<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 MARCH 31,
2000 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 (IRS 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 May 10, 2000 was 145,637,495.
================================================================================
<PAGE> 2
NABORS INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Part I Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
March 31, 2000 and December 31, 1999........................................2
Condensed Consolidated Statements of
Income for the Three Months Ended
March 31, 2000 and 1999.....................................................3
Condensed Consolidated Statements of
Changes in Stockholders' Equity for the Three
Months Ended March 31, 2000 and 1999........................................4
Condensed Consolidated Statements of Cash
Flows for the Three Months Ended March 31,
2000 and 1999...............................................................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 1. Legal Proceedings...........................................................15
Item 5. Other Information...........................................................15
Item 6. Exhibits and Reports on Form 8-K............................................15
Signatures..............................................................................16
</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>
MARCH 31, DECEMBER 31,
2000 1999
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 41,924 $ 80,580
Marketable securities 62,225 31,086
Accounts receivable, net 222,503 205,643
Inventory and supplies 22,865 25,758
Prepaid expenses and other current assets 122,629 118,226
----------- -----------
Total current assets 472,146 461,293
Property, plant and equipment, net 1,671,030 1,669,466
Goodwill, net 167,093 169,054
Other long-term assets 104,259 98,190
----------- -----------
Total assets $ 2,414,528 $ 2,398,003
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations $ 6,642 $ 3,599
Trade accounts payable 71,167 80,343
Accrued liabilities 134,763 160,546
Income taxes payable 21,771 20,988
----------- -----------
Total current liabilities 234,343 265,476
Long-term obligations 382,801 482,600
Other long-term liabilities 79,648 86,849
Deferred income taxes 72,834 93,004
----------- -----------
Total liabilities 769,626 927,929
----------- -----------
Commitments and contingencies (Note 5)
Stockholders' equity:
Capital stock, par value $.10 per share:
Authorized common shares 200,000;
issued 145,989 and 137,421 14,599 13,742
Capital in excess of par value 1,096,945 958,704
Accumulated other comprehensive income (loss) 12,268 (3,828)
Retained earnings 525,907 506,273
Less treasury stock, at cost, 589 common shares (4,817) (4,817)
----------- -----------
Total stockholders' equity 1,644,902 1,470,074
----------- -----------
Total liabilities and stockholders' equity $ 2,414,528 $ 2,398,003
----------- -----------
</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 MARCH 31,
2000 1999
--------- ---------
<S> <C> <C>
Revenues $ 279,116 $ 149,692
Earnings from unconsolidated affiliates 10,568 3,295
--------- ---------
Total revenues 289,684 152,987
--------- ---------
Operating expenses:
Direct costs 193,462 93,300
General and administrative expenses 25,933 16,299
Depreciation and amortization 37,136 21,422
--------- ---------
Operating expenses 256,531 131,021
--------- ---------
Operating income 33,153 21,966
--------- ---------
Other income (expense):
Interest expense (8,651) (5,405)
Interest income 589 1,200
Other income, net 5,824 1,852
--------- ---------
Other expense (2,238) (2,353)
--------- ---------
Income before income taxes and extraordinary gain 30,915 19,613
--------- ---------
Income taxes:
Current 5,242 3,784
Deferred 7,742 3,865
--------- ---------
Total income taxes 12,984 7,649
--------- ---------
Income before extraordinary gain 17,931 11,964
Extraordinary gain, net 1,703 --
--------- ---------
Net income $ 19,634 $ 11,964
--------- ---------
Earnings per share:
Basic:
Before extraordinary gain $ .13 $ .12
Extraordinary gain .01 --
--------- ---------
Net income $ .14 $ .12
--------- ---------
Diluted:
Before extraordinary gain $ .12 $ .12
Extraordinary gain .01 --
--------- ---------
Net income $ .13 $ .12
--------- ---------
Weighted average number of shares outstanding:
Basic 139,274 100,803
--------- ---------
Diluted 148,851 101,649
--------- ---------
</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 (LOSS) EARNINGS STOCK EQUITY
------- ----------- ----------- -------------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1998 101,382 $ 10,138 $ 394,562 $ (10,983) $ 478,569 $ (4,817) $ 867,469
------- ----------- ----------- ------------ ----------- -------- -----------
Comprehensive income:
Net income 11,964 11,964
Translation adjustment (899) (899)
Unrealized gain on marketable
securities, net 7,107 7,107
------- ----------- ----------- ------------ ----------- -------- -----------
Total comprehensive income -- -- -- 6,208 11,964 -- 18,172
------- ----------- ----------- ------------ ----------- -------- -----------
Issuance of common shares for
stock options exercised 25 3 278 281
------- ----------- ----------- ------------ ----------- -------- -----------
Subtotal 25 3 278 -- -- -- 281
------- ----------- ----------- ------------ ----------- -------- -----------
Balances, March 31, 1999 101,407 $ 10,141 $ 394,840 $ (4,775) $ 490,533 $ (4,817) $ 885,922
------- ----------- ----------- ------------ ----------- -------- -----------
Balances, December 31, 1999 137,421 $ 13,742 $ 958,704 $ (3,828) $ 506,273 $ (4,817) $ 1,470,074
------- ----------- ----------- ------------ ----------- -------- -----------
Comprehensive income:
Net income 19,634 19,634
Translation adjustment (409) (409)
Unrealized gain on marketable
securities, net 16,505 16,505
------- ----------- ----------- ------------ ----------- -------- -----------
Total comprehensive income -- -- -- 16,096 19,634 -- 35,730
------- ----------- ----------- ------------ ----------- -------- -----------
Issuance of common shares for
stock options exercised 8,568 857 99,840 100,697
Tax benefit on stock option deductions 38,401 38,401
------- ----------- ----------- ------------ ----------- -------- -----------
Subtotal 8,568 857 138,241 -- -- -- 139,098
------- ----------- ----------- ------------ ----------- -------- -----------
Balances, March 31, 2000 145,989 $ 14,599 $ 1,096,945 $ 12,268 $ 525,907 $ (4,817) $ 1,644,902
------- ----------- ----------- ------------ ----------- -------- -----------
</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>
THREE MONTHS ENDED MARCH 31,
2000 1999
--------- ---------
<S> <C> <C>
Net cash (used for) provided by operating activities $ (8,574) $ 46,390
--------- ---------
Cash flows from investing activities:
Purchases of marketable securities, trading (511) (4,599)
Sales of marketable securities, trading 2,442 --
Purchases of marketable securities, available-for-sale (5,737) --
Sales of marketable securities, available-for-sale 3,590 --
Cash received from disposition of long-term assets and businesses 5,288 10,942
Capital expenditures (39,831) (18,264)
Distribution from (investment in) affiliates 1,000 (1,425)
--------- ---------
Net cash used for investing activities (33,759) (13,346)
--------- ---------
Cash flows from financing activities:
Increase in restricted cash (264) (7)
Long-term borrowings -- 325,000
Reduction of long-term obligations (96,756) (6,061)
Decrease in short-term borrowings, net -- (68,925)
Common stock transactions 100,697 281
--------- ---------
Net cash provided by financing activities 3,677 250,288
--------- ---------
Net increase (decrease) in cash and cash equivalents (38,656) 283,332
Cash and cash equivalents, beginning of period 80,580 16,748
--------- ---------
Cash and cash equivalents, end of period $ 41,924 $ 300,080
--------- ---------
</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. are prepared in conformity with generally accepted accounting
principles, or GAAP. They do not purport to be a complete presentation, because
all note disclosures required by GAAP are not included. Reference is made to the
company's 1999 Annual Report on Form 10-K for additional note disclosures.
In our management's opinion, the condensed consolidated financial
statements contain all adjustments necessary to present fairly the financial
position of the company as of March 31, 2000, and the results of its operations,
its changes in stockholders' equity and its cash flows for the three month
periods ended March 31, 2000 and 1999 in accordance with GAAP. Interim results
for the three months ended March 31, 2000 may not be indicative of results that
will be realized for the full year ending December 31, 2000.
Earnings Per Share
Basic earnings per share for all periods presented equals net income
divided by the weighted average number of shares of common stock outstanding
during the period, excluding shares of common stock held in treasury. Diluted
earnings per share equals net income divided by the sum of: (1) the weighted
average number of shares of common stock outstanding used for the basic
computation and (2) the net effect of dilutive stock options and warrants.
NOTE 2 ACQUISITIONS
During November 1999, we completed our acquisition of Pool Energy
Services Co. Each of the approximately 19.2 million shares of Pool not owned by
the company prior to the merger were exchanged for 1.025 shares of Nabors
(approximately 19.7 million shares). During April 1999, we completed our
acquisition of Bayard Drilling Technologies, Inc. Each of the approximately 18.3
million shares of Bayard common stock were exchanged for .3375 shares of the
company's common stock and $.30 per share in cash (approximately 6.2 million
shares and $5.5 million in cash in the aggregate).
We accounted for the Pool and Bayard acquisitions using the purchase
method of accounting. Accordingly, Pool's and Bayard's results of operations
have been included in our consolidated financial statements commencing on the
respective effective date of each acquisition.
The following unaudited pro forma summary financial information
presents our consolidated results of operations as if the acquisitions of Pool
and Bayard had occurred at the beginning of the period presented, after
including the impact of certain adjustments including: (1) the elimination of
nonrecurring merger-related costs, (2) reduced depreciation expense reflecting
the reduction in value assigned to property, plant and equipment, (3)
amortization of goodwill, (4) reduced interest expense associated primarily with
the elimination of certain financing costs and (5) the related income tax
effects of these adjustments.
6
<PAGE> 8
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1999
------------------------
AS REPORTED PRO FORMA
----------- ---------
<S> <C> <C>
Revenues $152,987 $248,658
-------- --------
Net income $ 11,964 $ 5,946
-------- --------
Net income per diluted share $ .12 $ .05
-------- --------
Weighted average number of
diluted shares outstanding 101,649 127,582
-------- --------
</TABLE>
The pro forma financial information does not purport to: (1) indicate
what the combined results of operations would have been had the acquisitions
occurred at the beginning of the periods presented or (2) the results of
operations that may be obtained in the future. Additionally, the pro forma
financial information does not reflect any anticipated cost savings resulting
from the integration of the company's, Pool's and Bayard's operations.
NOTE 3 LONG-TERM OBLIGATIONS
Nabors Holdings Company, the successor by merger to Pool, completed a
mandatory change of control cash tender offer to purchase the Pool 8-5/8% Senior
Subordinated Notes due 2008 at a redemption price of 101% in February 2000. In
addition, during the quarter, Nabors Holding purchased additional notes in the
open market at prices ranging from 100.5% to 101.75%. A total of $96.2 million
of the Pool notes were acquired as a result of these transactions leaving $53.8
million outstanding as of March 31, 2000. In connection with these transactions,
the company recognized a $1.7 million ($.01 per share) extraordinary gain
resulting from the repurchase of the notes at less than the amount recorded on
our books. As of February 14, 2000, the company guaranteed the obligations under
the notes.
NOTE 4 CAPITAL STOCK
During the three months ended March 31, 2000, various persons exercised
options to acquire 8.6 million shares of Nabors common stock at prices ranging
from $1.07 to $24.94 per share. This amount includes 7.5 million shares of
common stock exercised by three senior officers of the company in March 2000.
Proceeds to the company from all of these option exercises totaled $100.7
million.
NOTE 5 COMMITMENTS AND CONTINGENCIES
Capital Expenditures
As of March 31, 2000, Nabors had outstanding capital expenditure
purchase commitments of approximately $76.2 million, including $40.7 million for
the construction of four supply vessels. We also had a $7.3 million deposit with
the manufacturer of the vessels, that will be applied against the purchase
commitment.
Contingencies
The only material pending litigation involving Nabors or one of its
subsidiaries is Yuan v. Bayard Drilling Technologies, Inc. et al., which has
been previously reported in Nabors' Annual Report on Form 10-K for the year
ended December 31, 1999. There were no material developments in the Yuan case
during the first quarter of 2000.
Nabors and its subsidiaries are defendants or otherwise involved in a
number of other lawsuits in the ordinary course of their business. In the
opinion of management, Nabors' ultimate liability with respect to these pending
lawsuits or the Yuan case is not expected to have a significant or material
adverse effect on Nabors' consolidated financial position, cash flows or results
of operations. We are not able, however, to predict the outcome of the Yuan case
or the costs to be incurred in connection with the defense and there can be no
assurance that the litigation will be resolved in the company's favor.
7
<PAGE> 9
NOTE 6 SUPPLEMENTAL INCOME STATEMENT INFORMATION
The company recorded realized gains on sales of equity securities
totaling $3.4 million and unrealized holding gains on equity securities
classified as trading totaling $1.3 million for the three month period ended
March 31, 2000.
NOTE 7 SEGMENT INFORMATION
The following table sets forth financial information with respect to
the company and its reportable segments:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
2000 1999
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Revenues:
Contract drilling $ 266,890 $ 143,060
Manufacturing and logistics 34,931 12,024
Other (1) (12,137) (2,097)
----------- -----------
Total revenues $ 289,684 $ 152,987
----------- -----------
Operating income (loss):
Contract drilling $ 31,764 $ 21,284
Manufacturing and logistics 8,097 4,315
Other (2) (6,708) (3,633)
----------- -----------
Total operating income $ 33,153 $ 21,966
Interest expense (8,651) (5,405)
Interest income 589 1,200
Other income, net 5,824 1,852
----------- -----------
Income before income taxes and extraordinary gain $ 30,915 $ 19,613
----------- -----------
Total assets:
Contract drilling $ 1,945,118 $ 1,293,185
Manufacturing and logistics 297,655 77,982
Other (2) 171,755 328,929
----------- -----------
Total assets $ 2,414,528 $ 1,700,096
----------- -----------
</TABLE>
(1) Elimination of inter-segment manufacturing and logistics sales.
(2) Includes the elimination of inter-segment transactions and unallocated
corporate expenses and assets.
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 balance sheet of Nabors
Industries, Inc. and Subsidiaries as of March 31, 2000, and the related
condensed consolidated statements of income and changes in stockholders' equity
and cash flows for the three-month periods ended March 31, 2000 and 1999. 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 accompanying condensed consolidated interim financial statements
for them to be in conformity with generally accepted accounting principles.
We previously audited, in accordance with generally accepted auditing standards,
the consolidated balance sheet as of December 31, 1999, and the related
consolidated statements of income, changes in stockholders' equity and of cash
flows for the year then ended (not presented herein), and in our report dated
February 9, 2000 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 March 31, 2000, is
fairly stated in all material respects in relationship to the consolidated
balance sheet from which it has been derived.
PricewaterhouseCoopers LLP
Houston, Texas
April 26, 2000
9
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
Revenues for the first quarter of fiscal year 2000 totaled $289.7
million, representing an increase of $136.7 million, or 89%, as compared to the
prior year period. Current quarter operating income and net income totaled $33.2
million and $19.6 million ($.13 per diluted share), respectively, representing
increases of 51% and 64% compared to the prior year period. The current
quarter's net income includes an extraordinary gain of approximately $1.7
million ($.01 per share) related to the repurchase of approximately $96.2
million of the 8-5/8% Senior Subordinated Notes issued by Pool Energy Services
Co. The current quarter's results are the first to reflect a full quarter of
contribution from Pool, which was acquired on November 24, 1999. The fourth
quarter of 1999 included 37 days of Pool's operations.
The increase in our operating results is due to solid improvement in
most of the company's business units and the inclusion of the Pool operations,
which were not included in the first quarter 1999 results. The improvement in
our business unit performance reflects a continuation of a positive trend that
began in the third quarter of 1999 in response to higher average oil and natural
gas prices. Natural gas prices, which averaged $1.74 per mcf during the first
quarter of 1999, have increased steadily during the past year and averaged $2.55
per mcf during the current quarter. Oil prices have increased by an even
greater percentage during this period with average prices totaling $28.86 per
barrel during the current quarter, up from $13.14 per barrel during the first
quarter of 1999. The increase in oil and natural gas prices has resulted in
increased capital spending by our customers for services provided by Nabors.
This increased spending has been especially evident in Canada and the US Lower
48 for natural gas related drilling activities. The increase in North American
drilling activity is illustrated by the increase in the total US active land rig
count which averaged 633 working rigs during the current quarter compared to 433
working rigs during the first quarter of 1999.
Looking forward to the next few quarters, we foresee steady improvement
in all areas of Nabors' operations. The Alaskan drilling operation is expected
to improve during the second half of the year as our customers begin to
implement their announced higher capital spending budgets. Canada is expected to
record lower results in the second quarter due to the spring breakup. However,
activity is likely to be well above the previous year's and should recover
quickly as the outlook for this market continues to look promising. In our
offshore markets, we are experiencing steady improvement in utilization and
margins for our platform workover rigs and more rapid improvement in the
workover jackups. Our MASE(TM) platform drilling rigs are experiencing a very
active market, but the API version of this type of rig continues to have limited
prospects. Internationally, our recent successes in securing new contracts are
beginning to show in our numbers, which should improve steadily throughout the
balance of the year. In the US Lower 48, we anticipate a significant upturn in
activity and pricing in the second half of the year, as we move into the summer
gas injection cycle, which usually commences around the end of the second
quarter.
Among the previous Pool operations, the well-servicing business has
been steadily improving as activity has increased. Results also are increasing
in the marine transportation unit, largely due to the incremental contributions
from the recently commissioned, new-generation vessels. Our older vessels are
beginning to benefit from a firming market with the increased offshore rig
activity in the Gulf of Mexico. In general, we are ahead of our internal
expectations in realizing the synergies of the Pool acquisition and continue to
explore additional economies and benefits from and among the combined
operations.
10
<PAGE> 12
The following tables set forth certain financial information with
respect to our operating segments and rig activity and certain industry data:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
2000 1999 INCREASE (DECREASE)
--------- --------- -------------------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C>
Revenues:
Contract drilling $ 266,890 $ 143,060 $ 123,830 87%
Manufacturing and logistics 34,931 12,024 22,907 191%
Other (1) (12,137) (2,097) (10,040) (479)%
--------- --------- ---------
Total revenues $ 289,684 $ 152,987 $ 136,697 89%
--------- --------- ---------
Operating income (loss):
Contract drilling $ 31,764 $ 21,284 $ 10,480 49%
Manufacturing and logistics 8,097 4,315 3,782 88%
Other (2) (6,708) (3,633) (3,075) (85)%
--------- --------- ---------
Total operating income $ 33,153 $ 21,966 $ 11,187 51%
--------- --------- ---------
</TABLE>
(1) Elimination of inter-segment manufacturing and logistics sales.
(2) Includes the elimination of inter-segment transactions and unallocated
corporate expenses.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
2000 1999 Increase
----- ----- ----------------
<S> <C> <C>
Rig activity (1):
Rig years (2) 226.5 133.9 92.6 69%
Rig utilization 42% 32% 10% 31%
</TABLE>
(1) Excludes labor contracts, land well-servicing rigs and rigs owned by joint
ventures.
(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 .5 rig years.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
2000 1999 INCREASE (DECREASE)
------- ------- --------------------
<S> <C> <C> <C> <C>
Industry data:
Average West Texas intermediate crude oil spot ($/bbl) (1) $ 28.86 $ 13.14 $15.72 120%
Average US natural gas spot ($/mcf) (1) $ 2.55 $ 1.74 $ 0.81 47%
Average US land rig count (2) 633 433 200 46%
Average International land rig count (2) 416 417 (1) (0)%
</TABLE>
(1) Source: Bloomberg
(2) Source: Baker Hughes
Contract drilling. This segment includes our drilling, workover and
well-servicing operations. Contract drilling revenues totaled $266.9 million and
operating income totaled $31.8 million during the current quarter representing
increases of 87% and 49%, respectively, compared with the prior year period.
Equivalent rig years (excluding labor contracts, land well-servicing rigs and
rigs owned by joint ventures) increased to 226.5 years during the current
quarter from an average of 133.9 years during the prior year period. Most of the
company's contract drilling operations recorded higher revenues as compared to
the previous years quarter as a result of increased activity due to higher oil
and natural gas prices and the addition of the Pool rigs.
11
<PAGE> 13
Alaskan revenues were higher during the current quarter as a result of
higher equivalent rig years due to the addition of working Pool rigs.
Canadian revenues were significantly higher during the current quarter,
due to higher equivalent rig years and dayrates associated with increased demand
for drilling services throughout the Canadian market.
US Lower 48 drilling revenues increased significantly during the
current quarter as a result of increasing demand for drilling services. The
strong North American natural gas market has resulted in a significant increase
in equivalent rig years during the current quarter and a slight increase in
dayrates, as compared to the previous year's quarter.
International revenues decreased slightly during the current quarter.
Revenues decreased due to lower activity in certain areas, such as Venezuela,
Bolivia, the United Arab Emirates and Gabon. In addition, effective January 1,
2000, our Saudi Arabia rigs began operating as part of Pool Arabia, Ltd.,
Nabors' 51% owned joint venture. The joint venture is accounted for using the
equity method of accounting. This decrease was partially offset by two rigs
working in Kenya and Qatar under new contracts and the addition of Pool
operations in other areas, particularly Central America and the Middle East.
Offshore revenues increased during the current quarter as compared to
the prior year quarter, both in the Gulf of Mexico and internationally. The
increase in revenues in the Gulf of Mexico resulted from the addition of the
active Pool rigs and increased platform, jack-up and barge workover activity.
This was partially offset by reduced drilling activity. Internationally,
revenues increased due to the addition of the active Pool rigs and increased
operating days for the three rigs operating in Mexico. These increases were
partially offset by lower drilling revenues in Trinidad, where the company's
MASE(TM) rig only operated for one month during the current quarter compared to
the entire quarter during 1999.
US land well-servicing operations improved during the current quarter
due to increased activity resulting from higher oil and natural gas prices.
Because this unit was acquired in November 1999, in accordance with the purchase
method of accounting, its operations were not included in the previous year's
comparable quarter.
Manufacturing and logistics. This segment includes our supply vessel,
top-drive manufacturing, rig instrumentation and software, and construction and
transportation operations. Manufacturing and logistics revenues and operating
income were $34.9 million and $8.1 million, respectively, during the current
quarter, representing increases of 191% and 88%, respectively, compared with the
prior year period. Increases in this segment resulted from increased top-drive
sales, and a strong construction season on the North Slope of Alaska by our
Alaskan joint venture construction entity. Additionally, the inclusion of the
operations of Peak USA, which became a 100% owned subsidiary of Nabors in
November 1999, and Sea Mar, Inc., which was acquired as part of the Pool
transaction, contributed to the increase in the current quarter's revenues.
The following table sets forth selected consolidated financial
information of the company expressed as a percentage of total operating revenues
excluding earnings from unconsolidated affiliates:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
2000 1999
------ ------
<S> <C> <C>
Revenues 100.0% 100.0%
Direct costs 69.3% 62.3%
------ ------
Gross margin 30.7% 37.7%
General and administrative expenses 9.3% 10.9%
Depreciation and amortization 13.3% 14.3%
------ ------
Operating income 8.1% 12.5%
Other expense (0.8%) (1.6%)
------ ------
Income before income taxes and extraordinary gain 7.3% 10.9%
Income taxes 4.7% 5.1%
------ ------
Income before extraordinary gain 2.6% 5.8%
Extraordinary gain 0.6% --
------ ------
Net income 3.2% 5.8%
------ ------
</TABLE>
12
<PAGE> 14
Nabors' gross margin percentage is affected by changes in the
proportion of revenues derived from its various areas of operation, as contracts
in the US Lower 48 typically earn a lower gross margin percentage than Alaska,
international and offshore contracts. The decrease in the gross margin
percentage during the current quarter was the result of a higher percentage of
revenues being derived from US Lower 48 operations than in the prior year
period. As a result of the addition of Pool's US land well-servicing operations,
combined revenues from the company's US Lower 48 drilling and well-servicing
operations totaled 54% of total revenues during the current quarter compared to
33% during the previous year's comparable quarter for US Lower 48 drilling
alone. These amounts exclude earnings from unconsolidated affiliates.
General and administrative expenses as a percentage of revenues
decreased during the current quarter as compared to the previous year's quarter
due to the increase in the company's revenues, as these expenses were spread
over a larger revenue base.
Interest expense increased during the current quarter due to higher
average debt levels as compared to the previous year's comparable quarter. The
current quarter debt outstanding includes the company's $325.0 million 6.80%
Senior Unsecured Notes due April 15, 2004 that were issued in March 1999. In
addition, Pool had issued its 8-5/8% notes in the aggregate principal amount of
$150.0 million prior to its being acquired by Nabors. During February and March
2000, Nabors acquired a total of $96.2 million of the Pool notes, leaving $53.8
million outstanding as of March 31, 2000. In connection with these transactions,
the company recognized a $1.7 million ($.01 per share) extraordinary gain
resulting from the purchase of the notes at less than the amount recorded on its
books.
Other income increased during the current quarter as compared to the
prior year quarter due to higher gains on sales of marketable equity securities
owned by the company. We recorded realized gains on sales of equity securities
totaling $3.4 million and unrealized holding gains on equity securities
classified as trading totaling $1.3 million for the three month period ended
March 31, 2000.
The effective tax rate increased to 42% during the current quarter as
compared to an effective tax rate of 39% in the previous year's quarter. This
increase was caused by higher foreign taxes (including Canada) and the
amortization of non-deductible goodwill that was recorded as part of the Pool
acquisition and the acquisition of Bayard Drilling Technologies, Inc. in April
1999.
LIQUIDITY AND CAPITAL RESOURCES
The company generates significant cash from operations over the course
of a twelve month period. It also has substantial borrowing capacity under
various credit facility arrangements, and has access to public debt and equity
capital markets. The company's senior unsecured debt ratings as provided by
Moody's Investor Service and Standard & Poor's are "A3" and "A-", respectively.
During the current quarter, options to acquire an aggregate of 8.6
million shares of Nabors common stock were exercised, including 7.5 million
shares exercised by three senior officers of the company. The company received
approximately $100.7 million in cash in payment of the exercise price for all of
these options. A portion of this cash was used to repay outstanding borrowings
under the company's credit facility.
As a result of the Pool acquisition, Nabors Holding Company, the
successor by merger to Pool, completed a mandatory change of control cash tender
offer to purchase the Pool 8-5/8% Senior Subordinated Notes due 2008 at a
redemption price of 101%. During the first quarter, a total of $96.2 million of
the notes were purchased pursuant to the offer and in the open market at prices
ranging from 100.5% to 101.75%. $53.8 million of the notes remained outstanding
at March 31, 2000. The company used its line of credit to pay approximately
$70.0 million of the notes tendered in the offer. As of February 14, 2000, the
company guaranteed the obligations under the Pool notes.
The company had working capital of $237.8 million as of March 31, 2000,
representing a $42.0 million increase as compared to December 31, 1999. The
increase in working capital is primarily attributable to an increase in
marketable securities due to an increase in the market price of certain equity
securities and an increase in accounts receivable resulting from the increase in
rig activity. In addition, accrued liabilities were lower due to the payment of
Pool merger expenses during the current quarter.
13
<PAGE> 15
The company's ratio of funded debt to funded debt plus stockholders'
equity, commonly referred to as the funded debt to capital ratio, was 0.19:1 as
of March 31, 2000, as compared to 0.25:1 as of December 31, 1999.
Net cash used for operating activities totaled $8.6 million during the
current quarter, compared to net cash provided by operating activities of $46.4
million during the prior year period. During the current quarter, net income was
increased for non-cash items such as depreciation and deferred taxes and cash
was used by changes in the company's working capital accounts. During the prior
year period net income was increased for non-cash items such as depreciation and
deferred taxes and cash was provided by changes in the company's working capital
accounts.
Net cash used for investing activities totaled $33.8 million during the
current quarter, compared to $13.4 million during the prior year period. Cash
was used primarily for capital expenditures during both the current quarter and
the prior year period. During the current quarter and the prior year period,
cash was provided by the disposition of long-term assets.
Financing activities provided cash totaling $3.7 million during the
current quarter compared to $250.3 during the prior year period. During the
current quarter, cash was primarily provided by payment to the company of the
exercise prices in connection with the exercise of options to acquire 8.6
million shares of common stock of the company, partially offset by cash used for
the repurchase of approximately $96.0 million of the 8-5/8% notes. During the
prior year period, cash was provided by the issuance of the 6.80% notes and cash
was used to reduce short-term borrowings.
The company's cash and cash equivalents and investments in short-term
marketable securities totaled $104.1 million as of March 31, 2000. The company
currently has credit facility arrangements with various banks with total
availability of $231.5 million. As of March 31, 2000 remaining availability,
after borrowings on the facilities and outstanding letters of credit, totaled
approximately $211.4 million.
As of March 31, 2000, the company had outstanding capital expenditure
purchase commitments of approximately $76.2 million, including $40.7 million for
the construction of four supply vessels. The company also had a $7.3 million
deposit with the manufacturer of the vessels, that will be applied against the
purchase commitment.
The current cash equivalents, short-term investments, credit facility
position, and projected cash flow generated from current operations, are
expected to adequately finance the company's sustaining capital and debt service
requirements for the next twelve months.
OTHER MATTERS
FORWARD-LOOKING STATEMENTS
The statements in this document that relate to matters that are not
historical facts are "forward-looking statements" within the meaning of Section
27A of the Securities Exchange Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. When used in this document, words such as "anticipate",
"believe", "expect", "plan", "intend", "estimate", "project", "will", "could",
"may", "predict" and similar expressions are intended to identify
forward-looking statements. Future events and actual results may differ
materially from the results set forth in or implied in the forward-looking
statements. Factors that might cause such a difference include:
o fluctuations in worldwide prices of oil and natural gas and
demand for oil and natural gas;
o fluctuations in levels of oil and gas exploration and
development activities;
o fluctuations in the demand for contract drilling and workover
services;
o the existence of competitors, technological changes and
developments in the industry;
o the existence of operating risks inherent in the contract
drilling industry;
o the existence of regulatory uncertainties;
o the possibility of political instability in any of the
countries in which Nabors does business; and
o general economic conditions.
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, could also materially affect the company's financial
condition, results of operations and cash flows.
14
<PAGE> 16
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The only material pending litigation involving Nabors or one of its
subsidiaries is Yuan v. Bayard Drilling Technologies, Inc. et al., which has
been previously reported in Nabors' Annual Report on Form 10-K for the year
ended December 31, 1999. There were no material developments in the Yuan case
during the first quarter of 2000.
Nabors and its subsidiaries are defendants or otherwise involved in a
number of other lawsuits in the ordinary course of their business. In the
opinion of management, Nabors' ultimate liability with respect to these pending
lawsuits or the Yuan case is not expected to have a significant or material
adverse effect on the Nabors' consolidated financial position, cash flows or
results of operations. We are not able, however, to predict the outcome of the
Yuan case or the costs to be incurred in connection with the defense and there
can be no assurance that the litigation will be resolved in the company's favor.
ITEM 5. OTHER INFORMATION
Following the acquisition of Pool Energy Services Co. in November 1999,
Nabors Holding Company, the successor by merger to Pool, made a mandatory change
of control offer to holders of Pool's 8-5/8% Senior Subordinated Notes due 2008.
The offer price was $1,010 per $1,000 note tendered, plus accrued interest.
During the first quarter, Nabors Holding acquired a total of $96.2 million of
the 8-5/8% notes in the change of control offer and in the open market. Nabors
Holding also solicited the consent of the remaining holders of the 8-5/8% notes
to amend the terms of the indenture governing the notes to generally conform to
the covenants contained in Nabors' indenture governing the 6.8% notes, and to
include a guarantee from Nabors in place of certain guarantees issued by the
domestic subsidiaries of Nabors Holding. Holders of in excess of 75% of the
outstanding 8-5/8% notes consented to the amendments, which took effect on
February 14, 2000. At March 31, 2000 there were $53.8 million principal amount
of the 8-5/8% notes outstanding.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
15.1 Awareness Letter of Independent Accountants
27 Financial Data Schedule
(b) Reports on Form 8-K
o Report on Form 8-K/A filed with the Commission on February 7,
2000, amending the Form 8-K described above to include
required pro forma financial information with respect to Pool.
o Report on Form 8-K filed with the Commission on February 23,
2000 with regard to Nabors Industries' guarantee under Nabors
Holding Company's Indenture, as supplemented, with regard to
the 8-5/8% Senior Subordinated Notes due 2006, and the
amendments to such indenture approved by the note holders.
15
<PAGE> 17
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 - Finance (principal financial
and accounting officer)
Dated: May 15, 2000
16
<PAGE> 18
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
15.1 Awareness Letter of Independent Accountants
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 15.1
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, Form S-3 and Form S-4
We are aware that our report dated April 26, 2000 on our review of the interim
condensed consolidated financial information of Nabors Industries, Inc. and
Subsidiaries for the three months ended March 31, 2000 and included in this Form
10-Q is incorporated by reference in the Company's registration statements on
Form S-8 (Registration Numbers 333-92483, 333-91829, 333-91743, 333-87069,
333-86289, 333-76077 and 333-11313), on Form S-3 (Registration Number 333-81137)
and on Form S-4 (Registration Numbers 333-84781 and 333-72397). 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
May 15, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 41,924
<SECURITIES> 62,225
<RECEIVABLES> 227,220
<ALLOWANCES> 4,717
<INVENTORY> 22,865
<CURRENT-ASSETS> 472,146
<PP&E> 2,183,697
<DEPRECIATION> 512,667
<TOTAL-ASSETS> 2,414,528
<CURRENT-LIABILITIES> 234,343
<BONDS> 382,801
0
0
<COMMON> 14,599
<OTHER-SE> 1,630,303
<TOTAL-LIABILITY-AND-EQUITY> 2,414,528
<SALES> 279,116
<TOTAL-REVENUES> 289,684
<CGS> 193,462
<TOTAL-COSTS> 193,462
<OTHER-EXPENSES> 63,069
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,651
<INCOME-PRETAX> 30,915
<INCOME-TAX> 12,984
<INCOME-CONTINUING> 17,931
<DISCONTINUED> 0
<EXTRAORDINARY> 1,703
<CHANGES> 0
<NET-INCOME> 19,634
<EPS-BASIC> 0.14
<EPS-DILUTED> 0.13
</TABLE>
