e10vq
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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, 2010
 
Commission File Number: 001-32657
 
 
NABORS INDUSTRIES LTD.
 
Incorporated in Bermuda
Mintflower Place
8 Par-La-Ville Road
Hamilton, HM08
Bermuda
(441) 292-1510
 
98-0363970
(I.R.S. Employer Identification No.)
 
 
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 þ     NO o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   YES þ     NO o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer þ Accelerated filer o Non-accelerated filer o Smaller reporting company o
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES o  NO þ
 
The number of common shares, par value $.001 per share, outstanding as of August 2, 2010 was 285,269,704.
 


 

 
NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
Index
 
                 
PART I FINANCIAL INFORMATION
  Item 1.     Financial Statements (Unaudited)        
        Consolidated Balance Sheets as of June 30, 2010 and December 31, 2009     1  
        Consolidated Statements of Income for the Three and Six Months Ended June 30, 2010 and 2009     2  
        Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2010 and 2009     3  
        Consolidated Statements of Changes in Equity for the Six Months Ended June 30, 2010 and 2009     4  
        Notes to Consolidated Financial Statements     6  
        Report of Independent Registered Public Accounting Firm     34  
  Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations     35  
  Item 3.     Quantitative and Qualitative Disclosures About Market Risk     50  
  Item 4.     Controls and Procedures     50  
             
        PART II OTHER INFORMATION        
  Item 1.     Legal Proceedings     50  
  Item 1A.     Risk Factors     51  
  Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds     51  
  Item 6.     Exhibits     52  
Signatures     53  
 EX-15
 EX-31.1
 EX-31.2
 EX-32.1
 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT
 EX-101 DEFINITION LINKBASE DOCUMENT


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NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
 
                 
    June 30,
    December 31,
 
    2010     2009  
    (Unaudited)        
(In thousands)            
 
ASSETS
Current assets:
               
Cash and cash equivalents
  $ 747,593     $ 927,815  
Short-term investments
    145,283       163,036  
Accounts receivable, net
    762,589       724,040  
Inventory
    107,549       100,819  
Deferred income taxes
    128,555       125,163  
Other current assets
    133,839       135,791  
                 
Total current assets
    2,025,408       2,176,664  
Long-term investments and other receivables
    93,965       100,882  
Property, plant and equipment, net
    7,641,563       7,646,050  
Goodwill
    164,078       164,265  
Investment in unconsolidated affiliates
    321,293       306,608  
Other long-term assets
    253,834       250,221  
                 
Total assets
  $ 10,500,141     $ 10,644,690  
                 
 
LIABILITIES AND EQUITY
Current liabilities:
               
Current portion of long-term debt
  $ 1,345,819     $ 163  
Trade accounts payable
    255,476       226,423  
Accrued liabilities
    354,472       346,337  
Income taxes payable
    32,315       35,699  
                 
Total current liabilities
    1,988,082       608,622  
Long-term debt
    2,364,703       3,940,605  
Other long-term liabilities
    244,151       240,057  
Deferred income taxes
    674,796       673,427  
                 
Total liabilities
    5,271,732       5,462,711  
                 
Commitments and contingencies (Note 9)
               
Equity:
               
Shareholders’ equity:
               
Common shares, par value $.001 per share:
               
Authorized common shares 800,000; issued 314,678 and 313,915, respectively
    314       314  
Capital in excess of par value
    2,245,592       2,239,323  
Accumulated other comprehensive income
    251,268       292,706  
Retained earnings
    3,697,007       3,613,186  
Less: Treasury shares, at cost, 29,414 common shares
    (977,873 )     (977,873 )
                 
Total shareholders’ equity
    5,216,308       5,167,656  
Noncontrolling interest
    12,101       14,323  
                 
Total equity
    5,228,409       5,181,979  
                 
Total liabilities and equity
  $ 10,500,141     $ 10,644,690  
                 
 
The accompanying notes are an integral part of these consolidated financial statements.


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NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Unaudited)
 
                                 
    Three Months Ended
    Six Months Ended
 
    June 30,     June 30,  
    2010     2009     2010     2009  
(In thousands, except per share amounts)                        
 
Revenues and other income:
                               
Operating revenues
  $ 905,058     $ 867,869     $ 1,807,107     $ 2,065,914  
Earnings (losses) from unconsolidated affiliates
    10,218       (8,127 )     13,879       (72,554 )
Investment income
    2,525       18,248       165       27,389  
                                 
Total revenues and other income
    917,801       877,990       1,821,151       2,020,749  
                                 
Costs and other deductions:
                               
Direct costs
    524,240       453,922       1,036,642       1,119,209  
General and administrative expenses
    80,996       163,808       156,819       271,151  
Depreciation and amortization
    176,201       165,974       348,475       325,126  
Depletion
    8,922       2,590       15,677       5,343  
Interest expense
    65,226       66,027       131,971       133,105  
Losses (gains) on sales and retirements of long-lived assets and other expense (income), net
    10,952       6,689       31,261       (9,557 )
Impairments and other charges
          227,083             227,083  
                                 
Total costs and other deductions
    866,537       1,086,093       1,720,845       2,071,460  
                                 
Income (loss) before income taxes
    51,264       (208,103 )     100,306       (50,711 )
Income tax expense (benefit):
                               
Current
    17,652       (43,425 )     30,297       6,032  
Deferred
    (9,450 )     28,528       (12,151 )     12,344  
                                 
Total income tax expense (benefit)
    8,202       (14,897 )     18,146       18,376  
                                 
Net income (loss)
    43,062       (193,206 )     82,160       (69,087 )
Less: Net loss attributable to noncontrolling interest
    559       220       1,661       1,271  
                                 
Net income (loss) attributable to Nabors
  $ 43,621     $ (192,986 )   $ 83,821     $ (67,816 )
                                 
Earnings (losses) per share:
                               
Basic
  $ .15     $ (.68 )   $ .29     $ (.24 )
Diluted
  $ .15     $ (.68 )   $ .29     $ (.24 )
Weighted-average number of common shares outstanding:
                               
Basic
    285,181       283,154       284,927       283,126  
Diluted
    289,796       283,154       290,266       283,126  
 
The accompanying notes are an integral part of these consolidated financial statements.


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NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
                 
    Six Months Ended June 30,  
    2010     2009  
(In thousands)            
 
Cash flows from operating activities:
               
Net income (loss) attributable to Nabors
  $ 83,821     $ (67,816 )
Adjustments to net income (loss):
               
Depreciation and amortization
    348,475       325,126  
Depletion
    15,677       5,343  
Deferred income tax expense (benefit)
    (12,151 )     12,344  
Deferred financing costs amortization
    2,559       3,279  
Pension liability amortization and adjustments
    199       99  
Discount amortization on long-term debt
    36,764       45,947  
Amortization of loss on hedges
    291       290  
Impairments and other charges
          227,083  
Losses (gains) on long-lived assets, net
    3,667       6,886  
Losses (gains) on investments, net
    2,184       (13,594 )
Losses (gains) on debt retirement, net
    7,033       (15,969 )
Losses (gains) on derivative instruments
    1,580       (968 )
Share-based compensation
    7,047       99,662  
Foreign currency transaction losses (gains), net
    15,019       690  
Equity in (earnings) losses of unconsolidated affiliates, net of dividends
    (10,379 )     81,053  
Changes in operating assets and liabilities, net of effects from acquisitions:
               
Accounts receivable
    (42,363 )     379,283  
Inventory
    (7,308 )     16,888  
Other current assets
    16,273       83,530  
Other long-term assets
    (11,765 )     (21,735 )
Trade accounts payable and accrued liabilities
    15,025       (99,039 )
Income taxes payable
    (9,622 )     (76,675 )
Other long-term liabilities
    7,883       15,608  
                 
Net cash provided by operating activities
    469,909       1,007,315  
                 
Cash flows from investing activities:
               
Purchases of investments
    (27,988 )     (22,614 )
Sales and maturities of investments
    27,997       39,592  
Investment in unconsolidated affiliates
    (10,936 )     (100,670 )
Capital expenditures
    (369,455 )     (710,849 )
Proceeds from sales of assets and insurance claims
    17,567       12,791  
                 
Net cash used for investing activities
    (362,815 )     (781,750 )
                 
Cash flows from financing activities:
               
Increase (decrease) in cash overdrafts
    (6,130 )     (15,715 )
Proceeds from issuance of long-term debt
          1,124,978  
Debt issuance costs
          (8,699 )
Proceeds from issuance of common shares, net
    4,733       549  
Reduction in long-term debt
    (273,605 )     (745,212 )
Repurchase of equity component of convertible debt
    (4,712 )     (1,541 )
Settlement of call options and warrants, net
    1,133        
Purchase of restricted stock
    (1,887 )     (1,496 )
Tax benefit related to share-based awards
    (45 )     105  
                 
Net cash provided by (used for) financing activities
    (280,513 )     352,969  
Effect of exchange rate changes on cash and cash equivalents
    (6,803 )     3,032  
                 
Net increase (decrease) in cash and cash equivalents
    (180,222 )     581,566  
Cash and cash equivalents, beginning of period
    927,815       442,087  
                 
Cash and cash equivalents, end of period
  $ 747,593     $ 1,023,653  
                 
 
The accompanying notes are an integral part of these consolidated financial statements.


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NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
 
                                                                               
                                  Accumulated
                         
              Common Shares     Capital in
    Other
                Non-
       
                      Par
    Excess of
    Comprehensive
    Retained
    Treasury
    controlling
    Total
 
(In thousands)             Shares       Value     Par Value     Income     Earnings     Shares     Interest     Equity  
Balances, December 31, 2009
                313,915       $ 314     $ 2,239,323     $ 292,706     $ 3,613,186     $ (977,873 )   $ 14,323     $ 5,181,979  
                                                                               
Comprehensive income (loss):
                                                                             
Net income (loss) attributable to Nabors
    $ 83,821                                           83,821                       83,821  
Translation adjustment attributable to Nabors
      (15,687 )                                 (15,687 )                             (15,687 )
Unrealized gains (losses) on marketable securities, net of income taxes of $7,678
      (23,906 )                                 (23,906 )                             (23,906 )
Less: Reclassification adjustment for (gains)/losses included in net income (loss), net of income taxes of $951
      (2,060 )                                 (2,060 )                             (2,060 )
Pension liability amortization, net of income taxes of $74
      126                                   126                               126  
Amortization of gains/(losses) on cash flow hedges, net of income tax benefit of $9
      89                                   89                               89  
                                                                               
Comprehensive income (loss) attributable to Nabors
    $ 42,383                                                                      
                                                                               
Net income (loss) attributable to noncontrolling interest
      (1,661 )                                                         (1,661 )     (1,661 )
Translation adjustment attributable to noncontrolling interest
      (131 )                                                         (131 )     (131 )
                                                                               
Comprehensive income (loss) attributable to noncontrolling interest
      (1,792 )                                                                    
                                                                               
Total comprehensive income (loss)
    $ 40,591                                                                      
                                                                               
                                                                               
Issuance of common shares for stock options exercised, net of surrender of unexercised stock options
                389                 4,733                                       4,733  
Distributions from noncontrolling interest
                                                                  (867 )     (867 )
Contributions to noncontrolling interest
                                                                  437       437  
Repurchase of equity component of convertible debt
                                  (4,712 )                                     (4,712 )
Settlement of call options and warrants, net
                                  1,133                                       1,133  
Tax benefit related to share-based awards
                                  (45 )                                     (45 )
Restricted stock awards, net
                374                 (1,887 )                                     (1,887 )
Share-based compensation
                                  7,047                                       7,047  
                                                                               
Balances, June 30, 2010
                314,678       $ 314     $ 2,245,592     $ 251,268     $ 3,697,007     $ (977,873 )   $ 12,101     $ 5,228,409  
                                                                               
 
The accompanying notes are an integral part of these consolidated financial statements.


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NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY  — (Continued)
(Unaudited)
 
                                                                               
                                  Accumulated
                         
              Common
    Capital in
    Other
                Non-
       
              Shares     Excess of
    Comprehensive
    Retained
    Treasury
    controlling
    Total
 
(In thousands)             Shares       Par Value     Par Value     Income     Earnings     Shares     Interest     Equity  
Balances, December 31, 2008
                312,343       $ 312     $ 2,129,415     $ 53,520     $ 3,698,732     $ (977,873 )   $ 14,318     $ 4,918,424  
                                                                               
Comprehensive income (loss):
                                                                             
Net income (loss) attributable to Nabors
    $ (67,816 )                                         (67,816 )                     (67,816 )
Translation adjustment attributable to Nabors
      44,317                                   44,317                               44,317  
Unrealized gains/(losses) on marketable securities, net of income tax benefit of $1,015
      41,918                                   41,918                               41,918  
Unrealized gains/(losses) on adjusted basis for marketable debt security, net of income tax benefit of $1,767
      (2,884 )                                 (2,884 )                             (2,884 )
Less: Reclassification adjustment for (gains)/losses included in net income (loss), net of income tax benefit of $4,940
      30,752                                   30,752                               30,752  
Pension liability amortization, net of income taxes of $37
      63                                   63                               63  
Amortization of gains/(losses) on cash flow hedges, net of income tax benefit of $9
      89                                   89                               89  
                                                                               
Comprehensive income (loss) attributable to Nabors
    $ 46,439                                                                      
                                                                               
Net income (loss) attributable to noncontrolling interest
      (1,271 )                                                         (1,271 )     (1,271 )
Translation adjustment attributable to noncontrolling interest
      588                                                           588       588  
                                                                               
Comprehensive income (loss) attributable to noncontrolling interest
      (683 )                                                                    
                                                                               
Total comprehensive income (loss)
    $ 45,756                                                                      
                                                                               
                                                                               
Issuance of common shares for stock options exercised
                91                 549                                       549  
Nabors Exchangeco shares exchanged
                3                                                            
Repurchase of equity component of convertible debt
                                  (1,541 )                                     (1,541 )
Tax benefit related to share-based awards
                                  105                                       105  
Restricted stock awards, net
                4                 (1,496 )                                     (1,496 )
Share-based compensation
                                  99,662                                       99,662  
                                                                               
Balances, June 30, 2009
                312,441       $ 312     $ 2,226,694     $ 167,775     $ 3,630,916     $ (977,873 )   $ 13,635     $ 5,061,459  
                                                                               
 
The accompanying notes are an integral part of these consolidated financial statements.


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NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Note 1   Nature of Operations
 
Nabors is the largest land drilling contractor in the world and one of the largest land well-servicing and workover contractors in the United States and Canada:
 
  •  We actively market approximately 550 land drilling rigs for oil and gas land drilling operations in the U.S. Lower 48 states, Alaska, Canada, South America, Mexico, the Caribbean, the Middle East, the Far East, Russia and Africa.
 
  •  We actively market approximately 556 rigs for land well-servicing and workover work in the United States and approximately 172 rigs for land well-servicing and workover work in Canada.
 
We are also a leading provider of offshore platform workover and drilling rigs, and actively market 39 platform, 13 jack-up and 3 barge rigs in the United States, including the Gulf of Mexico, and multiple international markets.
 
In addition to the foregoing services:
 
  •  We manufacture and lease or sell top drives for a broad range of drilling applications, directional drilling systems, rig instrumentation and data collection equipment, pipeline handling equipment and rig reporting software.
 
  •  We invest in oil and gas exploration, development and production activities in the United States, Canada and International areas through both our wholly owned subsidiaries and our oil and gas joint ventures in which we hold 49-50% ownership interests.
 
  •  We have a 51% ownership interest in a joint venture in Saudi Arabia, which owns and actively markets nine rigs in addition to the rigs we lease to the joint venture.
 
  •  We offer a wide range of ancillary well-site services, including engineering, transportation, construction, maintenance, well logging, directional drilling, rig instrumentation, data collection and other support services in select United States and international markets.
 
  •  We also provide logistics services for onshore drilling in Canada using helicopters and fixed-wing aircraft.
 
The majority of our business is conducted through our various Contract Drilling operating segments, which include our drilling, well-servicing and workover operations, on land and offshore. Our oil and gas exploration, development and production operations are included in our Oil and Gas operating segment. Our operating segments engaged in drilling technology and top drive manufacturing, directional drilling, rig instrumentation and software and construction and logistics operations are aggregated in our Other Operating Segments.
 
As used in this report, “we,” “us,” “our” and “Nabors” means Nabors Industries Ltd. and, where the context requires, includes its subsidiaries, and “Nabors Delaware” means Nabors Industries, Inc., a Delaware corporation and wholly owned indirect subsidiary of Nabors, and its subsidiaries.
 
Note 2   Summary of Significant Accounting Policies
 
Interim Financial Information
 
The unaudited consolidated financial statements of Nabors are prepared in conformity with accounting principles generally accepted in the United States (“GAAP”). Certain reclassifications have been made to the prior period to conform to the current-period presentation, with no effect on our consolidated financial position, results of operations or cash flows. Pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), certain information and footnote disclosures normally included in annual


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NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
financial statements prepared in accordance with GAAP have been omitted. Therefore, these financial statements should be read along with our annual report on Form 10-K for the year ended December 31, 2009 (“2009 Annual Report”). In management’s opinion, the consolidated financial statements contain all adjustments necessary to present fairly our financial position as of June 30, 2010 and the results of our operations for the three and six months ended June 30, 2010 and 2009, and our cash flows and changes in equity for the six months ended June 30, 2010 and 2009, in accordance with GAAP. Interim results for the three and six months ended June 30, 2010 may not be indicative of results that will be realized for the full year ending December 31, 2010.
 
Our independent registered public accounting firm has performed a review of, and issued a report on, these consolidated interim financial statements in accordance with standards established by the Public Company Accounting Oversight Board. Pursuant to Rule 436(c) under the Securities Act of 1933, as amended (the “Securities Act”), this report should not be considered a part of any registration statement prepared or certified within the meanings of Sections 7 and 11 of the Securities Act.
 
Principles of Consolidation
 
Our consolidated financial statements include the accounts of Nabors, as well as all majority owned and nonmajority owned subsidiaries required to be consolidated under GAAP. Our consolidated financial statements exclude majority owned entities for which we have neither (1) the ability to control the operating and financial decisions and policies of that entity or (2) a controlling financial interest in a variable interest entity. All significant intercompany accounts and transactions are eliminated in consolidation.
 
Investments in operating entities where we have the ability to exert significant influence, but where we do not control operating and financial policies, are accounted for using the equity method. Our share of the net income (loss) of these entities is recorded as earnings (losses) from unconsolidated affiliates in our consolidated statements of income, and our investment in these entities is included as a single amount in our consolidated balance sheets. As of June 30, 2010 and December 31, 2009, investments in unconsolidated affiliates accounted for using the equity method totaled $319.4 million and $305.7 million, respectively, and investments in unconsolidated affiliates accounted for using the cost method totaled $1.9 million and $.9 million, respectively. Similarly, investments in certain offshore funds classified as long-term investments are accounted for using the equity method of accounting based on our ownership interest in each fund.
 
Recent Accounting Pronouncements
 
In December 2008, the SEC issued a final rule, “Modernization of Oil and Gas Reporting.” This rule revised some of the oil and gas reporting disclosures in Regulation S-K and Regulation S-X under the Securities Act and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as well as Industry Guide 2. Effective December 31, 2009, the Financial Accounting Standards Board (“FASB”) issued revised guidance that substantially aligned the oil and gas accounting disclosures with the SEC’s final rule. The amendments were designed to modernize and update oil and gas disclosure requirements to align them with current practices and changes in technology. Additionally, this new accounting standard requires that entities use 12-month average natural gas and oil prices when calculating the quantities of proved reserves and performing the full-cost ceiling test calculation. The new standard also clarified that an entity’s equity-method investments must be considered in determining whether it has significant oil and gas activities. The disclosure requirements were effective for registration statements filed on or after January 1, 2010 and for annual financial statements filed on or after December 31, 2009; however, the FASB provided a one-year deferral of the disclosure requirements if an entity became subject to the requirements because of a change to the definition of significant oil and gas activities. We have significant oil and gas activities under the new definition when operating results from our wholly owned oil and gas activities are considered along with operating results from our unconsolidated oil and gas joint ventures, which we account for under the equity


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NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
method of accounting. In line with the one-year deferral, we will provide the oil and gas disclosures for annual financial statements for periods beginning after December 31, 2009 and will do so for registration statements filed on or after January 1, 2011.
 
Effective January 1, 2010, we adopted the revised provisions relating to consolidation of variable interest entities within the Consolidations Topic of the Accounting Standards Codification (“ASC”). The revised provisions replaced the quantitative approach to identify a variable interest entity with a qualitative approach that focuses on an entity’s control and ability to direct the variable interest entity’s activities. The application of these provisions did not have a material impact on our consolidated financial statements.
 
The FASB issued new guidance relating to revenue recognition for contractual arrangements with multiple revenue-generating activities. The ASC Topic for revenue recognition includes identification of a unit of accounting and how arrangement consideration should be allocated to separate the units of accounting, when applicable. The new guidance, including expanded disclosures, is applied on a prospective basis beginning on or after June 15, 2010. We do not currently have contractual agreements that meet this criteria.
 
Note 3   Cash and Cash Equivalents and Investments
 
Our cash and cash equivalents, short-term and long-term investments and other receivables consisted of the following:
 
                 
    June 30,
    December 31,
 
    2010     2009  
(In thousands)            
 
Cash and cash equivalents
  $ 747,593     $ 927,815  
Short-term investments:
               
Trading equity securities
    17,590       24,014  
Available-for-sale equity securities
    70,674       93,651  
Available-for-sale debt securities
    57,019       45,371  
                 
Total short-term investments
    145,283       163,036  
Long-term investments and other receivables
    93,965       100,882  
                 
Total
  $ 986,841     $ 1,191,733  
                 


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NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Certain information related to our cash and cash equivalents and short-term investments follows:
 
                                                 
    June 30, 2010     December 31, 2009  
          Gross
    Gross
          Gross
    Gross
 
          Unrealized
    Unrealized
          Unrealized
    Unrealized
 
    Fair
    Holding
    Holding
    Fair
    Holding
    Holding
 
(In thousands)   Value     Gains     Losses     Value     Gains     Losses  
 
Cash and cash equivalents
  $ 747,593     $     $     $ 927,815     $     $  
                                                 
Short-term investments:
                                               
Trading equity securities
    17,590       11,865             24,014       18,290        
                                                 
Available-for-sale equity securities
    70,674       32,574       (5,697 )     93,651       50,211       (357 )
                                                 
Available-for-sale debt securities:
                                               
Commercial paper and CDs
    1,123                   1,284              
Corporate debt securities
    47,650       7,055       (453 )     33,852       3,162        
Mortgage-backed debt securities
    574       15       (10 )     861       23       (20 )
Mortgage-CMO debt securities
    3,694       35       (104 )     5,411       71       (182 )
Asset-backed debt securities
    3,978             (320 )     3,963             (803 )
                                                 
Total available-for-sale debt securities
    57,019       7,105       (887 )     45,371       3,256       (1,005 )
                                                 
Total available-for-sale securities
    127,693       39,679       (6,584 )     139,022       53,467       (1,362 )
                                                 
Total short-term investments
    145,283       51,544       (6,584 )     163,036       71,757       (1,362 )
                                                 
Total cash, cash equivalents and short-term investments
  $ 892,876     $ 51,544     $ (6,584 )   $ 1,090,851     $ 71,757     $ (1,362 )
                                                 
 
Certain information related to the gross unrealized losses of our cash and cash equivalents and short-term investments follows:
 
                                 
    As of June 30, 2010  
    Less than 12 Months     More than 12 Months  
          Gross Unrealized
          Gross Unrealized
 
(In thousands)   Fair Value     Loss     Fair Value     Loss  
 
Available-for-sale equity securities
  $ 21,543     $ 5,454     $ 841     $ 243  
Available-for-sale debt securities:(1)
                               
Corporate debt securities
    19,300       453              
Mortgage-backed debt securities
                181       10  
Mortgage-CMO debt securities
                2,350       104  
Asset-backed debt securities
                3,978       320  
                                 
Total available-for-sale debt securities
    19,300       453       6,509       434  
                                 
Total
  $ 40,843     $ 5,907     $ 7,350     $ 677  
                                 
 
 
(1) Our unrealized losses on available-for-sale debt securities held for more than one year relate to various types of securities. Each of these securities has a rating ranging from “A” to “AAA” from Standard & Poor’s and ranging from “A2” to “Aaa” from Moody’s Investors Service and is considered of high credit quality. In each case, we do not intend to sell these investments prior to their maturity dates. We believe that we will be able to collect all amounts due according to the contractual terms of each investment and, therefore, did not consider the decline in value of these investments to be other-than-temporary at June 30, 2010.


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NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
 
The estimated fair values of our corporate, mortgage-backed, mortgage-CMO and asset-backed debt securities at June 30, 2010, classified by time to contractual maturity, are shown below. Expected maturities differ from contractual maturities because the issuers of the securities may have the right to repay obligations without prepayment penalties and we may elect to sell the securities prior to the contractual maturity date.
 
         
    Estimated
 
    Fair Value  
    June 30, 2010  
(In thousands)      
 
Debt securities:
       
Due in one year or less
  $ 1,358  
Due after one year through five years
    1,123  
Due in more than five years
    54,538  
         
Total debt securities
  $ 57,019  
         
 
Certain information regarding our debt and equity securities follows:
 
                 
    Six Months Ended June 30,  
    2010     2009  
(In thousands)            
 
Available-for-sale:
               
Proceeds from sales and maturities
  $ 10,757     $ 18,675  
Realized gains (losses), net
    1,677       (35,692 )(1)
 
 
(1) Includes the net credit loss of an other-than-temporary impairment of $35.6 million related to a corporate debt security.
 
Note 4   Fair Value Measurements
 
Fair value is the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date (i.e., exit price). We utilize market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market-corroborated, or generally unobservable. We primarily apply the market approach for recurring fair value measurements and endeavor to utilize the best information available. Accordingly, we employ valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The use of unobservable inputs is intended to allow for fair value determinations in situations where there is little, if any, market activity for the asset or liability at the measurement date. We are able to classify fair value balances utilizing a fair value hierarchy based on the observability of those inputs. Under the fair value hierarchy:
 
  •  Level 1 measurements include unadjusted quoted market prices for identical assets or liabilities in an active market;
 
  •  Level 2 measurements include quoted market prices for identical assets or liabilities in an active market that have been adjusted for items such as effects of restrictions for transferability and those that are not quoted, but are observable through corroboration with observable market data, including quoted market prices for similar assets; and
 
  •  Level 3 measurements include those that are unobservable and of a subjective measure.


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NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
 
The following table sets forth, by level within the fair value hierarchy, our financial assets and liabilities that were accounted for at fair value on a recurring basis as of June 30, 2010. Our debt securities could transfer into or out of a Level 1 or 2 measure depending on the availability of independent and current pricing at the end of each quarter. During the three months ended June 30, 2010, there were no transfers of our financial assets and liabilities between Level 1 and 2 measures. Our financial assets and liabilities were classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
 
Recurring Fair Value Measurements
 
                                 
    Fair Value as of June 30, 2010  
(In thousands)   Level 1     Level 2     Level 3     Total  
 
Assets:
                               
Short-term investments:
                               
Available-for-sale equity securities — energy industry
  $ 70,674     $     $     $ 70,674  
Available-for-sale debt securities:
                               
Commercial paper and CDs
    1,123                   1,123  
Corporate debt securities
    1,350       46,300             47,650  
Mortgage-backed debt securities
          574             574  
Mortgage-CMO debt securities
          3,694             3,694  
Asset-backed debt securities
    3,978                   3,978  
Trading securities — energy industry
    17,590                   17,590  
                                 
Total short-term investments
  $ 94,715     $ 50,568     $     $ 145,283  
                                 
Liabilities:
                               
Range-cap-and-floor derivative contract
  $     $ 3,713     $     $ 3,713  
                                 
 
Nonrecurring Fair Value Measurements
 
Fair value measurements are applied with respect to our nonfinancial assets and liabilities measured on a nonrecurring basis, which consist primarily of goodwill, oil and gas financing receivables, intangible assets and other long-lived assets, assets acquired and liabilities assumed in a business combination, and asset retirement obligations.
 
Fair Value of Financial Instruments
 
The fair value of our financial instruments has been estimated in accordance with GAAP. The fair value of our fixed rate long-term debt was estimated based on quoted market prices or prices quoted from third-party financial institutions. The carrying and fair values of our long-term debt, including the current portion, were as follows:
 
                 
    June 30, 2010  
    Carrying Value     Fair Value  
(In thousands)            
 
0.94% senior exchangeable notes due May 2011
  $ 1,345,510     $ 1,361,836  
6.15% senior notes due February 2018
    965,671       1,050,563  
9.25% senior notes due January 2019
    1,125,000       1,372,523  
5.375% senior notes due August 2012(1)
    273,663       289,570  
Other
    678       678  
                 
    $ 3,710,522     $ 4,075,170  
                 


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NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
 
(1) Includes $.9 million as of June 30, 2010 related to the unamortized loss on the interest rate swap that was unwound during the fourth quarter of 2005.
 
The fair values of our cash equivalents, trade receivables and trade payables approximated their carrying values due to the short-term nature of these instruments.
 
As of June 30, 2010, our short-term investments were carried at fair market value and included $127.7 million and $17.6 million in securities classified as available-for-sale and trading, respectively. The carrying values of our long-term investments accounted for using the equity method of accounting approximated fair value and totaled $7.4 million as of June 30, 2010. The carrying value of our oil and gas financing receivables included in long-term investments also approximated fair value and totaled $86.6 million as of June 30, 2010. Income and gains associated with our oil and gas financing receivables are recognized as operating revenues.
 
Note 5   Share-Based Compensation
 
We have several share-based employee compensation plans, which are more fully described in Note 4 — Share-Based Compensation to the audited financial statements included in our 2009 Annual Report.
 
Total share-based compensation expense, which includes both options to purchase shares of our common stock and restricted shares of such stock, totaled $3.6 million and $76.3 million for the three months ended June 30, 2010 and 2009, respectively, and $7.0 million and $99.7 million for the six months ended June 30, 2010 and 2009, respectively. Total share-based compensation expense for the three and six months ended June 30, 2009 included $72.1 million of compensation expense related to previously granted restricted stock and option awards held by our Chairman and Chief Executive Officer, Eugene M. Isenberg, and our Deputy Chairman, President and Chief Operating Officer, Anthony G. Petrello, that was unrecognized as of April 1, 2009. The recognition of this expense was a result of the provisions of their respective employment agreements, effective April 1, 2009, which effectively eliminated the risk of forfeiture of such awards. See Note 16 — Commitments and Contingencies to our 2009 Annual Report for additional discussion and description of Messrs. Isenberg and Petrello’s employment agreements.
 
Share-based compensation expense is included in direct costs and general and administrative expenses in our consolidated statements of income (loss) and has been allocated to our various operating segments. See Note 12 — Segment Information.
 
During the six months ended June 30, 2010 and 2009, we awarded 460,418 and 84,000 shares of restricted stock, respectively, vesting over periods of up to four years, to our employees and directors. These awards had an aggregate value at their grant date of $10.3 million and $1.0 million, respectively.
 
During the six months ended June 30, 2010 and 2009, we awarded options, vesting over periods of up to four years, to purchase 17,875 and 9,981,850 of our common shares, respectively, to our employees and directors. During the six months ended June 30, 2009, these awards included options to purchase 3.0 million and 1.7 million shares, with grant-date fair values of $8.8 million and $5.0 million, granted to Messrs. Isenberg and Petrello, respectively, in February 2009.


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NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The fair value of stock options granted during the six months ended June 30, 2010 and 2009, respectively, was calculated using the Black-Scholes option pricing model and the following weighted-average assumptions:
 
         
    Six Months Ended
    June 30,
    2010   2009
 
Weighted-average fair value of options granted
  $6.29   $2.84
Weighted-average risk free interest rate
  1.79%   1.75%
Dividend yield
  0%   0%
Volatility(1)
  39.34%   34.78%
Expected life
  4.0 years   4.0 years
 
 
(1) Expected volatilities were based on implied volatilities from publicly traded options to purchase Nabors’ common shares, historical volatility of Nabors’ common shares and other factors.
 
The total intrinsic value of options exercised during the six months ended June 30, 2010 and 2009 was $3.4 million and $.4 million, respectively. The total fair value of options that vested during the six months ended June 30, 2010 and 2009 was $5.5 million and $9.4 million, respectively.
 
Note 6   Investments in Unconsolidated Affiliates
 
We have several unconsolidated affiliates that are integral to our operations. For a full description, refer to Note 9 — Investments in Unconsolidated Affiliates to the audited financial statements in our 2009 Annual Report.
 
As of June 30, 2010 and December 31, 2009, our investments in unconsolidated affiliates accounted for using the equity method totaled $319.4 million and $305.7 million, respectively, and our investments in unconsolidated affiliates accounted for using the cost method totaled $1.9 million and $.9 million, respectively. During 2008, our unconsolidated United States oil and gas joint venture was deemed a significant subsidiary. Accordingly, summarized income statement information for this joint venture follows:
 
                 
    Six Months Ended
 
    June 30,  
(In thousands)   2010     2009  
 
Gross revenues
  $ 79,783     $ 63,931  
Gross margin
    65,707       (143,075 )
Net income (loss)
    19,966       (162,007 )
Nabors’ earnings (losses) from United States oil and gas joint venture
    7,726       (80,937 )(1)
 
 
(1) Includes a loss of $(75.0) million, which represented our proportionate share from application of the full-cost ceiling test by our unconsolidated United States oil and gas joint venture during the six months ended June 30, 2009.
 
In addition to the equity investment in our unconsolidated United States oil and gas joint venture, in April 2010 we purchased $20.0 million face value of NFR Energy LLC’s 9.75% senior notes. These notes mature in 2017 with interest payable semi-annually on February 15 and August 15.
 
Our unconsolidated international oil and gas joint venture in Colombia sold producing properties during the first quarter of 2010, resulting in a gain that was recorded during the current quarter. Our earnings (losses) from unconsolidated affiliates line in the consolidated statements of income (loss) for the three and six months ended June 30, 2010 includes $4.6 million, representing our proportionate share of this gain.


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NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Note 7   Debt
 
Long-term debt consisted of the following:
 
                 
    June 30,
    December 31,
 
    2010     2009  
(In thousands)            
 
0.94% senior exchangeable notes due May 2011
  $ 1,345,510     $ 1,576,480  
6.15% senior notes due February 2018
    965,671       965,066  
9.25% senior notes due January 2019
    1,125,000       1,125,000  
5.375% senior notes due August 2012
    273,663       273,350  
Other
    678       872  
                 
      3,710,522       3,940,768  
Less: Current portion
    1,345,819       163  
                 
    $ 2,364,703     $ 3,940,605  
                 
 
As of June 30, 2010, the current portion of our long-term debt included $1.4 billion par value of Nabors Delaware’s 0.94% senior exchangeable notes that will mature in May 2011. We continue to assess our ability to meet this obligation, along with our other operating and capital requirements or other potential opportunities over the next 12 months, through a combination of cash on hand, future operating cash flows, possible disposition of non-core assets and our ability to access the capital markets, if required. We believe that through a combination of these sources, we will have sufficient liquidity to meet these obligations.
 
The senior exchangeable notes are exchangeable into cash and, if applicable, Nabors common shares based on an exchange rate equal to 21.8221 common shares per $1,000 principal amount of notes (equal to an initial exchange price of approximately $45.83 per share), subject to adjustment during the 30 calendar days ending at the close of business on the business day immediately preceding the maturity date. Upon exchange, we would only be required to issue incremental shares above the principal amount of the notes, since we are required to pay cash up to the principal amount of the notes exchanged.
 
In connection with the issuance of the senior exchangeable notes in 2006, Nabors Delaware entered into exchangeable note hedge transactions with respect to our common shares. Call options were purchased to offset potential dilution upon exchange and warrants were sold to effectively increase the exchange price. During the six months ended June 30, 2010, we entered into agreements to unwind and settle some of the exchangeable note hedge and warrant transactions and received $1.1 million from counterparties to the transactions. These transactions were recorded as capital in excess of par value in our consolidated statement of changes in equity as of June 30, 2010.
 
The balances of the liability and equity components of the 0.94% senior exchangeable notes as of June 30, 2010 and December 31, 2009 were as follows:
 
                 
    June 30,
    December 31,
 
(In thousands)   2010     2009  
 
Equity component — net carrying value
  $ 571,914     $ 576,626  
Liability component:
               
Face amount due at maturity
  $ 1,403,955     $ 1,685,220  
Less: Unamortized discount
    (58,445 )     (108,740 )
                 
Liability component — net carrying value
  $ 1,345,510     $ 1,576,480  
                 


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NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The remaining debt discount is amortized into interest expense over the expected remaining life of the convertible debt instrument using 5.9% as the effective interest rate. Interest expense related to the convertible debt instrument was recognized as follows:
 
                                 
    Three Months Ended
    Six Months Ended
 
    June 30,     June 30,  
    2010     2009     2010     2009  
(In thousands)                        
 
Interest expense on convertible debt instruments:
                               
Contractual coupon interest
  $ 3,592     $ 4,497     $ 7,502     $ 9,818  
Amortization of debt discount
    16,905       20,550       36,047       45,120  
                                 
Total interest expense
  $ 20,497     $ 25,047     $ 43,549     $ 54,938  
                                 
 
Between 2008 and through June 30, 2010, we have purchased approximately $1.3 billion par value of these notes in the open market, leaving approximately $1.4 billion par value outstanding.
 
We had four letter of credit facilities with various banks as of June 30, 2010. We did not have any short-term borrowings outstanding at June 30, 2010 and December 31, 2009. Availability under our credit facilities was as follows:
 
                 
    June 30,
    December 31,
 
    2010     2009  
(In thousands)            
 
Credit available
  $ 244,769     $ 245,442  
Letters of credit outstanding, inclusive of financial and performance guarantees
    (82,507 )     (71,389 )
                 
Remaining availability
  $ 162,262     $ 174,053  
                 
 
Note 8   Common Shares
 
During the six months ended June 30, 2010 and 2009, our employees exercised vested options to acquire .4 million and .1 million of our common shares, respectively, resulting in proceeds of $4.7 million and $.5 million, respectively.
 
During each of the six months ended June 30, 2010 and 2009, we withheld .1 million of our common shares with a fair value of $1.9 million and $1.5 million, respectively, to satisfy certain tax withholding obligations due in connection with the grants of stock awards under our 2003 Employee Stock Plan.
 
During the six months ended June 30, 2010, our outstanding shares increased by 103,925 pursuant to stock option share settlements and exercises by Messrs. Isenberg and Petrello. As part of the transactions, unexercised vested stock options were surrendered to Nabors with a value of approximately $5.9 million to satisfy some of the option exercise price and related income taxes.
 
Note 9   Commitments and Contingencies
 
Commitments
 
Employment Contracts
 
The employment agreements for Messrs. Isenberg and Petrello provide for an extension of the employment term through March 30, 2013, with automatic one-year extensions beginning April 1, 2011, unless either party gives notice of nonrenewal.


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NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
  •  In the event of Mr. Isenberg’s Termination Without Cause (including in the event of a change of control), or his death or disability, either he or his estate would be entitled to receive a payment of $100 million within 30 days thereafter.
 
  •  If Mr. Petrello experienced such a triggering event, he or his estate would be entitled to receive within 30 days thereafter a payment of $50 million; provided that in the event of Termination Without Cause or Constructive Termination Without Cause, a payment equal to three times the average of his base salary and annual bonus (calculated as though the bonus formula under his employment agreement as amended in April 2009 had been in effect) during the three fiscal years preceding the termination. If, by way of example, Mr. Petrello were Terminated Without Cause subsequent to June 30, 2010, his payment would be approximately $45 million. The formula will be further reduced to two times the average stated above effective April 1, 2015.
 
We do not have insurance to cover, and we have not recorded an expense or accrued a liability relating to, these potential obligations. See Note 16 — Commitments and Contingencies to our 2009 Annual Report for additional discussion and description of Messrs. Isenberg and Petrello’s employment agreements.
 
Contingencies
 
Income Tax Contingencies
 
We are subject to income taxes in the United States and numerous other jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes. In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain. We are regularly under audit by tax authorities. Although we believe our tax estimates are reasonable, the final determination of tax audits and any related litigation could be materially different than what is reflected in our income tax provisions and accruals. The results of an audit or litigation could materially affect our financial position, income tax provision, net income, or cash flows in the period or periods challenged.
 
A number of our United States and non-United States income tax returns from 1995 through 2008 are currently under audit examination. We anticipate that several of these audits could be finalized within the next 12 months. It is possible that the benefit that relates to our unrecognized tax positions could significantly increase or decrease within the next 12 months. However, based on the current status of examinations, and the protocol for finalizing audits with the relevant tax authorities, which could include formal legal proceedings, it is not possible to estimate the future impact of the amount of changes, if any, to record uncertain tax positions at June 30, 2010.
 
It is possible that future changes to tax laws (including tax treaties) could impact our ability to realize the tax savings recorded to date as well as future tax savings, resulting from our 2002 corporate reorganization. See Note 12 — Income Taxes to the audited financial statements in our 2009 Annual Report for additional discussion.
 
On September 14, 2006, Nabors Drilling International Limited, one of our wholly owned Bermuda subsidiaries (“NDIL”), received a Notice of Assessment (the “Notice”) from Mexico’s federal tax authorities in connection with the audit of NDIL’s Mexican branch for 2003. The Notice proposes to deny depreciation expense deductions relating to drilling rigs operating in Mexico in 2003. The Notice also proposes to deny a deduction for payments made to an affiliated company for the procurement of labor services in Mexico. The amount assessed was approximately $19.8 million (including interest and penalties). Nabors and its tax advisors previously concluded that the deductions were appropriate and more recently that the position of the tax authorities lacks merit. NDIL’s Mexican branch took similar deductions for depreciation and labor expenses from 2004 to 2008. On June 30, 2009, the tax authorities proposed similar assessments against the Mexican branch of another wholly owned Bermuda subsidiary, Nabors Drilling International II Ltd. (“NDIL II”) for 2006. We anticipate that a similar assessment will eventually be proposed against NDIL for 2004


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NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
through 2008 and against NDIL II for 2007 to 2010. We believe that the potential assessments will range from $6 million to $26 million per year for the period from 2004 to 2010, and in the aggregate, would be approximately $90 million to $95 million. Although we believe that any assessments relating to the 2004 to 2010 years would also lack merit, a reserve has been recorded in accordance with GAAP. If these additional assessments were made and we ultimately did not prevail, we would be required to recognize additional tax expense for the amount of the aggregate over the current reserve.
 
Self-Insurance
 
We estimate the level of our liability related to insurance and record reserves for these amounts in our consolidated financial statements. Our estimates are based on the facts and circumstances specific to existing claims and our past experience with similar claims. These loss estimates and accruals recorded in our financial statements for claims have historically been reasonable in light of the actual amount of claims paid. Although we believe our insurance coverage and reserve estimates are reasonable, a significant accident or other event that is not fully covered by insurance or contractual indemnity could occur and could materially affect our financial position and results of operations for a particular period.
 
We self-insure for certain losses relating to workers’ compensation, employers’ liability, general liability, automobile liability and property damage. Effective April 1, 2010 with our insurance renewal, our deductible for offshore rigs was reduced from $10.0 million to $5.0 million. Our self-insured retentions for all other types of claims for 2010 remain the same as 2009 and are more fully described in Note 16 — Commitments and Contingencies to the audited financial statements in our 2009 Annual Report.
 
Litigation
 
Nabors and its subsidiaries are defendants or otherwise involved in a number of lawsuits in the ordinary course of business. We estimate the range of our liability related to pending litigation when we believe the amount and range of loss can be estimated. We record our best estimate of a loss when the loss is considered probable. When a liability is probable and there is a range of estimated loss with no best estimate in the range, we record the minimum estimated liability related to the lawsuits or claims. As additional information becomes available, we assess the potential liability related to our pending litigation and claims and revise our estimates. Due to uncertainties related to the resolution of lawsuits and claims, the ultimate outcome may differ from our estimates. In the opinion of management and based on liability accruals provided, our ultimate exposure with respect to these pending lawsuits and claims is not expected to have a material adverse effect on our consolidated financial position or cash flows, although they could have a material adverse effect on our results of operations for a particular reporting period.
 
On July 5, 2007, we received an inquiry from the United States Department of Justice relating to its investigation of one of our vendors and compliance with the Foreign Corrupt Practices Act. The inquiry relates to transactions with and involving Panalpina, which provided freight forwarding and customs clearance services to some of our affiliates. To date, the inquiry has focused on transactions in Kazakhstan, Saudi Arabia, Algeria and Nigeria. The Audit Committee of our Board of Directors engaged outside counsel to review some of our transactions with this vendor, has received periodic updates at its regularly scheduled meetings, and the Chairman of the Audit Committee has received updates between meetings as circumstances warrant. The investigation includes a review of certain amounts paid to and by Panalpina in connection with obtaining permits for the temporary importation of equipment and clearance of goods and materials through customs. Both the SEC and the United States Department of Justice have been advised of our investigation. The ultimate outcome of this investigation or the effect of implementing any further measures that may be necessary to ensure full compliance with applicable laws cannot be determined at this time.
 
A court in Algeria entered a judgment of approximately $19.7 million against us related to alleged customs infractions in 2009. We believe we did not receive proper notice of the judicial proceedings and that


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NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
the amount of the judgment is excessive. We have asserted the lack of legally required notice as a basis for challenging the judgment on appeal to the Algeria Supreme Court. Based upon our understanding of applicable law and precedent, we believe that this challenge will be successful. We do not believe that a loss is probable and have not accrued any amounts related to this matter. However, the ultimate resolution and the timing thereof are uncertain. If we are ultimately required to pay a fine or judgment related to this matter, the amount of the loss could range from approximately $140,000 to $19.7 million.
 
Off-Balance Sheet Arrangements (Including Guarantees)
 
We are a party to some transactions, agreements or other contractual arrangements defined as “off-balance sheet arrangements” that could have a material future effect on our financial position, results of operations, liquidity and capital resources. The most significant of these off-balance sheet arrangements involve agreements and obligations under which we provide financial or performance assurance to third parties. Certain of these agreements serve as guarantees, including standby letters of credit issued on behalf of insurance carriers in conjunction with our workers’ compensation insurance program and other financial surety instruments such as bonds. We have also guaranteed payment of contingent consideration in conjunction with an acquisition in 2005. Potential contingent consideration is based on future operating results of the acquired business. In addition, we have provided indemnifications, which serve as guarantees, to some third parties. These guarantees include indemnification provided by Nabors to our share transfer agent and our insurance carriers. We cannot estimate the potential future maximum payments that might arise under our indemnification guarantees.
 
Management believes the likelihood that we would be required to perform or otherwise incur any material losses associated with these guarantees is remote. The following table summarizes the total maximum amount of financial guarantees issued by Nabors and guarantees representing contingent consideration in connection with the business combination:
 
                                         
    Maximum Amount  
    Remainder
                         
    of 2010     2011     2012     Thereafter     Total  
(In thousands)                              
 
Financial standby letters of credit and other financial surety instruments
  $ 46,515     $ 40,504     $ 354     $     $ 87,373  
Contingent consideration in acquisition
          4,250                   4,250  
                                         
Total
  $ 46,515     $ 44,754     $ 354     $     $ 91,623  
                                         


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NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Note 10   Earnings (Losses) Per Share
 
A reconciliation of the numerators and denominators of the basic and diluted earnings (losses) per share computations follows:
 
                                 
          Six Months Ended
 
    Three Months Ended June 30,     June 30,  
    2010     2009     2010     2009  
(In thousands, except per share amounts)                        
 
Net income (loss) attributable to Nabors (numerator):
                               
Net income (loss) attributable to Nabors — basic
  $ 43,621     $ (192,986 )   $ 83,821     $ (67,816 )
Add interest expense on assumed conversion of our 0.94% senior exchangeable notes due 2011, net of tax(1)
                       
                                 
Adjusted net income (loss) attributable to Nabors — diluted
  $ 43,621     $ (192,986 )   $ 83,821     $ (67,816 )
                                 
Earnings (losses) per share:
                               
Basic
  $ .15     $ (.68 )   $ .29     $ (.24 )
Diluted
  $ .15     $ (.68 )   $ .29     $ (.24 )
Shares (denominator):
                               
Weighted-average number of shares outstanding — basic(2)
    285,181       283,154       284,927       283,126  
Net effect of dilutive stock options, warrants and restricted stock awards based on the if-converted method
    4,615             5,339        
Assumed conversion of our 0.94% senior exchangeable notes due 2011(1)
                       
                                 
Weighted-average number of shares outstanding — diluted
    289,796       283,154       290,266       283,126  
                                 
 
 
(1) Diluted earnings (losses) per share for the three and six months ended June 30, 2010 and 2009 exclude any incremental shares issuable upon exchange of the 0.94% senior exchangeable notes due 2011. Between 2008 and through June 30, 2010, we purchased approximately $1.3 billion par value of these notes in the open market, leaving approximately $1.4 billion par value outstanding. The number of shares that we would be required to issue upon exchange consists of only the incremental shares that would be issued above the principal amount of the notes, as we would be required to pay cash up to the principal amount of the notes exchanged. We would issue an incremental number of shares only upon exchange of these notes. These shares are included in the calculation of the weighted-average number of shares outstanding in our diluted earnings per share calculation only when our stock price exceeds $45.83 as of the last trading day of the quarter and the average price of our shares for the ten consecutive trading days beginning on the third business day after the last trading day of the quarter exceeds $45.83, which did not occur during the three or six months ended June 30, 2010 and 2009.
 
(2) On July 31, 2009, the exchangeable shares of Nabors Exchangeco were exchanged for Nabors common shares on a one-for-one basis. Basic shares outstanding included (1) the weighted-average number of common shares and restricted stock of Nabors and (2) the weighted-average number of exchangeable shares of Nabors Exchangeco: 285.2 million and 284.9 million shares, cumulatively, for the three and six months ended June 30, 2010, 283.1 million and .1 million shares, respectively, for the three months ended June 30, 2009 and 283.0 million and .1 million shares, respectively, for the six months ended June 30, 2009.


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NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
 
For all periods presented, the computation of diluted earnings (losses) per share excluded outstanding stock options and warrants with exercise prices greater than the average market price of Nabors’ common shares, because their inclusion would have been anti-dilutive and because they were not considered participating securities. The average number of options and warrants that were excluded from diluted earnings (losses) per share that would have potentially diluted earnings per share in the future were 14,894,841 and 35,783,476 shares during the three months ended June 30, 2010 and 2009, respectively, and 12,475,355 and 33,403,319 shares during the six months ended June 30, 2010 and 2009, respectively. In any period during which the average market price of Nabors’ common shares exceeds the exercise prices of these stock options and warrants, such stock options and warrants are included in our diluted earnings (losses) per share computation using the if-converted method of accounting. Restricted stock is included in our basic and diluted earnings (losses) per share computation using the two-class method of accounting in all periods because it is considered a participating security.
 
Note 11   Supplemental Balance Sheet and Income Statement Information
 
At June 30, 2010, other long-term assets included a deposit of $40.0 million of restricted funds held at a financial institution to assure future credit availability for an unconsolidated affiliate. This cash is excluded from cash and cash equivalents in the Consolidated Balance Sheets and Statements of Cash Flows.
 
Accrued liabilities included the following:
 
                 
    June 30,
    December 31,
 
    2010     2009  
(In thousands)            
 
Accrued compensation
  $ 99,995     $ 79,195  
Deferred revenue
    60,743       57,563  
Other taxes payable
    21,549       33,126  
Workers’ compensation liabilities
    31,944       31,944  
Interest payable
    78,347       78,607  
Due to joint venture partners
    25,641       25,641  
Warranty accrual
    5,177       6,970  
Litigation reserves
    13,636       11,951  
Professional fees
    3,820       3,390  
Current deferred tax liability
          8,793  
Other accrued liabilities
    13,620       9,157  
                 
    $ 354,472     $ 346,337  
                 
 
Investment income included the following:
 
                 
    Six Months Ended June 30,  
    2010     2009  
(In thousands)            
 
Interest and dividend income
  $ 3,564     $ 13,795  
Gains (losses) on investments, net
    (3,399 )(1)     13,594  
                 
    $ 165     $ 27,389  
                 
 
 
(1) Includes unrealized losses of $6.4 million from our trading securities.


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NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
 
Losses (gains) on sales and retirements of long-lived assets and other expense (income), net included the following:
 
                 
    Six Months Ended June 30,  
    2010     2009  
(In thousands)            
 
Losses on sales and retirements of long-lived assets
  $ 3,804     $ 4,419  
Litigation expenses
    3,927       2,943  
Foreign currency transaction losses (gains)
    15,019 (1)     690  
Losses (gains) on derivative instruments
    391       (1,606 )
Losses (gains) on early debt extinguishment
    7,033       (15,969 )
Other gains
    1,087       (34 )
                 
    $ 31,261     $ (9,557 )
                 
 
 
(1) Includes $(8.2) million of foreign currency exchange losses for operations in Venezuela related to the Venezuela government’s decision to devalue its currency in January 2010.
 
Comprehensive income (loss) totaled $(34.0) and $(39.8) million for the three months ended June 30, 2010 and 2009, respectively.
 
Impairments and other charges included the following:
 
                 
    Six Months Ended
 
    June 30,  
    2010     2009  
(In thousands)            
 
Goodwill impairment
  $     $ 14,689 (1)
Impairment of long-lived assets to be disposed of other than by sale
          64,229 (2)
Impairment of oil and gas financing receivable
          112,516 (3)
Credit related impairment on investment
          35,649 (4)
                 
Total impairments and other charges
  $     $ 227,083  
                 
 
 
(1) Relates to Nabors Blue Sky Ltd., one of our Canadian subsidiaries reported in our Other Operating segments. This impairment eliminated the remaining goodwill balance related to operations in Canada and was deemed necessary due to the continued downturn in the oil and gas industry in Canada and lack of certainty regarding eventual recovery in the value of these operations.
 
(2) Includes retirement of some inactive rigs and rig components in our U.S. Offshore, Alaska, Canada and International Contract Drilling segments which reduced their aggregate carrying value from $69.0 million to their estimated aggregate salvage value. The impairment charges resulted from the continued deterioration and longer than expected downturn in the demand for oil and gas drilling activities.
 
(3) Includes impairment to some of our oil and gas financing receivables. During 2009, the lower price environment significantly reduced demand for future gas production and development in the Barnett Shale area of north central Texas, and influenced our decision not to expend capital on some of the undeveloped acreage.
 
(4) Includes other-than-temporary impairment to an available-for-sale debt security. This impairment related to an investment in a corporate bond that was downgraded to non-investment grade level by Standard and Poor’s and Moody’s Investors Service during 2009. These downgrades as well as the length of time and


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NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
extent to which the market value had been less than our cost led to our decision that the impairment was other-than-temporary.
 
Note 12   Segment Information
 
The following table sets forth financial information with respect to our reportable segments:
 
                                 
          Six Months Ended
 
    Three Months Ended June 30,     June 30,  
    2010     2009     2010     2009  
(In thousands)                        
 
Operating revenues and Earnings (losses) from unconsolidated affiliates:
                               
Contract Drilling:(1)
                               
U.S. Lower 48 Land Drilling
  $ 303,417     $ 249,859     $ 574,914     $ 639,738  
U.S. Land Well-servicing
    104,860       100,080       202,851       234,442  
U.S. Offshore
    38,978       41,947       77,176       102,339  
Alaska
    43,385       53,207       93,179       115,989  
Canada
    60,759       45,651       176,315       159,245  
International
    267,007       327,551       512,351       670,207  
                                 
Subtotal Contract Drilling(2)
    818,406       818,295       1,636,786       1,921,960  
Oil and Gas(3)
    20,202       (6,001 )     37,526       (66,045 )
Other Operating Segments(4)(5)
    107,749       104,931       203,262       260,399  
Other reconciling items(6)
    (31,081 )     (57,483 )     (56,588 )     (122,954 )
                                 
Total
  $ 915,276     $ 859,742     $ 1,820,986     $ 1,993,360  
                                 
Adjusted income derived from operating activities:(7)
                               
Contract Drilling:(1)
                               
U.S. Lower 48 Land Drilling
  $ 58,169     $ 70,075     $ 118,455     $ 199,317  
U.S. Land Well-servicing
    3,231       6,192       10,416       19,850  
U.S. Offshore
    8,104       6,724       15,477       23,554  
Alaska
    12,388       16,374       26,345       37,199  
Canada
    (9,497 )     (10,538 )     5,385       2,797  
International
    64,972       101,303       118,551       204,278  
                                 
Subtotal Contract Drilling(2)
    137,367       190,130       294,629       486,995  
Oil and Gas(3)
    147       (15,228 )     (580 )     (86,562 )
Other Operating Segments(4)(5)
    8,317       5,321       15,207       24,275  
Other reconciling items(8)
    (20,914 )     (106,775 )     (45,883 )     (152,177 )
                                 
Total adjusted income derived from operating activities
  $ 124,917     $ 73,448     $ 263,373     $ 272,531  
Interest expense
    (65,226 )     (66,027 )     (131,971 )     (133,105 )
Investment income
    2,525       18,248       165       27,389  
Gains (losses) on sales and retirements of long-lived assets and other income (expense), net
    (10,952 )     (6,689 )     (31,261 )     9,557  
Impairments and other charges
          (227,083 )           (227,083 )
                                 
Income (loss) before income taxes
    51,264       (208,103 )     100,306       (50,711 )
Income tax expense (benefit)
    8,202       (14,897 )     18,146       18,376  
                                 
Net income (loss)
    43,062       (193,206 )     82,160       (69,087 )
Less: Net loss attributable to noncontrolling interest
    559       220       1,661       1,271  
                                 
Net income (loss) attributable to Nabors
  $ 43,621     $ (192,986 )   $ 83,821     $ (67,816 )
                                 
 


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NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
                 
    June 30,
    December 31,
 
    2010     2009  
(In thousands)            
 
Total assets:
               
Contract Drilling:(9)
               
U.S. Lower 48 Land Drilling
  $ 2,649,472     $ 2,609,101  
U.S. Land Well-servicing
    590,652       594,456  
U.S. Offshore
    441,083       440,556  
Alaska
    349,672       373,146  
Canada
    940,209       984,740  
International
    3,164,646       3,151,513  
                 
Subtotal Contract Drilling
    8,135,734       8,153,512  
Oil and Gas(10)
    899,217       835,465  
Other Operating Segments(11)
    544,167       502,501  
Other reconciling items(9)(12)
    921,023       1,153,212  
                 
Total assets
  $ 10,500,141     $ 10,644,690  
                 
 
 
(1) These segments include our drilling, well-servicing and workover operations, on land and offshore.
 
(2) Includes earnings (losses), net from unconsolidated affiliates, accounted for using the equity method, of $2.9 million and $.6 million for the three months ended June 30, 2010 and 2009, respectively, and $3.0 million and $1.9 million for the six months ended June 30, 2010 and 2009, respectively.
 
(3) Includes earnings (losses), net from unconsolidated affiliates, accounted for using the equity method, of $4.6 million and $(11.0) million for the three months ended June 30, 2010 and 2009, respectively, and $5.1 million and $(83.3) million for the six months ended June 30, 2010 and 2009, respectively.
 
(4) Includes our drilling technology and top drive manufacturing, directional drilling, rig instrumentation and software, and construction and logistics operations.
 
(5) Includes earnings (losses), net from unconsolidated affiliates, accounted for using the equity method, of $2.7 million and $2.3 million for the three months ended June 30, 2010 and 2009, respectively, and $5.8 million and $8.8 million for the six months ended June 30, 2010 and 2009, respectively.
 
(6) Represents the elimination of inter-segment transactions.
 
(7) Adjusted income derived from operating activities is computed by subtracting direct costs, general and administrative expenses, depreciation and amortization, and depletion expense from “Operating revenues” and then adding “Earnings (losses) from unconsolidated affiliates.” These amounts should not be used as a substitute for those amounts reported under GAAP. However, management evaluates the performance of our business units and the consolidated company based on several criteria, including adjusted income derived from operating activities, because it believes that these financial measures are an accurate reflection of our ongoing profitability. A reconciliation of this non-GAAP measure to income before income taxes, which is a GAAP measure, is provided within the above table.
 
(8) Represents the elimination of inter-segment transactions and unallocated corporate expenses, assets and capital expenditures.
 
(9) Includes $52.8 million and $49.8 million of investments in unconsolidated affiliates accounted for using the equity method as of June 30, 2010 and December 31, 2009, respectively.
 
(10) Includes $198.6 million and $190.1 million of investments in unconsolidated affiliates accounted for using the equity method as of June 30, 2010 and December 31, 2009, respectively.

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NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
 
(11) Includes $68.0 million and $65.8 million of investments in unconsolidated affiliates accounted for using the equity method as of June 30, 2010 and December 31, 2009, respectively.
 
(12) Includes $1.9 million and $.9 million of investments in unconsolidated affiliates accounted for using the cost method as of June 30, 2010 and December 31, 2009, respectively.
 
Note 13   Condensed Consolidating Financial Information
 
Nabors has fully and unconditionally guaranteed all of the issued public debt securities of Nabors Delaware, and Nabors and Nabors Delaware fully and unconditionally guaranteed the 4.875% senior notes due August 2009 issued by Nabors Holdings 1, ULC, an unlimited liability company formed under the Companies Act of Nova Scotia, Canada and a subsidiary of Nabors. On August 17, 2009, we paid $168.4 million to discharge the remaining balance of the 4.875% senior notes. Effective September 30, 2009, Nabors Holdings 1, ULC was amalgamated with Nabors Drilling Canada ULC, the successor company.
 
The following condensed consolidating financial information is included so that separate financial statements of Nabors Delaware and Nabors Holdings 1, ULC are not required to be filed with the SEC. The condensed consolidating financial statements present investments in both consolidated and unconsolidated affiliates using the equity method of accounting.
 
The following condensed consolidating financial information presents condensed consolidating balance sheets as of June 30, 2010 and December 31, 2009, statements of income for the three and six months ended June 30, 2010 and 2009, and the consolidating statements of cash flows for the six months ended June 30, 2010 and 2009 of (a) Nabors, parent/guarantor, (b) Nabors Delaware, issuer of public debt securities guaranteed by Nabors and guarantor of the 4.875% senior notes issued by Nabors Holdings 1, ULC, (c) Nabors Holdings 1, ULC, issuer of the 4.875% senior notes, (d) the nonguarantor subsidiaries, (e) consolidating adjustments necessary to consolidate Nabors and its subsidiaries and (f) Nabors on a consolidated basis.


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NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Condensed Consolidating Balance Sheets
 
                                                 
    June 30, 2010  
          Nabors
                         
    Nabors
    Delaware
    Nabors
    Other
             
    (Parent/
    (Issuer/
    Holdings
    Subsidiaries
    Consolidating
    Consolidated
 
(In thousands)   Guarantor)     Guarantor)     (Issuer)     (Nonguarantors)     Adjustments     Total  
 
ASSETS
Current assets:
                                               
Cash and cash equivalents
  $ 14,630     $ 2,776     $     $ 730,187     $     $ 747,593  
Short-term investments
                      145,283             145,283  
Accounts receivable, net
                      762,589             762,589  
Inventory
                      107,549             107,549  
Deferred income taxes
                      128,555             128,555  
Other current assets
    50       18,203             115,586             133,839  
                                                 
Total current assets
    14,680       20,979             1,989,749             2,025,408  
Long-term investments and other receivables
                      93,965             93,965  
Property, plant and equipment, net
          46,012             7,595,551             7,641,563  
Goodwill
                      164,078             164,078  
Intercompany receivables
    162,281       123,504             230,784       (516,569 )      
Investment in unconsolidated affiliates
    5,040,905       5,181,022             2,171,999       (12,072,633 )     321,293  
Other long-term assets
          27,008             226,826             253,834  
                                                 
Total assets
  $ 5,217,866     $ 5,398,525     $     $ 12,472,952     $ (12,589,202 )   $ 10,500,141  
                                                 
 
LIABILITIES AND EQUITY
Current liabilities:
                                               
Current portion of long-term debt
  $     $ 1,345,510     $     $ 309     $     $ 1,345,819  
Trade accounts payable
    3                   255,473             255,476  
Accrued liabilities
    1,555       78,120             274,797             354,472  
Income taxes payable
          9,389             22,926             32,315  
                                                 
Total current liabilities
    1,558       1,433,019             553,505             1,988,082  
Long-term debt
          2,364,334             369             2,364,703  
Other long-term liabilities
          4,864             239,287             244,151  
Deferred income taxes
          127,147             547,649             674,796  
Intercompany payable
                      516,569       (516,569 )      
                                                 
Total liabilities
    1,558       3,929,364             1,857,379       (516,569 )     5,271,732  
                                                 
Shareholders’ equity
    5,216,308       1,469,161             10,603,472       (12,072,633 )     5,216,308  
Noncontrolling interest
                      12,101             12,101  
                                                 
Total equity
    5,216,308       1,469,161             10,615,573       (12,072,633 )     5,228,409  
                                                 
Total liabilities and equity
  $ 5,217,866     $ 5,398,525     $     $ 12,472,952     $ (12,589,202 )   $ 10,500,141  
                                                 
 


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NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
                                                 
    December 31, 2009  
          Nabors
                         
    Nabors
    Delaware
    Nabors
    Other
             
    (Parent/
    (Issuer/
    Holdings
    Subsidiaries
    Consolidating
    Consolidated
 
(In thousands)   Guarantor)     Guarantor)     (Issuer)     (Nonguarantors)     Adjustments     Total  
 
ASSETS
Current assets:
                                               
Cash and cash equivalents
  $ 11,702     $ 135     $     $ 915,978     $     $ 927,815  
Short-term investments
                      163,036             163,036  
Accounts receivable, net
                      724,040             724,040  
Inventory
                      100,819             100,819  
Deferred income taxes
                      125,163             125,163  
Other current assets
    50       22,686             113,055             135,791  
                                                 
Total current assets
    11,752       22,821             2,142,091             2,176,664  
Long-term investments and other receivables
                      100,882             100,882  
Property, plant and equipment, net
          46,473             7,599,577             7,646,050  
Goodwill
                      164,265             164,265  
Intercompany receivables
    233,482       415,006             230,784       (879,272 )      
Investment in unconsolidated affiliates
    4,923,949       5,110,430             2,168,884       (11,896,655 )     306,608  
Other long-term assets
          29,952             220,269             250,221  
                                                 
Total assets
  $ 5,169,183     $ 5,624,682     $     $ 12,626,752     $ (12,775,927 )   $ 10,644,690  
                                                 
 
LIABILITIES AND EQUITY
Current liabilities:
                                               
Current portion of long-term debt
  $     $     $     $ 163     $     $ 163  
Trade accounts payable
    20       8             226,395             226,423  
Accrued liabilities
    1,507       78,359             266,471             346,337  
Income taxes payable
          9,530             26,169             35,699  
                                                 
Total current liabilities
    1,527       87,897             519,198             608,622  
Long-term debt
          3,939,896             709             3,940,605  
Other long-term liabilities
          3,446             236,611             240,057  
Deferred income taxes
          112,760             560,667             673,427  
Intercompany payable
                      879,272       (879,272 )      
                                                 
Total liabilities
    1,527       4,143,999             2,196,457       (879,272 )     5,462,711  
                                                 
Shareholders’ equity
    5,167,656       1,480,683             10,415,972       (11,896,655 )     5,167,656  
Noncontrolling interest
                      14,323             14,323  
                                                 
Total equity
    5,167,656       1,480,683             10,430,295       (11,896,655 )     5,181,979  
                                                 
Total liabilities and equity
  $ 5,169,183     $ 5,624,682     $     $ 12,626,752     $ (12,775,927 )   $ 10,644,690  
                                                 

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NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Condensed Consolidating Statements of Income
 
                                                 
    Three Months Ended June 30, 2010  
          Nabors
                         
    Nabors
    Delaware
    Nabors
    Other
             
    (Parent/
    (Issuer/
    Holdings
    Subsidiaries
    Consolidating
    Consolidated
 
(In thousands)   Guarantor)     Guarantor)     (Issuer)     (Nonguarantors)     Adjustments     Total  
 
Revenues and other income:
                                               
Operating revenues
  $     $     $     $ 905,058     $     $ 905,058  
Earnings (losses) from unconsolidated affiliates
                      10,218             10,218  
Earnings (losses) from consolidated affiliates
    40,070       54,499             23,802       (118,371 )      
Investment income
    3                   2,522             2,525  
Intercompany interest income
          17,828                   (17,828 )      
                                                 
Total revenues and other income
    40,073       72,327             941,600       (136,199 )     917,801  
                                                 
Costs and other deductions:
                                               
Direct costs
                      524,240             524,240  
General and administrative expenses
    1,573       108             79,497       (182 )     80,996  
Depreciation and amortization
          700             175,501             176,201  
Depletion
                      8,922             8,922  
Interest expense
          67,516             (2,290 )           65,226  
Intercompany interest expense
                      17,828       (17,828 )      
Losses (gains) on sales and retirements of long-lived assets and other expense (income), net
    (5,121 )     9,781             6,110       182       10,952  
                                                 
Total costs and other deductions
    (3,548 )     78,105             809,808       (17,828 )     866,537  
                                                 
Income (loss) before income taxes
    43,621       (5,778 )           131,792       (118,371 )     51,264  
Income tax expense (benefit)
          (22,302 )           30,504             8,202  
                                                 
Net income (loss)
    43,621       16,524             101,288       (118,371 )     43,062  
Less: Net loss attributable to noncontrolling interest
                      559             559  
                                                 
Net income (loss) attributable to Nabors
  $ 43,621     $ 16,524     $     $ 101,847     $ (118,371 )   $ 43,621  
                                                 
 


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NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
                                                 
    Three Months Ended June 30, 2009  
          Nabors
                         
    Nabors
    Delaware
    Nabors
    Other
             
    (Parent/
    (Issuer/
    Holdings
    Subsidiaries
    Consolidating
    Consolidated
 
(In thousands)   Guarantor)     Guarantor)     (Issuer)     (Nonguarantors)     Adjustments     Total  
 
Revenues and other income:
                                               
Operating revenues
  $     $     $     $ 867,869     $     $ 867,869  
Earnings (losses) from unconsolidated affiliates
                      (8,127 )           (8,127 )
Earnings (losses) from consolidated affiliates
    (175,301 )     (227,595 )     (90,745 )     (260,209 )     753,850        
Investment income
    13       528             17,707             18,248  
Intercompany interest income
          14,979       2,194             (17,173 )      
                                                 
Total revenues and other income
    (175,288 )     (212,088 )     (88,551 )     617,240       736,677       877,990  
                                                 
Costs and other deductions:
                                               
Direct costs
                      453,922             453,922  
General and administrative expenses
    17,698       60             146,295       (245 )     163,808  
Depreciation and amortization
                      165,974             165,974  
Depletion
                      2,590             2,590  
Interest expense
          72,287       2,141       (8,401 )           66,027  
Intercompany interest expense
                      17,173       (17,173 )      
Losses (gains) on sales and retirements of long-lived assets and other expense (income), net
          843       (11,111 )     16,712       245       6,689  
Impairments and other charges
                      227,083             227,083  
                                                 
Total costs and other deductions
    17,698       73,190       (8,970 )     1,021,348       (17,173 )     1,086,093  
                                                 
Income (loss) before income taxes
    (192,986 )     (285,278 )     (79,581 )     (404,108 )     753,850       (208,103 )
Income tax expense (benefit)
          (21,343 )     17,453       (11,007 )           (14,897 )
                                                 
Net income (loss)
    (192,986 )     (263,935 )     (97,034 )     (393,101 )     753,850       (193,206 )
Less: Net loss attributable to noncontrolling interest
                      220             220  
                                                 
Net income (loss) attributable to Nabors
  $ (192,986 )   $ (263,935 )   $ (97,034 )   $ (392,881 )   $ 753,850     $ (192,986 )
                                                 
 

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NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
                                                 
    Six Months Ended June 30, 2010  
          Nabors
                         
    Nabors
    Delaware
    Nabors
    Other
             
    (Parent/
    (Issuer/
    Holdings
    Subsidiaries
    Consolidating
    Consolidated
 
(In thousands)   Guarantor)     Guarantor)     (Issuer)     (Nonguarantors)     Adjustments     Total  
 
Revenues and other income:
                                               
Operating revenues
  $     $     $     $ 1,807,107     $     $ 1,807,107  
Earnings (losses) from unconsolidated affiliates
                      13,879             13,879  
Earnings (losses) from consolidated affiliates
    74,016       72,275             8,010       (154,301 )      
Investment income
    7                   158             165  
Intercompany interest income
          35,943                   (35,943 )      
                                                 
Total revenues and other income
    74,023       108,218             1,829,154       (190,244 )     1,821,151  
                                                 
Costs and other deductions:
                                               
Direct costs
                      1,036,642             1,036,642  
General and administrative expenses
    3,783       179             153,129       (272 )     156,819  
Depreciation and amortization
          1,561             346,914             348,475  
Depletion
                      15,677             15,677  
Interest expense
          137,715             (5,744 )           131,971  
Intercompany interest expense
                      35,943       (35,943 )      
Losses (gains) on sales and retirements of long-lived assets and other expense (income), net
    (13,581 )     21,292             23,278       272       31,261  
                                                 
Total costs and other deductions
    (9,798 )     160,747             1,605,839       (35,943 )     1,720,845  
                                                 
Income (loss) before income taxes
    83,821       (52,529 )           223,315       (154,301 )     100,306  
Income tax expense (benefit)
          (46,177 )           64,323             18,146  
                                                 
Net income (loss)
    83,821       (6,352 )           158,992       (154,301 )     82,160  
Less: Net loss attributable to noncontrolling interest
                      1,661             1,661  
                                                 
Net income (loss) attributable to Nabors
  $ 83,821     $ (6,352 )   $     $ 160,653     $ (154,301 )   $ 83,821  
                                                 
 

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NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
                                                 
    Six Months Ended June 30, 2009  
          Nabors
                         
    Nabors
    Delaware
    Nabors
    Other
             
    (Parent/
    (Issuer/
    Holdings
    Subsidiaries
    Consolidating
    Consolidated
 
(In thousands)   Guarantor)     Guarantor)     (Issuer)     (Nonguarantors)     Adjustments     Total  
 
Revenues and other income:
                                               
Operating revenues
  $     $     $     $ 2,065,914     $     $ 2,065,914  
Earnings (losses) from unconsolidated affiliates
                      (72,554 )           (72,554 )
Earnings (losses) from consolidated affiliates
    (53,028 )     (186,688 )     (86,759 )     (243,740 )     570,215        
Investment income
    50       2,343       1       24,995             27,389  
Intercompany interest income
          29,250       4,442             (33,692 )      
                                                 
Total revenues and other income
    (52,978 )     (155,095 )     (82,316 )     1,774,615       536,523       2,020,749  
                                                 
Costs and other deductions:
                                               
Direct costs
                      1,119,209             1,119,209  
General and administrative expenses
    23,450       208       1       247,863       (371 )     271,151  
Depreciation and amortization
          150             324,976             325,126  
Depletion
                      5,343             5,343  
Interest expense
          145,768       4,563       (17,226 )           133,105  
Intercompany interest expense
                      33,692       (33,692 )      
Losses (gains) on sales, retirements and impairments of long-lived assets and other expense (income), net
    (8,612 )     (9,219 )     (6,137 )     14,040       371       (9,557 )
                                                 
Impairments and other charges
                      227,083             227,083  
Total costs and other deductions
    14,838       136,907       (1,573 )     1,954,980       (33,692 )     2,071,460  
                                                 
Income (loss) before income taxes
    (67,816 )     (292,002 )     (80,743 )     (180,365 )     570,215       (50,711 )
Income tax expense (benefit)
          (38,966 )     17,081       40,261             18,376  
                                                 
Net income (loss)
    (67,816 )     (253,036 )     (97,824 )     (220,626 )     570,215       (69,087 )
Less: Net loss attributable to noncontrolling interest
                      1,271             1,271  
                                                 
Net income (loss) attributable to Nabors
  $ (67,816 )   $ (253,036 )   $ (97,824 )   $ (219,355 )   $ 570,215     $ (67,816 )
                                                 

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NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Condensed Consolidating Statements of Cash Flows
 
                                                 
    Six Months Ended June 30, 2010  
          Nabors
                         
    Nabors
    Delaware
    Nabors
    Other
             
    (Parent/
    (Issuer/
    Holdings
    Subsidiaries
    Consolidating
    Consolidated
 
(In thousands)   Guarantor)     Guarantor)     (Issuer)     (Nonguarantors)     Adjustments     Total  
 
Net cash provided by (used for) operating activities
  $ 88,082     $ 279,825     $     $ 102,002     $     $ 469,909  
                                                 
Cash flows from investing activities:
                                               
Purchases of investments
                      (27,988 )           (27,988 )
Sales and maturities of investments
                      27,997             27,997  
Investment in unconsolidated affiliates
                      (10,936 )           (10,936 )
Capital expenditures
                      (369,455 )           (369,455 )
Proceeds from sales of assets and insurance claims
                      17,567             17,567  
Cash paid for investments in consolidated affiliates
    (88,000 )                       88,000        
                                                 
Net cash provided by (used for) investing activities
    (88,000 )                 (362,815 )     88,000       (362,815 )
                                                 
Cash flows from financing activities:
                                               
Increase (decrease) in cash overdrafts
                      (6,130 )           (6,130 )
Proceeds from issuance of common shares, net
    4,733                               4,733  
Reduction in long-term debt
          (273,605 )                       (273,605 )
Repurchase of equity component of convertible debt
          (4,712 )                       (4,712 )
Settlement of call options and warrants, net
          1,133                         1,133  
Purchase of restricted stock
    (1,887 )                             (1,887 )
Tax benefit related to share-based awards
                      (45 )           (45 )
Proceeds from parent contributions
                      88,000       (88,000 )      
                                                 
Net cash (used for) provided by financing activities
    2,846       (277,184 )           81,825       (88,000 )     (280,513 )
Effect of exchange rate changes on cash and cash equivalents
                      (6,803 )           (6,803 )
                                                 
Net (decrease) increase in cash and cash equivalents
    2,928       2,641             (185,791 )           (180,222 )
Cash and cash equivalents, beginning of period
    11,702       135             915,978             927,815  
                                                 
Cash and cash equivalents, end of period
  $ 14,630     $ 2,776     $     $ 730,187     $     $ 747,593  
                                                 


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NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
                                                 
    Six Months Ended June 30, 2009  
          Nabors
                         
    Nabors
    Delaware
    Nabors
    Other
             
    (Parent/
    (Issuer/
    Holdings
    Subsidiaries
    Consolidating
    Consolidated
 
(In thousands)   Guarantor)     Guarantor)     (Issuer)     (Nonguarantors)     Adjustments     Total  
 
Net cash provided by (used for) operating activities
  $ 899     $ (364,872 )   $ (727 )   $ 1,372,015     $     $ 1,007,315  
                                                 
Cash flows from investing activities:
                                               
Purchases of investments
                      (22,614 )           (22,614 )
Sales and maturities of investments
                      39,592             39,592  
Investment in unconsolidated affiliates
                      (100,670 )           (100,670 )
Capital expenditures
                      (710,849 )           (710,849 )
Proceeds from sales of assets and insurance claims
                      12,791             12,791  
Cash paid for investments in consolidated affiliates
    (7,900 )                       7,900        
                                                 
Net cash provided by (used for) investing activities
    (7,900 )                 (781,750 )     7,900       (781,750 )
                                                 
Cash flows from financing activities:
                                               
Increase (decrease) in cash overdrafts
                      (15,715 )           (15,715 )
Proceeds from long-term debt
          1,124,978                         1,124,978  
Debt issuance costs
          (8,699 )                       (8,699 )
Intercompany debt
          (56,575 )     56,575                    
Proceeds from issuance of common shares, net
    549                               549  
Reduction in long-term debt
          (688,195 )     (56,766 )     (251 )           (745,212 )
Repurchase of equity component of convertible debt
          (1,541 )                       (1,541 )
Purchase of restricted stock
    (1,496 )                             (1,496 )
Tax benefit related to share-based awards
          105                         105  
Proceeds from parent contributions
                      7,900       (7,900 )      
                                                 
Net cash (used for) provided by financing activities
    (947 )     370,073       (191 )     (8,066 )     (7,900 )     352,969  
                                                 
Effect of exchange rate changes on cash and cash equivalents
                      3,032             3,032  
                                                 
Net (decrease) increase in cash and cash equivalents
    (7,948 )     5,201       (918 )     585,231             581,566  
Cash and cash equivalents, beginning of period
    8,291       96       1,259       432,441             442,087  
                                                 
Cash and cash equivalents, end of period
  $ 343     $ 5,297     $ 341     $ 1,017,672     $     $ 1,023,653  
                                                 


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Note 14   Subsequent Events
 
On August 6, 2010, we entered into a definitive merger agreement with Superior Well Services, Inc. (“Superior”) which contemplates that Nabors will commence a cash tender offer to acquire all of the issued and outstanding common shares of Superior at a price of $22.12 per share, or approximately $700 million. When combined with Superior’s outstanding debt and preferred stock, the total value of the transaction is approximately $900 million. The closing of the transaction is subject to customary closing conditions. We anticipate that closing of this transaction will occur in the third or fourth quarter of 2010.
 
Superior provides a wide range of wellsite solutions to oil and natural gas companies, primarily technical pumping services and down-hole surveying services. Substantially all of its customers are U.S. oil and natural gas exploration and production companies.


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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors and Shareholders
of Nabors Industries Ltd.:
 
We have reviewed the accompanying consolidated balance sheet of Nabors Industries Ltd. and its subsidiaries (the “Company”) as of June 30, 2010, and the related consolidated statements of income for the three-month and six-month periods ended June 30, 2010 and 2009, and the consolidated statement of cash flows and of changes in equity for the six-month periods ended June 30, 2010 and 2009. This interim financial information is the responsibility of the Company’s management.
 
We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), 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 consolidated interim financial information for it to be in conformity with accounting principles generally accepted in the United States of America.
 
We previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of December 31, 2009, and the related consolidated statements of income, changes in equity and of cash flows for the year then ended (not presented herein), and in our report dated February 26, 2010, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet information as of December 31, 2009, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.
 
/s/  PricewaterhouseCoopers LLP
 
Houston, Texas
August 9, 2010


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Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
FORWARD-LOOKING STATEMENTS
 
We often discuss expectations regarding our future markets, demand for our products and services, and our performance in our annual and quarterly reports, press releases, and other written and oral statements. Statements that relate to matters that are not historical facts are “forward-looking statements” within the meaning of the safe harbor provisions of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act. These forward-looking statements are based on an analysis of currently available competitive, financial and economic data and our operating plans. They are inherently uncertain and investors should recognize that events and actual results could turn out to be significantly different from our expectations. By way of illustration, when used in this document, words such as “anticipate,” “believe,” “expect,” “plan,” “intend,” “estimate,” “project,” “will,” “should,” “could,” “may,” “predict” and similar expressions are intended to identify forward-looking statements.
 
You should consider the following key factors when evaluating these forward-looking statements:
 
  •  fluctuations in worldwide prices of and demand for natural gas and oil;
 
  •  fluctuations in levels of natural gas and oil exploration and development activities;
 
  •  fluctuations in the demand for our services;
 
  •  the existence of competitors, technological changes and developments in the oilfield services industry;
 
  •  the existence of operating risks inherent in the oilfield services industry;
 
  •  the existence of regulatory and legislative uncertainties;
 
  •  the possibility of changes in tax laws;
 
  •  the possibility of political instability, war or acts of terrorism in any of the countries in which we do business; and
 
  •  general economic conditions including the capital and credit markets.
 
Our 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 natural gas or oil, which could have a material impact on exploration, development and production activities, could also materially affect our financial position, results of operations and cash flows.
 
The above description of risks and uncertainties is by no means all-inclusive, but is designed to highlight what we believe are important factors to consider. For a more detailed description of risk factors, please refer to our 2009 Annual Report under Part I, Item 1A. — Risk Factors.
 
Management Overview
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to help the reader understand the results of our operations and our financial condition. This information is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying notes thereto.
 
The majority of our business is conducted through our various Contract Drilling operating segments, which include our drilling, well-servicing and workover operations, on land and offshore. Our oil and gas exploration, development and production operations are included in our Oil and Gas operating segment. Our operating segments engaged in drilling technology and top drive manufacturing, directional drilling, rig instrumentation and software, and construction and logistics operations are aggregated in our Other Operating Segments.


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Natural gas prices are the primary drivers of our U.S. Lower 48 Land Drilling and Canadian Contract Drilling operations, while oil prices are the primary driver in our Alaskan, International, U.S. Offshore (Gulf of Mexico), Canadian Well-servicing and U.S. Land Well-servicing operations. The Henry Hub natural gas spot price (per Bloomberg) averaged $4.23 per million cubic feet (mcf) during the 12-month period ended June 30, 2010, down from a $5.93 per mcf average during the prior 12 months. West Texas intermediate spot oil prices (per Bloomberg) averaged $75.17 per barrel for the 12 months ended June 30, 2010, up from a $70.44 per barrel average during the preceding 12 months.
 
Operating revenues and Earnings (losses) from unconsolidated affiliates for the three months ended June 30, 2010 totaled $915.3 million, representing an increase of $55.5 million, or 6% as compared to the three months ended June 30, 2009, and $1.8 billion for the six months ended June 30, 2010, representing a decrease of $172.4 million, or 9%, as compared to the six months ended June 30, 2009. Adjusted income derived from operating activities for the three months ended June 30, 2010 totaled $124.9 million, representing an increase of 70%, compared to the three months ended June 30, 2009. Net income attributable to Nabors totaled $43.6 million ($.15 per diluted share) for the three months ended June 30, 2010 as compared to a net loss attributable to Nabors of $193.0 million ($ (.68) per diluted share) during the 2009 corresponding quarter. Adjusted income derived from operating activities for the six months ended June 30, 2010 decreased by 3% totaling $263.4 million compared to the six months ended June 30, 2009. Net income attributable to Nabors for the six months ended June 30, 2010 totaled $83.8 million ($.29 per diluted share), compared to the net loss attributable to Nabors during the six months ended June 30, 2009 of $ 67.8 million ($ (.24) per diluted share).
 
Our operating results during the six months ended June 30, 2010 were lower than the corresponding 2009 period primarily due to the continuing weak environment in our U.S. Lower 48 Land Drilling, U.S. Land Well-servicing, Alaska, U.S. Offshore and International operations where activity levels and demand for our drilling rigs have decreased substantially in response to sustained oil and gas price deterioration and an unpredictable recovery of the economic environment. Operating results have been further negatively impacted by higher levels of depreciation expense due to our increased capital expenditures in recent years.
 
Excluding the impairments and other charges recorded during 2009, our operating results for 2010 are expected to approximate levels realized during 2009 based on anticipated continuation of lower commodity prices during 2010 and the related impact on drilling and well-servicing activity and dayrates. Additionally, operating results have been and continue to be impacted in our U.S. Offshore segment by our customers’ suspension of most operations in the Gulf of Mexico, largely as a result of their inability to obtain government permits. We expect our International results to decline during 2010 as a result of lower drilling activity and utilization, partially offset by the deployment of new and incremental rigs under long-term contracts and the renewal of multi-year contracts. We expect the decrease in drilling activity and dayrates to continue to adversely impact our U.S. Lower 48 Land Drilling and Alaska operations for 2010, as compared to 2009, because the number of working rigs and average dayrates have declined. Although rig count is expected to be lower overall, the reductions consist primarily of lower yielding assets, with some higher margin contracts remaining in place and some contracts rolling over at lower current-market rates. Our investments in new and upgraded rigs over the past five years have resulted in long-term contracts which we expect will enhance our competitive position when market conditions improve.


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The following tables set forth certain information with respect to our reportable segments and rig activity:
 
                                                                 
    Three Months
                Six Months
             
    Ended June 30,     Increase/
    Ended June 30,     Increase/
 
    2010     2009     (Decrease)     2010     2009     (Decrease)  
(In thousands, except percentages and rig activity)  
 
Reportable segments:
                                                               
Operating revenues and Earnings (losses) from unconsolidated affiliates:
                                                               
Contract Drilling: (1)
                                                               
U.S. Lower 48 Land Drilling
  $ 303,417     $ 249,859     $ 53,558       21 %   $ 574,914     $ 639,738     $ (64,824 )     (10 %)
U.S. Land Well-servicing
    104,860       100,080       4,780       5 %     202,851       234,442       (31,591 )     (13 %)
U.S. Offshore
    38,978       41,947       (2,969 )     (7 %)     77,176       102,339       (25,163 )     (25 %)
Alaska
    43,385       53,207       (9,822 )     (18 %)     93,179       115,989       (22,810 )     (20 %)
Canada
    60,759       45,651       15,108       33 %     176,315       159,245       17,070       11 %
International
    267,007       327,551       (60,544 )     (18 %)     512,351       670,207       (157,856 )     (24 %)
                                                                 
Subtotal Contract Drilling(2)
    818,406       818,295       111       0 %     1,636,786       1,921,960       (285,174 )     (15 %)
Oil and Gas(3)
    20,202       (6,001 )     26,203       437 %     37,526       (66,045 )     103,571       157 %
Other Operating Segments(4)(5)
    107,749       104,931       2,818       3 %     203,262       260,399       (57,137 )     (22 %)
Other reconciling items(6)
    (31,081 )     (57,483 )     26,402       46 %     (56,588 )     (122,954 )     66,366       54 %
                                                                 
Total
  $ 915,276     $ 859,742     $ 55,534       6 %   $ 1,820,986     $ 1,993,360     $ (172,374 )     (9 %)
                                                                 
Adjusted income derived from operating activities(7):
                                                               
Contract Drilling:(1)
                                                               
U.S. Lower 48 Land Drilling
  $ 58,169     $ 70,075     $ (11,906 )     (17 %)   $ 118,455     $ 199,317     $ (80,862 )     (41 %)
U.S. Land Well-servicing
    3,231       6,192       (2,961 )     (48 %)     10,416       19,850       (9,434 )     (48 %)
U.S. Offshore
    8,104       6,724       1,380       21 %     15,477       23,554       (8,077 )     (34 %)
Alaska
    12,388       16,374       (3,986 )     (24 %)     26,345       37,199       (10,854 )     (29 %)
Canada
    (9,497 )     (10,538 )     1,041       10 %     5,385       2,797       2,588       93 %
International
    64,972       101,303       (36,331 )     (36 %)     118,551       204,278       (85,727 )     (42 %)
                                                                 
Subtotal Contract Drilling(2)
    137,367       190,130       (52,763 )     (28 %)     294,629       486,995       (192,366 )     (40 %)
Oil and Gas(3)
    147       (15,228 )     15,375       101 %     (580 )     (86,562 )     85,982       99 %
Other Operating Segments(5)(6)
    8,317       5,321       2,996       56 %     15,207       24,275       (9,068 )     (37 %)
Other reconciling items(8)
    (20,914 )     (106,775 )     85,861       80 %     (45,883 )     (152,177 )     106,294       70 %
                                                                 
Total
  $ 124,917     $ 73,448     $ 51,469       70 %   $ 263,373     $ 272,531     $ (9,158 )     (3 %)
                                                                 
Interest expense
    (65,226 )     (66,027 )     801       1 %     (131,971 )     (133,105 )     1,134       1 %
Investment income
    2,525       18,248       (15,723 )     (86 %)     165       27,389       (27,224 )     (99 %)
(Losses) gains on sales and retirements of long-lived assets and other income (expense), net
    (10,952 )     (6,689 )     (4,263 )     (64 %)     (31,261 )     9,557       (40,818 )     (427 %)
Impairments and other charges
          (227,083 )     227,083       100 %           (227,083 )     227,083       100 %
                                                                 
Income (loss) before income taxes
    51,264       (208,103 )     259,367       125 %     100,306       (50,711 )     151,017       298 %
                                                                 
Income tax expense (benefit)
    8,202       (14,897 )     23,099       155 %     18,146       18,376       (230 )     (1 %)