Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2019
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-32657
NABORS INDUSTRIES LTD.
(Exact name of registrant as specified in its charter)
Bermuda
98-0363970
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
Crown House
Second Floor
4 Par-la-Ville Road
Hamilton, HM08
(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
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ☒
Accelerated Filer ☐
Non-accelerated Filer ☐
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of common shares, par value $.001 per share, outstanding as of October 25, 2019 was 363,415,783, excluding 52,800,203 common shares held by our subsidiaries, or 416,215,986 in the aggregate.
NABORS INDUSTRIES LTD. AND SUBSIDIARIES
Index
PART I FINANCIAL INFORMATION
Item 1.
Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018
3
Condensed Consolidated Statements of Income (Loss) for the Three and Nine Months Ended September 30, 2019 and 2018
4
Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2019 and 2018
5
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018
6
Condensed Consolidated Statements of Changes in Equity for the Three and Nine Months Ended September 30, 2019 and 2018
7
Notes to Condensed Consolidated Financial Statements
9
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
43
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
53
Item 4.
Controls and Procedures
PART II OTHER INFORMATION
Legal Proceedings
54
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
55
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
Signatures
57
2
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30,
December 31,
2019
2018
(In thousands, except per
share amounts)
ASSETS
Current assets:
Cash and cash equivalents
$
396,937
447,766
Short-term investments
22,000
34,036
Accounts receivable, net
613,527
756,320
Inventory, net
186,124
165,587
Assets held for sale
8,037
12,250
Other current assets
153,723
177,604
Total current assets
1,380,348
1,593,563
Property, plant and equipment, net
5,152,236
5,467,870
Goodwill
90,543
183,914
Deferred income taxes
353,181
345,091
Other long-term assets
297,189
263,506
Total assets (1)
7,273,497
7,853,944
LIABILITIES AND EQUITY
Current liabilities:
Current portion of debt
1,058
561
Trade accounts payable
364,658
392,843
Accrued liabilities
279,181
417,912
Income taxes payable
23,837
20,761
Current lease liabilities
13,570
—
Total current liabilities
682,304
832,077
Long-term debt
3,516,592
3,585,884
Other long-term liabilities
284,388
274,485
29,109
6,311
Total liabilities (1)
4,512,393
4,698,757
Commitments and contingencies (Note 8)
Redeemable noncontrolling interest in subsidiary (Note 3)
420,217
404,861
Equity:
Shareholders’ equity:
Preferred shares, par value $0.001 per share:
Series A 6% Cumulative Mandatory Convertible; $50 per share liquidation preference; issued 5,746 and 5,750, respectively
Common shares, par value $0.001 per share:
Authorized common shares 800,000; issued 416,209 and 409,652, respectively
416
410
Capital in excess of par value
3,410,731
3,392,937
Accumulated other comprehensive income (loss)
(16,567)
(29,325)
Retained earnings
171,139
650,842
Less: treasury shares, at cost, 52,800 and 52,800 common shares, respectively
(1,314,020)
Total shareholders’ equity
2,251,705
2,700,850
Noncontrolling interest
89,182
49,476
Total equity
2,340,887
2,750,326
Total liabilities and equity
The accompanying notes are an integral part of these condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
Three Months Ended
Nine Months Ended
(In thousands, except per share amounts)
Revenues and other income:
Operating revenues
758,076
779,425
2,329,122
2,275,539
Earnings (losses) from unconsolidated affiliates
(5)
1
Investment income (loss)
(1,437)
(1,342)
8,709
(4,041)
Total revenues and other income
756,639
778,083
2,337,826
2,271,499
Costs and other deductions:
Direct costs
475,461
497,194
1,493,082
1,466,572
General and administrative expenses
63,577
66,813
196,159
209,207
Research and engineering
12,004
14,458
37,444
42,703
Depreciation and amortization
221,557
208,517
650,267
640,227
Interest expense
51,291
51,415
155,134
173,393
Impairments and other charges
3,629
13,770
106,007
90,434
Other, net
5,005
9,137
30,598
24,163
Total costs and other deductions
832,524
861,304
2,668,691
2,646,699
Income (loss) from continuing operations before income taxes
(75,885)
(83,221)
(330,865)
(375,200)
Income tax expense (benefit):
Current
18,117
5,016
50,483
17,251
Deferred
5,786
5,473
14,617
40,061
Total income tax expense (benefit)
23,903
10,489
65,100
57,312
Income (loss) from continuing operations, net of tax
(99,788)
(93,710)
(395,965)
(432,512)
Income (loss) from discontinued operations, net of tax
157
(13,933)
(34)
(14,592)
Net income (loss)
(99,631)
(107,643)
(395,999)
(447,104)
Less: Net (income) loss attributable to noncontrolling interest
(19,297)
(6,934)
(44,202)
(10,426)
Net income (loss) attributable to Nabors
(118,928)
(114,577)
(440,201)
(457,530)
Less: Preferred stock dividend
(4,310)
(4,313)
(12,935)
(7,993)
Net income (loss) attributable to Nabors common shareholders
(123,238)
(118,890)
(453,136)
(465,523)
Amounts attributable to Nabors common shareholders:
Net income (loss) from continuing operations
(123,395)
(104,957)
(453,102)
(450,931)
Net income (loss) from discontinued operations
Earnings (losses) per share:
Basic from continuing operations
(0.37)
(0.31)
(1.33)
(1.39)
Basic from discontinued operations
(0.04)
(0.05)
Total Basic
(0.35)
(1.44)
Diluted from continuing operations
Diluted from discontinued operations
Total Diluted
Weighted-average number of common shares outstanding:
Basic
352,026
350,194
351,444
329,118
Diluted
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
Other comprehensive income (loss), before tax:
Translation adjustment attributable to Nabors
(3,225)
5,309
12,314
(9,604)
Pension liability amortization and adjustment
162
Unrealized gains (losses) and amortization on cash flow hedges
142
143
424
425
Adoption of ASU No. 2016-01
(9,144)
Other comprehensive income (loss), before tax
(3,029)
5,506
12,900
(18,161)
Income tax expense (benefit) related to items of other comprehensive income (loss)
48
139
Other comprehensive income (loss), net of tax
(3,077)
5,458
12,758
(18,300)
Comprehensive income (loss) attributable to Nabors
(122,005)
(109,119)
(427,443)
(475,830)
Net income (loss) attributable to noncontrolling interest
19,297
6,934
44,202
10,426
Translation adjustment attributable to noncontrolling interest
(4)
58
(101)
Comprehensive income (loss) attributable to noncontrolling interest
19,293
6,992
44,257
10,325
Comprehensive income (loss)
(102,712)
(102,127)
(383,186)
(465,505)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30,
Cash flows from operating activities:
Adjustments to net income (loss):
650,280
641,841
Deferred income tax expense (benefit)
14,565
36,164
98,869
16,530
Amortization of debt discount and deferred financing costs
23,197
22,311
Losses (gains) on debt buyback
1,752
10,476
Losses (gains) on long-lived assets, net
8,410
74,388
Losses (gains) on investments, net
(2,400)
7,198
Provision (recovery) of bad debt
379
(2,568)
Share-based compensation
19,489
20,371
Foreign currency transaction losses (gains), net
18,681
7,870
(10,427)
Other
511
Changes in operating assets and liabilities, net of effects from acquisitions:
Accounts receivable
136,266
(82,195)
Inventory
(21,500)
(1,478)
18,085
21,724
(37,977)
12,883
Trade accounts payable and accrued liabilities
(129,375)
(160,018)
3,459
(23,717)
68,338
(67,891)
Net cash provided by (used for) operating activities
430,828
76,919
Cash flows from investing activities:
Purchases of investments
(5,008)
(676)
Sales and maturities of investments
14,466
2,962
Cash paid for acquisition of businesses, net of cash acquired
(2,929)
Capital expenditures
(366,594)
(338,968)
Proceeds from sales of assets and insurance claims
26,365
86,666
Net cash (used for) provided by investing activities
(333,700)
(250,016)
Cash flows from financing activities:
Increase (decrease) in cash overdrafts
(130)
(261)
Proceeds from issuance of long-term debt
800,000
Debt issuance costs
(48)
(13,262)
Proceeds from revolving credit facilities
975,000
905,000
Reduction in revolving credit facilities
(690,000)
(1,200,000)
Proceeds from issuance of common shares, net of issuance costs
301,835
Proceeds from issuance of preferred stock, net of issuance costs
278,358
Distributions to noncontrolling interest
(4,552)
(4,676)
Reduction in long-term debt
(379,193)
(774,802)
Dividends to common and preferred shareholders
(41,643)
(61,341)
Proceeds from (payment for) commercial paper
(40,000)
Repurchase of preferred shares
(79)
Proceeds from (payments for) short-term borrowings
497
252
(1,611)
(3,722)
Net cash (used for) provided by financing activities
(141,759)
187,381
Effect of exchange rate changes on cash and cash equivalents
(4,421)
(5,320)
Net increase (decrease) in cash and cash equivalents and restricted cash
(49,052)
8,964
Cash and cash equivalents and restricted cash, beginning of period
451,080
342,029
Cash and cash equivalents and restricted cash, end of period
402,028
350,993
RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH
Cash and cash equivalents, beginning of period
336,997
Restricted cash, beginning of period
3,314
5,032
Cash and cash equivalents, end of period
347,525
Restricted cash, end of period
5,091
3,468
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Mandatory Convertible
Capital
Accumulated
Preferred Shares
Common Shares
in Excess
Non-
Par
of Par
Comprehensive
Retained
Treasury
controlling
Total
Shares
Value
Income
Earnings
Interest
Equity
As of June 30, 2018
5,750
410,252
3,382,711
(12,573)
1,006,500
25,614
3,088,648
Dividends to shareholders ($0.06 per share)
(21,445)
Dividends to preferred shareholders ($0.75 per share)
Common share issuance
(180)
Convertible preferred share issuance
(214)
5,516
5,639
Accrued distribution on redeemable noncontrolling interest in subsidiary
(2,146)
(92)
As of September 30, 2018
410,160
3,387,922
(7,115)
864,019
32,606
2,963,828
As of June 30, 2019
5,746
416,282
3,405,421
(13,490)
303,181
73,627
2,455,141
Dividends to common shareholders ($0.01 per share)
(3,628)
(3,081)
5,325
Noncontrolling interest contributions (distributions)
(3,738)
(5,176)
(73)
(15)
As of September 30, 2019
416,209
As of December 31, 2017
367,510
368
2,791,129
11,185
1,423,154
26,957
2,938,773
Dividends to shareholders ($0.18 per share)
(61,956)
Dividends to preferred shareholders ($1.39 per share)
40,250
40
301,794
301,834
278,352
(18,401)
9,144
Adoption of ASU No. 2016-16
(34,132)
(6,668)
2,400
(3,724)
As of December 31, 2018
409,652
Dividends to common shareholders ($0.03 per share)
(11,209)
Dividends to preferred shareholders ($2.25 per share)
12,813
(4,551)
(15,358)
6,557
(1,616)
(1,610)
8
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 measurement-while-drilling 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 September 30, 2019 included:
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 September 30, 2019 and the results of operations, comprehensive income (loss), cash flows and changes in equity for the periods presented herein. Interim results for the nine months ended September 30, 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 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 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:
Raw materials
140,324
116,840
Work-in-progress
13,461
20,329
Finished goods
32,339
28,418
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. The fair values calculated in these impairment tests were determined 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, which could in turn result in future goodwill and other intangible asset impairment charges for these reporting units due to the potential impact on our estimate of our future operating results. 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%.
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 nine months ended September 30, 2019 was as follows:
Balance at
Disposals
Cumulative
and
Translation
Impairments
Adjustment
U.S. Drilling
50,149
2,054
52,203
International Drilling
75,634
(75,634)
(1)
Drilling Solutions
11,436
Rig Technologies
46,695
(18,000)
263
(2,054)
26,904
(93,634)
10
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 $42.8 million based on the present value of the remaining minimum rental payments. See Note 14 — Leases.
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, 2018, including interim periods within those fiscal years. We have elected to not reclassify the stranded tax effects within accumulated other comprehensive income to retained earnings and therefore there is no impact on our consolidated financial statements.
Recently Accounting Pronouncements Not Yet Adopted
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 will be applied using the modified retrospective method with a cumulative effect adjustment to beginning retained earnings. Trade receivables (including the allowance for doubtful accounts) is the only financial instrument in scope for ASU 2016-13 currently held by the Company. We are currently evaluating the effect the guidance will have on our consolidated financial statements, but do not expect the impact to be material.
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
11
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 condensed consolidated balance sheet, is presented below.
Assets:
273,417
211,618
76,836
73,699
20,153
17,198
440,794
457,963
15,254
36,583
Total assets
826,454
797,061
Liabilities:
Accounts payable
67,000
60,087
17,064
8,530
Total liabilities
84,064
68,617
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:
Our financial assets and liabilities that are accounted for at fair value on a recurring basis as of September 30, 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 nine months ended September 30, 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. As of September 30, 2019 and December 31, 2018, our short-term investments were carried at fair market value and totaled $22.0 million and $34.0 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.
12
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:
September 30, 2019
December 31, 2018
Carrying
Fair
5.00% senior notes due September 2020
293,217
287,696
614,748
590,336
4.625% senior notes due September 2021
637,528
602,968
668,347
603,457
5.50% senior notes due January 2023
577,042
475,408
586,000
465,999
5.10% senior notes due September 2023
336,778
262,350
342,923
262,494
0.75% senior exchangeable notes due January 2024
467,034
368,483
450,689
358,012
5.75% senior notes due February 2025
781,502
582,696
791,502
598,953
2012 Revolving credit facility
455,000
170,000
2018 Revolving credit facility
3,549,159
3,035,659
3,624,770
3,049,812
Less: current portion
Less: deferred financing costs
31,509
38,325
The fair values of our cash equivalents, trade receivables and trade payables approximate their carrying values due to the short-term nature of these instruments.
13
Note 5 Accounts Receivable Sales Agreement
On September 13, 2019, certain U.S. subsidiaries of the Company entered into a $250 million accounts receivable sales agreement (the “A/R Agreement”) consisting of (i) a Receivables Purchase Agreement (the “Purchase Agreement”) entered into among Nabors A.R.F., LLC (the “SPE” and “Seller”), a special purpose entity that is an indirect wholly owned consolidated subsidiary of Nabors, Nabors Delaware, the purchasers party thereto (the “Purchasers”), and Wells Fargo Bank, N.A., as Administrative Agent, and (ii) a Receivables Sale Agreement (the “Sale Agreement”) among certain U.S. operating subsidiaries of the Company (collectively, the “Originators”), the SPE and Nabors Delaware. Under the Sale Agreement, each of the Originators has sold or contributed, and will on an ongoing basis continue to sell or contribute to the SPE, in exchange for cash and subordinated notes, all of such Originator’s right, title and interest in and to its trade receivables. Under the Purchase Agreement, the SPE may from time to time sell undivided interests in certain of its receivables meeting eligibility requirements to the Purchasers in exchange for cash, and the SPE has granted a security interest to the Administrative Agent on behalf of the Purchasers in all of its assets, including all of its right, title and interest in and to all of the receivables from time to time owned by the SPE. The sales of receivables by the SPE to the Purchasers qualify for sale accounting treatment in accordance with ASC 860. During the term of the A/R Agreement, cash receipts from the Purchasers at the time of any sale of receivables are classified as operating activities in our condensed consolidated statement of cash flows. Subsequent collections on the pledged receivables, which were not sold by the SPE to the Purchasers, will be classified as operating cash flows in our condensed consolidated statement of cash flows at the time of collection.
Nabors Delaware and/or another subsidiary of Nabors will act as servicers of the sold receivables. The servicers administer, collect and otherwise enforce these receivables and are compensated for doing so on terms that are generally consistent with what would be charged by an unrelated servicer. The servicers initially receive payments made by obligors on the receivables, then remit those payments in accordance with the Purchase Agreement. The servicers and the Originators have contingent indemnification obligations to the SPE, and the SPE has contingent indemnification obligations to the Purchasers, in each case customary for transactions of this type. These contingent indemnification obligations are guaranteed by the Company pursuant to an Indemnification Guarantee in favor of the Purchasers. The Purchasers have no recourse for receivables that are uncollectible as a result of the insolvency or inability to pay of the account debtors.
The maximum purchase commitment of the Purchasers under the A/R Agreement is $250.0 million. The amount available for sale to the Purchasers under the A/R Agreement fluctuates over time based on the total amount of eligible receivables generated during the normal course of business after excluding excess concentrations and certain other ineligible receivables. As of September 30, 2019, the total amount of eligible receivables available for purchase by the Purchasers was $213.6 million, of which $98.0 million had been sold to the Purchasers. Trade accounts receivable sold by the SPE to the Purchasers are derecognized from our condensed consolidated balance sheet. The fair value of the sold receivables approximated book value due to the short-term nature of the receivables and, as a result, no gain or loss on the sale of the receivables was recorded. Trade receivables pledged by the SPE as collateral to the Purchasers (excluding receivables sold to the Purchasers) totaled $229.7 million as of September 30, 2019 and are included in accounts receivable, net in our condensed consolidated balance sheet. The assets of the SPE cannot be used by the Company for general corporate purposes. Additionally, creditors of the SPE do not have recourse to assets of the Company (other than assets of the SPE).
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Note 6 Debt
Debt consisted of the following:
5.00% senior notes due September 2020 (1)
During the nine months ended September 30, 2019, we repurchased $378.1 million aggregate principal amount outstanding of our senior unsecured notes for approximately $383.6 million in cash, including principal, and $5.0 million in accrued and unpaid interest. This amount includes the purchase price for the tender offer for $275.0 million of our senior notes due 2020, which closed on June 14, 2019. In connection with these repurchases, we recognized a loss of approximately $0.7 million and $1.8 million for the three and nine months ended September 30, 2019, respectively, which represents the premiums paid and is included in impairments and other charges in our condensed consolidated statement of income (loss).
Subsequent to September 30, 2019 through the date of this report, we repurchased $49.1 million aggregate principal amount outstanding of various series of our senior unsecured notes for approximately $39.9 million in cash, reflecting principal, accrued and unpaid interest.
2018 Revolving Credit Facility
On October 11, 2018, Nabors Delaware, Nabors Drilling Canada Limited, an Alberta corporation (“Nabors Canada”), Nabors and certain other of Nabors’ wholly owned subsidiaries entered into a new five-year unsecured revolving facility with the lenders and issuing banks party thereto and Citibank, N.A., as administrative agent (the “2018 Revolving Credit Facility”). The 2018 Revolving Credit Facility has a borrowing capacity of $1.267 billion and is fully and unconditionally guaranteed by Nabors and certain of its wholly owned subsidiaries. The 2018 Revolving Credit Facility matures at the earlier of (a) October 11, 2023 and (b) July 19, 2022, if any of Nabors Delaware’s existing 5.5% senior notes due January 2023 remain outstanding as of such date. Certain lenders have committed to provide Nabors Delaware an aggregate principal amount of $1.227 billion under the 2018 Revolving Credit Facility, which may be drawn in U.S. dollars, and HSBC Bank Canada has committed to provide Nabors Canada an aggregate principal amount of $40 million in U.S. dollar equivalent, which can be drawn upon in either U.S. or Canadian dollars. The 2018 Revolving Credit Facility contains certain affirmative and negative covenants, including a financial covenant requiring Nabors to maintain a net debt to capitalization ratio not in excess of 0.60:1. Our net debt to capital ratio was approximately 0.58:1 as of September 30, 2019. The net debt to capital ratio is calculated by dividing net debt by net capitalization. For purposes of the 2018 Revolving Credit Facility, net debt is defined as total debt minus the sum of cash and cash equivalents. Net capitalization is defined as net debt plus shareholders’ equity. As of September 30, 2019, our net debt could be higher by approximately $256.8 million, while still maintaining our net debt to capital ratio of 0.60:1. Borrowing from the revolving credit facilities to pay down other debt that matures prior to the maturity date of the 2018 Revolving Credit Facility, such as the 5.00% senior notes due September 2020, does not adversely impact the ratio calculation. Therefore, the entire balance under the revolving credit facilities would be available to pay down outstanding debt. The ratio is only adversely impacted by borrowing under the revolving credit facilities used for purposes other than
15
retiring debt, which would increase our net debt, and by reductions to shareholders’ equity. We can limit or control our spending through reductions in discretionary capital or other types of controllable expenditures, monetization of assets, accessing capital markets through a variety of alternative methods, or any combination of these alternatives if needed. We cannot make any assurances as to our ability to implement any or all of these alternatives.
Additionally, during any period in which Nabors Delaware fails to maintain an investment grade rating from at least two ratings agencies, the guarantors under the facility and their respective subsidiaries will be required to maintain an asset to debt coverage ratio (as defined in the 2018 Revolving Credit Facility) of at least 2.50:1. As of September 30, 2019, our asset to debt coverage ratio was 3.57:1. The asset to debt coverage ratio is calculated by dividing (x) drilling-related fixed assets wholly owned by certain of Nabors’ subsidiaries that are guaranteeing the 2018 Revolving Credit Facility (the “2018 Revolver Guarantors”) or wholly owned subsidiaries of the 2018 Revolver Guarantors by (y) total debt of the 2018 Revolver Guarantors (subject to certain exclusions). As of the date of this report, we had no borrowings outstanding under our 2018 Revolving Credit Facility. In order to make any future borrowings under the 2018 Revolving Credit Facility, Nabors and certain of its wholly owned subsidiaries are subject to compliance with the conditions and covenants contained therein, including compliance with applicable financial ratios.
2012 Revolving Credit Facility
In connection with entering the 2018 Revolving Credit Facility, on October 11, 2018, Nabors Delaware entered into Amendment No. 3 to its existing credit agreement dated November 29, 2012 (as amended, including such amendment, the “2012 Revolving Credit Facility”), among itself, Nabors, Nabors Canada, HSBC Bank Canada, the other lenders party thereto, Citibank, N.A., and Wilmington Trust, National Association, as successor administrative agent (the “Amendment”). The Amendment, among other things, provided for Citibank, N.A.’s resignation as administrative agent and the appointment of Wilmington Trust, National Association as administrative agent, reduced the overall commitments available to $666.25 million and provided for certain lenders to exit the facility in order to become lenders under the 2018 Revolving Credit Facility. Availability under the 2012 Revolving Credit Facility is subject to a covenant not to exceed a net debt to capital ratio of 0.60:1. Net debt is defined in the 2012 Revolving Credit Facility in the same manner as the 2018 Revolving Credit Facility. As of September 30, 2019, we had $455.0 million outstanding under the 2012 Revolving Credit Facility. The weighted average interest rate on borrowings at September 30, 2019 was 3.86%. The 2012 Revolving Credit Facility matures on July 14, 2020.
We expect to remain in compliance with all covenants under the revolving credit facilities during the twelve month period following the date of this report based on our current operational and financial projections. However, we can make no assurance of continued compliance if our current projections or material underlying assumptions prove to be incorrect. If we fail to comply with the covenants, the revolving credit commitment could be terminated, and any outstanding borrowings under the facility could be declared immediately due and payable.
Note 7 Shareholders’ Equity
Common shares
In May 2018, we issued 35.0 million common shares at a price to the public of $7.75 per share. In connection with this offering, in June 2018 the underwriters exercised in full their option to purchase 5.25 million additional common shares. Nabors received aggregate net proceeds of approximately $301.4 million after deducting underwriting discounts, commissions and offering expenses.
On February 22, 2019, a cash dividend of $0.01 per common share was declared for shareholders of record on March 12, 2019. The dividend was paid on April 2, 2019 in the amount of $3.5 million. On April 24, 2019, a cash dividend of $0.01 per common share was declared for shareholders of record on June 11, 2019. The dividend was paid on July 2, 2019 in the amount of $3.5 million. On July 26, 2019, a cash dividend of $0.01 per common share was declared for shareholders of record on September 11, 2019. The dividend was paid on October 2, 2019 in the amount of $3.5 million. These dividends were charged to retained earnings in our condensed consolidated statements of changes in equity for the nine months ended September 30, 2019.
16
Convertible Preferred Shares
In May 2018, we issued 5.75 million (including the underwriters option for 0.75 million) of our 6% Series A Mandatory Convertible Preferred Shares (the “mandatory convertible preferred shares”), par value $0.001 per share, with a liquidation preference of $50 per share. Nabors received aggregate net proceeds of approximately $277.9 million after deducting underwriting discounts, commissions and offering expenses. In June 2019, we repurchased 4,000 of our mandatory convertible preferred shares for approximately $.08 million.
The dividends on the mandatory convertible preferred shares are payable on a cumulative basis at a rate of 6% annually on the initial liquidation preference of $50 per share. Dividends accumulate and are paid quarterly to the extent that we have available funds and our Board of Directors declares a dividend payable. We may elect to pay any accumulated and unpaid dividends in cash or common shares or any combination thereof. At issuance, each mandatory convertible preferred share was automatically convertible into between 5.3763 and 6.4516 of our common shares based on the average share price over a period of twenty consecutive trading days ending prior to May 1, 2021, subject to anti-dilution adjustments. As a result of the dividends paid on our common shares since the offering, the most recent publicly announced conversion rate for each mandatory convertible preferred share is between 5.6492 and 6.7791 of our common shares. Adjustments to the conversion ratio are required to be made and published when such adjustment would result in an increase or decrease of one percent or more of the conversion rate. At any time prior to May 1, 2021, a holder of mandatory convertible preferred shares may convert such mandatory convertible preferred shares into our common shares at the minimum conversion rate, subject to adjustment.
On February 22, 2019, a cash dividend of $0.75 per mandatory convertible preferred share was declared for shareholders of record on April 15, 2019. The dividend was paid on May 1, 2019 in the amount of $4.3 million. On April 24, 2019, a cash dividend of $0.75 per mandatory convertible preferred share was declared for shareholders of record on July 15, 2019. The dividend was paid on August 1, 2019 in the amount of $4.3 million. On July 26, 2019, a cash dividend of $0.75 per mandatory convertible preferred share was declared for shareholders of record on October 15, 2019. The dividend was paid on November 1, 2019 in the amount of $4.3 million. These dividends were charged to retained earnings in our condensed consolidated statements of changes in equity for the nine months ended September 30, 2019.
Note 8 Commitments and Contingencies
Contingencies
Income Tax
We operate in a number of countries and our tax returns filed in those jurisdictions are subject to review and examination by tax authorities within those jurisdictions. We do not recognize the benefit of income tax positions we believe are more likely than not to be disallowed upon challenge by a tax authority. If any tax authority successfully challenges our operational structure, intercompany pricing policies or the taxable presence of our subsidiaries in certain countries, if the terms of certain income tax treaties are interpreted in a manner that is adverse to our structure, or if we lose a material tax dispute in any country, our effective tax rate on our worldwide earnings could change substantially. During the three and nine months ended September 30, 2019, we recognized $14.7 million of income tax expense due to a tax settlement in one of our foreign jurisdictions.
In certain jurisdictions we have recognized deferred tax assets and liabilities. Judgment and assumptions are required in determining whether deferred tax assets will be fully or partially utilized. When we estimate that all or some portion of certain deferred tax assets such as net operating loss carryforwards will not be utilized, we establish a valuation allowance for the amount we determine to be more likely than not unrealizable. We continually evaluate strategies that could allow for future utilization of our deferred assets. Any change in the ability to utilize such deferred assets will be accounted for in the period of the event affecting the valuation allowance. If facts and circumstances cause us to change our expectations regarding future tax consequences, the resulting adjustments could have a material effect on our financial results or cash flow. At this time, we consider it more likely than not that we will have sufficient taxable income in the future that will allow us to realize the deferred tax assets that we have recognized. However, it is possible that some of our recognized deferred tax assets, relating to net operating loss carryforwards, could expire unused or could carryforward indefinitely without utilization. Therefore, unless we are able to generate sufficient taxable income from our component operations, a substantial valuation allowance to reduce our deferred tax assets may be required,
17
which would materially increase our tax expense in the period the allowance is recognized and materially adversely affect our results of operations and statement of financial condition.
Litigation
Nabors and its subsidiaries are defendants or otherwise involved in a number of lawsuits in the ordinary course of business. We estimate the range of our liability related to pending litigation when we believe the amount and range of loss can be estimated. We record our best estimate of a loss when the loss is considered probable. When a liability is probable and there is a range of estimated loss with no best estimate in the range, we record the minimum estimated liability related to the lawsuits or claims. As additional information becomes available, we assess the potential liability related to our pending litigation and claims and revise our estimates. Due to uncertainties related to the resolution of lawsuits and claims, the ultimate outcome may differ from our estimates. For matters where an unfavorable outcome is reasonably possible and significant, we disclose the nature of the matter and a range of potential exposure, unless an estimate cannot be made at the time of disclosure. In the opinion of management and based on liability accruals provided, our ultimate exposure with respect to these pending lawsuits and claims is not expected to have a material adverse effect on our consolidated financial position or cash flows, although they could have a material adverse effect on our results of operations for a particular reporting period.
In March 2011, the Court of Ouargla entered a judgment of approximately $23.4 million (at September 30, 2019 exchange rates) against us relating to alleged violations of Algeria’s foreign currency exchange controls, which require that goods and services provided locally be invoiced and paid in local currency. The case relates to certain foreign currency payments made to us by CEPSA, a Spanish operator, for wells drilled in 2006. Approximately $7.5 million of the total contract amount was paid offshore in foreign currency, and approximately $3.2 million was paid in local currency. The judgment includes fines and penalties of approximately four times the amount at issue. We have appealed the ruling based on our understanding that the law in question applies only to resident entities incorporated under Algerian law. An intermediate court of appeals upheld the lower court’s ruling, and we appealed the matter to the Supreme Court. On September 25, 2014, the Supreme Court overturned the verdict against us, and the case was reheard by the Ouargla Court of Appeals on March 22, 2015 in light of the Supreme Court’s opinion. On March 29, 2015, the Ouargla Court of Appeals reinstated the initial judgment against us. We have appealed this decision again to the Supreme Court. While our payments were consistent with our historical operations in the country, and, we believe, those of other multinational corporations there, as well as interpretations of the law by the Central Bank of Algeria, the ultimate resolution of this matter could result in a loss of up to $15.4 million in excess of amounts accrued.
On September 29, 2017, we were sued, along with Tesco Corporation and its Board of Directors, in a putative shareholder class action filed in the United States District Court for the Southern District of Texas, Houston Division. The plaintiff alleges that the September 18, 2017 Preliminary Proxy Statement filed by Tesco with the United States Securities and Exchange Commission omitted material information with respect to the proposed transaction between Tesco and Nabors announced on August 14, 2017. The plaintiff claims that the omissions rendered the Proxy Statement false and misleading, constituting a violation of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934. The court consolidated several matters and entered a lead plaintiff appointment order. The plaintiff filed their amended complaint, adding Nabors Industries Ltd. as a party to the consolidated action. Nabors filed its motion to dismiss, which was granted by the court on March 29, 2019. The parties have filed appellate briefs with the Fifth Circuit Court of Appeals. Nabors will continue to vigorously defend itself against the allegations.
Following a routine audit conducted in May and June of 2018 by the Atyrau Oblast Ecology Department (the “AOED”), our joint venture in Kazakhstan, KMG Nabors Drilling Company (“KNDC”), was administratively fined for not having emissions permits for KNDC owned or leased equipment. Prior to this audit, the AOED had always accepted the operator’s permits for all of their subcontractors. However, because of major personnel changes, AOED changed this position and is now requiring that the owner/lessor of the equipment that emits the pollutants must have its own permits. Administrative fines have been issued to KNDC and paid in the amount of $0.8 million for violations regarding the failure to have proper permits. AOED had also assessed additional “environmental damages” in the amount of $3.4 million for the period while KNDC did not hold its’ own emissions permit. However, KNDC appealed this fine and the AOED Economic Court ruled in KNDC’s favor. AOED has appealed this decision. Additional damages in the form of later year audits and taxes could become due as well exposing KNDC to possible penalties and fines in an amount estimated to be up to approximately $4.0 million. In furtherance of this position, KNDC and the operator have executed an agreement formalizing the operator’s obligation to reimburse KNDC for all financial expenses related to this case.
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Off-Balance Sheet Arrangements (Including Guarantees)
We are a party to some transactions, agreements or other contractual arrangements defined as “off-balance sheet arrangements” that could have a material future effect on our financial position, results of operations, liquidity and capital resources. The most significant of these off-balance sheet arrangements include the A/R Agreement (see Note 5—Accounts Receivable Sales Agreement) and certain agreements and obligations under which we provide financial or performance assurance to third parties. Certain of these financial or performance assurances serve as guarantees, including standby letters of credit issued on behalf of insurance carriers in conjunction with our workers’ compensation insurance program and other financial surety instruments such as bonds. In addition, we have provided indemnifications, which serve as guarantees, to some third parties. These guarantees include indemnification provided by Nabors to our share transfer agent and our insurance carriers. We are not able to estimate the potential future maximum payments that might be due under our indemnification guarantees.
Management believes the likelihood that we would be required to perform or otherwise incur any material losses associated with any of these guarantees is remote. The following table summarizes the total maximum amount of financial guarantees issued by Nabors:
Maximum Amount
2020
2021
Thereafter
Financial standby letters of credit and other financial surety instruments
62,783
158,880
221,663
Note 9 Earnings (Losses) Per Share
ASC 260, Earnings per Share, requires companies to treat unvested share-based payment awards that have nonforfeitable rights to dividends or dividend equivalents as a separate class of securities in calculating earnings (losses) per share. We have granted and expect to continue to grant to employees restricted stock grants that contain nonforfeitable rights to dividends. Such grants are considered participating securities under ASC 260. As such, we are required to include these grants in the calculation of our basic earnings (losses) per share and calculate basic earnings (losses) per share using the two-class method. The two-class method of computing earnings per share is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared and participation rights in undistributed earnings. The participating security holders are not contractually obligated to share in losses. Therefore, losses are not allocated to the participating security holders.
Basic earnings (losses) per share is computed utilizing the two-class method and is calculated based on the weighted-average number of common shares outstanding during the periods presented.
Diluted earnings (losses) per share is computed using the weighted-average number of common and common equivalent shares outstanding during the periods utilizing the two-class method for stock options and unvested restricted shares. Shares issuable upon exchange of the $575 million 0.75% exchangeable notes are not included in the calculation of diluted earnings (losses) per share unless the exchange value of the notes exceeds their principal amount at the end of the relevant reporting period, in which case the notes will be accounted for as if the number of common shares that would be necessary to settle the excess are issued. Such shares are only included in the calculation of the weighted-average number of shares outstanding in our diluted earnings (losses) per share calculation, when the price of our shares exceeds $25.16 on the last trading day of the quarter, which did not occur during the nine months ended September 30, 2019.
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A reconciliation of the numerators and denominators of the basic and diluted earnings (losses) per share computations is as follows:
BASIC EPS:
Net income (loss) (numerator):
Less: net (income) loss attributable to noncontrolling interest
Less: preferred stock dividends
Less: accrued distribution on redeemable noncontrolling interest in subsidiary
Less: distributed and undistributed earnings allocated to unvested shareholders
(114)
(432)
(347)
(1,375)
Numerator for basic earnings per share:
Adjusted income (loss) from continuing operations, net of tax - basic
(128,685)
(107,535)
(468,807)
(458,974)
Weighted-average number of shares outstanding - basic
DILUTED EPS:
Add: effect of reallocating undistributed earnings of unvested shareholders
Adjusted income (loss) from continuing operations, net of tax - diluted
Add: dilutive effect of potential common shares
Weighted-average number of shares outstanding - diluted
For all periods presented, the computation of diluted earnings (losses) per share excludes outstanding stock options with exercise prices greater than the average market price of Nabors’ common shares, because their inclusion would be anti-dilutive and because they are not considered participating securities. For periods in which we experience a net loss from continuing operations, all potential common shares have been excluded from the calculation of weighted-average shares outstanding, because their inclusion would be anti-dilutive. The average number of options that were excluded from diluted earnings (losses) per share that would potentially dilute earnings per share in the future were as follows:
Potentially dilutive securities excluded as anti-dilutive
1,807
4,354
2,053
4,488
20
In any period during which the average market price of Nabors’ common shares exceeds the exercise prices of these stock options, such stock options will be included in our diluted earnings (losses) per share computation using the if-converted method of accounting. Restricted stock is included in our basic and diluted earnings (losses) per share computation using the two-class method of accounting in all periods because such stock is considered participating securities.
Additionally, we excluded 39.0 million common shares from the computation of diluted shares issuable upon the conversion of mandatory convertible preferred shares, because their effect would be anti-dilutive under the if-converted method.
Note 10 Impairments and Other Charges
The components of impairments and other charges are provided below:
Goodwill & Intangible Assets:
Goodwill impairments
93,634
Intangible asset impairment
5,235
Subtotal
Other Charges:
Divestiture of International assets
63,726
Severance and transaction related costs
2,911
1,753
5,386
12,526
Tangible asset impairments
1,541
3,706
Loss (gain) on early extinguishment of debt
718
21
For the three and nine months ended September 30, 2019
During the nine months ended September 30, 2019, we recognized goodwill impairment charges of $93.6 million. As part of our annual goodwill impairment test, we determined the carrying value of some of our reporting units exceeded their fair value. As such, we recognized an impairment of $75.6 million for the remaining goodwill balance attributable to our International Drilling operating segment and $18.0 million for a partial impairment to our goodwill balance related to the acquisition of 2TD in 2014, reported within our Rig Technologies operating segment. These non-cash pre-tax impairment charges were primarily the result of a sustained decline in our market capitalization and lower future cash flow projections due to expectations for future commodity prices and the resulting impact on the demand for our products and services within these reporting units.
Intangible impairments
Additionally, we determined the fair value of one of our intangible assets was less than the current book value. As such, we recognized a partial impairment of $5.2 million to write down the intangible asset to its fair value. This intangible asset relates to in-process research and development associated with our rotary steerable tools purchased as part of the 2TD acquisition. Based on our updated projections of future cash flows, the carrying value did not support the current fair value and thus an impairment charge was recognized.
During the three and nine months ended September 30, 2019, we recognized charges of $2.9 million and $5.4 million, respectively, due to severance and other related costs incurred to right-size our cost structure.
During the three and nine months ended September 30, 2019, we repurchased $16.6 million and $378.1 million, respectively, aggregate principal amount of our senior notes and recognized a loss of $0.7 million and $1.8 million, respectively, as part of the debt extinguishment. See Note 6—Debt for additional discussion.
Three and nine months ended September 30, 2018
During the nine months ended September 30, 2018, we recognized a loss of $63.7 million on the sale of three offshore drilling rigs within our International Drilling operating segment.
During the three and nine months ended September 30, 2018, we incurred $1.8 million and $12.5 million, respectively, in transaction related costs, including professional fees, severances, facility closure costs and other cost rationalization items, primarily in connection with the acquisition of Tesco.
During the three and nine months ended September 30, 2018, we repurchased $460.8 million aggregate principal amount of our senior notes and recognized a loss of $10.5 million as part of the debt extinguishment.
During the three and nine months ended September 30, 2018, we recognized impairment charges of $1.5 million and $3.7 million, respectively, primarily due to obsolete inventory within our Rig Technologies reportable segment.
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Note 11 Supplemental Balance Sheet and Income Statement Information
Accrued liabilities included the following:
Accrued compensation
79,085
92,358
Deferred revenue and proceeds on insurance and asset sales
100,030
149,266
Other taxes payable
24,650
33,199
Workers’ compensation liabilities
15,214
16,316
Interest payable
18,570
59,718
Litigation reserves
15,547
24,926
Current liability to discontinued operations
2,445
Dividends declared and payable
7,830
25,330
Other accrued liabilities
18,255
14,354
Investment income (loss) includes the following:
Interest and dividend income
2,040
900
6,346
3,194
Gains (losses) on marketable securities
(3,477)
(2,242)
2,363
(7,235)
Other, net included the following:
Losses (gains) on sales, disposals and involuntary conversions of long-lived assets
(1,750)
4,811
10,645
Litigation expenses and reserves
1,375
4,211
9,652
Foreign currency transaction losses (gains)
8,745
1,607
18,715
7,851
Other losses (gains)
1,344
(738)
(3,985)
The changes in accumulated other comprehensive income (loss), by component, included the following:
Unrealized
Gains
gains (losses)
Defined
(losses) on
on available-
benefit
Foreign
cash flow
for-sale
pension plan
currency
hedges
securities
items
(In thousands (1) )
As of January 1, 2018
(922)
(4,111)
7,074
Other comprehensive income (loss) before reclassifications
Amounts reclassified from accumulated other comprehensive income (loss)
323
125
448
Net other comprehensive income (loss)
(599)
(3,986)
(2,530)
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As of January 1, 2019
(492)
(3,945)
(24,888)
319
444
(173)
(3,820)
(12,574)
The line items that were reclassified to net income included the following:
Total income (loss) from continuing operations before income tax
(196)
(197)
(586)
(587)
Tax expense (benefit)
(142)
(139)
Reclassification adjustment for (gains)/ losses included in net income (loss)
(148)
(149)
(444)
(448)
Note 12 Segment Information
The following table sets forth financial information with respect to our reportable operating segments:
Operating revenues:
307,808
273,996
951,419
779,393
Canada Drilling
12,191
26,645
48,895
75,974
328,278
377,125
992,439
1,123,956
62,286
60,923
192,291
183,430
63,106
63,641
207,610
209,631
Other reconciling items (1)
(15,593)
(22,905)
(63,532)
(96,845)
Adjusted operating income (loss): (2)
12,427
2,578
57,502
(30,275)
(5,701)
(1,895)
(11,297)
(7,095)
2,466
25,680
(10,055)
74,702
16,145
9,506
42,793
25,773
(641)
(4,141)
(5,293)
(20,550)
Total segment adjusted operating income (loss)
24,696
31,728
73,650
42,555
24
Reconciliation of segment adjusted operating income (loss) to net income (loss) from continuing operations before income taxes:
Total segment adjusted operating income (loss) (2)
Other reconciling items (3)
(39,219)
(39,285)
(121,480)
(125,725)
(51,291)
(51,415)
(155,134)
(173,393)
(3,629)
(13,770)
(106,007)
(90,434)
(5,005)
(9,137)
(30,598)
(24,163)
Total assets:
2,521,098
2,982,974
215,813
252,817
3,084,525
3,320,347
222,605
281,078
411,831
401,044
817,625
615,684
Note 13 Revenue Recognition
We recognize revenue when control of a good or service promised in a contract (i.e., performance obligation) is transferred to a customer. Control is obtained when a customer has the ability to direct the use of and obtain substantially all of the remaining benefits from that good or service. Contract drilling revenues are recorded over time utilizing the input method based on time elapsed. The measurement of progress considers the transfer of the service to the customer as we provide daily drilling services. We receive payment after the services have been performed by billing customers periodically (typically monthly). However, a portion of our revenues are recognized at a point-in-time as control is transferred at a distinct point in time such as with the sale of our top drives and other capital equipment. Within our drilling contracts, we have identified one performance obligation in which the transaction price is allocated.
25
Disaggregation of revenue
In the following table, revenue is disaggregated by geographical region. The table also includes a reconciliation of the disaggregated revenue with the reportable segments:
Lower 48
256,978
41,459
40,082
338,519
U.S. Offshore Gulf of Mexico
37,365
2,935
40,300
Alaska
13,465
1,488
341
15,294
Canada
358
1,894
14,443
Middle East & Asia
197,095
11,167
14,481
222,743
Latin America
85,558
4,545
468
90,571
Europe, Africa & CIS
45,625
334
5,840
51,799
Eliminations & other
784,638
132,156
144,983
1,061,777
117,572
9,945
127,517
49,209
4,137
888
54,234
1,413
6,942
57,250
570,142
31,095
38,344
639,581
266,715
11,202
1,850
279,767
155,582
2,343
14,603
172,528
September 30, 2018
231,935
42,045
45,707
319,687
31,942
3,345
35,287
10,119
1,248
209
11,576
1,081
3,483
31,209
226,926
9,126
7,882
243,934
94,048
3,399
1,604
99,051
56,151
679
4,756
61,586
655,916
127,733
153,878
937,527
84,997
9,455
94,452
38,480
2,691
553
41,724
4,797
17,096
97,867
701,292
25,859
19,592
746,743
265,738
11,048
5,181
281,967
156,926
1,847
13,331
172,104
26
Contract balances
We perform our obligations under a contract with a customer by transferring goods or services in exchange for consideration from the customer. We recognize a contract asset or liability when we transfer goods or services to a customer and bill an amount which differs from the revenue allocated to the related performance obligations.
The timing of revenue recognition may differ from the timing of invoicing to customers and these timing differences result in receivables, contract assets, or contract liabilities (deferred revenue) on our condensed consolidated balance sheet. In general, we receive payments from customers based on dayrates as stipulated in our contracts (i.e. operating rate, standby rate). The invoices billed to the customer are based on the varying rates applicable to the operating status on each rig. Accounts receivable are recorded when the right to consideration becomes unconditional.
Dayrate contracts also may contain fees charged to the customer for up-front rig modifications, mobilization and demobilization of equipment and personnel. These fees are associated with contract fulfillment activities, and the related revenue (subject to any constraint on estimates of variable consideration) is allocated to a single performance obligation and recognized ratably over the initial term of the contract. Mobilization fees are generally billable to the customer in the initial phase of a contract and generate contract liabilities until they are recognized as revenue. Demobilization fees are generally received at the end of the contract and generate contract assets when they are recognized as revenue prior to becoming receivables from the customer.
We receive reimbursements from our customers for the purchase of supplies, equipment, personnel services and other services provided at their request. Reimbursable revenues are variable and subject to uncertainty as the amounts received and timing thereof are dependent on factors outside of our influence. Accordingly, these revenues are constrained and not recognized until the uncertainty is resolved, which typically occurs when the related costs are incurred on behalf of the customer. We are generally considered a principal in these transactions and record the associated revenues at the gross amounts billed to the customer.
The opening and closing balances of our receivables, contract assets and current and long-term contract liabilities are as follows:
Contract
Assets
Liabilities
Receivables
(Current)
(Long-term)
(In millions)
791.2
55.8
32.3
116.7
69.7
647.2
38.1
72.0
67.6
Approximately 64% of the contract liability balance at the beginning of the period is expected to be recognized as revenue during 2019, of which 55% was recognized during the nine months ended September 30, 2019, and 23% is expected to be recognized during 2020. The remaining 13% of the contract liability balance at the beginning of the period is expected to be recognized as revenue during 2021 or thereafter.
Additionally, 60% of the contract asset balance at the beginning of the period is expected to be recognized as expense during 2019, of which 50% was recognized during the nine months ended September 30, 2019, and 17% is expected to be recognized during 2020. The remaining 23% of the contract asset balance at the beginning of the period is expected to be recognized as expense during 2021 or thereafter. This disclosure does not include variable consideration allocated entirely to a wholly unsatisfied performance obligation or promise to transfer a distinct good or service that forms part of a single performance obligation.
27
Note 14 Leases
Prior to January 1, 2019, we accounted for leases under ASC 840 and did not record any right of use asset or corresponding lease liability. We adopted ASC 842 using a modified retrospective approach with an effective date of January 1, 2019. As such, financial information for prior periods has not been adjusted and continues to be reported under ASC 840. Effective with the adoption of ASC 842, we have changed our accounting policy for leases as detailed below.
We have evaluated the provisions of ASC 842, including certain practical expedients allowed. The significant practical expedients we adopted include the following:
As of the date of implementation on January 1, 2019, the impact of the adoption of ASC 842 resulted in the recognition of a right of use asset and lease payable obligation on our condensed consolidated balance sheet of approximately $42.8 million. As the right of use asset and the lease payable obligation were the same, there was no cumulative effect impact on retained earnings.
Our leases primarily consist of office space and equipment used globally within our operations. We determine whether a contract is or contains a lease at inception of the contract based on answers to a series of questions that address whether an identified asset exists and whether we have the right to obtain substantially all of the benefit of the assets and to control its use over the full term of the agreement. When available, we use the rate implicit in the lease to discount lease payments to present value; however, most of our leases do not provide a readily determinable implicit rate. Therefore, we must estimate our incremental borrowing rate using a credit notching approach to discount the lease payments based on information available at lease commencement. Certain of our lease agreements include options to extend and options to terminate the lease, which we do not include in our minimum lease terms unless management is reasonably certain to exercise. We do not separate lease and nonlease components of contracts. There are no material residual value guarantees nor any restrictions or covenants included in our lease agreements. Certain of our leases include provisions for variable payments. These variable payments are typically determined based on a measure of throughput or actual days or another measure of usage and are not included in the calculation of lease liabilities and right-of-use assets.
28
Lease Position
The table below presents the lease related assets and liabilities recorded on our condensed consolidated balance sheet:
Classification on the Balance Sheet
Operating lease assets
37,457
Total lease assets
Operating lease liabilities
Noncurrent liabilities:
23,887
Total lease liabilities
Lease Costs
The table below presents certain information related to the lease costs for our operating leases:
Operating lease cost
4,007
11,657
Short-term lease cost
741
1,893
Variable lease cost
217
464
Total lease cost
4,965
14,014
The table below presents supplemental cash flow information related to leases:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases
Right of use assets obtained in exchange for lease obligations:
Operating leases
4,661
Lease Terms and Discount Rates
The table below presents certain information related to the weighted average remaining lease terms and weighted average discount rates for our operating leases:
Weighted-average remaining lease term - operating leases
5.31
Weighted-average discount rate - operating leases
5.61%
29
Undiscounted Cash Flows
The table below reconciles the undiscounted cash flows for each of the first five years and the total remaining years to the operating lease liabilities recorded on the condensed consolidated balance sheet:
4,275
8,639
2022
5,435
2023
3,208
8,004
Total undiscounted lease liability
43,575
Less: amount of lease payments representing interest
(6,118)
Long-term lease obligations
As of September 30, 2019, we had additional leases that have not yet commenced of approximately $12.9 million. These leases will commence in the fourth quarter of 2019 with lease terms of 12 years.
The minimum rental commitments under non-cancelable operating leases under ASC 840 as disclosed in our 2018 Annual Report, with lease terms in excess of one year subsequent to December 31, 2018, were as follows:
10,701
7,104
3,774
2,356
1,538
7,482
Total minimum lease payments
32,955
Note 15 Condensed Consolidating Financial Information
Nabors has fully and unconditionally guaranteed on a joint and several basis all of the issued public debt securities of Nabors Delaware, a 100% wholly owned subsidiary. The following condensed consolidating financial information is included so that separate financial statements of Nabors Delaware are not required to be filed with the SEC. The condensed consolidating financial statements present investments in both consolidated and unconsolidated affiliates using the equity method of accounting.
The following condensed consolidating financial information presents condensed consolidating balance sheets as of September 30, 2019 and December 31, 2018, statements of income (loss) and statements of other comprehensive income (loss) for the three and nine months ended September 30, 2019 and 2018, and statements of cash flows for the nine months ended September 30, 2019 and 2018 of (a) Nabors, parent/guarantor, (b) Nabors Delaware, issuer of public debt securities guaranteed by Nabors, (c) the non-guarantor subsidiaries, (d) consolidating adjustments necessary to consolidate Nabors and its subsidiaries and (e) Nabors on a consolidated basis.
30
Condensed Consolidating Balance Sheets
Nabors
Subsidiaries
(Parent/
Delaware
(Non-
Consolidating
Guarantor)
(Issuer)
Guarantors)
Adjustments
349
39
396,549
172
153,551
521
1,379,788
Intercompany receivables
94,749
2,611
(97,360)
Investment in consolidated affiliates
2,167,547
5,787,607
4,269,318
(12,224,472)
423,318
(423,318)
132
304,382
(7,325)
2,262,817
6,211,096
11,552,059
(12,752,475)
190
244
364,224
8,374
18,558
252,249
8,564
18,802
654,938
3,523,917
29,331
255,057
452,427
Intercompany payable
2,548
46,109
48,703
11,112
3,618,159
1,411,125
(528,003)
Redeemable noncontrolling interest in subsidiary
Shareholders’ equity
2,592,937
9,631,535
9,720,717
31
474
42
447,250
50
433
177,121
524
475
1,592,564
95,946
218,129
(316,686)
2,658,827
5,494,886
4,079,269
(12,232,982)
388,089
(388,089)
277,689
(14,325)
2,755,297
6,101,721
11,949,008
(12,952,082)
392,697
28,815
62,830
326,267
28,947
62,844
740,286
3,600,209
245,154
394,400
25,500
291,186
54,447
3,692,384
1,671,026
(719,100)
2,409,337
9,823,645
9,873,121
32
Condensed Consolidating Statements of Income (Loss)
Three Months Ended September 30, 2019
Earnings (losses) from consolidated affiliates
(116,696)
96,069
55,565
(34,938)
(909)
(528)
812,732
(35,466)
475,458
163
61,870
(350)
221,526
Interest expense, net
51,691
(400)
300
714
3,641
350
Intercompany interest expense, net
38
(38)
2,232
52,602
777,690
43,467
35,042
Income tax expense (benefit)
(12,098)
36,001
(959)
(802)
(20,099)
33
Three Months Ended September 30, 2018
(112,066)
78,395
30,508
3,163
1,826
(3,168)
811,759
2,294
94
64,415
208,486
51,590
(175)
3,294
206
8,941
(10)
Intercompany interest expense
(11)
2,511
62,191
796,602
16,204
15,157
(14,304)
24,793
(9,636)
(23,569)
(30,503)
34
Nine Months Ended September 30, 2019
(432,995)
292,602
174,659
(34,266)
10,293
(1,584)
2,514,069
(35,850)
1,493,079
6,292
577
190,164
(874)
650,173
156,515
(1,381)
816
(4,017)
32,925
874
98
(98)
7,206
153,172
2,508,313
139,430
5,756
(35,229)
100,329
(94,573)
(94,607)
(138,809)
35
Nine Months Ended September 30, 2018
(448,485)
161,420
16,063
271,002
5,274
(9,317)
(448,483)
2,296,877
261,685
7,531
493
201,681
(498)
93
640,134
177,713
(4,320)
79,958
1,405
22,260
498
111
(111)
9,047
188,775
2,448,877
(27,355)
(152,000)
(43,418)
100,730
(252,730)
(267,322)
(277,748)
36
Condensed Consolidating Statements of Comprehensive Income (Loss)
Other comprehensive income (loss) before tax:
3,225
108
(162)
(284)
Other comprehensive income (loss) before tax
196
(2,975)
2,779
96
(144)
148
(3,071)
2,923
55,713
(23,170)
(32,543)
(3,877)
37
(5,309)
(286)
197
5,560
(5,757)
149
5,464
(5,613)
30,657
(25,039)
(5,618)
(18,047)
(12,315)
324
(486)
(848)
587
13,062
(13,649)
284
(426)
445
12,778
(13,223)
175,104
(126,031)
(49,073)
(81,774)
9,604
(850)
(17,999)
17,412
278
(417)
(18,277)
17,829
16,511
(296,025)
279,514
(285,700)
Condensed Consolidating Statements Cash Flows
69,861
(171,500)
593,391
(60,924)
Cash paid for acquisitions of businesses, net of cash acquired
Cash paid for investments in consolidated affiliates
(8,500)
8,500
Change in intercompany balances
264,238
(264,238)
Net cash provided by (used for) investing activities
(606,438)
Proceeds from parent contributions
(6)
Reduction of long-term debt
(45,297)
(570)
4,224
Proceeds from issuance of intercompany debt
4,700
(4,700)
Paydown of intercompany debt
(27,700)
(7,194)
34,894
Distributions to Non-controlling interest
Distribution from subsidiary to parent
(56,700)
56,700
Other changes
(69,986)
(92,935)
(31,262)
52,424
Net increase (decrease) in cash, cash equivalents and restricted cash
(125)
(48,730)
Cash, cash equivalents and restricted cash, beginning of period
450,564
Cash, cash equivalents and restricted cash, end of period
(155)
401,834
41
82,365
(203,493)
238,064
(40,017)
(587,500)
(199,000)
786,500
Proceeds from sale of assets and insurance claims
327,555
(327,555)
(776,571)
(70,658)
9,317
Proceeds from (payments for) commercial paper, net
Proceeds from (payments for) issuance of intercompany debt
20,000
(20,000)
(21,000)
21,000
199,000
587,500
(786,500)
(30,700)
30,700
504,813
(124,064)
553,115
(746,483)
(322)
(2)
9,288
1,091
44
340,894
769
350,182
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
We often discuss expectations regarding our future markets, demand for our products and services, and our performance in our annual, quarterly and current reports, press releases, and other written and oral statements. Statements relating to matters that are not historical facts are “forward-looking statements” within the meaning of the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These “forward-looking statements” are based on an analysis of currently available competitive, financial and economic data and our operating plans. They are inherently uncertain and investors should recognize that events and actual results could turn out to be significantly different from our expectations. By way of illustration, when used in this document, words such as “anticipate,” “believe,” “expect,” “plan,” “intend,” “estimate,” “project,” “will,” “should,” “could,” “may,” “predict” and similar expressions are intended to identify forward-looking statements.
You should consider the following key factors when evaluating these forward-looking statements:
Our business depends, to a large degree, on the level of spending by oil and gas companies for exploration, development and production activities. Therefore, a sustained increase or decrease in the price of oil or natural gas, that
has a material impact on exploration, development and production activities, could also materially affect our financial position, results of operations and cash flows.
The above description of risks and uncertainties is by no means all-inclusive, but highlights certain factors that we believe are important for your consideration. For a more detailed description of risk factors that may affect us or our industry, please refer to Item 1A. — Risk Factors in our 2018 Annual Report.
Management Overview
This section is intended to help you understand our results of operations and our financial condition. This information is provided as a supplement to, and should be read in conjunction with, our condensed consolidated financial statements and the accompanying notes thereto.
We own and operate one of the world’s largest land-based drilling rig fleets and provide offshore rigs in the United States and numerous international markets. 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 measurement-while-drilling systems and services.
Financial Results
Comparison of the three months ended September 30, 2019 and 2018
Operating revenues for the three months ended September 30, 2019 totaled $758.1 million, representing a decrease of $21.3 million, or 3%, compared to the three months ended September 30, 2018. We experienced an overall decline in rig activity as evidenced by an 8% decline in the average rigs working compared to the prior period, which was partially offset by improved dayrates within our U.S. Drilling operating segment. For a more detailed description of our operating results see Segment Results of Operations, below.
Net loss from continuing operations attributable to Nabors common shareholders totaled $123.4 million ($0.37 per diluted share) for the three months ended September 30, 2019 compared to a net loss from continuing operations attributable to Nabors common shareholders of $105.0 million ($0.31 per diluted share) for the three months ended September 30, 2018, or an $18.4 million increase in the net loss. Our net loss was adversely impacted by the $7.0 million decrease in our segments adjusted operating income as well as a $13.4 million increase in income tax expense primarily due to a tax settlement in one of our foreign jurisdictions.
General and administrative expenses for the three months ended September 30, 2019 totaled $63.6 million, representing a decrease of $3.2 million, or 5%, compared to the three months ended September 30, 2018. This is reflective of a reduction in workforce and general cost-reduction efforts across our operating segments and our corporate offices.
Research and engineering expenses for the three months ended September 30, 2019 totaled $12.0 million, representing a decrease of $2.5 million, or 17%, compared to the three months ended September 30, 2018. The decrease is primarily attributable to a reduction in staffing levels and other cost control efforts across many of our research and engineering projects and initiatives.
Depreciation and amortization expense for the three months ended September 30, 2019 was $221.6 million, representing an increase of $13.0 million, or 6%, compared to the three months ended September 30, 2018. The slight increase is primarily due to additional rigs and equipment in our U.S. Drilling operating segment as well as within our SANAD joint venture.
Segment Results of Operations
The following tables set forth certain information with respect to our reportable segments and rig activity:
Increase/(Decrease)
(In thousands, except percentages and rig activity)
33,812
%
Adjusted operating income (loss) (1)
9,849
382
Average rigs working (2)
114.1
111.6
2.5
(14,454)
(54)
(3,806)
(201)
7.7
17.9
(10.2)
(57)
(48,847)
(13)
(23,214)
(90)
87.7
96.0
(8.3)
(9)
1,363
6,639
70
(535)
3,500
85
Operating results increased during the three months ended September 30, 2019 compared to the corresponding 2018 period primarily due to an increase in dayrates as market prices continued to improve. Additionally, we experienced a slight increase in activity as reflected by a 2% increase in the average number of rigs working, which further contributed to the increase in operating results.
Operating results decreased during the three months ended September 30, 2019 compared to the corresponding 2018 period primarily due to a decline in activity as reflected by a 57% decrease in the average number of rigs working. This segment was adversely impacted by the industry-wide decline in rig count in Canada due to weak market conditions relative to the prior year period.
Operating results decreased during the three months ended September 30, 2019 compared to the corresponding 2018 period. Operating results for the period were unfavorably impacted by a reduction in pre-funded amortizing revenue and a decline in activity as reflected by a 9% decrease in the average number of rigs working, most notably in Latin America and as a result of the sale of our Argentina workover business.
45
Operating results increased during the three months ended September 30, 2019 compared to the corresponding 2018 period. We benefited from a slight increase in activity primarily within the U.S. as well as some international markets which was further supplemented by improved profitability within our wellbore placement and tubular running services lines due to cost optimization.
Operating results improved sharply by $3.5 million, or 85%, for the three months ended September 30, 2019 compared to the corresponding 2018 period, despite a marginal decline in operating revenue. The primary driver of the improvement in results was attributable to an overall reduction in workforce and general cost-reduction efforts.
Other Financial Information
Interest expense for the three months ended September 30, 2019 was $51.3 million, representing a marginal decrease of $0.1 million compared to the three months ended September 30, 2018 due to the repurchase of approximately $305.3 million aggregate principal of our 5.00% senior notes due September 2020 during the three months ended June 30, 2019. This decrease was mostly offset by an increase in the amount outstanding under our revolving credit facilities during the three months ended September 30, 2019 compared to the prior period.
During the three months ended September 30, 2019, we recognized impairments and other charges of $3.6 million resulting from severance and other related costs incurred to right-size our cost structure of approximately $2.9 million and a loss on debt buybacks of approximately $0.7 million.
Impairments and other charges for the three months ended September 30, 2018 was $13.8 million, primarily comprised of a $10.5 million loss on debt buybacks and transaction related costs of approximately $1.8 million, primarily in connection with the acquisition of Tesco. The balance of the impairment charge primarily related to obsolete inventory within our Rig Technologies reportable segment.
Other, net for the three months ended September 30, 2019 was $5.0 million of expense, mostly attributable to foreign currency exchange losses of $8.7 million, primarily due to the recent devaluation in Argentina. This was partially offset by a decrease in litigation reserves of $2.4 million and net gains on sales and disposals of assets of approximately $1.8 million.
Other, net for the three months ended September 30, 2018 was $9.1 million of expense, which included net losses on sales and disposals of assets of approximately $4.8 million, foreign currency exchange losses of $1.6 million and an increase in litigation reserves of $1.4 million.
Income tax rate
Our worldwide effective tax rate for the three months ended September 30, 2019 was (31.5%) compared to (12.6%) for the three months ended September 30, 2018. The change in effective tax rate was partially due to $14.7 million of expense due to a tax settlement in one of our foreign jurisdictions. For both periods, the impact of the geographic mix of our pre-tax earnings and the resultant tax expense (benefits), results in a negative tax rate due primarily to a higher mix of pre-tax earnings in certain high tax jurisdictions. Future changes in the mix or pre-tax earnings could materially change the effective income tax rate.
46
Comparison of the nine months ended September 30, 2019 and 2018
Operating revenues for the nine months ended September 30, 2019 totaled $2.3 billion, representing an increase of $53.6 million, or 2%, compared to the nine months ended September 30, 2018. The primary driver was an increase in both activity and pricing within our U.S. Drilling operating segment as a result of the improved market conditions. This was partially offset by a decline in our International Drilling and Canada Drilling operating segments. For a more detailed description of operating results see Segment Results of Operations, below.
Net loss from continuing operations attributable to Nabors common shareholders totaled $453.1 million ($1.33 per diluted share) for the nine months ended September 30, 2019 compared to a net loss from continuing operations attributable to Nabors common shareholders of $450.9 million ($1.39 per diluted share) for the nine months ended September 30, 2018, or a $2.2 million increase in the net loss. Although we experienced a $31.1 million increase in our segment adjusted operating income, this was virtually offset by an increase in net income attributable to noncontrolling interest as well as an increase in our preferred stock dividend compared to the prior period.
General and administrative expenses for the nine months ended September 30, 2019 totaled $196.2 million, representing a decrease of $13.0 million or 6%, compared to the nine months ended September 30, 2018. This is reflective of a reduction in workforce and general cost-reduction efforts across our operating segments and our corporate offices.
Research and engineering expenses for the nine months ended September 30, 2019 totaled $37.4 million, representing a decrease of $5.3 million, or 12%, compared to the nine months ended September 30, 2018. The decrease is primarily attributable to a reduction in staffing levels and other cost control efforts across many of our research and engineering projects and initiatives.
Depreciation and amortization expense for the nine months ended September 30, 2019 was $650.3 million, representing an increase of $10.0 million, or 2%, compared to the nine months ended September 30, 2018.
172,026
87,777
290
119.0
111.8
7.2
(27,079)
(36)
(4,202)
(59)
10.4
16.4
(6.0)
(37)
(131,517)
(12)
(84,757)
(113)
88.7
94.6
(5.9)
8,861
17,020
66
(2,021)
15,257
74
47
Operating results increased during the nine months ended September 30, 2019 compared to the corresponding 2018 period primarily due to an increase in dayrates as market prices have continued to improve. Additionally, we experienced an increase in activity as reflected by a 6% increase in the average number of rigs working which further contributed to the improved operating results.
Operating results decreased during the nine months ended September 30, 2019 compared to the corresponding 2018 period. This segment was adversely impacted by the industry-wide decline in rig count in Canada due to weak market conditions relative to the prior year period as reflected by the 37% decline in average rigs working.
Operating results decreased during the nine months ended September 30, 2019 compared to the corresponding 2018 period. Operating results for the period were unfavorably impacted by a reduction in pre-funded amortizing revenue as well as a decline in activity as reflected by a 6% decrease in the average number of rigs working. The decreased activity was primarily attributed to the sale of three jackup rigs in the Middle East as well as our Argentina workover business.
Operating results increased during the nine months ended September 30, 2019 compared to the corresponding 2018 period. The increase in operating income was primarily driven by the growth in our performance tools offering as well as improved profitability from our wellbore placement and tubular running services offerings due to effective cost reduction efforts across this business.
While operating revenues remained relatively flat during the nine months ended September 30, 2019 compared to the corresponding 2018 period, operating results were positively impacted by various cost reduction initiatives.
Interest expense for the nine months ended September 30, 2019 was $155.1 million, representing a decrease of $18.3 million, or 11%, compared to the nine months ended September 30, 2018. The decrease was primarily due to the repayment of approximately $303.5 million aggregate principal of our 9.25% senior notes due January 2019 during 2018 utilizing the proceeds from our equity offering completed in May 2018. This decrease was further supplemented by the repurchase of approximately $305.3 million aggregate principal of our 5.00% senior notes due September 2020 during the nine months ended September 30, 2019.
During the nine months ended September 30, 2019, we recognized impairments and other charges of $106.0 million, primarily resulting from goodwill impairment charges of $93.6 million. Additionally, we recognized a partial impairment of $5.2 million to write down our intangible asset within our Rig Technologies operating segment to its fair value. 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, which could in turn result in future goodwill and other intangible asset impairment charges for these reporting units due to the potential impact on our estimate of our future operating results. The balance of the impairments and other charges represents $5.4 million in severance and other related costs incurred to right-size our cost structure and a loss of $1.8 million related to the repurchase of our senior notes.
Impairments and other charges for the nine months ended September 30, 2018 was $90.4 million, primarily comprised of a $63.7 million loss on the sale of three jackup rigs, transaction related costs of approximately $12.5 million, primarily in connection with the acquisition of Tesco and a $10.5 million loss on debt buybacks. The balance of the impairment charge related to obsolete inventory within our Rig Technologies reportable segment.
Other, net for the nine months ended September 30, 2019 was $30.6 million of expense, which included foreign currency exchange losses of $18.7 million, net losses on sales and disposals of assets of approximately $8.4 million and an increase in litigation reserves of $4.2 million.
Other, net for the nine months ended September 30, 2018 was $24.2 million of expense, which included net losses on sales and disposals of assets of approximately $10.6 million, an increase in litigation reserves of $9.7 million and foreign currency exchange losses of $7.9 million.
Our worldwide effective tax rate for the nine months ended September 30, 2019 was (19.7%) compared to (15.3%) for the nine months ended September 30, 2018. The change in effective tax rate was partially due to a $31.1 million tax benefit from the release of a valuation allowance. This was partially offset by a $14.7 million settlement of a tax dispute in one of our foreign jurisdictions. For both periods, the impact of the geographic mix of our pre-tax earnings and the resultant tax expense (benefits), results in a negative tax rate due primarily to a higher mix of pre-tax earnings in certain high tax jurisdictions. Future changes in the mix or pre-tax earnings could materially change the effective income tax rate.
Liquidity and Capital Resources
Financial Condition and Sources of Liquidity
Our primary sources of liquidity are cash and investments, availability under our revolving credit facilities and cash provided by operating activities. As of September 30, 2019, we had cash and short-term investments of $418.9 million and working capital of $698.0 million. As of December 31, 2018, we had cash and short-term investments of $481.8 million and working capital of $761.5 million. At September 30, 2019, we had $455.0 million of borrowings outstanding under our revolving credit facilities.
We had 18 letter-of-credit facilities with various banks as of September 30, 2019. Availability under these facilities as of September 30, 2019 was as follows:
Credit available
930,959
Less: Letters of credit outstanding, inclusive of financial and performance guarantees
140,309
Remaining availability
790,650
Our interest coverage ratio was 3.8:1 as of September 30, 2019 and 3.3:1 as of December 31, 2018. The interest coverage ratio is a trailing 12-month quotient of the sum of operating revenues, direct costs, general administrative
49
expenses and research and engineering expenses divided by interest expense. The interest coverage ratio is not a measure of operating performance or liquidity defined by U.S. GAAP and may not be comparable to similarly titled measures presented by other companies.
Our ability to access capital markets or to otherwise obtain sufficient financing may be affected by our senior unsecured debt ratings as provided by the major credit rating agencies in the United States and our historical ability to access these markets as needed. While there can be no assurances that we will be able to access these markets in the future, we believe that we will be able to access capital markets or otherwise obtain financing in order to satisfy any payment obligation that might arise upon maturity, exchange or purchase of our notes and our debt facilities, loss of availability of our revolving credit facilities and our A/R Agreement, and that any cash payment due, in addition to our other cash obligations, would not ultimately have a material adverse impact on our liquidity or financial position. The major U.S. credit rating agencies have previously downgraded our senior unsecured debt rating to non-investment grade. These and any further ratings downgrades could adversely impact our ability to access debt markets in the future, increase the cost of future debt, and potentially require us to post letters of credit for certain obligations.
Availability under both the 2012 Revolving Credit Facility and the 2018 Revolving Credit Facility is subject to a covenant not to exceed a net debt to capital ratio of 0.60:1. For purposes of the revolving credit facilities, net debt is defined as total debt minus the sum of cash and cash equivalents. In addition, availability under the new 2018 Revolving Credit Facility is subject to a covenant that during any period in which Nabors Delaware fails to maintain an investment grade rating from at least two ratings agencies, the guarantors under the facility and their subsidiaries will be required to maintain an asset to debt coverage ratio of at least 2.50:1. In light of our credit ratings as of September 30, 2019, we are required to comply with this covenant. As of September 30, 2019, our asset to debt coverage ratio was 3.57:1. The asset to debt coverage ratio is calculated by dividing (x) drilling-related fixed assets wholly owned by the 2018 Revolver Guarantors or wholly owned subsidiaries of the 2018 Revolver Guarantors by (y) total debt of the 2018 Revolver Guarantors (subject to certain exclusions).
We expect to remain in compliance with all covenants under the revolving credit facilities during the twelve month period following the date of this report based on our current operational and financial projections. However, we can make no assurance of continued compliance if our current projections or material underlying assumptions prove to be incorrect. If we fail to comply with the covenants, the revolving credit commitment could be terminated, and any outstanding borrowings under the facility could be declared immediately due and payable. We can limit or control our spending through reductions in discretionary capital or other types of controllable expenditures, monetization of assets, accessing capital markets through a variety of alternative methods, or any combination of these alternatives if needed. We cannot make any assurances as to our ability to implement any or all of these alternatives.
Accounts Receivable Sales Agreement
On September 13, 2019, certain U.S. subsidiaries of the Company entered into a $250 million A/R Agreement consisting of (i) a Receivables Purchase Agreement (the “Purchase Agreement”) entered into among Nabors A.R.F., LLC (the “SPE”), a special purpose entity that is an indirect wholly owned subsidiary of Nabors, as seller, Nabors Delaware, the purchasers party thereto (the “Purchasers”), and Wells Fargo Bank, N.A., as Administrative Agent, and (ii) a Receivables Sale Agreement (the “Sale Agreement”) among certain U.S. operating subsidiaries of the Company (collectively, the “Originators”), the SPE and Nabors Delaware. Under the Sale Agreement, each of the Originators has sold or contributed, and will on an ongoing basis continue to sell or contribute to the SPE, in exchange for cash and subordinated notes, all of such Originator’s right, title and interest in and to its trade receivables. Under the Purchase Agreement, the SPE may from time to time sell undivided interests in certain of its receivables meeting eligibility requirements to the Purchasers in exchange for cash, and the SPE has granted a security interest to the Administrative Agent on behalf of the Purchasers in all of its assets, including all of its right, title and interest in and to all of the receivables from time to time owned by the SPE. The sales of receivables by SPE to the Purchasers qualify for sale accounting treatment in accordance with ASC 860. During the term of the A/R Agreement, cash receipts from the Purchasers at the time of any sale of receivables are classified as operating activities while cash receipts on receivables sold by the Originators to the SPE are classified as investing activities on the condensed consolidated statement of cash flows. Subsequent collections on the pledged receivables, which were not sold by the SPE to the Purchasers, will be classified as operating cash flows on the condensed consolidated statement of cash flows at the time of collection.
Nabors Delaware and/or another subsidiary of Nabors will act as servicers of the sold receivables. The servicers administer, collect and otherwise enforce these receivables and are compensated for doing so on terms that are generally consistent with what would be charged by an unrelated servicer. The servicers initially receive payments made by obligors on the receivables, but are required to remit those payments in accordance with the Purchase Agreement. The servicers and the Originators have contingent indemnification obligations to the SPE, and the SPE has contingent indemnification obligations to the Purchasers, in each case customary for transactions of this type. These contingent indemnification obligations are guaranteed by the Company pursuant to an Indemnification Guarantee in favor of the Purchasers. The Purchasers have no recourse for receivables that are uncollectible as a result of the insolvency or inability to pay of the account debtors.
The amount available for purchase under the A/R Agreement fluctuates over time based on the total amount of eligible receivables generated during the normal course of business after excluding excess concentrations and certain other ineligible receivables. The maximum purchase commitment of the Purchasers under the A/R Agreement is approximately $250.0 million and the amount of receivables purchased by the Purchasers as of September 30, 2019 was $98.0 million. As of September 30, 2019, the total amount of eligible receivables available for purchase by the Purchasers was $213.6 million.
The Originators, Nabors Delaware, the SPE, and the Company provide representations, warranties, covenants and indemnities under the A/R Agreement and the Indemnification Guarantee. See further details at Note 5 — Accounts Receivable Sales Agreement.
Future Cash Requirements
Our current cash and investments, projected cash flows from operations, proceeds from equity or debt issuances and our revolving credit facilities are expected to adequately finance our purchase commitments, capital expenditures, acquisitions, scheduled debt service requirements, and all other expected cash requirements for the next 12 months.
We expect capital expenditures over the next 12 months to be approximately $200 million. Purchase commitments outstanding at September 30, 2019 totaled approximately $191.4 million, primarily for capital expenditures, other operating expenses and purchases of inventory. We can reduce planned expenditures if necessary or increase them if market conditions and new business opportunities warrant it. The level of our outstanding purchase commitments and our expected level of capital expenditures over the next 12 months represent a number of capital programs that are currently underway or planned.
We have historically completed a number of acquisitions and will continue to evaluate opportunities to acquire assets or businesses to enhance our operations. Several of our previous acquisitions were funded using existing cash or debt or by issuing our common shares, such as our acquisition of Tesco in December 2017. Future acquisitions may be
51
funded using existing cash or by issuing debt or additional shares of the Company. Such capital expenditures and acquisitions will depend on our view of market conditions and other factors.
See our discussion of guarantees issued by Nabors that could have a potential impact on our financial position, results of operations or cash flows in future periods included below under “Off-Balance Sheet Arrangements (Including Guarantees).”
There have been no material changes to the contractual cash obligations table that was included in our 2018 Annual Report.
On August 25, 2015, our Board of Directors authorized a share repurchase program (the “program”) under which we may repurchase, from time to time, up to $400.0 million of our common shares by various means, including in the open market or in privately negotiated transactions. Authorization for the program, which was renewed in February 2019, does not have an expiration date and does not obligate us to repurchase any of our common shares. Since establishing the program, we have repurchased 14.0 million of our common shares for an aggregate purchase price of approximately $119.4 million under this program. The repurchased shares, which are held by our subsidiaries, are registered and tradable subject to applicable securities law limitations and have the same voting and other rights as other outstanding shares. As of September 30, 2019, the remaining amount authorized under the program that may be used to purchase shares was $280.6 million. As of September 30, 2019, our subsidiaries held 52.8 million of our common shares.
On May 23, 2019, our Board of Directors authorized a share repurchase program under which we may repurchase, from time to time, up to $10.0 million of our mandatory convertible preferred shares by various means, including in the open market or in privately negotiated transactions. This authorization does not have an expiration date and does not obligate us to repurchase any of our mandatory convertible preferred shares. Through September 30, 2019, we repurchased and canceled 4,000 mandatory convertible preferred shares for an aggregate purchase price of approximately $.08 million.
We may from time to time seek to retire or purchase our outstanding debt through cash purchases and/or exchanges for equity securities, both in open-market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors and may involve material amounts.
Cash Flows
Our cash flows depend, to a large degree, on the level of spending by oil and gas companies for exploration, development and production activities. Sustained decreases in the price of oil or natural gas could have a material impact on these activities, and could also materially affect our cash flows. Certain sources and uses of cash, such as the level of discretionary capital expenditures or acquisitions, purchases and sales of investments, dividends, loans, issuances and repurchases of debt and of our common shares are within our control and are adjusted as necessary based on market conditions. We discuss our cash flows for the nine months ended September 30, 2019 and 2018 below.
Operating Activities. Net cash provided by operating activities totaled $430.8 million during the nine months ended September 30, 2019, compared to net cash provided of $76.9 million during the corresponding 2018 period. Operating cash flows are our primary source of capital and liquidity. The increase in cash flows from operations is primarily attributable to increases in activity and margins in our U.S. Drilling operating segment. Additionally, changes in working capital items such as collection of receivables, other deferred revenue arrangements and payments of operating payables and interest payments are significant factors affecting operating cash flows. Changes in working capital items provided $37.3 million and used $300.7 million in cash during the nine months ended September 30, 2019 and 2018, respectively.
Investing Activities. Net cash used for investing activities totaled $333.7 million during the nine months ended September 30, 2019 compared to net cash used of $250.0 million during the corresponding 2018 period. Our primary use of cash for investing activities is capital expenditures for rig-related enhancements, new construction and equipment, as well as sustaining capital expenditures. During the nine months ended September 30, 2019 and 2018, we used cash for capital expenditures totaling $366.6 million and $339.0 million, respectively.
52
Financing Activities. Net cash used for financing activities totaled $141.8 million during the nine months ended September 30, 2019 compared to net cash provided of $187.4 million during the corresponding 2018 period. During the nine months ended September 30, 2019, we received net proceeds of $285.0 million in amounts borrowed under our revolving credit facilities, partially offset by a $379.2 million repayment on our senior notes. Additionally, we paid dividends totaling $41.6 million to our common and preferred shareholders.
Other Matters
Recent Accounting Pronouncements
See Note 2 — Summary of Significant Accounting Policies.
We are a party to transactions, agreements or other contractual arrangements defined as “off-balance sheet arrangements” that could have a material future effect on our financial position, results of operations, liquidity and capital resources. The most significant of these off-balance sheet arrangements include the A/R Agreement (see —Accounts Receivable Sales Agreement, above) and certain agreements and obligations under which we provide financial or performance assurance to third parties. Certain of these financial or performance assurances serve as guarantees, including standby letters of credit issued on behalf of insurance carriers in conjunction with our workers’ compensation insurance program and other financial surety instruments such as bonds. In addition, we have provided indemnifications, which serve as guarantees, to some third parties. These guarantees include indemnification provided by us to our share transfer agent and our insurance carriers. We are not able to estimate the potential future maximum payments that might be due under our indemnification guarantees. Management believes the likelihood that we would be required to perform or otherwise incur any material losses associated with any of these guarantees is remote.
The following table summarizes the total maximum amount of financial guarantees issued by Nabors:
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We may be exposed to market risks arising from the use of financial instruments in the ordinary course of business as discussed in our 2018 Annual Report. There were no material changes in our exposure to market risk during the nine months ended September 30, 2019 from those disclosed in our 2018 Annual Report.
ITEM 4. CONTROLS AND PROCEDURES
We maintain a set of disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) designed to provide reasonable assurance that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure. We have investments in certain unconsolidated entities that we do not control or manage. Because we do not control or manage these entities, our disclosure controls and procedures with respect to these entities are necessarily more limited than those we maintain with respect to our consolidated subsidiaries.
The Company’s management, with the participation of the Chief Executive Officer and the Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.
There were no changes in our internal control over financial reporting during the quarter ended September 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 1. LEGAL PROCEEDINGS
Nabors and its subsidiaries are defendants or otherwise involved in a number of lawsuits in the ordinary course of business. We estimate the range of our liability related to pending litigation when we believe the amount and range of loss can be estimated. We record our best estimate of a loss when the loss is considered probable. When a liability is probable and there is a range of estimated loss with no best estimate in the range, we record the minimum estimated liability related to the lawsuits or claims. As additional information becomes available, we assess the potential liability related to our pending litigation and claims and revise our estimates. Due to uncertainties related to the resolution of lawsuits and claims, the ultimate outcome may differ from our estimates. For matters where an unfavorable outcome is reasonably possible and significant, we disclose the nature of the matter and a range of potential exposure, unless an estimate cannot be made at the time of disclosure. In the opinion of management and based on liability accruals provided, our ultimate exposure with respect to these pending lawsuits and claims is not expected to have a material adverse effect on our condensed consolidated financial position or cash flows, although they could have a material adverse effect on our results of operations for a particular reporting period. See Note 8 — Commitments and Contingencies — Litigation for a description of such proceedings.
ITEM 1A. RISK FACTORS
In addition to the information set forth elsewhere in this report, the risk factors set forth in Part 1, Item 1A, of our 2018 Annual Report, should be carefully considered when evaluating us. These risks are not the only risks we face. Additional risks not presently known to us or that we currently deem immaterial may also impair our business.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
We withheld the following shares of our common stock to satisfy tax withholding obligations in connection with grants of stock awards during the three months ended September 30, 2019 from the distributions described below. These shares may be deemed to be “issuer purchases” of shares that are required to be disclosed pursuant to this Item, but were not purchased as part of a publicly announced program to purchase common shares:
Approximated
Total Number
Dollar Value of
of Shares
Shares that May
Average
Purchased as
Yet Be
Number of
Price
Part of Publicly
Purchased
Period
Paid per
Announced
Under the
Repurchased
Share (1)
Program
Program (2)
July 1 - July 31
2.24
280,645
August 1 - August 31
<1
2.96
September 1 - September 30
1.68
9,921
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS
Exhibit No.
Description
10.1
Receivables Purchase Agreement dated as of September 13, 2019, by and among Nabors A.R.F., LLC, certain operating subsidiaries of Nabors Industries Ltd., and Nabors Industries, Inc., (incorporated by reference to Exhibit 10.1 to our Form 8-K (File No. 001-32657) filed with the SEC on September 18, 2019).
10.2
Receivables Sale Agreement dated as of September 13, 2019, by and among Nabors A.R.F., LLC, , Nabors Industries, Inc., the purchasers party thereto, and Wells Fargo Bank, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.2 to our Form 8-K (File No. 001-32657) filed with the SEC on September 18, 2019).
10.3
Indemnification Agreement, dated as of September 13, 2019, between Nabors Industries Ltd. and Wells Fargo Bank, N.A. (incorporated by reference to Exhibit 10.3 to our Form 8-K (File No. 001-32657) filed with the SEC on September 18, 2019)
Amendment No. 1 to Credit Agreement, dated as of October 11, 2018, among Nabors Industries, Inc., as US Borrower, Nabors Drilling Canada Limited, as Canadian Borrower, Nabors Industries Ltd., as Holdings, the other Guarantors from time to time party thereto, HSBC Bank Canada, as Canadian Lender, the Issuing Banks and other Lenders party thereto and Citibank, N.A., as Administrative Agent solely for the US Lenders and not for the Canadian Lender.*
10.5
Amendment No. 1 to Nabors Industries, Inc. Executive Deferred Compensation Plan.*
10.6
Amendment No. 1 to Nabors Industries, Inc. Deferred Compensation Plan.*
10.7
Amendment No. 2 to Nabors Industries, Inc., Deferred Compensation Plan.*
31.1
Rule 13a-14(a)/15d-14(a) Certification of Anthony G. Petrello, Chairman, President and Chief Executive Officer*
31.2
Rule 13a-14(a)/15d-14(a) Certification of William Restrepo, Chief Financial Officer*
32.1
Certifications required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350), executed by Anthony G. Petrello, Chairman, President and Chief Executive Officer and William Restrepo, Chief Financial Officer.*
101.INS
Inline XBRL Instance Document*
101.SCH
Inline XBRL Schema Document*
101.CAL
Inline XBRL Calculation Linkbase Document*
101.LAB
Inline XBRL Label Linkbase Document*
101.PRE
Inline XBRL Presentation Linkbase Document*
101.DEF
Inline XBRL Definition Linkbase Document*
104
Cover Page Interactive Data File (the cover page XBRL tags are embedded in the Inline XBRL document)
*Filed herewith.
56
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
By:
/s/ ANTHONY G. PETRELLO
Anthony G. Petrello
Chairman, President and
Chief Executive Officer
(Principal Executive Officer)
/s/ WILLIAM RESTREPO
William Restrepo
Chief Financial Officer
(Principal Financial Officer and Accounting Officer)
Date:
November 1, 2019