax effects. This guidance is effective for public companies for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We are currently evaluating the impact this will have on our financial statements.

 

Note 3 Joint Ventures

 

During 2016, we entered into an agreement with Saudi Aramco to form a joint venture known as SANAD to own, manage and operate onshore drilling rigs in the Kingdom of Saudi Arabia. SANAD is equally owned by Saudi Aramco and Nabors.

 

During 2017, Nabors and Saudi Aramco each contributed $20 million in cash for the purpose of capitalizing the joint venture upon formation. In addition, since inception Nabors and Saudi Aramco have each contributed a combination of drilling rigs, drilling rig equipment and other assets, including cash, each with a value of approximately $394 million to the joint venture. The contributions were received in exchange for redeemable ownership interests which accrue interest annually, have a twenty-five year maturity and are required to be converted to authorized capital should certain events occur, including the accumulation of specified losses. In the accompanying condensed consolidated balance sheet, Nabors has reported Saudi Aramco’s share of authorized capital as a component of noncontrolling interest

9


 

Table of Contents

in equity and Saudi Aramco’s share of the redeemable ownership interests as redeemable noncontrolling interest in subsidiary, classified as mezzanine equity. The accrued interest on the redeemable ownership interest is a non-cash financing activity and is reported as an increase in the redeemable noncontrolling interest in subsidiary line in our condensed consolidated balance sheet.

 

The condensed balance sheet of SANAD, as included in our consolidated balance sheet, is presented below.

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

 

    

2019

    

2018

 

 

 

(In thousands)

 

Assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

242,476

 

$

211,618

 

Accounts receivable

 

 

66,311

 

 

73,699

 

Other current assets

 

 

15,548

 

 

17,198

 

Property, plant and equipment, net

 

 

445,092

 

 

457,963

 

Other long-term assets

 

 

17,728

 

 

36,583

 

Total assets

 

$

787,155

 

$

797,061

 

Liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

61,787

 

$

60,087

 

Accrued liabilities

 

 

13,254

 

 

8,530

 

Total liabilities

 

$

75,041

 

$

68,617

 

 

The assets of SANAD cannot be used by Nabors for general corporate purposes. Additionally, creditors of SANAD do not have recourse to other assets of Nabors.

 

Note 4 Fair Value Measurements

 

Fair value is the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date (exit price). We utilize market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market‑corroborated, or generally unobservable. We primarily apply the market approach for recurring fair value measurements and endeavor to utilize the best information available. Accordingly, we employ valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The use of unobservable inputs is intended to allow for fair value determinations in situations where there is little, if any, market activity for the asset or liability at the measurement date. We are able to classify fair value balances utilizing a fair value hierarchy based on the observability of those inputs. Under the fair value hierarchy:

 

·

Level 1 measurements include unadjusted quoted market prices for identical assets or liabilities in an active market;

 

·

Level 2 measurements include quoted market prices for identical assets or liabilities in an active market that have been adjusted for items such as effects of restrictions for transferability and those that are not quoted but are observable through corroboration with observable market data, including quoted market prices for similar assets; and

 

·

Level 3 measurements include those that are unobservable and of a subjective nature.

 

The following table sets forth, by level within the fair value hierarchy, our financial assets and liabilities that are accounted for at fair value on a recurring basis as of March 31, 2019 and December 31, 2018. Our debt securities could transfer into or out of a Level 1 or 2 measure depending on the availability of independent and current pricing at the end of each quarter. There were no transfers of our financial assets between Level 1 and Level 2 measures during the three months ended March 31, 2019. Our financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

10


 

Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value as of March 31, 2019

 

 

    

Level 1

    

Level 2

    

Level 3

 

 

 

(In thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

Equity securities

 

$

39,556

 

$

1,026

 

$

 —

 

Mortgage-CMO debt securities

 

 

 —

 

 

 8

 

 

 —

 

Total short-term investments

 

$

39,556

 

$

1,034

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value as of December 31, 2018

 

 

    

Level 1

    

Level 2

    

Level 3

 

 

 

(In thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

Equity securities

 

$

33,250

 

$

778

 

$

 —

 

Mortgage-CMO debt securities

 

 

 —

 

 

 8

 

 

 —

 

Total short-term investments

 

$

33,250

 

$

786

 

$

 —

 

 

Nonrecurring Fair Value Measurements

 

We applied fair value measurements to our nonfinancial assets and liabilities measured on a nonrecurring basis, which consist of measurements primarily to assets held for sale, goodwill, intangible assets and other long-lived assets, assets acquired and liabilities assumed in a business combination and our pipeline contractual commitment. Based upon our review of the fair value hierarchy, the inputs used in these fair value measurements were considered Level 3 inputs.

 

Fair Value of Financial Instruments

 

We estimate the fair value of our financial instruments in accordance with U.S. GAAP. The fair value of our long-term debt, revolving credit facility and commercial paper is estimated based on quoted market prices or prices quoted from third-party financial institutions. The fair value of our debt instruments is determined using Level 2 measurements. The carrying and fair values of these liabilities were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2019

 

December 31, 2018

 

 

Carrying

 

Fair

 

Carrying

 

Fair  

 

    

Value

    

Value

    

Value

    

Value

 

 

(In thousands)

5.00% senior notes due September 2020

 

$

614,825

 

$

621,982

 

$

614,748

 

$

590,336

4.625% senior notes due September 2021

 

 

637,408

 

 

629,765

 

 

668,347

 

 

603,457

5.50% senior notes due January 2023

 

 

577,042

 

 

554,024

 

 

586,000

 

 

465,999

5.10% senior notes due September 2023

 

 

336,714

 

 

308,693

 

 

342,923

 

 

262,494

0.75% senior exchangeable notes due January 2024

 

 

456,077

 

 

410,257

 

 

450,689