UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 20, 2002
NABORS INDUSTRIES LTD.
(Exact name of registrant as specified in its charter)
Bermuda 000-49887 980363970
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
c/o The Corporate Secretary Ltd.
White Park House
Whitepark Road
Bridgetown, Barbados N/A
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (246) 228-1590
N/A
(Former name or former address, if changed since last report)
NABORS INDUSTRIES LTD.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Item 5. Other Information
Consolidated Financial Statements
Introduction to Financial Statements............................... 1
Consolidated Balance Sheets as of
December 31, 2001 and 2000....................................... 2
Consolidated Statements of
Income for the Years Ended
December 31, 2001, 2000 and 1999................................. 3
Consolidated Statements of Cash
Flows for the Years Ended
December 31, 2001, 2000 and 1999................................. 4
Consolidated Statements of
Changes in Stockholders' Equity for
the Years Ended December 31, 2001, 2000 and 1999................. 5
Notes to Consolidated Financial Statements......................... 7
Report of Independent Accountants.................................. 35
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits......................................................... 36
Signatures......................................................... 37
EXPLANATORY NOTE
Effective June 24, 2002, Nabors Industries Ltd., a Bermuda exempted
company (Nabors), became the successor to Nabors Industries, Inc., a Delaware
corporation (Nabors Delaware), following a corporate reorganization. The
reorganization was accomplished through the merger of an indirect, newly formed
Delaware subsidiary owned by Nabors into Nabors Delaware. Nabors Delaware was
the surviving company in the merger and became a wholly-owned, indirect
subsidiary of Nabors. Upon consummation of the merger, all outstanding shares of
Nabors Delaware common stock automatically converted into the right to receive
Nabors common shares, with the result that the shareholders of Nabors Delaware
on the date of the merger became the shareholders of Nabors. Nabors and its
subsidiaries continue to conduct the businesses previously conducted by Nabors
Delaware and its subsidiaries. The reorganization has been accounted for as a
reorganization of entities under common control and accordingly, it did not
result in any changes to the consolidated amounts of assets, liabilities and
stockholders' equity.
Item 5. OTHER INFORMATION
INTRODUCTION TO FINANCIAL STATEMENTS
As previously reported in our Form 10-K for the year ended December 31, 2001 and
our Forms 10-Q for the first and second quarters ended March 31, 2002 and June
30, 2002, respectively, we adopted the following new accounting pronouncements
during the first six months of 2002. Effective April 1, 2002, we adopted
Statement of Financial Accounting Standards (SFAS) No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections". As a result, we no longer classify gains and losses from
extinguishment of debt that are usual and frequent as extraordinary items and,
as required by SFAS No. 145, we reclassified to other income any similar debt
extinguishment items that had been reported as extraordinary items in
comparative prior periods. Additionally, we adopted Emerging Issues Task Force
(EITF) No. 01-14, "Income Statement Characterization of Reimbursements Received
for Out-of-Pocket Expenses Incurred", in the second quarter of 2002. Previously,
we recognized reimbursements received as a reduction to the related direct
costs. EITF 01-14 requires that reimbursements received from our customers be
recorded in operating revenues and "out-of-pocket" expenses be recorded in
direct costs. The transition provisions of these accounting pronouncements
require comparative prior periods to reflect reclassifications consistent with
the pronouncements not later than the time of our next audited financial
statements. We have elected to reflect these reclassifications in this report
for our consolidated financial statements for each of the three years in the
period ended December 31, 2001.
In addition, as of January 1, 2002, we adopted SFAS No. 142, "Goodwill and Other
Intangible Assets", and therefore no longer amortize goodwill. The effect of
eliminating goodwill amortization on the three years in the period ended
December 31, 2001 is not reflected in the consolidated financial statements
included in this report, but is disclosed in Note 1, as required by
SFAS No. 142.
The following sets forth our selected financial data for the periods specified
below:
NABORS INDUSTRIES LTD.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(In thousands, except per share amounts)
Twelve Months
Six Months Ended Ended Three Months
June 30, December 31, Ended Year Ended
(Unaudited) Year Ended December 31, (Unaudited) December 31, September 30,
---------------------- ---------------------------------------------- ------------ ------------ -------------
2002 2001 2001 2000 1999 1998 1997 1997 1997
---------- ---------- ---------- ---------- ---------- ---------- ------------ ------------ -------------
Operating
revenues $ 721,959 $1,132,404 $2,191,183 $1,377,453 $ 666,429 $ 968,462 $1,114,758 $ 302,831 $1,028,853
Net income 67,362 187,153 357,450 137,356 27,704 124,988 136,020 41,327 114,808
Net income per
diluted share $ .45 $ 1.14 $ 2.24 $ .90 $ .23 $ 1.16 $ 1.24 $ .37 $ 1.08
Dividends per
common share -- -- -- -- -- -- -- -- --
Total assets 4,432,778 4,180,581 4,151,915 3,136,868 2,398,003 1,465,907 1,281,306 1,234,232
Long-term
obligations 1,582,183 1,707,390 1,567,616 854,777 482,600 217,034 226,299 229,507
Stockholders'
equity $2,163,843 $1,864,912 $1,857,866 $1,806,468 $1,470,074 $ 867,469 $ 767,340 $ 727,843
1
NABORS INDUSTRIES LTD.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
-------------------------
2001 2000
----------- -----------
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 198,443 $ 197,312
Marketable securities..................................... 343,169 138,939
Accounts receivable, net.................................. 361,086 350,302
Inventory and supplies.................................... 18,515 18,029
Deferred income taxes..................................... 28,145 27,816
Prepaid expenses and other current assets................. 81,588 71,218
---------- ----------
Total current assets.............................. 1,030,946 803,616
Marketable securities....................................... 377,025 214,702
Property, plant and equipment, net.......................... 2,433,247 1,821,392
Goodwill, net............................................... 199,048 192,181
Other long-term assets...................................... 111,649 104,977
---------- ----------
Total assets...................................... $4,151,915 $3,136,868
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations.................. $ 2,510 $ 3,554
Trade accounts payable.................................... 131,821 139,162
Accrued liabilities....................................... 168,022 113,010
Income taxes payable...................................... 27,777 23,453
---------- ----------
Total current liabilities......................... 330,130 279,179
Long-term obligations....................................... 1,567,616 854,777
Other long-term liabilities................................. 110,902 99,147
Deferred income taxes....................................... 285,401 97,297
---------- ----------
Total liabilities................................. 2,294,049 1,330,400
---------- ----------
Commitments and contingencies (Note 11)
Stockholders' equity:
Common stock, par value $.10 per share:
Authorized common shares 400,000; issued 147,711 and
147,155............................................... 14,771 14,715
Capital in excess of par value............................ 1,091,536 1,145,847
Accumulated other comprehensive income.................... 3,260 7,094
Retained earnings......................................... 1,001,079 643,629
Less treasury stock, at cost, 6,822 and 589 common
shares................................................. (252,780) (4,817)
---------- ----------
Total stockholders' equity........................ 1,857,866 1,806,468
---------- ----------
Total liabilities and stockholders' equity........ $4,151,915 $3,136,868
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
2
NABORS INDUSTRIES LTD.
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
2001 2000 1999
(as reclassified (as reclassified (as reclassified
see Note 1) see Note 1) see Note 1)
----------------- ------------------ ----------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenues and other income:
Operating revenues...................................... $2,191,183 $1,377,453 $666,429
Earnings from unconsolidated affiliates................. 36,887 37,490 3,757
Interest income......................................... 53,973 20,581 8,756
Other income, net....................................... 28,650 27,157 8,860
---------- ---------- --------
Total revenues and other income................. 2,310,693 1,462,681 687,802
---------- ---------- --------
Cost and other deductions:
Direct costs............................................ 1,366,967 938,651 446,597
General and administrative expenses..................... 135,496 106,504 65,288
Depreciation and amortization........................... 189,896 152,413 99,893
Interest expense........................................ 60,722 35,370 30,395
---------- ---------- --------
Total costs and other deductions................ 1,753,081 1,232,938 642,173
---------- ---------- --------
Income before income taxes................................ 557,612 229,743 45,629
---------- ---------- --------
Income taxes (benefits):
Current................................................. 83,718 19,594 (2,478)
Deferred................................................ 116,444 72,793 20,403
---------- ---------- --------
Total income taxes.............................. 200,162 92,387 17,925
---------- ---------- --------
Net income................................................ $ 357,450 $ 137,356 $ 27,704
---------- ---------- --------
Earnings per share:
Basic................................................... $ 2.48 $ .95 $ .25
Diluted ................................................ $ 2.24 $ .90 $ .23
Weighted average number of shares outstanding:
Basic................................................... 144,430 144,344 111,395
---------- ---------- --------
Diluted................................................. 168,790 152,417 120,449
---------- ---------- --------
The accompanying notes are an integral part of these consolidated financial
statements.
3
NABORS INDUSTRIES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
------------------------------------------------------
2001 2000 1999
(as reclassified (as reclassified
see Note 1) see Note 1)
----------------- ---------------- ----------------
(IN THOUSANDS)
Cash flows from operating activities:
Net income............................................. $ 357,450 $ 137,356 $ 27,704
Adjustments to net income:
Depreciation and amortization....................... 189,896 152,413 99,893
Deferred income taxes............................... 116,444 72,793 20,403
Deferred financing costs amortization............... 6,339 183 --
Discount amortization on zero coupon debentures..... 31,832 6,625 --
Discount amortization of investments................ (180) -- --
Gains on disposition of long-term assets............ (10,246) (1,713) (2,915)
Losses (gains) on marketable securities and
warrants.......................................... 474 (18,800) (3,656)
Sales of marketable securities, trading............. -- 401 --
Foreign currency transaction (gains) losses......... (419) (1,441) 37
Equity in (earnings) losses from unconsolidated
affiliates, net of dividends...................... (26,386) (21,540) 343
Gains on early extinguishment of debt............... (15,330) (3,036) --
Other............................................... 457 1,715 241
Increase (decrease), net of effects from acquisitions,
from changes in:
Accounts receivable................................. 3,026 (144,659) 33,005
Inventory and supplies.............................. (791) 7,729 9,996
Prepaid expenses and other current assets........... (13,753) 17,688 (3,399)
Other long-term assets.............................. 18,017 (20,508) (8,031)
Trade accounts payable and accrued liabilities...... 30,576 11,283 (15,346)
Income taxes payable................................ 801 10,661 (10,497)
Other long-term liabilities......................... 6,698 12,298 (13,730)
----------- --------- ---------
Net cash provided by operating activities...... 694,905 219,448 134,048
----------- --------- ---------
Cash flows from investing activities:
Purchases of marketable securities,
available-for-sale.................................. (535,499) (325,286) (25,375)
Sales of marketable securities, available-for-sale..... 163,110 42,450 6,602
Cash received from disposition of long-term assets..... 15,067 7,523 5,650
Cash (paid for) received from acquisitions of
businesses, net..................................... (66,352) -- 6,332
Capital expenditures................................... (701,156) (300,637) (82,126)
Investments in unconsolidated affiliates............... -- -- (1,425)
----------- --------- ---------
Net cash used for investing activities......... (1,124,830) (575,950) (90,342)
----------- --------- ---------
Cash flows from financing activities:
Decrease (increase) in restricted cash................. 692 1,634 (1,060)
Proceeds from long-term borrowings..................... 840,338 501,941 324,707
Reduction of long-term obligations..................... (156,001) (136,434) (232,864)
Debt issuance costs.................................... (12,879) (6,810) (2,779)
Decrease in short-term borrowings, net................. -- -- (73,565)
Common stock transactions.............................. 8,219 112,979 5,687
Treasury stock transactions............................ (247,963) -- --
----------- --------- ---------
Net cash provided by financing activities................ 432,406 473,310 20,126
----------- --------- ---------
Effect of exchange rate changes on cash.................. (1,350) (76) --
----------- --------- ---------
Net increase in cash and cash equivalents................ 1,131 116,732 63,832
Cash and cash equivalents, beginning of period........... 197,312 80,580 16,748
----------- --------- ---------
Cash and cash equivalents, end of period................. $ 198,443 $ 197,312 $ 80,580
=========== ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
4
NABORS INDUSTRIES LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
ACCUMULATED OTHER
COMPREHENSIVE INCOME
----------------------------
UNREALIZED
COMMON STOCK CAPITAL IN GAINS (LOSSES) CUMULATIVE
------------------- EXCESS OF ON MARKETABLE TRANSLATION RETAINED
SHARES PAR VALUE PAR VALUE SECURITIES ADJUSTMENT EARNINGS
------- --------- ---------- -------------- ----------- ----------
(IN THOUSANDS)
Balances, December 31, 1998...... 101,382 $10,138 $ 394,562 $ (3,129) $(7,854) $ 478,569
------- ------- ---------- -------- ------- ----------
Comprehensive income:
Net income..................... 27,704
Translation adjustment......... 1,541
Unrealized gains on marketable
securities, net of income
taxes:
Unrealized holding gains
arising during the period,
net of income taxes of
$4,698..................... 7,999
Less: reclassification
adjustment for gains
included in net income, net
of income taxes of
$1,401..................... (2,385)
------- ------- ---------- -------- ------- ----------
Total comprehensive
income.................. -- -- -- 5,614 1,541 27,704
------- ------- ---------- -------- ------- ----------
Issuance of common shares for
stock options exercised........ 633 63 6,282
Issuance of common shares in
connection with the Bayard
acquisition.................... 6,167 617 74,230
Issuance of common shares in
connection with the Pool
acquisition.................... 19,743 1,974 282,879
Return and retirement of common
shares held in escrow in
connection with the Adcor
acquisition.................... (12) (1) 1
Conversion of 5% notes, net of
issuance costs................. 9,508 951 169,436
Tax effect of stock option
deductions..................... 31,314
------- ------- ---------- -------- ------- ----------
Subtotal................ 36,039 3,604 564,142 -- -- --
------- ------- ---------- -------- ------- ----------
Balances, December 31, 1999...... 137,421 $13,742 $ 958,704 $ 2,485 $(6,313) $ 506,273
------- ------- ---------- -------- ------- ----------
Comprehensive income:
Net income..................... 137,356
Translation adjustment......... (2,490)
Unrealized gains on marketable
securities, net of income
taxes:
Unrealized holding gains
arising during the period,
net of income taxes of
$13,771.................... 23,448
Less: reclassification
adjustment for gains
included in net income, net
of income taxes of
$5,894..................... (10,036)
------- ------- ---------- -------- ------- ----------
Total comprehensive
income................ -- -- -- 13,412 (2,490) 137,356
------- ------- ---------- -------- ------- ----------
Issuance of common shares for
stock options exercised........ 9,664 966 110,532
Issuance of common shares in
connection with the Bayard
warrants exercised............. 70 7 1,636
Tax effect of stock option
deductions..................... 75,137
Other............................ (162)
------- ------- ---------- -------- ------- ----------
Subtotal................ 9,734 973 187,143 -- -- --
------- ------- ---------- -------- ------- ----------
Balances, December 31, 2000...... 147,155 $14,715 $1,145,847 $ 15,897 $(8,803) $ 643,629
TOTAL
TREASURY STOCKHOLDERS'
STOCK EQUITY
--------- -------------
(IN THOUSANDS)
Balances, December 31, 1998...... $ (4,817) $ 867,469
--------- ----------
Comprehensive income:
Net income..................... 27,704
Translation adjustment......... 1,541
Unrealized gains on marketable
securities, net of income
taxes:
Unrealized holding gains
arising during the period,
net of income taxes of
$4,698..................... 7,999
Less: reclassification
adjustment for gains
included in net income, net
of income taxes of
$1,401..................... (2,385)
--------- ----------
Total comprehensive
income.................. -- 34,859
--------- ----------
Issuance of common shares for
stock options exercised........ 6,345
Issuance of common shares in
connection with the Bayard
acquisition.................... 74,847
Issuance of common shares in
connection with the Pool
acquisition.................... 284,853
Return and retirement of common
shares held in escrow in
connection with the Adcor
acquisition.................... --
Conversion of 5% notes, net of
issuance costs................. 170,387
Tax effect of stock option
deductions..................... 31,314
--------- ----------
Subtotal................ -- 567,746
--------- ----------
Balances, December 31, 1999...... $ (4,817) $1,470,074
--------- ----------
Comprehensive income:
Net income..................... 137,356
Translation adjustment......... (2,490)
Unrealized gains on marketable
securities, net of income
taxes:
Unrealized holding gains
arising during the period,
net of income taxes of
$13,771.................... 23,448
Less: reclassification
adjustment for gains
included in net income, net
of income taxes of
$5,894..................... (10,036)
--------- ----------
Total comprehensive
income................ -- 148,278
--------- ----------
Issuance of common shares for
stock options exercised........ 111,498
Issuance of common shares in
connection with the Bayard
warrants exercised............. 1,643
Tax effect of stock option
deductions..................... 75,137
Other............................ (162)
--------- ----------
Subtotal................ -- 188,116
--------- ----------
Balances, December 31, 2000...... $ (4,817) $1,806,468
5
ACCUMULATED OTHER
COMPREHENSIVE INCOME
----------------------------
UNREALIZED
COMMON STOCK CAPITAL IN GAINS (LOSSES) CUMULATIVE
------------------- EXCESS OF ON MARKETABLE TRANSLATION RETAINED
SHARES PAR VALUE PAR VALUE SECURITIES ADJUSTMENT EARNINGS
------- --------- ---------- -------------- ----------- ----------
(IN THOUSANDS)
------- ------- ---------- -------- ------- ----------
Balances, December 31, 2000...... 147,155 $14,715 $1,145,847 $ 15,897 $(8,803) $ 643,629
------- ------- ---------- -------- ------- ----------
Comprehensive income:
Net income..................... 357,450
Translation adjustment......... (347)
Unrealized losses on marketable
securities, net of income
taxes:
Unrealized holding losses
arising during the period,
net of income tax benefit
of $1,560.................. (2,657)
Less: reclassification
adjustment for losses
included in net income, net
of income tax benefit of
$488....................... (830)
------- ------- ---------- -------- ------- ----------
Total comprehensive
income................ -- -- -- (3,487) (347) 357,450
------- ------- ---------- -------- ------- ----------
Issuance of common shares for
stock options exercised........ 556 56 8,163
Tax effect of stock option
deductions..................... (62,474)
Repurchase of common shares......
------- ------- ---------- -------- ------- ----------
Subtotal................ 556 56 (54,311) -- -- --
------- ------- ---------- -------- ------- ----------
Balances, December 31, 2001...... 147,711 $14,771 $1,091,536 $ 12,410 $(9,150) $1,001,079
------- ------- ---------- -------- ------- ----------
TOTAL
TREASURY STOCKHOLDERS'
STOCK EQUITY
--------- -------------
(IN THOUSANDS)
--------- ----------
Balances, December 31, 2000...... $ (4,817) $1,806,468
--------- ----------
Comprehensive income:
Net income..................... 357,450
Translation adjustment......... (347)
Unrealized losses on marketable
securities, net of income
taxes:
Unrealized holding losses
arising during the period,
net of income tax benefit
of $1,560.................. (2,657)
Less: reclassification
adjustment for losses
included in net income, net
of income tax benefit of
$488....................... (830)
--------- ----------
Total comprehensive
income................ -- 353,616
--------- ----------
Issuance of common shares for
stock options exercised........ 8,219
Tax effect of stock option
deductions..................... (62,474)
Repurchase of common shares...... (247,963) (247,963)
--------- ----------
Subtotal................ (247,963) (302,218)
--------- ----------
Balances, December 31, 2001...... $(252,780) $1,857,866
--------- ----------
The accompanying notes are an integral part of these consolidated financial
statements.
6
NABORS INDUSTRIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
RECENT CORPORATE REORGANIZATION
Effective June 24, 2002, Nabors Industries Ltd., a Bermuda exempted
company (Nabors), became the successor to Nabors Industries, Inc., a Delaware
corporation (Nabors Delaware), following a corporate reorganization. The
reorganization was accomplished through the merger of an indirect, newly formed
Delaware subsidiary owned by Nabors into Nabors Delaware. Nabors Delaware was
the surviving company in the merger and became a wholly-owned, indirect
subsidiary of Nabors. Upon consummation of the merger, all outstanding shares of
Nabors Delaware common stock automatically converted into the right to receive
Nabors common shares, with the result that the shareholders of Nabors Delaware
on the date of the merger became the shareholders of Nabors. Nabors and its
subsidiaries continue to conduct the businesses previously conducted by Nabors
Delaware and its subsidiaries. The reorganization has been accounted for as a
reorganization of entities under common control and accordingly, it did not
result in any changes to the consolidated amounts of assets, liabilities and
stockholders' equity.
NATURE OF OPERATIONS
Nabors is the largest land drilling contractor in the world, with over 550
land drilling rigs. Nabors conducts oil, gas and geothermal land drilling
operations in the US Lower 48 states, Alaska and Canada, and internationally,
primarily in South and Central America, the Middle East and Africa. Nabors also
is one of the largest land well-servicing and workover contractors in the United
States. We own approximately 745 land workover and well-servicing rigs,
primarily in the southwestern and western United States and approximately 40
well-servicing and workover rigs in certain international markets. Nabors also
is a leading provider of offshore platform workover and drilling rigs. Nabors
markets 42 platform, 16 jackup and three barge rigs in the Gulf of Mexico and
international markets. These rigs provide well-servicing, workover and drilling
services. We also own and operate a net of nine rigs through an international
joint venture in Saudi Arabia (giving effect to Nabors' 50% interest in the
venture's 18 rigs).
To further supplement our primary business, we offer a number of ancillary
well-site services, including oilfield management, engineering, transportation,
construction, maintenance, well logging and other support services, in selected
domestic and international markets. Our land transportation and hauling fleet
includes 240 rig and oilfield equipment hauling tractor-trailers and a number of
cranes, loaders and light-duty vehicles. We also maintain over 290 fluid hauling
trucks, approximately 700 fluid storage tanks, eight saltwater disposal wells
and other auxiliary equipment used in domestic drilling and well-servicing
operations. In addition, we market a fleet of 30 marine transportation and
supply vessels primarily in the Gulf of Mexico that provides transportation of
drilling materials, supplies and crews for offshore rig operations and support
for other offshore operations and we manufacture and lease or sell top drives
for a broad range of drilling rig applications, rig instrumentation and data
collection equipment, and rig reporting software.
Our businesses depend to a large degree on the level of capital spending by
oil and gas companies for exploration, development and production activities.
Therefore, a sustained increase or decrease in the price of natural gas or oil,
which could have a material impact on exploration, development and production
activities, also could materially affect our financial position, results of
operations and cash flows.
PRINCIPLES OF CONSOLIDATION
Our consolidated financial statements include the accounts of Nabors and
all majority-owned subsidiaries. All significant intercompany accounts and
transactions are eliminated in consolidation. Certain immaterial
reclassifications have been made to prior years to conform to current period
presentation, with no effect on our consolidated financial position, results of
operations or cash flows.
Investments in entities where we have the ability to exert significant
influence, but where we do not control their operating and financial policies,
are accounted for using the equity method. Our share of the net income of these
entities is recorded as earnings from unconsolidated affiliates in the
consolidated statements of income, and our investment in these entities is
carried as a single amount in the consolidated balance sheets.
Although Nabors had a majority voting interest (51%) in an Argentine entity
prior to January 1, 2001, Nabors' ability to control the entity's operations was
restricted by certain substantive participating rights granted to the minority
shareholder. These rights included the unanimous approval of operating and
capital budgets by the board of directors, which included two representatives of
the minority shareholder. Additionally, the general manager of the entity was
subject to approval by the minority shareholder. Accordingly, we accounted for
this entity using the equity method of accounting prior to January 1, 2001,
since such participating rights allowed the minority shareholder to effectively
participate in decisions made
7
in the ordinary course of business. On January 1, 2001, we acquired the
remaining 49% of this Argentine operation, and therefore we have consolidated
these operations from that date (Note 2).
Investments in net assets of affiliated entities accounted for using the
equity method totaled $55.1 million and $47.3 million as of December 31, 2001
and 2000, respectively, and are included in other long-term assets in the
consolidated balance sheet.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include demand deposits and various other
short-term investments with original maturities of three months or less.
MARKETABLE SECURITIES
Marketable securities consist of equity securities, certificates of
deposit, corporate debt securities, US Government debt securities, government
agencies debt securities, foreign government debt securities, mortgage-backed
debt securities, mortgage-CMO debt securities and asset-backed debt securities.
Securities classified as available-for-sale or trading are stated at fair value.
Unrealized holding gains and losses for available-for-sale securities are
excluded from earnings and, until realized, are reported net of taxes in a
separate component of stockholders' equity. Unrealized and realized gains and
losses on securities classified as trading are reported in earnings currently.
In computing realized gains and losses on the sale of equity securities,
the specific identification method is used. In accordance with this method, the
cost of the equity securities sold is determined using the specific cost of the
security when originally purchased.
INVENTORY AND SUPPLIES
Inventory and supplies are composed of replacement parts and supplies held
for use in our drilling operations and top drives and drilling instrumentation
systems manufactured by our subsidiaries for resale. Inventory and supplies are
valued at the lower of weighted average cost or market value.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, including renewals and betterments, are
stated at cost, while maintenance and repairs are expensed currently. Interest
costs applicable to the construction of qualifying assets are capitalized as a
component of the cost of such assets. We provide for the depreciation of our
drilling and workover rigs using the units-of-production method over an
approximate 4,900-day period, with the exception of our jackup rigs which are
depreciated over an 8,030-day period, after provision for salvage value. When
our drilling and workover rigs are not operating, a depreciation charge is
provided using the straight-line method over an assumed depreciable life of 20
years, with the exception of our jackup rigs, where a 30-year depreciable life
is used. Effective October 1, 2001, we changed the depreciable lives of our
drilling and workover rigs from 4,200 to 4,900 active days, our jackup rigs from
4,200 to 8,030 active days and certain other drilling equipment lives, to better
reflect the estimated useful lives of these assets. The effect of this change in
accounting estimate was accounted for on a prospective basis beginning October
1, 2001 and increased net income by approximately $5.5 million ($.03 per diluted
share) for 2001.
Depreciation on buildings, well-servicing rigs, oilfield hauling and mobile
equipment, marine transportation and supply vessels, and other machinery and
equipment is computed using the straight-line method over the estimated useful
life of the asset after provision for salvage value (buildings -- 10 to 30
years; well-servicing rigs -- 15 to 25 years; marine transportation and supply
vessels -- 15 to 25 years; oilfield hauling and mobile equipment and other
machinery and equipment -- 3 to 10 years). Amortization of capitalized leases is
included in depreciation and amortization expense. Upon retirement or other
8
disposal of fixed assets, the cost and related accumulated depreciation are
removed from the respective accounts and any gains or losses are included in our
results of operations.
We review our assets for impairment when events or changes in circumstances
indicate that the net book values of equipment may not be recovered over their
remaining service lives. Provisions for asset impairment are charged to income
when the sum of estimated future cash flows, on an undiscounted basis, is less
than the asset's net book value. Impairment charges are recorded based on
discounted cash flows. There were no impairment losses during the years ended
December 31, 2001, 2000 and 1999.
GOODWILL
Goodwill represents the cost in excess of fair value of the net assets of
companies acquired (Note 2). Prior to January 1, 2002, goodwill was amortized
using the straight-line method over 30 years and was recorded net of accumulated
amortization of $16.1 million and $8.9 million as of December 31, 2001 and 2000,
respectively. Effective January 1, 2002, we adopted SFAS No. 142, Goodwill and
Other Intangible Assets. SFAS No. 142 supersedes APB Opinion No. 17, which
stated that goodwill acquired as a result of a purchase method business
combination and all other intangible assets are subject to amortization. APB No.
17 also mandated a maximum period of 40 years for that amortization. SFAS No.
142 presumes that all goodwill and intangible assets that have indefinite useful
lives will not be subject to amortization, but rather will be tested at least
annually for impairment. In addition, the standard provides specific guidance on
how to determine and measure goodwill impairment. Intangible assets that have
finite useful lives will continue to be amortized over their useful lives, but
without the constraint of a 40-year maximum amortization period.
INCOME TAXES
We do not provide US income and foreign withholding taxes on unremitted
earnings of our international subsidiaries as such earnings are considered
permanently reinvested. Unremitted earnings totaled approximately $212.0 million
and $125.0 million as of December 31, 2001 and 2000, respectively. It is not
practicable to estimate the amount of deferred income taxes associated with
these unremitted earnings.
Nabors realizes an income tax benefit associated with certain stock options
issued under its stock option plans. This benefit results in a reduction in
income taxes payable and an increase in capital in excess of par value.
REVENUE RECOGNITION
Revenues and costs on daywork contracts are recognized daily as the work
progresses, and revenues and costs applicable to footage and turnkey contracts
are recognized when the well is completed (completed contract method). For
certain contracts, we receive lump-sum payments for the mobilization of rigs and
other drilling equipment. Revenues earned, net of direct costs incurred for the
mobilization, 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.
Nabors recognizes revenue for those top drives and instrumentation systems
it manufactures for third parties when the earnings process is complete. This
generally occurs when products are shipped to the customer or services are
performed in accordance with the terms of the agreement, title and risk of loss
have been transferred, collectibility is probable and pricing is fixed and
determinable.
FOREIGN CURRENCY TRANSLATION
For certain foreign subsidiaries such as those in Canada and Saudi Arabia,
the local currency is the functional currency and therefore translation gains or
losses associated with foreign-denominated monetary accounts are accumulated in
a separate section of stockholders' equity. For our other international
9
subsidiaries, the US dollar is the functional currency and therefore,
transaction gains and losses are included in our results of operations.
REVISED PRESENTATION
We revised the presentation of our consolidated statements of income to the
single-step format during 2000. For comparative purposes, we have revised the
presentation of the comparable prior year period.
STOCK-BASED COMPENSATION
We account for stock-based compensation using the intrinsic value method
prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees. Accordingly, compensation cost for stock options is
measured as the excess, if any, of the quoted market price of Nabors common
stock at the date of grant over the amount an employee must pay to acquire the
common stock. We grant options at prices equal to the market price of our stock
on the date of grant and therefore do not record compensation costs related to
these grants.
SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information for 2001, 2000 and 1999 is as follows:
YEAR ENDED DECEMBER 31,
------------------------------
2001 2000 1999
-------- ------- ---------
(IN THOUSANDS)
Cash paid for income taxes........................... $ 82,831 $10,619 $ 9,506
Cash paid for interest, net of capitalized
interest........................................... 24,614 32,796 25,201
Acquisition of businesses:
Fair value of assets acquired...................... 111,106 -- 734,335
Goodwill........................................... 12,837 -- 162,700
Liabilities assumed or created..................... (54,372) -- (500,235)
Common stock of acquired company previously
owned........................................... -- -- (26,463)
Equity consideration issued........................ -- -- (359,700)
-------- ------- ---------
Cash paid for acquisitions......................... 69,571 -- 10,637
Cash acquired in acquisitions...................... (3,219) -- (16,969)
-------- ------- ---------
Cash paid (received) for acquisitions, net......... $ 66,352 $ -- $ (6,332)
-------- ------- ---------
10
FINANCIAL INSTRUMENTS AND RISK CONCENTRATION
The fair value of our fixed rate long-term debt is estimated based on
quoted market prices. The book and fair values of our long-term debt, including
the current portion, are as follows:
DECEMBER 31,
-------------------------------------------------
2001 2000
----------------------- -----------------------
BOOK VALUE FAIR VALUE BOOK VALUE FAIR VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
$1.381 billion zero coupon convertible
senior debentures, due 2021.......... $ 746,783 $ 668,151 $ -- $ --
$825 million zero coupon convertible
senior debentures, due 2020.......... 477,132 474,669 508,566 622,463
6.8% senior unsecured notes............ 300,000 315,150 300,000 302,040
8.625% senior subordinated notes....... 42,165 45,391 42,165 44,062
Other long-term obligations............ 4,046 4,046 7,600 7,600
---------- ---------- -------- --------
$1,570,126 $1,507,407 $858,331 $976,165
========== ========== ======== ========
Foreign Currency Risk
We operate in a number of international areas and are involved in
transactions denominated in currencies other than US dollars, which exposes us
to foreign exchange rate risk. The most significant exposures arise in
connection with our operations in Canada and Saudi Arabia, which usually are
substantially unhedged. There may be additional exposure from long-term
Riyal-denominated contracts in Saudi Arabia which are being converted to US
dollar-denominated contracts upon renewal.
We have an operation in Argentina that is not significant to our overall
profitability. Our Argentina operation contributed approximately 1% of our
revenues and less than 1% of our income before income taxes in 2001. As a result
of the financial crisis in Argentina, the Argentine government allowed their
currency, the peso, to float beginning in January 2002. The peso, which had been
pegged to the US dollar for several years, devalued approximately 115% through
February 2002. The impact of the devaluation on our results was insignificant as
we have an immaterial peso-denominated net liability.
At various times, we utilize local currency borrowings (foreign currency
denominated debt) and the payment structure of customer contracts to selectively
hedge exposure to exchange rate fluctuations in connection with monetary assets,
liabilities and cash flows denominated in certain foreign currencies. We do not
hold or issue forward exchange contracts or other derivative instruments for
speculative purposes. (A foreign exchange contract is a foreign currency
transaction, defined as an agreement to exchange different currencies at a given
date and at a specified rate.)
Credit Risk
Our financial instruments that potentially subject us to concentrations of
credit risk consist primarily of cash equivalents, investments in marketable
securities and accounts receivable. Cash equivalents such as deposits and
temporary cash investments are held by major banks or investment firms. Our
investments in marketable securities are managed within established guidelines
which limit the amounts that may be invested with any one issuer. We believe
that the credit risk in such instruments is minimal. In addition, our trade
receivables are with a variety of domestic, international and national oil and
gas companies. Management considers this credit risk to be limited due to the
financial resources of these companies.
Marketable Security Price Risk
We maintain an investment portfolio of marketable securities that
potentially exposes us to price risk. The marketable securities are carried at
fair market value and include $4.8 million in securities classified as trading
and $715.4 million in securities classified as available-for-sale as of December
31, 2001.
11
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make certain estimates and assumptions. These estimates and
assumptions affect the reported amounts of assets and liabilities, the
disclosures of contingent assets and liabilities at the balance sheet date and
the amounts of revenues and expenses recognized during the reporting period.
Actual results could differ from these estimates. Key estimates used by
management include:
- allowance for doubtful accounts;
- depreciation and amortization;
- tax estimates;
- litigation and insurance reserves;
- fair values of assets acquired and liabilities assumed.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,
Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets.
SFAS 141 requires all business combinations completed after June 30, 2001,
to be accounted for under the purchase method. This standard also establishes
for all business combinations consummated after June 30, 2001, specific criteria
for the recognition of intangible assets separately from goodwill.
SFAS 142 addresses the accounting for goodwill and other intangible assets
after an acquisition. The most significant changes made by SFAS 142 are: (1)
goodwill and intangible assets with indefinite lives will no longer be
amortized; (2) goodwill and intangible assets with indefinite lives must be
tested for impairment at least annually; and (3) the amortization period for
those intangible assets with finite lives will no longer be limited to 40 years.
We adopted SFAS 142 effective January 1, 2002, as required, and will no longer
record goodwill amortization expense.
If the provisions of SFAS 142 had been in effect during the periods prior
to January 1, 2002, goodwill amortization would not have been recorded,
increasing net income and earnings per share as follows:
Year Ended December 31,
--------------------------------------
2001 2000 1999
----------- ----------- -----------
(In thousands, except per share amounts)
Reported net income............................. $ 357,450 $ 137,356 $ 27,704
Add back: goodwill amortization,
net of related income tax benefit............. 4,608 3,540 1,159
----------- ----------- -----------
Adjusted net income............................. $ 362,058 $ 140,896 $ 28,863
=========== =========== ===========
Earnings per share:
Basic:
Reported net income........................ 2.48 .95 .25
Goodwill amortization...................... .03 .03 .01
----------- ----------- -----------
Adjusted net income........................ 2.51 .98 .26
=========== =========== ===========
Diluted:
Reported net income ....................... 2.24 .90 .23
Goodwill amortization ..................... .02 .02 .01
----------- ----------- -----------
Adjusted net income ....................... 2.26 .92 .24
=========== =========== ===========
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. This statement addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. Due to the nature of our business, this new
accounting pronouncement is not expected to have a significant impact on our
reported results of operations or financial position.
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets. This statement addresses financial accounting
and reporting for the impairment or disposal of long-lived assets. Due to the
nature of our business, this new accounting pronouncement is not expected to
have a significant impact on our reported results of operations or financial
position.
We adopted SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical Corrections", effective April
1, 2002. Due to the nature of our business, Accounting Standards Board (FASB)
44, 64 and Amendment of FASB 13 are not applicable. SFAS 145 eliminates SFAS No.
4, "Reporting Gains and Losses from Extinguishment of Debt", and states that
gains and losses from the extinguishment of debt should be classified as
extraordinary items only if they meet the criteria in Accounting Principles
Board (APB) Opinion No. 30, "Reporting the Results of Operations-Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions". APB 30 defines extraordinary
items as events and transactions that are distinguished by their unusual nature
and by the infrequency of their occurrence. Accordingly, we no longer classify
gains and losses from extinguishment of debt that are usual and frequent as
extraordinary items and we reclassified to other income any similar debt
extinguishment items that had been reported as extraordinary items in prior
accounting periods. In conjunction with adopting SFAS 145 in 2002, we
reclassified, for fiscal years 2001 and 2000, the following extraordinary losses
to other income with the related income tax component reclassified to income tax
expense respectively: $9.6 million, net of taxes of $5.7 million, and $1.9
million, net of taxes of $1.1 million, respectively. These reclassifications had
no impact on net income.
We adopted Emerging Issues Task Force (EITF) No. 01-14, "Income Statement
Characterization of Reimbursements Received for Out-of-Pocket Expenses
Incurred", in the current quarter. Previously, we recognized reimbursements
received as a reduction to the related direct costs. EITF 01-14 requires that
reimbursements received be included in operating revenues and "out-of-pocket"
expenses be included in direct costs. Accordingly, reimbursements received from
our customers have been reclassified to revenues for all periods presented. The
effect of adopting EITF 01-14 resulted in the following reclassifications to the
annual results for 2001, 2000 and 1999: operating revenues and direct costs were
increased from previously reported amounts by $70.0 million, $50.3 million and
$27.9 million, respectively. These reclassifications had no impact on net
income.
2. ACQUISITIONS
On November 13, 2001, we completed our acquisition of Command Drilling
Corporation in which we purchased all of Command's common stock at $3.35 per
share for a total purchase price of $102.3 million Canadian ($65.1 million US
dollars). Command owned 15 rigs that operate in the Canadian Rockies and
increased our existing Canadian fleet to 52 rigs. The Command acquisition was
accounted for using the purchase method of accounting and, accordingly,
Command's results of operations have been included in our consolidated financial
statements commencing on the effective date of the acquisition. The purchase
price for the Command acquisition has been initially allocated based on
preliminary estimates of the fair market value of the assets acquired and the
liabilities assumed as of the acquisition date. The purchase price allocation
for the Command acquisition is subject to adjustment as additional information
becomes available and will be finalized during 2002. The preliminary purchase
price allocated for the Command acquisition resulted in goodwill of
approximately $8.2 million.
12
On January 1, 2001, we purchased our partner's 49% interest in the
Argentina operation for $4.5 million and we now own 100% of the operation. The
acquisition was accounted for using the purchase method of accounting and,
accordingly, its results of operations have been included in our consolidated
financial statements commencing on the effective date of the acquisition. The
purchase price was allocated based on estimates of the fair market value of the
assets acquired and the liabilities assumed as of the acquisition date and
resulted in goodwill of approximately $4.7 million.
During November 1999, we completed our acquisition of Pool Energy Services
Co. Each of the approximately 19.2 million shares of Pool not owned by Nabors
prior to the merger was exchanged for 1.025 shares of our common stock
(approximately 19.7 million shares). Pool owned five drilling rigs in Alaska, 57
drilling and workover and well-servicing rigs in international areas (including
39 rigs operated through joint ventures), 22 offshore platform drilling rigs in
the Gulf of Mexico, and 650 active and 104 stacked workover and well-servicing
rigs in the United States. Pool also owned and operated 27 marine transportation
and supply vessels, more than 300 fluid hauling trucks and a large number of
fluid storage tanks.
During April 1999, we completed our acquisition of Bayard Drilling
Technologies, Inc. Each of the approximately 18.3 million shares of Bayard
common stock was exchanged for .3375 shares of our common stock and $.30 per
share in cash (approximately 6.2 million shares and $5.5 million in cash in the
aggregate). The acquisition of Bayard added 87 drilling rigs, 73 of which were
actively marketed. The majority of the rigs were located in Oklahoma and south
Texas, with the balance of the fleet located throughout east Texas and
Louisiana. In addition, Bayard had a significant inventory of new component
equipment including drill pipe, engines and high horsepower mud pumps. Bayard
also owned and operated a fleet of oilfield hauling equipment.
The Pool and Bayard acquisitions were accounted for using the purchase
method of accounting and, accordingly, Pool's and Bayard's results of operations
have been included in our consolidated financial statements commencing on the
effective date of each respective acquisition. The purchase price for both the
Pool and Bayard acquisitions was allocated based on estimates of the fair market
value of the assets acquired and the liabilities assumed as of the respective
acquisition dates and resulted in goodwill of approximately $161.3 million and
$27.7 million, respectively, which was amortized on a straight-line basis over
30 years prior to our January 1, 2002 adoption of SFAS 142.
The following unaudited pro forma summary of financial information presents
our consolidated statements of income as if the acquisitions of Pool and Bayard
had occurred as of January 1, 1999, after including the impact of certain
adjustments including: (1) the elimination of nonrecurring merger-related costs,
(2) reduced depreciation expense reflecting the reduction in value assigned to
property, plant and equipment, (3) increased amortization of goodwill, (4)
reduced interest expense associated primarily with the elimination of certain
financing costs and (5) the related income tax effects of these adjustments.
The pro forma financial information presented is only for those
acquisitions that are considered material to us and it does not purport to
indicate: (1) what the combined results of operations would have been had the
acquisitions occurred at the beginning of the periods presented or (2) the
results of operations that may be obtained in the future. Additionally, the pro
forma financial information presented
13
does not reflect any anticipated cost savings resulting from the integration of
Nabors', Pool's and Bayard's operations.
YEAR ENDED DECEMBER 31,
1999
-------------------------
AS REPORTED PRO FORMA
------------ ----------
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
Operating revenues and Earnings from unconsolidated
affiliates................................................ $670,186 $977,916
-------- --------
Net income.................................................. $ 27,704 $ 15,759
-------- --------
Net income per diluted share................................ $ .23 $ .11
-------- --------
Weighted average number of diluted shares outstanding....... 120,449 141,757
-------- --------
During November 1999, we purchased the remaining 50% of our US Lower 48
transportation joint venture from our partner for approximately $5.1 million in
cash and recorded approximately $2.8 million of goodwill.
3. CASH AND CASH EQUIVALENTS AND MARKETABLE SECURITIES
Our cash and cash equivalents, short-term and long-term marketable
securities consist of the following:
DECEMBER 31, 2001
------------------------------------------------
GROSS UNREALIZED GROSS UNREALIZED
FAIR VALUE HOLDING GAINS HOLDING LOSSES
---------- ---------------- ----------------
(IN THOUSANDS)
Cash and cash equivalents................... $198,443 $ -- $ --
Trading:
Equity securities......................... 4,826 1,704 --
Available-for-sale:
Equity securities......................... 51,727 6,805 (734)
Corporate debt securities................. 276,097 6,977 --
US Government debt securities............. 20,263 323 --
Government agencies debt securities....... 91,727 1,795 --
Foreign government debt securities........ 15,895 427 --
Mortgage-backed debt securities........... 1,772 28 --
Mortgage-CMO debt securities.............. 3,620 88 --
Asset-backed debt securities.............. 254,267 4,018 --
-------- ------- -------
$918,637 $22,165 $ (734)
======== ======= =======
14
DECEMBER 31, 2000
------------------------------------------------
GROSS UNREALIZED GROSS UNREALIZED
FAIR VALUE HOLDING GAINS HOLDING LOSSES
---------- ---------------- ----------------
(IN THOUSANDS)
Cash and cash equivalents................... $197,312 $ -- $ --
Trading:
Equity securities......................... 5,500 2,378 --
Available-for-sale:
Equity securities......................... 80,370 24,955 (700)
Certificates of deposit................... 10,017 12 --
Corporate debt securities................. 154,904 1,170 (1,067)
US Government debt securities............. 17,648 175 --
Mortgage-backed debt securities........... 11,584 60 --
Asset-backed debt securities.............. 73,618 576 --
-------- ------- -------
$550,953 $29,326 $(1,767)
======== ======= =======
The estimated fair value of our corporate, US Government, Government
agencies, foreign government, mortgage-backed, mortgage-CMO and asset-backed
debt securities at December 31, 2001, by contractual maturity, are shown below.
Expected maturities will 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 maturity date.
ESTIMATED
FAIR VALUE
2001
--------------
(IN THOUSANDS)
Debt securities:
Due in one year or less................................... $287,716
Due after one year through five years..................... 375,925
--------
$663,641
========
We recorded unrealized holding (losses) gains on equity securities
classified as trading totaling $(.7) million, $2.7 million and $1.3 million
during 2001, 2000 and 1999, respectively.
During 2000, we received $.4 million of proceeds and realized net gains of
$.2 million resulting from the sale of certain investments in equity securities
classified as trading.
We received proceeds of $163.1 million, $42.5 million and $6.6 million and
realized net gains totaling $.2 million, $15.9 million and $2.4 million
resulting from the sale of certain investments in marketable securities
classified as available-for-sale during 2001, 2000 and 1999, respectively.
15
4. PROPERTY, PLANT AND EQUIPMENT
The major components of property, plant and equipment are as follows:
DECEMBER 31,
-----------------------
2001 2000
---------- ----------
(IN THOUSANDS)
Land........................................................ $ 14,756 $ 14,149
Buildings................................................... 25,541 22,636
Drilling, workover and well-servicing rigs, and related
equipment................................................. 2,820,274 2,121,689
Marine transportation and supply vessels.................... 161,390 150,636
Oilfield hauling and mobile equipment....................... 78,069 46,781
Other machinery and equipment............................... 36,692 21,015
---------- ----------
3,136,722 2,376,906
Less: accumulated depreciation and amortization............. 703,475 555,514
---------- ----------
$2,433,247 $1,821,392
========== ==========
Repair and maintenance expense included in direct costs in the consolidated
statements of income totaled $223.8 million, $149.6 million and $68.7 million
for 2001, 2000 and 1999, respectively.
Interest costs of $1.6 million, $2.0 million and $.2 million were
capitalized during 2001, 2000 and 1999, respectively.
5. INVESTMENTS IN UNCONSOLIDATED AFFILIATES
Our principal operations accounted for using the equity method include a
construction operation (40%) and a logistics operation (50%) in Alaska, and
drilling and workover operations located in Saudi Arabia (50%). During 2000, we
also owned a 51% interest in a drilling and workover operation in Argentina
which we accounted for using the equity method. On January 1, 2001 we purchased
our partner's 49% interest in the Argentina operation and we now own 100% of the
operation (Note 2). As a result, effective January 1, 2001, we included this
operation in our consolidated financial statements.
16
Combined condensed financial data for investments in unconsolidated
affiliates accounted for using the equity method of accounting is summarized as
follows:
DECEMBER 31,
-------------------
2001 2000
-------- --------
(IN THOUSANDS)
Current assets.............................................. $ 73,037 $ 67,701
Long-term assets............................................ 111,854 114,319
Current liabilities......................................... 33,142 31,790
Long-term liabilities....................................... 40,722 47,044
-------- --------
DECEMBER 31,
-------------------
2001 2000
-------- --------
(IN THOUSANDS)
Gross revenues.............................................. $285,505 $292,472
Gross margin................................................ 73,532 82,273
Net income.................................................. 51,421 53,272
Nabors' Earnings from unconsolidated affiliates(1).......... 36,887 37,490
-------- --------
---------------
(1) Differences between the equity in earnings of unconsolidated affiliates
reported by Nabors and our proportionate share of the combined earnings of
the related unconsolidated affiliates have resulted principally from
accounting differences in the recognition of income and the elimination of
intercompany transactions.
6. SHORT-TERM BORROWINGS AND LETTERS OF CREDIT
We have available lines of credit with various banks that permit borrowing
at interest rates generally not to exceed, at our option, each bank's prime rate
or LIBOR (London Interbank Offered Rate), plus .25%. We did not have any
short-term borrowings outstanding at December 31, 2001 and 2000.
We have a $200 million unsecured revolving credit facility with a syndicate
of banks. The credit facility is a committed facility with a term of five years
that expires on September 5, 2002. Loans under the credit facility bear
interest, at our option, at the agent bank's prime rate or LIBOR, plus a margin
(.25% at December 31, 2001) that varies depending on our senior unsecured debt
rating. A commitment fee (.085% at December 31, 2001) is charged based on the
average daily unused portion of the credit facility. The loans are guaranteed by
certain subsidiaries of Nabors and contain affirmative and negative covenants
regarding, among other things, limitations on liens and maintenance of financial
ratios regarding funded debt to capitalization, interest coverage and minimum
net worth. The issuance of our $1.381 billion zero coupon convertible senior
debentures due 2021 during February 2001 caused a default of the debt to
capitalization ratio covenant under our $200 million unsecured revolving credit
facility and a related $30 million letter of credit facility. At the time of the
default, there were no outstanding borrowings on the $200 million unsecured
revolving credit facility. The debt to capitalization ratio covenant has since
been amended so that we are now in compliance and the default has been waived by
the banks in the syndicate and under the letter of credit facility.
As a result of Nabors' proposed 2002 corporate restructuring (Note 16), we
may fail to comply with certain covenants contained in our $200 million credit
facility agreement. In light of our current cash position, we do not anticipate
having to borrow under this facility for the foreseeable future. However, we
intend to seek a waiver related to the potential non-compliant covenants. If no
waiver is obtained, we would not be able to borrow under the credit agreement.
This credit facility had an original five-year term and expires on September 5,
2002. We plan on replacing this credit facility with a similar facility prior to
its maturity date. In addition, this default would cause a cross-default under
our $30 million letter of credit facility. We presently intend to seek a waiver
related to the potential non-compliant covenants. If no waiver is obtained, we
will have to replace this letter of credit facility or cash collateralize such
letters of credit. In the event we default on these covenants and we are not
successful in obtaining waivers, we do not believe our financial position,
results of operations or cash flows would be materially affected.
17
Availability and borrowings under the lines of credit are as follows:
DECEMBER 31,
-------------------
2001 2000
-------- --------
(IN THOUSANDS)
Lines of credit available................................... $259,813 $241,332
Letters of credit outstanding............................... (34,315) (23,467)
-------- --------
Remaining availability...................................... $225,498 $217,865
======== ========
7. LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
DECEMBER 31,
---------------------
2001 2000
---------- --------
(IN THOUSANDS)
$1.381 billion zero coupon convertible senior debentures due
February 2021............................................. $ 746,783 $ --
$825 million zero coupon convertible senior debentures due
June 2020................................................. 477,132 508,566
6.8% senior unsecured notes due April 2004.................. 300,000 300,000
8.625% senior subordinated notes due April 2008............. 42,165 42,165
Medium-term notes payable, due 2003, at 9%(1)............... 4,046 7,600
---------- --------
1,570,126 858,331
Less: current portion....................................... 2,510 3,554
---------- --------
$1,567,616 $854,777
========== ========
---------------
(1) These obligations are collateralized by specific assets financed with the
related proceeds. The aggregate net book value of such assets approximated
$4.5 million and $4.7 million as of December 31, 2001 and 2000,
respectively.
During February 2001, we completed a private placement of zero coupon
convertible senior debentures due 2021. On issuance, the aggregate principal
amount of the debentures at maturity totaled $1.381 billion. The debentures were
issued at a discount with net proceeds to Nabors, after expenses, totaling
approximately $828.0 million. The original issue price of the debentures was
$608.41 per $1,000 principal amount at maturity. The yield to maturity of the
debentures is 2.5% compounded semi-annually with no periodic cash payments of
interest.
At the holder's option, the debentures can be converted, at any time prior
to maturity or their earlier redemption, into Nabors common stock, at a
conversion rate of 7.0745 shares per $1,000 principal amount at maturity. The
conversion rate is subject to adjustment under formulae as set forth in the
indenture (the agreement governing the terms of the debt) in certain events,
including: (1) the issuance of Nabors common stock as a dividend or distribution
on the common stock; (2) certain subdivisions and combinations of the common
stock; (3) the issuance to all holders of common stock of certain rights or
warrants to purchase common stock; (4) the distribution of capital stock, other
than Nabors common stock to Nabors' stockholders, or evidences of Nabors'
indebtedness or of assets; and (5) distribution consisting of cash, excluding
any quarterly cash dividend on the common stock to the extent that the aggregate
cash dividend per share of common stock in any quarter does not exceed certain
amounts. Instead of delivering shares of common stock upon conversion of any
debentures, we may elect to pay the holder cash for all or a portion of the
debentures.
18
The debentures can be put to us on February 5, 2006, February 5, 2011 and
February 5, 2016 for a purchase price equal to the issue price plus accrued
original issue discount to the date of repurchase. We may elect to pay all or a
portion of the purchase price in common stock instead of cash, depending upon
our cash balances and cash requirements at that time. We do not presently
anticipate using stock to satisfy any such future purchase obligation.
In accordance with the indenture with respect to the debt securities, we
cannot redeem the debentures before February 5, 2006, after which, we may redeem
all or a portion of the debentures for cash at their accreted value.
The proceeds from the issuance of the debentures have been invested in cash
and marketable securities.
On May 11, 2001, Nabors' registration statement with respect to resales of
these debentures became effective.
During June 2000, we completed a private placement of zero coupon
convertible senior debentures due 2020. On issuance, the aggregate principal
amount of the debentures at maturity totaled $825 million. The debentures were
issued at a discount with net proceeds to Nabors, after expenses, totaling
approximately $495.0 million. The original issue price of the debentures was
$608.41 per $1,000 principal amount at maturity. The yield to maturity of the
debentures is 2.5% compounded semi-annually with no periodic cash payments of
interest.
At the holder's option, the debentures can be converted, at any time prior
to maturity or their earlier redemption, into Nabors common stock at a
conversion rate of 10.738 shares per $1,000 principal amount at maturity. The
conversion rate is subject to adjustment under formulae as set forth in the
indenture in certain events, including: (1) the issuance of Nabors common stock
as a dividend or distribution on the common stock; (2) certain subdivisions and
combinations of the common stock; (3) the issuance to all holders of common
stock of certain rights or warrants to purchase common stock; (4) the
distribution of capital stock, other than Nabors common stock, to Nabors'
stockholders or evidences of Nabors' indebtedness or of assets; and (5)
distribution consisting of cash, excluding any quarterly cash dividend on the
common stock to the extent that the aggregate cash dividend per share of common
stock in any quarter does not exceed certain amounts. Instead of delivering
shares of common stock upon conversion of any debentures, we may elect to pay
the holder cash for all or a portion of the debentures.
The debentures can be put to us on June 20, 2003, June 20, 2008 and June
20, 2013 for a purchase price equal to the issue price plus accrued original
issue discount to the date of repurchase. We may elect to pay all or a portion
of the purchase price in common stock instead of cash, depending upon our cash
balances and cash requirements at that time. We do not presently anticipate
using stock to satisfy any such future obligations.
In accordance with the indenture with respect to the debt securities, we
cannot redeem the debentures before June 20, 2003, after which, we may redeem
all or a portion of the debentures for cash at their accreted value.
The proceeds from the issuance of the debentures have been invested in cash
and marketable securities.
On September 8, 2000, Nabors' registration statement with respect to
resales of these debentures became effective.
During the third quarter of 2001, we entered into several private
transactions with a counterparty to purchase $70 million face value of our $825
million zero coupon convertible senior debentures due 2020 at an average price
of $606.07 for each $1,000 face amount of debentures and $181 million face value
of our $1.381 billion zero coupon convertible senior debentures due 2021 at an
average price of $528.30 for each $1,000 face amount of debentures. Upon
settlement of these transactions in December 2001, we paid $139.8 million to the
counterparty and recognized a $9.7 million ($.06 per diluted share) gain, net of
income taxes of $5.7 million resulting from the repayment of the debentures at
less than the amount recorded on our books. The gain was recorded as other
income with the related income tax component recorded as income tax expense.
19
During March 1999, we issued $325.0 million of 6.8% senior unsecured notes
due April 15, 2004. Interest on the notes is payable semi-annually on April 15
and October 15, commencing on October 15, 1999. We can redeem the notes in whole
or in part, at any time, at a redemption price equal to the greater of (1) 100%
of their principal amount or (2) the sum of the present values of the remaining
scheduled payments of principal and interest discounted to the date of
redemption on a semi-annual basis using the comparable treasury security yield
plus 25 basis points together in either case with accrued and unpaid interest.
Certain restrictions have been imposed on us as a result of the issuance of the
notes, including limitations on the incurrence of liens and certain
sale-leaseback transactions. A portion of the proceeds from the issuance of the
notes was used to repay certain short-term and long-term borrowings of Nabors,
including the repayment of our 9.18% senior secured notes and Bayard's 11%
senior notes. During December 2000, we purchased $25.0 million of our 6.8% notes
in the open market at 99.85%. We recognized an insignificant gain resulting from
the repurchase of the notes for less than the amount recorded on our books.
Prior to its acquisition by Nabors, Pool had issued 8.625% senior
subordinated notes in the aggregate principal amount of $150.0 million. The
notes are redeemable at the option of Nabors, in whole or in part, at any time
on or after April 1, 2003 at a redemption price equal to 104.313% of the
principal amount thereof, plus accrued interest, declining ratably to par on
April 1, 2006. As a result of the Pool acquisition, Nabors Holding Company, the
successor by merger to Pool, completed a mandatory change of control cash tender
offer to purchase the notes due 2008 at a redemption price of 101% in February
2000. When we made the change of control offer, we also solicited the consent of
the remaining holders of the notes to amend the terms of the indenture governing
the notes to generally conform to the covenants contained in Nabors' 6.8% notes
and to add Nabors as a guarantor of the obligations thereunder. Holders of over
75% of the principal amount of the notes consented, the amendments were adopted
and the full and unconditional guarantee was entered into as of February 14,
2000. The notes contain certain covenants that, among other things, limit the
ability of Nabors to incur additional liens. In addition, during 2000, Nabors
Holding Company purchased additional notes in the open market at prices ranging
from 100.5% to 102.0%. During 2000, a total of $107.8 million of the notes were
acquired as a result of these transactions, leaving $42.2 million outstanding as
of December 31, 2001. We recognized a $1.9 million ($.01 per share)
gain, net of income taxes of $1.2 million during 2000 resulting from the
repurchase of the notes for less than the amount recorded on our books.
Bayard had issued 11% senior notes due 2005 in the principal amount of
$100.0 million prior to being acquired by Nabors. During July 1999, we made a
cash tender offer to the holders of the notes that expired on August 3, 1999.
The price offered was $1,110 per $1,000 note plus interest on such amount from
July 2, 1999 to the date of payment, at a per annum rate of 5.0%. In connection
with the offer, we acquired the entire issue of notes. As a result of the
transaction, we recognized a pre-tax gain of $4.7 million resulting from the
repayment of the notes at less than the amount recorded on our books. This gain
was netted against the loss on the 9.18% notes described below and was included
in our consolidated statements of income as other income.
On May 28, 1996, we issued $172.5 million of 5% convertible subordinated
notes due May 15, 2006. During June 1999, we called these notes for mandatory
redemption on July 15, 1999. The redemption price was $1,035 per $1,000 note,
together with accrued and unpaid interest from May 15, 1999 to the redemption
date. Alternatively, holders of the notes could elect to convert their notes
prior to redemption, at a rate of 55.1724 shares of Nabors' common stock per
$1,000 note. Holders of $172.3 million aggregate principal amount of the notes
elected to convert to 9.5 million shares of common stock. We redeemed the
remaining notes for $.2 million. As a result of these transactions, the notes
were cancelled during July 1999 and ceased to be outstanding.
20
We issued 9.18% notes in the principal amount of $40.0 million to the John
Hancock Mutual Life Insurance Company and an affiliate, pursuant to a note
purchase agreement dated October 1, 1992. During July 1999, we prepaid the
entire $40.0 million aggregate principal amount of these notes due July 31,
2006, at par plus a make-whole premium of approximately $4.5 million. In
connection with the transaction, we recognized a pre-tax loss of $4.7 million
resulting from the make-whole premium paid and the recognition of certain
deferred financing costs.
During June 1999, we filed a shelf registration statement on Form S-3 with
the Securities and Exchange Commission to allow us to offer, from time to time,
up to $500.0 million in debt securities, preferred stock, common stock,
depository shares or warrants. The Commission declared the registration
statement effective on June 28, 1999. We currently have not issued any
securities registered under this registration statement.
As of December 31, 2001, the maturities of long-term obligations for each
of the five years after 2001 and thereafter are as follows:
PAID AT MATURITY
----------------
(IN THOUSANDS)
2002........................................................ $ 2,510
2003........................................................ 1,536
2004........................................................ 300,000
2005........................................................ --
2006........................................................ --
Thereafter.................................................. 1,997,365(1)
------------
$ 2,301,411
============
---------------
(1) Assuming zero coupon convertible senior debentures are paid at stated
maturity-date. If the debentures are put to us on the respective first put
dates, we would be required to make payments of $494.9 million in 2003 for
the $825 million debentures due 2020 and $826.8 million in 2006 for the
$1.381 billion debentures due 2021.
21
8. INCOME TAXES
Nabors' income tax, reconciled to the US federal income tax using the
federal statutory rate, and an analysis of the income tax provision are as
follows:
YEAR ENDED DECEMBER 31,
------------------------------
2001 2000 1999
-------- -------- --------
(IN THOUSANDS)
Total pre-tax income(1).............................. $557,612 $229,743 $ 45,629
-------- -------- --------
Expected federal income tax using the 35% statutory
rate............................................... 195,164 80,410 15,970
State income taxes (benefits)........................ 5,803 2,078 (416)
Foreign taxes and other.............................. (805) 9,899 2,371
-------- -------- --------
Total income tax........................... $200,162 $ 92,387 $ 17,925
======== ======== ========
Analysis of the income tax provision (benefit):
Current:
US federal...................................... $ 60,783 $ 1,176 $(11,000)
State........................................... 5,857 844 168
Foreign......................................... 17,078 17,574 8,354
-------- -------- --------
83,718 19,594 (2,478)
-------- -------- --------
Deferred:
US federal...................................... 114,629 69,476 19,266
State........................................... 2,906 2,304 (808)
Foreign......................................... (1,091) 1,013 1,945
-------- -------- --------
116,444 72,793 20,403
-------- -------- --------
Total income tax........................... $200,162 $ 92,387 $ 17,925
======== ======== ========
---------------
(1) Includes foreign income before taxes of $90.6 million, $77.6 million and
$48.1 million for 2001, 2000 and 1999, respectively.
The components of the Nabors' net deferred tax assets and liabilities are
as follows:
DECEMBER 31,
---------------------
2001 2000
--------- ---------
(IN THOUSANDS)
Deferred tax assets:
Net operating loss carryforwards.......................... $ 45,039 $ 99,016
Accrued liabilities and other............................. 71,152 141,862
General tax credits....................................... 18,952 15,054
--------- ---------
Deferred tax asset.......................................... 135,143 255,932
--------- ---------
Deferred tax liabilities:
Excess tax over book depreciation......................... (390,274) (316,440)
Unrealized gain on marketable securities.................. (2,125) (8,973)
--------- ---------
Deferred tax liability...................................... (392,399) (325,413)
--------- ---------
Net deferred tax liability.................................. (257,256) (69,481)
Less: current asset portion................................. 28,145 27,816
--------- ---------
Net deferred tax liability.................................. $(285,401) $ (97,297)
========= =========
22
In conjunction with the acquisitions of Command, Pool, Bayard and Peak USA
(Note 2), deferred tax assets (liabilities) of $(20.2) million, $(30.9) million,
$45.1 million and $(1.9) million, respectively, were recorded in the year of
acquisition.
For US federal income tax purposes, we have net operating loss
carryforwards of approximately $86.5 million that, if not utilized, will expire
from 2002 to 2023. The net operating loss carryforwards for alternative minimum
tax purposes are approximately $53.3 million. There are alternative minimum tax
credit carryforwards of $18.9 million available to offset future regular tax
liabilities.
Under US federal tax law, the amount and availability of loss carryforwards
(and certain other tax attributes) are subject to a variety of interpretations
and restrictive tests applicable to Nabors and our subsidiaries. The utilization
of such carryforwards could be limited or effectively lost upon certain changes
in ownership. Accordingly, although we believe substantial loss carryforwards
are available to us, no assurance can be given concerning such loss
carryforwards, or whether or not such loss carryforwards will be available in
the future.
9. CAPITAL STOCK AND STOCK OPTIONS
CAPITAL STOCK
During 2001, our Board of Directors authorized the repurchase of up to $400
million of our common stock. In accordance with this authorization, we purchased
6.2 million shares of our common stock for approximately $248.0 million through
year end. These shares are now held in treasury.
At our June 6, 2000 annual meeting, our stockholders approved an increase
in our authorized common stock from 200 million to 400 million shares.
During November 1999, we acquired all of the outstanding shares of Pool in
exchange for approximately 19.7 million newly issued shares of Nabors common
stock (Note 2).
During June and July 1999, we issued 9.5 million shares in connection with
the conversion of $172.3 million aggregate principal amount of the 5%
convertible subordinated notes (Note 7).
During April 1999, we acquired all of the outstanding shares of Bayard
common stock in exchange for approximately 6.2 million newly issued shares of
Nabors common stock (Note 2). We also issued warrants to acquire an aggregate of
133,988 shares of Nabors common stock in exchange for Bayard warrants that had
been previously issued to acquire shares of Bayard common stock. Of the warrants
issued by Nabors, 37,800 remain outstanding with an exercise price of $21.33 per
share and expire May 1, 2003.
During May 1998, we issued warrants to purchase 200,000 shares at an
exercise price of $30.00 per share. The warrants were issued in connection with
the New Prospect acquisition and expire on April 30, 2003.
We are authorized to issue up to 10.0 million shares of preferred stock
with a par value of $.10 per share in one or more series, and to fix the powers,
designations, preferences and rights to each series. We are also authorized to
issue up to 8.0 million shares of Class B stock on the terms provided in Nabors'
charter.
As of December 31, 2001, there were warrants outstanding to purchase
237,800 shares of Nabors common stock at prices ranging from $21.33 per share to
$30.00 per share. The remaining warrants expire April 30 and May 1, 2003.
STOCK OPTION PLANS
As of December 31, 2001, we have several stock option plans under which
options to purchase shares of Nabors common stock may be granted to key
officers, directors and managerial employees of Nabors and its subsidiaries.
Options granted under the plans are at prices equal to the fair market value of
the
23
stock on the date of the grant. Options granted under the plans generally are
exercisable in varying cumulative periodic installments after one year. In the
case of certain key executives, options granted under the plans are subject to
accelerated vesting related to targeted common stock prices, or may vest
immediately on the grant date. Options granted under the plans cannot be
exercised more than ten years from the date of grant. Options to purchase 6.9
million and 5.5 million shares of Nabors common stock remained available for
grant as of December 31, 2001 and 2000, respectively.
A summary of stock option transactions is as follows:
STOCK OPTION
TRANSACTIONS
---------------------
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
-------- ----------
(IN THOUSANDS, EXCEPT
EXERCISE PRICE)
Options outstanding as of December 31, 1998................. 18,114 $11.77
Granted................................................... 5,394 21.95
Exercised................................................. (633) 10.04
Forfeited................................................. (197) 24.21
------ ------
Options outstanding as of December 31, 1999................. 22,678 $14.13
Granted................................................... 6,199 45.63
Exercised................................................. (9,664) 11.54
Forfeited................................................. (142) 18.45
------ ------
Options outstanding as of December 31, 2000................. 19,071 $25.65
Granted................................................... 881 53.52
Exercised................................................. (556) 14.26
Forfeited................................................. (139) 32.56
------ ------
Options outstanding as of December 31, 2001................. 19,257 $27.21
------ ------
Of the options outstanding, 17.2 million, 16.8 million and 19.3 million
were exercisable at weighted average exercise prices of $26.46, $26.28 and
$13.49, as of December 31, 2001, 2000 and 1999, respectively.
A summary of stock options outstanding at December 31, 2001 is as follows:
OPTIONS OUTSTANDING
--------------------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER REMAINING EXERCISE
OUTSTANDING CONTRACTUAL LIFE PRICE
------------ ----------------- ---------
(IN THOUSANDS, EXCEPT CONTRACTUAL LIFE AND
EXERCISE PRICE)
Range of exercise prices:
$ 4.77- 7.16................................... 317 2.2 $ 6.04
7.87-11.81................................... 681 6.8 11.32
12.20-18.30................................... 7,709 5.7 12.58
18.94-28.41................................... 3,486 7.9 24.82
28.85-43.28................................... 346 8.0 36.58
44.00-67.26................................... 6,718 6.9 47.36
------ --- ------
19,257 6.5 $27.21
====== === ======
24
A summary of stock options exercisable at December 31, 2001 is as follows:
OPTIONS EXERCISABLE
----------------------
WEIGHTED
AVERAGE
NUMBER EXERCISE
EXERCISABLE PRICE
----------- --------
(IN THOUSANDS, EXCEPT
EXERCISE PRICE)
Range of exercise prices:
$ 4.77- 7.16.............................................. 317 $ 6.04
7.87-11.81.............................................. 239 11.00
12.20-18.30.............................................. 7,504 12.53
18.94-28.41.............................................. 3,056 24.84
28.85-43.28.............................................. 242 37.61
44.00-67.26.............................................. 5,871 46.38
------ ------
17,229 $26.46
====== ======
The weighted average fair value of options granted during 2001, 2000 and
1999 was $22.22, $17.37 and $7.12, respectively.
In accordance with SFAS 123, Accounting for Stock-based Compensation, the
fair value of each stock option granted has been estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions for grants during 2001, 2000 and 1999, respectively: risk-free
interest rates of 4.74%, 6.01% and 5.76%; dividend yield of 0.0% for all
periods; expected life of 3.5 years, 3.5 years and 2.97 years; and volatility of
50.42%, 42.38% and 42.0%.
Had compensation cost for Nabors' stock-based compensation plans been
recognized in accordance with SFAS 123, our net income (loss) and diluted
earnings (loss) per share for 2001, 2000 and 1999, would have been $349.1
million and $2.19 per share, $68.4 million and $.45 per share and $(1.7) million
and $(.01) per share, respectively. The effects of applying SFAS 123 in this pro
forma disclosure are not indicative of future amounts. SFAS 123 does not apply
to awards prior to 1996.
10. PENSION, POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
PENSION PLANS
In conjunction with the Pool acquisition, Nabors acquired the assets and
liabilities of a defined benefit pension plan, the Pool Company Retirement
Income Plan. Benefits under the plan are frozen and participants were fully
vested in their accrued retirement benefit on December 31, 1998.
Summarized information on the Pool pension plan is as follows:
YEAR ENDED
DECEMBER 31,
-----------------
PENSION BENEFITS 2001 2000
---------------- ------- -------
(IN THOUSANDS)
Change in Benefit Obligation:
Benefit obligation at beginning of year................... $13,395 $13,051
Interest cost............................................. 844 847
Actuarial (gain) loss..................................... (129) 117
Benefit payments.......................................... (568) (620)
------- -------
Benefit obligation at end of year......................... 13,542 13,395
------- -------
25
YEAR ENDED
DECEMBER 31,
-----------------
PENSION BENEFITS 2001 2000
---------------- ------- -------
(IN THOUSANDS)
Change in Plan Assets:
Fair value of plan assets at beginning of year............ 11,655 12,447
Actual return on plan assets.............................. (491) (172)
Benefit payments.......................................... (568) (620)
------- -------
Fair value of plan assets at end of year.................. 10,596 11,655
------- -------
Funded Status:
Funded status at end of year.............................. (2,946) (1,740)
Unrecognized net actuarial loss (gain).................... 1,935 834
------- -------
Net amount recognized..................................... (1,011) (906)
------- -------
Net liability recognized.................................. $(1,011) $ (906)
======= =======
Weighted Average Assumptions:
Weighted average discount rate............................ 6.50% 6.50%
Expected long-term rate of return on plan assets.......... 6.50% 6.50%
------- -------
YEAR ENDED
DECEMBER 31,
---------------
PENSION BENEFITS 2001 2000
---------------- ------ ------
(IN THOUSANDS)
Components of net periodic benefit cost:
Interest cost............................................... $ 844 $ 847
Expected return on plan assets.............................. (739) (799)
----- -----
Net periodic benefit cost................................... $ 105 $ 48
===== =====
Certain of Nabors' employees are covered by defined contribution plans. Our
contributions to the plans are based on employee contributions and totaled $11.0
million, $7.9 million and $3.9 million for 2001, 2000 and 1999, respectively.
Nabors does not provide postemployment benefits to its employees.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Prior to the date of the acquisition, Pool provided certain postretirement
healthcare and life insurance benefits to eligible retirees who had attained
specific age and years of service requirements. Nabors terminated this plan at
the date of acquisition, November 24, 1999. A liability of approximately $1.1
million is recorded on our balance sheet at December 31, 2001 to cover the
estimated costs of beneficiaries covered by the plan at the date of acquisition.
26
11. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
Nabors and its subsidiaries occupy various facilities and lease certain
equipment under various lease agreements. The minimum rental commitments under
non-cancelable operating leases, with lease terms in excess of one year
subsequent to December 31, 2001, are as follows:
(IN THOUSANDS)
2002........................................................ $14,014
2003........................................................ 12,705
2004........................................................ 11,325
2005........................................................ 6,799
2006........................................................ 1,008
Thereafter.................................................. 682
-------
$46,533
=======
The above amounts do not include property taxes, insurance or normal
maintenance that the lessees are required to pay. Rental expense relating to
operating leases with terms greater than 30 days amounted to $20.3 million,
$15.2 million and $5.1 million for 2001, 2000 and 1999, respectively.
EMPLOYMENT CONTRACTS
We have entered into employment contracts with certain of our employees.
Our minimum salary and bonus obligations under these contracts as of December
31, 2001 are as follows:
(IN THOUSANDS)
2002........................................................ $1,850
2003........................................................ 1,850
2004........................................................ 1,575
2005........................................................ 1,575
2006........................................................ 1,575
Thereafter.................................................. --
------
$8,425
======
Pursuant to his employment agreement, we provided an unsecured,
non-interest bearing loan of approximately $2.9 million to Nabors' President and
Chief Operating Officer. This loan is currently due on September 30, 2006, but
renews automatically every year in the event the officer's employment agreement
is renewed.
CAPITAL EXPENDITURES
As of December 31, 2001, we had outstanding capital expenditure purchase
commitments of approximately $32.0 million, primarily for rig-related sustaining
capital expenditures.
CONTINGENCIES
Nabors is self-insured for certain losses relating to workers'
compensation, general liability, property damage and employee medical benefits,
generally up to $1.0 million per occurrence. We have purchased stop-loss
coverage in order to limit our exposure to these claims. Self-insured losses are
accrued based upon our actuarial estimates of the aggregate liability for claims
incurred using certain actuarial assumptions followed in the insurance industry
and Nabors' historical experience. It is our policy to annually retain an
outside actuary to perform a review of the adequacy of our self-insurance claim
reserves.
27
In Verdin v. R&B Falcon Drilling USA, Inc., et al., Civil Action No.
G-00-488, in the United States District Court for the Southern District of
Texas, Galveston Division, the class action lawsuit against our offshore
drilling subsidiaries alleging, among other things, conspiracy to depress wages
and benefits paid to our offshore employees, we have reached a settlement,
subject to court approval. The settlement amounts to be paid by Nabors'
subsidiaries are not material to such subsidiaries or Nabors. In the event the
settlement is not finalized, Nabors continues to believe the allegations in this
lawsuit are without merit and Nabors' subsidiaries will defend vigorously the
claims brought against them. In such event, we are unable, however, to predict
the outcome of this lawsuit or the costs to be incurred in connection with its
defense and there can be no assurance that this litigation will be resolved in
our favor. An adverse result or prolonged litigation could have an adverse
effect on the financial position, cash flows or results of operations of Nabors.
Nabors and its subsidiaries are defendants or otherwise involved in a
number of other lawsuits in the ordinary course of their business. In the
opinion of management, Nabors' ultimate liability with respect to these pending
lawsuits is not expected to have a significant or material adverse effect on
Nabors' consolidated financial position, cash flows or results of operations.
28
12. EARNINGS PER SHARE
A reconciliation of the numerators and denominators of the basic and
diluted earnings per share computations, is as follows:
YEAR ENDED DECEMBER 31,
----------------------------------------
2001 2000 1999
---------- ---------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net income (numerator):
Net income -- basic............................ 357,450 137,356 27,704
Add interest expense on assumed conversion of
our zero coupon convertible senior
debentures, net of tax...................... 20,055(1) --(2) --
-------- -------- ----------
Adjusted net income -- diluted................... $377,505 $137,356 $ 27,704
-------- -------- ----------
Earnings per share:
Basic $ 2.48 $ .95 $ .25
Diluted $ 2.24 $ .90 $ .23
Shares (denominator):
Weighted average number of shares
outstanding -- basic........................ 144,430 144,344 111,395
Net effect of dilutive stock options and
warrants based on the treasury stock
method...................................... 6,697 8,073 9,054
Assumed conversion of our zero coupon
convertible senior debentures............... 17,663(1) --(2) --
-------- -------- ----------
Weighted average number of shares
outstanding -- diluted...................... 168,790 152,417 120,449
-------- -------- ----------
---------------
(1) Diluted earnings per share for 2001, reflects the assumed conversion of our
$825.0 million and $1.381 billion zero coupon convertible senior debentures,
as the conversion in that period would have been dilutive.
(2) Diluted earnings per share for 2000 does not reflect the assumed conversion
of our $825.0 million zero coupon convertible senior debentures, as this
conversion would be anti-dilutive.
For all periods presented, the computations of diluted earnings per share
excludes outstanding stock options and warrants with exercise prices greater
than the average market price of the Company's common stock, because the
inclusion of such options and warrants would be anti-dilutive. The number of
options and warrants that were excluded from diluted earnings per share that
could potentially dilute earnings per share in the future were 919,478 shares in
2001, 73,250 shares in 2000 and 4,035,719 shares in 1999. In addition, diluted
earnings per share for 2000 excludes 4,453,630 potentially dilutive shares
issuable upon conversion of the $825 million zero coupon convertible debentures
because the inclusion of such shares would have been anti-dilutive, given the
level of net income for 2000.
29
As discussed in Note 7, holders of the $825 million and $1.381 billion zero
coupon convertible senior debentures have the right to require Nabors to
repurchase the debentures at various dates commencing June 20, 2003 and February
5, 2006, respectively. Nabors may pay the redemption price with either cash or
stock or a combination thereof. We do not presently anticipate using stock to
satisfy any such future purchase obligation.
13. SUPPLEMENTAL BALANCE SHEET AND INCOME STATEMENT INFORMATION
Accounts receivable is net of an allowance for doubtful accounts of $22.4
million and $5.4 million as of December 31, 2001 and 2000, respectively.
Accrued liabilities include the following:
DECEMBER 31,
-------------------
2001 2000
-------- --------
(IN THOUSANDS)
Accrued compensation........................................ $ 49,287 $ 43,461
Deferred revenue............................................ 42,157 15,911
Workers' compensation liabilities........................... 17,650 18,136
Other accrued liabilities................................... 58,928 35,502
-------- --------
$168,022 $113,010
======== ========
Other income, net includes the following:
YEAR ENDED DECEMBER 31,
--------------------------
2001 2000 1999
------- ------- ------
(IN THOUSANDS)
Gains on marketable securities and warrants.............. $ 989 $18,800 $3,656
Gains on disposition of long-term assets................. 10,246 1,713 2,915
Foreign currency gains (losses).......................... 419 1,441 (37)
Gain on extinguishment of debt........................... 15,330 3,036 --
Other.................................................... 1,666 2,167 2,326
------- ------- ------
$28,650 $27,157 $8,860
======= ======= ======
14. UNAUDITED QUARTERLY FINANCIAL INFORMATION
YEAR ENDED DECEMBER 31, 2001
---------------------------------------------------
QUARTER ENDED
---------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
--------- -------- ------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Operating revenues and Earnings from
unconsolidated affiliates(1)................. $541,167 $611,480 $622,417 $453,006
Gross margin(2)................................ 200,845 245,446 254,146 160,666
Income derived from operating activities(3).... 124,029 160,886 165,485 85,311
Net income..................................... 83,138 104,015 108,241 62,056
Earnings per share:(4)
Basic........................................ $ .57 $ .71 $ .75 $ .44
Diluted...................................... $ .51 $ .63 $ .68 $ .41
30
YEAR ENDED DECEMBER 31, 2000
---------------------------------------------------
QUARTER ENDED
---------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
--------- -------- ------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Operating revenues and Earnings from
unconsolidated affiliates(5)................. $299,321 $313,310 $366,154 $436,158
Gross margin(2)................................ 96,222 104,662 123,547 151,861
Income derived from operating activities(3).... 33,153 40,835 59,297 84,090
Net income..................................... 19,634 24,103 38,707 54,912
Earnings per share:(4)
Basic........................................ $ .14 $ .17 $ .26 $ .37
Diluted...................................... $ .13 $ .16 $ .25 $ .35
---------------
(1) Includes Earnings from unconsolidated affiliates, accounted for by the
equity method, of $10.2 million, $10.0 million, $8.5 million and $8.2
million, respectively.
(2) Gross margin represents Operating revenues and Earnings from unconsolidated
affiliates minus direct costs.
(3) Income derived from operating activities is computed by: subtracting direct
costs, general and administrative expenses, and depreciation and
amortization expense from Operating revenues and then adding Earnings from
unconsolidated affiliates. Such amounts should not be used as a substitute
to those amounts reported under accounting principles generally accepted in
the United States of America. However, management does evaluate the
performance of its business units and the consolidated company based on
income derived from operating activities because it believes that this
financial measure is an accurate reflection of the ongoing profitability of
our company.
(4) Earnings per share are computed independently for each of the quarters
presented. Therefore, the sum of the quarterly earnings per share may not
equal the total computed for the year.
(5) Includes Earnings from unconsolidated affiliates, accounted for by the
equity method, of $10.6 million, $10.2 million, $9.5 million and $7.2
million, respectively.
15. SEGMENT INFORMATION
Nabors' 11 business units have been aggregated into two reportable
segments, specifically (1) contract drilling, including drilling, workover and
well-servicing, and (2) manufacturing and logistics, based on the nature of the
services provided, the class of customers, the methods used to provide services
and other economic characteristics. The contract drilling segment consists of
our Alaska, US Lower 48, US Land well-servicing, US Offshore, Canada and
International operations. These units provide oil and gas drilling, workover and
well-servicing on land and offshore. The manufacturing and logistics segment
consists of our Canrig, Epoch, Peak Oilfield Service Company, Peak USA and Sea
Mar operating units. These units manufacture top drives, manufacture drilling
instrumentation systems, provide construction and logistics services, provide
trucking and logistics services and provide marine transportation and supply
services, respectively.
The accounting policies of the segments are the same as those described in
the Summary of Significant Accounting Policies (Note 1). Inter-segment sales are
recorded at cost or cost plus a profit margin. Nabors evaluates the performance
of its segments based on income derived from operating activities.
31
The following table sets forth financial information with respect to our
reportable segments:
YEARS ENDED DECEMBER 31,
----------------------------------
2001 2000 1999
---------- ---------- --------
(IN THOUSANDS)
Operating revenues and Earnings from
unconsolidated affiliates:
Contract drilling(1)............................ $2,087,040 $1,316,160 $632,639
Manufacturing and logistics(2).................. 258,363 174,988 51,444
Other(3)........................................ (117,333) (76,205) (13,897)
---------- ---------- --------
Total revenues.......................... $2,228,070 $1,414,943 $670,186
========== ========== ========
Depreciation and amortization:
Contract drilling............................... $ 173,764 $ 138,786 $ 96,422
Manufacturing and logistics..................... 17,923 14,904 3,766
Other(4)........................................ (1,791) (1,277) (295)
---------- ---------- --------
Total depreciation and amortization..... $ 189,896 $ 152,413 $ 99,893
========== ========== ========
Income derived from operating activities:
Contract drilling(1)............................ $ 500,864 $ 204,543 $ 70,759
Manufacturing and logistics(2).................. 87,847 47,900 4,428
Other(4)........................................ (53,000) (35,068) (16,779)
---------- ---------- --------
Total income derived from operating
activities............................ $ 535,711 $ 217,375 $ 58,408
Interest expense.................................. (60,722) (35,370) (30,395)
Interest income................................... 53,973 20,581 8,756
Other income, net................................. 28,650 27,157 8,860
---------- ---------- --------
Income before income taxes ............. $ 557,612 $ 229,743 $ 45,629
========== ========== ========
Total assets:
Contract drilling(5)............................ $2,872,534 $2,221,365
Manufacturing and logistics(6).................. 311,629 304,938
Other(4)........................................ 967,752 610,565
---------- ----------
Total assets............................ $4,151,915 $3,136,868
========== ==========
Capital expenditures and acquisition of
businesses:
Contract drilling............................... $ 764,869 $ 234,368 $539,994
Manufacturing and logistics..................... 26,885 70,348 125,036
Other(4)........................................ (6,829) (4,079) 2,487
---------- ---------- --------
Total capital expenditures.............. $ 784,925 $ 300,637 $667,517
========== ========== ========
---------------
(1) Includes Earnings from unconsolidated affiliates, accounted for by the
equity method, of $19.6 million, $18.0 million and $.8 million for 2001,
2000 and 1999, respectively.
(2) Includes Earnings from unconsolidated affiliates, accounted for by the
equity method, of $17.3 million, $19.5 million and $3.0 million for 2001,
2000 and 1999, respectively.
(3) Includes the elimination of inter-segment manufacturing and logistics sales.
(4) Includes the elimination of inter-segment transactions and unallocated
corporate expenses, assets and capital expenditures.
32
(5) Includes $22.3 million and $22.8 million of investments in unconsolidated
affiliates accounted for by the equity method for 2001 and 2000,
respectively.
(6) Includes $32.8 million and $24.5 million of investments in unconsolidated
affiliates accounted for by the equity method for 2001 and 2000,
respectively.
The following table sets forth financial information with respect to Nabors
operations by geographic area:
YEAR ENDED DECEMBER 31,
----------------------------------
2001 2000 1999
---------- ---------- --------
(IN THOUSANDS)
Operating revenues and Earnings from
unconsolidated affiliates:
United States................................... $1,857,156 $1,115,022 $448,478
Foreign......................................... 370,914 299,921 221,708
---------- ---------- --------
$2,228,070 $1,414,943 $670,186
========== ========== ========
AS OF DECEMBER 31,
-----------------------
2001 2000
---------- ----------
(IN THOUSANDS)
Property, plant and equipment, net:
United States............................................. $1,816,409 $1,473,649
Foreign................................................... 616,838 347,743
---------- ----------
$2,433,247 $1,821,392
========== ==========
Goodwill, net:
United States............................................. $ 165,694 $ 170,939
Foreign................................................... 33,354 21,242
---------- ----------
$ 199,048 $ 192,181
========== ==========
16. SUBSEQUENT EVENTS
33
ENSERCO ENERGY SERVICES COMPANY, INC. ACQUISITION
On February 26, 2002, Nabors announced it had reached an agreement to
purchase all of the outstanding common shares of Enserco Energy Services Company
Inc., a Canadian publicly-held corporation, at a price of $15.50 Canadian per
share (plus additional consideration calculated at the rate of 6% per annum from
and including February 26, 2002 to and including the date of closing) for a
total purchase price of $430 million Canadian or approximately $270 million
equivalent US dollars. The purchase price is payable, at the election of each
Enserco shareholder, in cash or in shares of a Canadian subsidiary of Nabors
that will be exchangeable into shares of Nabors common stock on a 1:1 basis. The
transaction is subject to certain regulatory approvals and must be approved by
at least two-thirds of the votes cast at a special meeting of Enserco
shareholders. The transaction is currently expected to close on or about April
26, 2002.
Nabors also separately agreed to acquire from two Enserco shareholders
Enserco common shares representing approximately 20.5% of the issued and
outstanding Enserco shares for $15.50 Canadian per share, subject to certain
closing conditions and receipt of regulatory approvals. The purchases closed
March 18, 2002. In addition, certain persons who own or control an aggregate of
3,748,795 Enserco common shares and options to acquire an aggregate of 511,240
Enserco common shares have agreed, subject to the terms and conditions of those
agreements, to vote their Enserco common shares (including Enserco common shares
acquired on the exercise of such options) in favor of the Nabors acquisition.
Nabors believes that as a result of these purchase agreements, Nabors will
be able to direct the vote of approximately 36% of the outstanding common shares
of Enserco after giving effect to the exercise of the options.
Enserco is an integrated energy services company providing production and
drilling services to the North American oil and gas industry. Enserco operates
over 200 Canadian well-servicing rigs and 30 drilling rigs. The Enserco
acquisition increases our position in Canada with assets that are relatively new
and in excellent condition, allowing us to provide services to many of our key
US customers who have increased their presence in Canada as it has become even
more strategic to the North American gas supply.
34
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of Nabors Industries Ltd.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, of cash flows and of changes in
stockholders' equity present fairly, in all material respects, the financial
position of Nabors Industries Ltd. and its subsidiaries at December 31, 2001
and 2000, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2001, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
Houston, Texas
January 23, 2002,
except for Note 16, as to which
the date is March 18, 2002
and Notes 1, 2, 7, 12 and 15,
as to which the date is
August 20, 2002
35
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION
AND EXHIBITS.
(c) Exhibits
Exhibit No. Description
----------- ------------
12 Computation of Ratios of Earnings to Fixed Charges
23.1 Consent of Independent Accountants
99.1 Certification of Chief Executive Officer and Chief
Financial Officer Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
36
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NABORS INDUSTRIES LTD.
Date: August 20, 2002 By: /s/ Anthony G. Petrello
-----------------------------------
Anthony G. Petrello
President & Chief Operating Officer
37
EXHIBIT INDEX
Exhibit No. Description
----------- ------------
12 Computation of Ratios of Earnings to Fixed Charges
23.1 Consent of Independent Accountants
99.1 Certification of Chief Executive Officer and Chief
Financial Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
38