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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 June 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 July 26, 2019 was 363,457,900, excluding 52,800,203 common shares held by our subsidiaries, or 416,258,103 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 June 30, 2019 and December 31, 2018

3

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

4

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

5

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018

6

Condensed Consolidated Statements of Changes in Equity for the Three and Six Months Ended June 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

42

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

52

Item 4.

Controls and Procedures

52

PART II OTHER INFORMATION

Item 1.

Legal Proceedings

52

Item 1A.

Risk Factors

52

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

52

Item 3.

Defaults Upon Senior Securities

53

Item 4.

Mine Safety Disclosures

53

Item 5.

Other Information

54

Item 6.

Exhibits

54

Signatures

55

2

Table of Contents

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

June 30,

December 31,

    

2019

    

2018

 

(In thousands, except per

 

share amounts)

 

ASSETS

Current assets:

Cash and cash equivalents

$

367,693

$

447,766

Short-term investments

 

28,023

 

34,036

Accounts receivable, net

 

737,353

 

756,320

Inventory, net

 

178,367

 

165,587

Assets held for sale

 

8,004

 

12,250

Other current assets

 

147,239

 

177,604

Total current assets

 

1,466,679

 

1,593,563

Property, plant and equipment, net

 

5,301,252

 

5,467,870

Goodwill

 

90,645

 

183,914

Deferred income taxes

 

357,267

 

345,091

Other long-term assets

 

298,660

 

263,506

Total assets (1)

$

7,514,503

$

7,853,944

LIABILITIES AND EQUITY

Current liabilities:

Current portion of debt

$

790

$

561

Trade accounts payable

 

410,469

 

392,843

Accrued liabilities

319,763

 

417,912

Income taxes payable

 

27,179

 

20,761

Current lease liabilities

 

13,966

 

Total current liabilities

 

772,167

 

832,077

Long-term debt

 

3,550,577

 

3,585,884

Other long-term liabilities

 

294,128

 

274,485

Deferred income taxes

 

27,448

 

6,311

Total liabilities (1)

 

4,644,320

 

4,698,757

Commitments and contingencies (Note 7)

Redeemable noncontrolling interest in subsidiary (Note 3)

415,042

 

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 416,282 and 409,652, respectively

 

416

 

410

Capital in excess of par value

 

3,405,421

 

3,392,937

Accumulated other comprehensive income (loss)

 

(13,490)

 

(29,325)

Retained earnings

 

303,181

 

650,842

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

 

(1,314,020)

 

(1,314,020)

Total shareholders’ equity

 

2,381,514

 

2,700,850

Noncontrolling interest

 

73,627

 

49,476

Total equity

 

2,455,141

 

2,750,326

Total liabilities and equity

$

7,514,503

$

7,853,944

(1)The condensed consolidated balance sheet as of June 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

Six Months Ended

    

June 30,

    

June 30,

2019

2018

2019

2018

(In thousands, except per share amounts)

Revenues and other income:

Operating revenues

$

771,406

$

761,920

$

1,571,046

$

1,496,114

Earnings (losses) from unconsolidated affiliates

(1)

(5)

1

Investment income (loss)

 

469

 

(3,164)

 

10,146

 

(2,699)

Total revenues and other income

771,875

758,755

1,581,187

1,493,416

Costs and other deductions:

Direct costs

496,664

493,975

1,017,621

969,378

General and administrative expenses

64,415

67,823

132,582

142,394

Research and engineering

 

11,920

 

12,439

 

25,440

 

28,245

Depreciation and amortization

 

218,319

 

218,262

 

428,710

 

431,710

Interest expense

51,491

60,592

103,843

121,978

Impairments and other charges

 

102,570

 

69,620

 

99,903

 

76,664

Other, net

7,899

7,981

28,068

15,026

Total costs and other deductions

953,278

930,692

1,836,167

1,785,395

Income (loss) from continuing operations before income taxes

 

(181,403)

 

(171,937)

 

(254,980)

 

(291,979)

Income tax expense (benefit):

Current

 

16,504

 

3,464

 

32,366

 

12,235

Deferred

 

(5,106)

 

19,814

 

8,831

 

34,588

Total income tax expense (benefit)

 

11,398

 

23,278

 

41,197

 

46,823

Income (loss) from continuing operations, net of tax

 

(192,801)

 

(195,215)

 

(296,177)

 

(338,802)

Income (loss) from discontinued operations, net of tax

 

(34)

 

(584)

 

(191)

 

(659)

Net income (loss)

 

(192,835)

 

(195,799)

 

(296,368)

 

(339,461)

Less: Net (income) loss attributable to noncontrolling interest

 

(10,729)

 

(2,953)

 

(24,905)

 

(3,492)

Net income (loss) attributable to Nabors

(203,564)

(198,752)

(321,273)

(342,953)

Less: Preferred stock dividend

 

(4,312)

 

(3,680)

 

(8,625)

 

(3,680)

Net income (loss) attributable to Nabors common shareholders

$

(207,876)

$

(202,432)

$

(329,898)

$

(346,633)

Amounts attributable to Nabors common shareholders:

Net income (loss) from continuing operations

$

(207,842)

$

(201,848)

$

(329,707)

$

(345,974)

Net income (loss) from discontinued operations

(34)

(584)

(191)

(659)

Net income (loss) attributable to Nabors common shareholders

$

(207,876)

$

(202,432)

$

(329,898)

$

(346,633)

Earnings (losses) per share:

Basic from continuing operations

$

(0.61)

$

(0.61)

$

(0.97)

$

(1.08)

Basic from discontinued operations

 

 

 

 

Total Basic

$

(0.61)

$

(0.61)

$

(0.97)

$

(1.08)

Diluted from continuing operations

$

(0.61)

$

(0.61)

$

(0.97)

$

(1.08)

Diluted from discontinued operations

 

 

 

 

Total Diluted

$

(0.61)

$

(0.61)

$

(0.97)

$

(1.08)

Weighted-average number of common shares outstanding:

Basic

 

351,543

 

328,372

 

351,154

 

318,580

Diluted

 

351,543

 

328,372

 

351,154

 

318,580

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

Six Months Ended

 

    

June 30,

    

June 30,

 

2019

2018

2019

2018

(In thousands)

 

Net income (loss) attributable to Nabors

$

(203,564)

$

(198,752)

$

(321,273)

$

(342,953)

Other comprehensive income (loss), before tax:

Translation adjustment attributable to Nabors

6,349

(5,570)

15,539

(14,913)

Pension liability amortization and adjustment

 

54

 

54

 

108

 

108

Unrealized gains (losses) and amortization on cash flow hedges

 

142

 

142

 

282

 

282

Adoption of ASU No. 2016-01

 

 

 

 

(9,144)

Other comprehensive income (loss), before tax

 

6,545

 

(5,374)

 

15,929

 

(23,667)

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

 

48

 

48

 

94

 

91

Other comprehensive income (loss), net of tax

 

6,497

 

(5,422)

 

15,835

 

(23,758)

Comprehensive income (loss) attributable to Nabors

 

(197,067)

 

(204,174)

 

(305,438)

 

(366,711)

Net income (loss) attributable to noncontrolling interest

 

10,729

 

2,953

 

24,905

 

3,492

Translation adjustment attributable to noncontrolling interest

 

7

 

(63)

 

59

 

(159)

Comprehensive income (loss) attributable to noncontrolling interest

 

10,736

 

2,890

 

24,964

 

3,333

Comprehensive income (loss)

$

(186,331)

$

(201,284)

$

(280,474)

$

(363,378)

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)

Six Months Ended June 30,

    

2019

    

2018

(In thousands)

Cash flows from operating activities:

Net income (loss)

$

(296,368)

$

(339,461)

Adjustments to net income (loss):

Depreciation and amortization

 

428,717

 

432,782

Deferred income tax expense (benefit)

 

8,804

 

33,921

Impairments and other charges

 

98,869

 

63,726

Amortization of debt discount and deferred financing costs

15,868

 

14,674

Losses (gains) on debt buyback

 

1,034

 

Losses (gains) on long-lived assets, net

 

10,611

 

5,755

Losses (gains) on investments, net

 

(5,906)

 

4,969

Provision (recovery) of bad debt

256

 

(2,663)

Share-based compensation

 

14,164

 

14,732

Foreign currency transaction losses (gains), net

 

9,924

 

6,280

Noncontrolling interest

(24,906)

 

Other

 

373

 

(3,110)

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

Accounts receivable

 

23,788

 

(86,968)

Inventory

 

(12,814)

 

(7,153)

Other current assets

 

34,590

 

21,463

Other long-term assets

 

(38,705)

 

18,773

Trade accounts payable and accrued liabilities

 

(60,624)

 

(21,824)

Income taxes payable

 

7,118

 

(22,429)

Other long-term liabilities

 

58,292

 

(56,110)

Net cash provided by (used for) operating activities

 

273,085

 

77,357

Cash flows from investing activities:

Purchases of investments

 

(4,572)

 

(676)

Sales and maturities of investments

 

11,919

 

2,602

Cash paid for acquisition of businesses, net of cash acquired

 

(2,929)

 

Capital expenditures

 

(274,479)

 

(209,471)

Proceeds from sales of assets and insurance claims

 

11,857

 

77,272

Net cash (used for) provided by investing activities

 

(258,204)

 

(130,273)

Cash flows from financing activities:

Increase (decrease) in cash overdrafts

 

 

(344)

Proceeds from issuance of long-term debt

 

 

800,000

Debt issuance costs

 

(49)

 

(12,990)

Proceeds from revolving credit facilities

 

790,000

 

625,000

Reduction in revolving credit facilities

(480,000)

 

(1,135,000)

Proceeds from issuance of common shares, net of issuance costs

 

 

302,014

Proceeds from issuance of preferred stock, net of issuance costs

 

278,573

Distributions to noncontrolling interest

(814)

 

(4,676)

Reduction in long-term debt

(361,966)

 

(460,837)

Dividends to common and preferred shareholders

 

(33,705)

 

(36,200)

Proceeds from (payment for) commercial paper

 

(40,000)

Proceeds from (payments for) short-term borrowings

229

 

62

Other

(2,337)

 

(3,688)

Net cash (used for) provided by financing activities

 

(88,642)

 

311,914

Effect of exchange rate changes on cash and cash equivalents

(1,968)

 

(3,637)

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

 

(75,729)

255,361

Cash and cash equivalents and restricted cash, beginning of period

451,080

 

342,029

Cash and cash equivalents and restricted cash, end of period

$

375,351

$

597,390

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

367,693

 

593,284

Restricted cash, end of period

7,658

 

4,106

Cash and cash equivalents and restricted cash, end of period

$

375,351

$

597,390

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 March 31, 2018

 

$

370,320

$

370

$

2,797,893

$

(7,151)

$

1,232,516

$

(1,314,020)

$

27,400

$

2,737,008

Net income (loss)

(198,752)

2,953

(195,799)

Dividends to shareholders ($0.06 per share)

(21,460)

(21,460)

Dividends to preferred shareholders ($0.64 per share)

(3,680)

(3,680)

Common share issuance

40,250

40

301,974

302,014

Convertible preferred share issuance

5,750

6

278,566

278,572

Other comprehensive income (loss), net of tax

 

(5,422)

(63)

(5,485)

Share-based compensation

6,104

6,104

Noncontrolling interest contributions (distributions)

(4,676)

(4,676)

Accrued distribution on redeemable noncontrolling interest in subsidiary

(2,124)

(2,124)

Other

 

(318)

(1,826)

(1,826)

As of June 30, 2018

 

5,750

$

6

410,252

$

410

$

3,382,711

$

(12,573)

$

1,006,500

$

(1,314,020)

$

25,614