XNYS:NBR Nabors Industries Ltd Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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Table of Contents

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2012

Commission File Number: 001-32657

NABORS INDUSTRIES LTD.

 

Incorporated in Bermuda   98-0363970

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

Crown House

Second Floor

4 Par-la-Ville Road

Hamilton, HM08

Bermuda

(441) 292-1510

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  þ        NO  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    YES  þ        NO  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer  þ           Accelerated Filer  ¨        Non-accelerated Filer  ¨           Smaller Reporting Company  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  ¨        NO  þ

The number of common shares, par value $.001 per share, outstanding as of April 30, 2012 was 290,307,495.

 

 

 


Table of Contents

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

Index

 

PART I FINANCIAL INFORMATION   
Item 1.  

Financial Statements

  
 

Consolidated Balance Sheets as of March 31, 2012 and December 31, 2011

     3   
  Consolidated Statements of Income (Loss) for the Three Months Ended March 31, 2012 and 2011      4   
 

Consolidated Statements of Other Comprehensive Income for the Three Months Ended

March 31, 2012 and 2011

     5   
 

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2012

and 2011

     6   
 

Consolidated Statements of Changes in Equity for the Three Months Ended March 31, 2012

and 2011

     7   
 

Notes to Consolidated Financial Statements

     9   
 

Report of Independent Registered Public Accounting Firm

     34   
Item 2.  

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

     35   
Item 3.  

Quantitative and Qualitative Disclosures About Market Risk

     47   
Item 4.  

Controls and Procedures

     47   
PART II OTHER INFORMATION   
Item 1.  

Legal Proceedings

     48   
Item 1A.  

Risk Factors

     48   
Item 2.  

Unregistered Sales of Equity Securities and Use of Proceeds

     49   
Item 3.  

Defaults Upon Senior Securities

     49   
Item 4.  

Mine Safety Disclosures

     49   
Item 5.  

Other Information

     49   
Item 6.  

Exhibits

     50   
Signatures      51   

 

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NABORS INDUSTRIES LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

(In thousands, except per share amounts)   March 31,
2012
    December 31,
2011
 
    (Unaudited)        
ASSETS    

Current assets:

   

Cash and cash equivalents

  $ 354,022      $ 398,575   

Short-term investments

    139,950        140,914   

Assets held for sale

    433,446        401,500   

Accounts receivable, net

    1,717,375        1,576,555   

Inventory

    265,787        272,852   

Deferred income taxes

    45,038        127,874   

Other current assets

    173,606        170,044   
 

 

 

   

 

 

 

Total current assets

    3,129,224        3,088,314   

Long-term investments and other receivables

    6,373        11,124   

Property, plant and equipment, net

    8,814,081        8,629,946   

Goodwill

    501,536        501,258   

Investment in unconsolidated affiliates

    303,103        371,021   

Other long-term assets

    393,877        310,477   
 

 

 

   

 

 

 

Total assets

  $ 13,148,194      $ 12,912,140   
 

 

 

   

 

 

 
LIABILITIES AND EQUITY    

Current liabilities:

   

Current portion of long-term debt

  $ 275,616      $ 275,326   

Trade accounts payable

    687,576        782,753   

Accrued liabilities

    586,911        716,773   

Income taxes payable

    30,938        27,710   
 

 

 

   

 

 

 

Total current liabilities

    1,581,041        1,802,562   

Long-term debt

    4,497,725        4,348,490   

Other long-term liabilities

    322,003        292,758   

Deferred income taxes

    855,057        797,925   
 

 

 

   

 

 

 

Total liabilities

    7,255,826        7,241,735   
 

 

 

   

 

 

 

Commitments and contingencies (Note 11)

   

Subsidiary preferred stock

    69,188        69,188   

Equity:

   

Shareholders’ equity:

   

Common shares, par value $.001 per share:

   

Authorized common shares 800,000; issued 318,731 and 317,042, respectively

    318        317   

Capital in excess of par value

    2,322,315        2,287,743   

Accumulated other comprehensive income

    342,463        321,264   

Retained earnings

    4,090,454        3,956,364   

Less: treasury shares, at cost, 28,414 and 29,414 common shares, respectively

    (944,627     (977,873
 

 

 

   

 

 

 

Total shareholders’ equity

    5,810,923        5,587,815   

Noncontrolling interest

    12,257        13,402   
 

 

 

   

 

 

 

Total equity

    5,823,180        5,601,217   
 

 

 

   

 

 

 

Total liabilities and equity

  $ 13,148,194      $ 12,912,140   
 

 

 

   

 

 

 

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

 

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NABORS INDUSTRIES LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(Unaudited)

 

      Three Months Ended March 31,  
(In thousands, except per share amounts)            2012                     2011          

Revenues and other income:

    

Operating revenues

   $ 1,890,426      $ 1,373,568   

Earnings (losses) from unconsolidated affiliates

     (68,669     16,274   

Investment income (loss)

     20,252        12,280   
  

 

 

   

 

 

 

Total revenues and other income

     1,842,009        1,402,122   
  

 

 

   

 

 

 

Costs and other deductions:

    

Direct costs

     1,184,816        841,108   

General and administrative expenses

     136,346        115,951   

Depreciation and amortization

     247,621        225,210   

Interest expense

     62,654        73,966   

Losses (gains) on sales and retirements of long-lived assets and other expense (income), net

     (1,840     6,159   
  

 

 

   

 

 

 

Total costs and other deductions

     1,629,597        1,262,394   
  

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes

     212,412        139,728   
  

 

 

   

 

 

 

Income tax expense (benefit):

    

Current

     26,006        19,689   

Deferred

     43,038        24,737   
  

 

 

   

 

 

 

Total income tax expense (benefit)

     69,044        44,426   

Subsidiary preferred stock dividend

     750        750   
  

 

 

   

 

 

 

Income (loss) from continuing operations, net of tax

     142,618        94,552   

Income (loss) from discontinued operations, net of tax

     (8,795     (12,396
  

 

 

   

 

 

 

Net income (loss)

     133,823        82,156   

Less: Net (income) loss attributable to noncontrolling interest

     267        669   
  

 

 

   

 

 

 

Net income (loss) attributable to Nabors

   $ 134,090      $ 82,825   
  

 

 

   

 

 

 

Earnings (losses) per share:

    

Basic from continuing operations

   $ .50      $ .33   

Basic from discontinued operations

     (.04     (.04
  

 

 

   

 

 

 

Total Basic

   $ .46      $ .29   
  

 

 

   

 

 

 

Diluted from continuing operations

   $ .49      $ .33   

Diluted from discontinued operations

     (.03     (.05
  

 

 

   

 

 

 

Total Diluted

   $ .46      $ .28   
  

 

 

   

 

 

 

Weighted-average number of common shares outstanding:

    

Basic

     288,538        286,114   

Diluted

     291,709        292,689   

 

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

 

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NABORS INDUSTRIES LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME

(Unaudited)

 

     Three Months Ended March 31,  
(In thousands, except per share amounts)            2012                     2011          

Net income (loss) attributable to Nabors

   $ 134,090      $ 82,825   

Other comprehensive income, before tax:

    

Translation adjustment attributable to Nabors

     17,266        31,439   

Unrealized gains/(losses) on marketable securities:

    

Unrealized gains/(losses) on marketable securities

     12,223        6,308   

Less: reclassification adjustment for (gains)/losses included in net income (loss)

     (12,465     (3
  

 

 

   

 

 

 

Unrealized gains (losses) on marketable securities

     (242     6,305   

Defined benefit pension plans:

    

Pension liability amortization

     260        151   

Pension liability adjustment

              
  

 

 

   

 

 

 

Defined benefit pension plans

     260        151   

Unrealized gains/(losses) and amortization of (gains)/losses on cash flow hedges

     191        191   
  

 

 

   

 

 

 

Other comprehensive income, before tax

     17,475        38,086   

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

     (3,724     182   
  

 

 

   

 

 

 

Other comprehensive income, net of tax

     21,199        37,904   
  

 

 

   

 

 

 

Comprehensive income

     155,289        120,729   

Net income (loss) attributable to noncontrolling interest

     (267     (669

Translation adjustment attributable to noncontrolling interest

     243        357   
  

 

 

   

 

 

 

Comprehensive income attributable to noncontrolling interest

     (24     (312
  

 

 

   

 

 

 

Comprehensive income attributable to Nabors

   $ 155,265      $ 120,417   
  

 

 

   

 

 

 

 

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

 

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NABORS INDUSTRIES LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

     Three Months Ended March 31,  
(In thousands)            2012                     2011          

Cash flows from operating activities:

    

Net income (loss) attributable to Nabors

   $ 134,090      $ 82,825   

Adjustments to net income (loss):

    

Depreciation and amortization

     247,745        226,071   

Depletion and other exploratory expenses

            16,265   

Deferred income tax expense (benefit)

     38,802        20,925   

Deferred financing costs amortization

     1,091        1,586   

Pension liability amortization and adjustments

     259        150   

Discount amortization on long-term debt

     496        17,515   

Amortization of loss on hedges

     232        231   

Losses (gains) on long-lived assets, net

     3,368        1,084   

Losses (gains) on investments, net

     (19,323     (11,082

Losses (gains) on debt retirement, net

            58   

Losses (gains) on derivative instruments

     90        83   

Share-based compensation

     4,454        3,945   

Foreign currency transaction losses (gains), net

     (435     (409

Equity in (earnings) losses of unconsolidated affiliates, net of dividends

     68,668        (13,776

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

    

Accounts receivable

     (137,696     (121,572

Inventory

     7,883        (35,220

Other current assets

     (7,191     4,554   

Other long-term assets

     7,620        47,665   

Trade accounts payable and accrued liabilities

     (119,195     44,075   

Income taxes payable

     7,390        1,096   

Other long-term liabilities

     5,835        4,855   
  

 

 

   

 

 

 

Net cash provided by operating activities

     244,183        290,924   
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchases of investments

     (791     (5,870

Sales and maturities of investments

     23,478        3,529   

Investment in unconsolidated affiliates

            (19,000

Capital expenditures

     (473,687     (358,574

Proceeds from sales of assets and insurance claims

     21,321        5,491   
  

 

 

   

 

 

 

Net cash used for investing activities

     (429,679     (374,424
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Increase (decrease) in cash overdrafts

     (2,269     7,565   

Proceeds from revolving credit facilities

     150,000          

Proceeds from issuance of common shares

     (5,320     9,424   

Reduction in long-term debt

     (1,072     (5,560

Repurchase of equity component of convertible debt

            (14

Purchase of restricted stock

     (1,769     (2,340

Tax benefit related to share-based awards

     (31     (1
  

 

 

   

 

 

 

Net cash provided by financing activities

     139,539        9,074   

Effect of exchange rate changes on cash and cash equivalents

     1,404        2,460   
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     (44,553     (71,966

Cash and cash equivalents, beginning of period

     398,575        641,702   
  

 

 

   

 

 

 
    

Cash and cash equivalents, end of period

   $ 354,022      $ 569,736   
  

 

 

   

 

 

 

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

 

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NABORS INDUSTRIES LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)

 

    Common Shares     Capital in
Excess of
Par Value
    Accumulated
Other
Comprehensive
Income
    Retained
Earnings
    Treasury
Shares
    Non-
controlling
Interest
    Total Equity  
(In thousands)   Shares     Par Value              

Balances, December 31, 2011

    317,042      $ 317      $ 2,287,743      $ 321,264      $ 3,956,364      $ (977,873   $ 13,402      $ 5,601,217   

Net income (loss)

            134,090          (267     133,823   

Comprehensive income, net of tax

          21,199            (243     21,442   

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

    972          (5,320             (5,320

Capital contribution from forgiveness of liability, net of tax

        62,734                62,734   

Issuance of treasury shares, net of tax benefit

        (25,496         33,246          7,750   

Other

    717        1        (1,800           (1,121     (2,920

Share-based compensation

        4,454                4,454   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances, March 31, 2012

    318,731      $ 318      $ 2,322,315      $ 342,463      $ 4,090,454      $ (944,627   $ 12,257      $ 5,823,180   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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

 

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NABORS INDUSTRIES LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)

 

    Common Shares     Capital in
Excess of
Par Value
    Accumulated
Other
Comprehensive
Income
    Retained
Earnings
    Treasury
Shares
    Non-
controlling
Interest
    Total Equity  
(In thousands)   Shares     Par Value              

Balances, December 31, 2010

    315,034      $ 315      $ 2,255,787      $ 342,052      $ 3,707,881      $ (977,873   $ 14,701      $ 5,342,863   

Net income (loss)

            82,825          (669     82,156   

Comprehensive income, net of tax

          37,904            (357     38,261   

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

    750        1        9,423                9,424   

Other

    651          (2,355             (2,355

Share-based compensation

        3,945                3,945   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances, March 31, 2011

    316,435      $ 316      $ 2,266,800      $ 379,956      $ 3,790,706      $ (977,873   $ 14,389      $ 5,474,294   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

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

 

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Nabors Industries Ltd. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1    Nature of Operations

Nabors is the largest land drilling contractor in the world and one of the largest land well-servicing and workover contractors in the United States and Canada:

 

   

We actively market approximately 501 land drilling rigs for oil and gas land drilling operations in the U.S. Lower 48 states, Alaska, Canada, South and Central America, Mexico, the Middle East, the Far East, the South Pacific, Russia and Africa.

 

   

We actively market approximately 567 rigs for land well-servicing and workover work in the United States and approximately 176 rigs for land well-servicing and workover work in Canada.

We are also a leading provider of offshore platform workover and drilling rigs, and actively market 40 platform, 12 jackup and four barge rigs in the United States, including the Gulf of Mexico, and multiple international markets.

In addition to the foregoing services:

 

   

We provide hydraulic fracturing, cementing, nitrogen and acid pressure pumping services with over 765,000 hydraulic horsepower in key basins throughout the United States and Canada.

 

   

We offer a wide range of ancillary well-site services, including engineering, transportation and disposal, construction, maintenance, well logging, directional drilling, rig instrumentation, data collection and other support services in select U.S. and international markets.

 

   

We manufacture and lease or sell top drives for a broad range of drilling applications, directional drilling systems, rig instrumentation and data collection equipment, pipeline handling equipment and rig reporting software.

 

   

We have a 51% ownership interest in a joint venture in Saudi Arabia, which owns and actively markets nine rigs in addition to the rigs we lease to the joint venture.

 

   

We have invested in oil and gas exploration, development and production activities through both our wholly owned subsidiaries and our oil and gas joint ventures in which we hold 49-50% ownership interests.

The majority of our business is conducted through our Drilling and Other Rig Services and our Completion and Production business lines. Our Drilling and Other Rig Services business line includes our drilling of oil and natural gas wells, on land and offshore, and companies engaged in drilling technology, top drive manufacturing, directional drilling, construction services, and rig instrumentation and software. Our Completion and Production Services business line includes our well-servicing, fluid logistics, workover operations and our pressure pumping services. In addition to these two primary business lines, we have an Oil and Gas Operating segment. Our oil and gas exploration, development and production operations are included in our Oil and Gas Operating Segment, or in discontinued operations in some cases.

Unless the context requires otherwise, references in this report and in Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations to “we,” “us,” “our,” “Company” or “Nabors” mean Nabors Industries Ltd., together with our subsidiaries where the context requires, including Nabors Industries, Inc., a Delaware corporation (“Nabors Delaware”).

Note 2    Summary of Significant Accounting Policies

Interim Financial Information

The unaudited consolidated financial statements of Nabors are prepared in conformity with accounting principles generally accepted in the United States (“GAAP”). Certain reclassifications have been made to the prior

 

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period to conform to the current-period presentation, with no effect on our consolidated financial position, results of operations or cash flows. 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 GAAP have been omitted. Therefore, these financial statements should be read along with our annual report on Form 10-K for the year ended December 31, 2011 (“2011 Annual Report”). In management’s opinion, the consolidated financial statements contain all adjustments necessary to present fairly our financial position as of March 31, 2012 and the results of our operations, cash flows, changes in equity and other comprehensive income for the three months ended March 31, 2012 and 2011, in accordance with GAAP. Interim results for the three months ended March 31, 2012 may not be indicative of results that will be realized for the full year ending December 31, 2012.

Our independent registered public accounting firm has reviewed and issued a report on these consolidated interim financial statements in accordance with standards established by the Public Company Accounting Oversight Board. Pursuant to Rule 436(c) under the Securities Act of 1933, as amended (the “Securities Act”) this report should not be considered a part of any registration statement prepared or certified within the meanings of Sections 7 and 11 of such Act.

Principles of Consolidation

Our consolidated financial statements include the accounts of Nabors, as well as all majority-owned and nonmajority-owned subsidiaries required to be consolidated under GAAP. Our consolidated financial statements exclude majority-owned entities for which we do not have either (1) the ability to control the operating and financial decisions and policies of that entity or (2) a controlling financial interest in a variable interest entity. All significant intercompany accounts and transactions are eliminated in consolidation.

Investments in operating entities where we have the ability to exert significant influence, but where we do not control operating and financial policies, are accounted for using the equity method. Our share of the net income (loss) of these entities is recorded as earnings (losses) from unconsolidated affiliates in our consolidated statements of income (loss), and our investment in these entities is included as a single amount in our consolidated balance sheets. Investments in unconsolidated affiliates accounted for using the equity method totaled $303.1 million and $371.0 million as of March 31, 2012 and December 31, 2011, respectively. At each of March 31, 2012 and December 31, 2011, assets held for sale included investments in unconsolidated affiliates accounted for using the equity method totaling $13.7 million. See Note 3 — Discontinued Operations for additional information.

We have investments in offshore funds, which are classified as long-term investments and are accounted for using the equity method of accounting based on our ownership interest in each fund.

Inventory

Inventory is stated at the lower of cost or market. Cost is determined using the first-in, first-out method and includes the cost of materials, labor and manufacturing overhead. Inventory included the following:

 

     March 31,
2012
     December 31,
2011
 
     (In thousands)  

Raw materials

   $ 126,798       $ 133,480   

Work-in-progress

     48,975         50,951   

Finished goods

     90,014         88,421   
  

 

 

    

 

 

 
   $ 265,787       $ 272,852   
  

 

 

    

 

 

 

 

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Goodwill

The carrying amounts of goodwill for our operating segments as of and for the three months ended March 31, 2012 were as follows:

 

     Balance as of
December 31,
2011
     Acquisitions
and
Purchase
Price
Adjustments
     Impairments      Cumulative
Translation
Adjustment
     Balance as of
March  31, 2012
 
     (In thousands)  

Drilling and Rig Services:

              

U.S. Lower 48 Land Drilling

   $ 30,154       $       $       $       $ 30,154   

U.S. Offshore

     7,296                            7,296   

Alaska

     19,995                                 19,995   

International

     18,983                                 18,983   

Other Rig Services

     34,766                         278         35,044   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal Drilling and Rig Services

     111,194                         278         111,472   

Completion and Production Services:

              

U.S. Land Well-servicing

     55,072                                 55,072   

Pressure Pumping

     334,992                                 334,992   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal Completion and Production Services

     390,064                                 390,064   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 501,258       $       $       $ 278       $ 501,536   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Note 3    Discontinued Operations

Our condensed statements of income (loss) from discontinued oil and gas operations for the three months ended March 31, 2012 and 2011 were as follows:

 

     Three Months Ended
March 31,
 
(In thousands)    2012     2011  

Operating revenues and Earnings (losses) from unconsolidated affiliates

   $ 3,301      $ 11,419   
  

 

 

   

 

 

 

Income (loss) from discontinued operations

    

Income (loss) from discontinued operations

     (5,445     (17,216

Gain (loss) on disposal of assets

     (5,172       

Less: income tax expense (benefit)

     (2,815     (6,340
  

 

 

   

 

 

 

Income (loss) from discontinued operations, net of tax

   $ (7,802   $ (10,876
  

 

 

   

 

 

 

On April 12, 2012, we sold our remaining wholly owned oil and gas operations in Colombia to an unrelated third party for a cash purchase price of $72.6 million. These assets were included in our assets held for sale as part of our Oil and Gas Operating segment and had a net book value of approximately $30.3 million.

Our aircraft logistics operations in Canada recognized $4.9 million and $4.6 million in operating revenues, which resulted in losses of $1.0 million and $1.5 million, net of tax benefits of $.3 million and $.5 million, during the three months ended March 31, 2012 and 2011, respectively. The assets are included in our Other Rig Services Operating segment.

Our consolidated balance sheets included a current liability related to discontinued operations of $61.7 million and $54.3 million that is included in accrued liabilities and a noncurrent liability related to discontinued operations of $53.7 million and $71.4 million that is included in other long-term liabilities at March 31, 2012 and December 31, 2011, respectively.

 

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Note 4     Cash and Cash Equivalents and Short-term Investments

Our cash and cash equivalents and short-term investments consisted of the following:

 

     March 31,
2012
     December 31,
2011
 
     (In thousands)  

Cash and cash equivalents

   $ 354,022       $ 398,575   

Short-term investments:

     

Trading equity securities

     17,638         11,600   

Available-for-sale equity securities

     81,227         71,433   

Available-for-sale debt securities

     41,085         57,881   
  

 

 

    

 

 

 

Total short-term investments

   $ 139,950       $ 140,914   
  

 

 

    

 

 

 

Certain information related to our cash and cash equivalents and short-term investments follows:

 

    March 31, 2012     December 31, 2011  
    Fair
Value
    Gross
Unrealized
Holding
Gains
    Gross
Unrealized
Holding
Losses
    Fair
Value
    Gross
Unrealized
Holding
Gains
    Gross
Unrealized
Holding
Losses
 
    (In thousands)  

Cash and cash equivalents

  $ 354,022      $      $      $ 398,575      $      $   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Short-term investments:

           

Trading equity securities

    17,638        11,913               11,600        5,876          
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Available-for-sale equity securities

    81,227        42,869               71,433        33,075          
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Available-for-sale debt securities:

           

Commercial paper and CDs

    1,150                      1,230                 

Corporate debt securities

    34,950        13,183        (2,852     51,300        22,494        (2,095

Mortgage-backed debt securities

    257        9               309        10          

Mortgage-CMO debt securities

    2,421        19        (4     2,547        13        (15

Asset-backed debt securities

    2,307               (220     2,495               (238
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total available-for-sale debt securities

    41,085        13,211        (3,076     57,881        22,517        (2,348
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total available-for-sale securities

    122,312        56,080        (3,076     129,314        55,592        (2,348
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total short-term investments

    139,950        67,993        (3,076     140,914        61,468        (2,348
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cash, cash equivalents and short-term investments

  $ 493,972      $ 67,993      $ (3,076   $ 539,489      $ 61,468      $ (2,348
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Certain information related to the gross unrealized losses of our cash and cash equivalents and short-term investments follows:

 

     As of March 31, 2012  
     Less Than 12 Months     More Than 12 Months  
     Fair
Value
     Gross
Unrealized

Loss
    Fair
Value
     Gross
Unrealized
Loss
 
     (In thousands)  

Available-for-sale equity securities

   $       $      $       $   

Available-for-sale debt securities:(1)

          

Corporate debt securities

     16,950         (2,852     

Mortgage-CMO debt securities

                    74         (4

Asset-backed debt securities

                    2,307         (220
  

 

 

    

 

 

   

 

 

    

 

 

 

Total available-for-sale debt securities

     16,950         (2,852     2,381         (224
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 16,950       $ (2,852   $ 2,381       $ (224
  

 

 

    

 

 

   

 

 

    

 

 

 

 

(1)

Our unrealized losses on available-for-sale debt securities held for more than one year are comprised of various types of securities. Each of these securities have a rating ranging from “A” to “AAA” from Standard & Poor’s and ranging from “A2” to “Aaa” from Moody’s Investors Service and is considered of high credit quality. In each case, we do not

 

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  intend to sell these investments, and it is less likely than not that we will be required to sell them to satisfy our own cash flow and working capital requirements. We believe that we will be able to collect all amounts due according to the contractual terms of each investment and, therefore, do not consider the decline in value of these investments to be other-than-temporary at March 31, 2012.

The estimated fair values of our corporate, mortgage-backed, mortgage-CMO and asset-backed debt securities at March 31, 2012, classified by time to contractual maturity, are shown below. Expected maturities differ from contractual maturities because the issuers of the securities may have the right to repay obligations without prepayment penalties and we may elect to sell the securities prior to the contractual maturity date.

 

     Estimated
Fair Value
March 31, 2012
 
     (In thousands)  

Debt securities:

  

Due in one year or less

   $ 1,150   

Due after one year through five years

     16,950   

Due in more than five years

     22,985   
  

 

 

 

Total debt securities

   $ 41,085   
  

 

 

 

Certain information regarding our debt and equity securities is presented below:

 

     Three Months Ended
March  31,
 
     2012      2011  
     (In thousands)  

Available-for-sale:

     

Proceeds from sales and maturities

   $ 18,437       $ 503   

Realized gains (losses), net

     12,465         (3,248

Note 5    Fair Value Measurements

The following table sets forth, by level within the fair value hierarchy, our financial assets and liabilities that are accounted for at fair value on a recurring basis as of March 31, 2012. 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. During the three months ended March 31, 2012, there were no transfers of our financial assets and liabilities between Level 1 and Level 2 measures. 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.

Recurring Fair Value Measurements

 

      Fair Value as of March 31, 2012  
     Level 1      Level 2      Level 3      Total  
     (In thousands)  

Assets:

           

Short-term investments:

           

Available-for-sale equity securities — energy industry

   $ 72,903       $ 8,324       $       $ 81,227   

Available-for-sale debt securities

           

Commercial paper and CDs

     1,150                    1,150   

Corporate debt securities

             34,950                 34,950   

Mortgage-backed debt securities

             257                 257   

Mortgage-CMO debt securities

             2,421                 2,421   

Asset-backed debt securities

     2,307                         2,307   

Trading securities — energy industry

     17,638                         17,638   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total short-term investments

   $ 93,998       $ 45,952       $       $ 139,950   
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities:

           

Derivative contract

   $       $ 819       $       $ 819   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Nonrecurring Fair Value Measurements

Fair value measurements were applied with respect to our nonfinancial assets and liabilities measured on a nonrecurring basis, which would consist of measurements primarily to goodwill, intangible assets and other long-lived assets, assets acquired and liabilities assumed in a business combination, and asset retirement obligations.

Fair Value of Financial Instruments

The fair value of our financial instruments has been estimated in accordance with GAAP. The fair value of our long-term debt and subsidiary preferred stock is estimated based on quoted market prices or prices quoted from third-party financial institutions. The carrying and fair values of these liabilities were as follows:

 

    March 31, 2012     December 31, 2011  
    Carrying Value     Fair Value     Carrying Value     Fair Value  
    (In thousands)  

5.375% senior notes due August 2012(1)(2)

  $ 274,761      $ 279,824      $ 274,604      $ 281,188   

6.15% senior notes due February 2018(3)

    967,794        1,119,300        967,490        1,113,986   

9.25% senior notes due January 2019(3)

    1,125,000        1,451,734        1,125,000        1,419,514   

5.00% senior notes due September 2020(3)

    697,419        751,275        697,343        734,475   

4.625% senior notes due September 2021(3)

    697,727        733,124        697,667        708,176   

Subsidiary preferred stock(2)

    69,188        67,500        69,188        68,625   

Revolving credit facilities(2)

    1,010,000        1,010,000        860,000        860,000   

Other(2)

    640        640        1,712        1,712   
 

 

 

   

 

 

   

 

 

   

 

 

 
  $ 4,842,529      $ 5,413,397      $ 4,693,004      $ 5,187,676   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Includes $.2 million and $.3 million as of March 31, 2012 and December 31, 2011, respectively, related to the unamortized loss on the interest rate swap that was unwound during the fourth quarter of 2005.

 

(2) Fair value represents a Level 2 measure.

 

(3) Fair value represents a Level 1 measure.

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.

As of March 31, 2012, our short-term investments were carried at fair market value and included $122.3 million and $17.6 million in securities classified as available-for-sale and trading, respectively. As of December 31, 2011, our short-term investments were carried at fair market value and included $129.3 million and $11.6 million in securities classified as available-for-sale and trading, respectively.

Note 6    Share-Based Compensation

We have several share-based employee compensation plans, which are more fully described in Note 8 Share-Based Compensation to the audited financial statements included in our 2011 Annual Report. Total share-based compensation expense, which includes both stock options and restricted stock, totaled $4.5 million and $3.9 million for the three months ended March 31, 2012 and 2011, respectively, and is included in direct costs and general and administrative expenses in our consolidated statements of income (loss). Share-based compensation expense has been allocated to our various operating segments. See Note 14 — Segment Information.

During the three months ended March 31, 2012 and 2011, we awarded 907,786 and 782,708 shares of restricted stock, respectively, vesting over periods up to four years, to our employees and directors. These awards had an aggregate value at their grant date of $19.0 million and $21.2 million, respectively. The fair value of restricted stock that vested during the three months ended March 31, 2012 and 2011 was $8.2 million and $12.4 million, respectively.

 

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The total intrinsic value of stock options exercised during the three months ended March 31, 2012 and 2011 was $4.9 million and $11.3 million, respectively. Additionally, the intrinsic value of stock options surrendered during the three months ended March 31, 2012 was $17.9 million. The total fair value of stock options that vested during the three months ended March 31, 2012 and 2011 was $7.5 million and $5.1 million, respectively.

Note 7    Investments in Unconsolidated Affiliates

We have several unconsolidated affiliates that are integral to our operations. For a full description, refer to Note 10 — Investments in Unconsolidated Affiliates in our 2011 Annual Report.

As of March 31, 2012 and December 31, 2011, our consolidated balance sheets reflect our investments in unconsolidated affiliates accounted for using the equity method totaling $303.1 million and $371.0 million, respectively. Assets held for sale include investments in unconsolidated affiliates accounted for using the equity method totaling $13.7 million at March 31, 2012 and December 31, 2011, respectively.

 

     Three Months Ended
March 31,
 
     2012     2011  
     (In thousands)  

Gross revenues

   $ 160,509      $ 82,203   

Gross margin

     93,605        69,814   

Net income (loss)

     (132,296     30,473   

Nabors’ earnings (losses) from U.S. oil and gas joint venture

     (62,562 )(1)      15,160   

 

(1) During the three months ended March 31, 2012, our unconsolidated U.S. oil and gas joint venture recorded a full-cost ceiling test writedown, of which our proportionate share was $68.2 million. This writedown is included in our Oil and Gas Operating segment.

Note 8    Debt

Long-term debt consisted of the following:

 

     March 31,
2012
     December 31,
2011
 
     (In thousands)  

5.375% senior notes due August 2012

   $ 274,761       $ 274,604   

6.15% senior notes due February 2018

     967,794         967,490   

9.25% senior notes due January 2019

     1,125,000         1,125,000   

5.00% senior notes due September 2020

     697,419         697,343   

4.625% senior notes due September 2021

     697,727         697,667   

Revolving credit facilities

     1,010,000         860,000   

Other

     640         1,712   
  

 

 

    

 

 

 
     4,773,341         4,623,816   

Less: current portion

     275,616         275,326   
  

 

 

    

 

 

 
   $ 4,497,725       $ 4,348,490   
  

 

 

    

 

 

 

5.375% Senior Notes Due August 2012

At December 31, 2011, the current portion of our long-term debt included Nabors Delaware’s 5.375% senior notes of $274.6 million. We intend to utilize cash on hand and capacity under our revolving credit facilities to meet this obligation.

 

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Revolving Credit Facilities

As of March 31, 2012, we had $390 million of remaining availability from a combined total of $1.4 billion under our existing revolving credit facilities. The existing revolving credit facilities mature in September 2014, and can be used for general corporate purposes, including capital expenditures and working capital. The weighted average interest rate on borrowings at March 31, 2012 was 1.75%. We fully and unconditionally guarantee the obligations under all of these credit facilities.

The revolving credit facilities contain various covenants and restrictive provisions that limit our ability to incur additional indebtedness, make investments or loans and create liens and require us to maintain a net funded indebtedness to total capitalization ratio, as defined in each agreement. We were in compliance with all covenants under the agreements at March 31, 2012 and December 31, 2011. If we should fail to perform our obligations under the covenants, the revolving credit commitments could be terminated and any outstanding borrowings under the relevant facility could be declared immediately due and payable.

Note 9    Common Shares

During the three months ended March 31, 2012, our employees exercised vested options and surrendered unexercised vested stock options to acquire 1.0 million of our common shares. We received proceeds of $15.7 million from exercised vested options and used approximately $21.0 million, the value of the unexercised vested options that were surrendered, to satisfy some of the option exercise price and related tax withholding obligations pursuant to stock option share settlements and exercises by some of the employees. During the three months ended March 31, 2011, our employees exercised vested options to acquire .8 million of our common shares, resulting in proceeds of $9.4 million. For each of the three months ended March 31, 2012 and 2011, we withheld .1 million of our common shares with a fair value of $1.8 million and $2.3 million, respectively, to satisfy tax withholding obligations in connection with the vesting of all stock awards.

At December 31, 2011, accrued liabilities included a provision of $100 million for a contingent liability related to the change of our Chief Executive Officer that occurred in October 2011. In February 2012, our former Chief Executive Officer elected to forego triggering that payment. In connection with that development, we announced plans to make charitable contributions to benefit the needs of our employees and other community-based causes. During the first quarter of 2012, we contributed one million of our treasury shares to the Nabors Charitable Foundation, a 501(c)(3) organization, in support of this objective. We consider the former Chief Executive Officer to be a significant shareholder of the Company and, therefore, have recorded these transactions as equity. We recorded the release of the contingent liability, net of tax, through capital in excess of par as a forgiveness of liability from a beneficial owner. We recorded the donation of the treasury shares at their weighted-average cost, net of tax, through capital in excess of par.

Note 10    Subsidiary Preferred Stock

As of and during the three months ended March 31, 2012, dividends of $.75 million on outstanding shares of preferred stock had been declared and paid in full.

Note 11    Commitments and Contingencies

Commitments

Employment Contracts

The employment agreement for Mr. Petrello currently provides for a term through March 30, 2015, with automatic one-year extensions each April 1, unless either party gives notice of nonrenewal. In the event of Mr. Petrello’s termination without cause or constructive termination without cause, he would be entitled to receive three times the average of his base salary and annual bonus during the three fiscal years preceding the

 

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termination. If, by way of example, Mr. Petrello were terminated without cause subsequent to March 31, 2012, his payment would be approximately $31.1 million. The formula will be further reduced to two times the average stated above in April 1, 2015. In the event of his death or disability, either he or his estate would be entitled to receive within 30 days thereafter a payment of $50 million.

We do not have insurance to cover, and we have not recorded an expense or accrued a liability relating to this potential obligation. See Note 18 Commitments and Contingencies to our 2011 Annual Report for additional discussion and description of Mr. Petrello’s employment agreement.

Contingencies

Income Tax Contingencies

We are subject to income taxes in the United States and numerous other jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes. In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain. We are regularly audited by tax authorities. Although we believe our tax estimates are reasonable, the final determination of tax audits and any related litigation could be materially different than what is reflected in income tax provisions and accruals. An audit or litigation could materially affect our financial position, income tax provision, net income, or cash flows in the period or periods challenged.

It is possible that future changes to tax laws (including tax treaties) could impact our ability to realize the tax savings recorded to date as well as future tax savings, resulting from our 2002 corporate reorganization. See Note 13 — Income Taxes to our 2011 Annual Report for additional discussion.

On September 14, 2006, Nabors Drilling International Limited, one of our wholly owned Bermuda subsidiaries (“NDIL”), received a Notice of Assessment from Mexico’s federal tax authorities in connection with the audit of NDIL’s Mexico branch for 2003. The notice proposes to deny depreciation expense deductions relating to drilling rigs operating in Mexico in 2003. The notice also proposes to deny a deduction for payments made to an affiliated company for the procurement of labor services in Mexico. The amount assessed was approximately $19.8 million (including interest and penalties). Nabors and its tax advisors previously concluded that the deductions were appropriate. NDIL’s Mexico branch took similar deductions for depreciation and labor expenses from 2004 to 2008. On June 30, 2009, the government proposed similar assessments against the Mexico branch of another wholly owned Bermuda subsidiary, Nabors Drilling International II Ltd. (“NDIL II”) for 2006. We anticipate that a similar assessment will eventually be proposed against NDIL for 2005 through 2008 and against NDIL II for 2007 to 2010. We believe that the potential assessments will range from $6 million to $26 million per year for the period from 2005 to 2009, and in the aggregate, would be approximately $90 million to $95 million. Although Nabors and our tax advisors previously concluded that the deductions were appropriate for the 2003 and 2005 to 2010 years, a reserve has been recorded in accordance with GAAP. The statute of limitations for NDIL’s 2004 tax year expired. Accordingly, during the fourth quarter of 2010, we released $7.4 million from our tax reserves, which represented the reserve recorded for that tax year. If these additional assessments were made and we ultimately did not prevail, we would be required to recognize additional tax for the amount in excess of the current reserve.

Self-Insurance

We estimate the level of our liability related to insurance and record reserves for these amounts in our consolidated financial statements. Our estimates are based on the facts and circumstances specific to existing claims and our past experience with similar claims. These loss estimates and accruals recorded in our financial statements for claims have historically been reasonable in light of the actual amount of claims paid. Although we believe our insurance coverage and reserve estimates are reasonable, a significant accident or other event that is not fully covered by insurance or contractual indemnity could occur and could materially affect our financial position and results of operations for a particular period.

 

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Effective April 1, 2012, our workers’ compensation claims are subject to a $2.0 million per-occurrence deductible, and our automobile claims are subject to a $1.0 million per-occurrence deductible.

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.

On July 5, 2007, we received an inquiry from the U.S. Department of Justice relating to its investigation of one of our vendors and compliance with the Foreign Corrupt Practices Act. The inquiry relates to transactions with and involving Panalpina, which provided freight forwarding and customs clearance services to some of our affiliates. The inquiry focused on transactions in Kazakhstan, Saudi Arabia, Algeria and Nigeria. The Audit Committee of our Board of Directors engaged outside counsel to review some of our transactions with this vendor, received periodic updates at its regularly scheduled meetings, and the Chairman of the Audit Committee received updates between meetings as circumstances warranted. The investigation included a review of certain amounts paid to and by Panalpina in connection with obtaining permits for the temporary importation of equipment and clearance of goods and materials through customs. Both the SEC and the Department of Justice have been advised of the results of our investigation. The SEC recently advised us that it has concluded its review of this matter and does not intend to recommend any enforcement action against us. Although the Department of Justice has not concluded its inquiry, we do not anticipate that its final determination will have an adverse effect on the Company.

A court in Algeria entered a judgment of approximately $19.7 million against us related to alleged customs infractions in 2009. We believe we did not receive proper notice of the judicial proceedings, and that the amount of the judgment is excessive. We have asserted the lack of legally required notice as a basis for challenging the judgment on appeal to the Algeria Supreme Court. Based upon our understanding of applicable law and precedent, we believe that this challenge will be successful. We do not believe that a loss is probable and have not accrued any amounts related to this matter. The Algeria Supreme Court has notified us that it will deliver its decision in the second quarter of 2012. If we are ultimately required to pay a fine or judgment related to this matter, the amount of the loss could range from approximately $140,000 to $19.7 million.

In March 2011, the Court of Ouargla (in Algeria), sitting at first instance, entered a judgment of approximately $39.1 million 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, and is not payable pending appeal. 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 has upheld the lower court’s ruling, and we have appealed the matter to the Algeria Supreme Court. While our payments were consistent with our historical operations in the country and,

 

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we believe, those of other multinational corporations there, and interpretations of the law by the Central Bank of Algeria, the ultimate resolution of this matter could result in a loss of up to $31.1 million in excess of amounts accrued.

On September 21, 2011, we received an informal inquiry from the SEC related to perquisites and personal benefits received by the officers and directors of Nabors, including their use of non-commercial aircraft. Our Audit Committee and Board of Directors have been apprised of this inquiry and we are cooperating with the SEC. The ultimate outcome of this process cannot be determined at this time.

Nabors Industries Ltd. and its Board of Directors have been sued in three separate purported shareholder derivative lawsuits filed in federal and state court in Houston, Texas. The cases were filed on November 18, 2011, January 9, 2012, and November 30, 2011, respectively, before Judges Ewing Werlein and Gray Miller in the United States Southern District of Texas, Houston Division, and Judge Mike Miller of the 11th Judicial District Court of Harris County, Texas. The case pending before Judge Gray Miller was voluntarily dismissed on January 31, 2012. The other cases remain pending. The allegations of each lawsuit are substantially similar, alleging that the members of the Board breached their fiduciary duties to the Company, wasted corporate assets, and committed oppressive conduct against the shareholders by agreeing to acquiesce to certain compensation arrangements with two senior officers of the Company, Eugene M. Isenberg and Anthony G. Petrello. The remaining lawsuits seek relief that includes an award of monetary damages in an unspecified amount, disgorgement by Messrs. Isenberg and Petrello of allegedly excessive compensation in an unspecified amount of at least $90 million, and equitable relief to reform Nabors’ compensation practices. Nabors intends to vigorously defend the lawsuits and has filed a motion to dismiss the remaining federal court lawsuit. The ultimate outcome of these lawsuits cannot be determined at this time.

On March 9, 2012, Nabors Global Holdings II Limited (“NGH2L”) signed a contract with ERG Resources, LLC (“ERG”) relating to the sale of all of the Class A shares of NGH2L’s wholly owned subsidiary, Ramshorn International Limited, an oil and gas exploration company. When ERG failed to meet its closing obligations, NGH2L terminated the transaction on March 19, 2012 and, as contemplated in the agreement, retained ERG’s $3 million escrow deposit. ERG filed suit the following day in the 61st Judicial District Court of Harris County, Texas, in a case styled ERG Resources, LLC v. Nabors Global Holdings II Limited, Ramshorn International Limited, and Parex Resources, Inc.; Cause No. 2012-16446, seeking injunctive relief to halt any sale of the shares to a third party, specifically naming as defendant Parex Resources, Inc. (“Parex”). The lawsuit also seeks monetary damages of up to $100 million based on an alleged breach of contract by NGH2L and tortious interference with contractual relations by Parex. Nabors successfully defeated ERG’s effort to obtain a temporary restraining order from the Texas court on March 20, 2012. On March 23, 2012, ERG filed and obtained an ex parte stay from the Supreme Court of Bermuda (Commercial Court), in a case styled as ERG Resources LLC v. Nabors Global Holdings II Limited, Case No. 2012: No. 110. Nabors challenged the stay and, following a series of oral hearings on the matter, the Bermuda court discharged the stay by a ruling dated April 5, 2012. Nabors completed the sale of Ramshorn’s Class A shares to a Parex affiliate on April 12, 2012, which mooted ERG’s application for a temporary injunction that was scheduled for hearing by the Texas court on April 13, 2012. ERG retains its causes of action for monetary damages, but Nabors believes the claims are foreclosed by the terms of the agreement and are without factual or legal merit. While Nabors intends to vigorously defend the lawsuit, the ultimate outcome of the lawsuit cannot be determined at this time.

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 involve agreements and obligations under which we provide financial or performance assurance to third parties. Certain of these agreements 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

 

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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  
     Remainder
of
2012
     2013      2014      Thereafter      Total  
     (In thousands)  

Financial standby letters of credit and other financial surety instruments

   $ 92,618       $ 20,287       $       $       $ 112,905   

Note 12    Earnings (Losses) Per Share

A reconciliation of the numerators and denominators of the basic and diluted earnings (losses) per share computations is as follows:

 

     Three Months Ended
March 31,
 
     2012     2011  
     (In thousands, except
share amounts)
 

Net income (loss) (numerator):

    

Income (loss) from continuing operations, net of tax

   $ 142,618      $ 94,552   

Less: net (income) loss attributable to noncontrolling interest

     267        669   
  

 

 

   

 

 

 

Adjusted income (loss) from continuing operations, net of tax — basic

     142,885        95,221   

Add interest expense on assumed conversion of 0.94% senior exchangeable notes, net of tax(1)

              
  

 

 

   

 

 

 

Adjusted income (loss) from continuing operations, net of tax — diluted

     142,885        95,221   

Income (loss) from discontinued operations, net of tax

     (8,795     (12,396
  

 

 

   

 

 

 

Adjusted net income (loss) attributable to Nabors

     134,090        82,825   

Earnings (losses) per share:

   $ .50      $ .33   

Basic from continuing operations

     (.04     (.04
  

 

 

   

 

 

 

Basic from discontinued operations

   $ .46      $ .29   

Total Basic

    

Diluted from continuing operations

   $ .49      $ .33   

Diluted from discontinued operations

     (.03     (.05
  

 

 

   

 

 

 

Total Diluted

   $ .46      $ .28   

Shares (denominator):

     288,538        286,114   

Weighted-average number of shares outstanding — basic

     3,171        6,575   

Net effect of dilutive stock options, warrants and restricted stock awards based on the if-converted method

              

Assumed conversion of 0.94% senior exchangeable notes(1)

              

Weighted-average number of shares outstanding — diluted

     291,709        292,689   

 

(1)

At maturity in May 2011, we redeemed the remaining aggregate principal amount of $1.4 billion of our 0.94% senior exchangeable notes. Prior to maturity, we had purchased $1.4 billion par value of these notes

 

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  in the open market for cash of $1.2 billion. Diluted earnings (losses) per share for the three months ended March 31, 2011 exclude any incremental shares that would have been issuable upon exchange of these notes based on a calculation using our stock price. Our stock price did not exceed the threshold during the three months ended March 31, 2011.

For all periods presented, the computation of diluted earnings (losses) per Nabors’ share excludes outstanding stock options and warrants 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. The average number of options and warrants that were excluded from diluted earnings (losses) per share that would potentially dilute earnings per share in the future was 11,763,048 and 7,269,039 shares during the three months ended March 31, 2012 and 2011, respectively. In any period during which the average market price of Nabors’ common shares exceeds the exercise prices of these stock options and warrants, such stock options and warrants will be included in our diluted earnings (losses) per share computation using the if-converted method of accounting. Restricted stock will be 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 a participating security.

Note 13    Supplemental Balance Sheet, Income Statement and Cash Flow Information

Accrued liabilities include the following:

 

     March 31,
2012
     December 31,
2011
 
     (In thousands)  

Accrued compensation

   $ 172,254       $ 173,732   

Deferred revenue

     216,462         172,578   

Other taxes payable

     31,804         44,652   

Workers’ compensation liabilities

     22,645         22,645   

Interest payable

     35,912         99,869   

Due to joint venture partners

     4,027         6,041   

Warranty accrual

     6,309         5,237   

Litigation reserves

     22,727         23,687   

Provision for termination payment

             100,000   

Current liability to discontinued operations

     61,707         54,287   

Professional fees

     4,056         6,413   

Current deferred tax liability

             269   

Other accrued liabilities

     9,008         7,363   
  

 

 

    

 

 

 
   $ 586,911       $ 716,773   
  

 

 

    

 

 

 

Investment income (loss) includes the following:

 

     Three Months Ended
March  31,
 
     2012     2011  
     (In thousands)  

Interest and dividend income

   $ 1,355      $ 1,825   

Gains (losses) on investments, net(1)

     18,897 (2)      10,455 (3) 
  

 

 

   

 

 

 
   $ 20,252      $ 12,280   
  

 

 

   

 

 

 

 

(1) Includes net unrealized gains/(losses) of $6.0 million and ($3.2) million, during the three months ended March 31, 2012 and 2011, respectively, from our trading securities.

 

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(2) Includes $12.5 million realized gain related to debt securities in addition to unrealized gains discussed above.

 

(3) Includes $12.9 million realized gain related to one of our overseas fund investments classified as long-term investments, partially offset by unrealized losses discussed above.

Losses (gains) on sales and retirements of long-lived assets and other expense (income), net includes the following:

 

     Three Months Ended
March  31,
 
     2012     2011  
     (In thousands)  

Losses (gains) on sales, retirements and involuntary conversions of long-lived assets

   $ (1,782   $ 1,093   

Litigation expenses

     540        5,919   

Foreign currency transaction losses (gains)

     (455     (552

Losses (gains) on derivative instruments

     (462     (511

Losses (gains) on debt extinguishment

            58   

Other losses (gains)

     319        152   
  

 

 

   

 

 

 
   $ (1,840   $ 6,159   
  

 

 

   

 

 

 

Note 14    Segment Information

The following table sets forth financial information with respect to our reportable segments:

 

     Three Months Ended
March 31,
 
     2012     2011  
     (In thousands)  

Operating revenues and earnings (losses) from unconsolidated affiliates from continuing operations:(1)

    

Drilling and Rig Services:

    

U.S. Lower 48 Land Drilling

   $ 495,697      $ 378,568   

U.S. Offshore

     69,115        30,454   

Alaska

     62,293        41,315   

Canada

     192,293        172,443   

International

     306,465        262,477   

Other Rig Services(2)

     241,758        116,789   
  

 

 

   

 

 

 

Subtotal Drilling and Rig Services(3)

     1,367,621        1,002,046   

Completion and Production Services:

    

U.S. Land Well-servicing

     209,701        150,256   

Pressure Pumping

     398,036        257,859   
  

 

 

   

 

 

 

Subtotal Completion and Production Services

     607,737        408,115   

Oil and Gas(4)

     (62,562     15,160   

Other reconciling items(5)

     (91,039     (35,479
  

 

 

   

 

 

 

Total

   $ 1,821,757      $ 1,389,842   
  

 

 

   

 

 

 

 

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Adjusted income (loss) derived from operating activities from continuing operations:(1)(6)

    

Drilling and Rig Services:

    

U.S. Lower 48 Land Drilling

   $ 131,581      $ 80,095   

U.S. Offshore

     7,732        (3,977

Alaska

     27,420        11,019   

Canada

     49,287        38,992   

International

     21,138        35,497   

Other Rig Services(2)

     29,846        8,344   
  

 

 

   

 

 

 

Subtotal Drilling and Rig Services(3)

     267,004        169,970   

Completion and Production Services:

    

U.S. Land Well-servicing

     21,888        11,123   

Pressure Pumping

     64,860        43,715   
  

 

 

   

 

 

 

Subtotal Completion and Production Services

     86,748        54,838   

Oil and Gas(7)

     5,650        15,160   

Other reconciling items(8)

     (38,216     (32,395
  

 

 

   

 

 

 

Total adjusted income derived from operating activities

   $ 321,186      $ 207,573   

Full-cost ceiling test writedown

     (68,212       

Interest expense

     (62,654     (73,966

Investment income (loss)

     20,252        12,280   

Gains (losses) on sales and retirements of long-lived assets and other (income) expense, net

     1,840        (6,159
  

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes

     212,412        139,728   

Income tax expense (benefit)

     69,044        44,426   

Subsidiary preferred stock dividend

     750        750   
  

 

 

   

 

 

 

Income (loss) from continuing operations, net of tax

     142,618        94,552   

Income (loss) from discontinued operations, net of tax

     (8,795     (12,396
  

 

 

   

 

 

 

Net income (loss)

     133,823        82,156   

Less: Net income (loss) attributable to noncontrolling interest

     267        669   
  

 

 

   

 

 

 

Net income (loss) attributable to Nabors

   $ 134,090      $ 82,825   
  

 

 

   

 

 

 

 

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Table of Contents
     March 31,
2012
     December 31,
2011
 
     (In thousands)  

Total assets:

     

Drilling and Rig Services:

     

U.S. Lower 48 Land Drilling

   $ 3,336,992       $ 3,216,803   

U.S. Offshore

     427,380         402,506   

Alaska

     299,350         288,253   

Canada

     963,416         962,239   

International

     3,782,962         3,702,611   

Other Rig Services(2)

     714,918         720,775   
  

 

 

    

 

 

 

Subtotal Drilling and Rig Services(9)

     9,525,018         9,293,187   

Completion and Production Services:

     

U.S. Well-servicing

     821,740         812,049   

Pressure Pumping

     1,562,625         1,503,298   
  

 

 

    

 

 

 

Subtotal Completion and Production Services

     2,384,365         2,315,347   

Oil and Gas(10)

     781,412         796,327   

Other reconciling items(8)

     457,399         507,279   
  

 

 

    

 

 

 

Total assets

   $ 13,148,194       $ 12,912,140   
  

 

 

    

 

 

 

 

(1) All periods present the operating activities of our wholly owned oil and gas business in the United States, Canada and Colombia, including equity interests in Canada and Colombia, as well as our aircraft logistics operations in Canada as discontinued operations.

 

(2) Includes our drilling technology and top drive manufacturing, directional drilling, rig instrumentation and software, and construction services. These services represent our other companies that are not aggregated into a reportable operating segment.

 

(3) Includes earnings (losses), net from unconsolidated affiliates, accounted for using the equity method, of $(6.1) million and $1.1 million for the three months ended March 31, 2012 and 2011, respectively.

 

(4) Includes earnings (losses), net from unconsolidated affiliates, accounted for using the equity method, of $(62.6) million and $15.2 million for the three months ended March 31, 2012 and 2011, respectively.

 

(5) Represents the elimination of inter-segment transactions.

 

(6) Adjusted income (loss) derived from operating activities is computed by subtracting direct costs, general and administrative expenses, and depreciation and amortization from Operating revenues and then adding Earnings (losses) from unconsolidated affiliates (excluding our proportionate share of full-cost ceiling test writedowns recorded by our oil and gas joint venture). These amounts should not be used as a substitute for those amounts reported in accordance with GAAP. However, management evaluates the performance of our business units and the consolidated company based on several criteria, including adjusted income (loss) derived from operating activities, because it believes that these financial measures accurately reflect our ongoing profitability. A reconciliation of this non-GAAP measure to income (loss) from continuing operations before income taxes, which is a GAAP measure, is provided in the above table.

 

(7) Includes earnings (losses), net from unconsolidated affiliates, accounted for using the equity method, of $5.6 million (excluding $68.2 million, which represents our proportionate share of full-cost ceiling test writedowns by our oil and gas joint venture) and $15.2 million for the three months ended March 31, 2012 and 2011, respectively.

 

(8) Represents the elimination of inter-segment transactions and unallocated corporate expenses, and assets.

 

(9) Includes $68.8 million and $76.9 million of investments in unconsolidated affiliates accounted for using the equity method as of March 31, 2012 and December 31, 2011, respectively.

 

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(10) Includes $234.3 million and $294.1 million investments in unconsolidated affiliates accounted for using the equity method and $417.0 million and $385.4 million as assets held for sale as of March 31, 2012 and December 31, 2011, respectively.

Note 15    Condensed Consolidating Financial Information

Nabors has fully and unconditionally guaranteed all of the issued public debt securities of Nabors Delaware. 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 March 31, 2012 and December 31, 2011, statements of income (loss), statements of cash flows and statements of other comprehensive income for the three months ended March 31, 2012 and 2011 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.

 

25


Table of Contents

Condensed Consolidating Balance Sheets

 

     March 31, 2012  
(In thousands)    Nabors
(Parent/
Guarantor)
     Nabors
Delaware
(Issuer/
Guarantor)
     Other
Subsidiaries
(Non-
Guarantors)
     Consolidating
Adjustments
    Consolidated
Total
 
ASSETS   

Current assets:

             

Cash and cash equivalents

   $ 3,808       $ 21       $ 350,193       $      $ 354,022   

Short-term investments

                     139,950                139,950   

Assets held for sale

                     433,446                433,446   

Accounts receivable, net

                     1,717,375                1,717,375   

Inventory

                     265,787                265,787   

Deferred income taxes

                     45,038                45,038   

Other current assets

     50         671         172,885                173,606   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     3,858         692         3,124,674                3,129,224   

Long-term investments and other receivables

                     6,373                6,373   

Property, plant and equipment, net

             39,913         8,774,168                8,814,081   

Goodwill

                     501,536                501,536   

Intercompany receivables

     164,629                 537,881         (702,510       

Investment in unconsolidated affiliates

     5,644,060         6,200,966         1,810,355         (13,352,278     303,103   

Other long-term assets

             30,737         363,140                393,877   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ 5,812,547       $ 6,272,308       $ 15,118,127       $ (14,054,788   $ 13,148,194   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
LIABILITIES AND EQUITY   

Current liabilities:

             

Current portion of long-term debt

   $       $ 274,761       $ 855       $      $ 275,616   

Trade accounts payable

     52         23         687,501                687,576   

Accrued liabilities

     1,572         35,933         549,406                586,911   

Income taxes payable

                     30,938                30,938   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

     1,624         310,717         1,268,700                1,581,041   

Long-term debt

             4,447,940         49,785                4,497,725   

Other long-term liabilities

             31,862         290,141                322,003   

Deferred income taxes

             30,404         824,653                855,057   

Intercompany payable

             292,134         410,376         (702,510       
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities

     1,624         5,113,057         2,843,655         (702,510     7,255,826   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Subsidiary preferred stock

                     69,188                69,188   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Shareholders’ equity

     5,810,923         1,159,251         12,193,027         (13,352,278     5,810,923   

Noncontrolling interest

                     12,257                12,257   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total equity

     5,810,923         1,159,251         12,205,284         (13,352,278     5,823,180   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and equity

   $ 5,812,547       $ 6,272,308       $ 15,118,127       $ (14,054,788   $ 13,148,194   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

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Table of Contents
     December 31, 2011  
(In thousands)    Nabors
(Parent/
Guarantor)
     Nabors
Delaware
(Issuer/
Guarantor)
     Other
Subsidiaries
(Non-
Guarantors)
     Consolidating
Adjustments
    Consolidated
Total
 
ASSETS   

Current assets:

             

Cash and cash equivalents

   $ 203       $ 21       $ 398,351       $      $ 398,575   

Short-term investments

                     140,914                140,914   

Assets held for sale

                     401,500                401,500   

Accounts receivable, net

                     1,576,555                1,576,555   

Inventory

                     272,852                272,852   

Deferred income taxes

                     127,874                127,874   

Other current assets

     50         671         169,323                170,044   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     253         692         3,087,369                3,088,314   

Long-term investments and other receivables

                     11,124                11,124   

Property, plant and equipment, net

             40,792         8,589,154                8,629,946   

Goodwill

                     501,258                501,258   

Intercompany receivables

     164,760                 537,881         (702,641       

Investment in unconsolidated affiliates

     5,429,029         6,084,868         1,843,654         (12,986,530     371,021   

Other long-term assets

             32,037         278,440                310,477   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ 5,594,042       $ 6,158,389       $ 14,848,880       $ (13,689,171   $ 12,912,140   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
LIABILITIES AND EQUITY   

Current liabilities:

             

Current portion of long-term debt

   $       $ 274,604       $ 722       $      $ 275,326   

Trade accounts payable

     42         23         782,688                782,753   

Accrued liabilities

     6,185         100,101         610,487                716,773   

Income taxes payable

                27,710                27,710   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

     6,227         374,728         1,421,607                1,802,562   

Long-term debt

             4,297,500         50,990                4,348,490   

Other long-term liabilities

             32,303         260,454                292,757   

Deferred income taxes

             11,221         786,705                797,926   

Intercompany payable

             379,400         323,241         (702,641       
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities

     6,227         5,095,152         2,842,997         (702,641     7,241,735   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Subsidiary preferred stock

                     69,188                69,188   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Shareholders’ equity

     5,587,815         1,063,237         11,923,293         (12,986,530     5,587,815   

Noncontrolling interest

                     13,402                13,402   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total equity

     5,587,815         1,063,237         11,936,695         (12,986,530     5,601,217   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and equity

   $ 5,594,042       $ 6,158,389       $ 14,848,880       $ (13,689,171   $ 12,912,140   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

27


Table of Contents

Condensed Consolidating Statements of Income (Loss)

 

     Three Months Ended March 31, 2012  
(In thousands)    Nabors
(Parent/
Guarantor)
     Nabors
Delaware
(Issuer/
Guarantor)
    Other
Subsidiaries
(Non-
Guarantors)
    Consolidating
Adjustments
    Consolidated
Total
 

Revenues and other income:

           

Operating revenues

   $       $      $ 1,890,426      $      $ 1,890,426   

Earnings (losses) from unconsolidated affiliates

                    (68,669            (68,669

Earnings (losses) from consolidated affiliates

     135,879         54,528        28,361        (218,768       

Investment income (loss)

                    20,252               20,252   

Intercompany interest income

             16,932               (16,932       
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues and other income

     135,879         71,460        1,870,370        (235,700     1,842,009   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Costs and other deductions:

           

Direct costs

                    1,184,816               1,184,816   

General and administrative expenses

     1,527         140        134,942        (263     136,346   

Depreciation and amortization

             902        246,719               247,621   

Interest expense

             68,169        (5,515            62,654   

Intercompany interest expense

                    16,932        (16,932       

Losses (gains) on sales and retirements of long-lived assets and other expense (income), net

     262         (433     (1,932     263        (1,840
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and other deductions

     1,789         68,778        1,575,962        (16,932     1,629,597   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes

     134,090         2,682        294,408        (218,768     212,412   

Income tax expense (benefit)

             (19,183     88,227               69,044   

Subsidiary preferred stock dividend

                    750               750   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations, net of tax

     134,090         21,865        205,431        (218,768     142,618   

Income (loss) from discontinued operations, net of tax

                    (8,795            (8,795
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     134,090         21,865        196,636        (218,768     133,823   

Less: Net (income) loss attributable to noncontrolling interest

                    267               267   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Nabors

   $ 134,090       $ 21,865      $ 196,903      $ (218,768   $ 134,090   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

28


Table of Contents
     Three Months Ended March 31, 2011  
(In thousands)    Nabors
(Parent/
Guarantor)
     Nabors
Delaware
(Issuer/
Guarantor)
    Other
Subsidiaries
(Non-
Guarantors)
    Consolidating
Adjustments
    Consolidated
Total
 

Revenues and other income:

           

Operating revenues

   $       $      $ 1,373,568      $      $ 1,373,568   

Earnings (losses) from unconsolidated affiliates

                    16,274               16,274   

Earnings (losses) from consolidated affiliates

     85,792         59,893        29,660        (175,345       

Investment income (loss)

     3                12,277               12,280   

Intercompany interest income

             18,684               (18,684       
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues and other income

     85,795         78,577        1,431,779        (194,029     1,402,122   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Costs and other deductions:

           

Direct costs

                    841,108               841,108   

General and administrative expenses

     2,872         41        113,136        (98     115,951   

Depreciation and amortization

             871        224,339               225,210   

Interest expense

             77,349        (3,383            73,966   

Intercompany interest expense

                    18,684        (18,684       

Losses (gains) on sales and retirements of long-lived assets and other expense (income), net

     98         (464     6,427        98        6,159   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and other deductions

     2,970         77,797        1,200,311        (18,684     1,262,394   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes

     82,825         780        231,468        (175,345     139,728   

Income tax expense (benefit)

             (21,872     66,298               44,426   

Subsidiary preferred stock dividend

                    750               750   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations, net of tax

     82,825         22,652        164,420        (175,345     94,552   

Income (loss) from discontinued operations, net of tax

                    (12,396            (12,396
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     82,825         22,652        152,024        (175,345     82,156   

Less: Net (income) loss attributable to noncontrolling interest

                    669               669   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Nabors

   $ 82,825       $ 22,652      $ 152,693      $ (175,345   $ 82,825   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

29


Table of Contents

Condensed Consolidating Statements of Other Comprehensive Income

 

     Three Months Ended March 31, 2012  
(In thousands)    Nabors
(Parent/
Guarantor)
    Nabors
Delaware
(Issuer/
Guarantor)
    Other
Subsidiaries
(Non-
Guarantors)
    Consolidating
Adjustments
    Consolidated
Total
 

Net income (loss) attributable to Nabors

   $ 134,090      $ 21,865      $ 196,903      $ (218,768   $ 134,090   

Other comprehensive income, before tax

          

Translation adjustment attributable to Nabors

     17,266        (53     17,213        (17,160     17,266   

Unrealized gains/(losses) on marketable securities:

          

Unrealized gains/(losses) on marketable securities

     12,223        64        12,287        (12,351     12,223   

Less: reclassification adjustment for (gains)/losses included in net income (loss)

     (12,465     (10,288     (22,753     33,041        (12,465
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Unrealized gains (losses) on marketable securities

     (242     (10,224     (10,466     20,690        (242

Defined benefit pension plans:

          

Pension liability amortization

     260        260        520        (780     260   

Pension liability adjustment

                                   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Defined benefit pension plans

     260        260        520        (780     260   

Unrealized gains/(losses) and amortization of (gains)/losses on cash flow hedges

     191        191        191        (382     191   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income, before tax

     17,475        (9,826     7,458        2,368        17,475   

Income tax expense related to items of other comprehensive income

     (3,724     (3,724     (7,508     11,232        (3,724
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income, net of tax

     21,199        (6,102     14,966        (8,864     21,199   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

     155,289        15,763        211,869        (227,632     155,289   

Net income (loss) attributable to noncontrolling interest

     (267            (267     267        (267

Translation adjustment to noncontrolling interest

     243               243        (243     243   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to noncontrolling interest

     (24            (24     24        (24
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to Nabors

   $ 155,265      $ 15,763      $ 211,845      $ (227,608   $ 155,265   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

30


Table of Contents
     Three Months Ended March 31, 2011  
(In thousands)    Nabors
(Parent/
Guarantor)
    Nabors
Delaware
(Issuer/
Guarantor)
    Other
Subsidiaries
(Non-
Guarantors)
    Consolidating
Adjustments
    Consolidated
Total
 

Net income (loss) attributable to Nabors

   $ 82,825      $ 22,652      $ 152,693      $ (175,345   $ 82,825   

Other comprehensive income, before tax

          

Translation adjustment attributable to Nabors

     31,439        (21     31,419        (31,398     31,439   

Unrealized gains/(losses) on marketable securities:

          

Unrealized gains/(losses) on marketable securities

     6,308        167        6,477        (6,644     6,308   

Less: reclassification adjustment for (gains)/losses included in net income (loss)

     (3            (3     3        (3
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Unrealized gains (losses) on marketable securities

     6,305        167        6,474        (6,641     6,305   

Defined benefit pension plans:

          

Pension liability amortization

     151        151        302        (453     151   

Pension liability adjustment

                                   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Defined benefit pension plans

     151        151        302        (453     151   

Unrealized gains/(losses) and amortization of (gains)/losses on cash flow hedges

     191        191        191        (382     191   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income, before tax

     38,086        488        38,386        (38,874     38,086   

Income tax expense related to items of other comprehensive income

     182        182        304        (486     182   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income, net of tax

     37,904        306        38,082        (38,388     37,904   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

     120,729        22,958        190,775        (213,733     120,729   

Net income (loss) attributable to noncontrolling interest

     (669            (669     669        (669

Translation adjustment to noncontrolling interest

     357               357        (357     357   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to noncontrolling interest

     (312            (312     312        (312
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to Nabors

   $ 120,417      $ 22,958      $ 190,463      $ (213,421   $ 120,417   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

31


Table of Contents

Condensed Consolidating Statements of Cash Flows

 

     Three Months Ended March 31, 2012  
(In thousands)    Nabors
(Parent/
Guarantor)
    Nabors
Delaware
(Issuer/
Guarantor)
    Other
Subsidiaries
(Non-
Guarantors)
    Consolidating
Adjustments
    Consolidated
Total
 

Net cash provided by (used for) operating activities

   $ 10,693      $ (150,000   $ 395,990      $ (12,500   $ 244,183   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

          

Purchases of investments

                   (791            (791

Sales and maturities of investments

                   23,478               23,478   

Cash paid for acquisition of businesses, net

                                   

Capital expenditures

                   (473,687            (473,687

Proceeds from sales of assets and insurance claims

                   21,321               21,321   

Cash paid for investments in consolidated affiliates

                                   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used for) investing activities

                   (429,679            (429,679
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

          

Increase (decrease) in cash overdrafts

                   (2,269            (2,269

Proceeds from revolving credit facilities

            150,000                      150,000   

Proceeds from issuance of common shares

     (5,319            (1            (5,320

Reduction in long-term debt

                   (1,072            (1,072

Purchase of restricted stock

     (1,769                          (1,769

Tax benefit related to share-based awards

         (31            (31

Proceeds from parent contributions

                   (12,500     12,500          
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash (used for) provided by financing activities

     (7,088     150,000        (15,873     12,500        139,539   

Effect of exchange rate changes on cash and cash equivalents

                   1,404               1,404   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

     3,605               (48,158            (44,553

Cash and cash equivalents, beginning of period

     203        21        398,351               398,575   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 3,808      $ 21      $ 350,193      $      $ 354,022   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

32


Table of Contents
     Three Months Ended March 31, 2011  
(In thousands)    Nabors
(Parent/
Guarantor)
    Nabors
Delaware
(Issuer/
Guarantor)
    Other
Subsidiaries
(Non-
Guarantors)
    Consolidating
Adjustments
    Consolidated
Total
 

Net cash provided by (used for) operating activities

   $ (4,988   $ 5,003      $ 290,909      $      $ 290,924   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

          

Purchases of investments

                   (5,870            (5,870

Sales and maturities of investments

                   3,529               3,529   

Cash paid for acquisition of businesses, net

                                   

Investment in unconsolidated affiliates

                   (19,000