NABORS INDUSTRIES LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
|
|
2017
|
|
2016
|
|
|
(In thousands, except per share amounts)
|
Revenues and other income:
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
$
|
562,550
|
|
$
|
597,571
|
|
Earnings (losses) from unconsolidated affiliates
|
|
|
|
2
|
|
|
(167,151)
|
|
Investment income (loss)
|
|
|
|
721
|
|
|
343
|
|
Total revenues and other income
|
|
|
|
563,273
|
|
|
430,763
|
|
|
|
|
|
|
|
|
|
|
Costs and other deductions:
|
|
|
|
|
|
|
|
|
Direct costs
|
|
|
|
387,644
|
|
|
365,023
|
|
General and administrative expenses
|
|
|
|
63,409
|
|
|
62,334
|
|
Research and engineering
|
|
|
|
11,757
|
|
|
8,162
|
|
Depreciation and amortization
|
|
|
|
203,672
|
|
|
215,818
|
|
Interest expense
|
|
|
|
56,518
|
|
|
45,730
|
|
Other, net
|
|
|
|
13,510
|
|
|
182,404
|
|
Total costs and other deductions
|
|
|
|
736,510
|
|
|
879,471
|
|
Income (loss) from continuing operations before income taxes
|
|
|
|
(173,237)
|
|
|
(448,708)
|
|
Income tax expense (benefit):
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
22,689
|
|
|
14,825
|
|
Deferred
|
|
|
|
(48,298)
|
|
|
(66,889)
|
|
Total income tax expense (benefit)
|
|
|
|
(25,609)
|
|
|
(52,064)
|
|
Income (loss) from continuing operations, net of tax
|
|
|
|
(147,628)
|
|
|
(396,644)
|
|
Income (loss) from discontinued operations, net of tax
|
|
|
|
(439)
|
|
|
(926)
|
|
Net income (loss)
|
|
|
|
(148,067)
|
|
|
(397,570)
|
|
Less: Net (income) loss attributable to noncontrolling interest
|
|
|
|
(917)
|
|
|
(724)
|
|
Net income (loss) attributable to Nabors
|
|
|
$
|
(148,984)
|
|
$
|
(398,294)
|
|
|
|
|
|
|
|
|
|
|
Amounts attributable to Nabors:
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
|
$
|
(148,545)
|
|
$
|
(397,368)
|
|
Net income (loss) from discontinued operations
|
|
|
|
(439)
|
|
|
(926)
|
|
Net income (loss) attributable to Nabors
|
|
|
$
|
(148,984)
|
|
$
|
(398,294)
|
|
|
|
|
|
|
|
|
|
|
Earnings (losses) per share:
|
|
|
|
|
|
|
|
|
Basic from continuing operations
|
|
|
$
|
(0.52)
|
|
$
|
(1.41)
|
|
Basic from discontinued operations
|
|
|
|
—
|
|
|
—
|
|
Total Basic
|
|
|
$
|
(0.52)
|
|
$
|
(1.41)
|
|
Diluted from continuing operations
|
|
|
$
|
(0.52)
|
|
$
|
(1.41)
|
|
Diluted from discontinued operations
|
|
|
|
—
|
|
|
—
|
|
Total Diluted
|
|
|
$
|
(0.52)
|
|
$
|
(1.41)
|
|
Weighted-average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
277,781
|
|
|
275,851
|
|
Diluted
|
|
|
|
277,781
|
|
|
275,851
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per common share
|
|
|
$
|
0.06
|
|
$
|
0.06
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
NABORS INDUSTRIES LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
2017
|
|
2016
|
|
|
|
(In thousands)
|
|
Net income (loss) attributable to Nabors
|
|
|
$
|
(148,984)
|
|
$
|
(398,294)
|
|
|
Other comprehensive income (loss), before tax:
|
|
|
|
|
|
|
|
|
|
Translation adjustment attributable to Nabors
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on translation adjustment
|
|
|
|
3,860
|
|
|
33,362
|
|
|
Less: reclassification adjustment for realized (gain) loss on translation adjustment
|
|
|
|
—
|
|
|
—
|
|
|
Translation adjustment attributable to Nabors
|
|
|
|
3,860
|
|
|
33,362
|
|
|
Unrealized gains (losses) on marketable securities:
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on marketable securities
|
|
|
|
(3,201)
|
|
|
769
|
|
|
Less: reclassification adjustment for (gains) losses included in net income (loss)
|
|
|
|
—
|
|
|
—
|
|
|
Unrealized gains (losses) on marketable securities
|
|
|
|
(3,201)
|
|
|
769
|
|
|
Pension liability amortization and adjustment
|
|
|
|
50
|
|
|
174
|
|
|
Unrealized gains (losses) and amortization on cash flow hedges
|
|
|
|
153
|
|
|
153
|
|
|
Other comprehensive income (loss), before tax
|
|
|
|
862
|
|
|
34,458
|
|
|
Income tax expense (benefit) related to items of other comprehensive income (loss)
|
|
|
|
79
|
|
|
129
|
|
|
Other comprehensive income (loss), net of tax
|
|
|
|
783
|
|
|
34,329
|
|
|
Comprehensive income (loss) attributable to Nabors
|
|
|
|
(148,201)
|
|
|
(363,965)
|
|
|
Net income (loss) attributable to noncontrolling interest
|
|
|
|
917
|
|
|
724
|
|
|
Translation adjustment attributable to noncontrolling interest
|
|
|
|
49
|
|
|
419
|
|
|
Comprehensive income (loss) attributable to noncontrolling interest
|
|
|
|
966
|
|
|
1,143
|
|
|
Comprehensive income (loss)
|
|
|
$
|
(147,235)
|
|
$
|
(362,822)
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
NABORS INDUSTRIES LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2017
|
|
2016
|
|
|
|
(In thousands)
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(148,067)
|
|
$
|
(397,570)
|
|
Adjustments to net income (loss):
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
204,364
|
|
|
216,669
|
|
Deferred income tax expense (benefit)
|
|
|
(48,469)
|
|
|
(67,289)
|
|
Impairments and other charges
|
|
|
—
|
|
|
2,735
|
|
Deferred financing costs amortization
|
|
|
1,728
|
|
|
1,118
|
|
Discount amortization on long-term debt
|
|
|
4,505
|
|
|
568
|
|
Losses (gains) on debt buyback
|
|
|
8,596
|
|
|
(6,027)
|
|
Losses (gains) on long-lived assets, net
|
|
|
2,875
|
|
|
2,563
|
|
Impairments on equity method holdings
|
|
|
—
|
|
|
177,242
|
|
Share-based compensation
|
|
|
10,280
|
|
|
7,374
|
|
Foreign currency transaction losses (gains), net
|
|
|
877
|
|
|
4,213
|
|
Equity in (earnings) losses of unconsolidated affiliates, net of dividends
|
|
|
(2)
|
|
|
167,151
|
|
Other
|
|
|
(751)
|
|
|
(428)
|
|
Changes in operating assets and liabilities, net of effects from acquisitions:
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(19,198)
|
|
|
166,074
|
|
Inventory
|
|
|
(5,301)
|
|
|
2,057
|
|
Other current assets
|
|
|
(10,725)
|
|
|
(18,651)
|
|
Other long-term assets
|
|
|
15,294
|
|
|
13,214
|
|
Trade accounts payable and accrued liabilities
|
|
|
(38,659)
|
|
|
(120,757)
|
|
Income taxes payable
|
|
|
17,929
|
|
|
966
|
|
Other long-term liabilities
|
|
|
(53,267)
|
|
|
10,284
|
|
Net cash (used for) provided by operating activities
|
|
|
(57,991)
|
|
|
161,506
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
Purchases of investments
|
|
|
(4)
|
|
|
—
|
|
Sales and maturities of investments
|
|
|
91
|
|
|
41
|
|
Capital expenditures
|
|
|
(183,427)
|
|
|
(129,875)
|
|
Proceeds from sales of assets and insurance claims
|
|
|
3,253
|
|
|
5,448
|
|
Other
|
|
|
(106)
|
|
|
(4,439)
|
|
Net cash (used for) provided by investing activities
|
|
|
(180,193)
|
|
|
(128,825)
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
Increase (decrease) in cash overdrafts
|
|
|
(469)
|
|
|
1,642
|
|
Proceeds from issuance of long-term debt
|
|
|
411,200
|
|
|
—
|
|
Debt issuance costs
|
|
|
(10,439)
|
|
|
—
|
|
Proceeds from revolving credit facilities
|
|
|
—
|
|
|
150,000
|
|
Reduction in revolving credit facilities
|
|
|
—
|
|
|
(70,000)
|
|
Proceeds from (payments for) issuance of common shares
|
|
|
8,300
|
|
|
—
|
|
Repurchase of common shares
|
|
|
—
|
|
|
(1,687)
|
|
Reduction in long-term debt
|
|
|
(170,491)
|
|
|
(148,045)
|
|
Dividends to shareholders
|
|
|
(17,040)
|
|
|
(16,922)
|
|
Proceeds from (payment for) commercial paper, net
|
|
|
—
|
|
|
1,325
|
|
Cash proceeds from equity component of exchangeable debt
|
|
|
159,952
|
|
|
—
|
|
Payments on term loan
|
|
|
(162,500)
|
|
|
—
|
|
Proceeds from (payments for) short-term borrowings
|
|
|
16
|
|
|
(628)
|
|
Purchase of capped call hedge transactions
|
|
|
(40,250)
|
|
|
—
|
|
Other
|
|
|
(5,341)
|
|
|
(3,190)
|
|
Net cash (used for) provided by financing activities
|
|
|
172,938
|
|
|
(87,505)
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
1,841
|
|
|
968
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(63,405)
|
|
|
(53,856)
|
|
Cash and cash equivalents, beginning of period
|
|
|
264,093
|
|
|
254,530
|
|
Cash and cash equivalents, end of period
|
|
$
|
200,688
|
|
$
|
200,674
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
NABORS INDUSTRIES LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares
|
|
in Excess
|
|
Other
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
Par
|
|
of Par
|
|
Comprehensive
|
|
Retained
|
|
Treasury
|
|
controlling
|
|
Total
|
|
(In thousands)
|
|
Shares
|
|
Value
|
|
Value
|
|
Income
|
|
Earnings
|
|
Shares
|
|
Interest
|
|
Equity
|
|
As of December 31, 2015
|
|
330,526
|
|
|
331
|
|
|
2,493,100
|
|
|
(47,593)
|
|
|
3,131,134
|
|
|
(1,294,262)
|
|
|
11,158
|
|
|
4,293,868
|
|
Net income (loss)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(398,294)
|
|
|
—
|
|
|
724
|
|
|
(397,570)
|
|
Dividends to shareholders ($0.06 per share)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(16,922)
|
|
|
—
|
|
|
—
|
|
|
(16,922)
|
|
Repurchase of treasury shares
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,687)
|
|
|
—
|
|
|
(1,687)
|
|
Other comprehensive income (loss), net of tax
|
|
—
|
|
|
—
|
|
|
—
|
|
|
34,329
|
|
|
—
|
|
|
—
|
|
|
419
|
|
|
34,748
|
|
Share-based compensation
|
|
—
|
|
|
—
|
|
|
7,374
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7,374
|
|
Other
|
|
1,149
|
|
|
1
|
|
|
(3,191)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(424)
|
|
|
(3,614)
|
|
As of March 31, 2016
|
|
331,675
|
|
$
|
332
|
|
$
|
2,497,283
|
|
$
|
(13,264)
|
|
$
|
2,715,918
|
|
$
|
(1,295,949)
|
|
$
|
11,877
|
|
$
|
3,916,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016
|
|
333,598
|
|
$
|
334
|
|
$
|
2,521,332
|
|
$
|
(12,119)
|
|
$
|
2,033,427
|
|
$
|
(1,295,949)
|
|
$
|
7,770
|
|
$
|
3,254,795
|
|
Net income (loss)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(148,984)
|
|
|
—
|
|
|
917
|
|
|
(148,067)
|
|
Dividends to shareholders ($0.06 per share)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(17,153)
|
|
|
—
|
|
|
—
|
|
|
(17,153)
|
|
Other comprehensive income (loss), net of tax
|
|
—
|
|
|
—
|
|
|
—
|
|
|
783
|
|
|
—
|
|
|
—
|
|
|
49
|
|
|
832
|
|
Issuance of common shares for stock options exercised, net of surrender of unexercised stock options
|
|
843
|
|
|
1
|
|
|
8,299
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8,300
|
|
Share-based compensation
|
|
—
|
|
|
—
|
|
|
10,280
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10,280
|
|
Equity component of exchangeable debt
|
|
—
|
|
|
—
|
|
|
116,195
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
116,195
|
|
Capped call transactions
|
|
—
|
|
|
—
|
|
|
(40,250)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(40,250)
|
|
Adoption of ASU No. 2016-09
|
|
—
|
|
|
—
|
|
|
1,943
|
|
|
—
|
|
|
5,150
|
|
|
—
|
|
|
—
|
|
|
7,093
|
|
Other
|
|
1,126
|
|
|
1
|
|
|
(5,342)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(290)
|
|
|
(5,631)
|
|
As of March 31, 2017
|
|
335,567
|
|
$
|
336
|
|
$
|
2,612,457
|
|
$
|
(11,336)
|
|
$
|
1,872,440
|
|
$
|
(1,295,949)
|
|
$
|
8,446
|
|
$
|
3,186,394
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
Nabors Industries Ltd. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Nature of Operations
Unless the context requires otherwise, references in this annual report to “we,” “us,” “our,” “the Company,” or “Nabors” mean Nabors Industries Ltd., together with our subsidiaries where the context requires.
We own and operate the world’s largest land-based drilling rig fleet and are a leading provider of offshore platform drilling rigs in the United States and multiple international markets. We also provide advanced wellbore placement services, drilling software and performance tools, drilling equipment and innovative technologies throughout the world’s most significant oil and gas markets.
As a global provider of drilling and drilling-related services for land-based and offshore oil and natural gas wells, our fleet of rigs and drilling-related equipment as of March 31, 2017 included:
|
·
|
|
403 actively marketed rigs for land-based drilling operations in the United States, Canada and approximately 20 other countries throughout the world; and
|
|
·
|
|
41 actively marketed rigs for offshore drilling operations in the United States and multiple international markets.
|
Our business consists of four reportable operating segments: U.S., Canada, International and Rig Services.
Note 2 Summary of Significant Accounting Policies
Interim Financial Information
The accompanying unaudited consolidated condensed financial statements of Nabors have been prepared in conformity with generally accepted accounting principles in the United States (“GAAP”). Pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted. Therefore, these financial statements should be read together with our annual report on Form 10-K for the year ended December 31, 2016 (“2016 Annual Report”). In management’s opinion, the unaudited condensed consolidated financial statements contain all adjustments necessary to state fairly our financial position as of March 31, 2017 and the results of operations, comprehensive income (loss), cash flows and changes in equity for the periods presented herein. Interim results for the three months ended March 31, 2017 may not be indicative of results that will be realized for the full year ending December 31, 2017.
Principles of Consolidation
Our condensed consolidated financial statements include the accounts of Nabors, as well as all majority owned and non-majority owned subsidiaries required to be consolidated under GAAP. All significant intercompany accounts and transactions are eliminated in consolidation.
Investments in operating entities where we have the ability to exert significant influence, but where we do not control operating and financial policies, are accounted for using the equity method. Our share of the net income (loss) of these entities is recorded as earnings (losses) from unconsolidated affiliates in our condensed consolidated statements of income (loss). The investments in these entities are included in investment in unconsolidated affiliates in our condensed consolidated balance sheets. We historically recorded our share of the net income (loss) of our equity method investment in C&J Energy Services, Ltd. (“CJES”) on a one-quarter lag, as we were not able to obtain the financial information of CJES on a timely basis. During the third quarter of 2016, CJES filed for bankruptcy, at which time we ceased accounting for our investment in CJES as an equity method investment and now report this investment at our estimate of fair value. See Note 3 — Investments in Unconsolidated Affiliates.
Revenue Recognition
We recognize revenues and costs on daywork contracts daily as the work progresses. For certain contracts, we receive lump-sum payments for the mobilization of rigs and other drilling equipment. We defer revenue related to mobilization periods and recognize the revenue over the term of the related drilling contract. We also defer recognition of revenue on amounts received from customers for prepayment of services until those services are provided. At March 31, 2017 and December 31, 2016, our deferred revenues classified as accrued liabilities were $259.7 million and $255.6 million, respectively. At March 31, 2017 and December 31, 2016, our deferred revenues classified as other long-term liabilities were $262.8 million and $321.0 million, respectively.
Costs incurred related to a mobilization period for which a contract is secured are deferred and recognized over the term of the related drilling contract. Costs incurred to relocate rigs and other drilling equipment to areas in which a contract has not been secured are expensed as incurred. At March 31, 2017 and December 31, 2016, our deferred expenses classified as other current assets were $73.0 million and $63.4 million, respectively. At March 31, 2017 and December 31, 2016, our deferred expenses classified as other long-term assets were $59.6 million and $69.5 million, respectively.
We recognize revenue for top drives and instrumentation systems we manufacture when the earnings process is complete. This generally occurs when products have been shipped, title and risk of loss have been transferred, collectability is probable, and pricing is fixed and determinable.
We recognize, as operating revenue, proceeds from business interruption insurance claims in the period that the applicable proof of loss documentation is received. Proceeds from casualty insurance settlements in excess of the carrying value of damaged assets are recognized in other expense (income), net in the period that the applicable proof of loss documentation is received. Proceeds from casualty insurance settlements that are expected to be less than the carrying value of damaged assets are recognized at the time the loss is incurred and recorded in other expense (income), net.
We recognize reimbursements received for out-of-pocket expenses incurred as revenues and account for out-of-pocket expenses as direct costs.
Inventory, net
Inventory is stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out or weighted-average cost methods and includes the cost of materials, labor and manufacturing overhead. Inventory included the following:
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
|
2017
|
|
2016
|
|
|
|
(In thousands)
|
|
Raw materials
|
|
$
|
83,751
|
|
$
|
84,431
|
|
Work-in-progress
|
|
|
13,288
|
|
|
1,204
|
|
Finished goods
|
|
|
12,422
|
|
|
17,960
|
|
|
|
$
|
109,461
|
|
$
|
103,595
|
|
Property, Plant and Equipment
We review our assets for impairment when events or changes in circumstances indicate that their carrying amounts may not be recoverable. If the estimated undiscounted future cash flows are not sufficient to support the asset’s recorded value, an impairment charge is recognized to reduce the carrying amount of the long-lived asset to its estimated fair value. The determination of future cash flows requires the estimation of dayrates and utilization, and such estimates can change based on market conditions, technological advances in the industry or changes in regulations governing the industry.
For an asset classified as held for sale, we consider the asset impaired when its carrying amount exceeds fair value less its cost to sell. Fair value is determined in the same manner as an impaired long-lived asset that is held and used.
Significant and unanticipated changes to the assumptions could result in future impairments. A continuation of the lower oil and natural gas prices experienced over the last two years could continue to adversely affect the demand for and prices of our services. As such, we will continue to assess our asset fleet, particularly our legacy and undersized rigs. Should we continue experiencing weakening in the market for a prolonged period for any specific rig class, this could result in future impairment charges or retirements of assets. As the determination of whether impairment charges should be recorded on our long-lived assets is subject to significant management judgment, and an impairment of these assets could result in a material charge on our condensed consolidated statements of income (loss), management believes that accounting estimates related to impairment of long-lived assets are critical.
Goodwill
We review goodwill for impairment annually during the second quarter of each fiscal year or more frequently if events or changes in circumstances indicate that the carrying amount of such goodwill and intangible assets exceed their fair value. Due to the adoption of Accounting Standards Update (“ASU”) No. 2017-04, effective January 1, 2017, we no longer determine goodwill impairment by calculating the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. We will continue to perform our qualitative analysis as well as step one of the impairment test which compares the estimated fair value of the reporting unit to its carrying amount. If the carrying amount exceeds the fair value, an impairment charge will be recognized in an amount equal to the excess; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.
For our goodwill tests prior to adoption of the new standard, we initially assessed goodwill for impairment based on qualitative factors to determine whether to perform the two-step annual goodwill impairment test, a Level 3 fair value measurement. After our qualitative assessment, step one of the impairment test compared the estimated fair value of the reporting unit to its carrying amount. If the carrying amount exceeded the fair value, a second step was required to measure the goodwill impairment loss. The second step compared the implied fair value of the reporting unit’s goodwill to its carrying amount. If the carrying amount exceeded the implied fair value, an impairment loss was recognized in an amount equal to the excess.
Our estimated fair values of our reporting units incorporate judgment and the use of estimates by management. Potential factors requiring assessment include a further or sustained decline in our stock price, declines in oil and natural gas prices, a variance in results of operations from forecasts, a change in operating strategy of assets and additional transactions in the oil and gas industry. Another factor in determining whether impairment has occurred is the relationship between our market capitalization and our book value. As part of our annual review, we compare the sum of our reporting units’ estimated fair value, which includes the estimated fair value of non-operating assets and liabilities, less debt, to our market capitalization and assess the reasonableness of our estimated fair value. Any of the above-mentioned factors may cause us to re-evaluate goodwill during any quarter throughout the year.
Recently Adopted Accounting Pronouncements
In March 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-07, Investments—Equity Method and Joint Ventures, to simplify the transition to the equity method of accounting. This standard eliminates the requirement to retroactively adopt the equity method of accounting as a result of an increase in the level of ownership interest or degree of influence. Instead, the equity method investor should add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity
method of accounting as of the date the investment qualifies for the equity method of accounting. This guidance is effective for public companies for fiscal years beginning after December 15, 2016. The adoption of this guidance did not have an impact on our consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation, to simplify the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. This guidance is effective for public companies for fiscal years beginning after December 15, 2016. We adopted this guidance on a prospective basis effective January 1, 2017. The impact of adoption was a decrease in deferred tax liabilities of $7.1 million and an increase in retained earnings of $7.1 million related to excess tax benefits on prior awards. Additionally, we elected to account for forfeitures as they occur. The impact of this election resulted in an increase in capital in excess of par and a corresponding decrease in retained earnings of $1.9 million.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other, which simplifies the subsequent measurement of goodwill by eliminating Step 2 of the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Under this new standard, an entity should perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and then recognize an impairment charge, as necessary, for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to that reporting unit. This guidance is effective for fiscal years beginning after December 15, 2019. We have elected to early adopt this guidance on a prospective basis for our annual goodwill impairment test performed subsequent to January 1, 2017. The adoption of this standard had no effect on our financial condition, results of operations or disclosures for our first quarter ended March 31, 2017 as this standard only impacts the measurement of goodwill impairment charges on a prospective basis.
Recent Accounting Pronouncements Not Yet Adopted
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, relating to the revenue recognition from contracts with customers that creates a common revenue standard for GAAP and IFRS. The core principle will require recognition of revenue to represent the transfer of promised goods or services to customers in an amount that reflects the consideration, including costs incurred, to which the entity expects to be entitled in exchange for those goods or services. In July 2015, the FASB approved a one year deferral of this standard, with a new effective date for fiscal years beginning after December 15, 2017. During the first quarter of 2017, we expanded our implementation team and are in the process of reviewing our revenue streams. We have identified a subset of contracts that we believe are representative of our operations and began a detailed analysis of the related performance obligations and pricing arrangements in such contracts. At this time, we expect to apply the modified retrospective approach. However, we are still evaluating the requirements to determine the impact of the adoption on our consolidated financial statements and related disclosures.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments—Overall, relating to the recognition and measurement of financial assets and liabilities. This standard enhances the reporting model for financial instruments, which includes amendments to address aspects of recognition, measurement, presentation and disclosure. This guidance is effective for public companies for fiscal years beginning after December 15, 2017. Early application is permitted. We are currently evaluating the impact this will have on our consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases, relating to leases to increase transparency and comparability among companies. This standard requires that all leases with an initial term greater than one year be recorded on the balance sheet as an asset and a lease liability. Additionally, this standard will require disclosures designed to give financial statement users information on the amount, timing, and uncertainty of cash flows arising from leases. This guidance is effective for public companies for fiscal years beginning after December 15, 2018. Early application is permitted. This standard requires an entity to separate lease components from nonlease components within a contract. While the lease components would be accounted for under ASU No. 2016-02, nonlease components would be accounted for under ASU No. 2014-09. Therefore, we are evaluating ASU No. 2016-02 concurrently with the provisions of ASU No. 2014-09 and the impact this will have on our consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows, to reduce the diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This guidance is effective for public companies for fiscal years beginning after December 15, 2017. Early application is permitted. We are currently evaluating the impact this will have on our consolidated financial statements.
In October 2016, the FASB issued ASU No. 2016-16—Income Taxes, which improves the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. This guidance is effective for public companies for fiscal years beginning after December 15, 2017. Early application is permitted. We are currently evaluating the impact this will have on our consolidated financial statements.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows: Restricted Cash to provide guidance on the classification of restricted cash in the statement of cash flows. This guidance is effective for public companies for fiscal years beginning after beginning after December 15, 2017. Early application is permitted. The amendments in the ASU should be adopted on a retrospective basis. We are currently evaluating the impact this will have on our consolidated financial statements.
Note 3 Investments in Unconsolidated Affiliates
On March 24, 2015, we completed the merger (the “Merger”) of our Completion & Production Services business with C&J Energy Services, Inc. (“C&J Energy”). We received total consideration comprised of approximately $693.5 million in cash ($650.0 million after settlement of working capital requirements) and approximately 62.5 million common shares in the combined company, CJES, representing approximately 53% of the outstanding and issued common shares of CJES as of the closing date. We recognized our share of the net income (loss) of CJES, which was a loss of $167.1 million for the three months ended March 31, 2016, which is reflected in earnings (losses) from unconsolidated affiliates in our condensed consolidated statement of income (loss). Additionally, we recognized an other-than-temporary impairment charge of $153.4 million during the three months ended March 31, 2016, which is reflected in other, net in our condensed consolidated statement of income (loss). During the third quarter of 2016, CJES commenced voluntarily cases under chapter 11 of the U.S. Bankruptcy code. As such, we ceased accounting for our investment in CJES as an equity method investment. See Note 7—Commitments and Contingencies for disclosure surrounding the bankruptcy proceeding.
Note 4 Fair Value Measurements
Our financial assets and liabilities that are accounted for at fair value on a recurring basis as of March 31, 2017 consist of available-for-sale equity and debt securities. Our debt securities could transfer into or out of a Level 1 or 2 measure depending on the availability of independent and current pricing at the end of each quarter. During the three months ended March 31, 2017, there were no transfers of our financial assets between Level 1 and Level 2 measures. Our financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The majority of our short-term investments are categorized as Level 1 and had a fair value of $27.9 million as of March 31, 2017.
Nonrecurring Fair Value Measurements
We applied fair value measurements to our nonfinancial assets and liabilities measured on a nonrecurring basis, which consist of measurements primarily to assets held for sale, goodwill, equity method investments, intangible assets and other long-lived assets, assets acquired and liabilities assumed in a business combination and our pipeline contractual commitment. Based upon our review of the fair value hierarchy, the inputs used in these fair value measurements were considered Level 3 inputs.
Fair Value of Financial Instruments
We estimate the fair value of our financial instruments in accordance with GAAP. The fair value of our long-term debt, revolving credit facility and commercial paper is estimated based on quoted market prices or prices quoted from third-party financial institutions. The fair value of our debt instruments is determined using Level 2 measurements. The carrying and fair values of these liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
|
|
Carrying
|
|
Fair
|
|
Carrying
|
|
Fair
|
|
|
Value
|
|
Value
|
|
Value
|
|
Value
|
|
|
(In thousands)
|
|
(In thousands)
|
6.15% senior notes due February 2018
|
|
$
|
665,222
|
|
$
|
690,168
|
|
$
|
827,539
|
|
$
|
865,300
|
9.25% senior notes due January 2019
|
|
|
303,489
|
|
|
337,252
|
|
|
303,489
|
|
|
337,443
|
5.00% senior notes due September 2020
|
|
|
669,616
|
|
|
694,311
|
|
|
669,540
|
|
|
689,211
|
4.625% senior notes due September 2021
|
|
|
694,928
|
|
|
706,658
|
|
|
694,868
|
|
|
708,765
|
5.50% senior notes due January 2023
|
|
|
600,000
|
|
|
615,378
|
|
|
600,000
|
|
|
627,000
|
5.10% senior notes due September 2023
|
|
|
346,480
|
|
|
351,462
|
|
|
346,448
|
|
|
348,613
|
0.75% senior exchangeable notes due January 2024
|
|
|
415,228
|
|
|
388,882
|
|
|
—
|
|
|
—
|
Term loan facility
|
|
|
—
|
|
|
—
|
|
|
162,500
|
|
|
162,500
|
Revolving credit facility
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
Commercial paper
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
Other
|
|
|
313
|
|
|
313
|
|
|
297
|
|
|
297
|
|
|
|
3,695,276
|
|
$
|
3,784,424
|
|
|
3,604,681
|
|
$
|
3,739,129
|
Less: Deferred financing costs
|
|
|
33,298
|
|
|
|
|
|
26,049
|
|
|
|
|
|
$
|
3,661,978
|
|
|
|
|
$
|
3,578,632
|
|
|
|
The fair values of our cash equivalents, trade receivables and trade payables approximate their carrying values due to the short-term nature of these instruments.
Note 5 Debt
Debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
|
2017
|
|
2016
|
|
|
|
(In thousands)
|
|
6.15% senior notes due February 2018 (1)
|
|
$
|
665,222
|
|
$
|
827,539
|
|
9.25% senior notes due January 2019
|
|
|
303,489
|
|
|
303,489
|
|
5.00% senior notes due September 2020
|
|
|
669,616
|
|
|
669,540
|
|
4.625% senior notes due September 2021
|
|
|
694,928
|
|
|
694,868
|
|
5.50% senior notes due January 2023
|
|
|
600,000
|
|
|
600,000
|
|
5.10% senior notes due September 2023
|
|
|
346,480
|
|
|
346,448
|
|
0.75% senior exchangeable notes due January 2024
|
|
|
415,228
|
|
|
—
|
|
Term loan facility
|
|
|
—
|
|
|
162,500
|
|
Revolving credit facility
|
|
|
—
|
|
|
—
|
|
Commercial paper
|
|
|
—
|
|
|
—
|
|
Other
|
|
|
313
|
|
|
297
|
|
|
|
|
3,695,276
|
|
|
3,604,681
|
|
Less: current portion
|
|
|
313
|
|
|
297
|
|
Less: deferred financing costs
|
|
|
33,298
|
|
|
26,049
|
|
|
|
$
|
3,661,665
|
|
$
|
3,578,335
|
|
|
(1)
|
|
The 6.15% senior notes due February 2018 have been classified as long-term because we have the ability and intent to repay this obligation utilizing our revolving credit facility.
|
During the three months ended March 31, 2017, we repurchased $162.5 million aggregate principal amount of our 6.15% senior notes due February 2018 for approximately $171.6 million in cash, reflecting principal and approximately $2.2 million of accrued and unpaid interest. The difference represents the premiums incurred in connection with these repurchases and is included in other, net in our condensed consolidated statement of income (loss) for the three months ended March 31, 2017.
0.75% Senior Exchangeable Notes Due January 2024
In January 2017, Nabors Industries, Inc. (“Nabors Delaware”), a wholly owned subsidiary of Nabors, issued $575 million in aggregate principal amount of 0.75% exchangeable senior unsecured notes due 2024, which are fully and unconditionally guaranteed by Nabors. The notes bear interest at a rate of 0.75% per year payable semiannually on January 15 and July 15 of each year, beginning on July 15, 2017. The exchangeable notes are bifurcated for accounting purposes into debt and equity components of $411.2 million and $163.8 million, respectively, based on the relative fair value. Debt issuance costs of $9.6 million and equity issuance costs of $3.9 million were capitalized in connection with the issuance of these notes in long-term debt and netted against the proceeds allocated to the equity component, respectively, in our condensed consolidated balance sheet. The debt issuance costs are being amortized through January 2024.
The exchangeable notes are exchangeable, under certain conditions, at an initial exchange rate of 39.75 common shares of Nabors per $1,000 principal amount of exchangeable notes (equivalent to an initial exchange price of approximately $25.16 per common share). Upon any exchange, Nabors Delaware will settle its exchange obligation in cash, common shares of Nabors, or a combination of cash and common shares, at our election.
In connection with the pricing of the notes, we entered into privately negotiated capped call transactions which are expected to reduce potential dilution to common shares and/or offset potential cash payments required to be made in excess of the principal amount upon any exchange of notes. Such reduction and/or offset is subject to a cap representing a price per share of $31.45, an approximately 75.0% premium over our share price of $17.97 as of the date of the transaction. The net proceeds from the offering of the exchangeable notes were used to prepay the remaining balance of our unsecured term loan originally scheduled to mature in 2020, as well as to pay the cost of the capped call transactions. Any remaining net proceeds from the offering were allocated for general corporate purposes, including to repurchase or repay other indebtedness.
Commercial Paper Program
As of March 31, 2017, we had no borrowings outstanding under this facility. Our commercial paper borrowings are classified as long-term debt because the borrowings are fully supported by availability under our revolving credit facility, which matures as currently structured in July 2020, more than one year from now.
Revolving Credit Facility
As of March 31, 2017, we had no borrowings outstanding under our $2.25 billion revolving credit facility, which matures in July 2020. The revolving credit facility contains various covenants and restrictive provisions that limit our ability to incur additional indebtedness, make investments or loans and create liens and require us to maintain a net funded indebtedness to total capitalization ratio, as defined in the agreement. Availability under the revolving credit facility is subject to a covenant not to exceed a net debt to capital ratio of 0.60:1. We were in compliance with all covenants under the agreement at March 31, 2017. If we fail to perform our obligations under the covenants, the revolving credit commitment could be terminated, and any outstanding borrowings under the facility could be declared immediately due and payable.
Term Loan Facility
On September 29, 2015, Nabors Delaware entered into a new five-year unsecured term loan facility for $325.0 million, which is fully and unconditionally guaranteed by us. The term loan facility contains a mandatory prepayment of $162.5 million due in September 2018, which was repaid in December 2016 utilizing a portion of the proceeds received in connection with the 5.50% senior notes offering. In January 2017, we repaid the remaining $162.5 million term loan utilizing the proceeds received in connection with the 0.75% senior exchangeable notes and the facility was terminated.
Note 6 Common Shares
During the three months ended March 31, 2016, we repurchased 0.3 million of our common shares in the open market for $1.7 million, all of which are held in treasury.
On February 17, 2017, a cash dividend of $0.06 per share was declared for shareholders of record on March 14, 2017. The dividend was paid on April 4, 2017 in the amount of $17.2 million and was charged to retained earnings in our condensed consolidated statement of changes in equity for the three months ended March 31, 2017.
Note 7 Commitments and Contingencies
Contingencies
Income Tax
We operate in a number of countries throughout the world and our tax returns filed in those jurisdictions are subject to review and examination by tax authorities within those jurisdictions. We do not recognize the benefit of income tax positions we believe are more likely than not to be disallowed upon challenge by a tax authority. If any tax authority successfully challenges our operational structure, intercompany pricing policies or the taxable presence of our subsidiaries in certain countries, if the terms of certain income tax treaties are interpreted in a manner that is adverse to our structure, or if we lose a material tax dispute in any country, our effective tax rate on our worldwide earnings could change substantially.
We have received an assessment from a tax authority in Latin America in connection with a 2007 income tax return. The assessment relates to the denial of depreciation expense deductions related to drilling rigs. Similar deductions were taken for tax year 2009. Although Nabors and its tax advisors believe these deductions are appropriate and intend to continue to defend our position, we have recorded a partial reserve to account for this contingency. If we ultimately do not prevail, we estimate that we would be required to recognize additional tax expense in the range of $3 million to $8 million.
Self-Insurance
We estimate the level of our liability related to insurance and record reserves for these amounts in our condensed consolidated financial statements. Our estimates are based on the facts and circumstances specific to existing claims and our past experience with similar claims. These loss estimates and accruals recorded in our financial statements for claims have historically been reasonable in light of the actual amount of claims paid and are actuarially supported. Although we believe our insurance coverage and reserve estimates are reasonable, a significant accident or other event that is not fully covered by insurance or contractual indemnity could occur and could materially affect our financial position and results of operations for a particular period.
We self-insure for certain losses relating to workers’ compensation, employers’ liability, general liability, automobile liability and property damage. Some of our workers’ compensation claims, employers’ liability and marine employers’ liability claims are subject to a $3.0 million per-occurrence deductible; additionally, some of our automobile liability claims are subject to a $2.5 million deductible. General liability claims remain subject to a $5.0 million per-occurrence deductible. Our policies were renewed effective April 1, 2017 and remains subject to these same deductibles.
In addition, we are subject to a $5.0 million deductible for land rigs and for offshore rigs. This applies to all kinds of risks of physical damage except for named windstorms in the U.S. Gulf of Mexico for which we are self-insured.
Litigation
Nabors and its subsidiaries are defendants or otherwise involved in a number of lawsuits in the ordinary course of business. We estimate the range of our liability related to pending litigation when we believe the amount and range of loss can be estimated. We record our best estimate of a loss when the loss is considered probable. When a liability is probable and there is a range of estimated loss with no best estimate in the range, we record the minimum estimated liability related to the lawsuits or claims. As additional information becomes available, we assess the potential liability related to our pending litigation and claims and revise our estimates. Due to uncertainties related to the resolution of
lawsuits and claims, the ultimate outcome may differ from our estimates. For matters where an unfavorable outcome is reasonably possible and significant, we disclose the nature of the matter and a range of potential exposure, unless an estimate cannot be made at the time of disclosure. In the opinion of management and based on liability accruals provided, our ultimate exposure with respect to these pending lawsuits and claims is not expected to have a material adverse effect on our consolidated financial position or cash flows, although they could have a material adverse effect on our results of operations for a particular reporting period.
In March 2011, the Court of Ouargla entered a judgment of approximately $25.7 million (at March 31, 2017 exchange rates) against us relating to alleged violations of Algeria’s foreign currency exchange controls, which require that goods and services provided locally be invoiced and paid in local currency. The case relates to certain foreign currency payments made to us by CEPSA, a Spanish operator, for wells drilled in 2006. Approximately $7.5 million of the total contract amount was paid offshore in foreign currency, and approximately $3.2 million was paid in local currency. The judgment includes fines and penalties of approximately four times the amount at issue. We have appealed the ruling based on our understanding that the law in question applies only to resident entities incorporated under Algerian law. An intermediate court of appeals upheld the lower court’s ruling, and we appealed the matter to the Supreme Court. On September 25, 2014, the Supreme Court overturned the verdict against us, and the case was reheard by the Ouargla Court of Appeals on March 22, 2015 in light of the Supreme Court’s opinion. On March 29, 2015, the Ouargla Court of Appeals reinstated the initial judgment against us. We have appealed this decision again to the Supreme Court. While our payments were consistent with our historical operations in the country, and, we believe, those of other multinational corporations there, as well as interpretations of the law by the Central Bank of Algeria, the ultimate resolution of this matter could result in a loss of up to $17.7 million in excess of amounts accrued.
In March 2012, Nabors Global Holdings II Limited (“NGH2L”) signed an agreement with ERG Resources, LLC (“ERG”) relating to the sale of all of the Class A shares of NGH2L’s wholly owned subsidiary, Ramshorn International Limited, an oil and gas exploration company (“Ramshorn”) (“the ERG Agreement”). When ERG failed to meet its closing obligations, NGH2L terminated the transaction on March 19, 2012 and, as contemplated in the agreement, retained ERG’s $3.0 million escrow deposit. ERG filed suit the following day in the 61st Judicial District Court of Harris County, Texas, in a case styled ERG Resources, LLC v. Nabors Global Holdings II Limited, Ramshorn International Limited, and Parex Resources, Inc.; Cause No. 2012 16446, seeking injunctive relief to halt any sale of the shares to a third party, specifically naming as defendant Parex Resources, Inc. (“Parex”). The lawsuit also seeks monetary damages of up to $750.0 million based on an alleged breach of contract by NGH2L and alleged tortious interference with contractual relations by Parex. We successfully defeated ERG’s effort to obtain a temporary restraining order from the Texas court on March 20, 2012 and completed the sale of Ramshorn’s Class A shares to a Parex affiliate in April 2012, which mooted ERG’s application for a temporary injunction. The defendants made numerous jurisdictional challenges on appeal, and on April 30, 2015, ERG filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code. Accordingly, the civil actions are currently subject to the bankruptcy stay and ERG’s claims in the lawsuit are assets of the estate. The lawsuit was stayed, pending further court actions, including appeals of the jurisdictional decisions. On June 17, 2016, the Texas Supreme Court issued its opinion on the jurisdictional appeal holding that jurisdiction exists in Texas for Ramshorn, but not for Parex Bermuda or Parex Canada. ERG retains its causes of action for monetary damages, but we believe the claims are foreclosed by the terms of the ERG Agreement and are without factual or legal merit. On December 28, 2016, the District Court granted Nabors’ Motion for Partial Summary Judgment to Enforce Exclusive Remedies Clause, holding that ERG’s potential recovery in the action may not exceed $4.5 million in accordance with the terms of the ERG Agreement. The plaintiffs have challenged this ruling by filing a motion for rehearing that was heard March 6, 2017. We await the Court’s ruling. Although we continue to vigorously defend the lawsuit, its ultimate outcome cannot be determined at this time.
On July 30, 2014, we and Nabors Red Lion Limited (“Red Lion”), along with C&J Energy and its board of directors, were sued in a putative shareholder class action filed in the Court of Chancery of the State of Delaware (the “Court of Chancery”). The plaintiff alleges that the members of the C&J Energy board of directors breached their fiduciary duties in connection with the Merger, and that Red Lion and C&J Energy aided and abetted these alleged breaches. The plaintiff sought to enjoin the defendants from proceeding with or consummating the Merger and the C&J Energy stockholder meeting for approval of the Merger and, to the extent that the Merger was completed before any relief was granted, to have the Merger rescinded. On November 10, 2014, the plaintiff filed a motion for a preliminary injunction, and, on November 24, 2014, the Court of Chancery entered a bench ruling, followed by a written order on November 25, 2014, that (i) ordered certain members of the C&J Energy board of directors to solicit for a 30 day period alternative proposals to purchase C&J Energy (or a controlling stake in C&J Energy) that were superior to the Merger, and (ii) preliminarily enjoined C&J Energy from holding its stockholder meeting until it complied with the foregoing.
C&J Energy complied with the order while it simultaneously pursued an expedited appeal of the Court of Chancery’s order to the Supreme Court of the State of Delaware (the “Delaware Supreme Court”). On December 19, 2014, the Delaware Supreme Court overturned the Court of Chancery’s judgment and vacated the order. Nabors and the C&J Energy defendants filed a motion to dismiss that was granted by the Chancellor on August 24, 2016, including a ruling that C&J Energy could recover on the bond that was posted to support the temporary restraining order. The plaintiffs filed a Notice of Appeal on September 22, 2016. On March 23, 2017, the Delaware Supreme Court affirmed the dismissal of the lawsuit. The plaintiffs filed a Motion for Reargument, which was denied on March 31, 2017, concluding the case.
On March 24, 2015, we completed the Merger of our Completion & Production Services business with C&J Energy. In the Merger and related transactions, we acquired common shares in the combined entity, CJES, and entered into certain ancillary agreements with CJES, including a tax matters agreement, pursuant to which both parties agreed to indemnify each other following the completion of the Merger with respect to certain tax matters. On July 20, 2016, CJES and certain of its subsidiaries (collectively, the “debtors”) commenced voluntarily cases under chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas, Houston Division. On December 12, 2016, we entered into a mediated settlement agreement with various other parties in the CJES bankruptcy proceedings (the “Settlement Agreement”). Pursuant to the Settlement Agreement, we agreed to support the debtors' chapter 11 plan of reorganization in exchange for: (i) two allowed unsecured claims for which we will receive distributions of up to $4.85 million; (ii) an amendment to the tax matters agreement providing that CJES will likely pay up to $11.5 million of obligations for which we would have otherwise been responsible; (iii) cancellation of various other obligations we had to the debtors; (iv) our pro rata share of warrants to acquire 2% of the common equity in the reorganized debtors; and (v) a mutual release of claims. The bankruptcy court approved the terms of the Settlement Agreement and confirmed the debtors' plan and, on January 6, 2017, CJES announced it had emerged from bankruptcy, thus concluding this proceeding.
Off-Balance Sheet Arrangements (Including Guarantees)
We are a party to some transactions, agreements or other contractual arrangements defined as “off-balance sheet arrangements” that could have a material future effect on our financial position, results of operations, liquidity and capital resources. The most significant of these off-balance sheet arrangements involve agreements and obligations under which we provide financial or performance assurance to third parties. Certain of these agreements serve as guarantees, including standby letters of credit issued on behalf of insurance carriers in conjunction with our workers’ compensation insurance program and other financial surety instruments such as bonds. In addition, we have provided indemnifications, which serve as guarantees, to some third parties. These guarantees include indemnification provided by Nabors to our share transfer agent and our insurance carriers. We are not able to estimate the potential future maximum payments that might be due under our indemnification guarantees.
Management believes the likelihood that we would be required to perform or otherwise incur any material losses associated with any of these guarantees is remote. The following table summarizes the total maximum amount of financial guarantees issued by Nabors:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum Amount
|
|
|
|
2017
|
|
2018
|
|
2019
|
|
Thereafter
|
|
Total
|
|
|
|
(In thousands)
|
|
Financial standby letters of credit and other financial surety instruments
|
|
$
|
276,391
|
|
518
|
|
11,914
|
|
—
|
|
$
|
288,823
|
|
Note 8 Earnings (Losses) Per Share
ASC 260, Earnings per Share, requires companies to treat unvested share-based payment awards that have nonforfeitable rights to dividends or dividend equivalents as a separate class of securities in calculating earnings (losses) per share. We have granted and expect to continue to grant to employees restricted stock grants that contain nonforfeitable rights to dividends. Such grants are considered participating securities under ASC 260. As such, we are required to include these grants in the calculation of our basic earnings (losses) per share and calculate basic earnings (losses) per share using the two-class method. The two-class method of computing earnings per share is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared and participation rights in undistributed earnings.
Basic earnings (losses) per share is computed utilizing the two-class method and is calculated based on the weighted-average number of common shares outstanding during the periods presented.
Diluted earnings (losses) per share is computed using the weighted-average number of common and common equivalent shares outstanding during the periods utilizing the two-class method for stock options and unvested restricted stock. Shares issuable upon exchange of the $575 million 0.75% exchangeable notes are not included in the calculation of diluted earnings (losses) per share unless the exchange value of the notes exceeds their principal amount at the end of the relevant reporting period, in which case the notes will be accounted for as if the number of common shares that would be necessary to settle the excess are issued. Such shares are only included in the calculation of the weighted-average number of shares outstanding in our diluted earnings (losses) per share calculation, when the price of our shares exceeds $25.16 on the last trading day of the quarter, which did not occur during the three months ended March 31, 2017.
A reconciliation of the numerators and denominators of the basic and diluted earnings (losses) per share computations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
|
|
2017
|
|
2016
|
|
|
(In thousands, except per share amounts)
|
BASIC EPS:
|
|
|
|
|
|
|
|
|
Net income (loss) (numerator):
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of tax
|
|
|
$
|
(147,628)
|
|
$
|
(396,644)
|
|
Less: net (income) loss attributable to noncontrolling interest
|
|
|
|
(917)
|
|
|
(724)
|
|
Less: (earnings) losses allocated to unvested shareholders
|
|
|
|
3,811
|
|
|
8,199
|
|
Numerator for basic earnings per share:
|
|
|
|
|
|
|
|
|
Adjusted income (loss) from continuing operations, net of tax - basic
|
|
|
$
|
(144,734)
|
|
$
|
(389,169)
|
|
Income (loss) from discontinued operations, net of tax
|
|
|
$
|
(439)
|
|
$
|
(926)
|
|
Weighted-average number of shares outstanding - basic
|
|
|
|
277,781
|
|
|
275,851
|
|
Earnings (losses) per share:
|
|
|
|
|
|
|
|
|
Basic from continuing operations
|
|
|
$
|
(0.52)
|
|
$
|
(1.41)
|
|
Basic from discontinued operations
|
|
|
|
—
|
|
|
—
|
|
Total Basic
|
|
|
$
|
(0.52)
|
|
$
|
(1.41)
|
|
DILUTED EPS:
|
|
|
|
|
|
|
|
|
Adjusted income (loss) from continuing operations, net of tax - basic
|
|
|
$
|
(144,734)
|
|
$
|
(389,169)
|
|
Add: effect of reallocating undistributed earnings of unvested shareholders
|
|
|
|
—
|
|
|
—
|
|
Adjusted income (loss) from continuing operations, net of tax - diluted
|
|
|
$
|
(144,734)
|
|
$
|
(389,169)
|
|
Income (loss) from discontinued operations, net of tax
|
|
|
$
|
(439)
|
|
$
|
(926)
|
|
Weighted-average number of shares outstanding - basic
|
|
|
|
277,781
|
|
|
275,851
|
|
Add: dilutive effect of potential common shares
|
|
|
|
—
|
|
|
—
|
|
Weighted-average number of shares outstanding - diluted
|
|
|
|
277,781
|
|
|
275,851
|
|
Earnings (losses) per share:
|
|
|
|
|
|
|
|
|
Diluted from continuing operations
|
|
|
$
|
(0.52)
|
|
$
|
(1.41)
|
|
Diluted from discontinued operations
|
|
|
|
—
|
|
|
—
|
|
Total Diluted
|
|
|
$
|
(0.52)
|
|
$
|
(1.41)
|
|
|
|
|
|
|
|
|
|
|
For all periods presented, the computation of diluted earnings (losses) per share excludes outstanding stock options with exercise prices greater than the average market price of Nabors’ common shares, because their inclusion would be anti-dilutive and because they are not considered participating securities. For periods in which we experience a net loss from continuing operations, all potential common shares have been excluded from the calculation of weighted-average
shares outstanding, because their inclusion would be anti-dilutive. The average number of options that were excluded from diluted earnings (losses) per share that would potentially dilute earnings per share in the future were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Potentially dilutive securities excluded as anti-dilutive
|
|
|
|
4,647,807
|
|
|
5,414,712
|
|
In any period during which the average market price of Nabors’ common shares exceeds the exercise prices of these stock options, such stock options will be included in our diluted earnings (losses) per share computation using the if-converted method of accounting. Restricted stock is included in our basic and diluted earnings (losses) per share computation using the two-class method of accounting in all periods because such stock is considered participating securities.
Note 9 Supplemental Balance Sheet and Income Statement Information
Accrued liabilities included the following:
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
|
2017
|
|
2016
|
|
|
|
(In thousands)
|
|
Accrued compensation
|
|
$
|
100,783
|
|
$
|
116,775
|
|
Deferred revenue
|
|
|
259,671
|
|
|
255,626
|
|
Other taxes payable
|
|
|
16,264
|
|
|
16,419
|
|
Workers’ compensation liabilities
|
|
|
18,255
|
|
|
18,255
|
|
Interest payable
|
|
|
25,804
|
|
|
57,233
|
|
Litigation reserves
|
|
|
24,026
|
|
|
24,896
|
|
Current liability to discontinued operations
|
|
|
5,566
|
|
|
5,462
|
|
Dividends declared and payable
|
|
|
17,154
|
|
|
17,039
|
|
Other accrued liabilities
|
|
|
29,841
|
|
|
31,543
|
|
|
|
$
|
497,364
|
|
$
|
543,248
|
|
Other expense (income), net included the following:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
|
|
2017
|
|
2016
|
|
|
(In thousands)
|
Losses (gains) on sales, disposals and involuntary conversions of long-lived assets
|
|
|
$
|
2,875
|
|
$
|
5,298
|
|
Charges related to our CJES holdings (1)
|
|
|
|
—
|
|
|
177,242
|
|
Litigation expenses
|
|
|
|
821
|
|
|
637
|
|
Foreign currency transaction losses (gains)
|
|
|
|
876
|
|
|
4,214
|
|
(Gain) loss on debt buyback
|
|
|
|
8,596
|
|
|
(6,027)
|
|
Other losses (gains)
|
|
|
|
342
|
|
|
1,040
|
|
|
|
|
$
|
13,510
|
|
$
|
182,404
|
|
|
(1)
|
|
Represents impairment charges related to our CJES holdings. See Note 3 — Investments in Unconsolidated Affiliates.
|
The changes in accumulated other comprehensive income (loss), by component, included the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains
|
|
gains (losses)
|
|
Defined
|
|
|
|
|
|
|
|
|
|
(losses) on
|
|
on available-
|
|
benefit
|
|
Foreign
|
|
|
|
|
|
|
cash flow
|
|
for-sale
|
|
pension plan
|
|
currency
|
|
|
|
|
|
|
hedges
|
|
securities
|
|
items
|
|
items
|
|
Total
|
|
|
|
(In thousands (1) )
|
|
As of January 1, 2016
|
|
$
|
(1,670)
|
|
$
|
(314)
|
|
$
|
(6,568)
|
|
$
|
(39,041)
|
|
$
|
(47,593)
|
|
Other comprehensive income (loss) before reclassifications
|
|
|
—
|
|
|
769
|
|
|
—
|
|
|
33,362
|
|
|
34,131
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
|
93
|
|
|
—
|
|
|
105
|
|
|
—
|
|
|
198
|
|
Net other comprehensive income (loss)
|
|
|
93
|
|
|
769
|
|
|
105
|
|
|
33,362
|
|
|
34,329
|
|
As of March 31, 2016
|
|
$
|
(1,577)
|
|
$
|
455
|
|
$
|
(6,463)
|
|
$
|
(5,679)
|
|
$
|
(13,264)
|
|
|
(1)
|
|
All amounts are net of tax.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains
|
|
gains (losses)
|
|
Defined
|
|
|
|
|
|
|
|
|
|
(losses) on
|
|
on available-
|
|
benefit
|
|
Foreign
|
|
|
|
|
|
|
cash flow
|
|
for-sale
|
|
pension plan
|
|
currency
|
|
|
|
|
|
|
hedges
|
|
securities
|
|
items
|
|
items
|
|
Total
|
|
|
|
(In thousands (1) )
|
|
As of January 1, 2017
|
|
$
|
(1,296)
|
|
$
|
14,235
|
|
$
|
(3,760)
|
|
$
|
(21,298)
|
|
$
|
(12,119)
|
|
Other comprehensive income (loss) before reclassifications
|
|
|
—
|
|
|
(3,201)
|
|
|
—
|
|
|
3,860
|
|
|
659
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
|
93
|
|
|
—
|
|
|
31
|
|
|
—
|
|
|
124
|
|
Net other comprehensive income (loss)
|
|
|
93
|
|
|
(3,201)
|
|
|
31
|
|
|
3,860
|
|
|
783
|
|
As of March 31, 2017
|
|
$
|
(1,203)
|
|
$
|
11,034
|
|
$
|
(3,729)
|
|
$
|
(17,438)
|
|
$
|
(11,336)
|
|
|
(1)
|
|
All amounts are net of tax.
|
The line items that were reclassified to net income included the following:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
|
|
2017
|
|
2016
|
|
|
(In thousands)
|
Interest expense
|
|
|
$
|
153
|
|
$
|
153
|
|
General and administrative expenses
|
|
|
|
50
|
|
|
174
|
|
Other expense (income), net
|
|
|
|
—
|
|
|
—
|
|
Total income (loss) from continuing operations before income tax
|
|
|
|
(203)
|
|
|
(327)
|
|
Tax expense (benefit)
|
|
|
|
(79)
|
|
|
(129)
|
|
Reclassification adjustment for (gains)/ losses included in net income (loss)
|
|
|
$
|
(124)
|
|
$
|
(198)
|
|
Note 10 Assets Held for Sale and Discontinued Operations
Assets Held for Sale
Assets held for sale as of March 31, 2017 and December 31, 2016 was $77.1 million and $76.7 million, respectively. These assets consisted primarily of our oil and gas holdings which are mainly in the Horn River basin in western Canada of $65.4 million and $65.0 million, respectively, as of the periods noted above and the operating results have been reflected in discontinued operations. The remainder represents assets that meet the criteria to be classified as assets held for sale, but do not represent a disposal of a component of an entity or a group of components of an entity representing a strategic shift that has or will have a major effect on the entity's operations and financial results.
The carrying value of our assets held for sale represents the lower of carrying value or fair value less costs to sell. We continue to market these properties at prices that are reasonable compared to current fair value.
We have contracts with pipeline companies to pay specified fees based on committed volumes for gas transport and processing associated with these properties held for sale. At March 31, 2017, our undiscounted contractual commitments for these contracts approximated $15.7 million and we had liabilities of $11.6 million, $5.6 million of which were classified as current and were included in accrued liabilities. At December 31, 2016, our undiscounted contractual commitments for these contracts approximated $17.2 million and we had liabilities of $12.5 million, $5.5 million of which were classified as current and were included in accrued liabilities.
The amounts at each balance sheet date represented our best estimate of the fair value of the excess capacity of the pipeline commitments calculated using a discounted cash flow model, when considering our disposal plan, current production levels, natural gas prices and expected utilization of the pipeline over the remaining contractual term. Decreases in actual production or natural gas prices could result in future charges related to excess pipeline commitments.
Discontinued Operations
Our condensed statements of income (loss) from discontinued operations were as follows:
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Three Months Ended
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March 31,
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2017
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2016
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(In thousands)
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Operating revenues (1)
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$
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2,034
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$
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377
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Income (loss) from Oil & Gas discontinued operations:
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Income (loss) from discontinued operations
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$
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(590)
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$
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(1,326)
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Less: Impairment charges or other (gains) and losses on sale of wholly owned assets
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20
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—
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Less: Income tax expense (benefit)
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(171)
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(400)
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Income (loss) from Oil and Gas discontinued operations, net of tax
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$
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(439)
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$
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(926)
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(1) Reflects operating revenues of our historical oil and gas operating segment.
Note 11 Segment Information
The following table sets forth financial information with respect to our reportable operating segments:
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Three Months Ended
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March 31,
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2017
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2016
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(In thousands)
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Operating revenues:
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Drilling & Rig Services:
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U.S.
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$
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161,934
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$
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148,676
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Canada
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27,808
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17,494
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International
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338,223
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401,055
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Rig Services
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71,441
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53,853
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Subtotal Drilling & Rig Services
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599,406
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621,078
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Other reconciling items (1)
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(36,856)
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(23,507)
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Total
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$
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562,550
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$
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597,571
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Three Months Ended
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March 31,
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2017
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2016
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(In thousands)
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Adjusted operating income (loss): (2)
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Drilling & Rig Services:
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U.S.
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$
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(63,182)
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$
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(47,559)
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Canada
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(4,011)
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(7,278)
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International
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11,974
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46,872
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Rig Services
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(9,109)
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(10,644)
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Total
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$
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(64,328)
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$
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(18,609)
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Three Months Ended
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March 31,
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2017
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2016
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(In thousands)
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Reconciliation of adjusted operating income (loss) to net income (loss) from continuing operations before income taxes:
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Total segment adjusted operating income (loss) (2)
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$
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(64,328)
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$
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(18,609)
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Other reconciling items (3)
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(39,604)
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(35,157)
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Earnings (losses) from unconsolidated affiliates
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2
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(167,151)
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Investment income (loss)
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721
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343
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Interest expense
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(56,518)
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(45,730)
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Other, net
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(13,510)
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(182,404)
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Income (loss) from continuing operations before income taxes
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$
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(173,237)
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$
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(448,708)
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March 31,
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December 31,
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2017
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2016
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(In thousands)
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Total assets:
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Drilling & Rig Services:
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U.S.
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$
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3,246,887
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$
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3,172,767
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Canada
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332,121
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329,620
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International
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3,552,771
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3,600,057
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Rig Services
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370,470
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359,435
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Subtotal Drilling & Rig Services
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7,502,249
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7,461,879
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Other reconciling items (3)
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593,063
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725,136
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Total
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$
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8,095,312
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$
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8,187,015
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(1)
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Represents the elimination of inter-segment transactions.
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(2)
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Adjusted operating income (loss) is computed by subtracting the sum of direct costs, general and administrative expenses, research and engineering expenses and depreciation and amortization from operating revenues. Management evaluates the performance of our operating segments using adjusted operating income (loss), which is a segment performance measure, because it believes that this financial measure reflects our ongoing profitability and performance. In addition, securities analysts and investors use this measure as one of the metrics on which they analyze our performance. A reconciliation to income (loss) from continuing operations before income taxes is provided in the above table.
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(3)
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Represents the elimination of inter-segment transactions and unallocated corporate expenses, assets and capital expenditures.
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