<PAGE> 1
CONFORMED
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period ______________ to ______________
Commission file number 1-9245
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NABORS INDUSTRIES, INC.
------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 93-0711613
------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
515 W. Greens Road, Suite 1200, Houston, Texas 77067
------------------------------------------------------------------------------
(Address of principal executive offices, zip code)
281-874-0035
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if change since last report)
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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: The number of
shares of Common Stock, par value $.10 per share, outstanding as of July 31,
1997 was 100,630,256.
<PAGE> 2
NABORS INDUSTRIES, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
Part I Financial Information
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
June 30, 1997 and September 30, 1996 2
Condensed Consolidated Statements of
Income and Retained Earnings for the Three
Months and Nine Months Ended June 30, 1997 and 3
1996
Condensed Consolidated Statements of Cash
Flows for the Nine Months Ended June
30, 1997 and 1996 4
Notes to Condensed Consolidated
Financial Statements 5
Report of Independent Accountants 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 13
</TABLE>
<PAGE> 3
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NABORS INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
June 30, September 30,
1997 1996
----------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 13,883 $ 95,867
Marketable securities 5,975 8,160
Accounts receivable, net 213,219 172,720
Inventory and supplies 23,294 18,528
Prepaid expenses and other current assets 26,295 33,259
----------- ---------
Total current assets 282,666 328,534
Property, plant and equipment, net 799,157 511,203
Marketable securities 24,474 11,839
Other long-term assets 24,298 19,698
----------- ---------
Total assets $ 1,130,595 $ 871,274
----------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations $ 2,253 $ 7,738
Short-term borrowings 67,687 10,235
Trade accounts payable and accrued liabilities 158,205 129,018
Income taxes payable 9,206 9,452
----------- ---------
Total current liabilities 237,351 156,443
Long-term obligations 232,830 229,504
Other long-term liabilities 12,866 9,139
Deferred income taxes 23,414 18,366
----------- ---------
Total liabilities 506,461 413,452
----------- ---------
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.10 per share:
Authorized 10,000 shares; none issued or outstanding -- --
Capital stock, par value $.10 per share:
Authorized common shares 200,000;
issued 96,934 and 87,470 9,693 8,747
Authorized Class B shares 8,000; none issued or outstanding -- --
Capital in excess of par value 345,886 250,995
Cumulative translation adjustment (2,305) (2,692)
Net unrealized gain on marketable securities 7,442 3,728
Retained earnings since May 1, 1988 266,582 200,208
Less treasury stock, at cost, 489 common shares (3,164) (3,164)
----------- ---------
Total stockholders' equity 624,134 457,822
----------- ---------
Total liabilities and stockholders' equity $ 1,130,595 $ 871,274
----------- ---------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
<PAGE> 4
NABORS INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND RETAINED EARNINGS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months ended June 30, Nine months ended June 30,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues $ 267,911 $ 181,336 $ 723,671 $ 508,993
--------- --------- --------- ---------
Operating expenses:
Direct costs 187,225 134,570 527,329 379,049
General and administrative expenses 18,505 14,908 50,501 41,563
Depreciation and amortization 16,988 11,308 47,079 32,310
Merger expenses -- -- 1,755 --
--------- --------- --------- ---------
Operating expenses 222,718 160,786 626,664 452,922
--------- --------- --------- ---------
Operating income 45,193 20,550 97,007 56,071
--------- --------- --------- ---------
Other income (expense):
Interest expense (4,811) (3,476) (12,143) (7,590)
Interest income 401 496 3,057 937
Other income, net 7,113 4,487 28,484 9,234
--------- --------- --------- ---------
Other income 2,703 1,507 19,398 2,581
--------- --------- --------- ---------
Income before income taxes 47,896 22,057 116,405 58,652
--------- --------- --------- ---------
Income taxes:
Current 2,086 2,637 7,339 6,418
Deferred 14,678 751 36,378 1,481
--------- --------- --------- ---------
Total income taxes 16,764 3,388 43,717 7,899
--------- --------- --------- ---------
Net income 31,132 18,669 72,688 50,753
Reclassification of pre-quasi-
reorganization tax benefit (980) (4,183) (3,552) (8,883)
Adcor retained deficit at September 30, 1996 -- -- (2,762) --
Retained earnings, beginning of period 236,430 165,475 200,208 138,091
--------- --------- --------- ---------
Retained earnings, end of period $ 266,582 $ 179,961 $ 266,582 $ 179,961
--------- --------- --------- ---------
Earnings per share:
Primary $ .30 $ .20 $ .72 $ .55
--------- --------- --------- ---------
Fully diluted $ .29 $ .20 $ .69 $ .54
--------- --------- --------- ---------
Weighted average number of shares outstanding:
Primary 102,477 94,543 100,914 92,488
--------- --------- --------- ---------
Fully diluted 113,529 95,164 112,006 94,446
--------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE> 5
NABORS INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Nine months ended June 30,
1997 1996
--------- ---------
<S> <C> <C>
Net cash provided by operating activities $ 96,671 $ 41,903
--------- ---------
Cash flows from investing activities:
Purchases of marketable securities, trading -- (6,585)
Sales of marketable securities, trading 3,653 2,808
Purchases of marketable securities, available for sale (4,803) --
Sales of marketable securities, available-for-sale 6,921 1,699
(Increase) decrease in notes receivable, net (456) 61
Cash paid for acquisitions, net (106,500) (33,754)
Capital expenditures (206,682) (97,464)
Proceeds from disposition of assets and insurance claims 51,963 11,316
Investment in affiliates (502) --
--------- ---------
Net cash used for investing activities (256,406) (121,919)
--------- ---------
Cash flows from financing activities:
(Increase) decrease in restricted cash (9) 889
(Decrease) increase in long-term borrowings, net (13,079) 182,993
Increase (decrease) in short-term borrowings, net 57,452 (21,906)
Common and treasury stock transactions 32,869 9,662
--------- ---------
Net cash provided by financing activities 77,233 171,638
--------- ---------
Net (decrease) increase in cash and cash equivalents (82,502) 91,622
Cash and cash equivalents, beginning of period 95,867 12,038
Adjustment for Adcor cash at September 30, 1996 518 --
--------- ---------
Cash and cash equivalents, end of period $ 13,883 $ 103,660
--------- ---------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE> 6
NABORS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Summary of Significant Accounting Policies
Interim Financial Information
The unaudited condensed consolidated financial statements of
Nabors Industries, Inc. (collectively with its subsidiaries, the "Company") are
prepared in conformity with generally accepted accounting principles, but do
not purport to be a complete presentation inasmuch as all note disclosures
required are not included. Reference is made to the Company's 1996 Annual
Report on Form 10-K for additional note disclosures.
In the opinion of management, the condensed consolidated
financial statements contain all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the financial position of
the Company as of June 30, 1997 and the results of its operations and its cash
flows for the respective periods ended June 30, 1997 and 1996. Interim results
for the nine months ended June 30, 1997 are not necessarily indicative of
results which will be realized for the full year ending September 30, 1997.
Earnings Per Share
Primary earnings per share equals net income divided by the
weighted average number of common shares outstanding, after giving effect to
dilutive stock options and warrants. Fully diluted earnings per share for the
three months and nine months ended June 30, 1997 equals net income plus $1.4
million and $4.2 million, respectively, of after tax interest expense incurred
on the $172.5 million 5% Convertible Subordinated Notes, issued on May 28, 1996
(the "5% Notes"), divided by the weighted average common shares outstanding,
after giving effect to dilutive stock options and warrants and 9.5 million
shares assumed to be issued on conversion of the 5% Notes. The 5% Notes are not
included in the fully diluted earnings per share calculation for the three
months and nine months ended June 30, 1996 because inclusion would have been
anti-dilutive.
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128 ("SFAS 128"),
Earnings Per Share. SFAS 128, which is effective for periods ending after
December 15, 1997, is designed to improve the earnings per share ("EPS")
information provided in the financial statements by simplifying the existing
computational guidelines as prescribed by APB Opinion No. 15, Earnings Per
Share, revising the disclosure requirements, and increasing the comparability
of EPS data on an international basis. SFAS 128 requires restatement of all
prior-period EPS data presented after the effective date and early application
is not permitted. The Company will adopt the provisions of SFAS 128 at the
beginning of fiscal 1998.
5
<PAGE> 7
Note 2 Acquisitions, Capital Expenditures and Dispositions
During November 1996, the Company completed the sale of its
wholly owned subsidiary Nabors Drilling & Energy Services UK Ltd. to a wholly
owned subsidiary of Abbot Group plc, a diversified holding company listed on
the London stock exchange. The Company received approximately $36.0 million
plus the value of working capital in cash, as well as 10.8 million four-year
warrants to acquire stock in Abbot Group plc. The Company subsequently
exercised 8.7 million of such warrants and sold the underlying shares for net
proceeds of $6.9 million.
During December 1996, the Company acquired 47 land drilling
rigs from Noble Drilling Corporation and certain of its subsidiaries for $60.0
million in cash. The fleet of rigs consists of 19 operating rigs and 28 stacked
rigs in various stages of completeness; 38 of the rigs are located in the
United States and nine are located in Canada. The acquisition was accounted for
under the purchase method of accounting; accordingly, the total purchase price
was allocated to net assets based on estimated fair values. The results of
operations associated with the purchased rigs have been included in the
condensed consolidated financial statements of the Company commencing on the
effective date of the acquisition.
During January 1997, the Company completed the acquisition of
Adcor-Nicklos Drilling Company ("Adcor") through a merger of a wholly owned
subsidiary with and into Adcor. In the merger, all of the stock of Adcor was
exchanged for 3,354,175 shares of Nabors common stock. The Adcor fleet consists
of 30 active and six stacked land rigs located in the United States. The assets
also include drill pipe, spare drilling equipment, yards, vehicles and other
support equipment. The transaction was accounted for as a pooling-of-interests.
The results of operations of Adcor were included in the Company's fiscal 1997
results commencing January 1, 1997. The historical consolidated financial
statements of the Company were retroactively restated to include the results of
operations, financial position and cash flows of Adcor commencing on October 1,
1996. The historical consolidated financial statements of the Company prior to
fiscal year 1997 were not restated as the effect in those years was not
significant. Accordingly, an adjustment was made to the Company's retained
earnings on October 1, 1996 to record the cumulative retained deficit of Adcor
as of September 30, 1996.
During April 1997, the Company completed the acquisition of
substantially all the assets of Chesley Pruet Drilling Company ("Chesley
Pruet") and an affiliate for cash. The Chesley Pruet fleet consists of 10
active and two stacked land rigs located in the United States. The acquisition
also included drill pipe and component equipment. The acquisition was accounted
for under the purchase method of accounting; accordingly, the total purchase
price was allocated to net assets based on estimated fair values. The results
of operations associated with the purchased rigs have been included in the
condensed consolidated financial statements of the Company commencing on the
effective date of the acquisition. Also, during April 1997, the Company
completed the purchase of 25 stacked land rigs and a large complement of
component equipment located in the United States, from a subsidiary of Samson
Investment Company ("Samson") for $85.0 million in cash.
Note 3 Capital Stock
During the nine month period ended June 30, 1997, 4,590,450
options were exercised at prices ranging from $0.75 to $10.375 per share. In
addition, 19,268 common shares were issued upon vesting under a stock award
plan.
During January 1997, the Company completed its merger with
Adcor whereby the Company acquired all the outstanding shares of Adcor in
exchange for 3,354,175 newly issued shares of the Company's common stock (Note
2).
6
<PAGE> 8
During January 1997, warrants to acquire 1,500,000 shares of
the Company's common stock were exercised at a price of $5.50 per share. The
warrants had originally been issued to a financial institution during 1990 and
were exercisable until January 31, 1997.
Note 4 Income taxes
During 1997, the Company began recording non-cash US federal
deferred income taxes based on the relationship between the amount of the
Company's unused US federal net operating loss carryforwards ("US NOL") and the
temporary differences between the book basis and tax basis in the Company's
assets. The temporary differences primarily arise from using accelerated
depreciation for tax return purposes as compared to a lower depreciation amount
for financial statement purposes. Additionally, the Company recorded higher UK
taxes during the year as a result of the sale of the UK operation, resulting in
an effective tax rate of 38% for the nine months ended June 30, 1997, as
compared to an effective tax rate of 13% for the prior year comparable period.
The effective tax rate for the remaining quarters of 1997 should approximate
the 35% US federal statutory rate. Non-cash US federal deferred taxes should
represent the majority of this amount until that point in time when the US NOL
has been fully utilized or expires.
Note 5 Commitments and Contingencies
Capital Expenditures
As of June 30, 1997, the Company had capital expenditure
purchase commitments outstanding of approximately $17.1 million.
Contingencies
The Company is a defendant or otherwise involved in a number
of lawsuits. In the opinion of management, the Company's ultimate liability
with respect to these lawsuits is not expected to have a significant or
material adverse effect on the Company's consolidated financial position or
results of operations.
Note 6 Subsequent Events
During August 1997, the Company executed an agreement to sell
all of the stock in the Company's wholly owned subsidiary, J.W. Gibson Well
Service Company ("Gibson") to Key Energy Group, Inc. ("Key"). At the time of
closing, the Company will receive $20.0 million in cash, approximately $3.9
million in cash for Gibson's working capital, 100,000 shares of Key common
stock and 265,000 warrants to acquire stock in Key at $18.00 per share . The
transaction, which has already received regulatory approval, is subject to
certain closing conditions and is expected to close in early October 1997. The
assets of Gibson consist of 74 active well servicing and workover rigs,
associated auxiliary equipment, trucks, inventory, and several yards and
related facilities. The transaction will result in a gain which will be
reflected in the Company's financial statements in the first quarter of 1998.
7
<PAGE> 9
Report of Independent Accountants
To the Stockholders and Board of Directors
of Nabors Industries, Inc.
We have reviewed the accompanying condensed consolidated financial statements
of Nabors Industries, Inc. and Subsidiaries as of June 30, 1997 and for the
three-month and nine-month periods then ended. These 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 to
financial data 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 condensed financial statements for them to be in conformity with
generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of September 30, 1996, and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for the year then ended (not presented herein); and in our report
dated November 25, 1996, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying condensed consolidated balance sheet as of September 30, 1996,
is fairly stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
Coopers & Lybrand L.L.P.
Houston, Texas
July 15, 1997
8
<PAGE> 10
ITEM 2.
NABORS INDUSTRIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Third Quarter and First Nine Months of Fiscal 1997 Compared to Third Quarter
and First Nine Months of Fiscal 1996
Company revenues for the third quarter of fiscal 1997
("Current Quarter") and the first nine months of fiscal 1997 ("Current Period")
totaled $267.9 million and $723.7 million, respectively, representing a 48% and
42% increase over the prior year comparable periods. Operating income during
the Current Quarter and Current Period totaled $45.2 million and $97.0 million,
respectively, compared to $20.6 million and $56.1 million in the prior year,
representing a 120% and 73% increase, respectively. Net income totaled $31.1
million ($.29 per fully diluted share) and $72.7 million ($.69 per fully
diluted share) during the Current Quarter and Current Period, respectively,
compared to $18.7 million ($.20 per fully diluted share) and $50.8 million
($.54 per fully diluted share) during the prior year comparable periods. The
significant improvement in operating results during the Current Quarter and
Current Period was due primarily to the improved results of the Company's
operations in the US Lower 48, the Gulf of Mexico, Canada, and the Middle East,
partially offset by lower operating results for the Company's UK North Sea
operation, which was sold during November 1996 (Note 2). Net income was also
positively affected during the Current Period by a gain on the sale of the
Company's UK North Sea Operation. However, an increase in the Company's
effective tax rate, resulting from non-cash US federal deferred income taxes
recorded in the Current Quarter and Current Period, as well as a higher tax
rate applicable on the sale of the UK operation during the Current Period,
reduced net income.
The following tables set forth financial information with
respect to the Company and its subsidiaries on a consolidated basis by
geographical area :
<TABLE>
<CAPTION>
Three months ended June 30, Nine months ended June 30,
1997 1996 Increase (Decrease) 1997 1996 Increase (Decrease)
--------- --------- ------------------ --------- --------- -------------------
(In thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
North America $ 220,988 $ 133,495 $ 87,493 66% $ 593,826 $ 373,087 $ 220,739 59%
International 46,923 47,841 (918) (2%) 129,845 135,906 (6,061) (4%)
--------- --------- -------- -------- --------- --------- --------- -------
Total revenues 267,911 181,336 86,575 48% 723,671 508,993 214,678 42%
--------- --------- -------- -------- --------- --------- --------- -------
Operating income:
North America 37,312 15,704 21,608 138% 83,351 43,705 39,646 91%
International 11,948 8,590 3,358 39% 25,581 21,819 3,762 17%
Corporate expenses (4,067) (3,744) (323) (9%) (10,170) (9,453) (717) (8%)
Merger expenses (1) -- -- -- -- (1,755) -- (1,755) N/A
--------- --------- -------- -------- --------- --------- --------- -------
Total operating income $ 45,193 $ 20,550 $ 24,643 120% $ 97,007 $ 56,071 $ 40,936 73%
--------- --------- -------- -------- --------- --------- --------- -------
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1997 1996
----------------------- ----------------------- ----------------------- ----------------------
Rig Rig Rig Rig Rig Rig Rig Rig
Rig activity (2): Years Utilization Years Utilization Years Utilization Years Utilization
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
North America 231.5 66% 150.8 55% 219.5 63% 146.6 57%
International 32.4 62% 28.9 61% 31.1 60% 27.9 61%
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Total rig activity 263.9 65% 179.7 56% 250.6 63% 174.5 58%
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
</TABLE>
(1) Merger expenses relating to the Adcor merger.
(2) Excludes labor contracts and Gibson workover and well servicing rigs.
North America (including Canada) revenues totaled $221.0
million and $593.8 million during the Current Quarter and Current Period,
respectively, representing a 66% and 59% increase over the prior year
comparable periods. The increase was primarily attributable to a significant
increase in revenues for the Company's US Lower 48 operations during the
Current Quarter and Current Period, as a result of the acquisition of Exeter
Drilling Company and its
9
<PAGE> 11
subsidiary J.W. Gibson Well Service Company during April 1996, the December
1996 purchase of the Noble Drilling Corporation land rigs, the merger with
Adcor-Nicklos Drilling Company ("Adcor") during January 1997, which was
accounted for as a pooling-of-interests with Adcor results included retroactive
to October 1, 1996, and the acquisition of Chesley Pruet Drilling Company
during April 1997 (Note 2). Additionally, dayrates and utilization improved in
the US Lower 48 as a result of tightening rig demand, primarily for large,
premium, diesel-electric SCR rigs. Revenues for the Gulf of Mexico operations
also increased during the Current Quarter and Current Period as a result of
increased equivalent rig years and higher dayrates for the Company's platform
drilling rigs and platform workover rigs, as well as higher dayrates for the
Company's jackup workover rigs as compared to the prior year comparable
periods. Gulf of Mexico revenues increased despite lower jackup workover rig
utilization, as two of the jackup workover rigs were being repaired during the
Current Quarter. Platform drilling rig equivalent rig years increased in part
as a result of the newly constructed MASE(TM) rigs 802 and 803, which began
working in June 1996 and November 1996, respectively. Additionally, rig 269, an
adapted land rig, began working in the Gulf of Mexico in June 1996. Canada
operation revenues increased during the Current Quarter and Current Period
primarily as a result of the addition of 9 rigs purchased from Noble Drilling
Corporation during December 1996, and an improvement in dayrates and rig
utilization as compared to the prior year comparable periods. Alaskan operation
revenues increased during the Current Quarter, but were flat during the Current
Period. The increase in Alaska operation revenues during the Current Quarter
resulted primarily from increased activity for Peak Oilfield Services ("Peak"),
the Company's Alaskan construction and logistics joint venture. During the
Current Period, increased revenues for Peak were offset by reduced rig
activity. Equivalent North America rig years during the Current Quarter and
Current Period totaled 231.5 years and 219.5 years, respectively, as compared
to 150.8 years and 146.6 years during the prior year comparable periods.
International revenues totaled $46.9 million and $129.8
million during the Current Quarter and Current Period, respectively,
representing a 2% and 4% decrease from the prior year comparable periods.
Middle Eastern and CIS revenues increased significantly during the Current
Quarter and Current Period primarily as a result of new contracts in Saudi
Arabia for six rigs, three of which commenced operations during the third
quarter of 1996, and three of which commenced operations during the second
quarter of 1997. Additionally, a one rig contract for a jackup rig in the
Persian Gulf commenced late in the second quarter of 1997. CIS revenues
increased as a result of a one rig contract on Sakhalin Island, which operated
from June 1996 to December 1996, as well as two joint venture contracts in
Kazakhstan, which commenced during the third quarter of 1996. These increases
were partially offset, however, by lower rig activity in Africa. Revenues for
the Company's South and Central America operations decreased during the Current
Quarter and Current Period due primarily to decreased activity in Venezuela,
and the completion of two contracts in Costa Rica during the prior year. UK
North Sea revenues decreased during the Current Quarter and Current Period, as
the Company completed the sale of its UK North Sea labor contract operation
during November 1996. Equivalent international rig years during the Current
Quarter and Current Period totaled 32.4 years and 31.1 years, respectively, as
compared with 28.9 years and 27.9 years in the prior year comparable periods.
The following table sets forth selected consolidated
financial information of the Company expressed as a percentage of total
operating revenues:
<TABLE>
<CAPTION>
Three months ended June 30, Nine months ended June 30,
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
---------- ---------- ---------- ----------
Operating expenses:
Direct costs 69.9% 74.2% 72.9% 74.5%
General and administrative expenses 6.9% 8.2% 7.0% 8.2%
Depreciation and amortization 6.3% 6.3% 6.5% 6.3%
Merger expenses - - .2% -
---------- ---------- ---------- ----------
Operating expenses 83.1% 88.7% 86.6% 89.0%
---------- ---------- ---------- ----------
Operating income 16.9% 11.3% 13.4% 11.0%
Other income 1.0% .8% 2.7% .5%
---------- ---------- ---------- ----------
Income before income taxes 17.9% 12.1% 16.1% 11.5%
Income taxes 6.3% 1.8% 6.0% 1.5%
---------- ---------- ---------- ----------
Net income 11.6% 10.3% 10.1% 10.0%
---------- ---------- ---------- ----------
</TABLE>
10
<PAGE> 12
Direct costs as a percentage of revenues decreased during the
Current Quarter and Current Period as compared to the prior year comparable
periods. The increase in gross margins is largely the result of increased
margins for the Company's US Lower 48 and Gulf of Mexico operations on the
strength of improved dayrates, as well as increased margins in Saudi Arabia.
However, an increased percentage of the Company's total revenues were generated
by the Company's US Lower 48 operations, which had the effect of reducing
somewhat the overall gross margin percentage, as these contracts are usually at
a lower gross margin percentage than Gulf of Mexico, Alaskan and International
contracts. Selling, general and administrative expenses as a percentage of
revenues decreased during the Current Quarter and Current Period due to the
increase in revenues, as these expenses were spread over a larger revenue base.
Merger expenses of $1.8 million relating to the merger with Adcor (Note 2) were
recorded during the first quarter of 1997.
Interest expense increased during the Current Quarter and
Current Period as a result of the interest associated with the $172.5 million
5% Convertible Subordinated Notes issued on May 28, 1996 (the "5% Notes"),
partially offset during the Current Period by lower interest expense associated
with short-term borrowings that were substantially paid down with proceeds from
the 5% Notes. Interest income increased during the Current Period due to higher
average cash and cash equivalent balances that resulted from the remaining
proceeds from the 5% Notes.
Other income increased during the Current Quarter and Current
Period. The increase during the Current Quarter and Current Period relates in
part to increased realized and unrealized gains on marketable securities as
compared to the prior year periods. Additionally, during the Current Period,
the Company recognized a gain on the sale of the Company's UK North Sea
operation, in which the Company received approximately $36.0 million plus the
value of working capital in cash, as well as 10.8 million four-year warrants to
acquire stock in Abbot Group plc. Other income during the prior year periods
consisted primarily of realized and unrealized gains on marketable securities.
During the Current Quarter and Current Period, the Company
began recording non-cash US federal deferred income taxes based on the
relationship between the amount of the Company's unused US federal net
operating loss carryforwards ("US NOL") and the temporary differences between
the book basis and tax basis in the Company's assets. The temporary differences
primarily arise from using accelerated depreciation for tax return purposes as
compared to a lower depreciation amount recorded for financial statement
purposes. Additionally, the Company recorded higher UK taxes during the Current
Period as a result of the sale of the UK operation, resulting in a Current
Period effective tax rate of 38% compared to an effective tax rate of 13% for
the prior year comparable period. The effective tax rate for financial
statement purposes during the Current Quarter was 35% and the effective tax
rate for the remaining quarters of 1997 should approximate the 35% US federal
statutory rate. Non-cash US federal deferred taxes should represent the
majority of this amount until that point in time when the US NOL has been fully
utilized or expires. The current and deferred income tax provisions for the
prior year periods relate primarily to foreign operations, including Canada, as
substantially all of the US taxable income and temporary differences between
the book basis and tax basis of the Company's assets were offset by available
US NOL.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $45.3 million as of June
30, 1997, representing a $126.8 million decrease from September 30, 1996. The
decrease in working capital relates primarily to an $82.5 million decrease in
cash, excluding the $.5 million in cash acquired in conjunction with the Adcor
merger, as well as a $57.5 million increase in short-term borrowings used
primarily to fund acquisitions and capital expenditures (Note 2). The ratio of
funded debt to funded debt plus shareholder's equity, commonly referred to as
the debt to capital ratio, was 0.33:1 as of June 30, 1997 as compared to 0.35:1
as of September 30, 1996. The improvement in the debt to capital ratio is the
result of an increase in shareholder's equity resulting from the Company's
earnings, common stock issued in connection with the Adcor merger and other
common stock transactions, partially offset by an increase in funded debt
relating primarily to additional short-term borrowings.
Cash and cash equivalents decreased by $82.5 million during
the Current Period as compared to an increase of $91.6 million during the prior
year comparable period.
Net cash provided by operating activities totaled $96.7
million during the Current Period compared to $41.9 million during the prior
year comparable period. During the Current Period and prior year comparable
period, net
11
<PAGE> 13
income, as increased for non-cash items such as depreciation and deferred
taxes, was partially offset by non-cash items such as gains on sales of assets
and the negative impact on cash from changes in the Company's working capital
accounts.
Net cash used for investing activities totaled $256.4 million
during the Current Period compared to $121.9 million during the prior year
comparable period. Cash paid for acquisitions and capital expenditures
represented the primary uses of cash during the Current Period, partially
offset by proceeds from the sale of the UK North Sea operation and other fixed
assets. During the prior year comparable period, capital expenditures, cash
paid for acquisitions and the purchases of marketable securities represented
the primary uses of cash.
Financing activities provided cash totaling $77.2 million
during the Current Period compared to $171.6 million during the prior year
comparable period. During the Current Period cash was provided by short-term
borrowings and common stock transactions, primarily the exercise of stock
options, partially offset by reductions in long-term borrowings. In the prior
year period, cash was provided by long-term borrowings, primarily the 5% Notes,
and common stock transactions, offset by reductions in short-term borrowings.
The Company's cash and cash equivalents and short-term
investments in marketable securities totaled $19.9 million as of June 30, 1997.
In addition, the Company had long-term investments in marketable securities of
$24.5 million as of June 30, 1997. The Company has credit facility arrangements
with a number of banks totaling $109.4 million with remaining availability,
after borrowings on the facilities and outstanding letters of credit, of
approximately $32.3 million.
As of June 30, 1997, the Company had capital expenditure
purchase commitments totaling approximately $17.1 million.
On April 15, 1997, the Company filed a universal shelf
registration statement on Form S-3 with the Securities and Exchange Commission
to allow for the Company to offer from time to time up to $300.0 million in
debt securities, preferred stock, common stock, depository shares, or warrants,
and for secondary sales of securities not involving the Company of up to $50.0
million. The registration statement was declared effective by the Securities
and Exchange Commission on May 2, 1997.
The current cash and cash equivalents, short-term
investments, credit facility position, and projected cash flow generated from
current operations are expected to adequately finance the Company's
non-discretionary capital and debt service requirements for the next twelve
months.
OTHER MATTERS
The Company's financial condition and results of operations
are dependent upon 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 oil or natural gas, which could have a
material impact on exploration, development and production activities, could
materially affect the Company's financial condition and results of operations.
12
<PAGE> 14
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11 Statement Re Computation of Per Share Earnings
15.1 Awareness Letter of Independent Accountants
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended
June 30, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
NABORS INDUSTRIES, INC.
/s/ Anthony G. Petrello
---------------------------------------
Anthony G. Petrello
President and Chief Operating Officer
/s/ Bruce P. Koch
---------------------------------------
Bruce P. Koch
Vice President of Finance (principal
financial and accounting officer)
Dated: August 14, 1997
13
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibits Description
<S> <C>
11 Statement Re Computation of Per Share Earnings
15.1 Awareness Letter of Independent Accountants
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 11
NABORS INDUSTRIES, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months ended June 30, Nine months ended June 30,
1997 1996 1997 1996
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Primary:
Average shares outstanding 96,357 85,669 94,834 84,951
Net effect of dilutive stock options and warrants-based
on the treasury stock method using average market
price 6,120 8,874 6,080 7,537
-------- ------- -------- -------
Total 102,477 94,543 100,914 92,488
-------- ------- -------- -------
Net income $ 31,132 $18,669 $ 72,688 $50,753
-------- ------- -------- -------
Per share amount $ .30 $ .20 $ .72 $ .55
-------- ------- -------- -------
Fully Diluted:
Average shares outstanding 96,357 85,669 94,834 84,951
Net effect of dilutive stock options and warrants-based
on the treasury stock method using quarter-end
market price, if higher than average market price 7,655 9,495 7,655 9,495
Assumed conversion of 5% convertible notes (1) 9,517 -- 9,517 --
-------- ------- -------- -------
Total 113,529 95,164 112,006 94,446
-------- ------- -------- -------
Net income $ 31,132 $18,669 $ 72,688 $50,753
Add 5% convertible note interest, net of federal
income tax effect (1) 1,402 -- 4,205 --
-------- ------- -------- -------
Total $ 32,534 $18,669 $ 76,893 $50,753
-------- ------- -------- -------
Per share amount $ .29 $ .20 $ .69 $ .54
-------- ------- -------- -------
</TABLE>
(1) The convertible securities are not included in the fully diluted earnings
per share calculation for the three months and nine months ended June 30,
1996 because inclusion would have been anti-dilutive.
<PAGE> 1
EXHIBIT 15.1
Coopers & Lybrand L.L.P. Awareness Letter
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Nabors Industries, Inc. and Subsidiaries
Registration Statements on Form S-8 and Form S-3
We are aware that our report dated July 15, 1997 on our review of the interim
condensed consolidated financial information of Nabors Industries, Inc. and
Subsidiaries for the three-month and nine-month periods ended June 30, 1997 and
included in this Form 10-Q is incorporated by reference in the Company's
registration statements on Form S-8 filed with the Securities and Exchange
Commission on April 28, 1992, January 17, 1992, November 23, 1992, December 18,
1992, and November 23, 1992 and on Form S-3 filed with the Securities and
Exchange Commission on April 15, 1997. Pursuant to Rule 436 (c) under the
Securities Act of 1933, this report should not be considered a part of the
registration statement prepared or certified by us within the meanings of
Section 7 and 11 of the Act.
COOPERS & LYBRAND L.L.P.
Houston, Texas
August 14, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 13,883
<SECURITIES> 5,975
<RECEIVABLES> 213,219
<ALLOWANCES> 0
<INVENTORY> 23,294
<CURRENT-ASSETS> 282,666
<PP&E> 1,095,498
<DEPRECIATION> 296,341
<TOTAL-ASSETS> 1,130,595
<CURRENT-LIABILITIES> 237,351
<BONDS> 232,830
0
0
<COMMON> 9,693
<OTHER-SE> 614,441
<TOTAL-LIABILITY-AND-EQUITY> 1,130,595
<SALES> 723,671
<TOTAL-REVENUES> 723,671
<CGS> 527,329
<TOTAL-COSTS> 527,329
<OTHER-EXPENSES> 99,335
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,143
<INCOME-PRETAX> 116,405
<INCOME-TAX> 43,717
<INCOME-CONTINUING> 72,688
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 72,688
<EPS-PRIMARY> .72
<EPS-DILUTED> .69
</TABLE>
