<PAGE> 1
================================================================================
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, 1998
COMMISSION FILE NUMBER: 1-9245
--------------------
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
(Registrant's telephone number, including area code)
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
--- ---
The number of shares of Common Stock, par value $.10 per share,
outstanding as of July 31, 1998 was 100,760,903.
================================================================================
<PAGE> 2
NABORS INDUSTRIES, INC.
INDEX
-----
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
June 30, 1998 and December 31, 1997 2
Condensed Consolidated Statements of
Income for the Three Months and Six Months
Ended June 30, 1998 and 1997 3
Condensed Consolidated Statements of
Changes in Stockholders' Equity for the Six
Months Ended June 30, 1998 and 1997 4
Condensed Consolidated Statements of Cash
Flows for the Six Months Ended June 30,
1998 and 1997 5
Notes to Condensed Consolidated
Financial Statements 6
Report of Independent Accountants 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10
Part II Other Information
Item 2. Changes in Securities and Use of Proceeds 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
</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, December 31,
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,109 $ 5,623
Marketable securities 5,469 6,983
Accounts receivable, net 202,151 243,061
Inventory and supplies 22,859 21,305
Prepaid expenses and other current assets 29,629 26,359
----------- -----------
Total current assets 263,217 303,331
Property, plant and equipment, net 1,063,391 923,402
Marketable securities 24,199 29,529
Other long-term assets 34,589 25,044
----------- -----------
Total assets $ 1,385,396 $ 1,281,306
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations $ 16,150 $ 6,091
Short-term borrowings 59,157 55,360
Trade accounts payable and accrued liabilities 157,099 166,614
Income taxes payable 20,962 12,695
----------- -----------
Total current liabilities 253,368 240,760
Long-term obligations 215,721 226,299
Other long-term liabilities 20,214 16,810
Deferred income taxes 48,977 30,097
----------- -----------
Total liabilities 538,280 513,966
----------- -----------
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 and outstanding 101,349 and 101,325 10,135 10,133
Authorized Class B shares 8,000; none issued or outstanding -- --
Capital in excess of par value 412,325 400,120
Accumulated other comprehensive income (1,185) 6,670
Retained earnings 429,005 353,581
Less treasury stock, at cost, 489 common shares (3,164) (3,164)
----------- -----------
Total stockholders' equity 847,116 767,340
----------- -----------
Total liabilities and stockholders' equity $ 1,385,396 $ 1,281,306
----------- -----------
</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
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
1998 1997 1998 1997
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Revenues $ 248,928 $ 267,911 $ 535,702 $ 506,594
--------- --------- --------- ---------
Operating expenses:
Direct costs 160,095 187,225 348,542 364,691
General and administrative expenses 20,034 18,505 40,139 35,783
Depreciation and amortization 20,052 16,988 41,255 32,725
--------- --------- --------- ---------
Operating expenses 200,181 222,718 429,936 433,199
--------- --------- --------- ---------
Operating income 48,747 45,193 105,766 73,395
--------- --------- --------- ---------
Other income (expense):
Interest expense (3,999) (4,811) (7,738) (7,967)
Interest income 194 401 941 1,478
Other income, net 11,775 7,113 21,767 13,936
--------- --------- --------- ---------
Other income 7,970 2,703 14,970 7,447
--------- --------- --------- ---------
Income before income taxes 56,717 47,896 120,736 80,842
--------- --------- --------- ---------
Income taxes:
Current 9,578 2,086 20,643 6,050
Deferred 11,407 14,678 24,669 22,219
--------- --------- --------- ---------
Income taxes 20,985 16,764 45,312 28,269
--------- --------- --------- ---------
Net income $ 35,732 $ 31,132 $ 75,424 $ 52,573
--------- --------- --------- ---------
Earnings per share:
Basic $ .35 .32 $ .75 $ .55
--------- --------- --------- ---------
Diluted $ .33 .29 $ .69 $ .50
--------- --------- --------- ---------
Weighted average number of shares outstanding:
Basic 100,839 96,357 100,822 96,135
--------- --------- --------- ---------
Diluted 113,277 111,995 113,540 111,774
--------- --------- --------- ---------
</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 CHANGES
IN STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Capital Accumulated
Capital Stock in Excess Other Total
------------------------ of Par Comprehensive Retained Treasury Stockholders'
Shares Par Value Value Income Earnings Stock Equity
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1996 95,225 $ 9,523 $309,388 $ 4,448 $216,832 $(3,164) $ 537,027
-------------------------------------------------------------------------------------------
Comprehensive income:
Net income 52,573 52,573
Translation adjustment (463) (463)
Unrealized loss on marketable
securities, net 1,152 1,152
-------------------------------------------------------------------------------------------
Total comprehensive income -- -- -- 689 52,573 -- 53,262
-------------------------------------------------------------------------------------------
Issuance of common shares for
stock options exercised 209 20 1,043 1,063
Issuance of common shares for
warrants exercised 1,500 150 8,100 8,250
Reclassification of pre-quasi-
reorganization tax benefit 2,823 (2,823)
Tax benefit recognized on
exercised stock option
deductions 24,532 24,532
-----------------------------------------------------------------------------------------
Balances, June 30, 1997 96,934 $ 9,693 $345,886 $ 5,137 $ 266,582 $(3,164) $ 624,134
-----------------------------------------------------------------------------------------
Balances, December 31, 1997 101,325 $10,133 $400,120 $ 6,670 $ 353,581 $(3,164) $ 767,340
-----------------------------------------------------------------------------------------
Comprehensive income:
Net Income 75,424 75,424
Translation adjustment (1,411) (1,411)
Unrealized loss on marketable
securities (net of tax
of $3,470) (6,444) (6,444)
-----------------------------------------------------------------------------------------
Total comprehensive income -- -- -- (7,855) 75,424 -- 67,569
-----------------------------------------------------------------------------------------
Issuance of common shares for
stock options exercised 77 7 509 516
Tax benefit recognized on
exercised stock option
deductions 11,240 11,240
Return and retirement of common
shares held in escrow in
connection with Adcor
acquisition (53) (5) (995) (1,000)
Warrants issued in connection
with acquisition 1,451 1,451
-----------------------------------------------------------------------------------------
Balances, June 30, 1998 101,349 $10,135 $412,325 $(1,185) $429,005 $(3,164) $ 847,116
-----------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE> 6
NABORS INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six months ended June 30,
1998 1997
--------- ---------
<S> <C> <C>
Net cash provided by operating activities $ 157,662 $ 82,305
--------- ---------
Cash flows from investing activities:
Purchases of marketable securities, available for sale (1,915) (4,803)
Exercise of warrants -- 6,921
Cash paid for acquisitions, net (28,208) (44,000)
Cash received from disposition of long-term assets and business 24,844 4,431
Capital expenditures (152,527) (171,985)
Investment in affiliates (1,952) --
--------- ---------
Net cash used for investing activities (159,758) (209,436)
--------- ---------
Cash flows from financing activities:
Increase in restricted cash (15) (9)
Decrease in long-term borrowings, net (4,716) (13,270)
Increase in short-term borrowings, net 3,797 58,959
Common stock transactions 516 9,181
--------- ---------
Net cash (used for) provided by financing activities (418) 54,861
--------- ---------
Net decrease in cash and cash equivalents (2,514) (72,270)
Cash and cash equivalents, beginning of period 5,623 86,153
--------- ---------
Cash and cash equivalents, end of period $ 3,109 $ 13,883
--------- ---------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE> 7
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 ("GAAP"),
but do not purport to be a complete presentation inasmuch as all note
disclosures required by GAAP are not included. Reference is made to the
Company's 1997 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, 1998, and the results of its operations, its changes in
stockholders' equity and its cash flows for the periods ended June 30, 1998 and
1997. Interim results for the six months ended June 30, 1998 are not necessarily
indicative of results which will be realized for the full year ending December
31, 1998.
Fiscal Year Change
The Company changed its fiscal year end from September 30 to
December 31, effective for the fiscal year beginning January 1, 1998. The three
month transition period from October 1, 1997 through December 31, 1997 (the
"Transition Period") preceded the start of this new fiscal year period. The
condensed consolidated financial statements for the three months and six months
ended June 30, 1998 reflect the results of the Company for the second quarter
and first six months of the new fiscal year.
Depreciation Change
The Company provides for the depreciation of its drilling rigs
using the units-of-production method, after provision for salvage value. When
the Company's rigs are not operating, a depreciation charge is provided for
using the straight-line method over an assumed depreciable life of 20 years.
Effective April 1, 1998, the Company changed the estimated depreciable lives of
operating rigs from 3,800 days to 4,200 days to better reflect the useful lives
of these assets. The effect of this change increased net income by $.01 per
diluted share for the three months ended June 30, 1998.
Comprehensive Income
The Company adopted Statement of Financial Accounting
Standards No. 130 ("SFAS 130") Reporting Comprehensive Income, at the beginning
of fiscal year 1998. SFAS 130 establishes standards for reporting and
presentation of comprehensive income and its components. SFAS 130 requires that
all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. In accordance
with the provisions of SFAS 130, the Company has presented the components of
comprehensive income in its condensed consolidated statements of changes in
stockholders' equity.
6
<PAGE> 8
NABORS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Earnings Per Share
The Company adopted Statement of Financial Accounting
Standards No. 128 ("SFAS 128"), Earnings Per Share, at the beginning of the
Transition Period. Under the provisions of SFAS 128, primary earnings per share
and fully diluted earnings per share are replaced by basic earnings per share
and diluted earnings per share. In accordance with SFAS 128, all prior period
earnings per share amounts presented have been restated.
Basic earnings per share for all periods presented equal net
income divided by the weighted average number of shares of common stock
("Shares") outstanding during the period, excluding Shares held in treasury.
Diluted earnings per share for all periods presented reflect the assumed
conversion of the $172.5 million, 5% Convertible Subordinated Notes due 2006,
issued on May 28, 1996 (the "5% Notes") from the date of issuance. As a result
of the assumed conversion, net income is adjusted to add back $1.4 million of
after tax interest expense related to the 5% Notes. This adjusted net income is
divided by the sum of; (1) the weighted average number of Shares outstanding,
excluding Shares held in treasury, (2) the net effect of dilutive stock options
and warrants, and (3) 9.5 million Shares assumed to be issued on conversion of
the 5% Notes.
Note 2 Acquisitions and Dispositions
During May 1998, the Company completed the acquisitions of the
stock of New Prospect Drilling Company ("New Prospect") and certain assets of
Can-Tex Drilling & Exploration, Ltd. ("Can-Tex") for approximately $28.0 million
in cash and the issuance of warrants to purchase 200,000 Shares (Note 3). The
New Prospect fleet consisted of six rigs and other equipment located in Arkansas
and Oklahoma, and the Can-Tex fleet consisted of seven rigs and other equipment
located in Alberta, Canada. The Company accounted for these acquisitions under
the purchase method of accounting; accordingly, the total purchase price was
allocated to net assets based on their estimated fair values.
During January 1998, the Company completed the sale of all of
the capital stock of its wholly owned subsidiary, J.W. Gibson Well Service
Company ("Gibson"), to a subsidiary of Key Energy Group, Inc. ("Key"). The
assets of Gibson consisted of 74 active well servicing and workover rigs,
associated auxiliary equipment, trucks, inventory, and several yards and related
facilities. As consideration for the sale of Gibson, the Company received
approximately $20.0 million plus the value of Gibson's working capital in cash,
100,000 shares of Key common stock and 265,000 warrants to acquire common stock
of Key at an exercise price of $18.00 per share, and recorded a pre-tax gain of
$13.7 million.
Note 3 Capital Stock
During the six months ended June 30, 1998, options to acquire
77,845 Shares were exercised at prices ranging from $1.13 to $17.00 per Share.
During May 1998, the Company issued warrants to purchase
200,000 Shares at an exercise price of $30.00 per share. The warrants were
issued in connection with the New Prospect acquisition (Note 2), and are
exercisable until April 30, 2003.
During March 1998, 53,333 Shares that had been held in escrow
in connection with the Company's acquisition of Adcor-Nicklos Drilling Company
in January 1997 were returned to the Company and retired.
7
<PAGE> 9
NABORS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 4 Income Taxes
The effective tax rate during the six months ended June 30,
1998 was 37.5%, as compared to an effective tax rate of 35% for the prior year
period.
Note 5 Commitments and Contingencies
Capital Expenditures
As of June 30, 1998, the Company had capital expenditure
purchase commitments outstanding for drilling equipment of approximately $53.0
million.
Contingencies
The Company is a defendant or otherwise involved in a number
of lawsuits in the ordinary course of its business. In the opinion of
management, the Company's ultimate liability with respect to these pending
lawsuits is not expected to have a significant or material adverse effect on the
Company's consolidated financial position, results of operations or cash flows.
Year 2000
A number of computer programs in use today were written using
two digits rather than four digits to define the applicable year. Any computer
programs that have date sensitive functionality may recognize a date of "00" as
the year 1900 rather than the year 2000. This could result in miscalculations or
system failures causing disruptions of operations.
It is the Company's goal to ensure that all of the critical
systems and processes that are under its direct control remain functional.
However, there may be certain systems or processes relied on by the Company that
are outside of its control, and there can be no assurance that these systems or
processes will remain functional. In the opinion of management, the costs to
modify its current systems will not have a material adverse effect on the
Company's consolidated financial position, results of operations or cash flows.
8
<PAGE> 10
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, 1998 and for the
six months 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.
PricewaterhouseCoopers LLP
Houston, Texas
July 17, 1998
9
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three Months and Six Months Ended June 30, 1998 Compared to Three Months and Six
Months Ended June 30, 1997
This discussion covers the three months and six months ended
June 30, 1998, which is the second quarter and first six months of the new
fiscal year that began January 1, 1998. The Company changed its fiscal year end
from September 30 to December 31, effective for the fiscal year beginning
January 1, 1998.
Company revenues for the second quarter of fiscal 1998
("Current Quarter") totaled $248.9 million, representing a $19.0 million or 7%
decrease as compared to the prior year period. Current Quarter operating income
and net income totaled $48.7 million and $35.7 million ($.33 per diluted share),
respectively, representing an increase of 8% and 15% compared to the prior year
period. Revenues for the first six months of fiscal 1998 ("Current Period")
totaled $535.7 million, representing a $29.1 million, or 6% increase over the
prior year period. Operating income and net income for the Current Period
totaled $105.8 million and $75.4 million ($.69 per diluted share), respectively,
representing an increase of 44% and 43% compared to the prior year period. Net
income for the Current Quarter and Current Period was positively affected by
higher operating income and other income, however, a higher effective tax rate
reduced net income.
Revenues for the Company's US Lower 48 operation declined
during the Current Quarter and Current Period as a result of fewer rigs
operating as compared to the prior year periods. The significant decline in
crude oil prices since the fourth quarter of 1997 has resulted in an average of
51 and 31 fewer rigs operating in the US Lower 48 during the Current Quarter and
Current Period, respectively, as compared to the prior year periods. Although
dayrates in the US Lower 48 have declined during the Current Quarter as compared
to the quarter ended March 31, 1998, average rig pricing remained higher as
compared to the prior year periods in the US Lower 48 as well as in virtually
all of the Company's other operating areas. Throughout 1997, a convergence in
the supply and demand for quality rigs had the effect of increasing rig pricing
on a worldwide basis. However, if the weakness in crude oil prices deepens or
continues, it is likely there will be further deterioration in rig utilization
and downward pressure on current rig dayrates for the Company's US Lower 48
operation. Additionally, the Company's other business units could be adversely
impacted.
The following tables set forth certain financial information
with respect to the Company by geographical area:
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
1998 1997 Increase (Decrease) 1998 1997 Increase (Decrease)
--------- --------- ------------------- -------- -------- -------------------
(In thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
North America $ 196,807 $ 220,988 $ (24,181) (11%) $ 431,165 $ 420,128 $ 11,037 3%
International 52,121 46,923 5,198 11% 104,537 86,466 18,071 21%
--------- --------- --------- --------- --------- ---------
Total revenues 248,928 267,911 (18,983) (7%) 535,702 506,594 29,108 6%
--------- --------- --------- --------- --------- ---------
Operating income:
North America 39,918 37,312 2,606 7% 88,599 61,592 27,007 44%
International 12,449 11,948 501 4% 24,348 18,780 5,568 30%
Corporate expenses (3,620) (4,067) 447 11% (7,181) (6,977) (204) (3%)
--------- --------- --------- --------- --------- ---------
Total operating income $ 48,747 $ 45,193 $ 3,554 8% $ 105,766 $ 73,395 $ 32,371 44%
--------- --------- --------- --------- --------- ---------
</TABLE>
10
<PAGE> 12
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
1998 1997 1998 1997
----------------------- ---------------------- --------------------- ----------------------
Rig Rig Rig Rig Rig Rig Rig Rig
Rig activity(1) : Years(2) Utilization Years(2) Utilization Years(2) Utilization Years(2) Utilization
--------- ----------- -------- ----------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
North America 181.0 48% 231.5 66% 198.0 53% 227.6 64%
International 29.1 63% 32.4 62% 30.1 62% 32.3 62%
--------- ----- ----- -----
Total rig activity 210.1 50% 263.9 65% 228.1 54% 259.9 64%
--------- ----- ----- -----
</TABLE>
(1) Excludes labor contracts and Gibson workover and well servicing rigs,
which were sold in January 1998.
(2) Rig years represents a measure of the number of equivalent rigs
operating during a given period. For example, one rig operating 182.5
days during a 365-day period represents 0.5 rig years.
North America. North America revenues totaled $196.8 million
and $431.2 million during the Current Quarter and Current Period, respectively,
representing an 11% decrease and a 3% increase, respectively, as compared to the
prior year periods. US Lower 48 operation revenues decreased during both the
Current Quarter and Current Period. This decrease was partially offset during
the Current Quarter by increased revenues in Alaska, and more than offset during
the Current Period, by increased revenues for Alaska and the Gulf of Mexico
operation. The Alaska drilling operation performed at record levels during the
Current Quarter and Current Period as a result of increased equivalent rig years
and improved dayrates over the prior year periods. Revenues for Peak Oilfield
Services, the Company's Alaskan construction and logistics joint venture, were
flat during the Current Quarter, but higher during the Current Period as a
result of increased activity. US Lower 48 revenues decreased during the Current
Quarter and Current Period as a result of a decline in equivalent rig years and
the sale of the Gibson workover and well servicing operation during January
1998. The impact of the decline in equivalent rig years in the US Lower 48 was
partially offset by higher dayrates as compared to the prior year periods. The
Company increased its US Lower 48 fleet of premium, deep drilling,
silicon-controlled rectifier (SCR) rigs through a number of acquisitions during
1997. Deep drilling SCR rigs typically command higher dayrates than shallower
mechanical rigs. The decline in US Lower 48 equivalent rig years during the
Current Quarter and Current Period was primarily in the shallower mechanical rig
category, but all rig categories were adversely impacted. Revenues for the Gulf
of Mexico operation were relatively flat during the Current Quarter, but
increased for the Current Period. Although dayrates for the Company's platform
workover rigs, jackup workover rigs and platform drilling rigs were higher than
in the prior year periods, this was partially offset by fewer platform workover
rigs operating as a result of the decline in crude oil prices. Canada operation
revenues decreased for the Current Quarter, but increased for the Current Period
as an improvement in dayrates was offset in the Current Quarter by lower
equivalent rig years. Equivalent North America rig years decreased during the
Current Quarter and Current Period to 181.0 years and 198.0 years, respectively,
as compared to 231.5 years and 227.6 years during the prior year periods.
International. International revenues totaled $52.1 million
and $104.5 million during the Current Quarter and Current Period, respectively,
representing an 11% and a 21% increase, respectively, over the prior year
periods. Middle Eastern revenues increased during the Current Quarter and
Current Period as a result of increased rental activity and higher dayrates in
Saudi Arabia. Additionally, increased drilling activity in Yemen and the United
Arab Emirates during the Current Quarter and Current Period further increased
revenues for the Company's Middle Eastern operations. Middle Eastern revenues
were negatively impacted, however, by fewer operating days for the Ocean Master
VIII, a jackup drilling rig, that returned to work in the Persian Gulf during
May 1998. International revenues were positively impacted by a new one-rig
contract in Gabon, which commenced operations during December 1997 and a
platform workover rig operating offshore Cameroon. South and Central American
revenues were relatively flat during the Current Quarter and Current Period as
the decline in drilling activity in Venezuela was offset by a new one-rig
contract in Colombia, as well as higher dayrates for a platform drilling rig
operating off the coast of Trinidad. Equivalent international rig years,
excluding labor contracts, decreased during the Current Quarter and Current
Period to 29.1 years and 30.1 years, respectively, as compared to 32.4 years and
32.3 years during the prior year periods.
11
<PAGE> 13
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, Six months ended June 30,
1998 1997 1998 1997
------- ------ ----- -----
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
----- ----- ----- -----
Operating expenses:
Direct costs 64.3% 69.9% 65.1% 72.0%
General and administrative expenses 8.0% 6.9% 7.5% 7.1%
Depreciation and amortization 8.1% 6.3% 7.7% 6.4%
----- ----- ----- -----
Operating expenses 80.4% 83.1% 80.3% 85.5%
----- ----- ----- -----
Operating income 19.6% 16.9% 19.7% 14.5%
Other income 3.2% 1.0% 2.8% 1.5%
----- ----- ----- -----
Income before income taxes 22.8% 17.9% 22.5% 16.0%
Income taxes 8.4% 6.3% 8.4% 5.6%
----- ----- ----- -----
Net income 14.4% 11.6% 14.1% 10.4%
----- ----- ----- -----
</TABLE>
Direct costs as a percentage of revenues decreased to 64% and
65% during the Current Quarter and Current Period, respectively, as compared to
70% and 72% during the prior year periods. The resulting increase in the gross
margin percentage during the Current Quarter and Current Period is the result of
improved margins for essentially all of the Company's operations on the strength
of improved dayrates. Although the Company incurred a temporary, but high level
of costs associated with retaining crews and stacking rigs in the US Lower 48
during the first three months of the Current Period, US Lower 48 margins were
significantly higher than the prior year period. The improvement was
attributable to more favorable rig pricing, an increased proportion of the rigs
operating in the US Lower 48 being of the deep drilling SCR variety, and some
adverse footage costs incurred during the prior year period. Selling, general
and administrative expenses as a percentage of revenues increased during the
Current Quarter due to the decline in revenues for the US Lower 48 operation as
these expenses were spread over a smaller revenue base. Depreciation expense as
a percentage of revenues increased during the Current Quarter and Current Period
as a result of capital expenditures and a number of acquisitions completed
during 1997.
Other income increased during the Current Period as a result
of a $13.7 million pre-tax gain recognized on the sale of the Gibson operation
during January 1998. Additionally, gains on physical damage insurance claims
amounted to $8.0 million during the Current Quarter. Other income during the
prior year periods consisted primarily of realized and unrealized gains on
marketable securities.
The effective tax rate during the Current Period was 37.5%, as
compared to an effective tax rate of 35% for the prior year period.
LIQUIDITY AND CAPITAL RESOURCES
The Company generates significant cash from operations and has
substantial borrowing capacity under various credit facility arrangements.
Additionally, the Company has access to public debt and equity capital markets.
The Company's senior debt rating as provided by Moody's Investor Service remains
at "A3".
The Company had working capital of $9.8 million as of June 30,
1998, representing a $52.7 million decrease as compared to December 31, 1997.
The decrease in working capital is primarily attributable to a $40.9 million
decrease in accounts receivable resulting from the decline in revenues for the
US Lower 48 operation during the Current Quarter as compared with the quarter
ending December 31, 1997. Additionally, the reclassification of certain
long-term obligations to current, based on scheduled maturities, reduced working
capital by $10.1 million. The Company's ratio of funded debt to funded debt plus
stockholders' equity, commonly referred to as the debt to capital ratio, was
0.256:1 as of
12
<PAGE> 14
June 30, 1998 as compared to 0.273:1 as of December 31, 1997. The improvement in
the debt to capital ratio is the result of increased stockholders' equity
resulting primarily from the Company's earnings.
Net cash provided by operating activities totaled $157.7
million during the Current Period, compared to $82.3 million during the prior
year comparable period. During the Current Period and prior year period, net
income was increased for non-cash items such as depreciation and deferred taxes.
During the Current Period, cash was provided from changes in the Company's
working capital accounts, while changes in the Company's working capital
accounts reduced cash in the prior year period.
Net cash used for investing activities totaled $159.8 million
during the Current Period compared to $209.4 million during the prior year
period. Cash paid for capital expenditures and acquisitions represented the
primary use of cash during both the Current Period and the prior year period.
During the Current Period, cash was provided from the disposition of long-term
assets and business, primarily the sale of Gibson.
Financing activities used cash totaling $.4 million during the
Current Period, but provided cash of $54.9 million during the prior year period.
During the Current Period and prior year period, cash was used to reduce
long-term obligations and cash was provided by short-term borrowings. During the
prior year period, cash was provided by common stock transactions, primarily the
exercise of stock options.
The Company's cash and cash equivalents and short-term
investments in marketable securities totaled $8.6 million as of June 30, 1998.
In addition, the Company had long-term investments in marketable securities of
$24.2 million. The Company currently has credit facility arrangements with
various banks totaling $254.0 million. As of June 30, 1998, remaining
availability, after borrowings on the facilities and outstanding letters of
credit, totaled approximately $177.2 million.
The Company has a universal shelf registration statement on
Form S-3 filed with the Securities and Exchange Commission to allow 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 not
involving the Company of up to $50.0 million.
As of June 30, 1998, the Company had capital expenditure
purchase commitments outstanding for drilling equipment of approximately $53.0
million.
The current cash and cash equivalents, short-term investments,
credit facility position, projected cash flow generated from current operations,
and cash provided by the sale of Gibson are expected to adequately finance the
Company's sustaining capital and debt service requirements for the next twelve
months.
OTHER MATTERS
This Quarterly Report on Form 10-Q includes certain statements
that may be deemed to be "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements, other than
statements of historical facts, included in this Form 10-Q that address
activities, events or developments that the Company or its management "expects",
"projects", "believes" or "anticipates" will or may occur in the future,
including such matters as future capital expenditures and investments in the
acquisition and refurbishment of rigs (including the amount and nature thereof),
repayment of debt, expansion and other development trends of the contract
drilling industry, business strategies, expansion and growth of operations and
other such matters are forward-looking statements. These statements are based on
certain assumptions and analyses made by management of the Company in light of
its experience and its perception of historical trends, current conditions,
expected future developments and other factors it believes are appropriate in
the circumstances. Such statements are subject to a number of risks and
uncertainties, including those discussed in this report, general economic and
business conditions, prices of crude oil and natural gas, foreign exchange and
currency fluctuations, the business opportunities (or lack thereof) that may be
presented to and pursued by the Company, changes in laws or regulations and
other factors, many of which are beyond the control of the Company. Any such
statements are not guarantees of future performance, and actual results or
developments may differ materially from those projected in the forward-looking
statements.
13
<PAGE> 15
The Company's 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 oil or natural gas, which could have a material impact on exploration,
development and production activities, also could materially affect the
Company's financial condition, results of operations and cash flows.
PART II OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
On May 1, 1998, as part of the consideration for the purchase
of New Prospect Drilling Company ("New Prospect"), the Company issued warrants
to purchase 200,000 shares ("Shares") of its common stock, par value $.10 per
share, to the former stockholders of New Prospect. The warrants, with an
exercise price of $30.00 per Share, are exercisable until April 30, 2003. The
issuance of the warrants was exempt from registration under Section 4(2) of the
Securities Act of 1933, as amended, as a sale not involving a public offering.
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 by the Company during the three
months ended June 30, 1998.
14
<PAGE> 16
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.
-------------------------------------------
Anthony G. Petrello
President and Chief Operating Officer
--------------------------------------------
Bruce P. Koch
Vice President - Finance
(principal financial and accounting officer)
Dated: August 14, 1998
15
<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. 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, Six months ended June 30,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Basic:
Weighted average number of shares outstanding 100,839 96,357 100,822 96,135
-------- -------- -------- --------
Net income $ 35,732 $ 31,132 $ 75,424 $ 52,573
-------- -------- -------- --------
Per share amount $ .35 $ .32 $ .75 $ .55
-------- -------- -------- --------
Diluted:
Weighted average number of shares outstanding 100,839 96,357 100,822 96,135
Net effect of dilutive stock options and warrants-based
on the treasury stock method using
average market price 2,921 6,121 3,201 6,122
Assumed conversion of 5% convertible notes 9,517 9,517 9,517 9,517
-------- -------- -------- --------
Total 113,277 111,995 113,540 111,774
-------- -------- -------- --------
Net income $ 35,732 $ 31,132 $ 75,424 $ 52,573
Add 5% convertible note interest, net
of tax effect 1,358 1,402 2,706 2,804
-------- -------- -------- --------
Total $ 37,090 $ 32,534 $ 78,130 $ 55,377
-------- -------- -------- --------
Per share amount $ .33 $ .29 $ .69 $ .50
-------- -------- -------- --------
</TABLE>
<PAGE> 1
EXHIBIT 15.1
PricewaterhouseCoopers LLP 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 17, 1998 on our review of the interim
condensed consolidated financial information of Nabors Industries, Inc. and
Subsidiaries for the six months ended June 30, 1998 and included in this Form
10-Q is incorporated by reference in the Company's registration statements on
Form S-8 (Registration Numbers 333-11313, 33-87324, 33-87322, 33-47521, 33-45097
33-39316, and 333-57129) and on Form S-3 (Registration Numbers 333-20501 and
333-25233). 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.
PricewaterhouseCoopers LLP
Houston, Texas
August 14, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,109
<SECURITIES> 5,469
<RECEIVABLES> 202,151
<ALLOWANCES> 0
<INVENTORY> 22,859
<CURRENT-ASSETS> 263,217
<PP&E> 1,432,212
<DEPRECIATION> 368,821
<TOTAL-ASSETS> 1,385,396
<CURRENT-LIABILITIES> 253,368
<BONDS> 215,721
0
0
<COMMON> 10,135
<OTHER-SE> 836,981
<TOTAL-LIABILITY-AND-EQUITY> 1,385,396
<SALES> 535,702
<TOTAL-REVENUES> 535,702
<CGS> 348,542
<TOTAL-COSTS> 348,542
<OTHER-EXPENSES> 81,394
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,738
<INCOME-PRETAX> 120,736
<INCOME-TAX> 45,312
<INCOME-CONTINUING> 75,424
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 75,424
<EPS-PRIMARY> .75
<EPS-DILUTED> .69
</TABLE>
