e10vq
Table of Contents

 
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 September 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 October 29, 2010 was 285,390,914.
 


 

NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
Index
 
                 
PART I FINANCIAL INFORMATION
  Item 1.     Financial Statements (Unaudited)        
        Consolidated Balance Sheets as of September 30, 2010 and December 31, 2009     1  
        Consolidated Statements of Income (Loss) for the Three and Nine Months Ended September 30, 2010 and 2009     2  
        Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2010 and 2009     3  
        Consolidated Statements of Changes in Equity for the Nine Months Ended September 30, 2010 and 2009     4  
        Notes to Consolidated Financial Statements     6  
        Report of Independent Registered Public Accounting Firm     42  
  Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations     43  
  Item 3.     Quantitative and Qualitative Disclosures About Market Risk     61  
  Item 4.     Controls and Procedures     61  
             
        PART II OTHER INFORMATION        
  Item 1.     Legal Proceedings     62  
  Item 1A.     Risk Factors     63  
  Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds     66  
  Item 6.     Exhibits     67  
Signatures     68  
 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


i


Table of Contents

NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
 
                 
    September 30,
    December 31,
 
    2010     2009  
    (Unaudited)        
(In thousands)            
 
ASSETS
Current assets:
               
Cash and cash equivalents
  $ 639,683     $ 927,815  
Short-term investments
    132,786       163,036  
Assets held for sale
    345,138        
Accounts receivable, net
    1,002,974       724,040  
Inventory
    142,973       100,819  
Deferred income taxes
    29,325       125,163  
Other current assets
    273,045       135,791  
                 
Total current assets
    2,565,924       2,176,664  
Long-term investments and other receivables
    37,448       100,882  
Property, plant and equipment, net
    7,884,874       7,646,050  
Goodwill
    463,427       164,265  
Investment in unconsolidated affiliates
    272,432       306,608  
Other long-term assets
    396,623       250,221  
                 
Total assets
  $ 11,620,728     $ 10,644,690  
                 
 
LIABILITIES AND EQUITY
Current liabilities:
               
Current portion of long-term debt
  $ 1,442,714     $ 163  
Trade accounts payable
    368,780       226,423  
Accrued liabilities
    364,752       346,337  
Income taxes payable
    85,274       35,699  
                 
Total current liabilities
    2,261,520       608,622  
Long-term debt
    3,066,748       3,940,605  
Other long-term liabilities
    233,840       240,057  
Deferred income taxes
    768,862       673,427  
                 
Total liabilities
    6,330,970       5,462,711  
                 
Commitments and contingencies (Note 11)
               
Subsidiary preferred stock (Notes 5 and 10)
    69,188        
Equity:
               
Shareholders’ equity:
               
Common shares, par value $.001 per share:
               
Authorized common shares 800,000; issued 314,734 and 313,915, respectively
    314       314  
Capital in excess of par value
    2,249,796       2,239,323  
Accumulated other comprehensive income
    277,995       292,706  
Retained earnings
    3,657,400       3,613,186  
Less: Treasury shares, at cost, 29,414 common shares
    (977,873 )     (977,873 )
                 
Total shareholders’ equity
    5,207,632       5,167,656  
Noncontrolling interest
    12,938       14,323  
                 
Total equity
    5,220,570       5,181,979  
                 
Total liabilities and equity
  $ 11,620,728     $ 10,644,690  
                 
 
The accompanying notes are an integral part of these consolidated financial statements.


1


Table of Contents

NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Unaudited)
 
                                 
    Three Months Ended
    Nine Months Ended
 
    September 30,     September 30,  
    2010     2009     2010     2009  
(In thousands, except per share amounts)                        
 
Revenues and other income:
                               
Operating revenues
  $ 1,069,261     $ 789,200     $ 2,856,636     $ 2,853,944  
Earnings (losses) from unconsolidated affiliates
    11,842       17,103       28,329       (53,132 )
Investment income (loss)
    (733 )     (1,806 )     (976 )     25,548  
                                 
Total revenues and other income
    1,080,370       804,497       2,883,989       2,826,360  
                                 
Costs and other deductions:
                               
Direct costs
    625,561       431,280       1,648,289       1,546,076  
General and administrative expenses
    87,194       81,637       242,957       352,212  
Depreciation and amortization
    198,151       173,701       545,084       498,830  
Depletion
    5,778       2,494       15,646       7,837  
Interest expense
    66,973       66,671       199,035       199,776  
Losses (gains) on sales and retirements of long-lived assets and other expense (income), net
    9,407       10,516       40,798       625  
Impairments and other charges
    123,099             123,099       227,083  
                                 
Total costs and other deductions
    1,116,163       766,299       2,814,908       2,832,439  
                                 
Income (loss) from continuing operations before income taxes
    (35,793 )     38,198       69,081       (6,079 )
Income tax expense (benefit):
                               
Current
    (71,276 )     37,901       (40,979 )     43,933  
Deferred
    67,046       (53,378 )     54,133       (43,205 )
                                 
Total income tax expense (benefit)
    (4,230 )     (15,477 )     13,154       728  
                                 
Income (loss) from continuing operations, net of tax
    (31,563 )     53,675       55,927       (6,807 )
Income (loss) from discontinued operations, net of tax
    (7,591 )     (23,250 )     (12,921 )     (31,855 )
                                 
Net income (loss)
    (39,154 )     30,425       43,006       (38,662 )
Less: Net (income) loss attributable to noncontrolling interest
    (453 )     (895 )     1,208       376  
                                 
Net income (loss) attributable to Nabors
  $ (39,607 )   $ 29,530     $ 44,214     $ (38,286 )
                                 
Earnings (losses) per common share:
                               
Basic from continuing operations
  $ (.11 )   $ .18     $ .21     $ (.03 )
Basic from discontinued operations
    (.03 )     (.08 )     (.05 )     (.11 )
                                 
Total Basic
  $ (.14 )   $ .10     $ .16     $ (.14 )
                                 
                                 
Diluted from continuing operations
  $ (.11 )   $ .18     $ .19     $ (.03 )
Diluted from discontinued operations
    (.03 )     (.08 )     (.04 )     (.11 )
                                 
Total Diluted
  $ (.14 )   $ .10     $ .15     $ (.14 )
                                 
Weighted-average number of common shares outstanding:
                               
Basic
    285,282       283,197       285,045       283,150  
Diluted
    285,282       287,407       289,847       283,150  
 
The accompanying notes are an integral part of these consolidated financial statements.


2


Table of Contents

NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
                 
    Nine Months Ended September 30,  
    2010     2009  
(In thousands)            
 
Cash flows from operating activities:
               
Net income (loss) attributable to Nabors
  $ 44,214     $ (38,286 )
Adjustments to net income (loss):
               
Depreciation and amortization
    547,399       499,498  
Depletion
    24,587       8,638  
Deferred income tax expense (benefit)
    53,622       (22,002 )
Deferred financing costs amortization
    3,760       4,751  
Pension liability amortization and adjustments
    298       148  
Discount amortization on long-term debt
    53,818       67,134  
Amortization of loss on hedges
    464       435  
Impairments and other charges
    123,099       227,083  
Losses (gains) on long-lived assets, net
    (3,242 )     5,362  
Losses (gains) on investments, net
    4,659       (10,612 )
Losses (gains) on debt retirement, net
    7,042       (15,969 )
Losses (gains) on derivative instruments
    2,473       184  
Share-based compensation
    10,602       103,951  
Foreign currency transaction losses (gains), net
    16,795       8,456  
Equity in (earnings) losses of unconsolidated affiliates, net of dividends
    (14,494 )     72,096  
Changes in operating assets and liabilities, net of effects from acquisitions:
               
Accounts receivable
    (140,592 )     468,250  
Inventory
    (7,779 )     37,752  
Other current assets
    (117,599 )     112,861  
Other long-term assets
    492       (12,600 )
Trade accounts payable and accrued liabilities
    40,605       (164,242 )
Income taxes payable
    43,458       (69,000 )
Other long-term liabilities
    (11,547 )     16,323  
                 
Net cash provided by operating activities
    682,134       1,300,211  
                 
Cash flows from investing activities:
               
Purchases of investments
    (27,695 )     (26,411 )
Sales and maturities of investments
    32,103       48,505  
Cash paid for acquisition of businesses, net
    (680,230 )      
Investment in unconsolidated affiliates
    (40,936 )     (125,076 )
Capital expenditures
    (640,953 )     (928,198 )
Proceeds from sales of assets and insurance claims
    26,084       24,295  
                 
Net cash used for investing activities
    (1,331,627 )     (1,006,885 )
                 
Cash flows from financing activities:
               
Increase (decrease) in cash overdrafts
    (4,649 )     (12,820 )
Proceeds from issuance of long-term debt
    691,281       1,124,978  
Debt issuance costs
    (7,144 )     (8,832 )
Proceeds from Revolving Credit Facility
    600,000        
Proceeds from issuance of common shares, net
    5,391       2,157  
Reduction in long-term debt
    (314,353 )     (913,716 )
Reduction in Revolving Credit Facility
    (600,000 )      
Repurchase of equity component of convertible debt
    (4,712 )     (1,541 )
Settlement of call options and warrants, net
    1,134        
Purchase of restricted stock
    (1,904 )     (1,508 )
Tax (expense) benefit related to share-based awards
    (38 )     289  
                 
Net cash provided by (used for) financing activities
    365,006       189,007  
Effect of exchange rate changes on cash and cash equivalents
    (3,645 )     10,631  
                 
Net increase (decrease) in cash and cash equivalents
    (288,132 )     492,964  
Cash and cash equivalents, beginning of period
    927,815       442,087  
                 
Cash and cash equivalents, end of period
  $ 639,683     $ 935,051  
                 
 
The accompanying notes are an integral part of these consolidated financial statements.


3


Table of Contents

NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY  — (Continued)
(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
    $ 44,214                                           44,214                       44,214  
Translation adjustment attributable to Nabors
      19,897                                   19,897                               19,897  
Unrealized gains (losses) on marketable securities, net of income taxes of $7,412
      (30,508 )                                 (30,508 )                             (30,508 )
Less: Reclassification adjustment for (gains)/losses included in net income (loss), net of income taxes of $693
      (995 )                                 (995 )                             (995 )
Pension liability amortization, net of income taxes of $111
      189                                   189                               189  
Unrealized gains/(losses) and amortization of (gains)/losses on cash flow hedges, net of income tax benefit of $2,178
      (3,294 )                                 (3,294 )                             (3,294 )
                                                                               
Comprehensive income (loss) attributable to Nabors
    $ 29,503                                                                      
                                                                               
Net income (loss) attributable to noncontrolling interest
      (1,208 )                                                         (1,208 )     (1,208 )
Translation adjustment attributable to noncontrolling interest
      253                                                           253       253  
                                                                               
Comprehensive income (loss) attributable to noncontrolling interest
      (955 )                                                                    
                                                                               
Total comprehensive income (loss)
    $ 28,548                                                                      
                                                                               
                                                                               
Issuance of common shares for stock options exercised, net of surrender of unexercised stock options
                459                 5,391                                       5,391  
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
                                  1,134                                       1,134  
Tax benefit related to share-based awards
                                  (38 )                                     (38 )
Restricted stock awards, net
                360                 (1,904 )                                     (1,904 )
Share-based compensation
                                  10,602                                       10,602  
                                                                               
Balances, September 30, 2010
                314,734       $ 314     $ 2,249,796     $ 277,995     $ 3,657,400     $ (977,873 )   $ 12,938     $ 5,220,570  
                                                                               
 
The accompanying notes are an integral part of these consolidated financial statements.


4


Table of Contents

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
    $ (38,286 )                                         (38,286 )                     (38,286 )
Translation adjustment attributable to Nabors
      129,311                                   129,311                               129,311  
Unrealized gains/(losses) on marketable securities, net of income tax benefit of $866
      39,780                                   39,780                               39,780  
Unrealized gains/(losses) on adjusted basis for marketable debt security, net of income taxes of $571
      931                                   931                               931  
Less: Reclassification adjustment for (gains)/losses included in net income (loss), net of income tax benefit of $4,929
      30,735                                   30,735                               30,735  
Pension liability amortization, net of income taxes of $56
      95                                   95                               95  
Amortization of (gains)/losses on cash flow hedges, net of income tax benefit of $13
      133                                   133                               133  
                                                                               
Comprehensive income (loss) attributable to Nabors
    $ 162,699                                                                      
                                                                               
Net income (loss) attributable to noncontrolling interest
      (376 )                                                         (376 )     (376 )
Translation adjustment attributable to noncontrolling interest
      1,764                                                           1,764       1,764  
                                                                               
Comprehensive income (loss) attributable to noncontrolling interest
      1,388                                                                      
                                                                               
Total comprehensive income (loss)
    $ 164,087                                                                      
                                                                               
                                                                               
Issuance of common shares for stock options exercised
                260         1       2,156                                       2,157  
Distributions from noncontrolling interest
                                                                  (1,677 )     (1,677 )
Nabors Exchangeco shares exchanged
                105                                                            
Repurchase of equity component of convertible debt
                                  (1,541 )                                     (1,541 )
Tax benefit related to share-based awards
                                  289                                       289  
Restricted stock awards, net
                (6 )               (1,508 )                                     (1,508 )
Share-based compensation
                                  103,951                                       103,951  
                                                                               
Balances, September 30, 2009
                312,702       $ 313     $ 2,232,762     $ 254,505     $ 3,660,446     $ (977,873 )   $ 14,029     $ 5,184,182  
                                                                               
 
The accompanying notes are an integral part of these consolidated financial statements.


5


Table of Contents

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 554 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 38 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 offer a wide range of ancillary well-site services, including hydraulic fracturing, engineering, transportation and disposal, construction, maintenance, well logging, directional drilling, rig instrumentation, data collection and other support services in select United States and international markets.
 
  •  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 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, fluid logistics 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.
 
During the third quarter of 2010, we acquired, through a tender offer and merger transaction (the “Merger”), all of the outstanding common stock of Superior Well Services, Inc. (“Superior”). Superior provides a wide range of wellsite solutions to oil and natural gas companies, primarily technical pumping services and down-hole surveying services, which have been reflected in accompanying unaudited consolidated financial statements as of the acquisition date. See Note 5 Acquisition.
 
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.


6


Table of Contents

NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
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 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 September 30, 2010 and the results of our operations for the three and nine months ended September 30, 2010 and 2009, and our cash flows and changes in equity for the nine months ended September 30, 2010 and 2009, in accordance with GAAP. Interim results for the three and nine months ended September 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. 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. 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 September 30, 2010 and December 31, 2009, our consolidated balance sheets reflect our investments in unconsolidated affiliates accounted for using the equity method totaling $270.5 million and $305.7 million, respectively, and investments in unconsolidated affiliates accounted for using the cost method totaling $1.9 million and $.9 million, respectively. As of September 30, 2010, assets held for sale include investments in unconsolidated affiliates accounted for using the equity method totaling $81.7 million. See Note 15 Assets Held for Sale and Discontinued Operations for additional information.
 
Goodwill
 
Goodwill represents the cost in excess of fair value of the net assets of companies acquired. We review goodwill and intangible assets with indefinite lives for impairment annually, or more frequently if events or changes in circumstances indicate that the carrying amount of the reporting unit exceeds its fair value. As a result of our acquisition and impairment recorded during the current quarter, we are presenting the change in


7


Table of Contents

NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
the carrying amount of goodwill for our various Contract Drilling segments and our Other Operating Segments for the nine months ended September 30, 2010:
 
                                         
          Acquisitions
                   
          and
                   
    Balance as of
    Purchase
          Cumulative
    Balance as of
 
    December 31,
    Price
          Translation
    September 30,
 
    2009     Adjustments     Impairments     Adjustment     2010  
(In thousands)                              
 
Contract Drilling:
                                       
U.S. Lower 48 Land Drilling
  $ 30,154     $     $     $     $ 30,154  
U.S. Land Well-servicing
    50,839                         50,839  
U.S. Pressure Pumping
          309,584 (1)                 309,584  
U.S. Offshore
    18,003             (10,707 )(2)           7,296  
Alaska
    19,995                         19,995  
International
    18,983                         18,983  
                                         
Subtotal Contract Drilling
    137,974       309,584       (10,707 )           436,851  
Other Operating Segments
    26,291                   285       26,576  
                                         
Total
  $ 164,265     $ 309,584     $ (10,707 )   $ 285     $ 463,427  
                                         
 
 
(1) Represents the preliminary calculation of goodwill recorded in connection with our acquisition of Superior. See Note 5 Acquisition for additional discussion.
 
(2) Represents goodwill impairment associated with our U.S. Offshore operating segment. The impairment charge was deemed necessary due to the uncertainty of utilization of some of our rigs as a result of changes in our customers’ plans for future drilling operations in the Gulf of Mexico. See Note 13 Supplemental Balance Sheet and Income Statement Information for additional information.
 
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 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.


8


Table of Contents

NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
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, will apply to us for contracts entered into 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:
 
                 
    September 30,
    December 31,
 
    2010     2009  
(In thousands)            
 
Cash and cash equivalents
  $ 639,683     $ 927,815  
Short-term investments:
               
Trading equity securities
    13,934       24,014  
Available-for-sale equity securities
    62,801       93,651  
Available-for-sale debt securities
    56,051       45,371  
                 
Total short-term investments
    132,786       163,036  
Long-term investments and other receivables
    37,448       100,882  
                 
Total
  $ 809,917     $ 1,191,733  
                 


9


Table of Contents

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:
 
                                                 
    September 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
  $ 639,683     $     $     $ 927,815     $     $  
                                                 
Short-term investments:
                                               
Trading equity securities
    13,934       8,210             24,014       18,290        
                                                 
Available-for-sale equity securities
    62,801       22,538       (3,534 )     93,651       50,211       (357 )
                                                 
Available-for-sale debt securities:
                                               
Commercial paper and CDs
    1,133                   1,284              
Corporate debt securities
    47,455       8,775             33,852       3,162        
Mortgage-backed debt securities
    376       17             861       23       (20 )
Mortgage-CMO debt securities
    3,290       27       (36 )     5,411       71       (182 )
Asset-backed debt securities
    3,797       1       (235 )     3,963             (803 )
                                                 
Total available-for-sale debt securities
    56,051       8,820       (271 )     45,371       3,256       (1,005 )
                                                 
Total available-for-sale securities
    118,852       31,358       (3,805 )     139,022       53,467       (1,362 )
                                                 
Total short-term investments
    132,786       39,568       (3,805 )     163,036       71,757       (1,362 )
                                                 
Total cash, cash equivalents and short-term investments
  $ 772,469     $ 39,568     $ (3,805 )   $ 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 September 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
  $ 23,724     $ 3,272     $ 823     $ 262  
Available-for-sale debt securities:(1)
                               
Mortgage-CMO debt securities
                2,523       36  
Asset-backed debt securities
                3,680       235  
                                 
Total available-for-sale debt securities
                6,203       271  
                                 
Total
  $ 23,724     $ 3,272     $ 7,026     $ 533  
                                 
 
 
(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 September 30, 2010.


10


Table of Contents

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 September 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  
    September 30, 2010  
(In thousands)      
 
Debt securities:
       
Due in one year or less
  $ 1,589  
Due after one year through five years
     
Due in more than five years
    54,462  
         
Total debt securities
  $ 56,051  
         
 
Certain information regarding our debt and equity securities follows:
 
                 
    Nine Months Ended September 30,  
    2010     2009  
(In thousands)            
 
Available-for-sale:
               
Proceeds from sales and maturities
  $ 12,590     $ 21,129  
Realized gains (losses), net
    3,647       (35,664 )(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.


11


Table of Contents

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 September 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 September 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 September 30, 2010  
(In thousands)   Level 1     Level 2     Level 3     Total  
 
Assets:
                               
Short-term investments:
                               
Available-for-sale equity securities — energy industry
  $ 62,801     $     $     $ 62,801  
Available-for-sale debt securities:
                               
Commercial paper and CDs
    1,133                   1,133  
Corporate debt securities
    450       47,005             47,455  
Mortgage-backed debt securities
          376             376  
Mortgage-CMO debt securities
          3,290             3,290  
Asset-backed debt securities
    3,797                   3,797  
Trading securities — energy industry
    13,934                   13,934  
                                 
Total short-term investments
  $ 82,115     $ 50,671     $     $ 132,786  
                                 
Liabilities:
                               
Long-term liabilities:
                               
Range-cap-and-floor derivative contract
  $     $ 4,028     $     $ 4,028  
 
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. See Note 13 Supplemental Balance Sheet and Income Statement Information for additional discussion.


12


Table of Contents

NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
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 fair value of the credit facility, second lien notes and subsidiary preferred stock was estimated based on the preliminary estimates for allocation of the purchase price. See Note 5 Acquisition for additional details. The carrying and fair values of our liabilities were as follows:
 
                 
    September 30, 2010  
    Carrying Value     Fair Value  
(In thousands)            
 
0.94% senior exchangeable notes due May 2011
  $ 1,361,712     $ 1,401,701  
6.15% senior notes due February 2018
    965,973       1,085,487  
9.25% senior notes due January 2019
    1,125,000       1,437,379  
5.00% senior notes due August 2020
    696,961       712,376  
5.375% senior notes due August 2012(1)
    273,820       290,813  
Credit facility(2)
    3,000       3,000  
Second lien notes due November 2013(3)
    80,000       80,000  
Subsidiary preferred stock
    69,188       69,188  
Other
    1,527       1,527  
                 
    $ 4,577,181     $ 5,081,471  
                 
 
 
(1) Includes $.8 million as of September 30, 2010 related to the unamortized loss on an interest rate swap that was unwound during the fourth quarter of 2005.
 
(2) Interest accrued at rates at either the London Interbank Offered Rate (“LIBOR”) plus a spread of 4.0% or the prime lending rate plus a spread of 2.0% due March 2013, collateralized by Superior’s cash, investment property, accounts receivable, inventory, intangibles and equipment.
 
(3) Interest accrued initially at 7.0% per annum which increases 1% per annum on the anniversary date of the indenture, collaterized by a second priority lien on the Superior’s assets secured by the Credit Facility.
 
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 September 30, 2010, our short-term investments were carried at fair market value and included $118.9 million and $13.9 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 $7.3 million as of September 30, 2010. The carrying value of our oil and gas financing receivables included in long-term investments also approximated fair value and totaled $30.1 million as of September 30, 2010. Income and gains associated with our oil and gas financing receivables are recognized as operating revenues.
 
Note 5   Acquisition
 
On September 10, 2010, we completed the Merger with Superior. Pursuant to the Merger, we have acquired all of the issued and outstanding shares of Superior’s common stock at a price per share equal to $22.12, for a cash purchase price of approximately $681.3 million. The purchase price for Superior was allocated to the net tangible and intangible assets acquired and liabilities assumed based on their preliminary fair value estimates as of September 10, 2010. The excess of the purchase price over the fair values of the assets acquired and liabilities assumed was recorded as goodwill. Due to the proximity of the Superior acquisition to the quarter end of September 30, 2010, the purchase price allocation is based upon a preliminary valuation only. Our estimates and assumptions are subject to change within the measurement period (up to one


13


Table of Contents

NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
year from the acquisition date). The primary areas in which the preliminary purchase price allocation is not yet finalized relate to the fair values of certain tangible assets acquired and liabilities assumed, the valuation of intangible assets acquired, certain working capital items, deferred income taxes and residual goodwill. We expect to complete the purchase price allocation and valuation during the fourth quarter of 2010.
 
As part of the Merger, we recognized $7.0 million of acquisition-related transaction costs in losses (gains) on sales and retirements of long-lived assets and other expense (income) for nine months ended September 30, 2010. The acquisition-related transaction costs consisted primarily of investment banker fees and legal and accounting costs. The Superior acquisition enhances our well-servicing, including the addition of hydraulic fracturing to our services, and workover capacity work throughout the Appalachian, Mid-Continent, Rocky Mountain, Southeast and Southwest regions of the United States.
 
The following table provides the preliminary estimates for allocation of the purchase price as of the acquisition date. This allocation was based on the significant use of estimates and on information that was available to management at the time these interim consolidated financial statements were prepared. We will continue to adjust the allocations until final valuation of the assets and liabilities is completed.
 
         
    Estimated Fair
 
(In thousands)   Value  
 
Consideration paid in cash
  $ 681,275  
         
Assets:
       
Cash and cash equivalents
  $ 1,045  
Accounts receivable
    143,675  
Inventory
    33,963  
Other current assets
    7,612  
Property, plant and equipment, net
    483,302  
Intangible assets
    106,437  
Goodwill
    309,584  
Other long-term assets
    8,973  
         
Total assets
    1,094,591  
Liabilities:
       
Current liabilities
  $ 79,825  
Deferred income taxes
    130,253  
Debt
    124,792  
Other long-term liabilities
    9,258  
         
Total liabilities
    344,128  
Preferred stock
    69,188  
         
Net assets acquired
  $ 681,275  
         
 
Goodwill
 
Goodwill of $309.6 million arising from this acquisition consists largely of the expected synergies and economies of scale from combining the operations of Nabors and Superior. We have not yet completed the process of allocating the goodwill to our reporting units.


14


Table of Contents

NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Pro Forma Impact of the Merger
 
The following unaudited supplemental pro forma results present consolidated information as if the acquisition had been completed as of January 1, 2010 and January 1, 2009. The pro forma results include: (i) the amortization associated with an estimate of the acquired intangible assets, (ii) interest expense associated with debt used to fund the acquisition, (iii) the impact of certain fair value adjustments, including additional depreciation expense for adjustments to property, plant and equipment and reduction to interest expense for adjustments to debt, and (iv) costs directly related to acquiring Superior. Accordingly, the pro forma results should not be considered indicative of the results that would have occurred if the acquisition and related borrowings had been consummated as of January 1, 2010, or January 1, 2009; nor are they indicative of future results.
 
                                 
        Nine Months Ended
    Three Months Ended September 30,   September 30,
(In thousands, except per share amounts)   2010   2009   2010   2009
 
Total revenues and other income
  $ 1,241,825     $ 895,269     $ 3,344,785     $ 3,129,905  
Net income (loss) attributable to Nabors
  $ (27,823 )   $ 4,678     $ 8,643     $ (158,603 )
 
Superior’s operating results for the period September 10, 2010 through September 30, 2010 are reflected in a new operating segment titled U.S. Pressure Pumping in our segment footnote. See Note 14 Segment Information.
 
Note 6   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 $4.3 million for the three months ended September 30, 2010 and 2009, respectively, and $10.6 million and $103.9 million for the nine months ended September 30, 2010 and 2009, respectively. Total share-based compensation expense for the nine months ended September 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 during the second quarter of 2009 was a result of the provisions of their respective new 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 14 Segment Information.
 
During the nine months ended September 30, 2010 and 2009, we awarded 475,667 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 $10.6 million and $1.0 million, respectively.
 
During the nine months ended September 30, 2010 and 2009, we awarded options, vesting over periods of up to four years, to purchase 27,907 and 10,007,029 of our common shares, respectively, to our employees and directors. During the nine months ended September 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, and 1,276 stock options, with a grant date fair value of $.01 million, granted to Mr. Petrello in September 2009 in lieu of certain portions of their cash compensation.


15


Table of Contents

NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The fair value of stock options granted during the nine months ended September 30, 2010 and 2009, respectively, was calculated using the Black-Scholes option pricing model and the following weighted-average assumptions:
 
         
    Nine Months Ended
    September 30,
    2010   2009
 
Weighted-average fair value of options granted
  $6.27   $2.85
Weighted-average risk free interest rate
  1.49%   1.75%
Dividend yield
  0%   0%
Volatility(1)
  40.62%   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 nine months ended September 30, 2010 and 2009 was $4.0 million and $1.9 million, respectively. The total fair value of options that vested during the nine months ended September 30, 2010 and 2009 was $5.6 million and $10.8 million, respectively.
 
Note 7   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 September 30, 2010 and December 31, 2009, our consolidated balance sheets reflect our investments in unconsolidated affiliates accounted for using the equity method totaling $270.5 million and $305.7 million, respectively, and our investments in unconsolidated affiliates accounted for using the cost method totaling $1.9 million and $.9 million, respectively. As of September 30, 2010, assets held for sale include investments in unconsolidated affiliates accounted for using the equity method totaling $81.7 million.
 
Our unconsolidated United States oil and gas joint venture is a significant subsidiary. Accordingly, summarized income statement information for this joint venture follows:
 
                 
    Nine Months Ended September 30,
(In thousands)   2010   2009
 
Gross revenues
  $ 125,674     $ 100,444  
Gross margin
    102,464       (146,806 )
Net income (loss)
    31,456       (146,539 )
Nabors’ earnings (losses) from United States oil and gas joint venture
    14,518       (73,253 )(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 three months ended March 31, 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.


16


Table of Contents

NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Note 8   Debt
 
Long-term debt consisted of the following:
 
                 
    September 30,
    December 31,
 
(In thousands)   2010     2009  
 
0.94% senior exchangeable notes due May 2011
  $ 1,361,712     $ 1,576,480  
6.15% senior notes due February 2018
    965,973       965,066  
9.25% senior notes due January 2019
    1,125,000       1,125,000  
5.00% senior notes due September 2020
    696,961        
5.375% senior notes due August 2012
    273,820       273,350  
Credit facility
    3,000        
Second lien notes
    80,000        
Other
    2,996       872  
                 
      4,509,462       3,940,768  
Less: Current portion
    1,442,714       163  
                 
    $ 3,066,748     $ 3,940,605  
                 
 
$700 million Senior Notes Due September 2020
 
On September 14, 2010, Nabors Delaware completed a private placement of $700 million aggregate principal amount of 5.0% senior notes due 2020, which are unsecured and fully and unconditionally guaranteed by us. The notes are subject to registration rights. The notes were resold by the initial purchasers to qualified institutional buyers under Rule 144A and to certain investors outside of the United States under Regulation S of the Securities Act. The notes pay interest semiannually on March 15 and September 15, beginning on March 15, 2011 and will mature on September 15, 2020.
 
The notes rank equal in right of payment to all of Nabors Delaware’s existing and future senior unsubordinated indebtedness, and senior in right of payment to all of Nabors Delaware’s existing and future senior subordinated and subordinated indebtedness. Our guarantee of the notes is unsecured and ranks equal in right of payments to all of our unsecured and unsubordinated indebtedness from time to time outstanding. In the event of a change of control triggering event, as defined in the indenture, the holders of the notes may require Nabors Delaware to purchase all or a portion of the notes at a purchase price equal to 101% of their principal amount, plus accrued and unpaid interest, if any. The notes are redeemable in whole or in part at any time at the option of Nabors Delaware at a redemption price, plus accrued and unpaid interest, as specified in the indenture. We received proceeds of $691.3 million, net of a discount and cash flow hedge, which is presented on our consolidated statements of cash flows for the nine months ended September 30, 2010. Nabors Delaware used a portion of the proceeds to repay the borrowing under the Revolving Credit Facility (defined below) incurred to fund the Superior Merger. Together with Nabors Delaware, we are using the remaining proceeds for general corporate purposes.
 
Nabors Delaware and we intend to file a registration statement with the SEC with respect to an offer to exchange the notes for registered notes with substantially identical terms pursuant to a registration rights agreement, within 90 days following the original issue date of the notes.
 
Prior to the issuance of the notes, we entered into a Treasury rate lock with a total notional amount of $500 million to hedge the risk of changes in semiannual interest payments. We designated the Treasury rate lock derivative as a cash flow hedge and upon settlement paid $5.7 million, due to the change in the fair value of the derivative. The loss was recognized as a component of accumulated other comprehensive income in our consolidated statement of changes in equity and will be amortized as additional interest expense over the life of the notes. There was no ineffectiveness associated with this hedge during the three or nine months ended September 30, 2010.


17


Table of Contents

NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
$700 million Revolving Credit Facility
 
On September 7, 2010, Nabors Delaware and we entered into a credit agreement under which the lenders committed to provide to Nabors Delaware up to $700 million under an unsecured revolving credit facility (the “Revolving Credit Facility” or the “Facility”). The Facility also provides Nabors Delaware the option to increase the aggregate principal amount of commitments to $850 million by adding new lenders to the Facility or by asking existing lenders under the Facility to increase their commitments (in each case with the consent of the new lenders or the increasing lenders). We fully and unconditionally guarantee the obligations under the Facility, which matures in four years.
 
Borrowings under the Revolving Credit Facility will bear interest, at Nabors Delaware’s option, at either (x) the “Base Rate” (as defined below) plus the applicable interest margin, calculated on the basis of the actual number of days elapsed in a year of 365 days and payable quarterly in arrears or (y) interest periods of one, two, three or six months at an annual rate equal to the LIBOR for the corresponding deposits of U.S. dollars, plus the applicable interest margin, payable on the last days of the relevant interest periods (but in any event at least every three months). The “Base Rate” is defined, for any day, as a fluctuating rate per annum equal to the highest of (i) the Federal Funds Rate, as published by the Federal Reserve Bank of New York, plus 1/2 of 1%, (ii) the prime commercial lending rate of UBS AG, as established from time to time at its Stamford Branch and (iii) LIBOR for an interest period of one month beginning on such day plus 1%.
 
Acquired Debt
 
In connection with the Merger (See Note 5 Acquisition), we acquired an outstanding secured revolving credit facility, which matures on March 31, 2013. Amounts outstanding under this credit facility cannot exceed the lesser of the total capacity and the “borrowing base” which equals 80% of eligible accounts receivable. At September 30, 2010, the total capacity under the credit facility and the amount outstanding were $15.0 million and $3.0 million, respectively. The interest rate on borrowings under the credit facility is determined with reference to the “leverage ratio” of Superior and its subsidiaries. At September 30, 2010, the “leverage ratio” was .9:1 and therefore, the interest rate on borrowings under the credit facility is set at either LIBOR plus a spread of 4.0% or the prime lending rate plus a spread of 2.0%. We recorded nominal interest expense during the period September 10, 2010 through September 30, 2010 which is included in interest expense in our consolidated statements of income (loss) for three and nine months ended September 30, 2010. On October 25, 2010, we repaid all amounts outstanding under Superior’s credit facility.
 
In addition to the credit facility, Superior had issued second lien notes in November 2008, consisting of an aggregate principal amount of $80 million due November 2013. The second lien notes are secured by a second priority lien on the assets secured by the credit facility discussed above. Interest on the second lien notes accrues at an initial rate of 7% per annum and the rate increases by 1% per annum on each anniversary date of the indenture. We exercised our right to redeem these notes and, on October 25, 2010, paid $80.4 million to repurchase all outstanding notes and related accrued interest.
 
Senior Exchangeable Notes
 
As of September 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


18


Table of Contents

NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
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 be required to issue incremental shares only 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 nine months ended September 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 September 30, 2010.
 
Letters of Credit
 
We had six letter of credit facilities with various banks as of September 30, 2010. Availability under our credit facilities was as follows:
 
                 
    September 30,
    December 31,
 
(In thousands)   2010     2009  
 
Credit available
  $ 276,035     $ 245,442  
Letters of credit outstanding, inclusive of financial and performance guarantees
    (86,301 )     (71,389 )
                 
Remaining availability
  $ 189,734     $ 174,053  
                 
 
Capital Lease Obligations
 
In connection with the Merger (See Note 5 Acquisition), we acquired capital leases on equipment that extend through 2011. Assets held under capital leases totaling $1.5 million net book value are included in property, plant and equipment. Amortization of assets recorded under capital leases is reported in depreciation and amortization expense in our consolidated statement of income.
 
Note 9   Common Shares
 
During the nine months ended September 30, 2010 and 2009, our employees exercised vested options to acquire .5 million and .3 million of our common shares, respectively, resulting in proceeds of $5.4 million and $2.2 million, respectively.
 
During each of the nine months ended September 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 nine months ended September 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 10   Subsidiary Preferred Stock
 
Superior has issued 75,000 shares of Series A Preferred Stock (“preferred stock”), $0.01 par value per share, which remained outstanding at September 30, 2010. There are 10,000,000 shares authorized. The preferred stock is issuable in series with such voting rights, if any, designations, powers, preferences and other


19


Table of Contents

NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
rights and such qualifications, limitations and restrictions as may be determined by Superior’s board; the board may also fix the number of shares constituting each series and increase or decrease the number of shares of any series.
 
The preferred stock is perpetual and ranks senior to Superior’s common stock with respect to payment of dividends, and amounts upon liquidation, dissolution or winding up.
 
We have presented the preferred stock within the mezzanine section of our consolidated balance sheets and have accounted for the preferred stock under the ASC Topic for Distinguishing Liabilities from Equity.
 
Dividends
 
Holders of the preferred stock are entitled to receive, when and if declared by Superior’s board, out of assets legally available, therefore, cumulative cash dividends at the rate per annum of $40.00 per share of preferred stock. Dividends on the preferred stock are payable quarterly in arrears on December 1, March 1, June 1 and September 1 of each year (and, in the case of any undeclared and unpaid dividends, at such additional times and for such interim periods, if any, as determined by Superior’s board), at such annual rate. Dividends are cumulative from the date of the original issuance of the preferred stock, whether or not in any dividend period or periods we have assets legally available for the payment of such dividends.
 
As of September 30, 2010, dividends on outstanding shares of preferred stock had been declared and paid in full with respect to each quarter since its initial issuance.
 
Liquidation Preference
 
Holders of preferred stock are entitled to receive, in the event that Superior is liquidated, dissolved or wound up, whether voluntarily or involuntarily, $1,000 per share (the “Liquidation Value”) plus an amount per share equal to all dividends undeclared and unpaid thereon to the date of final distribution (the “Liquidation Preference”), and no more. Until the holders of preferred stock have been paid the Liquidation Preference in full, Superior may not make any payment to any holder of stock that ranks junior to the preferred stock upon liquidation, dissolution or winding up. As of September 30, 2010, the preferred stock had a total Liquidation Preference of $75.0 million.
 
Redemption
 
The preferred stock is redeemable, in whole or in part and at Superior’s option, at any time on or after November 18, 2013, for a redemption price of 101% of the Liquidation Value, plus all accrued dividends. The redemption price is payable in cash.
 
As a result of the Merger, each share of preferred stock is convertible, at the option of the holder thereof, into $22.12 for each share of Superior common stock into which the preferred share would have been convertible prior to the Merger (a “deemed common share”). The preferred shares had a conversion price of $25.00 per deemed common share prior to the Merger (equivalent to a conversion rate of 40 deemed common shares for each share of preferred stock), representing 3,000,000 deemed common shares. This results in a redemption value of $66.4 million at September 30, 2010 payable in cash. The right to convert shares of preferred stock that may be called for redemption will terminate at the close of business on the day preceding a redemption date.
 
Voting Rights
 
Except as otherwise required from time to time by applicable law or upon certain events of default, the holders of preferred stock have no voting rights, and their consent is not required for taking any corporate


20


Table of Contents

NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
action. When and if the holders of the preferred stock are entitled to vote, each holder will be entitled to one vote per share.
 
Note 11   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.
 
  •  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 September 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.


21


Table of Contents

NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
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 Mexico 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 concluded previously that the deductions were appropriate and more recently that the position of the tax authorities lacks merit. NDIL’s Mexico 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 Mexico 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 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 or 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


22


Table of Contents

NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
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 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.
 
In August 2010, Nabors and its wholly owned subsidiary, Diamond Acquisition Corp. (“Diamond”) were sued in three putative shareholder class actions, two of which remain pending: Steven Bushansky, On Behalf of Himself and All Other Similarly Situated Shareholders of Superior Well Services, Inc. v. Superior Well Services, Inc., et al.; Civil Action No. 2:10-CV-01121-CB; in the United States District Court for the Western District of Pennsylvania; and Jordan Denney, Individually and on Behalf of All Others Similarly Situated v. David E. Wallace, et al.; Civil Action No. 10-1154; in the United States District Court for the Western District of Pennsylvania. These suits were recently assigned to the same judge, and we have moved the court to consolidate them. The suits were brought against Superior, the individual members of its board of directors, certain of Superior’s senior officers, Nabors and Diamond. The complaints allege that Superior’s officers and directors violated various provisions of the Exchange Act and breached their fiduciary duties in connection with the Merger, and that Nabors and Diamond aided and abetted these violations. The complaints sought injunctive relief, including an injunction against the consummation of the Merger, monetary damages, and attorney’s fees and costs. Each of the claims against Superior and its directors is covered by insurance after a deductible amount. We believe that the cases are without merit and are vigorously defending them.


23


Table of Contents

NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
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 indemnification, which serves as a guarantee, to some third parties. These guarantees include indemnification provided by Nabors to our stock 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
  $ 40,025     $ 56,480     $ 361     $     $ 96,866  
Contingent consideration in acquisition
          4,250                   4,250  
                                         
Total
  $ 40,025     $ 60,730     $ 361     $     $ 101,116  
                                         


24


Table of Contents

NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Note 12   Earnings (Losses) Per Share
 
A reconciliation of the numerators and denominators of the basic and diluted earnings (losses) per share computations follows:
 
                                 
    Three Months Ended
    Nine Months Ended
 
    September 30,     September 30,  
    2010     2009     2010     2009  
(In thousands, except per share amounts)                        
 
Net income (loss) attributable to Nabors (numerator):
                               
Income (loss) from continuing operations, net of tax
  $ (31,563 )   $ 53,675     $ 55,927     $ (6,807 )
Less: net (income) loss attributable to noncontrolling interest
    (453 )     (895 )     1,208       376  
                                 
Adjusted income (loss) from continuing operations, net of tax — basic
    (32,016 )     52,780       57,135       (6,431 )
Add: interest expense on assumed conversion of our 0.94% senior exchangeable notes due 2011, net of tax(1)
                       
                                 
Adjusted income (loss) from continuing operations, net of tax — diluted
    (32,016 )     52,780       57,135       (6,431 )
Income (loss) from discontinued operations, net of tax
    (7,591 )     (23,250 )     (12,921 )     (31,855 )
                                 
Total adjusted net income (loss)
  $ (39,607 )   $ 29,530     $ 44,214     $ (38,286 )
                                 
Earnings (losses) per common share:
                               
Basic from continuing operations
  $ (.11 )   $ .18     $ .21     $ (.03 )
Basic from discontinued operations
    (.03 )     (.08 )     (.05 )     (.11 )
                                 
Total Basic
  $ (.14 )   $ .10     $ .16     $ (.14 )
                                 
Diluted from continuing operations
  $ (.11 )   $ .18     $ .19     $ (.03 )
Diluted from discontinued operations
    (.03 )     (.08 )     (.04 )     (.11 )
                                 
Total Diluted
  $ (.14 )   $ .10     $ .15     $ (.14 )
                                 
Shares (denominator):
                               
Weighted-average number of shares outstanding — basic(2)
    285,282       283,197       285,045       283,150  
Net effect of dilutive stock options, warrants and restricted stock awards based on the if-converted method
          4,210       4,802        
Assumed conversion of our 0.94% senior exchangeable notes due 2011(1)
                       
                                 
Weighted-average number of shares outstanding — diluted
    285,282       287,407       289,847       283,150  
                                 
 
 
(1) Diluted earnings (losses) per share for the three and nine months ended September 30, 2010 and 2009 exclude any incremental shares issuable upon exchange of the 0.94% senior exchangeable notes due 2011. Between 2008 and September 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


25


Table of Contents

NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
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 nine months ended September 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: 285.3 million and 285.0 million shares, cumulatively, for the three and nine months ended September 30, 2010, 283.2 million shares for the three months ended September 30, 2009 and 283.1 million and .1 million shares, respectively, for the nine months ended September 30, 2009.
 
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 32,543,395 and 16,595,790 shares during the three months ended September 30, 2010 and 2009, respectively, and 14,108,644 and 34,085,988 shares during the nine months ended September 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 13   Supplemental Balance Sheet and Income Statement Information
 
At September 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:
 
                 
    September 30,
    December 31,
 
    2010     2009  
(In thousands)            
 
Accrued compensation
  $ 118,857     $ 79,195  
Deferred revenue
    72,975       57,563  
Other taxes payable
    28,386       33,126  
Workers’ compensation liabilities
    31,944       31,944  
Interest payable
    42,321       78,607  
Due to joint venture partners
    25,641       25,641  
Warranty accrual
    4,605       6,970  
Litigation reserves
    12,482       11,951  
Professional fees
    3,966       3,390  
Current deferred tax liability
          8,793  
Other accrued liabilities
    23,575       9,157  
                 
    $ 364,752     $ 346,337  
                 


26


Table of Contents

NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Investment income (loss) included the following:
 
                 
    Nine Months Ended
 
    September 30,  
    2010     2009  
(In thousands)            
 
Interest and dividend income
  $ 5,525     $ 14,936  
Gains (losses) on investments, net
    (6,501 )(1)     10,612  
                 
    $ (976 )   $ 25,548  
                 
 
 
(1) Includes unrealized losses of $10.1 million from our trading securities.
 
Losses (gains) on sales and retirements of long-lived assets and other expense (income), net included the following:
 
                 
    Nine Months Ended
 
    September 30,  
    2010     2009  
(In thousands)            
 
Losses on sales and retirements of long-lived assets
  $ 4,211     $ 2,701  
Acquisition-related costs
    7,000        
Litigation expenses
    3,398       6,727  
Foreign currency transaction losses (gains)
    16,839 (1)     8,315  
Losses (gains) on derivative instruments
    707       (963 )
Losses (gains) on early debt extinguishment
    7,042       (15,969 )
Other gains
    1,601       (186 )
                 
    $ 40,798     $ 625  
                 
 
 
(1) Includes $(8.1) 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 $(12.0) million and $116.3 million for the three months ended September 30, 2010 and 2009, respectively.


27


Table of Contents

NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Impairments and other charges included the following:
 
                 
    Nine Months Ended
 
    September 30,  
    2010     2009  
(In thousands)            
 
Goodwill impairment(1)
  $ 10,707     $ 14,689  
Impairment of long-lived assets:(2)
               
U.S. Offshore
    27,372        
Other Operating
    7,460        
Impairment of long-lived assets to be disposed of other than by sale:(3)
               
U.S. Lower 48 Land Drilling
    12,452        
U.S. Well-servicing
    3,787        
U.S. Offshore
    6,974       28,062  
Alaska
          15,000  
Canada
          17,930  
International
          3,237  
Impairment of oil and gas financing receivable(4)
    54,347       112,516  
Credit-related impairment on investment(5)
          35,649  
                 
Total impairments and other charges
  $ 123,099     $ 227,083  
                 
 
 
(1) During the three months ended September 30, 2010, we recognized goodwill impairment of approximately $10.7 million relating to our U.S. Offshore operating segment. The impairment charge stemmed from our annual impairment test on goodwill, which compared the estimated fair value of each of our reporting units to its carrying value. The estimated fair value of U.S. Offshore was determined using discounted cash flow models involving assumptions based on our utilization of rigs and revenues as well as direct costs, general and administrative costs, depreciation, applicable income taxes, capital expenditures and working capital requirements. We determined that the fair value estimated for purposes of this test represented a Level 3 fair value measurement. The current quarter impairment charge was deemed necessary due to the uncertainty of utilization of some of our rigs as a result of changes in our customers’ plans for future drilling operations in the Gulf of Mexico. Many of our customers have suspended drilling operations in the Gulf of Mexico, largely as a result of their inability to obtain government permits. Although the U.S. deepwater drilling moratorium has been lifted, it is uncertain whether our customers’ ability to obtain government permits will improve in the near term. A significantly prolonged period of lower oil and natural gas prices or changes in laws and regulations could continue to adversely affect the demand for and prices of our services, which could result in future goodwill impairment charges for other reporting units due to the potential impact on our estimate of our future operating results.
 
During the second quarter of 2009, we recognized goodwill impairment of approximately $14.7 million relating 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) During the three months ended September 30, 2010, we recognized impairment of $27.4 million to some jack-up rigs in our U.S. Offshore operating segment and $7.5 million to our aircraft and some drilling equipment in Nabors Blue Sky Ltd., one of our Canadian subsidiaries reported in our Other Operating segment. The impairment charges stemmed from our annual impairment tests on long-lived assets, which determined that the sum of the estimated future cash flows, on an undiscounted basis, was less than the


28


Table of Contents

NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
carrying amount of these assets. The estimated fair values of these assets were calculated using discounted cash flow models involving assumptions based on our utilization of the assets, revenues as well as direct costs, capital expenditures and working capital requirements. We believe the fair value estimated for purposes of these tests represents a Level 3 fair value measurement. The impairment charge relating to our U.S. Offshore segment was deemed necessary due to the economic conditions for drilling in the Gulf of Mexico as a result of the U.S. deepwater drilling moratorium and the uncertainty whether our customers’ ability to obtain government permits will improve in the near term. The impairment charge relating to Nabors Blue Sky Ltd. was deemed necessary due to the continued duration of the downturn in the oil and gas industry in Canada, which has resulted in diminished demand for the remote access services provided by this subsidiary’s aircraft fleet. A prolonged period of legislative uncertainty and slow economic recovery could continue to adversely affect the demand for and prices of our services, which could result in future impairment charges for other reporting units due to the potential impact on our estimate of our future operating results.
 
(3) During the three months ended September 30, 2010, we retired certain rigs and rig components in our U.S. Lower 48 Land, U.S. Well-servicing and U.S. Offshore Contract Drilling segments and reduced their aggregate carrying value to their estimated aggregate salvage value, resulting in impairment charges of approximately $23.2 million. The retirements included rig components, comprised of engines, top-drive units, building modules and other equipment that has become obsolete or inoperable in each of these operating segments. The impairment charges were determined to be necessary as a result of the continued lower commodity price environment and its related impact on drilling and well-servicing activity and our dayrates. As a result of these factors, we decided to retire these assets. A prolonged period of lower natural gas and oil prices and its potential impact on our utilization and dayrates could result in the recognition of future impairment charges on additional assets if future cash flow estimates, based upon information then available to management, indicate that their carrying value may not be recoverable.
 
During the second quarter of 2009, we retired 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.
 
(4) As of September 30, 2010, we recorded an impairment totaling $54.3 million to a certain oil and gas financing receivable, which reduced the carrying value of this oil and gas financing receivable included in long-term investments to $15.5 million. The impairment was primarily due to the lower price environment, which has significantly reduced demand for future gas production and development in the Barnett Shale area of north central Texas. We determined the impairment using estimates and assumptions based on estimated cash flows for proved and probable reserves and current natural gas prices. We believe the estimates used provide a reasonable estimate of current fair value. We determined that this represented a Level 3 fair value measurement. As of June 30, 2009, we initially recorded an impairment totaling $112.5 million to this oil and gas financing receivable primarily due to the lower price environment and our plan for future gas production and development in this area.
 
(5) During the second quarter of 2009, we recorded an other-than-temporary impairment of $40.3 million to a 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 extent to which the market value had been less than our cost led to our decision that the impairment was other-than-temporary.


29


Table of Contents

NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Note 14   Segment Information
 
The following table sets forth financial information with respect to our reportable segments:
 
                                 
                Nine Months Ended
 
    Three Months Ended September 30,     September 30,  
    2010     2009     2010     2009  
(In thousands)                        
 
Operating revenues and Earnings (losses) from unconsolidated affiliates:
                               
Contract Drilling:(1)
                               
U.S. Lower 48 Land Drilling
  $ 350,348     $ 212,004     $ 925,262     $ 851,742  
U.S. Land Well-servicing
    119,127       89,459       321,978       323,901  
U.S. Pressure Pumping(2)
    61,611             61,611        
U.S. Offshore
    26,504       25,708       103,680       128,047  
Alaska
    45,920       45,210       139,099       161,199  
Canada
    85,728       58,219       262,043       217,464  
International
    288,535       307,660       800,886       977,867  
                                 
Subtotal Contract Drilling(3)
    977,773       738,260       2,614,559       2,660,220  
Oil and Gas(4)
    11,280       11,022       31,682       (53,874 )
Other Operating Segments(5)(6)
    130,392       89,774       333,654       350,173  
Other reconciling items(7)
    (38,342 )     (32,753 )     (94,930 )     (155,707 )
                                 
Total
  $ 1,081,103     $ 806,303     $ 2,884,965     $ 2,800,812  
                                 
Adjusted income derived from operating activities:(8)
                               
Contract Drilling:(1)
                               
U.S. Lower 48 Land Drilling
  $ 70,452     $ 46,382     $ 188,907     $ 245,699  
U.S. Land Well-servicing
    9,049       342       19,465       20,192  
U.S. Pressure Pumping(2)
    11,987             11,987        
U.S. Offshore
    (1,090 )     (163 )     14,387       23,391  
Alaska
    14,299       11,145       40,644       48,344  
Canada
    1,013       (10,448 )     6,398       (7,651 )
International
    64,379       86,865       182,930       291,143  
                                 
Subtotal Contract Drilling(3)
    170,089       134,123       464,718       621,118  
Oil and Gas(4)
    1,037       4,322       5,654       (76,105 )
Other Operating Segments(5)(6)
    17,969       3,978       33,176       28,253  
Other reconciling items(8)
    (24,676 )     (25,232 )     (70,559 )     (177,409 )
                                 
Total adjusted income derived from operating activities
  $ 164,419     $ 117,191     $ 432,989     $ 395,857  
Interest expense
    (66,973 )     (66,671 )     (199,035 )     (199,776 )
Investment income (loss)
    (733 )     (1,806 )     (976 )     25,548  
Gains (losses) on sales and retirements of long-lived assets and other income (expense), net
    (9,407 )     (10,516 )     (40,798 )     (625 )
Impairments and other charges
    (123,099 )           (123,099 )     (227,083 )
                                 
Income (loss) from continuing operations before income taxes
    (35,793 )     38,198       69,081       (6,079 )
Income tax expense (benefit)
    (4,230 )     (15,477 )     13,154       728  
                                 
Income (loss) from continuing operations, net of tax
    (31,563 )     53,675       55,927       (6,807 )
Income (loss) from discontinued operations, net of tax
    (7,591 )     (23,250 )     (12,921 )     (31,855 )
                                 
Net income (loss)
    (39,154 )     30,425       43,006       (38,662 )
Less: Net income (loss) attributable to noncontrolling interest
    (453 )     (895 )     1,208       376  
                                 
Net income (loss) attributable to Nabors
  $ (39,607 )   $ 29,530     $ 44,214     $ (38,286 )
                                 
 


30


Table of Contents

NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
                 
    September 30,
    December 31,
 
    2010     2009  
(In thousands)            
 
Total assets:
               
Contract Drilling:
               
U.S. Lower 48 Land Drilling
  $ 2,706,207     $ 2,609,101  
U.S. Land Well-servicing
    587,070       594,456  
U.S. Pressure Pumping
    1,107,512        
U.S. Offshore
    380,538       440,556  
Alaska
    336,238       373,146  
Canada
    973,805       984,740  
International
    3,209,529       3,151,513  
                 
Subtotal Contract Drilling(10)
    9,300,899       8,153,512  
Oil and Gas(11)
    896,935       835,465  
Other Operating Segments(12)
    540,371       502,501  
Other reconciling items(10) (13)
    882,523       1,153,212  
                 
Total assets
  $ 11,620,728     $ 10,644,690  
                 
 
 
(1) These segments include our drilling, well-servicing, fluid logistics and workover operations, on land and offshore.
 
(2) Includes operating results of the Merger during the period September 10 through September 30, 2010.
 
(3) Includes earnings (losses), net from unconsolidated affiliates, accounted for using the equity method, of $.6 million and $4.9 million for the three months ended September 30, 2010 and 2009, respectively, and $3.7 million and $6.8 million for the nine months ended September 30, 2010 and 2009, respectively.
 
(4) Includes earnings (losses), net from unconsolidated affiliates, accounted for using the equity method, of $6.8 million and $7.7 million for the three months ended September 30, 2010 and 2009, respectively, and $14.5 million and $(73.2) million for the nine months ended September 30, 2010 and 2009, respectively.
 
(5) Includes our drilling technology and top drive manufacturing, directional drilling, rig instrumentation and software, and construction and logistics operations.
 
(6) Includes earnings (losses), net from unconsolidated affiliates, accounted for using the equity method, of $4.4 million and $4.5 million for the three months ended September 30, 2010 and 2009, respectively, and $10.1 million and $13.3 million for the nine months ended September 30, 2010 and 2009, respectively.
 
(7) Represents the elimination of inter-segment transactions.
 
(8) 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 (loss) from continuing operations before income taxes, which is a GAAP measure, is provided within the above table.
 
(9) Represents the elimination of inter-segment transactions and unallocated corporate expenses, assets and capital expenditures.

31


Table of Contents

NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
 
(10) Includes $53.5 million and $49.8 million of investments in unconsolidated affiliates accounted for using the equity method as of September 30, 2010 and December 31, 2009, respectively.
 
(11) Includes $148.6 million and $190.1 million of investments in unconsolidated affiliates accounted for using the equity method as of September 30, 2010 and December 31, 2009, respectively.
 
(12) Includes $68.4 million and $65.8 million of investments in unconsolidated affiliates accounted for using the equity method as of September 30, 2010 and December 31, 2009, respectively.
 
(13) Includes $1.9 million and $.9 million of investments in unconsolidated affiliates accounted for using the cost method as of September 30, 2010 and December 31, 2009, respectively.
 
Note 15   Assets Held for Sale and Discontinued Operations
 
We recently began actively marketing our oil and gas assets in the Horn River basin in Canada and in the Llanos basin in Colombia. These assets also include our 49.7% and 50.0% ownership interests in our investments of Remora Energy International, LP (“Remora”) and Stone Mountain Ventures Partnership (“SMVP”), respectively, which we account for using the equity method of accounting. All of these assets are included in our oil and gas operating segment. We determined that the plan of sale criteria in the ASC Topic relating to the Presentation of Financial Statements for Assets Sold or Held for Sale had been met during the third quarter of 2010. Accordingly, we have reclassified these wholly owned oil and gas assets from our property, plant and equipment, net, as well as our investment balances for Remora and SMVP from investments in unconsolidated affiliates to assets held for sale, in our consolidated balance sheet at September 30, 2010. The table below summarizes the balances relating to assets held for sale at September 30, 2010 as compared to the balances at December 31, 2009.
 
Assets Held for Sale
 
                 
    September 30,
    December 31,
 
    2010     2009  
(In thousands)            
 
Investments in unconsolidated affiliates
  $ 81,658     $ 77,588  
Property, plant and equipment, net
    263,480       245,779  
                 
Total
  $ 345,138     $ 323,367  
                 
 
The results of operations from these assets have been reclassified and presented as results of discontinued operations for all periods presented in these interim consolidated financial statements. Our condensed statements of income from discontinued operations related to these oil and gas properties for the three and nine months ended September 30, 2010 and 2009 were as follows:
 
Condensed Statements of Income
 
                                 
    Three Months Ended
    Nine Months Ended
 
    September 30,     September 30,  
    2010     2009     2010     2009  
(In thousands)                        
 
Revenues from discontinued operations
  $ 7,283     $ 2,715     $ 27,015     $ 3,885  
Earnings (losses) from unconsolidated affiliates from discontinued operations
    (3,727 )     (3,646 )     (6,335 )     (5,965 )
Income (loss) from discontinued operations
                               
Income (loss) from discontinued operations
  $ (8,864 )   $ (4,218 )   $ (13,432 )   $ (10,652 )
Income tax (expense) benefit
    1,273       (19,032 )     511       (21,203 )
                                 
Income (loss) from discontinued operations, net of taxes
  $ (7,591 )   $ (23,250 )   $ (12,921 )   $ (31,855 )
                                 


32


Table of Contents

NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Note 16   Condensed Consolidating Financial Information
 
Nabors has fully and unconditionally guaranteed all of the public debt securities issued by 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 September 30, 2010 and December 31, 2009, statements of income for the three and nine months ended September 30, 2010 and 2009, and the consolidating statements of cash flows for the nine months ended September 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.


33


Table of Contents

NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Condensed Consolidating Balance Sheets
 
                                                 
    September 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
  $ 3,884     $ 26     $     $ 635,773     $     $ 639,683  
Short-term investments
                      132,786             132,786  
Assets held for sale
                      345,138             345,138  
Accounts receivable, net
                      1,002,974             1,002,974  
Inventory
                      142,973             142,973  
Deferred income taxes
          (95,058 )           124,383             29,325  
Other current assets
    50       161,283             111,712             273,045  
                                                 
Total current assets
    3,934       66,251             2,495,739             2,565,924  
Long-term investments and other receivables
                      37,448             37,448  
Property, plant and equipment, net
          45,141             7,839,733             7,884,874  
Goodwill
                      463,427             463,427  
Intercompany receivables
    165,152       91,913             230,784       (487,849 )      
Investment in unconsolidated affiliates
    5,040,852       5,735,431             1,908,788       (12,412,639 )     272,432  
Other long-term assets
          35,156             361,467             396,623  
                                                 
Total assets
  $ 5,209,938     $ 5,973,892     $     $ 13,337,386     $ (12,900,488 )   $ 11,620,728  
                                                 
 
LIABILITIES AND EQUITY
Current liabilities:
                                               
Current portion of long-term debt
  $     $ 1,361,712     $     $ 81,002     $     $ 1,442,714  
Trade accounts payable
    (11 )                 368,791             368,780  
Accrued liabilities
    2,317       40,439             321,996             364,752  
Income taxes payable
          153,588             (68,314 )           85,274  
                                                 
Total current liabilities
    2,306       1,555,739             703,475             2,261,520  
Long-term debt
          3,061,755             4,993             3,066,748  
Other long-term liabilities
          5,693             228,147             233,840  
Deferred income taxes
          42,428             726,434             768,862  
Intercompany payable
          53,470             434,379       (487,849 )      
                                                 
Total liabilities
    2,306       4,719,085             2,097,428       (487,849 )     6,330,970  
                                                 
Subsidiary preferred stock
                      69,188             69,188  
                                                 
Shareholders’ equity
    5,207,632       1,254,807             11,157,832       (12,412,639 )     5,207,632  
Noncontrolling interest
                      12,938             12,938  
                                                 
Total equity
    5,207,632       1,254,807             11,170,770       (12,412,639 )     5,220,570  
                                                 
Total liabilities and equity
  $ 5,209,938     $ 5,973,892     $     $ 13,337,386     $ (12,900,488 )   $ 11,620,728  
                                                 
 


34


Table of Contents

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  
                                                 

35


Table of Contents

NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Condensed Consolidating Statements of Income
 
                                                 
    Three Months Ended September 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
  $     $     $     $ 1,069,261     $     $ 1,069,261  
Earnings (losses) from unconsolidated affiliates
                      11,842             11,842  
Earnings (losses) from consolidated affiliates
    (38,086 )     (176,410 )           (200,847 )     415,343        
Investment income (loss)
    5                   (738 )           (733 )
Intercompany interest income
          18,178                   (18,178 )      
                                                 
Total revenues and other income
    (38,081 )     (158,232 )           879,518       397,165       1,080,370  
                                                 
Costs and other deductions:
                                               
Direct costs
                      625,561             625,561  
General and administrative expenses
    2,250       119             85,109       (284 )     87,194  
Depreciation and amortization
          871             197,280             198,151  
Depletion
                      5,778             5,778  
Interest expense
          69,021             (2,048 )           66,973  
Intercompany interest expense
                      18,178       (18,178 )      
Losses (gains) on sales and retirements of long-lived assets and other expense (income), net
    (724 )     1,151             8,696       284       9,407  
Impairments and other charges
                      123,099             123,099  
                                                 
Total costs and other deductions
    1,526       71,162             1,061,653       (18,178 )     1,116,163  
                                                 
Income (loss) from continuing operations before income taxes
    (39,607 )     (229,394 )           (182,135 )     415,343       (35,793 )
Income tax expense (benefit)
          (19,604 )           15,374             (4,230 )
                                                 
Income (loss) from continuing operations, net of tax
    (39,607 )     (209,790 )           (197,509 )     415,343       (31,563 )
Income (loss) from discontinued operations, net of tax
                      (7,591 )           (7,591 )
                                                 
Net income (loss)
    (39,607 )     (209,790 )           (205,100 )     415,343       (39,154 )
Less: Net (income) loss attributable to noncontrolling interest
                      (453 )           (453 )
                                                 
Net income (loss) attributable to Nabors
  $ (39,607 )   $ (209,790 )   $     $ (205,553 )   $ 415,343     $ (39,607 )
                                                 


36


Table of Contents

NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
                                                 
    Three Months Ended September 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
  $     $     $     $ 789,200     $     $ 789,200  
Earnings (losses) from unconsolidated affiliates
                      17,103             17,103  
Earnings (losses) from consolidated affiliates
    24,141       34,984       8       (6,004 )     (53,129 )      
Investment income (loss)
    1       1       100       (1,908 )           (1,806 )
Intercompany interest income
          18,470       1,116             (19,586 )      
                                                 
Total revenues and other income
    24,142       53,455       1,224       798,391       (72,715 )     804,497  
                                                 
Costs and other deductions:
                                               
Direct costs
                      431,280             431,280  
General and administrative expenses
    2,948       87             78,674       (72 )     81,637  
Depreciation and amortization
          2,583             171,118             173,701  
Depletion
                      2,494             2,494  
Interest expense
          72,350       1,071       (6,750 )           66,671  
Intercompany interest expense
                      19,586       (19,586 )      
Losses (gains) on sales and retirements of long-lived assets and other expense (income), net
    (8,336 )     9,005       11,206       16,816       (18,175 )     10,516  
Impairments and other charges
                                   
                                                 
Total costs and other deductions
    (5,388 )     84,025       12,277       713,218       (37,833 )     766,299  
                                                 
Income (loss) from continuing operations before income taxes
    29,530       (30,570 )     (11,053 )     85,173       (34,882 )     38,198  
Income tax expense (benefit)
          (24,255 )     (1,337 )     10,115             (15,477 )
                                                 
Income (loss) from continuing operations, net of tax
    29,530       (6,315 )     (9,716 )     75,058       (34,882 )     53,675  
Income (loss) from discontinued operations, net of tax
                      (23,250 )           (23,250 )
                                                 
Net income (loss)
    29,530       (6,315 )     (9,716 )     51,808       (34,882 )     30,425  
Less: Net (income) loss attributable to noncontrolling interest
                      (895 )           (895 )
                                                 
Net income (loss) attributable to Nabors
  $ 29,530     $ (6,315 )   $ (9,716 )   $ 50,913     $ (34,882 )   $ 29,530  
                                                 


37


Table of Contents

NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
                                                 
    Nine Months Ended September 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
  $     $     $     $ 2,856,636     $     $ 2,856,636  
Earnings (losses) from unconsolidated affiliates
                      28,329             28,329  
Earnings (losses) from consolidated affiliates
    35,930       (104,135 )           (192,837 )     261,042        
Investment income (loss)
    12                   (988 )           (976 )
Intercompany interest income
          54,121                   (54,121 )      
                                                 
Total revenues and other income
    35,942       (50,014 )           2,691,140       206,921       2,883,989  
                                                 
Costs and other deductions:
                                               
Direct costs
                      1,648,289             1,648,289  
General and administrative expenses
    6,033       298             237,182       (556 )     242,957  
Depreciation and amortization
          2,432             542,652             545,084  
Depletion
                      15,646             15,646  
Interest expense
          206,736             (7,701 )           199,035  
Intercompany interest expense
                      54,121       (54,121 )      
Losses (gains) on sales and retirements of long-lived assets and other expense (income), net
    (14,305 )     22,443             32,104       556       40,798  
Impairments and other charges
                        123,099             123,099  
                                                 
Total costs and other deductions
    (8,272 )     231,909             2,645,392       (54,121 )     2,814,908  
                                                 
Income (loss) from continuing operations before income taxes
    44,214       (281,923 )           45,748       261,042       69,081  
Income tax expense (benefit)
          (65,781 )           78,935             13,154  
                                                 
Income (loss) from continuing operations, net of tax
    44,214       (216,142 )           (33,187 )     261,042       55,927  
Income (loss) from discontinued operations, net of tax
                      (12,921 )           (12,921 )
                                                 
Net income (loss)
    44,214       (216,142 )           (46,108 )     261,042       43,006  
Less: Net (income) loss attributable to noncontrolling interest
                      1,208             1,208  
                                                 
Net income (loss) attributable to Nabors
  $ 44,214     $ (216,142 )   $     $ (44,900 )   $ 261,042     $ 44,214  
                                                 
 


38


Table of Contents

NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
                                                 
    Nine Months Ended September 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
  $     $     $     $ 2,853,944     $     $ 2,853,944  
Earnings (losses) from unconsolidated affiliates
                      (53,132 )           (53,132 )
Earnings (losses) from consolidated affiliates
    (28,887 )     (151,704 )     (86,751 )     (249,744 )     517,086        
Investment income
    51       2,344       101       23,052             25,548  
Intercompany interest income
          47,720       5,558             (53,278 )      
                                                 
Total revenues and other income
    (28,836 )     (101,640 )     (81,092 )     2,574,120       463,808       2,826,360  
                                                 
Costs and other deductions:
                                               
Direct costs
                      1,546,076             1,546,076  
General and administrative expenses
    26,399       295       1       325,960       (443 )     352,212  
Depreciation and amortization
          2,733             496,097             498,830  
Depletion
                      7,837             7,837  
Interest expense
          218,118       5,634       (23,976 )           199,776  
Intercompany interest expense
                      53,278       (53,278 )      
Losses (gains) on sales, retirements and impairments of long-lived assets and other expense (income), net
    (16,949 )     (214 )     5,069       30,523       (17,804 )     625  
Impairments and other charges
                      227,083             227,083  
                                                 
Total costs and other deductions
    9,450       220,932       10,704       2,662,878       (71,525 )     2,832,439  
                                                 
Income (loss) from continuing operations before income taxes
    (38,286 )     (322,572 )     (91,796 )     (88,758 )     535,333       (6,079 )
Income tax expense (benefit)
          (63,221 )     15,744       48,205             728  
                                                 
Income (loss) from continuing operations, net of tax
    (38,286 )     (259,351 )     (107,540 )     (136,963 )     535,333       (6,807 )
Income (loss) from discontinued operations, net of tax
                      (31,855 )           (31,855 )
                                                 
Net income (loss)
    (38,286 )     (259,351 )     (107,540 )     (168,818 )     535,333       (38,662 )
Less: Net (income) loss attributable to noncontrolling interest
                      376             376  
                                                 
Net income (loss) attributable to Nabors
  $ (38,286 )   $ (259,351 )   $ (107,540 )   $ (168,442 )   $ 535,333     $ (38,286 )
                                                 

39


Table of Contents

NABORS INDUSTRIES LTD. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Condensed Consolidating Statements of Cash Flows
 
<
                                                 
    Nine Months Ended September 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
  $ 87,995     $ 325,427     $     $ 268,712     $     $ 682,134  
                                                 
Cash flows from investing activities:
                                               
Purchases of investments
                      (27,695 )           (27,695 )
Sales and maturities of investments
                      32,103             32,103  
Cash paid for acquisition of business, net
                      (680,230 )             (680,230 )
Investment in unconsolidated affiliates
                      (40,936 )           (40,936 )
Capital expenditures
                      (640,953 )           (640,953 )
Proceeds from sales of assets and insurance claims
                      26,084             26,084  
Cash paid for investments in consolidated affiliates
    (99,300 )     (732,000 )                 831,300        
                                                 
Net cash provided by (used for) investing activities
    (99,300 )     (732,000 )           (1,331,627 )     831,300       (1,331,627 )
                                                 
Cash flows from financing activities:
                                               
Increase (decrease) in cash overdrafts
                      (4,649 )           (4,649 )
Proceeds from issuance of long-term debt
          691,281                         691,281  
Debt issuance costs
          (7,144 )                       (7,144 )
Proceeds from Revolving Credit Facility
          600,000                         600,000  
Proceeds from issuance of common shares, net
    5,391                               5,391  
Reduction in long-term debt
          (274,095 )           (40,258 )           (314,353 )
Reduction in Revolving Credit Facility
          (600,000 )                       (600,000 )
Repurchase of equity component of convertible debt
          (4,712 )                       (4,712 )
Settlement of call options and warrants, net
          1,134                         1,134  
Purchase of restricted stock
    (1,904 )