NBR

Business Context and Reporting Period

This Form 8-K, filed on August 20, 2002, by Nabors Industries Ltd. (a Bermuda exempted company), primarily serves to update consolidated financial statements following a corporate reorganization effective June 24, 2002. Nabors became the successor to Nabors Industries, Inc. (Delaware) through a merger of entities under common control, resulting in no change to consolidated assets, liabilities, or equity. The filing includes audited financial statements for the years ended December 31, 2001, 2000, and 1999, as well as unaudited interim data for the six months ended June 30, 2002. Nabors operates as the world's largest land drilling contractor with over 550 rigs, alongside significant well-servicing, offshore, and manufacturing operations.

Key Financial Metrics

Note: All figures in thousands except per share amounts. 2001 and 2000 figures have been reclassified to reflect new accounting pronouncements (SFAS 145 and EITF 01-14).

Material Changes vs. Prior Period

• Revenue Growth: Operating revenues increased 59% in 2001 compared to 2000, driven by higher activity levels and the inclusion of acquisitions (Command Drilling, Argentina operation). The first half of 2002 saw revenues of $721.9 million, a significant increase over the same period in 2001 ($541.2 million).
• Profitability: Net income surged 160% in 2001 to $357.5 million from $137.4 million in 2000. This was aided by a change in depreciation estimates for rigs (increasing net income by $5.5 million) and gains on debt extinguishment.
• Capital Structure: Long-term obligations increased significantly in 2001 due to the issuance of $1.381 billion in zero-coupon convertible senior debentures (due 2021) and the carryover of the $825 million debentures (due 2020). Total debt rose from $858.3 million in 2000 to $1.57 billion in 2001.
• Acquisitions: In 2001, Nabors acquired Command Drilling Corporation for approximately $65.1 million and purchased the remaining 49% interest in its Argentina operation for $4.5 million.

Guidance, Outlook, Risks, and Unusual Items

• Subsequent Event (Acquisition): On February 26, 2002, Nabors agreed to acquire Enserco Energy Services Company Inc. for approximately $270 million (US equivalent). The transaction was expected to close around April 26, 2002, significantly expanding Nabors' Canadian well-servicing and drilling fleet.
• Accounting Changes:
  • SFAS 142 (Goodwill): Effective Jan 1, 2002, Nabors ceased amortizing goodwill. While not reflected in the 2001 statements, the filing notes this would have increased 2001 net income by $4.6 million.
  • SFAS 145 & EITF 01-14: Reclassified debt extinguishment gains/losses from "extraordinary items" to "other income" and moved customer reimbursements from cost reductions to operating revenues. These changes increased reported revenues and direct costs but had no impact on net income.
• Risks and Contingencies:
  • Credit Facility Covenant: The issuance of the 2021 debentures caused a technical default on the debt-to-capitalization ratio of the $200 million revolving credit facility. A waiver was obtained, but the facility expires September 5, 2002, and the company intends to seek waivers for potential non-compliance related to the 2002 restructuring.
  • Market Dependency: Business performance is highly dependent on oil and gas capital spending and commodity prices.
  • Foreign Exchange: Significant exposure to Canadian and Saudi Arabian currencies, though the impact of the Argentine peso devaluation in early 2002 was deemed insignificant.

Investor Verification Checklist

• Enserco Acquisition Status: Verify the closing date and final purchase price of the Enserco Energy Services acquisition announced in February 2002.
• Debt Covenant Compliance: Confirm the status of the waiver for the $200 million revolving credit facility and the terms of the replacement facility planned for late 2002.
• Convertible Debentures: Review the conversion rates and put options for the $1.381 billion (2021) and $825 million (2020) zero-coupon debentures, as these represent significant potential dilution or cash outflows.
• Goodwill Impairment Testing: Monitor future filings for the results of the annual goodwill impairment tests required under SFAS 142, given the significant goodwill balance ($199 million).
• Stock Repurchases: Note the $248 million share repurchase program executed in 2001 and check for any new authorizations or activity in 2002.