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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003
COMMISSION FILE NUMBER: 000-49887
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NABORS INDUSTRIES LTD.
INCORPORATED IN BERMUDA
2ND FL. INTERNATIONAL TRADING CENTRE
WARRENS
PO BOX 905E
ST. MICHAEL, BARBADOS
(246) 421-9471
98-0363970
(I.R.S. Employer Identification No.)
---------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark whether the registrant is an accelerated filer (as
defined by Rule 12b-2 of the Exchange Act).
Yes X No
----- -----
The number of common shares, par value $.001 per share, outstanding as of
July 31, 2003 was 146,470,489. In addition, our subsidiary, Nabors Exchangeco
(Canada) Inc., has 423,193 exchangeable shares outstanding as of July 31, 2003
that are exchangeable for Nabors common shares on a one-for-one basis, and have
essentially identical rights as Nabors Industries Ltd. common shares, including
but not limited to voting rights and the right to receive dividends, if any.
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NABORS INDUSTRIES LTD. AND SUBSIDIARIES
INDEX
PAGE NO.
--------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of June 30, 2003 and December 2
31, 2002....................................................
Consolidated Statements of Income for the Three Months and 3
Six Months Ended June 30, 2003 and 2002.....................
Consolidated Statements of Cash Flows for the Six Months 4
Ended June 30, 2003 and 2002................................
Consolidated Statements of Changes in Shareholders' Equity 5
for the Six Months Ended June 30, 2003 and 2002.............
Notes to Consolidated Financial Statements.................. 7
Report of Independent Accountants........................... 25
Item 2. Management's Discussion and Analysis of Financial Condition 26
and Results of Operations...................................
Item 3. Quantitative and Qualitative Disclosures About Market 39
Risk........................................................
Item 4. Controls and Procedures..................................... 40
PART II OTHER INFORMATION
Item 1. Legal Proceedings........................................... 40
Item 2. Changes in Securities....................................... 41
Item 4. Submission of Matters to a Vote of Security Holders......... 42
Item 5. Other Information........................................... 43
Item 6. Exhibits and Reports on Form 8-K............................ 44
Signatures........................................................... 45
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NABORS INDUSTRIES LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
JUNE 30, DECEMBER 31,
2003 2002
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) ---------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 772,498 $ 414,051
Marketable securities 277,952 457,600
Accounts receivable, net 336,308 277,735
Inventory and supplies 22,068 20,524
Deferred income taxes 34,997 32,846
Prepaid expenses and other current assets 166,580 167,152
---------- ----------
Total current assets 1,610,403 1,369,908
Marketable securities 432,873 459,148
Property, plant and equipment, net 2,880,104 2,781,050
Goodwill, net 328,033 306,762
Other long-term assets 185,599 147,004
---------- ----------
Total assets $5,437,012 $5,063,872
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 298,007 $ 492,985
Trade accounts payable 97,363 89,705
Accrued liabilities 169,733 152,864
Income taxes payable 8,616 15,900
---------- ----------
Total current liabilities 573,719 751,454
Long-term debt 1,990,138 1,614,656
Other long-term liabilities 124,702 137,253
Deferred income taxes 398,956 402,054
---------- ----------
Total liabilities 3,087,515 2,905,417
---------- ----------
Commitments and contingencies (Note 6)
Shareholders' equity:
Common shares, par value $.001 per share:
Authorized common shares 400,000;
issued 146,452 and 144,965, respectively 147 145
Capital in excess of par value 1,266,717 1,233,598
Accumulated other comprehensive income (loss) 77,602 (3,243)
Retained earnings 1,005,031 927,955
---------- ----------
Total shareholders' equity 2,349,497 2,158,455
---------- ----------
Total liabilities and shareholders' equity $5,437,012 $5,063,872
---------- ----------
The accompanying notes are an integral part of these consolidated financial
statements.
2
NABORS INDUSTRIES LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- -------------------
2003 2002 2003 2002
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) -------- -------- -------- --------
Revenues and other income:
Operating revenues $432,552 $352,147 $882,389 $733,346
Earnings from unconsolidated affiliates 1,359 4,371 7,262 10,009
Interest income 6,998 8,142 14,691 17,393
Other income, net 23 2,649 47 3,146
-------- -------- -------- --------
Total revenues and other income 440,932 367,309 904,389 763,894
-------- -------- -------- --------
Costs and other deductions:
Direct costs 298,791 238,190 603,351 487,623
General and administrative expenses 40,483 32,824 81,728 65,490
Depreciation and amortization 56,652 47,984 110,578 91,665
Interest expense 18,644 14,418 38,714 29,033
-------- -------- -------- --------
Total costs and other deductions 414,570 333,416 834,371 673,811
-------- -------- -------- --------
Income before income taxes 26,362 33,893 70,018 90,083
-------- -------- -------- --------
Income tax (benefit) expense:
Current 3,226 2,514 7,286 6,957
Deferred (5,883) 5,959 (14,344) 15,764
-------- -------- -------- --------
Total income tax (benefit) expense (2,657) 8,473 (7,058) 22,721
-------- -------- -------- --------
Net income $ 29,019 $ 25,420 $ 77,076 $ 67,362
-------- -------- -------- --------
Earnings per share:
Basic $ .20 $ .18 $ .53 $ .47
Diluted $ .19 $ .17 $ .50 $ .45
Weighted average number of common shares outstanding:
Basic 146,382 143,188 146,045 142,079
-------- -------- -------- --------
Diluted 153,359 150,451 160,487 148,556
-------- -------- -------- --------
The accompanying notes are an integral part of these consolidated financial
statements.
3
NABORS INDUSTRIES LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
---------------------
2003 2002
(IN THOUSANDS) --------- ---------
Cash flows from operating activities:
Net income $ 77,076 $ 67,362
Adjustments to net income:
Depreciation and amortization 110,578 91,665
Deferred income tax (benefit) expense (14,344) 15,764
Deferred financing costs amortization 2,720 2,196
Discount amortization on long-term debt 15,569 15,270
Amortization of loss on cash flow hedges 75 --
(Gains) losses on long-term assets, net (3,277) 828
Gains on marketable securities, net (2,627) (2,950)
Loss on derivative instruments 3,701 --
Sales of marketable securities, trading 4,484 --
Foreign currency transaction gains (351) (2,307)
Loss on early extinguishment of debt 908 202
Equity in earnings from unconsolidated affiliates, net of
dividends (1,762) (2,124)
Increase (decrease), net of effects from acquisitions, from
changes in:
Accounts receivable (46,858) 86,883
Inventory and supplies (709) 1,940
Prepaid expenses and other current assets 207 (10,882)
Other long-term assets (22,635) (5,822)
Trade accounts payable and accrued liabilities and other 5,523 (52,074)
Income taxes payable (6,562) (1,281)
Other long-term liabilities (945) (9,985)
--------- ---------
Net cash provided by operating activities 120,771 194,685
--------- ---------
Cash flows from investing activities:
Purchases of marketable securities, available-for-sale (492,947) (126,994)
Sales of marketable securities, available-for-sale 697,923 197,267
Cash paid for acquisitions of businesses, net -- (116,668)
Capital expenditures (149,289) (198,072)
Proceeds from sales of assets and insurance claims 8,996 4,923
--------- ---------
Net cash provided by (used for) investing activities 64,683 (239,544)
--------- ---------
Cash flows from financing activities:
Decrease in cash overdrafts (2,386) --
Decrease in restricted cash 1,232 867
Proceeds from long-term debt 700,000 --
Reduction of long-term debt (542,821) (21,462)
Debt issuance costs (10,841) --
Proceeds from issuance of common shares 23,430 8,328
--------- ---------
Net cash provided by (used for) financing activities 168,614 (12,267)
--------- ---------
Effect of exchange rate changes on cash and cash equivalents 4,379 1,716
--------- ---------
Net increase (decrease) in cash and cash equivalents 358,447 (55,410)
Cash and cash equivalents, beginning of period 414,051 198,443
--------- ---------
Cash and cash equivalents, end of period $ 772,498 $ 143,033
--------- ---------
The accompanying notes are an integral part of these consolidated financial
statements.
4
NABORS INDUSTRIES LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
(UNAUDITED)
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
COMMON ------------------------------------------------------
SHARES UNREALIZED MINIMUM UNREALIZED
--------------- CAPITAL IN GAINS (LOSSES) PENSION LOSS ON CUMULATIVE
PAR EXCESS OF ON MARKETABLE LIABILITY CASH FLOW TRANSLATION RETAINED
SHARES VALUE PAR VALUE SECURITIES ADJUSTMENT HEDGES ADJUSTMENT EARNINGS
------- ----- ---------- -------------- ---------- ---------- ----------- ----------
(IN THOUSANDS)
Balances, December
31, 2002 144,965 $145 $1,233,598 $5,646 $(2,205) $(1,444) $(5,240) $ 927,955
--------------------------------------------------------------------------------------------------
Comprehensive income:
Net income 77,076
Translation
adjustment 80,546
Unrealized losses on
marketable
securities, net of
income tax benefit
of $30 (51)
Less:
reclassification
adjustment for
gains included
in net income,
net of income
taxes of $161 275
Amortization of loss
on cash flow
hedges 75
--------------------------------------------------------------------------------------------------
Total
comprehensive
income -- -- -- 224 -- 75 80,546 77,076
--------------------------------------------------------------------------------------------------
Issuance of common
shares for stock
options exercised 1,087 2 17,428
Issuance of common
shares in connection
with the New
Prospect warrants
exercised 200 6,000
Issuance of common
shares in connection
with the Enserco
warrants exercised 48
Nabors Exchangeco
shares exchanged 152
Tax effect of stock
option deductions 9,691
--------------------------------------------------------------------------------------------------
Subtotal 1,487 2 33,119 -- -- -- -- --
--------------------------------------------------------------------------------------------------
Balances, June
30, 2003 146,452 $147 $1,266,717 $5,870 $(2,205) $(1,369) $75,306 $1,005,031
--------------------------------------------------------------------------------------------------
TOTAL
SHAREHOLDERS'
EQUITY
-------------
(IN THOUSANDS)
Balances, December
31, 2002 $2,158,455
----------
Comprehensive income:
Net income 77,076
Translation
adjustment 80,546
Unrealized losses on
marketable
securities, net of
income tax benefit
of $30 (51)
Less:
reclassification
adjustment for
gains included
in net income,
net of income
taxes of $161 275
Amortization of loss
on cash flow
hedges 75
----------
Total
comprehensive
income 157,921
----------
Issuance of common
shares for stock
options exercised 17,430
Issuance of common
shares in connection
with the New
Prospect warrants
exercised 6,000
Issuance of common
shares in connection
with the Enserco
warrants exercised --
Nabors Exchangeco
shares exchanged --
Tax effect of stock
option deductions 9,691
----------
Subtotal 33,121
----------
Balances, June
30, 2003 $2,349,497
----------
The accompanying notes are an integral part of these consolidated financial
statements.
5
NABORS INDUSTRIES LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY (CONTINUED)
(UNAUDITED)
ACCUMULATED OTHER
COMPREHENSIVE
INCOME (LOSS)
----------------------------
COMMON SHARES UNREALIZED
------------------ CAPITAL IN GAINS (LOSSES) CUMULATIVE
PAR EXCESS OF ON MARKETABLE TRANSLATION RETAINED TREASURY
SHARES VALUE PAR VALUE SECURITIES ADJUSTMENT EARNINGS STOCK
(IN THOUSANDS) ------- -------- ---------- -------------- ----------- ---------- ---------
Balances, December 31, 2001 147,711 $ 14,771 $1,091,536 $12,410 $(9,150) $1,001,079 $(252,780)
---------------------------------------------------------------------------------------
Comprehensive income:
Net income 67,362
Translation adjustment 23,866
Unrealized losses on
marketable securities, net
of income tax benefit of
$2,410 (4,103)
Less: reclassification
adjustment for gains
included in net income, net
of income taxes of $434 (740)
---------------------------------------------------------------------------------------
Total comprehensive income -- -- -- (4,843) 23,866 67,362 --
---------------------------------------------------------------------------------------
Issuance of common shares for
stock options exercised 641 64 8,264
Issuance of common shares in
connection with the Bayard
warrants exercised 18 2 (2)
Issuance of common shares in
connection with Enserco
acquisition 2,638 264 162,497
Nabors Exchangeco shares
exchanged 182 18 (18)
Tax effect of stock option
deductions 48,503
Retirement of treasury stock (6,822) (682) (59,172) (192,926) 252,780
Change in par value (14,293) 14,293
---------------------------------------------------------------------------------------
Subtotal (3,343) (14,627) 174,365 -- -- (192,926) 252,780
---------------------------------------------------------------------------------------
Balances, June 30, 2002 144,368 $ 144 $1,265,901 $ 7,567 $14,716 $ 875,515 $ --
---------------------------------------------------------------------------------------
TOTAL
SHAREHOLDERS'
EQUITY
(IN THOUSANDS) -------------
Balances, December 31, 2001 $1,857,866
----------
Comprehensive income:
Net income 67,362
Translation adjustment 23,866
Unrealized losses on
marketable securities, net
of income tax benefit of
$2,410 (4,103)
Less: reclassification
adjustment for gains
included in net income, net
of income taxes of $434 (740)
----------
Total comprehensive income 86,385
----------
Issuance of common shares for
stock options exercised 8,328
Issuance of common shares in
connection with the Bayard
warrants exercised --
Issuance of common shares in
connection with Enserco
acquisition 162,761
Nabors Exchangeco shares
exchanged --
Tax effect of stock option
deductions 48,503
Retirement of treasury stock --
Change in par value --
----------
Subtotal 219,592
----------
Balances, June 30, 2002 $2,163,843
----------
The accompanying notes are an integral part of these consolidated financial
statements.
6
NABORS INDUSTRIES LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 NATURE OF OPERATIONS
Nabors is the largest land drilling contractor in the world, with almost
600 land drilling rigs. We conduct oil, gas and geothermal land drilling
operations in the U.S. Lower 48 states, Alaska, Canada, 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 and Canada. We own
approximately 750 land workover and well-servicing rigs in the United States,
primarily in the southwestern and western United States, and approximately 200
land workover and well-servicing rigs in Canada. Nabors is a leading provider of
offshore platform workover and drilling rigs, and owns 43 platform, 16 jack-up
and three barge rigs in the Gulf of Mexico and international markets. These rigs
provide well-servicing, workover and drilling services. We have a 50% ownership
interest in a joint venture in Saudi Arabia, which owns 17 rigs.
To further supplement and complement our primary business, we offer a wide
range of ancillary well-site services, including oilfield management,
engineering, transportation, construction, maintenance, well logging,
directional drilling, rig instrumentation, data collection and other support
services, in selected domestic and international markets. Our land
transportation and hauling fleet includes approximately 240 rig and oilfield
equipment hauling tractor-trailers and a number of cranes, loaders and
light-duty vehicles. We maintain approximately 290 fluid hauling trucks,
approximately 700 fluid storage tanks, eight saltwater disposal wells and other
auxiliary equipment used in domestic drilling, workover and well-servicing
operations. In addition, we own a fleet of 30 marine transportation and supply
vessels, primarily in the Gulf of Mexico, which provide transportation of
drilling materials, supplies and crews for offshore operations. We manufacture
and lease or sell top drives for a broad range of drilling applications,
directional drilling systems, rig instrumentation and data collection equipment
and rig reporting software.
Our overall business is conducted through two major segments: (1) Contract
Drilling and (2) Manufacturing and Logistics. Our Contract Drilling segment
includes our drilling, workover and well-servicing operations, on land and
offshore, and our Manufacturing and Logistics segment includes our marine
transportation and supply services, top drive manufacturing, directional
drilling, rig instrumentation and software, and construction and logistics
operations.
As used in this Report, "we," "us," "our" and "Nabors" means Nabors
Industries Ltd. and, where the context requires, includes our subsidiaries.
Nabors became the publicly traded parent company of the Nabors group of
companies, effective June 24, 2002, pursuant to the corporate reorganization
described in our Annual Report on Form 10-K for the year ended December 31,
2002.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL INFORMATION
The unaudited consolidated financial statements of Nabors are prepared in
conformity with accounting principles generally accepted in the United States of
America (GAAP). Pursuant to the rules and regulations of the U.S. Securities and
Exchange Commission, certain information and footnote disclosures normally
included in annual financial statements prepared in accordance with GAAP have
been omitted. Therefore, these financial statements should be read along with
our Annual Report on Form 10-K for the year ended December 31, 2002. In our
management's opinion, the consolidated financial statements contain all
adjustments necessary to present fairly our financial position as of June 30,
2003, the results of our operations for each of the three-month and six-month
periods ended June 30, 2003 and 2002, and our cash flows for the six months
ended June 30, 2003 and 2002, in accordance with GAAP. Interim results for the
three and six months ended June 30, 2003 may not be indicative of results that
will be realized for the full year ending December 31, 2003.
7
Our independent accountants have performed a review of, and issued a report
on, these consolidated interim financial statements in accordance with standards
established by the American Institute of Certified Public Accountants. Pursuant
to Rule 436(c) under the U.S. Securities Act of 1933, this report should not be
considered a part of any registration statement prepared or certified within the
meanings of Sections 7 and 11 of the Securities Act.
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.
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 our
consolidated statements of income, and our investment in these entities is
carried as a single amount in our consolidated balance sheets. Investments in
net assets of affiliated entities accounted for using the equity method totaled
$58.4 million and $58.6 million as of June 30, 2003 and December 31, 2002,
respectively, and are included in other long-term assets in our consolidated
balance sheets.
RECLASSIFICATIONS
During the fourth quarter of 2002, we revised the classification of
revenues for certain rigs that we own that are leased to our joint venture in
Saudi Arabia, in which we have a 50% ownership interest. We now report 100% of
these revenues as Operating revenues. Previously, we had reported 50% of these
lease revenues as Earnings from unconsolidated affiliates and 50% as Operating
revenues. The effect of this change in classification resulted in an increase in
Operating revenues and offsetting decrease in Earnings from unconsolidated
affiliates of $6.1 million and $11.4 million for the three and six months ended
June 30, 2002, respectively. These reclassifications had no impact on total
revenues and other income, or net income.
STOCK-BASED COMPENSATION
We account for stock-based compensation using the intrinsic value method
prescribed by Accounting Principles Board (APB) Opinion No. 25, "Accounting for
Stock Issued to Employees." Accordingly, compensation expense for stock options
is measured as the excess, if any, of the quoted market price of Nabors common
shares at the date of grant over the amount an employee must pay to acquire the
common shares. We grant options at prices equal to the market price of our
shares on the date of grant and therefore do not record compensation expense
related to these grants. Statement of Financial Accounting Standards (SFAS) No.
148, "Accounting for Stock-Based Compensation -- an Amendment to FAS 123,"
requires companies that continue to account for stock-based compensation in
accordance with APB 25 to disclose certain information using a tabular
presentation. The table presented below illustrates the effect on net income and
earnings per share as if we had applied the fair value recognition
8
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," to our
stock-based employee compensation.
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- ------------------
2003 2002 2003 2002
------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net income, as reported............................ $29,019 $ 25,420 $77,076 $ 67,362
Deduct: Total stock-based employee compensation
expense determined under the fair value method
for all awards, net of related tax effects....... (3,708) (12,987) (6,583) (23,613)
------- -------- ------- --------
Pro forma net income............................... $25,311 $ 12,433 $70,493 $ 43,749
------- -------- ------- --------
Earnings per share:
Basic -- as reported............................. $ .20 $ .18 $ .53 $ .47
Basic -- pro forma............................... $ .17 $ .09 $ .48 $ .31
Diluted -- as reported........................... $ .19 $ .17 $ .50 $ .45
Diluted -- pro forma............................. $ .17 $ .08 $ .46 $ .29
The pro forma amounts above were estimated using the Black-Scholes
option-pricing model with the following weighted average assumptions for grants
during the three and six months ended June 30, 2003 and 2002, respectively:
risk-free interest rates of 2.22% and 3.79%; volatility of 47.58% and 48.19%;
dividend yield of 0.0% for both periods; and expected life of 3.5 years for both
periods.
RECENT ACCOUNTING PRONOUNCEMENTS
In November 2002 the Financial Accounting Standards Board (FASB) issued
Interpretation No. 45 (FIN 45), "Guarantor's Accounting and Disclosure
Requirements, Including Guarantees of Indebtedness of Others." FIN 45 requires
that upon issuance of certain types of guarantees, a guarantor recognize and
account for the fair value of the guarantee as a liability. FIN 45 contains
exclusions to this requirement, including the exclusion of a parent's guarantee
of its subsidiaries' debt to a third party. The initial recognition and
measurement provisions of FIN 45 have been applied on a prospective basis for
guarantees issued or modified after December 31, 2002. During the six months
ended June 30, 2003, we issued new standby letters of credit which serve as
guarantees under the provisions of FIN 45. The application of the recognition
and measurement provisions of FIN 45 to these guarantees was insignificant. The
disclosure requirements of FIN 45 are effective for financial statements of both
interim and annual periods ending after December 15, 2002 and are included in
Note 6.
In January 2003 the FASB issued Interpretation No. 46 (FIN 46),
"Consolidation of Variable Interest Entities," which addresses the consolidation
of variable interest entities (VIEs) by business enterprises that are the
primary beneficiaries. A VIE is an entity that does not have sufficient equity
investment at risk to permit it to finance its activities without additional
subordinated financial support, or whose equity investors lack the
characteristics of a controlling financial interest. The primary beneficiary of
a VIE is the enterprise that has the majority of the risks or rewards associated
with the VIE. The consolidation requirements of FIN 46 apply immediately to VIEs
created after January 31, 2003. For VIEs created at an earlier date, the
consolidation requirements apply in the first fiscal year or interim period
beginning after June 15, 2003. Certain disclosure requirements apply in all
financial statements issued after January 31, 2003, regardless of when the VIE
was established. Based on current information, Nabors believes it has no
material interests in VIEs that require disclosure or consolidation under FIN
46.
In May 2003 the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS 149 amends and clarifies
financial accounting and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities
under SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS 149 is effective in relation to certain issues for fiscal
quarters that began prior to June 15, 2003 and
9
for certain contracts entered into after June 30, 2003. The adoption of SFAS 149
had no initial impact on our financial position, results of operations or cash
flows as of and for the three and six months ended June 30, 2003.
In May 2003 the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." This statement
establishes standards for how an issuer classifies and measures in its statement
of financial position certain financial instruments with characteristics of both
liabilities and equity. In accordance with the standard, financial instruments
that embody obligations for the issuer are required to be classified as
liabilities. SFAS 150 is effective for financial instruments entered into or
modified after May 31, 2003, and otherwise shall be effective at the beginning
of the first interim period beginning after June 15, 2003. The adoption of SFAS
150 had no initial impact on our financial position, results of operations or
cash flows as of and for the three and six months ended June 30, 2003.
NOTE 3 LONG-TERM DEBT
On June 10, 2003, Nabors Industries, Inc. (Nabors Delaware), our
wholly-owned subsidiary, completed a private placement of $700 million aggregate
principal amount of zero coupon senior exchangeable notes due 2023 that are
fully and unconditionally guaranteed by us. The notes were reoffered by the
initial purchaser of the notes to qualified institutional buyers under Rule 144A
of the Securities Act of 1933, as amended (the Securities Act), and outside the
United States in accordance with Regulation S under the Securities Act. The
notes do not bear interest, do not accrete and have a zero yield to maturity,
unless Nabors Delaware becomes obligated to pay contingent interest as defined
in the note indenture and described below.
The notes are exchangeable at the option of the holders into 14.2653 common
shares of Nabors per $1,000 principal amount of notes (subject to adjustment for
certain events) contingent upon the following circumstances: (1) if in any
calendar quarter beginning after the quarter ending September 30, 2003, the
closing sale price per share of Nabors' common shares for at least 20 trading
days during the period of 30 consecutive trading days ending on the last trading
day of the previous calendar quarter is greater than or equal to 120%, or with
respect to all calendar quarters beginning on or after July 1, 2008, 110% of the
applicable exchange price per share of the Nabors' common shares on such last
trading day, (2) subject to certain exceptions, during the five business-day
period after any ten consecutive trading-day period in which the trading price
per $1,000 principal amount of notes for each day of the ten trading-day period
was less than 95% of the product of the closing sale price of such common shares
and the exchange rate of such note, (3) if we call the notes for redemption, or
(4) upon the occurrence of specified corporate transactions described in the
note indenture.
The notes are unsecured and are effectively junior in right of payment to
any of Nabors Delaware's future secured debt. The notes will rank equally with
any of Nabors Delaware's other existing and future unsecured and unsubordinated
debt and will be senior in right of payment to any of Nabors Delaware's
subordinated debt. The guarantee of Nabors will be similarly unsecured and have
a similar ranking to the notes so guaranteed. Holders of the notes have the
right to require Nabors Delaware to repurchase the notes at a purchase price
equal to 100% of the principal amount of the notes plus contingent interest and
additional amounts, if any, on June 15, 2008, June 15, 2013 and June 15, 2018 or
upon a fundamental change as described in the note indenture. If Nabors Delaware
is required to repurchase the notes, Nabors Delaware will have the right to
deliver, in lieu of cash, our common shares or a combination of cash and common
shares, subject to certain conditions. If Nabors Delaware elects to pay all or a
portion of the purchase price in our common shares, the number of common shares
we will issue will be equal to the purchase price divided by the market price of
the Nabors common shares. For these purposes, the market price means the average
of the sale prices of our common shares for the five trading day period ending
on the third business day prior to the applicable purchase date.
Nabors Delaware will be obligated to pay contingent interest during any
six-month period from June 15 to December 14 or from December 15 to June 14
commencing on or after June 15, 2008 for
10
which the average trading price of the notes for each day of the applicable five
trading day reference period equals or exceeds 120% of the principal amount of
the notes as of the day immediately preceding the first day of the applicable
six-month interest period. The amount of contingent interest payable per note in
respect to any six-month period will equal 0.185% of the principal amount of a
note. The five day trading reference period means the five trading days ending
on the second trading day immediately preceding the relevant six-month interest
period.
We used a portion of the net proceeds from the issuance of the notes to
redeem the remaining outstanding principal amount of Nabors Delaware's $825
million zero coupon convertible senior debentures due 2020 on June 20, 2003 and
our associated guarantees. The redemption price was $655.50 per $1,000 principal
amount of the debentures for an aggregate redemption price paid of approximately
$494.9 million. The redemption of the debentures did not result in any gain or
loss as the debentures were redeemed at prices equal to their carrying value on
June 20, 2003. The remainder of the proceeds of the notes were invested in cash
and marketable securities.
On April 1, 2003, we redeemed our 8.625% senior subordinated notes due
April 2008 and all associated guarantees at a redemption price of $1,043.13 per
$1,000 principal amount of the notes together with accrued and unpaid interest
to the date of redemption. The total redemption price was $45.2 million and
resulted in the recognition of a pretax loss of approximately $.9 million,
resulting from the redemption of the notes at prices higher than their carrying
value on April 1, 2003. This loss was recorded in other income in our
consolidated statements of income in the current quarter.
NOTE 4 DERIVATIVE FINANCIAL INSTRUMENTS
Nabors Delaware's $700 million zero coupon senior exchangeable notes due
2023 include a contingent interest provision, discussed in Note 3 above, which
qualifies as an embedded derivative under SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This embedded derivative is
required to be separated from the notes and valued at its fair value at the
inception of the note indenture. Any subsequent change in fair value will be
marked-to-market through our statements of income.
The fair value of the contingent interest provision at inception of the
note indenture was minimal. In addition, there was no significant change in the
fair value of this embedded derivative through June 30, 2003, resulting in no
impact on our statements of income for the three and six months ended June 30,
2003.
NOTE 5 INCOME TAXES
Our effective income (benefit) tax rate was (10%) during the three and six
months ended June 30, 2003 compared to 25% for the prior year periods. The tax
benefit position in 2003 resulted primarily from tax savings realized as a
result of our corporate reorganization effective June 24, 2002. It is possible
that the tax savings recorded as a result of the corporate reorganization may
not be realized, depending on the final disposition of various legislative
proposals being considered by the U.S. Congress, and any responsive action taken
by Nabors.
NOTE 6 COMMITMENTS AND CONTINGENCIES
LITIGATION
On May 23, 2002, Steve Rosenberg, an individual shareholder of Nabors,
filed a complaint against Nabors and its directors in the United States District
Court for the Southern District of Texas (Civil Action No. 02-1942), alleging
that Nabors' May 10, 2002 proxy statement/prospectus contained certain material
misstatements and omissions in violation of federal securities laws and state
law. Nabors' May 10, 2002 proxy statement/prospectus was sent to shareholders in
connection with the special meeting to consider and vote on Nabors' proposed
reorganization and effective reorganization in Bermuda. Rosenberg requested that
the Court either enjoin the closing of the shareholder vote on the scheduled
date or the
11
effectuation of the reorganization. In addition, Rosenberg purported to bring a
class action on behalf of all shareholders, alleging that Nabors and its
directors violated their state law fiduciary duties by making these alleged
misstatements and omissions.
On March 18, 2003, the Court granted our motion and dismissed all claims
with prejudice. On April 14, 2003, Rosenberg filed an appeal of the United
States District Court's decision to the United States Fifth Circuit Court of
Appeals. The parties entered into settlement negotiations and in July 2003
reached a confidential settlement of all disputes between the parties. This
settlement had no material effect on our consolidated financial position,
results of operations or cash flows.
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, our ultimate liability with respect to pending lawsuits
is not expected to have a significant or material adverse effect on our
consolidated financial position, results of operations or cash flows.
GUARANTEES
We enter into various agreements providing financial or performance
assurance to third parties. Certain of these agreements act as guarantees,
including standby letters of credit issued on behalf of insurance carriers in
conjunction with our workers' compensation insurance program and guarantees of
residual value in certain of our operating lease agreements. We have also
guaranteed payment of contingent consideration in conjunction with an
acquisition in 2002 which is based on future operating results of that business.
In addition, we have provided indemnifications to certain third parties which
serve as guarantees. These guarantees include indemnification provided by Nabors
to our stock 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 that the likelihood that we would be required to
perform or otherwise incur any significant losses associated with any of these
guarantees is remote. The following table summarizes the total maximum amount of
financial and performance guarantees issued by Nabors:
MAXIMUM AMOUNT
---------------------------------------------------
REMAINDER
OF 2003 2004 2005 THEREAFTER TOTAL
--------- ------- ------ ---------- -------
(IN THOUSANDS)
Financial standby letters of credit $18,251 $17,728 $ -- $ -- $35,979
Guarantee of residual value in lease
agreements 162 347 701 65 1,275
Contingent consideration in acquisition 455 910 910 225 2,500
------- ------- ------ ---- -------
Total $18,868 $18,985 $1,611 $290 $39,754
------- ------- ------ ---- -------
12
NOTE 7 EARNINGS PER SHARE
A reconciliation of the numerators and denominators of the basic and
diluted earnings per share computations is as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
2003 2002 2003 2002
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net income (numerator):
Net income -- basic $ 29,019 $ 25,420 $ 77,076 $ 67,362
Add interest expense on assumed conversion of
our zero coupon convertible senior
debentures, net of tax:
$825 million due 2020(1) -- -- 3,639 --
$1.381 billion due 2021(2) -- -- -- --
-------- -------- -------- --------
Adjusted net income -- diluted $ 29,019 $ 25,420 $ 80,715 $ 67,362
-------- -------- -------- --------
Earnings per share:
Basic $ .20 $ .18 $ .53 $ .47
Diluted $ .19 $ .17 $ .50 $ .45
Shares (denominator):
Weighted average number of shares
outstanding-basic(3) 146,382 143,188 146,045 142,079
Net effect of dilutive stock options and
warrants based on the treasury stock
method 6,977 7,263 6,783 6,477
Assumed conversion of our zero coupon
convertible/exchangeable senior
debentures/notes:
$825 million due 2020(1) -- -- 7,659 --
$1.381 billion due 2021(2) -- -- -- --
$700 million due 2023(4) -- -- -- --
-------- -------- -------- --------
Weighted average number of shares outstanding-
diluted 153,359 150,451 160,487 148,556
-------- -------- -------- --------
(1) Diluted earnings per share for the six months ended June 30, 2003 reflects
the assumed conversion of our $825 million zero coupon convertible senior
debentures due 2020, as the conversion in that period would have been
dilutive. For the three months ended June 30, 2003 and 2002 and the six
months ended June 30, 2002, the weighted average number of shares
outstanding-diluted excludes 7.2 million, 8.1 million and 8.1 million,
respectively, potentially dilutive shares issuable upon the conversion of
our $825 million zero coupon convertible senior debentures due 2020 because
the inclusion of such shares would have been anti-dilutive, given the level
of net income for those periods. Net income for the three months ended June
30, 2003 and 2002 and for the six months ended June 30, 2002 also excludes
the related add-back of interest expense, net of tax, of $1.7 million, $1.9
million and $3.8 million, respectively, for these debentures. These shares
would have been dilutive and therefore included in the calculation of the
weighted average number of shares outstanding-diluted had diluted earnings
per share been at or above $.24 and $.23 for the three months ended June 30,
2003 and 2002, respectively, and at or above $.46 for the six months ended
June 30, 2002. We redeemed for cash the remaining outstanding principal
amount of our $825 million zero coupon convertible senior debentures due
2020 on June 20, 2003.
(2) For the three and six months ended June 30, 2003 and 2002, the weighted
average number of shares outstanding-diluted excludes 8.5 million
potentially dilutive shares issuable upon the conversion of our
13
$1.381 billion zero coupon convertible senior debentures due 2021 because
the inclusion of such shares would have been anti-dilutive, given the level
of net income for those periods. Net income for the three months ended June
30, 2003 and 2002 excludes the related add-back of interest expense of $3.0
million and $2.9 million, respectively, and net income for the six months
ended June 30, 2003 and 2002 excludes the related add-back of interest
expense of $6.0 million and $5.9 million, respectively, for these
debentures. These shares would have been dilutive and therefore included in
the calculation of the weighted average number of shares outstanding-diluted
had diluted earnings per share been at or above $.36 and $.35 for the three
months ended June 30, 2003 and 2002, respectively, and at or above $.71 and
$.69 for the six months ended June 30, 2003 and 2002, respectively.
(3) Includes the weighted average number of common shares of Nabors and the
weighted average number of exchangeable shares of Nabors Exchangeco (Canada)
Inc.
(4) Diluted earnings per share for the three and six months ended June 30, 2003
excludes 10.0 million potentially dilutive shares issuable upon the exchange
of our $700 million zero coupon exchangeable senior notes due 2023. Such
shares are contingently exchangeable under certain circumstances discussed
in Note 3 and would only be included in the calculation of the weighted
average number of shares outstanding-diluted if any of those criteria were
met. Such criteria were not met during the three and six months ended June
30, 2003. These notes were issued in June 2003 and therefore did not impact
the calculation of diluted earnings per share for the three and six months
ended June 30, 2002.
NOTE 8 SUPPLEMENTAL INCOME STATEMENT INFORMATION
Other income includes the following:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -----------------
2003 2002 2003 2002
-------- -------- ------- -------
(IN THOUSANDS)
Gains on marketable securities, net $ 3,096 $ 476 $ 2,627 $ 2,950
Gains (losses) on long-term assets, net 837 (722) 3,277 (828)
Foreign currency transaction gains 532 2,524 351 2,307
Corporate reorganization expense -- (1,316) -- (3,358)
Loss on derivative instruments (2,617) -- (3,701) --
Loss on early extinguishment of debt (908) -- (908) (202)
Other (917) 1,687 (1,599) 2,277
------- ------- ------- -------
Total $ 23 $ 2,649 $ 47 $ 3,146
------- ------- ------- -------
14
NOTE 9 SEGMENT INFORMATION
The following table sets forth financial information with respect to our
reportable segments:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
2003 2002 2003 2002
-------- -------- -------- --------
(IN THOUSANDS)
Operating revenues and Earnings from
unconsolidated affiliates:
Contract drilling(1) $399,670 $326,174 $813,679 $684,607
Manufacturing and logistics(2) 46,572 41,554 101,761 81,596
Other(3) (12,331) (11,210) (25,789) (22,848)
-------- -------- -------- --------
Total $433,911 $356,518 $889,651 $743,355
-------- -------- -------- --------
Adjusted income derived from operating
activities:(4)
Contract drilling(1) $ 47,977 $ 37,263 $108,745 $ 98,100
Manufacturing and logistics(2) (450) 8,759 5,187 18,289
Other(5) (9,542) (8,502) (19,938) (17,812)
-------- -------- -------- --------
Total $ 37,985 $ 37,520 $ 93,994 $ 98,577
-------- -------- -------- --------
Interest expense (18,644) (14,418) (38,714) (29,033)
Interest income 6,998 8,142 14,691 17,393
Other income, net 23 2,649 47 3,146
-------- -------- -------- --------
Income before income taxes $ 26,362 $ 33,893 $ 70,018 $ 90,083
-------- -------- -------- --------
JUNE 30, DECEMBER 31,
2003 2002
---------- ------------
(IN THOUSANDS)
Total assets:
Contract drilling(6) $3,533,807 $3,266,292
Manufacturing and logistics(7) 306,275 343,365
Other(5).................................................. 1,596,930 1,454,215
---------- ----------
Total..................................................... $5,437,012 $5,063,872
---------- ----------
(1) Includes Earnings from unconsolidated affiliates, accounted for by the
equity method, of $1.0 million for the three months ended June 30, 2003 and
2002, and $1.9 million and $2.1 million for the six months ended June 30,
2003 and 2002, respectively.
(2) Includes Earnings from unconsolidated affiliates, accounted for by the
equity method, of $.4 million and $3.4 million for the three months ended
June 30, 2003 and 2002, respectively, and $5.4 million and $7.9 million for
the six months ended June 30, 2003 and 2002, respectively.
(3) Represents the elimination of inter-segment manufacturing and logistics
sales.
(4) Adjusted 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 GAAP. However,
management evaluates the performance of our business units and the
consolidated company based on several criteria, including adjusted income
derived from operating activities, because it believes that this financial
measure is an accurate
15
reflection of the ongoing profitability of our company. A reconciliation of
this non-GAAP measure to consolidated income before income taxes, which is a
GAAP measure, is provided within the table above.
(5) Includes the elimination of inter-segment transactions and unallocated
corporate expenses, assets and capital expenditures.
(6) Includes $25.1 million and $25.3 million of investments in unconsolidated
affiliates, accounted for by the equity method, as of June 30, 2003 and
December 31, 2002, respectively.
(7) Includes $33.3 million of investments in unconsolidated affiliates,
accounted for by the equity method, as of June 30, 2003 and December 31,
2002.
NOTE 10 CONDENSED CONSOLIDATING FINANCIAL INFORMATION
Nabors has fully and unconditionally guaranteed all of the issued public
debt securities of Nabors Industries, Inc. (Nabors Delaware) and Nabors and
Nabors Delaware have fully and unconditionally guaranteed the $225 million
4.875% senior notes due 2009 issued by Nabors Holdings 1, ULC, our indirect
subsidiary, in August 2002.
The following condensed consolidating financial information is included so
that separate financial statements of Nabors Delaware and Nabors Holdings are
not required to be filed with the U.S. Securities and Exchange Commission. The
condensed consolidating financial statements present Nabors' and Nabors
Delaware's investments in their subsidiaries using the equity method of
accounting.
The following condensed consolidating financial information presents:
condensed consolidating balance sheets as of June 30, 2003 and December 31,
2002, statements of income for the three and six months ended June 30, 2003 and
2002, and statements of cash flows for the six months ended June 30, 2003 and
2002 of (a) Nabors, Parent/Guarantor after June 24, 2002 and
Non-Parent/Non-Guarantor prior to June 24, 2002, (b) Nabors Delaware, issuer of
public debt securities guaranteed by Nabors and guarantor of the $225 million
4.875% senior notes due 2009 issued by Nabors Holdings, (c) Nabors Holdings,
issuer of the $225 million 4.875% senior notes due 2009, (d) the non-guarantor
subsidiaries, (e) consolidating adjustments necessary to consolidate Nabors and
its subsidiaries and (f) Nabors on a consolidated basis.
16
CONDENSED CONSOLIDATING BALANCE SHEETS
June 30, 2003
-----------------------------------------------------------------------------------
Nabors Other
Nabors Delaware Nabors Subsidiaries
(Parent/ (Issuer/ Holdings (Non- Consolidating Consolidated
Guarantor) Guarantor) (Issuer) Guarantors) Adjustments Total
----------- ----------- --------- ------------ ------------- ------------
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash
equivalents $ 146,468 $ 1 $ 16 $ 626,013 $ -- $ 772,498
Marketable securities 10,671 -- -- 267,281 -- 277,952
Accounts receivable,
net -- -- -- 336,308 -- 336,308
Inventory and
supplies -- -- -- 22,068 -- 22,068
Prepaid expenses and
other current
assets 552 4,843 -- 196,182 -- 201,577
---------- ---------- -------- ---------- ----------- ----------
Total current
assets 157,691 4,844 16 1,447,852 -- 1,610,403
Marketable securities 26,062 -- -- 406,811 -- 432,873
Property, plant and
equipment, net -- -- -- 2,880,104 -- 2,880,104
Goodwill, net -- -- -- 328,033 -- 328,033
Intercompany
receivables 2,037,212 2,175,489 203 -- (4,212,904) --
Investments in
affiliates 161,471 1,996,076 231,134 2,127,778 (4,458,100) 58,359
Other long-term assets -- 33,982 1,269 91,989 -- 127,240
---------- ---------- -------- ---------- ----------- ----------
Total assets $2,382,436 $4,210,391 $232,622 $7,282,567 $(8,671,004) $5,437,012
---------- ---------- -------- ---------- ----------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of
long-term debt $ -- $ 295,252 $ -- $ 2,755 $ -- $ 298,007
Trade accounts
payable 245 23 8 97,087 -- 97,363
Accrued liabilities 463 10,215 4,147 154,908 -- 169,733
Income taxes payable 728 (190) (71) 8,149 -- 8,616
---------- ---------- -------- ---------- ----------- ----------
Total current
liabilities 1,436 305,300 4,084 262,899 -- 573,719
Long-term debt -- 1,763,920 223,366 2,852 -- 1,990,138
Other long-term
liabilities -- 7,464 -- 117,238 -- 124,702
Deferred income taxes 79 59,818 -- 339,059 -- 398,956
Intercompany payable 31,424 -- -- 4,181,480 (4,212,904) --
---------- ---------- -------- ---------- ----------- ----------
Total
liabilities 32,939 2,136,502 227,450 4,903,528 (4,212,904) 3,087,515
---------- ---------- -------- ---------- ----------- ----------
Shareholders' equity 2,349,497 2,073,889 5,172 2,379,039 (4,458,100) 2,349,497
---------- ---------- -------- ---------- ----------- ----------
Total
liabilities
and
shareholders'
equity $2,382,436 $4,210,391 $232,622 $7,282,567 $(8,671,004) $5,437,012
---------- ---------- -------- ---------- ----------- ----------
17
December 31, 2002
-----------------------------------------------------------------------------------
Nabors Other
Nabors Delaware Nabors Subsidiaries
(Parent/ (Issuer/ Holdings (Non- Consolidating Consolidated
Guarantor) Guarantor) (Issuer) Guarantors) Adjustments Total
----------- ----------- --------- ------------ ------------- ------------
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash
equivalents $ 40,127 $ 38 $ 207 $ 373,679 $ -- $ 414,051
Marketable
securities 5,721 -- 21 451,858 -- 457,600
Accounts receivable,
net -- -- -- 277,735 -- 277,735
Inventory and
supplies -- -- -- 20,524 -- 20,524
Prepaid expenses and
other current
assets -- 2,607 -- 197,391 -- 199,998
---------- ---------- -------- ---------- ----------- ----------
Total current
assets 45,848 2,645 228 1,321,187 -- 1,369,908
Marketable securities 19,378 -- -- 439,770 -- 459,148
Property, plant and
equipment, net -- -- -- 2,781,050 -- 2,781,050
Goodwill, net -- -- -- 306,762 -- 306,762
Intercompany
receivables 2,009,672 2,158,524 140 -- (4,168,336) --
Investments in
affiliates 84,887 1,773,633 221,484 2,092,224 (4,113,589) 58,639
Other long-term assets -- 20,150 1,220 66,995 -- 88,365
---------- ---------- -------- ---------- ----------- ----------
Total assets $2,159,785 $3,954,952 $223,072 $7,007,988 $(8,281,925) $5,063,872
---------- ---------- -------- ---------- ----------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of
long-term debt $ -- $ 489,126 $ -- $ 3,859 $ -- $ 492,985
Trade accounts
payable 4 23 -- 89,678 -- 89,705
Accrued liabilities 217 10,168 3,930 138,549 -- 152,864
Income taxes payable 892 (189) -- 15,197 -- 15,900
---------- ---------- -------- ---------- ----------- ----------
Total current
liabilities 1,113 499,128 3,930 247,283 -- 751,454
Long-term debt -- 1,343,686 223,234 47,736 -- 1,614,656
Other long-term
liabilities -- 3,763 -- 133,490 -- 137,253
Deferred income taxes 152 72,258 (1,560) 331,204 -- 402,054
Intercompany payable 65 -- -- 4,168,271 (4,168,336) --
---------- ---------- -------- ---------- ----------- ----------
Total
liabilities 1,330 1,918,835 225,604 4,927,984 (4,168,336) 2,905,417
---------- ---------- -------- ---------- ----------- ----------
Shareholders' equity 2,158,455 2,036,117 (2,532) 2,080,004 (4,113,589) 2,158,455
---------- ---------- -------- ---------- ----------- ----------
Total
liabilities
and
shareholders'
equity $2,159,785 $3,954,952 $223,072 $7,007,988 $(8,281,925) $5,063,872
---------- ---------- -------- ---------- ----------- ----------
18
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
Three Months Ended June 30, 2003
--------------------------------------------------------------------------------
Nabors Other
Nabors Delaware Nabors Subsidiaries
(Parent/ (Issuer/ Holdings (Non- Consolidating Consolidated
Guarantor) Guarantor) (Issuer) Guarantors) Adjustments Total
---------- ---------- -------- ------------ ------------- ------------
(IN THOUSANDS)
Revenues and other
income:
Operating revenues $ -- $ -- $ -- $432,552 $ -- $432,552
Earnings from
unconsolidated
affiliates -- -- -- 1,359 -- 1,359
Earnings (losses)
from
consolidated
affiliates (7,220) 25,602 2,807 17,688 (38,877) --
Interest income 295 2 -- 6,701 -- 6,998
Intercompany
interest income 55,248 14,673 -- -- (69,921) --
Other income
(expense), net (8,547) (2,618) -- 11,188 -- 23
------- ------- ------- -------- --------- --------
Total revenues
and other
income 39,776 37,659 2,807 469,488 (108,798) 440,932
------- ------- ------- -------- --------- --------
Costs and other
deductions:
Direct costs -- -- -- 298,791 -- 298,791
General and
administrative
expenses 1,079 19 -- 39,385 -- 40,483
Depreciation and
amortization -- -- -- 56,652 -- 56,652
Interest expense -- 15,965 2,860 (181) -- 18,644
Intercompany
interest expense -- -- -- 69,921 (69,921) --
------- ------- ------- -------- --------- --------
Total costs and
other
deductions 1,079 15,984 2,860 464,568 (69,921) 414,570
------- ------- ------- -------- --------- --------
Income (loss) before
income taxes 38,697 21,675 (53) 4,920 (38,877) 26,362
------- ------- ------- -------- --------- --------
Income tax expense
(benefit) 9,678 (1,453) 2,580 (13,462) -- (2,657)
------- ------- ------- -------- --------- --------
Net income (loss) $29,019 $23,128 $(2,633) $ 18,382 $ (38,877) $ 29,019
------- ------- ------- -------- --------- --------
19
Three Months Ended June 30, 2002
-------------------------------------------------------------------
Other
Nabors Nabors Subsidiaries
(Parent/ Delaware (Non- Consolidating Consolidated
Guarantor) (Issuer) Guarantors) Adjustments Total
---------- -------- ------------ ------------- ------------
(IN THOUSANDS)
Revenues and other income:
Operating revenues $ -- $ -- $352,147 $ -- $352,147
Earnings from
unconsolidated
affiliates -- -- 4,371 -- 4,371
Earnings from
consolidated
affiliates 22,166 25,396 25,436 (72,998) --
Interest income -- (5) 8,147 -- 8,142
Intercompany interest
income 3,261 13,516 -- (16,777) --
Other income, net -- 633 2,016 -- 2,649
------- ------- -------- -------- --------
Total revenues and
other income 25,427 39,540 392,117 (89,775) 367,309
------- ------- -------- -------- --------
Costs and other deductions:
Direct costs -- -- 238,190 -- 238,190
General and
administrative
expenses 7 126 32,691 -- 32,824
Depreciation and
amortization -- -- 47,984 -- 47,984
Interest expense -- 13,954 464 -- 14,418
Intercompany interest
expense -- -- 16,777 (16,777) --
------- ------- -------- -------- --------
Total costs and other
deductions 7 14,080 336,106 (16,777) 333,416
------- ------- -------- -------- --------
Income before income taxes 25,420 25,460 56,011 (72,998) 33,893
------- ------- -------- -------- --------
Income tax expense -- 24 8,449 -- 8,473
------- ------- -------- -------- --------
Net income $25,420 $25,436 $ 47,562 $(72,998) $ 25,420
------- ------- -------- -------- --------
Six Months Ended June 30, 2003
--------------------------------------------------------------------------------
Nabors Other
Nabors Delaware Nabors Subsidiaries
(Parent/ (Issuer/ Holdings (Non- Consolidating Consolidated
Guarantor) Guarantor) (Issuer) Guarantors) Adjustments Total
---------- ---------- -------- ------------ ------------- ------------
(IN THOUSANDS)
Revenues and other
income:
Operating revenues $ -- $ -- $ -- $882,389 $ -- $882,389
Earnings from
unconsolidated
affiliates -- -- -- 7,262 -- 7,262
Earnings (losses)
from
consolidated
affiliates (13,937) 53,089 9,650 41,195 (89,997) --
Interest income 502 17 11 14,161 -- 14,691
20
Six Months Ended June 30, 2003
--------------------------------------------------------------------------------
Nabors Other
Nabors Delaware Nabors Subsidiaries
(Parent/ (Issuer/ Holdings (Non- Consolidating Consolidated
Guarantor) Guarantor) (Issuer) Guarantors) Adjustments Total
---------- ---------- -------- ------------ ------------- ------------
Intercompany
interest income 106,037 28,452 -- -- (134,489) --
Other income
(expense), net (3,555) (3,701) 15 7,288 -- 47
-------- ------- ------ -------- --------- --------
Total revenues
and other
income 89,047 77,857 9,676 952,295 (224,486) 904,389
-------- ------- ------ -------- --------- --------
Costs and other
deductions:
Direct costs -- -- -- 603,351 -- 603,351
General and
administrative
expenses 1,740 (153) 17 80,124 -- 81,728
Depreciation and
amortization -- -- -- 110,578 -- 110,578
Interest expense -- 32,351 5,728 635 -- 38,714
Intercompany
interest expense -- -- -- 134,489 (134,489) --
-------- ------- ------ -------- --------- --------
Total costs and
other
deductions 1,740 32,198 5,745 929,177 (134,489) 834,371
-------- ------- ------ -------- --------- --------
Income (loss) before
income taxes 87,307 45,659 3,931 23,118 (89,997) 70,018
-------- ------- ------ -------- --------- --------
Income tax expense
(benefit) 10,231 (2,749) 1,494 (16,034) -- (7,058)
-------- ------- ------ -------- --------- --------
Net income $ 77,076 $48,408 $2,437 $ 39,152 $ (89,997) $ 77,076
-------- ------- ------ -------- --------- --------
21
Six Months Ended June 30, 2002
-------------------------------------------------------------------
Other
Nabors Nabors Subsidiaries
(Parent/ Delaware (Non- Consolidating Consolidated
Guarantor) (Issuer) Guarantors) Adjustments Total
---------- -------- ------------ ------------- ------------
(IN THOUSANDS)
Revenues and other income:
Operating revenues $ -- $ -- $733,346 $ -- $733,346
Earnings from
unconsolidated
affiliates -- -- 10,009 -- 10,009
Earnings from
consolidated
affiliates 64,113 68,972 67,383 (200,468) --
Interest income -- 15 17,378 -- 17,393
Intercompany interest
income 3,261 27,464 -- (30,725) --
Other (expense) income,
net -- (1,780) 4,926 -- 3,146
------- ------- -------- --------- --------
Total revenues and
other income 67,374 94,671 833,042 (231,193) 763,894
------- ------- -------- --------- --------
Costs and other deductions:
Direct costs -- -- 487,623 -- 487,623
General and
administrative
expenses 12 268 65,210 -- 65,490
Depreciation and
amortization -- -- 91,665 -- 91,665
Interest expense -- 27,954 1,079 -- 29,033
Intercompany interest
expense -- -- 30,725 (30,725) --
------- ------- -------- --------- --------
Total costs and other
deductions 12 28,222 676,302 (30,725) 673,811
------- ------- -------- --------- --------
Income before income taxes 67,362 66,449 156,740 (200,468) 90,083
------- ------- -------- --------- --------
Income tax (benefit)
expense -- (934) 23,655 -- 22,721
------- ------- -------- --------- --------
Net income $67,362 $67,383 $133,085 $(200,468) $ 67,362
------- ------- -------- --------- --------
22
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 2003
--------------------------------------------------------------------------------
Nabors Other
Nabors Delaware Nabors Subsidiaries
(Parent/ (Issuer/ Holdings (Non- Consolidating Consolidated
Guarantor) Guarantor) (Issuer) Guarantors) Adjustments Total
---------- ---------- -------- ------------ ------------- ------------
(IN THOUSANDS)
Net cash provided by (used
for) operating
activities $ 94,524 $ 601,484 $(5,303) $ 137,397 $(707,331) $ 120,771
-------- --------- ------- --------- --------- ---------
Cash flows from investing
activities:
Purchases of marketable
securities,
available-for-sale (40,323) -- -- (452,624) -- (492,947)
Sales of marketable
securities,
available-for-sale 28,710 -- -- 669,213 -- 697,923
Cash paid for
investments in
consolidated
affiliates -- (694,771) -- -- 694,771 --
Capital expenditures -- -- -- (149,289) -- (149,289)
Proceeds from sales of
assets and insurance
claims -- -- -- 8,996 -- 8,996
-------- --------- ------- --------- --------- ---------
Net cash (used for)
provided by investing
activities (11,613) (694,771) -- 76,296 694,771 64,683
-------- --------- ------- --------- --------- ---------
Cash flows from financing
activities:
Decrease in cash
overdrafts -- -- -- (2,386) -- (2,386)
Decrease in restricted
cash -- -- -- 1,232 -- 1,232
Proceeds from long-term
debt -- 700,000 -- -- -- 700,000
Reduction of long-term
debt -- (494,903) -- (47,918) -- (542,821)
Debt issuance costs -- (10,682) (159) -- -- (10,841)
Proceeds from issuance
of common shares 23,430 -- -- -- -- 23,430
Proceeds from parent
contributions -- -- 5,271 689,500 (694,771) --
Cash dividends paid -- (101,165) -- (606,166) 707,331 --
-------- --------- ------- --------- --------- ---------
Net cash provided by
financing activities 23,430 93,250 5,112 34,262 12,560 168,614
-------- --------- ------- --------- --------- ---------
Effect of exchange rate
changes on cash and cash
equivalents -- -- -- 4,379 -- 4,379
-------- --------- ------- --------- --------- ---------
Net increase (decrease) in
cash and cash
equivalents 106,341 (37) (191) 252,334 -- 358,447
Cash and cash equivalents,
beginning of period 40,127 38 207 373,679 -- 414,051
-------- --------- ------- --------- --------- ---------
Cash and cash equivalents,
end of period $146,468 $ 1 $ 16 $ 626,013 $ -- $ 772,498
-------- --------- ------- --------- --------- ---------
23
Six Months Ended June 30, 2002
-------------------------------------------------------------------
Other
Nabors Nabors Subsidiaries
(Parent/ Delaware (Non- Consolidating Consolidated
Guarantor) (Issuer) Guarantors) Adjustments Total
---------- -------- ------------ ------------- ------------
(IN THOUSANDS)
Net cash provided by (used
for) operating activities $25 $(5,469) $ 200,129 $ -- $ 194,685
--- ------- --------- ----- ---------
Cash flows from investing
activities:
Purchases of marketable
securities,
available-for-sale -- -- (126,994) -- (126,994)
Sales of marketable
securities,
available-for-sale -- -- 197,267 -- 197,267
Cash paid for
acquisitions of
businesses, net -- -- (116,668) -- (116,668)
Capital expenditures -- -- (198,072) -- (198,072)
Proceeds from sales of
assets and insurance
claims -- -- 4,923 -- 4,923
--- ------- --------- ----- ---------
Net cash used for investing
activities -- -- (239,544) -- (239,544)
--- ------- --------- ----- ---------
Cash flows from financing
activities:
Decrease in restricted
cash -- -- 867 -- 867
Reduction of long-term
debt -- (5,048) (16,414) -- (21,462)
Proceeds from issuance of
common shares -- 8,328 -- -- 8,328
--- ------- --------- ----- ---------
Net cash provided by (used
for) financing activities -- 3,280 (15,547) -- (12,267)
--- ------- --------- ----- ---------
Effect of exchange rate
changes on cash and cash
equivalents -- -- 1,716 -- 1,716
--- ------- --------- ----- ---------
Net increase (decrease) in
cash and cash equivalents 25 (2,189) (53,246) -- (55,410)
Cash and cash equivalents,
beginning of period -- 2,201 196,242 -- 198,443
--- ------- --------- ----- ---------
Cash and cash equivalents,
end of period $25 $ 12 $ 142,996 $ -- $ 143,033
--- ------- --------- ----- ---------
24
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Nabors Industries Ltd.:
We have reviewed the accompanying consolidated balance sheet of Nabors
Industries Ltd. and its subsidiaries as of June 30, 2003, and the related
consolidated statements of income for each of the three-month and six-month
periods ended June 30, 2003 and 2002 and the consolidated statements of cash
flows and of changes in stockholders' equity for the six-month periods ended
June 30, 2003 and 2002. These interim financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures and
making inquiries of persons responsible for financial and accounting matters. It
is substantially less in scope than an audit conducted in accordance with
generally accepted auditing standards, the objective of which is the expression
of an opinion regarding the financial statements taken as a whole. Accordingly,
we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying consolidated interim financial statements for
them to be in conformity with accounting principles generally accepted in the
United States of America.
We previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet as of
December 31, 2002, and the related consolidated statements of income, of cash
flows, and of changes in shareholders' equity for the year then ended (not
presented herein), and in our report dated January 29, 2003, except for Note 21,
as to which the date is March 18, 2003, we expressed an unqualified opinion on
those consolidated financial statements. In our opinion, the accompanying
consolidated balance sheet information as of December 31, 2002, is fairly stated
in all material respects in relation to the consolidated balance sheet from
which it has been derived.
/s/ PRICEWATERHOUSECOOPERS LLP
Houston, Texas
July 29, 2003
25
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
NATURE OF OPERATIONS
Nabors is the largest land drilling contractor in the world, with almost
600 land drilling rigs. We conduct oil, gas and geothermal land drilling
operations in the U.S. Lower 48 states, Alaska, Canada, 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 and Canada. We own
approximately 750 land workover and well-servicing rigs in the United States,
primarily in the southwestern and western United States, and approximately 200
land workover and well-servicing rigs in Canada. Nabors is a leading provider of
offshore platform workover and drilling rigs, and owns 43 platform, 16 jack-up
and three barge rigs in the Gulf of Mexico and international markets. These rigs
provide well-servicing, workover and drilling services. We have a 50% ownership
interest in a joint venture in Saudi Arabia, which owns 17 rigs.
To further supplement and complement our primary business, we offer a wide
range of ancillary well-site services, including oilfield management,
engineering, transportation, construction, maintenance, well logging,
directional drilling, rig instrumentation, data collection and other support
services, in selected domestic and international markets. Our land
transportation and hauling fleet includes approximately 240 rig and oilfield
equipment hauling tractor-trailers and a number of cranes, loaders and
light-duty vehicles. We maintain approximately 290 fluid hauling trucks,
approximately 700 fluid storage tanks, eight saltwater disposal wells and other
auxiliary equipment used in domestic drilling, workover and well-servicing
operations. In addition, we own a fleet of 30 marine transportation and supply
vessels, primarily in the Gulf of Mexico, which provide transportation of
drilling materials, supplies and crews for offshore operations. We manufacture
and lease or sell top drives for a broad range of drilling applications,
directional drilling systems, rig instrumentation and data collection equipment
and rig reporting software.
Our overall business is conducted through two major segments: (1) Contract
Drilling and (2) Manufacturing and Logistics. Our Contract Drilling segment
includes our drilling, workover and well-servicing operations, on land and
offshore, and our Manufacturing and Logistics segment includes our marine
transportation and supply services, top drive manufacturing, directional
drilling, rig instrumentation and software, and construction and logistics
operations. A discussion of our results of operations for the three and six
months ended June 30, 2003 and 2002 is included below. This discussion should be
read in conjunction with our accompanying consolidated financial statements and
notes thereto and our Annual Report on Form 10-K for the year ended December 31,
2002.
As used in this Report, "we," "us," "our" and "Nabors" means Nabors
Industries Ltd. and, where the context requires, includes our subsidiaries.
Nabors became the publicly traded parent company of the Nabors group of
companies, effective June 24, 2002, pursuant to the corporate reorganization
described in our Annual Report on Form 10-K for the year ended December 31,
2002.
FORWARD-LOOKING STATEMENTS
We often discuss expectations regarding our future markets, demand for our
products and services, and our performance in our annual and quarterly reports,
press releases, and other written and oral statements. Statements that relate to
matters that are not historical facts are "forward-looking statements" within
the meaning of the safe harbor provisions of Section 27A of the Securities
Exchange Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
These "forward-looking statements" are based on an analysis of currently
available competitive, financial and economic data and our operating plans. They
are inherently uncertain and investors must recognize that events and actual
results could turn out to be significantly different from our expectations. By
way of illustration, when used in this document, words such as "anticipate,"
"believe," "expect," "plan," "intend," "estimate," "project," "will," "should,"
"could," "may," "predict" and similar expressions are intended to identify
forward-looking statements.
26
You should consider the following key factors when evaluating these
forward-looking statements:
- fluctuations in worldwide prices of and demand for natural gas and oil;
- fluctuations in levels of natural gas and oil exploration and development
activities;
- fluctuations in the demand for our services;
- the existence of competitors, technological changes and developments in
the oilfield services industry;
- the existence of operating risks inherent in the oilfield services
industry;
- the existence of regulatory and legislative uncertainties;
- the possibility of political instability, war or acts of terrorism in any
of the countries in which we do business; and
- general economic conditions.
Our businesses depend, to a large degree, on the level of spending by oil
and gas companies for exploration, development and production activities.
Therefore, a sustained increase or decrease in the price of natural gas or oil,
which could have a material impact on exploration and production activities,
could also materially affect our financial condition, results of operations and
cash flows.
The above description of risks and uncertainties is by no means
all-inclusive, but is designed to highlight what we believe are important
factors to consider. For a more detailed description of risk factors, please
refer to our Annual Report on Form 10-K for the year ended December 31, 2002
filed with the Securities and Exchange Commission under Item I, Part VI, "Risk
Factors."
27
RESULTS OF OPERATIONS
The following table sets forth certain information with respect to our
reportable segments and rig activity:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------------------- ----------------------------------------
INCREASE INCREASE
2003 2002 (DECREASE) 2003 2002 (DECREASE)
-------- -------- ------------------ -------- -------- ------------------
(IN THOUSANDS, EXCEPT
PERCENTAGES)
Reportable segments:
Operating revenues and
Earnings from
unconsolidated
affiliates:
Contract drilling:(1)
U.S. Lower 48 Land
Drilling $116,605 $ 97,022 $19,583 20% $208,293 $206,181 $ 2,112 1%
U.S. Land Well-
servicing 81,504 76,250 5,254 7% 158,164 149,953 8,211 5%
U.S. Offshore 24,680 23,958 722 3% 46,394 51,430 (5,036) (10%)
Alaska 30,446 30,947 (501) (2%) 66,414 70,941 (4,527) (6%)
Canada 49,836 20,935 28,901 138% 150,624 48,952 101,672 208%
International 96,599 77,062 19,537 25% 183,790 157,150 26,640 17%
-------- -------- ------- -------- -------- --------
Subtotal contract
drilling(2) 399,670 326,174 73,496 23% 813,679 684,607 129,072 19%
Manufacturing and
logistics(3)(4) 46,572 41,554 5,018 12% 101,761 81,596 20,165 25%
Other(5) (12,331) (11,210) (1,121) (10%) (25,789) (22,848) (2,941) (13%)
-------- -------- ------- -------- -------- --------
Total $433,911 $356,518 $77,393 22% $889,651 $743,355 $146,296 20%
-------- -------- ------- -------- -------- --------
Adjusted cash flow
derived from operating
activities:(6)
Contract drilling:
U.S. Lower 48 Land
Drilling $ 23,445 $ 23,723 $ (278) (1%) $ 37,496 $ 51,809 $(14,313) (28%)
U.S. Land Well-
servicing 18,811 16,187 2,624 16% 33,956 30,726 3,230 11%
U.S. Offshore 5,112 1,150 3,962 345% 6,215 3,111 3,104 100%
Alaska 13,414 10,255 3,159 31% 31,576 23,861 7,715 32%
Canada 5,453 2,509 2,944 117% 38,706 15,143 23,563 156%
International 33,350 27,690 5,660 20% 61,492 57,592 3,900 7%
-------- -------- ------- -------- -------- --------
Subtotal contract
drilling 99,585 81,514 18,071 22% 209,441 182,242 27,199 15%
Manufacturing and
logistics 4,883 13,000 (8,117) (62%) 15,750 26,709 (10,959) (41%)
Other(7) (9,831) (9,010) (821) (9%) (20,619) (18,709) (1,910) (10%)
-------- -------- ------- -------- -------- --------
Total 94,637 85,504 9,133 11% 204,572 190,242 14,330 8%
Depreciation and
amortization (56,652) (47,984) (8,668) (18%) (110,578) (91,665) (18,913) (21%)
-------- -------- ------- -------- -------- --------
28
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------------------- ----------------------------------------
INCREASE INCREASE
2003 2002 (DECREASE) 2003 2002 (DECREASE)
-------- -------- ------------------ -------- -------- ------------------
Adjusted income derived
from operating
activities(8) 37,985 37,520 465 1% 93,994 98,577 (4,583) (5%)
Interest expense (18,644) (14,418) (4,226) (29%) (38,714) (29,033) (9,681) (33%)
Interest income 6,998 8,142 (1,144) (14%) 14,691 17,393 (2,702) (16%)
Other income, net 23 2,649 (2,626) (99%) 47 3,146 (3,099) (99%)
-------- -------- ------- -------- -------- --------
Income before income
taxes $ 26,362 $ 33,893 $(7,531) (22%) $ 70,018 $ 90,083 $(20,065) (22%)
-------- -------- ------- -------- -------- --------
Net cash provided by
operating activities
from the consolidated
statements of cash
flows(6) $ 94,738 $ 91,322 $ 3,416 4% $120,771 $194,685 $(73,914) (38%)
-------- -------- ------- -------- -------- --------
Rig activity:
Rig years:(9)
U.S. Lower 48 Land
Drilling 136.8 105.6 31.2 30% 123.0 106.6 16.4 15%
U.S. Offshore 15.0 14.5 .5 3% 14.2 14.7 (.5) (3%)
Alaska 9.1 9.6 (.5) (5%) 8.9 10.4 (1.5) (14%)
Canada 23.4 11.4 12.0 105% 41.0 19.2 21.8 114%
International(10) 59.8 53.5 6.3 12% 58.4 52.9 5.5 10%
-------- -------- ------- -------- -------- --------
Total rig years 244.1 194.6 49.5 25% 245.5 203.8 41.7 20%
-------- -------- ------- -------- -------- --------
Rig hours:(11)
U.S. Land Well-
servicing 281,810 262,326 19,484 7% 555,323 504,605 50,718 10%
Canada Well-
servicing(12) 46,458 30,528 15,930 52% 139,160 30,528 108,632 356%
-------- -------- ------- -------- -------- --------
Total rig hours 328,268 292,854 35,414 12% 694,483 535,133 159,350 30%
-------- -------- ------- -------- -------- --------
(1) This segment includes our drilling, workover and well-servicing operations,
on land and offshore.
(2) Includes Earnings from unconsolidated affiliates, accounted for by the
equity method, of $1.0 million for the three months ended June 30, 2003 and
2002, and $1.9 million and $2.1 million for the six months ended June 30,
2003 and 2002, respectively.
(3) This segment includes our marine transportation and supply services, top
drive manufacturing, directional drilling, rig instrumentation and
software, and construction and logistics operating units.
(4) Includes Earnings from unconsolidated affiliates, accounted for by the
equity method, of $.4 million and $3.4 million for the three months ended
June 30, 2003 and 2002, respectively, and $5.4 million and $7.9 million for
the six months ended June 30, 2003 and 2002, respectively.
(5) Represents the elimination of inter-segment manufacturing and logistics
sales.
(6) Adjusted cash flow derived from operating activities is computed by:
subtracting direct costs and general and administrative expenses 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 (GAAP). However, management evaluates the performance of our
business units based on several criteria, including adjusted cash flows
derived from operating activities, because it believes that this financial
measure is an accurate reflection of the ongoing performance of our
business units. The following is a
29
reconciliation of net cash provided by operating activities from our
consolidated statements of cash flows, which is a GAAP measure, to this non-GAAP
measure:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- ----------------------
2003 2002 2003 2002
------- ------- -------- --------
(IN THOUSANDS)
Net cash provided by operating activities
from the consolidated statements of cash
flows $94,738 $91,322 $120,771 $194,685
Interest expense 18,644 14,418 38,714 29,033
Interest income (6,998) (8,142) (14,691) (17,393)
Other income, net (23) (2,649) (47) (3,146)
Current income tax expense 3,226 2,514 7,286 6,957
Deferred financing costs amortization (1,323) (1,098) (2,720) (2,196)
Discount amortization on long-term debt (7,661) (7,673) (15,569) (15,270)
Amortization of loss on cash flow hedges (38) --