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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 March 31, 2020

    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, $.05 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 $.05 per share, outstanding as of May 6, 2020 was 7,299,780, excluding 1,090,003 common shares held by our subsidiaries, or 8,389,783 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, 2020 and December 31, 2019

3

Condensed Consolidated Statements of Income (Loss) for the Three Months Ended March 31, 2020 and 2019

4

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2020 and 2019

5

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019

6

Condensed Consolidated Statements of Changes in Equity for the Three Months Ended March 31, 2020 and 2019

7

Notes to Condensed Consolidated Financial Statements

8

Item 2.

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

36

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

44

Item 4.

Controls and Procedures

44

PART II OTHER INFORMATION

Item 1.

Legal Proceedings

44

Item 1A.

Risk Factors

44

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

45

Item 3.

Defaults Upon Senior Securities

46

Item 4.

Mine Safety Disclosures

46

Item 5.

Other Information

46

Item 6.

Exhibits

46

Signatures

48

2

Table of Contents

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

March 31,

December 31,

    

2020

    

2019

 

(In thousands, except per

 

share amounts)

 

ASSETS

Current assets:

Cash and cash equivalents

$

480,522

$

435,990

Short-term investments

 

9,136

 

16,506

Accounts receivable, net

 

454,718

 

453,042

Inventory, net

 

173,991

 

176,341

Assets held for sale

 

1,936

 

2,530

Other current assets

 

150,533

 

164,257

Total current assets

 

1,270,836

 

1,248,666

Property, plant and equipment, net

 

4,597,308

 

4,930,549

Goodwill

 

 

28,380

Deferred income taxes

 

280,545

 

305,844

Other long-term assets

 

159,859

 

247,219

Total assets (1)

$

6,308,548

$

6,760,658

LIABILITIES AND EQUITY

Current liabilities:

Current portion of debt

$

$

Trade accounts payable

 

297,274

 

295,159

Accrued liabilities

252,664

 

333,282

Income taxes payable

 

23,057

 

14,628

Current lease liabilities

 

11,875

 

13,479

Total current liabilities

 

584,870

 

656,548

Long-term debt

 

3,388,014

 

3,333,220

Other long-term liabilities

 

261,942

 

292,184

Deferred income taxes

 

2,800

 

3,149

Total liabilities (1)

 

4,237,626

 

4,285,101

Commitments and contingencies (Note 8)

Redeemable noncontrolling interest in subsidiary (Note 3)

429,824

 

425,392

Shareholders’ equity:

Preferred shares, par value $0.001 per share:

Series A 6% Cumulative Mandatory Convertible; $50 per share liquidation preference; outstanding 4,870 and 5,613, respectively

 

5

 

6

Common shares, par value $0.05 per share:

Authorized common shares 16,000; issued 8,389 and 8,324, respectively

 

419

 

416

Capital in excess of par value

 

3,408,454

 

3,412,972

Accumulated other comprehensive income (loss)

 

(29,006)

 

(11,788)

Retained earnings (accumulated deficit)

 

(508,200)

 

(104,775)

Less: treasury shares, at cost, 1,090 and 1,056 common shares, respectively

 

(1,315,751)

 

(1,314,020)

Total shareholders’ equity

 

1,555,921

 

1,982,811

Noncontrolling interest

 

85,177

 

67,354

Total equity

 

1,641,098

 

2,050,165

Total liabilities and equity

$

6,308,548

$

6,760,658

(1)The condensed consolidated balance sheet as of March 31, 2020 and December 31, 2019 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,

2020

2019

(In thousands, except per share amounts)

Revenues and other income:

Operating revenues

$

718,364

$

799,640

Earnings (losses) from unconsolidated affiliates

(5)

Investment income (loss)

 

(3,198)

 

9,677

Total revenues and other income

715,166

809,312

Costs and other deductions:

Direct costs

461,840

520,957

General and administrative expenses

57,384

68,167

Research and engineering

 

11,409

 

13,520

Depreciation and amortization

 

227,063

 

210,391

Interest expense

54,722

52,352

Impairments and other charges

 

276,434

 

Other, net

(17,110)

17,502

Total costs and other deductions

1,071,742

882,889

Income (loss) from continuing operations before income taxes

 

(356,576)

 

(73,577)

Income tax expense (benefit):

Current

 

(7,203)

 

15,862

Deferred

 

24,896

 

13,937

Total income tax expense (benefit)

 

17,693

 

29,799

Income (loss) from continuing operations, net of tax

 

(374,269)

 

(103,376)

Income (loss) from discontinued operations, net of tax

 

(93)

 

(157)

Net income (loss)

 

(374,362)

 

(103,533)

Less: Net (income) loss attributable to noncontrolling interest

 

(17,465)

 

(14,176)

Net income (loss) attributable to Nabors

(391,827)

(117,709)

Less: Preferred stock dividend

 

(3,652)

 

(4,313)

Net income (loss) attributable to Nabors common shareholders

$

(395,479)

$

(122,022)

Amounts attributable to Nabors common shareholders:

Net income (loss) from continuing operations

$

(395,386)

$

(121,865)

Net income (loss) from discontinued operations

(93)

(157)

Net income (loss) attributable to Nabors common shareholders

$

(395,479)

$

(122,022)

Earnings (losses) per share:

Basic from continuing operations

$

(56.72)

$

(18.11)

Basic from discontinued operations

 

(0.01)

 

(0.02)

Total Basic

$

(56.73)

$

(18.13)

Diluted from continuing operations

$

(56.72)

$

(18.11)

Diluted from discontinued operations

 

(0.01)

 

(0.02)

Total Diluted

$

(56.73)

$

(18.13)

Weighted-average number of common shares outstanding:

Basic

 

7,051

 

7,015

Diluted

 

7,051

 

7,015

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

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NABORS INDUSTRIES LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

Three Months Ended

 

    

March 31,

 

2020

2019

(In thousands)

 

Net income (loss) attributable to Nabors

$

(391,827)

$

(117,709)

Other comprehensive income (loss), before tax:

Translation adjustment attributable to Nabors

(17,365)

9,190

Pension liability amortization and adjustment

 

51

 

54

Unrealized gains (losses) and amortization on cash flow hedges

 

143

 

140

Other comprehensive income (loss), before tax

 

(17,171)

 

9,384

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

 

47

 

46

Other comprehensive income (loss), net of tax

 

(17,218)

 

9,338

Comprehensive income (loss) attributable to Nabors

 

(409,045)

 

(108,371)

Net income (loss) attributable to noncontrolling interest

 

17,465

 

14,176

Translation adjustment attributable to noncontrolling interest

 

 

52

Comprehensive income (loss) attributable to noncontrolling interest

 

17,465

 

14,228

Comprehensive income (loss)

$

(391,580)

$

(94,143)

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

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NABORS INDUSTRIES LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Three Months Ended March 31,

    

2020

    

2019

(In thousands)

Cash flows from operating activities:

Net income (loss)

$

(374,362)

$

(103,533)

Adjustments to net income (loss):

Depreciation and amortization

 

227,063

 

210,397

Deferred income tax expense (benefit)

 

24,903

 

13,949

Impairments and other charges

 

265,779

 

82

Amortization of debt discount and deferred financing costs

8,153

 

7,730

Losses (gains) on debt buyback

 

(15,742)

 

(2,667)

Losses (gains) on long-lived assets, net

 

1,391

 

3,633

Losses (gains) on investments, net

 

5,539

 

(7,688)

Provision (recovery) of bad debt

10,417

 

(419)

Share-based compensation

 

9,158

 

8,424

Foreign currency transaction losses (gains), net

 

(559)

 

8,548

Noncontrolling interest

(17,465)

 

(14,176)

Other

 

188

 

212

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

Accounts receivable

 

(16,008)

 

14,914

Inventory

 

(1,421)

 

(685)

Other current assets

 

12,292

 

13,458

Other long-term assets

 

2,046

 

(23,907)

Trade accounts payable and accrued liabilities

 

(76,952)

 

(95,669)

Income taxes payable

 

4,475

 

6,107

Other long-term liabilities

 

(9,733)

 

31,144

Net cash provided by (used for) operating activities

 

59,162

 

69,854

Cash flows from investing activities:

Purchases of investments

 

 

(4,221)

Sales and maturities of investments

 

1,835

 

1,134

Cash paid for acquisition of businesses, net of cash acquired

 

 

(2,929)

Capital expenditures

 

(59,430)

 

(141,070)

Proceeds from sales of assets and insurance claims

 

6,822

 

2,642

Net cash (used for) provided by investing activities

 

(50,773)

 

(144,444)

Cash flows from financing activities:

Increase (decrease) in cash overdrafts

 

55

 

Proceeds from issuance of long-term debt

 

1,000,000

 

Reduction in long-term debt

(1,068,405)

 

(43,540)

Debt issuance costs

 

(15,737)

 

(35)

Proceeds from revolving credit facilities

 

795,000

 

180,000

Reduction in revolving credit facilities

(650,000)

 

(50,000)

Proceeds from (payments for) short-term borrowings

 

289

Repurchase of common and preferred shares

(13,858)

 

Dividends to common and preferred shareholders

 

(7,937)

 

(25,765)

Other

(1,546)

 

(1,493)

Net cash (used for) provided by financing activities

 

37,572

 

59,456

Effect of exchange rate changes on cash and cash equivalents

(2,219)

 

(2,791)

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

 

43,742

(17,925)

Cash and cash equivalents and restricted cash, beginning of period

442,038

 

451,080

Cash and cash equivalents and restricted cash, end of period

$

485,780

$

433,155

RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH

Cash and cash equivalents, beginning of period

435,990

 

447,766

Restricted cash, beginning of period

6,048

 

3,314

Cash and cash equivalents and restricted cash, beginning of period

$

442,038

$

451,080

Cash and cash equivalents, end of period

480,522

 

429,127

Restricted cash, end of period

5,258

 

4,028

Cash and cash equivalents and restricted cash, end of period

$

485,780

$

433,155

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

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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 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

As of December 31, 2019

 

5,613

$

6

416,198

$

416

$

3,412,972

$

(11,788)

$

(104,775)

$

(1,314,020)

$

67,354

$

2,050,165

Net income (loss)

(391,827)

17,465

(374,362)

Dividends to common shareholders ($0.01 per share)

(3,514)

(3,514)

Dividends to preferred shareholders ($0.75 per share)

(3,652)

(3,652)

Repurchase of common and preferred shares

(724)

(1)

(12,126)

(1,731)

(13,858)

Other comprehensive income (loss), net of tax

(17,218)

(17,218)

Share-based compensation

9,158

9,158

Accrued distribution on redeemable noncontrolling interest in subsidiary

(4,432)

(4,432)

Other

3,268

3

(1,550)

358

(1,189)

As of March 31, 2020

4,889

$

5

419,466

$

419

$

3,408,454

$

(29,006)

$

(508,200)

$

(1,315,751)

$

85,177

$

1,641,098

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

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Nabors Industries Ltd. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 General

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. These services include tubular running services, wellbore placement solutions , directional drilling, measurement-while-drilling (“MWD”), logging-while-drilling (“LWD”) systems and services, equipment manufacturing, rig instrumentation and optimization software.

With operations in approximately 20 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, 2020 included:

366 actively marketed rigs for land-based drilling operations in the United States, Canada and approximately 16 other countries throughout the world; and

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

The outbreak of COVID-19, along with decisions by large oil and natural gas producing countries, has led to decreases in commodity prices, specifically oil and natural gas prices, resulting from oversupply and demand weakness. These price decreases caused significant disruptions and volatility in the global marketplace during the first quarter of 2020, leading to a decrease in the demand for our products and services. Lower prices and the resulting weakness in demand for our services, which have negatively affected our results of operations and cash flows, have persisted into the second quarter, and there remains continuing uncertainty regarding the length and impact of COVID-19 on the energy industry and the outlook for our business.

At a special meeting of shareholders held April 20, 2020, our shareholders authorized a combination of our common shares (the “Reverse Stock Split”) at a ratio of not less than 1-for 15 and not greater than 1-for-50, with the exact ratio to be set within that range at the sole direction of our Board of Directors (the “Board”). On April 20, 2020, the Board set the Reverse Stock Split ratio at 1-for-50. As a result of the Reverse Stock Split, 50 pre-reverse split common shares automatically combined into one new common share, without any action on the part of the shareholders. Nabors’ authorized number of common shares were also proportionally decreased from 800,000,000 to 16,000,000 common shares, and the par value of each common share was proportionally increased from $0.001 to $0.05. In addition, at the special meeting, the shareholders authorized an increase in our common share capital by 100% following the Reverse Stock Split, to $1,600,000. No fractional common shares were issued as a result of the Reverse Stock Split. Any fractional common shares of registered holders resulting from the Reverse Stock Split were rounded up to the nearest whole share. All share and per share information included in the accompanying financial statements has been retrospectively adjusted to reflect this Reverse Stock Split.

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, 2019 (“2019 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, 2020 and the results of operations,

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comprehensive income (loss), cash flows and changes in equity for the periods presented herein. Interim results for the three months ended March 31, 2020 may not be indicative of results that will be realized for the full year ending December 31, 2020.

Principles of Consolidation

Our condensed consolidated financial statements include the accounts of Nabors, as well as all majority owned and non-majority owned subsidiaries consolidated in accordance with 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.

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,

    

2020

    

2019

 

(In thousands)

 

Raw materials

$

143,152

$

130,414

Work-in-progress

 

17,288

 

5,498

Finished goods

 

13,551

 

40,429

$

173,991

$

176,341

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Goodwill

We review goodwill for impairment annually during the second quarter of each fiscal year or more frequently if events or changes in circumstances indicate that the carrying amount of such goodwill and intangible assets may exceed their fair value. We initially assess goodwill for impairment based on qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of one of our reporting units is greater than its carrying amount. If the carrying amount exceeds the fair value, an impairment charge will be recognized in an amount equal to the excess; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.

Our estimated fair values of our reporting units incorporate judgment and the use of estimates by management. We primarily calculate fair value in these impairment tests using discounted cash flow models, which require the use of significant unobservable inputs, representative of a Level 3 fair value measurement. Our cash flow models involve assumptions based on our utilization of rigs or other oil and gas service equipment, revenues and earnings from affiliates, as well as direct costs, general and administrative costs, depreciation, applicable income taxes, capital expenditures and working capital requirements. Our fair value estimates of these reporting units are sensitive to varying dayrates, utilization and costs. A significantly prolonged period of lower oil and natural gas prices, other than those assumed in developing our forecasts, or changes in laws and regulations could adversely affect the demand for and prices of our services. Our discounted cash flow projections for each reporting unit were based on financial forecasts. The future cash flows were discounted to present value using discount rates determined to be appropriate for each reporting unit. Terminal values for each reporting unit were calculated using a Gordon Growth methodology with a long-term growth rate of approximately 2%. The fair value of certain of our reporting units utilizes a market approach based on comparing the assets and liabilities of companies within our same industry. The market approach involves significant judgment in the selection of the appropriate peer group companies and valuation multiples.

Another factor in determining whether impairment has occurred is the relationship between our market capitalization and our book value. As part of our annual review, we compared the sum of our reporting units’ estimated fair value, which included the estimated fair value of non-operating assets and liabilities, less debt, to our market capitalization and assessed the reasonableness of our estimated fair value. Any of the above-mentioned factors may cause us to re-evaluate goodwill during any quarter throughout the year.

The change in the carrying amount of goodwill for our segments for the three months ended March 31, 2020 was as follows:

    

    

Acquisitions

    

    

    

 

and

 

Balance at

Purchase

Disposals

Cumulative

Balance at

 

December 31,

Price

and

Translation

March 31,

 

2019

Adjustments

Impairments

Adjustment

2020

 

(In thousands)

 

Drilling Solutions

$

11,436

$

$

(11,436)

(1)

$

$

Rig Technologies

 

16,944

 

 

(16,362)

(1)

 

(582)

 

Total

$

28,380

$

$

(27,798)

$

(582)

$

(1)Due to current industry conditions such as the drop in commodity prices and the corresponding impact on future expectations of demand for our products and services, including the effect on our stock price, we performed a quantitative impairment assessment of our goodwill as of March 31, 2020. Based on the results of our goodwill test, we recognized a goodwill impairment of $27.8 million. See Note 10—Impairments and Other Charges.

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which changes accounting requirements for the recognition of credit losses from an incurred or probable impairment methodology to a current expected credit losses (CECL) methodology. The guidance is effective for interim and annual periods beginning after December 15, 2019. The guidance has been applied using the modified retrospective method with a cumulative effect adjustment to beginning retained earnings. Trade receivables (including the allowance for credit losses) is the only financial instrument in scope for ASU 2016-13 currently held by

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the Company. The adoption of this guidance did not have a material impact on our condensed consolidated 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 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 assets and liabilities included in the condensed balance sheet below are (1) assets that can either be used to settle obligations of the VIE or be made available in the future to the equity owners through dividends, distributions or in exchange of the redeemable ownership interests (upon mutual agreement of the owners) or (2) liabilities for which creditors do not have recourse to other assets of Nabors.

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

March 31,

December 31,

    

2020

    

2019

 

(In thousands)

 

Assets:

Cash and cash equivalents

$

307,119

$

289,575

Accounts receivable

 

91,911

 

68,624

Other current assets

 

18,403

 

18,149

Property, plant and equipment, net

 

450,821

 

455,751

Other long-term assets

 

10,206

 

15,118

Total assets

$

878,460

$

847,217

Liabilities:

Accounts payable

$

67,875

$

64,365

Accrued liabilities

 

20,515

 

17,929

Total liabilities

$

88,390

$

82,294

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

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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.

Our financial assets and liabilities that are accounted for at fair value on a recurring basis as of March 31, 2020 and December 31, 2019 consisted of available-for-sale equity and debt securities. 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, 2020. 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. As of March 31, 2020 and December 31, 2019, our short-term investments were carried at fair market value and totaled $9.1 million and $16.5 million, respectively, and primarily consisted of Level 1 measurements. No material Level 2 or Level 3 measurements exist as of any of the periods presented.

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 related to assets held for sale, goodwill, intangible assets and other long-lived assets and assets acquired and liabilities assumed in a business combination. 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 and revolving credit facilities 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: