NABORS INDUSTRIES LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
|
|
2018
|
|
2017
|
|
Revenues and other income:
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
$
|
734,194
|
|
$
|
562,550
|
|
Earnings (losses) from unconsolidated affiliates
|
|
|
|
2
|
|
|
2
|
|
Investment income (loss)
|
|
|
|
465
|
|
|
721
|
|
Total revenues and other income
|
|
|
|
734,661
|
|
|
563,273
|
|
|
|
|
|
|
|
|
|
|
Costs and other deductions:
|
|
|
|
|
|
|
|
|
Direct costs
|
|
|
|
475,403
|
|
|
387,644
|
|
General and administrative expenses
|
|
|
|
74,571
|
|
|
63,409
|
|
Research and engineering
|
|
|
|
15,806
|
|
|
11,757
|
|
Depreciation and amortization
|
|
|
|
213,448
|
|
|
203,672
|
|
Interest expense
|
|
|
|
61,386
|
|
|
56,518
|
|
Other, net
|
|
|
|
14,089
|
|
|
13,510
|
|
Total costs and other deductions
|
|
|
|
854,703
|
|
|
736,510
|
|
Income (loss) from continuing operations before income taxes
|
|
|
|
(120,042)
|
|
|
(173,237)
|
|
Income tax expense (benefit):
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
8,771
|
|
|
22,689
|
|
Deferred
|
|
|
|
14,774
|
|
|
(48,298)
|
|
Total income tax expense (benefit)
|
|
|
|
23,545
|
|
|
(25,609)
|
|
Income (loss) from continuing operations, net of tax
|
|
|
|
(143,587)
|
|
|
(147,628)
|
|
Income (loss) from discontinued operations, net of tax
|
|
|
|
(75)
|
|
|
(439)
|
|
Net income (loss)
|
|
|
|
(143,662)
|
|
|
(148,067)
|
|
Less: Net (income) loss attributable to noncontrolling interest
|
|
|
|
(539)
|
|
|
(917)
|
|
Net income (loss) attributable to Nabors
|
|
|
$
|
(144,201)
|
|
$
|
(148,984)
|
|
|
|
|
|
|
|
|
|
|
Amounts attributable to Nabors:
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
|
$
|
(144,126)
|
|
$
|
(148,545)
|
|
Net income (loss) from discontinued operations
|
|
|
|
(75)
|
|
|
(439)
|
|
Net income (loss) attributable to Nabors
|
|
|
$
|
(144,201)
|
|
$
|
(148,984)
|
|
|
|
|
|
|
|
|
|
|
Earnings (losses) per share:
|
|
|
|
|
|
|
|
|
Basic from continuing operations
|
|
|
$
|
(0.46)
|
|
$
|
(0.52)
|
|
Basic from discontinued operations
|
|
|
|
—
|
|
|
—
|
|
Total Basic
|
|
|
$
|
(0.46)
|
|
$
|
(0.52)
|
|
Diluted from continuing operations
|
|
|
$
|
(0.46)
|
|
$
|
(0.52)
|
|
Diluted from discontinued operations
|
|
|
|
—
|
|
|
—
|
|
Total Diluted
|
|
|
$
|
(0.46)
|
|
$
|
(0.52)
|
|
Weighted-average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
308,788
|
|
|
277,781
|
|
Diluted
|
|
|
|
308,788
|
|
|
277,781
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per common share
|
|
|
$
|
0.06
|
|
$
|
0.06
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
NABORS INDUSTRIES LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
2018
|
|
2017
|
|
|
Net income (loss) attributable to Nabors
|
|
|
$
|
(144,201)
|
|
$
|
(148,984)
|
|
|
Other comprehensive income (loss), before tax:
|
|
|
|
|
|
|
|
|
|
Translation adjustment attributable to Nabors
|
|
|
|
(9,343)
|
|
|
3,860
|
|
|
Unrealized gains (losses) on marketable securities
|
|
|
|
—
|
|
|
(3,201)
|
|
|
Pension liability amortization and adjustment
|
|
|
|
54
|
|
|
50
|
|
|
Unrealized gains (losses) and amortization on cash flow hedges
|
|
|
|
140
|
|
|
153
|
|
|
Adoption of ASU No. 2016-01
|
|
|
|
(9,144)
|
|
|
—
|
|
|
Other comprehensive income (loss), before tax
|
|
|
|
(18,293)
|
|
|
862
|
|
|
Income tax expense (benefit) related to items of other comprehensive income (loss)
|
|
|
|
43
|
|
|
79
|
|
|
Other comprehensive income (loss), net of tax
|
|
|
|
(18,336)
|
|
|
783
|
|
|
Comprehensive income (loss) attributable to Nabors
|
|
|
|
(162,537)
|
|
|
(148,201)
|
|
|
Net income (loss) attributable to noncontrolling interest
|
|
|
|
539
|
|
|
917
|
|
|
Translation adjustment attributable to noncontrolling interest
|
|
|
|
(96)
|
|
|
49
|
|
|
Comprehensive income (loss) attributable to noncontrolling interest
|
|
|
|
443
|
|
|
966
|
|
|
Comprehensive income (loss)
|
|
|
$
|
(162,094)
|
|
$
|
(147,235)
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
NABORS INDUSTRIES LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2018
|
|
2017
|
|
|
|
(In thousands)
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(143,662)
|
|
$
|
(148,067)
|
|
Adjustments to net income (loss):
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
214,008
|
|
|
204,364
|
|
Deferred income tax expense (benefit)
|
|
|
14,361
|
|
|
(48,469)
|
|
Deferred financing costs amortization
|
|
|
1,967
|
|
|
1,728
|
|
Discount amortization on long-term debt
|
|
|
5,335
|
|
|
4,505
|
|
Losses (gains) on debt buyback
|
|
|
—
|
|
|
8,596
|
|
Losses (gains) on long-lived assets, net
|
|
|
2,257
|
|
|
2,875
|
|
Losses (gains) on investments, net
|
|
|
723
|
|
|
—
|
|
Provisions for bad debt
|
|
|
(3,400)
|
|
|
62
|
|
Share-based compensation
|
|
|
8,628
|
|
|
10,280
|
|
Foreign currency transaction losses (gains), net
|
|
|
2,522
|
|
|
877
|
|
Equity in (earnings) losses of unconsolidated affiliates, net of dividends
|
|
|
(2)
|
|
|
(2)
|
|
Other
|
|
|
(372)
|
|
|
(751)
|
|
Changes in operating assets and liabilities, net of effects from acquisitions:
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(34,381)
|
|
|
(19,260)
|
|
Inventory
|
|
|
(7,835)
|
|
|
(5,301)
|
|
Other current assets
|
|
|
22,600
|
|
|
(10,725)
|
|
Other long-term assets
|
|
|
6,011
|
|
|
15,294
|
|
Trade accounts payable and accrued liabilities
|
|
|
(143,050)
|
|
|
(38,659)
|
|
Income taxes payable
|
|
|
836
|
|
|
17,929
|
|
Other long-term liabilities
|
|
|
(28,229)
|
|
|
(53,267)
|
|
Net cash (used for) provided by operating activities
|
|
|
(81,683)
|
|
|
(57,991)
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
Purchases of investments
|
|
|
(676)
|
|
|
(4)
|
|
Sales and maturities of investments
|
|
|
1,148
|
|
|
91
|
|
Capital expenditures
|
|
|
(94,026)
|
|
|
(183,427)
|
|
Proceeds from sales of assets and insurance claims
|
|
|
3,076
|
|
|
3,253
|
|
Other
|
|
|
1,034
|
|
|
(106)
|
|
Net cash (used for) provided by investing activities
|
|
|
(89,444)
|
|
|
(180,193)
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
Increase (decrease) in cash overdrafts
|
|
|
(383)
|
|
|
(469)
|
|
Proceeds from issuance of long-term debt
|
|
|
800,000
|
|
|
411,200
|
|
Debt issuance costs
|
|
|
(12,928)
|
|
|
(10,439)
|
|
Proceeds from revolving credit facilities
|
|
|
615,000
|
|
|
—
|
|
Reduction in revolving credit facilities
|
|
|
(680,000)
|
|
|
—
|
|
Proceeds from (payments for) issuance of common shares
|
|
|
—
|
|
|
8,300
|
|
Reduction in long-term debt
|
|
|
(460,837)
|
|
|
(170,491)
|
|
Dividends to shareholders
|
|
|
(17,148)
|
|
|
(17,040)
|
|
Payment for commercial paper
|
|
|
(40,000)
|
|
|
—
|
|
Cash proceeds from equity component of exchangeable debt
|
|
|
—
|
|
|
159,952
|
|
Payments on term loan
|
|
|
—
|
|
|
(162,500)
|
|
Proceeds from (payments for) short-term borrowings
|
|
|
194
|
|
|
16
|
|
Purchase of capped call hedge transactions
|
|
|
—
|
|
|
(40,250)
|
|
Other
|
|
|
(1,862)
|
|
|
(5,341)
|
|
Net cash (used for) provided by financing activities
|
|
|
202,036
|
|
|
172,938
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(867)
|
|
|
1,841
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
30,042
|
|
|
(63,405)
|
|
Cash and cash equivalents, beginning of period
|
|
|
336,997
|
|
|
264,093
|
|
Cash and cash equivalents, end of period
|
|
$
|
367,039
|
|
$
|
200,688
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
NABORS INDUSTRIES LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares
|
|
in Excess
|
|
Other
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
Par
|
|
of Par
|
|
Comprehensive
|
|
Retained
|
|
Treasury
|
|
controlling
|
|
Total
|
|
(In thousands)
|
|
Shares
|
|
Value
|
|
Value
|
|
Income
|
|
Earnings
|
|
Shares
|
|
Interest
|
|
Equity
|
|
As of December 31, 2016
|
|
333,598
|
|
|
334
|
|
|
2,521,332
|
|
|
(12,119)
|
|
|
2,033,427
|
|
|
(1,295,949)
|
|
|
7,770
|
|
|
3,254,795
|
|
Net income (loss)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(148,984)
|
|
|
—
|
|
|
917
|
|
|
(148,067)
|
|
Dividends to shareholders ($0.06 per share)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(17,153)
|
|
|
—
|
|
|
—
|
|
|
(17,153)
|
|
Other comprehensive income (loss), net of tax
|
|
—
|
|
|
—
|
|
|
—
|
|
|
783
|
|
|
—
|
|
|
—
|
|
|
49
|
|
|
832
|
|
Issuance of common shares for stock options exercised, net of surrender of unexercised stock options
|
|
843
|
|
|
1
|
|
|
8,299
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8,300
|
|
Share-based compensation
|
|
—
|
|
|
—
|
|
|
10,280
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10,280
|
|
Equity component of exchangeable debt
|
|
—
|
|
|
—
|
|
|
116,195
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
116,195
|
|
Capped call transactions
|
|
—
|
|
|
—
|
|
|
(40,250)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(40,250)
|
|
Adoption of ASU No. 2016-09
|
|
—
|
|
|
—
|
|
|
1,943
|
|
|
—
|
|
|
5,150
|
|
|
—
|
|
|
—
|
|
|
7,093
|
|
Other
|
|
1,126
|
|
|
1
|
|
|
(5,342)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(290)
|
|
|
(5,631)
|
|
As of March 31, 2017
|
|
335,567
|
|
$
|
336
|
|
$
|
2,612,457
|
|
$
|
(11,336)
|
|
$
|
1,872,440
|
|
$
|
(1,295,949)
|
|
$
|
8,446
|
|
$
|
3,186,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2017
|
|
367,510
|
|
|
368
|
|
|
2,791,129
|
|
|
11,185
|
|
|
1,423,154
|
|
|
(1,314,020)
|
|
|
26,957
|
|
|
2,938,773
|
|
Net income (loss)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(144,201)
|
|
|
—
|
|
|
539
|
|
|
(143,662)
|
|
Dividends to shareholders ($0.06 per share)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(19,050)
|
|
|
—
|
|
|
—
|
|
|
(19,050)
|
|
Other comprehensive income (loss), net of tax
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(18,336)
|
|
|
—
|
|
|
—
|
|
|
(96)
|
|
|
(18,432)
|
|
Share-based compensation
|
|
—
|
|
|
—
|
|
|
8,628
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8,628
|
|
Adoption of ASU No. 2016-01
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9,144
|
|
|
—
|
|
|
—
|
|
|
9,144
|
|
Adoption of ASU No. 2016-16
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(34,132)
|
|
|
—
|
|
|
—
|
|
|
(34,132)
|
|
Accrued distribution on redeemable noncontrolling interest in subsidiary
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,399)
|
|
|
—
|
|
|
—
|
|
|
(2,399)
|
|
Other
|
|
2,810
|
|
|
2
|
|
|
(1,864)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,862)
|
|
As of March 31, 2018
|
|
370,320
|
|
$
|
370
|
|
$
|
2,797,893
|
|
$
|
(7,151)
|
|
$
|
1,232,516
|
|
$
|
(1,314,020)
|
|
$
|
27,400
|
|
$
|
2,737,008
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
Nabors Industries Ltd. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Nature of Operations
Unless the context requires otherwise, references in this report to “we,” “us,” “our,” “the Company,” or “Nabors” mean Nabors Industries Ltd., together with our subsidiaries where the context requires. References in this report to “Nabors Delaware” mean Nabors Industries, Inc., a wholly owned subsidiary of Nabors.
With operations in over 25 countries, Nabors is a global provider of drilling and drilling-related services for land-based and offshore oil and natural gas wells, with a fleet of rigs and drilling-related equipment as of March 31, 2018 which included:
|
·
|
|
407 actively marketed rigs for land-based drilling operations in the United States, Canada and approximately 20 other countries throughout the world; and
|
|
·
|
|
38 actively marketed rigs for offshore drilling operations in the United States and multiple international markets.
|
Our business consists of five reportable segments: U.S. Drilling, Canada Drilling, International Drilling, Drilling Solutions and Rig Technologies.
Note 2 Summary of Significant Accounting Policies
Interim Financial Information
The accompanying unaudited condensed consolidated financial statements of Nabors have been prepared in conformity with generally accepted accounting principles in the United States (“U.S. GAAP”). Pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been omitted. Therefore, these financial statements should be read together with our annual report on Form 10-K for the year ended December 31, 2017 (“2017 Annual Report”). In management’s opinion, the unaudited condensed consolidated financial statements contain all adjustments necessary to state fairly our financial position as of March 31, 2018 and the results of operations, comprehensive income (loss), cash flows and changes in equity for the periods presented herein. Interim results for the three months ended March 31, 2018 may not be indicative of results that will be realized for the full year ending December 31, 2018.
Principles of Consolidation
Our condensed consolidated financial statements include the accounts of Nabors, as well as all majority owned and non-majority owned subsidiaries required to be consolidated under U.S. GAAP. All significant intercompany accounts and transactions are eliminated in consolidation.
In addition to the consolidation of our majority owned subsidiaries, we also consolidate variable interest entities (“VIEs”) when we are determined to be the primary beneficiary of a VIE. Determination of the primary beneficiary of a VIE is based on whether an entity has (1) the power to direct activities that most significantly impact the economic performance of the VIE and (2) the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. Our determination of the primary beneficiary of a VIE considers all relationships between us and the VIE. During 2016, we entered into an agreement with Saudi Aramco, to form a new joint venture, SANAD, to own, manage and operate onshore drilling rigs in the Kingdom of Saudi Arabia. SANAD, which is equally owned by Saudi Aramco and Nabors, began operations during the fourth quarter of 2017. As we have the power to direct activities that most significantly impact SANAD’s economic performance, including operations, maintenance and certain sourcing and procurement, we have determined Nabors to be the primary beneficiary and accordingly consolidate the joint venture. See Note 3—Joint Ventures.
Revenue Recognition
We recognize revenues and costs on daywork contracts daily as the work progresses over the contract term. For certain contracts, we receive lump sum payments for the mobilization of rigs and other drilling equipment. We defer revenue related to mobilization periods and recognize the revenue over the term of the related drilling contract.
Costs incurred related to a mobilization period for which a contract is secured are deferred and recognized over the term of the related drilling contract. Costs incurred to relocate rigs and other drilling equipment to areas in which a contract has not been secured are expensed as incurred. We defer recognition of revenue on amounts received from customers for prepayment of services until those services are provided.
We recognize revenue for top drives and other capital equipment we manufacture upon transfer of control, which generally occurs when the product has been shipped to the customer.
We recognize, as operating revenue, proceeds from business interruption insurance claims in the period that the applicable proof of loss documentation is received. Proceeds from casualty insurance settlements in excess of the carrying value of damaged assets are recognized in other, net in our condensed consolidated statement of income (loss) in the period that the applicable proof of loss documentation is received. Proceeds from casualty insurance settlements that are expected to be less than the carrying value of damaged assets are recognized at the time the loss is incurred and recorded in other, net in our condensed consolidated statement of income (loss).
We recognize reimbursements received for out of pocket expenses incurred as revenues and account for out of pocket expenses as direct costs.
Inventory, net
Inventory is stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out or weighted-average cost methods and includes the cost of materials, labor and manufacturing overhead. Inventory included the following:
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
|
2018
|
|
2017
|
|
|
|
(In thousands)
|
|
Raw materials
|
|
$
|
127,273
|
|
$
|
124,635
|
|
Work-in-progress
|
|
|
21,972
|
|
|
19,113
|
|
Finished goods
|
|
|
25,063
|
|
|
22,559
|
|
|
|
$
|
174,308
|
|
$
|
166,307
|
|
Property, Plant and Equipment
We review our assets for impairment when events or changes in circumstances indicate that their carrying amounts may not be recoverable. If the estimated undiscounted future cash flows are not sufficient to support the asset’s recorded value, an impairment charge is recognized to the extent the carrying amount of the long-lived asset exceeds its estimated fair value. Management considers a number of factors such as estimated future cash flows from the assets, appraisals and current market value analysis in determining fair value. The determination of future cash flows requires the estimation of utilization, dayrates, operating margins, sustaining capital and remaining economic life. Such estimates can change based on market conditions, technological advances in the industry or changes in regulations governing the industry. Significant and unanticipated changes to the assumptions could result in future impairments. In December 2017, we signed a Purchase and Sale Agreement (“PSA”) to sell certain of our jackups for a combination of cash and equity. The PSA included several conditions to closing that must be reached before the deal proceeds to close. We are uncertain at this time whether these conditions may be achieved within the requisite time period in which the parties have the election to terminate, as well as what the ultimate consideration value may be at closing. However, if the conditions are met and the deal proceeds to close, we could record a loss on the sale in the range of up to $50 million - $70 million. If the deal does not close, we intend to continue operating these rigs under the current renegotiated contracts. A significantly prolonged period of lower oil and natural gas prices could continue to adversely affect the demand for and prices of our services, which could result in future impairment charges. As the determination of whether impairment charges should be recorded on our long-lived assets is subject to significant management judgment, and an impairment of these assets could result in a material charge on our consolidated statements of income (loss), management believes that accounting estimates related to impairment of long-lived assets are critical.
For an asset classified as held for sale, we consider the asset impaired when its carrying amount exceeds fair value less its cost to sell. Fair value is determined in the same manner as a long lived asset that is held and used.
Goodwill
We review goodwill for impairment annually during the second quarter of each fiscal year or more frequently if events or changes in circumstances indicate that the carrying amount of such goodwill and intangible assets may exceed their fair value. We initially assess goodwill for impairment based on qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of one of our reporting units is greater than its carrying amount. If the carrying amount exceeds the fair value, an impairment charge will be recognized in an amount equal to the excess; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.
Our estimated fair values of our reporting units incorporate judgment and the use of estimates by management. The fair values calculated in these impairment tests were determined using discounted cash flow models involving assumptions based on our utilization of rigs or other oil and gas service equipment, revenues and earnings from affiliates, as well as direct costs, general and administrative costs, depreciation, applicable income taxes, capital expenditures and working capital requirements. Our discounted cash flow projections for each reporting unit were based on financial forecasts. The future cash flows were discounted to present value using discount rates determined to be appropriate for each reporting unit. Terminal values for each reporting unit were calculated using a Gordon Growth methodology with a long term growth rate of 3%.
Another factor in determining whether impairment has occurred is the relationship between our market capitalization and our book value. As part of our annual review, we compared the sum of our reporting units’ estimated fair value, which included the estimated fair value of non-operating assets and liabilities, less debt, to our market capitalization and assessed the reasonableness of our estimated fair value. Any of the above mentioned factors may cause us to re-evaluate goodwill during any quarter throughout the year.
Recently Adopted Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, Revenue from Contracts with Customers, relating to the revenue recognition from contracts with customers that creates a common revenue standard for U.S. GAAP and IFRS. The core principle requires the recognition of revenue to represent the transfer of promised goods or services to customers in an amount that reflects the consideration, including costs incurred, to which the entity expects to be entitled in exchange for those goods or services. The standard also requires significantly
expanded disclosures containing qualitative and quantitative information regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In July 2015, the FASB approved a one year deferral of this standard, with a new effective date for fiscal years beginning after December 15, 2017. Throughout 2017 we, along with our third party consultants, identified and reviewed our revenue streams, identified a subset of contracts to represent these revenue streams and performed a detailed analysis of such contracts. We adopted this guidance under the modified retrospective approach as of January 1, 2018. The adoption of this standard did not have a material impact on our consolidated financial statements. See Note 12—Revenue Recognition.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments—Overall, relating to the recognition and measurement of financial assets and liabilities. This standard enhances the reporting model for financial instruments, which includes amendments to address aspects of recognition, measurement, presentation and disclosure. This new standard became effective for us on January 1, 2018. Upon adoption, we recorded an adjustment to retained earnings of $9.1 million to eliminate the net unrealized gain balance in accumulated other comprehensive income (loss) related to the marketable securities. If we do have a material amount of investments in marketable securities in the future, we expect that the impact to our consolidated statements of income (loss) and other comprehensive income (loss) from this update could be material. Furthermore, depending on trends in the stock market, we may see increased volatility in our consolidated statements of income (loss) and other comprehensive income (loss).
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows, to reduce the diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This guidance is effective for public companies for fiscal years beginning after December 15, 2017. Early application is permitted. The adoption of this standard did not have a material impact on our consolidated financial statements.
In October 2016, the FASB issued ASU No. 2016-16, Income Taxes, which simplifies the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. We adopted this standard during the first quarter of 2018 using the modified retrospective method, through a cumulative-effect adjustment directly to retained earnings. Upon adoption, we reduced deferred tax assets by approximately $34.1 million and recognized an offsetting decrease to retained earnings.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows: Restricted Cash, to provide guidance on the classification of restricted cash in the statement of cash flows. This guidance is effective for public companies for fiscal years beginning after December 15, 2017. The amendments in the ASU should be adopted on a retrospective basis. The adoption of this standard did not have a material impact on our consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01, Clarifying the Definition of a Business, which clarifies the definition of a business and provides further guidance for evaluating whether a transaction will be accounted for as an acquisition of an asset or a business. The standard provides a test to determine whether a set of assets and activities acquired is a business. When substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not a business. Under the updated guidance, an acquisition of a single property will likely be treated as an asset acquisition as opposed to a business combination and associated transaction costs will be capitalized rather than expensed as incurred. Additionally, assets acquired, liabilities assumed, and any noncontrolling interest will be measured at their relative fair values. The adoption of this standard did not have a material impact on our consolidated financial statements.
In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation, to reduce diversity in practice and provide clarity regarding existing guidance in ASC 718, “Stock Compensation”. The standard provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under ASC 718. Specifically, an entity would not apply modification accounting if the fair value, vesting conditions and classification of the awards are the same immediately before and after the modification. This guidance is effective for public companies for fiscal years beginning after December 15, 2017. The adoption of this standard did not have a material impact on our consolidated financial statements.
Recent Accounting Pronouncements Not Yet Adopted
In February 2016, the FASB issued ASU No. 2016-02, Leases, relating to leases to increase transparency and comparability among companies. This standard requires that all leases with an initial term greater than one year be
recorded on the balance sheet as an asset and a lease liability. Additionally, this standard will require disclosures designed to give financial statement users information on the amount, timing, and uncertainty of cash flows arising from leases. A modified retrospective approach is currently required for the adoption of this guidance, which is effective for our reporting period beginning January 1, 2019. Early adoption is permitted. We are currently evaluating the impact this will have on our consolidated financial statements.
In February 2018, the FASB issued ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017. In addition, the standard requires certain disclosures regarding stranded tax effects. This guidance is effective for public companies for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We are currently evaluating the impact this will have on our consolidated financial statements.
Note 3 Joint Ventures
During 2016, we entered into an agreement with Saudi Aramco to form SANAD, a new joint venture, to own, manage and operate onshore drilling rigs in the Kingdom of Saudi Arabia. SANAD, which is equally owned by Saudi Aramco and Nabors, began operations during the fourth quarter of 2017.
During 2017, Nabors and Saudi Aramco each contributed $20 million in cash for the purpose of capitalizing the joint venture upon formation. In addition, during 2017 Nabors and Saudi Aramco each contributed a combination of drilling rigs, drilling rig equipment and other assets, including cash, each with a value of approximately $204 million to the joint venture in exchange for redeemable ownership interests which accrue interest annually, have a twenty-five year maturity and are required to be converted to authorized capital should certain events occur, including the accumulation of specified losses. In the accompanying consolidated balance sheet Nabors has reported Saudi Aramco’s share of authorized capital as a component of noncontrolling interest in equity and Saudi Aramco’s share of the redeemable ownership interests as redeemable noncontrolling interest in subsidiary, classified as mezzanine equity. The accrued interest on the redeemable ownership interest is a non-cash financing activity and is reported as an increase in the redeemable noncontrolling interest in subsidiary line in our condensed consolidated balance sheet.
The condensed balance sheet of SANAD, as included in our consolidated balance sheet, is presented below.
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
(In thousands)
|
|
2018
|
|
2017
|
Assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
120,051
|
|
$
|
94,496
|
Accounts receivable
|
|
|
19,819
|
|
|
10,580
|
Other current assets
|
|
|
10,046
|
|
|
10,834
|
Property, plant and equipment, net
|
|
|
121,408
|
|
|
130,218
|
Other long-term assets
|
|
|
21,921
|
|
|
23,091
|
Total assets
|
|
$
|
293,245
|
|
$
|
269,219
|
Liabilities:
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
56,906
|
|
$
|
7,236
|
Accrued liabilities
|
|
|
5,808
|
|
|
2,592
|
Total liabilities
|
|
$
|
62,714
|
|
$
|
9,828
|
The assets of SANAD cannot be used by Nabors for general corporate purposes. Additionally, creditors of SANAD do not have recourse to other assets of Nabors
Note 4 Fair Value Measurements
Fair value is the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date (exit price). We utilize market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market‑corroborated, or generally unobservable. We primarily apply the market approach for recurring fair value measurements and endeavor to utilize the best information available. Accordingly, we employ valuation techniques that maximize the use of observable inputs and
minimize the use of unobservable inputs. The use of unobservable inputs is intended to allow for fair value determinations in situations where there is little, if any, market activity for the asset or liability at the measurement date. We are able to classify fair value balances utilizing a fair value hierarchy based on the observability of those inputs. Under the fair value hierarchy:
|
·
|
|
Level 1 measurements include unadjusted quoted market prices for identical assets or liabilities in an active market;
|
|
·
|
|
Level 2 measurements include quoted market prices for identical assets or liabilities in an active market that have been adjusted for items such as effects of restrictions for transferability and those that are not quoted but are observable through corroboration with observable market data, including quoted market prices for similar assets; and
|
|
·
|
|
Level 3 measurements include those that are unobservable and of a subjective nature.
|
Our 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, 2018, there were no transfers of our financial assets 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value as of March 31, 2018
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
(In thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale equity securities
|
|
$
|
22,762
|
|
$
|
3,776
|
|
$
|
—
|
|
Mortgage-CMO debt securities
|
|
|
—
|
|
|
10
|
|
|
—
|
|
Total short-term investments
|
|
$
|
22,762
|
|
$
|
3,786
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value as of December 31, 2017
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
(In thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale equity securities
|
|
$
|
22,909
|
|
$
|
5,450
|
|
$
|
—
|
|
Mortgage-CMO debt securities
|
|
|
—
|
|
|
10
|
|
|
—
|
|
Total short-term investments
|
|
$
|
22,909
|
|
$
|
5,460
|
|
$
|
—
|
|
Nonrecurring Fair Value Measurements
We applied fair value measurements to our nonfinancial assets and liabilities measured on a nonrecurring basis, which consist of measurements primarily to assets held for sale, goodwill, equity method investments, intangible assets and other long-lived assets, assets acquired and liabilities assumed in a business combination and our pipeline contractual commitment. Based upon our review of the fair value hierarchy, the inputs used in these fair value measurements were considered Level 3 inputs.
Fair Value of Financial Instruments
We estimate the fair value of our financial instruments in accordance with U.S. GAAP. The fair value of our long-term debt, revolving credit facility and commercial paper is estimated based on quoted market prices or prices quoted from third-party financial institutions. The fair value of our debt instruments is determined using Level 2 measurements. The carrying and fair values of these liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
Fair
|
|
Carrying
|
|
Fair
|
|
|
Value
|
|
Value
|
|
Value
|
|
Value
|
|
|
(In thousands)
|
|
(In thousands)
|
6.15% senior notes due February 2018
|
|
$
|
—
|
|
$
|
—
|
|
$
|
460,762
|
|
$
|
462,674
|
9.25% senior notes due January 2019
|
|
|
303,489
|
|
|
316,642
|
|
|
303,489
|
|
|
321,028
|
5.00% senior notes due September 2020
|
|
|
669,922
|
|
|
671,610
|
|
|
669,846
|
|
|
670,757
|
4.625% senior notes due September 2021
|
|
|
695,168
|
|
|
672,116
|
|
|
695,108
|
|
|
665,003
|
5.50% senior notes due January 2023
|
|
|
600,000
|
|
|
586,524
|
|
|
600,000
|
|
|
584,850
|
5.10% senior notes due September 2023
|
|
|
346,608
|
|
|
330,061
|
|
|
346,576
|
|
|
325,844
|
0.75% senior exchangeable notes due January 2024
|
|
|
435,074
|
|
|
431,262
|
|
|
429,982
|
|
|
443,940
|
5.75% senior notes due February 2025
|
|
|
800,000
|
|
|
754,504
|
|
|
—
|
|
|
—
|
Revolving credit facility
|
|
|
445,000
|
|
|
445,000
|
|
|
510,000
|
|
|
510,000
|
Commercial paper
|
|
|
—
|
|
|
—
|
|
|
40,000
|
|
|
40,000
|
Other
|
|
|
375
|
|
|
375
|
|
|
181
|
|
|
181
|
|
|
|
4,295,636
|
|
$
|
4,208,094
|
|
|
4,055,944
|
|
$
|
4,024,277
|
Less: deferred financing costs
|
|
|
39,101
|
|
|
|
|
|
27,997
|
|
|
|
|
|
$
|
4,256,535
|
|
|
|
|
$
|
4,027,947
|
|
|
|
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, 2018 our short-term investments were carried at fair market value and included $26.5 million in securities classified as available-for-sale. As of December 31, 2017, our short-term investments were carried at fair market value and included $28.4 million in securities classified as available-for-sale.
Note 5 Debt
Debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
|
2018
|
|
2017
|
|
|
|
(In thousands)
|
|
6.15% senior notes due February 2018 (1)
|
|
$
|
—
|
|
$
|
460,762
|
|
9.25% senior notes due January 2019 (2)
|
|
|
303,489
|
|
|
303,489
|
|
5.00% senior notes due September 2020
|
|
|
669,922
|
|
|
669,846
|
|
4.625% senior notes due September 2021
|
|
|
695,168
|
|
|
695,108
|
|
5.50% senior notes due January 2023
|
|
|
600,000
|
|
|
600,000
|
|
5.10% senior notes due September 2023
|
|
|
346,608
|
|
|
346,576
|
|
0.75% senior exchangeable notes due January 2024
|
|
|
435,074
|
|
|
429,982
|
|
5.75% senior notes due February 2025
|
|
|
800,000
|
|
|
—
|
|
Term loan facility
|
|
|
—
|
|
|
—
|
|
Revolving credit facility
|
|
|
445,000
|
|
|
510,000
|
|
Commercial paper
|
|
|
—
|
|
|
40,000
|
|
Other
|
|
|
375
|
|
|
181
|
|
|
|
|
4,295,636
|
|
|
4,055,944
|
|
Less: current portion
|
|
|
375
|
|
|
181
|
|
Less: deferred financing costs
|
|
|
39,101
|
|
|
27,997
|
|
|
|
$
|
4,256,160
|
|
$
|
4,027,766
|
|
|
(1)
|
|
The 6.15% senior notes were repaid in February 2018, utilizing proceeds received in connection with the 5.75% senior notes offering.
|
|
(2)
|
|
The 9.25% senior notes due January 2019 have been classified as long-term because we have the ability and intent to repay this obligation utilizing our revolving credit facility (see
Revolving Credit Facility
below).
|
During the three months ended March 31, 2018, we repaid the $460.8 million aggregate principal amount outstanding on our 6.15% senior notes due February 2018 for approximately $475.0 million in cash, reflecting principal and approximately $14.2 million of accrued and unpaid interest.
5.75% Senior Notes Due February 2025
In January 2018, Nabors Industries, Inc. (“Nabors Delaware”), a wholly owned subsidiary of Nabors, issued $800 million in aggregate principal amount of 5.75% senior unsecured notes due February 1, 2025, which are fully and unconditionally guaranteed by Nabors. The notes are subject to registration rights. The notes pay interest semi-annually on February 1 and August 1, beginning on August 1, 2018, and will mature on February 1, 2025.
The notes rank equal in right of payment to all of Nabors Delaware’s existing and future unsubordinated indebtedness, and senior in right of payment to all of Nabors Delaware’s existing and future senior subordinated and subordinated indebtedness. Our guarantee of the notes is unsecured and an unsubordinated obligation and ranks equal in right of payments to all of our unsecured and unsubordinated indebtedness from time to time outstanding. In the event of a change of control triggering event, as defined in the indenture, the holders of the notes may require Nabors Delaware to purchase all or a portion of the notes at a purchase price equal to 101% of their principal amount, plus accrued and unpaid interest, if any. The notes are redeemable in whole or in part at any time at the option of Nabors Delaware at a redemption price, plus accrued and unpaid interest, as specified in the indenture. Nabors Delaware used a portion of the proceeds to repay the amount outstanding on the 6.15% senior notes due February 2018. The remaining proceeds not used for such purposes were allocated for general corporate purposes, including to repay amounts outstanding under the commercial paper program and to repurchase or repay other indebtedness.
0.75% Senior Exchangeable Notes Due January 2024
In January 2017, Nabors Delaware issued $575 million in aggregate principal amount of 0.75% exchangeable senior unsecured notes due 2024, which are fully and unconditionally guaranteed by Nabors. The notes bear interest at a rate of 0.75% per year payable semiannually on January 15 and July 15 of each year, beginning on July 15, 2017. The exchangeable notes are bifurcated for accounting purposes into debt and equity components of $411.2 million and $163.8 million, respectively, based on the relative fair value. Debt issuance costs of $9.6 million and equity issuance costs of $3.9 million were capitalized in connection with the issuance of these notes in long-term debt and netted against the proceeds allocated to the equity component, respectively, in our condensed consolidated balance sheet. The debt issuance costs are being amortized through January 2024.
The exchangeable notes are exchangeable, under certain conditions, at an initial exchange rate of 39.75 common shares of Nabors per $1,000 principal amount of exchangeable notes (equivalent to an initial exchange price of approximately $25.16 per common share). Upon any exchange, Nabors Delaware will settle its exchange obligation in cash, common shares of Nabors, or a combination of cash and common shares, at our election.
In connection with the pricing of the notes, we entered into privately negotiated capped call transactions which are expected to reduce potential dilution to common shares and/or offset potential cash payments required to be made in excess of the principal amount upon any exchange of notes. Such reduction and/or offset is subject to a cap representing a price per share of $31.45, an approximately 75.0% premium over our share price of $17.97 as of the date of the transaction. The capped call meets the definition of a derivative under ASC 815, Derivatives and Hedging, as it has an underlying (the Company’s share price), a notional amount (the number of underlying shares to be purchased per option), an initial net investment less (by more than a nominal amount) than the amount that would have to be paid to own the underlying and provides for a default net share settlement (but could also be settled in cash at the election of the Company). However, the capped call meets the derivative scope exception under ASC 815 for instruments indexed to the Company’s own stock and classified in shareholders’ equity and therefore was initially recorded in equity. Until such time as the Company elects a settlement method for the exchangeable notes, the capped call transaction will continue to be accounted for as equity. At conversion, if the Company elects to partially settle the notes in cash in excess of the principal amount, or fully in cash, the capped call will be subject to mark to market through earnings as a derivative until such settlement is paid.
The net proceeds from the offering of the exchangeable notes were used to prepay the remaining balance of our unsecured term loan originally scheduled to mature in 2020, as well as to pay the cost of the capped call transactions. The remaining net proceeds from the offering were allocated for general corporate purposes, including to repurchase or repay other indebtedness.
Commercial Paper Program
As of March 31, 2018, we had no borrowings outstanding under this facility. Our commercial paper borrowings are classified as long-term debt because the borrowings are fully supported by availability under our revolving credit facility, which matures as currently structured in July 2020, more than one year from now.
Revolving Credit Facility
As of March 31, 2018, we had $445.0 million outstanding under our $2.25 billion revolving credit facility, which matures in July 2020. The weighted average interest rate on borrowings at March 31, 2018 was 3.15%. The revolving credit facility contains 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 the agreement. Availability under the revolving credit facility is subject to a covenant not to exceed a net debt to capital ratio of 0.60:1. We were in compliance with all covenants under the agreement at March 31, 2018. If we fail to perform our obligations under the covenants, the revolving credit commitment could be terminated, and any outstanding borrowings under the facility could be declared immediately due and payable. We have contemplated various alternative actions that could be pursued if we believe a violation of the covenant seemed likely to occur in the future. These actions include reductions in discretionary capital or other types of controllable expenditures, monetization of assets, amending or renegotiating the revolving credit agreement, accessing capital markets through a variety of alternative methods, or any combination of these alternatives.
Term Loan Facility
On September 29, 2015, Nabors Delaware entered into a new five-year unsecured term loan facility for $325.0 million, which was fully and unconditionally guaranteed by us. The term loan facility contained a mandatory prepayment of $162.5 million due in September 2018, which was repaid in December 2016 utilizing a portion of the proceeds received in connection with the 5.50% senior notes offering. In January 2017, we repaid the remaining $162.5 million term loan utilizing the proceeds received in connection with the 0.75% senior exchangeable notes and the facility was terminated.
Note 6 Common Shares
During the year ended December 31, 2017, we repurchased 3.1 million of our common shares in the open market for $18.1 million, all of which are held by our subsidiaries, and which are accounted for as treasury shares.
On February 23, 2018, a cash dividend of $0.06 per share was declared for shareholders of record on March 13, 2018. The dividend was paid on April 3, 2018 in the amount of $19.1 million and was charged to retained earnings in our condensed consolidated statements of changes in equity for the three months ended March 31, 2018.
Note 7 Commitments and Contingencies
Contingencies
Income Tax
We operate in a number of countries throughout the world and our tax returns filed in those jurisdictions are subject to review and examination by tax authorities within those jurisdictions. We do not recognize the benefit of income tax positions we believe are more likely than not to be disallowed upon challenge by a tax authority. If any tax authority successfully challenges our operational structure, intercompany pricing policies or the taxable presence of our subsidiaries in certain countries, if the terms of certain income tax treaties are interpreted in a manner that is adverse to our structure, or if we lose a material tax dispute in any country, our effective tax rate on our worldwide earnings could change substantially.
We have received an assessment from a tax authority in Latin America in connection with a 2007 income tax return. The assessment relates to the denial of depreciation expense deductions related to drilling rigs. Similar deductions were taken for tax year 2009. Although Nabors and its tax advisors believe these deductions are appropriate and intend to continue to defend our position, the contingency has been partially reserved. If we ultimately do not prevail, we estimate that we would be required to recognize additional tax expense for the entire contingency in the range of $3 million to $8 million.
In certain jurisdictions we have recognized deferred tax assets and liabilities. Judgment and assumptions are required in determining whether deferred tax assets will be fully or partially utilized. When we estimate that all or some portion of certain deferred tax assets such as net operating loss carryforwards will not be utilized, we establish a valuation allowance for the amount we determine to be more likely than not unrealizable. We continually evaluate strategies that could allow for future utilization of our deferred assets. Any change in the ability to utilize such deferred assets will be accounted for in the period of the event affecting the valuation allowance. If facts and circumstances cause us to change our expectations regarding future tax consequences, the resulting adjustments could have a material effect on our financial results or cash flow. At this time, we consider it more likely than not that we will have sufficient taxable income in the future that will allow us to realize the deferred tax assets that we have recognized. However, it is possible that some of our recognized deferred tax assets, relating to net operating loss carryforwards, could expire unused or could carryforward indefinitely without utilization. Therefore, unless we are able to generate sufficient taxable income from our component operations, a substantial valuation allowance to reduce our deferred tax assets may be required, which would materially increase our tax expense in the period the allowance is recognized and materially adversely affect our results of operations and statement of financial condition.
Self-Insurance
We estimate the level of our liability related to insurance and record reserves for these amounts in our condensed 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 and are actuarially supported. 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.
We self-insure for certain losses relating to workers’ compensation, employers’ liability, general liability, automobile liability and property damage. Some of our workers’ compensation, employers’ liability and marine employers’ liability claims are subject to a $3.0 million per-occurrence deductible; additionally, some of our automobile liability claims are subject to a $2.5 million deductible. General liability claims remain subject to a $5.0 million per-occurrence deductible. Our policies were renewed effective April 1, 2018 and remain subject to these same deductibles.
In addition, we are subject to a $5.0 million deductible for land rigs and for offshore rigs. This applies to all kinds of risks of physical damage except for named windstorms in the U.S. Gulf of Mexico for which we are self-insured.
Litigation
Nabors and its subsidiaries are defendants or otherwise involved in a number of lawsuits in the ordinary course of business. We estimate the range of our liability related to pending litigation when we believe the amount and range of loss can be estimated. We record our best estimate of a loss when the loss is considered probable. When a liability is probable and there is a range of estimated loss with no best estimate in the range, we record the minimum estimated liability related to the lawsuits or claims. As additional information becomes available, we assess the potential liability related to our pending litigation and claims and revise our estimates. Due to uncertainties related to the resolution of lawsuits and claims, the ultimate outcome may differ from our estimates. For matters where an unfavorable outcome is reasonably possible and significant, we disclose the nature of the matter and a range of potential exposure, unless an estimate cannot be made at the time of disclosure. In the opinion of management and based on liability accruals provided, our ultimate exposure with respect to these pending lawsuits and claims is not expected to have a material adverse effect on our consolidated financial position or cash flows, although they could have a material adverse effect on our results of operations for a particular reporting period.
In March 2011, the Court of Ouargla entered a judgment of approximately $24.7 million (at March 31, 2018 exchange rates) against us relating to alleged violations of Algeria’s foreign currency exchange controls, which require that goods and services provided locally be invoiced and paid in local currency. The case relates to certain foreign currency payments made to us by CEPSA, a Spanish operator, for wells drilled in 2006. Approximately $7.5 million of the total contract amount was paid offshore in foreign currency, and approximately $3.2 million was paid in local currency. The judgment includes fines and penalties of approximately four times the amount at issue. We have appealed the ruling based on our understanding that the law in question applies only to resident entities incorporated under Algerian law. An intermediate court of appeals upheld the lower court’s ruling, and we appealed the matter to the Supreme Court. On September 25, 2014, the Supreme Court overturned the verdict against us, and the case was reheard by the Ouargla Court of Appeals on March 22, 2015 in light of the Supreme Court’s opinion. On March 29, 2015, the Ouargla Court of Appeals reinstated the initial judgment against us. We have appealed this decision again to the Supreme Court. While our payments were consistent with our historical operations in the country, and, we believe, those of other multinational corporations there, as well as interpretations of the law by the Central Bank of Algeria, the ultimate resolution of this matter could result in a loss of up to $16.7 million in excess of amounts accrued.
On September 29, 2017, Nabors and Nabors Maple Acquisition Ltd. were sued, along with Tesco Corporation (“Tesco”) and its Board of Directors, in a putative shareholder class action filed in the United States District Court for the Southern District of Texas, Houston Division. The plaintiff alleges that the September 18, 2017 Preliminary Proxy Statement filed by Tesco with the United States Securities and Exchange Commission omitted material information with respect to the proposed transaction between Tesco and Nabors announced on August 14, 2017. The plaintiff claims that the omissions rendered the Proxy Statement false and misleading, constituting a violation of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934, and alleges liability by Nabors as a control person of Tesco. The court consolidated several matters and entered a lead plaintiff appointment order. Plaintiff recently filed their amended complaint, adding
Nabors Industries, Ltd. as a party. Nabors is preparing its motion to dismiss and will vehemently defend itself against the allegations.
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 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
|
|
|
|
2018
|
|
2019
|
|
2020
|
|
Thereafter
|
|
Total
|
|
|
|
(In thousands)
|
|
Financial standby letters of credit and other financial surety instruments
|
|
$
|
202,595
|
|
55,584
|
|
40
|
|
—
|
|
$
|
258,219
|
|
Note 8 Earnings (Losses) Per Share
ASC 260, Earnings per Share, requires companies to treat unvested share-based payment awards that have nonforfeitable rights to dividends or dividend equivalents as a separate class of securities in calculating earnings (losses) per share. We have granted and expect to continue to grant to employees restricted stock grants that contain nonforfeitable rights to dividends. Such grants are considered participating securities under ASC 260. As such, we are required to include these grants in the calculation of our basic earnings (losses) per share and calculate basic earnings (losses) per share using the two-class method. The two-class method of computing earnings per share is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared and participation rights in undistributed earnings.
Basic earnings (losses) per share is computed utilizing the two-class method and is calculated based on the weighted-average number of common shares outstanding during the periods presented.
Diluted earnings (losses) per share is computed using the weighted-average number of common and common equivalent shares outstanding during the periods utilizing the two-class method for stock options and unvested restricted stock. Shares issuable upon exchange of the $575 million 0.75% exchangeable notes are not included in the calculation of diluted earnings (losses) per share unless the exchange value of the notes exceeds their principal amount at the end of the relevant reporting period, in which case the notes will be accounted for as if the number of common shares that would be necessary to settle the excess are issued. Such shares are only included in the calculation of the weighted-average number of shares outstanding in our diluted earnings (losses) per share calculation, when the price of our shares exceeds $25.16 on the last trading day of the quarter, which did not occur during the three months ended March 31, 2018.
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,
|
|
|
|
|
2018
|
|
2017
|
|
|
(In thousands, except per share amounts)
|
BASIC EPS:
|
|
|
|
|
|
|
|
|
Net income (loss) (numerator):
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of tax
|
|
|
$
|
(143,587)
|
|
$
|
(147,628)
|
|
Less: net (income) loss attributable to noncontrolling interest
|
|
|
|
(539)
|
|
|
(917)
|
|
Less: accrued distribution on redeemable noncontrolling interest in subsidiary
|
|
|
|
(2,398)
|
|
|
—
|
|
Less: (earnings) losses allocated to unvested shareholders
|
|
|
|
3,360
|
|
|
3,811
|
|
Numerator for basic earnings per share:
|
|
|
|
|
|
|
|
|
Adjusted income (loss) from continuing operations, net of tax - basic
|
|
|
$
|
(143,164)
|
|
$
|
(144,734)
|
|
Income (loss) from discontinued operations, net of tax
|
|
|
$
|
(75)
|
|
$
|
(439)
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares outstanding - basic
|
|
|
|
308,788
|
|
|
277,781
|
|
Earnings (losses) per share:
|
|
|
|
|
|
|
|
|
Basic from continuing operations
|
|
|
$
|
(0.46)
|
|
$
|
(0.52)
|
|
Basic from discontinued operations
|
|
|
|
—
|
|
|
—
|
|
Total Basic
|
|
|
$
|
(0.46)
|
|
$
|
(0.52)
|
|
DILUTED EPS:
|
|
|
|
|
|
|
|
|
Adjusted income (loss) from continuing operations, net of tax - basic
|
|
|
$
|
(143,164)
|
|
$
|
(144,734)
|
|
Add: effect of reallocating undistributed earnings of unvested shareholders
|
|
|
|
—
|
|
|
—
|
|
Adjusted income (loss) from continuing operations, net of tax - diluted
|
|
|
$
|
(143,164)
|
|
$
|
(144,734)
|
|
Income (loss) from discontinued operations, net of tax
|
|
|
$
|
(75)
|
|
$
|
(439)
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares outstanding - basic
|
|
|
|
308,788
|
|
|
277,781
|
|
Add: dilutive effect of potential common shares
|
|
|
|
—
|
|
|
—
|
|
Weighted-average number of shares outstanding - diluted
|
|
|
|
308,788
|
|
|
277,781
|
|
Earnings (losses) per share:
|
|
|
|
|
|
|
|
|
Diluted from continuing operations
|
|
|
$
|
(0.46)
|
|
$
|
(0.52)
|
|
Diluted from discontinued operations
|
|
|
|
—
|
|
|
—
|
|
Total Diluted
|
|
|
$
|
(0.46)
|
|
$
|
(0.52)
|
|
|
|
|
|
|
|
|
|
|
For all periods presented, the computation of diluted earnings (losses) per share excludes outstanding stock options with exercise prices greater than the average market price of Nabors’ common shares, because their inclusion would be anti-dilutive and because they are not considered participating securities. For periods in which we experience a net loss from continuing operations, all potential common shares have been excluded from the calculation of weighted-average shares outstanding, because their inclusion would be anti-dilutive. The average number of options that were excluded from diluted earnings (losses) per share that would potentially dilute earnings per share in the future were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
|
|
2018
|
|
2017
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
Potentially dilutive securities excluded as anti-dilutive
|
|
|
|
4,534
|
|
|
4,648
|
|
In any period during which the average market price of Nabors’ common shares exceeds the exercise prices of these stock options, such stock options will be included in our diluted earnings (losses) per share computation using the if-converted method of accounting. Restricted stock is included in our basic and diluted earnings (losses) per share computation using the two-class method of accounting in all periods because such stock is considered participating securities.
Note 9 Supplemental Balance Sheet and Income Statement Information
Accrued liabilities included the following:
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
|
2018
|
|
2017
|
|
|
|
(In thousands)
|
|
Accrued compensation
|
|
$
|
105,571
|
|
$
|
130,970
|
|
Deferred revenue
|
|
|
202,712
|
|
|
218,370
|
|
Other taxes payable
|
|
|
18,042
|
|
|
32,095
|
|
Workers’ compensation liabilities
|
|
|
13,987
|
|
|
13,987
|
|
Interest payable
|
|
|
27,587
|
|
|
65,642
|
|
Litigation reserves
|
|
|
21,394
|
|
|
18,830
|
|
Current liability to discontinued operations
|
|
|
5,978
|
|
|
6,074
|
|
Dividends declared and payable
|
|
|
19,052
|
|
|
17,148
|
|
Other accrued liabilities
|
|
|
17,971
|
|
|
29,928
|
|
|
|
$
|
432,294
|
|
$
|
533,044
|
|
Other, net included the following:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
|
|
2018
|
|
2017
|
|
|
(In thousands)
|
Losses (gains) on sales, disposals and involuntary conversions of long-lived assets
|
|
|
$
|
2,257
|
|
$
|
2,875
|
|
Transaction related costs (1)
|
|
|
|
7,044
|
|
|
—
|
|
Litigation expenses and reserves
|
|
|
|
3,600
|
|
|
821
|
|
Foreign currency transaction losses (gains)
|
|
|
|
2,522
|
|
|
876
|
|
(Gain) loss on debt buyback
|
|
|
|
—
|
|
|
8,596
|
|
Other losses (gains)
|
|
|
|
(1,334)
|
|
|
342
|
|
|
|
|
$
|
14,089
|
|
$
|
13,510
|
|
|
(1)
|
|
Represents transaction related costs, including professional fees, severances, facility closure costs and other cost rationalization items, primarily in connection with the acquisition of Tesco.
|
The changes in accumulated other comprehensive income (loss), by component, included the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains
|
|
gains (losses)
|
|
Defined
|
|
|
|
|
|
|
|
|
|
(losses) on
|
|
on available-
|
|
benefit
|
|
Foreign
|
|
|
|
|
|
|
cash flow
|
|
for-sale
|
|
pension plan
|
|
currency
|
|
|
|
|
|
|
hedges
|
|
securities
|
|
items
|
|
items
|
|
Total
|
|
|
|
(In thousands (1) )
|
|
As of January 1, 2017
|
|
$
|
(1,296)
|
|
$
|
14,235
|
|
$
|
(3,760)
|
|
$
|
(21,298)
|
|
$
|
(12,119)
|
|
Other comprehensive income (loss) before reclassifications
|
|
|
—
|
|
|
(3,201)
|
|
|
—
|
|
|
3,860
|
|
|
659
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
|
93
|
|
|
—
|
|
|
31
|
|
|
—
|
|
|
124
|
|
Net other comprehensive income (loss)
|
|
|
93
|
|
|
(3,201)
|
|
|
31
|
|
|
3,860
|
|
|
783
|
|
As of March 31, 2017
|
|
$
|
(1,203)
|
|
$
|
11,034
|
|
$
|
(3,729)
|
|
$
|
(17,438)
|
|
$
|
(11,336)
|
|
|
(1)
|
|
All amounts are net of tax.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains
|
|
gains (losses)
|
|
Defined
|
|
|
|
|
|
|
|
|
|
(losses) on
|
|
on available-
|
|
benefit
|
|
Foreign
|
|
|
|
|
|
|
cash flow
|
|
for-sale
|
|
pension plan
|
|
currency
|
|
|
|
|
|
|
hedges
|
|
securities
|
|
items
|
|
items
|
|
Total
|
|
|
|
(In thousands (1) )
|
|
As of January 1, 2018
|
|
$
|
(922)
|
|
$
|
9,144
|
|
$
|
(4,111)
|
|
$
|
7,074
|
|
$
|
11,185
|
|
Other comprehensive income (loss) before reclassifications
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(9,343)
|
|
|
(9,343)
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
|
109
|
|
|
—
|
|
|
42
|
|
|
—
|
|
|
151
|
|
Adoption of ASU No. 2016-01
|
|
|
—
|
|
|
(9,144)
|
|
|
—
|
|
|
—
|
|
|
(9,144)
|
|
Net other comprehensive income (loss)
|
|
|
109
|
|
|
(9,144)
|
|
|
42
|
|
|
(9,343)
|
|
|
(18,336)
|
|
As of March 31, 2018
|
|
$
|
(813)
|
|
$
|
—
|
|
$
|
(4,069)
|
|
$
|
(2,269)
|
|
$
|
(7,151)
|
|
|
(1)
|
|
All amounts are net of tax.
|
The line items that were reclassified to net income included the following:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
|
|
2018
|
|
2017
|
|
|
(In thousands)
|
Interest expense
|
|
|
$
|
140
|
|
$
|
153
|
|
General and administrative expenses
|
|
|
|
54
|
|
|
50
|
|
Total income (loss) from continuing operations before income tax
|
|
|
|
(194)
|
|
|
(203)
|
|
Tax expense (benefit)
|
|
|
|
(43)
|
|
|
(79)
|
|
Reclassification adjustment for (gains)/ losses included in net income (loss)
|
|
|
$
|
(151)
|
|
$
|
(124)
|
|
Note 10 Assets Held for Sale and Discontinued Operations
Assets Held for Sale
Assets held for sale as of March 31, 2018 and December 31, 2017 was $36.4 million and $37.1 million, respectively. These assets consisted primarily of our oil and gas holdings which are mainly in the Horn River basin in western Canada of $25.3 million and $25.9 million, respectively, as of the periods noted above and the operating results have been reflected in discontinued operations. The remainder represents assets that meet the criteria to be classified as assets held for sale, but do not represent a disposal of a component of an entity or a group of components of an entity representing a strategic shift that has or will have a major effect on the entity's operations and financial results.
The carrying value of our assets held for sale represents the lower of carrying value or fair value less costs to sell. We continue to market these properties at prices that are reasonable compared to current fair value.
We have contracts with pipeline companies to pay specified fees based on committed volumes for gas transport and processing associated with these properties held for sale. At March 31, 2018, our undiscounted contractual commitments for these contracts approximated $9.0 million and we had liabilities of $6.9 million, $6.0 million of which were classified as current and were included in accrued liabilities. At December 31, 2017, our undiscounted contractual commitments for these contracts approximated $11.2 million and we had liabilities of $8.5 million, $6.1 million of which were classified as current and were included in accrued liabilities.
The amounts at each balance sheet date represented our best estimate of the fair value of the excess capacity of the pipeline commitments calculated using a discounted cash flow model, when considering our disposal plan, current production levels, natural gas prices and expected utilization of the pipeline over the remaining contractual term. Decreases in actual production or natural gas prices could result in future charges related to excess pipeline commitments.
Discontinued Operations
Our condensed statements of income (loss) from discontinued operations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
(In thousands)
|
Operating revenues (1)
|
|
|
$
|
1,643
|
|
|
$
|
2,034
|
|
Income (loss) from Oil & Gas discontinued operations:
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
|
$
|
(452)
|
|
|
$
|
(590)
|
|
Less: Impairment charges or other (gains) and losses on sale of wholly owned assets
|
|
|
|
36
|
|
|
|
20
|
|
Less: Income tax expense (benefit)
|
|
|
|
(413)
|
|
|
|
(171)
|
|
Income (loss) from Oil and Gas discontinued operations, net of tax
|
|
|
$
|
(75)
|
|
|
$
|
(439)
|
|
|
(1)
|
|
Reflects operating revenues of our historical oil and gas operating segment.
|
Note 11 Segment Information
The following table sets forth financial information with respect to our reportable operating segments:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
|
|
2018
|
|
2017
|
|
|
(In thousands)
|
Operating revenues:
|
|
|
|
|
|
|
|
|
U.S. Drilling
|
|
|
$
|
241,002
|
|
$
|
161,934
|
|
Canada Drilling
|
|
|
|
31,887
|
|
|
27,808
|
|
International Drilling
|
|
|
|
368,845
|
|
|
338,223
|
|
Drilling Solutions
|
|
|
|
62,648
|
|
|
27,365
|
|
Rig Technologies
|
|
|
|
64,669
|
|
|
44,076
|
|
Other reconciling items (1)
|
|
|
|
(34,857)
|
|
|
(36,856)
|
|
Total
|
|
|
$
|
734,194
|
|
$
|
562,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
|
|
2018
|
|
2017
|
|
|
(In thousands)
|
Adjusted operating income (loss): (2)
|
|
|
|
|
|
|
|
|
U.S. Drilling
|
|
|
$
|
(19,746)
|
|
$
|
(63,182)
|
|
Canada Drilling
|
|
|
|
(592)
|
|
|
(4,011)
|
|
International Drilling
|
|
|
|
24,536
|
|
|
11,974
|
|
Drilling Solutions
|
|
|
|
8,721
|
|
|
(978)
|
|
Rig Technologies
|
|
|
|
(12,976)
|
|
|
(8,131)
|
|
Total segment adjusted operating income (loss)
|
|
|
$
|
(57)
|
|
$
|
(64,328)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
|
|
2018
|
|
2017
|
|
|
(In thousands)
|
Reconciliation of segment adjusted operating income (loss) to net income (loss) from continuing operations before income taxes:
|
|
|
|
|
|
|
|
|
Total segment adjusted operating income (loss) (2)
|
|
|
$
|
(57)
|
|
$
|
(64,328)
|
|
Other reconciling items (3)
|
|
|
|
(44,977)
|
|
|
(39,604)
|
|
Earnings (losses) from unconsolidated affiliates
|
|
|
|
2
|
|
|
2
|
|
Investment income (loss)
|
|
|
|
465
|
|
|
721
|
|
Interest expense
|
|
|
|
(61,386)
|
|
|
(56,518)
|
|
Other, net
|
|
|
|
(14,089)
|
|
|
(13,510)
|
|
Income (loss) from continuing operations before income taxes
|
|
|
$
|
(120,042)
|
|
$
|
(173,237)
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
|
2018
|
|
2017
|
|
|
|
(In thousands)
|
|
Total assets:
|
|
|
|
|
|
|
|
U.S. Drilling
|
|
$
|
3,152,505
|
|
$
|
3,203,560
|
|
Canada Drilling
|
|
|
346,240
|
|
|
347,773
|
|
International Drilling
|
|
|
3,517,325
|
|
|
3,540,829
|
|
Drilling Solutions
|
|
|
192,276
|
|
|
182,162
|
|
Rig Technologies
|
|
|
461,216
|
|
|
459,665
|
|
Other reconciling items (3)
|
|
|
630,268
|
|
|
667,995
|
|
Total
|
|
$
|
8,299,830
|
|
$
|
8,401,984
|
|
|
(1)
|
|
Represents the elimination of inter-segment transactions.
|
|
(2)
|
|
Adjusted operating income (loss) is computed by subtracting the sum of direct costs, general and administrative expenses, research and engineering expenses and depreciation and amortization from operating revenues. Management evaluates the performance of our operating segments using adjusted operating income (loss), which is a segment performance measure, because it believes that this financial measure reflects our ongoing profitability and performance. In addition, securities analysts and investors use this measure as one of the metrics on which they analyze our performance. A reconciliation to income (loss) from continuing operations before income taxes is provided in the above table.
|
|
(3)
|
|
Represents the elimination of inter-segment transactions and unallocated corporate expenses, assets and capital expenditures.
|
Note 12 Revenue Recognition
On January 1, 2018, we adopted Topic 606, Revenue from Contracts with Customers (ASC 606). Under ASC 606, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration we expect to receive in exchange for those goods or services. In addition, ASC 606 requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.
We elected to adopt the standard using the modified retrospective method to all contracts that were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for the prior period. There was no impact to our consolidated financial statements as a result of adopting ASC 606.
We recognize revenue when control of a good or service promised in a contract (i.e., performance obligation) is transferred to a customer. Control is obtained when a customer has the ability to direct the use of and obtain substantially all of the remaining benefits from that good or service. Contract drilling revenues are recorded over time utilizing the input method based on time elapsed. The measurement of progress considers the transfer of the service to the customer as we provide daily drilling services. We receive payment after the services have been performed by billing customers periodically (typically monthly). However, a portion of our revenues are recognized at a point-in-time as control is transferred at a distinct point in time such as with the sale of our top drives and other capital equipment. Within our drilling contracts, we have identified one performance obligation in which the transaction price is allocated.
Disaggregation of revenue
In the following table, revenue is disaggregated by geographical region. The table also includes a reconciliation of the disaggregated revenue with the reportable segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31, 2018
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Drilling
|
|
|
Canada Drilling
|
|
|
International Drilling
|
|
|
Drilling Solutions
|
|
|
Rig Technologies
|
|
|
Other
|
|
|
Total
|
|
|
(In thousands)
|
Lower 48
|
|
$
|
204,592
|
|
$
|
—
|
|
$
|
—
|
|
$
|
44,273
|
|
$
|
50,597
|
|
$
|
—
|
|
$
|
299,462
|
U.S. Offshore Gulf of Mexico
|
|
|
20,991
|
|
|
—
|
|
|
—
|
|
|
3,299
|
|
|
—
|
|
|
—
|
|
|
24,290
|
Alaska
|
|
|
15,419
|
|
|
—
|
|
|
—
|
|
|
566
|
|
|
136
|
|
|
—
|
|
|
16,121
|
Canada
|
|
|
—
|
|
|
31,887
|
|
|
—
|
|
|
2,290
|
|
|
3,391
|
|
|
—
|
|
|
37,568
|
Middle East & Asia
|
|
|
—
|
|
|
—
|
|
|
233,857
|
|
|
7,725
|
|
|
5,208
|
|
|
—
|
|
|
246,790
|
Latin America
|
|
|
—
|
|
|
—
|
|
|
83,883
|
|
|
3,984
|
|
|
1,658
|
|
|
—
|
|
|
89,525
|
Europe, Africa & CIS
|
|
|
—
|
|
|
—
|
|
|
51,105
|
|
|
511
|
|
|
3,679
|
|
|
—
|
|
|
55,295
|
Eliminations & other
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(34,857)
|
|
|
(34,857)
|
As of March 31, 2018
|
|
$
|
241,002
|
|
$
|
31,887
|
|
$
|
368,845
|
|
$
|
62,648
|
|
$
|
64,669
|
|
$
|
(34,857)
|
|
$
|
734,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31, 2017
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Drilling
|
|
|
Canada Drilling
|
|
|
International Drilling
|
|
|
Drilling Solutions
|
|
|
Rig Technologies
|
|
|
Other
|
|
|
Total
|
|
|
(In thousands)
|
Lower 48
|
|
$
|
137,223
|
|
$
|
—
|
|
$
|
—
|
|
$
|
22,318
|
|
$
|
38,659
|
|
$
|
—
|
|
$
|
198,200
|
U.S. Offshore Gulf of Mexico
|
|
|
13,306
|
|
|
—
|
|
|
—
|
|
|
85
|
|
|
—
|
|
|
—
|
|
|
13,391
|
Alaska
|
|
|
11,405
|
|
|
—
|
|
|
—
|
|
|
1,131
|
|
|
126
|
|
|
—
|
|
|
12,662
|
Canada
|
|
|
—
|
|
|
27,808
|
|
|
—
|
|
|
1,983
|
|
|
1,976
|
|
|
—
|
|
|
31,767
|
Middle East & Asia
|
|
|
—
|
|
|
—
|
|
|
196,260
|
|
|
1,303
|
|
|
3,315
|
|
|
—
|
|
|
200,878
|
Latin America
|
|
|
—
|
|
|
—
|
|
|
93,444
|
|
|
516
|
|
|
—
|
|
|
—
|
|
|
93,960
|
Europe, Africa & CIS
|
|
|
—
|
|
|
—
|
|
|
48,519
|
|
|
29
|
|
|
—
|
|
|
—
|
|
|
48,548
|
Eliminations & other
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(36,856)
|
|
|
(36,856)
|
As of March 31, 2017
|
|
$
|
161,934
|
|
$
|
27,808
|
|
$
|
338,223
|
|
$
|
27,365
|
|
$
|
44,076
|
|
$
|
(36,856)
|
|
$
|
562,550
|
Contract balances
We perform our obligations under a contract with a customer by transferring goods or services in exchange for consideration from the customer. We recognize a contract asset or liability when we transfer goods or services to a customer and bill an amount which differs from the revenue allocated to the related performance obligations.
The timing of revenue recognition may differ from the timing of invoicing to customers and these timing differences result in receivables, contract assets, or contract liabilities (deferred revenue) on our condensed consolidated balance sheet. In general, we receive payments from customers based on dayrates as stipulated in our contracts (i.e. operating rate, standby rate). The invoices billed to the customer are based on the varying rates applicable to the operating status on each rig. Accounts receivable are recorded when the right to consideration becomes unconditional.
Dayrate contracts also may contain fees charged to the customer for up-front rig modifications, mobilization and demobilization of equipment and personnel. These fees are associated with contract fulfillment activities, and the related revenue (subject to any constraint on estimates of variable consideration) is allocated to a single performance obligation and recognized ratably over the initial term of the contract. Mobilization fees are generally billable to the customer in the initial phase of a contract and generate contract liabilities until they are recognized as revenue. Demobilization fees are generally received at the end of the contract and generate contract assets when they are recognized as revenue prior to becoming receivables from the customer.
We receive reimbursements from our customers for the purchase of supplies, equipment, personnel services and other services provided at their request. Reimbursable revenues are variable and subject to uncertainty as the amounts received and timing thereof are dependent on factors outside of our influence. Accordingly, these revenues are constrained and not recognized until the uncertainty is resolved, which typically occurs when the related costs are incurred on behalf of the customer. We are generally considered a principal in these transactions and record the associated revenues at the gross amounts billed to the customer.
The opening and closing balances of our receivables, contract assets and current and long-term contract liabilities are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract
|
|
Contract
|
|
Contract
|
|
Contract
|
|
|
Contract
|
|
Assets
|
|
Assets
|
|
Liabilities
|
|
Liabilities
|
|
|
Receivables
|
|
(Current)
|
|
(Long-term)
|
|
(Current)
|
|
(Long-term)
|
|
|
|
As of December 31, 2017
|
|
$
|
738.0
|
|
$
|
67.0
|
|
$
|
46.9
|
|
$
|
218.4
|
|
$
|
135.0
|
As of March 31, 2018
|
|
$
|
772.0
|
|
$
|
66.7
|
|
$
|
36.5
|
|
$
|
202.7
|
|
$
|
106.0
|
Approximately 58% of the contract liability balance at the beginning of the period is expected to be recognized as revenue during 2018, of which 15% was recognized during the three months ended March 31, 2018, and 26% is expected to be recognized during 2019. The remaining 16% of the contract liability balance at the beginning of the period is included within other long-term liabilities and expected to be recognized as revenue during 2020 or thereafter. Additionally, 62% of the contract asset balance at the beginning of the period is expected to be recognized as expense during 2018, of which 17% was recognized during the three months ended March 31, 2018, and 30% is expected to be recognized during 2019. The remaining 8% of the contract asset balance at the beginning of the period is included within other long-term assets and expected to be recognized as expense during 2020 or thereafter. This disclosure does not include variable consideration allocated entirely to a wholly unsatisfied performance obligation or promise to transfer a distinct good or service that forms part of a single performance obligation.