Business Context and Reporting Period
This Form 8-K, filed on October 10, 2002, by Nabors Industries Ltd. (Nabors), primarily reports on a corporate reorganization effective June 24, 2002, where Nabors (a Bermuda entity) became the successor to Nabors Industries, Inc. (a Delaware corporation). The filing includes audited consolidated financial statements for the years ended December 31, 2001, 2000, and 1999, as well as unaudited data for the six months ended June 30, 2002. Nabors is the world's largest land drilling contractor, operating over 550 land drilling rigs and 745 land workover and well-servicing rigs globally.
Key Financial Metrics
Year Ended December 31, 2001 (Audited):
- Operating Revenues: $2,191.2 million
- Net Income: $357.5 million ($2.24 per diluted share)
- Net Cash Provided by Operating Activities: $694.9 million
- Total Assets: $4,151.9 million
- Long-term Obligations: $1,567.6 million (excluding current portion)
- Stockholders' Equity: $1,857.9 million
Six Months Ended June 30, 2002 (Unaudited):
- Operating Revenues: $722.0 million
- Net Income: $67.4 million ($0.45 per diluted share)
- Total Assets: $4,432.8 million
- Long-term Obligations: $1,099.1 million
Material Changes and Accounting Reclassifications
The filing details significant accounting changes adopted in 2002 that required reclassification of prior period data:
- SFAS No. 145: Gains and losses from debt extinguishment are no longer classified as extraordinary items but as "other income." This reclassified $9.6 million (2001) and $1.9 million (2000) of prior extraordinary losses.
- EITF No. 01-14: Reimbursements for out-of-pocket expenses are now recorded as operating revenues rather than a reduction of direct costs. This increased reported revenues and direct costs by $70.0 million for 2001, $50.3 million for 2000, and $27.9 million for 1999.
- SFAS No. 142: Effective January 1, 2002, the company ceased amortizing goodwill. While not reflected in the 2001 statements, the filing notes that had this been applied, 2001 net income would have increased by $4.6 million.
- Debt Reclassification: $483.1 million of zero coupon convertible senior debentures due 2020 were reclassified from long-term to short-term obligations as of June 30, 2002, due to a put option exercisable in June 2003.
Guidance, Outlook, and Material Events
Debt Issuance: On August 22, 2002, Nabors Holdings issued $225 million of 4.875% senior notes due 2009, and Nabors Delaware issued $275 million of 5.375% senior notes due 2012. Both are fully guaranteed by Nabors. The company intends to register these notes for exchange to remove transfer restrictions.
Acquisition: On February 26, 2002, Nabors agreed to acquire Enserco Energy Services Company Inc. for approximately $270 million (US). The transaction, expected to close in April 2002, adds over 200 Canadian well-servicing rigs and 30 drilling rigs to Nabors' fleet.
Stock Repurchases: During 2001, Nabors repurchased 6.2 million shares of common stock for approximately $248.0 million under a $400 million authorization.
Risks and Contingencies: The company faces potential covenant defaults under its $200 million revolving credit facility due to the corporate reorganization, though it intends to seek waivers. Nabors is self-insured for certain liabilities up to $1.0 million per occurrence and is involved in a class-action lawsuit regarding offshore wages, which has reached a settlement deemed immaterial.
Investor Verification Checklist
- Verify the status of the waivers for the $200 million revolving credit facility covenants triggered by the corporate reorganization.
- Confirm the closing date and final purchase price of the Enserco Energy Services acquisition.
- Monitor the cash flow impact of the $483.1 million convertible debentures put option exercisable in June 2003.
- Review the impact of the new debt issuances ($500 million total) on future interest expense and leverage ratios.
- Assess the integration progress of the Enserco assets and the resulting revenue contribution in the Canadian market.