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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, 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 October 31, 2020 was 7,294,015, excluding 1,090,003 common shares held by our subsidiaries, or 8,384,018 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, 2020 and December 31, 2019

3

Condensed Consolidated Statements of Income (Loss) for the Three and Nine Months Ended September 30, 2020 and 2019

4

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2020 and 2019

5

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019

6

Condensed Consolidated Statements of Changes in Equity for the Three and Nine Months Ended September 30, 2020 and 2019

7

Notes to Condensed Consolidated Financial Statements

9

Item 2.

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

29

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

41

Item 4.

Controls and Procedures

41

PART II OTHER INFORMATION

Item 1.

Legal Proceedings

41

Item 1A.

Risk Factors

41

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

45

2

Table of Contents

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

September 30,

December 31,

    

2020

    

2019

 

(In thousands, except per

 

share amounts)

 

ASSETS

Current assets:

Cash and cash equivalents

$

504,985

$

435,990

Short-term investments

 

8,840

 

16,506

Accounts receivable, net

 

347,212

 

453,042

Inventory, net

 

164,029

 

176,341

Assets held for sale

 

562

 

2,530

Other current assets

 

137,384

 

164,257

Total current assets

 

1,163,012

 

1,248,666

Property, plant and equipment, net

 

4,225,034

 

4,930,549

Goodwill

 

 

28,380

Deferred income taxes

 

277,897

 

305,844

Other long-term assets

 

151,365

 

247,219

Total assets (1)

$

5,817,308

$

6,760,658

LIABILITIES AND EQUITY

Current liabilities:

Trade accounts payable

$

216,495

$

295,159

Accrued liabilities

247,181

 

333,282

Income taxes payable

 

12,872

 

14,628

Current lease liabilities

 

9,470

 

13,479

Total current liabilities

 

486,018

 

656,548

Long-term debt

 

3,290,303

 

3,333,220

Other long-term liabilities

 

239,684

 

292,184

Deferred income taxes

 

3,053

 

3,149

Total liabilities (1)

 

4,019,058

 

4,285,101

Commitments and contingencies (Note 8)

Redeemable noncontrolling interest in subsidiary (Note 3)

438,486

 

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 32,000; issued 8,385 and 8,324, respectively

 

419

 

416

Capital in excess of par value

 

3,419,467

 

3,412,972

Accumulated other comprehensive income (loss)

 

(18,630)

 

(11,788)

Retained earnings (accumulated deficit)

 

(829,862)

 

(104,775)

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

 

(1,315,751)

 

(1,314,020)

Total shareholders’ equity

 

1,255,648

 

1,982,811

Noncontrolling interest

 

104,116

 

67,354

Total equity

 

1,359,764

 

2,050,165

Total liabilities and equity

$

5,817,308

$

6,760,658

(1)The condensed consolidated balance sheet as of September 30, 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

Nine Months Ended

    

September 30,

    

September 30,

2020

2019

2020

2019

(In thousands, except per share amounts)

Revenues and other income:

Operating revenues

$

438,352

$

758,076

$

1,690,647

$

2,329,122

Earnings (losses) from unconsolidated affiliates

(5)

Investment income (loss)

 

(742)

 

(1,437)

 

(1,904)

 

8,709

Total revenues and other income

437,610

756,639

1,688,743

2,337,826

Costs and other deductions:

Direct costs

270,397

475,461

1,058,794

1,493,082

General and administrative expenses

46,168

63,577

149,796

196,159

Research and engineering

 

7,565

 

12,004

 

26,279

 

37,444

Depreciation and amortization

 

206,862

 

221,557

 

645,045

 

650,267

Interest expense

52,403

51,291

158,331

155,134

Impairments and other charges

 

5,017

 

3,629

 

339,303

 

106,007

Other, net

(425)

5,005

(48,330)

30,598

Total costs and other deductions

587,987

832,524

2,329,218

2,668,691

Income (loss) from continuing operations before income taxes

 

(150,377)

 

(75,885)

 

(640,475)

 

(330,865)

Income tax expense (benefit):

Current

 

1,450

 

18,117

 

(6,089)

 

50,483

Deferred

 

(5,145)

 

5,786

 

24,533

 

14,617

Total income tax expense (benefit)

 

(3,695)

 

23,903

 

18,444

 

65,100

Income (loss) from continuing operations, net of tax

 

(146,682)

 

(99,788)

 

(658,919)

 

(395,965)

Income (loss) from discontinued operations, net of tax

 

22

 

157

 

(48)

 

(34)

Net income (loss)

 

(146,660)

 

(99,631)

 

(658,967)

 

(395,999)

Less: Net (income) loss attributable to noncontrolling interest

 

(10,805)

 

(19,297)

 

(38,437)

 

(44,202)

Net income (loss) attributable to Nabors

(157,465)

(118,928)

(697,404)

(440,201)

Less: Preferred stock dividend

 

(3,653)

 

(4,310)

 

(10,958)

 

(12,935)

Net income (loss) attributable to Nabors common shareholders

$

(161,118)

$

(123,238)

$

(708,362)

$

(453,136)

Amounts attributable to Nabors common shareholders:

Net income (loss) from continuing operations

$

(161,140)

$

(123,395)

$

(708,314)

$

(453,102)

Net income (loss) from discontinued operations

22

157

(48)

(34)

Net income (loss) attributable to Nabors common shareholders

$

(161,118)

$

(123,238)

$

(708,362)

$

(453,136)

Earnings (losses) per share:

Basic from continuing operations

$

(23.42)

$

(18.27)

$

(102.25)

$

(66.70)

Basic from discontinued operations

 

 

0.02

 

(0.01)

 

Total Basic

$

(23.42)

$

(18.25)

$

(102.26)

$

(66.70)

Diluted from continuing operations

$

(23.42)

$

(18.27)

$

(102.25)

$

(66.70)

Diluted from discontinued operations

 

 

0.02

 

(0.01)

 

Total Diluted

$

(23.42)

$

(18.25)

$

(102.26)

$

(66.70)

Weighted-average number of common shares outstanding:

Basic

 

7,064

 

7,041

 

7,056

 

7,029

Diluted

 

7,064

 

7,041

 

7,056

 

7,029

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

4

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NABORS INDUSTRIES LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

Three Months Ended

Nine Months Ended

 

    

September 30,

    

September 30,

 

2020

2019

2020

2019

(In thousands)

 

Net income (loss) attributable to Nabors

$

(157,465)

$

(118,928)

$

(697,404)

$

(440,201)

Other comprehensive income (loss), before tax:

Translation adjustment attributable to Nabors

3,665

(3,225)

(7,029)

12,314

Pension liability amortization and adjustment

 

52

 

54

 

156

 

162

Unrealized gains (losses) and amortization on cash flow hedges

 

(124)

 

142

 

160

 

424

Other comprehensive income (loss), before tax

 

3,593

 

(3,029)

 

(6,713)

 

12,900

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

 

35

 

48

 

129

 

142

Other comprehensive income (loss), net of tax

 

3,558

 

(3,077)

 

(6,842)

 

12,758

Comprehensive income (loss) attributable to Nabors

 

(153,907)

 

(122,005)

 

(704,246)

 

(427,443)

Net income (loss) attributable to noncontrolling interest

 

10,805

 

19,297

 

38,437

 

44,202

Translation adjustment attributable to noncontrolling interest

 

 

(4)

 

 

55

Comprehensive income (loss) attributable to noncontrolling interest

 

10,805

 

19,293

 

38,437

 

44,257

Comprehensive income (loss)

$

(143,102)

$

(102,712)

$

(665,809)

$

(383,186)

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,

    

2020

    

2019

(In thousands)

Cash flows from operating activities:

Net income (loss)

$

(658,967)

$

(395,999)

Adjustments to net income (loss):

Depreciation and amortization

 

645,045

 

650,280

Deferred income tax expense (benefit)

 

24,535

 

14,565

Impairments and other charges

 

301,619

 

98,869

Amortization of debt discount and deferred financing costs

24,347

 

23,197

Losses (gains) on debt buyback

 

(65,848)

 

1,752

Losses (gains) on long-lived assets, net

 

5,754

 

8,410

Losses (gains) on investments, net

 

5,653

 

(2,400)

Provision (recovery) of bad debt

9,729

 

379

Share-based compensation

 

20,170

 

19,489

Foreign currency transaction losses (gains), net

 

11,404

 

18,681

Noncontrolling interest

(38,437)

 

(44,202)

Other

 

257

 

511

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

Accounts receivable

 

90,757

 

136,266

Inventory

 

11,111

 

(21,500)

Other current assets

 

12,510

 

18,085

Other long-term assets

 

22,907

 

(37,977)

Trade accounts payable and accrued liabilities

 

(159,621)

 

(129,375)

Income taxes payable

 

2,393

 

3,459

Other long-term liabilities

 

(17,412)

 

68,338

Net cash provided by (used for) operating activities

 

247,906

 

430,828

Cash flows from investing activities:

Purchases of investments

 

(30)

 

(5,008)

Sales and maturities of investments

 

2,043

 

14,466

Cash paid for acquisition of businesses, net of cash acquired

 

 

(2,929)

Capital expenditures

 

(153,128)

 

(366,594)

Proceeds from sales of assets and insurance claims

 

21,773

 

26,365

Net cash (used for) provided by investing activities

 

(129,342)

 

(333,700)

Cash flows from financing activities:

Proceeds from issuance of long-term debt

 

1,000,000

 

Reduction in long-term debt

(1,390,236)

 

(379,193)

Debt issuance costs

 

(19,149)

 

(48)

Proceeds from revolving credit facilities

 

1,522,265

 

975,000

Reduction in revolving credit facilities

(1,125,000)

 

(690,000)

Proceeds from (payments for) short-term borrowings

 

497

Repurchase of common and preferred shares

(13,858)

 

(79)

Dividends to common and preferred shareholders

 

(18,885)

 

(41,643)

Distributions to noncontrolling interest

(2,033)

 

(4,552)

Other

(1,576)

 

(1,741)

Net cash (used for) provided by financing activities

 

(48,472)

 

(141,759)

Effect of exchange rate changes on cash and cash equivalents

(3,987)

 

(4,421)

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

 

66,105

(49,052)

Cash and cash equivalents and restricted cash, beginning of period

442,038

 

451,080

Cash and cash equivalents and restricted cash, end of period

$

508,143

$

402,028

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

504,985

 

396,937

Restricted cash, end of period

3,158

 

5,091

Cash and cash equivalents and restricted cash, end of period

$

508,143

$

402,028

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, 2019

 

5,746

$

6

416,282

$

416

$

3,405,421

$

(13,490)

$

303,181

$

(1,314,020)

$

73,627

$

2,455,141

Net income (loss)

(118,928)

19,297

(99,631)

Dividends to common shareholders ($0.01 per share)

(3,628)

(3,628)

Dividends to preferred shareholders ($0.75 per share)

(4,310)

(4,310)

Other comprehensive income (loss), net of tax

 

(3,077)

(4)

(3,081)

Share-based compensation

5,325

5,325

Noncontrolling interest contributions (distributions)

(3,738)

(3,738)

Accrued distribution on redeemable noncontrolling interest in subsidiary

(5,176)

(5,176)

Other

 

(73)

(15)

(15)

As of September 30, 2019

 

5,746

$

6

416,209

$

416

$

3,410,731

$

(16,567)

$

171,139

$

(1,314,020)

$