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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2020

    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-32657

NABORS INDUSTRIES LTD.

(Exact name of registrant as specified in its charter)

Bermuda

98-0363970

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

Crown House

Second Floor

4 Par-la-Ville Road

Hamilton, HM08

Bermuda

(Address of principal executive office)

(441) 292-1510

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common shares, $.05 par value per share

NBR

NYSE

Preferred shares, 6.00% Mandatory Convertible Preferred Shares, Series A, $.001 par value per share

NBR.PRA

NYSE

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  No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes  No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer 

Accelerated Filer 

Non-accelerated Filer 

Smaller reporting company 

Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 

The number of common shares, par value $.05 per share, outstanding as of May 6, 2020 was 7,299,780, excluding 1,090,003 common shares held by our subsidiaries, or 8,389,783 in the aggregate.

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

Index

PART I FINANCIAL INFORMATION

Item 1.

Financial Statements

Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019

3

Condensed Consolidated Statements of Income (Loss) for the Three Months Ended March 31, 2020 and 2019

4

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2020 and 2019

5

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019

6

Condensed Consolidated Statements of Changes in Equity for the Three Months Ended March 31, 2020 and 2019

7

Notes to Condensed Consolidated Financial Statements

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

36

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

44

Item 4.

Controls and Procedures

44

PART II OTHER INFORMATION

Item 1.

Legal Proceedings

44

Item 1A.

Risk Factors

44

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

45

Item 3.

Defaults Upon Senior Securities

46

Item 4.

Mine Safety Disclosures

46

Item 5.

Other Information

46

Item 6.

Exhibits

46

Signatures

48

2

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

March 31,

December 31,

    

2020

    

2019

 

(In thousands, except per

 

share amounts)

 

ASSETS

Current assets:

Cash and cash equivalents

$

480,522

$

435,990

Short-term investments

 

9,136

 

16,506

Accounts receivable, net

 

454,718

 

453,042

Inventory, net

 

173,991

 

176,341

Assets held for sale

 

1,936

 

2,530

Other current assets

 

150,533

 

164,257

Total current assets

 

1,270,836

 

1,248,666

Property, plant and equipment, net

 

4,597,308

 

4,930,549

Goodwill

 

 

28,380

Deferred income taxes

 

280,545

 

305,844

Other long-term assets

 

159,859

 

247,219

Total assets (1)

$

6,308,548

$

6,760,658

LIABILITIES AND EQUITY

Current liabilities:

Current portion of debt

$

$

Trade accounts payable

 

297,274

 

295,159

Accrued liabilities

252,664

 

333,282

Income taxes payable

 

23,057

 

14,628

Current lease liabilities

 

11,875

 

13,479

Total current liabilities

 

584,870

 

656,548

Long-term debt

 

3,388,014

 

3,333,220

Other long-term liabilities

 

261,942

 

292,184

Deferred income taxes

 

2,800

 

3,149

Total liabilities (1)

 

4,237,626

 

4,285,101

Commitments and contingencies (Note 8)

Redeemable noncontrolling interest in subsidiary (Note 3)

429,824

 

425,392

Shareholders’ equity:

Preferred shares, par value $0.001 per share:

Series A 6% Cumulative Mandatory Convertible; $50 per share liquidation preference; outstanding 4,870 and 5,613, respectively

 

5

 

6

Common shares, par value $0.05 per share:

Authorized common shares 16,000; issued 8,389 and 8,324, respectively

 

419

 

416

Capital in excess of par value

 

3,408,454

 

3,412,972

Accumulated other comprehensive income (loss)

 

(29,006)

 

(11,788)

Retained earnings (accumulated deficit)

 

(508,200)

 

(104,775)

Less: treasury shares, at cost, 1,090 and 1,056 common shares, respectively

 

(1,315,751)

 

(1,314,020)

Total shareholders’ equity

 

1,555,921

 

1,982,811

Noncontrolling interest

 

85,177

 

67,354

Total equity

 

1,641,098

 

2,050,165

Total liabilities and equity

$

6,308,548

$

6,760,658

(1)The condensed consolidated balance sheet as of March 31, 2020 and December 31, 2019 include assets and liabilities of variable interest entities. See Note 3—Joint Ventures for additional information.

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(Unaudited)

Three Months Ended

    

March 31,

2020

2019

(In thousands, except per share amounts)

Revenues and other income:

Operating revenues

$

718,364

$

799,640

Earnings (losses) from unconsolidated affiliates

(5)

Investment income (loss)

 

(3,198)

 

9,677

Total revenues and other income

715,166

809,312

Costs and other deductions:

Direct costs

461,840

520,957

General and administrative expenses

57,384

68,167

Research and engineering

 

11,409

 

13,520

Depreciation and amortization

 

227,063

 

210,391

Interest expense

54,722

52,352

Impairments and other charges

 

276,434

 

Other, net

(17,110)

17,502

Total costs and other deductions

1,071,742

882,889

Income (loss) from continuing operations before income taxes

 

(356,576)

 

(73,577)

Income tax expense (benefit):

Current

 

(7,203)

 

15,862

Deferred

 

24,896

 

13,937

Total income tax expense (benefit)

 

17,693

 

29,799

Income (loss) from continuing operations, net of tax

 

(374,269)

 

(103,376)

Income (loss) from discontinued operations, net of tax

 

(93)

 

(157)

Net income (loss)

 

(374,362)

 

(103,533)

Less: Net (income) loss attributable to noncontrolling interest

 

(17,465)

 

(14,176)

Net income (loss) attributable to Nabors

(391,827)

(117,709)

Less: Preferred stock dividend

 

(3,652)

 

(4,313)

Net income (loss) attributable to Nabors common shareholders

$

(395,479)

$

(122,022)

Amounts attributable to Nabors common shareholders:

Net income (loss) from continuing operations

$

(395,386)

$

(121,865)

Net income (loss) from discontinued operations

(93)

(157)

Net income (loss) attributable to Nabors common shareholders

$

(395,479)

$

(122,022)

Earnings (losses) per share:

Basic from continuing operations

$

(56.72)

$

(18.11)

Basic from discontinued operations

 

(0.01)

 

(0.02)

Total Basic

$

(56.73)

$

(18.13)

Diluted from continuing operations

$

(56.72)

$

(18.11)

Diluted from discontinued operations

 

(0.01)

 

(0.02)

Total Diluted

$

(56.73)

$

(18.13)

Weighted-average number of common shares outstanding:

Basic

 

7,051

 

7,015

Diluted

 

7,051

 

7,015

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

Three Months Ended

 

    

March 31,

 

2020

2019

(In thousands)

 

Net income (loss) attributable to Nabors

$

(391,827)

$

(117,709)

Other comprehensive income (loss), before tax:

Translation adjustment attributable to Nabors

(17,365)

9,190

Pension liability amortization and adjustment

 

51

 

54

Unrealized gains (losses) and amortization on cash flow hedges

 

143

 

140

Other comprehensive income (loss), before tax

 

(17,171)

 

9,384

Income tax expense (benefit) related to items of other comprehensive income (loss)

 

47

 

46

Other comprehensive income (loss), net of tax

 

(17,218)

 

9,338

Comprehensive income (loss) attributable to Nabors

 

(409,045)

 

(108,371)

Net income (loss) attributable to noncontrolling interest

 

17,465

 

14,176

Translation adjustment attributable to noncontrolling interest

 

 

52

Comprehensive income (loss) attributable to noncontrolling interest

 

17,465

 

14,228

Comprehensive income (loss)

$

(391,580)

$

(94,143)

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Three Months Ended March 31,

    

2020

    

2019

(In thousands)

Cash flows from operating activities:

Net income (loss)

$

(374,362)

$

(103,533)

Adjustments to net income (loss):

Depreciation and amortization

 

227,063

 

210,397

Deferred income tax expense (benefit)

 

24,903

 

13,949

Impairments and other charges

 

265,779

 

82

Amortization of debt discount and deferred financing costs

8,153

 

7,730

Losses (gains) on debt buyback

 

(15,742)

 

(2,667)

Losses (gains) on long-lived assets, net

 

1,391

 

3,633

Losses (gains) on investments, net

 

5,539

 

(7,688)

Provision (recovery) of bad debt

10,417

 

(419)

Share-based compensation

 

9,158

 

8,424

Foreign currency transaction losses (gains), net

 

(559)

 

8,548

Noncontrolling interest

(17,465)

 

(14,176)

Other

 

188

 

212

Changes in operating assets and liabilities, net of effects from acquisitions:

Accounts receivable

 

(16,008)

 

14,914

Inventory

 

(1,421)

 

(685)

Other current assets

 

12,292

 

13,458

Other long-term assets

 

2,046

 

(23,907)

Trade accounts payable and accrued liabilities

 

(76,952)

 

(95,669)

Income taxes payable

 

4,475

 

6,107

Other long-term liabilities

 

(9,733)

 

31,144

Net cash provided by (used for) operating activities

 

59,162

 

69,854

Cash flows from investing activities:

Purchases of investments

 

 

(4,221)

Sales and maturities of investments

 

1,835

 

1,134

Cash paid for acquisition of businesses, net of cash acquired

 

 

(2,929)

Capital expenditures

 

(59,430)

 

(141,070)

Proceeds from sales of assets and insurance claims

 

6,822

 

2,642

Net cash (used for) provided by investing activities

 

(50,773)

 

(144,444)

Cash flows from financing activities:

Increase (decrease) in cash overdrafts

 

55

 

Proceeds from issuance of long-term debt

 

1,000,000

 

Reduction in long-term debt

(1,068,405)

 

(43,540)

Debt issuance costs

 

(15,737)

 

(35)

Proceeds from revolving credit facilities

 

795,000

 

180,000

Reduction in revolving credit facilities

(650,000)

 

(50,000)

Proceeds from (payments for) short-term borrowings

 

289

Repurchase of common and preferred shares

(13,858)

 

Dividends to common and preferred shareholders

 

(7,937)

 

(25,765)

Other

(1,546)

 

(1,493)

Net cash (used for) provided by financing activities

 

37,572

 

59,456

Effect of exchange rate changes on cash and cash equivalents

(2,219)

 

(2,791)

Net increase (decrease) in cash and cash equivalents and restricted cash

 

43,742

(17,925)

Cash and cash equivalents and restricted cash, beginning of period

442,038

 

451,080

Cash and cash equivalents and restricted cash, end of period

$

485,780

$

433,155

RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH

Cash and cash equivalents, beginning of period

435,990

 

447,766

Restricted cash, beginning of period

6,048

 

3,314

Cash and cash equivalents and restricted cash, beginning of period

$

442,038

$

451,080

Cash and cash equivalents, end of period

480,522

 

429,127

Restricted cash, end of period

5,258

 

4,028

Cash and cash equivalents and restricted cash, end of period

$

485,780

$

433,155

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)

Mandatory Convertible

Capital

Accumulated

Preferred Shares

Common Shares

in Excess

Other

Non-

    

    

Par

    

    

Par

    

of Par

    

Comprehensive

    

Retained

    

Treasury

    

controlling

    

Total

(In thousands, except per share amounts)

Shares

Value

Shares

Value

Value

Income

Earnings

Shares

Interest

Equity

As of December 31, 2018

 

5,750

$

6

409,652

$

410

$

3,392,937

$

(29,325)

$

650,842

$

(1,314,020)

$

49,476

$

2,750,326

Net income (loss)

(117,709)

14,176

(103,533)

Dividends to common shareholders ($0.01 per share)

(3,947)

(3,947)

Dividends to preferred shareholders ($0.75 per share)

(4,313)

(4,313)

Other comprehensive income (loss), net of tax

 

9,338

52

9,390

Share-based compensation

8,424

8,424

Accrued distribution on redeemable noncontrolling interest in subsidiary

(5,063)

(5,063)

Other

 

6,264

6

(1,251)

(1,245)

As of March 31, 2019

 

5,750

$

6

415,916

$

416

$

3,400,110

$

(19,987)

$

519,810

$

(1,314,020)

$

63,704

$

2,650,039

As of December 31, 2019

 

5,613

$

6

416,198

$

416

$

3,412,972

$

(11,788)

$

(104,775)

$

(1,314,020)

$

67,354

$

2,050,165

Net income (loss)

(391,827)

17,465

(374,362)

Dividends to common shareholders ($0.01 per share)

(3,514)

(3,514)

Dividends to preferred shareholders ($0.75 per share)

(3,652)

(3,652)

Repurchase of common and preferred shares

(724)

(1)

(12,126)

(1,731)

(13,858)

Other comprehensive income (loss), net of tax

(17,218)

(17,218)

Share-based compensation

9,158

9,158

Accrued distribution on redeemable noncontrolling interest in subsidiary

(4,432)

(4,432)

Other

3,268

3

(1,550)

358

(1,189)

As of March 31, 2020

4,889

$

5

419,466

$

419

$

3,408,454

$

(29,006)

$

(508,200)

$

(1,315,751)

$

85,177

$

1,641,098

The accompanying notes are an integral part of these condensed consolidated financial statements.

7

Nabors Industries Ltd. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 General

Unless the context requires otherwise, references in this report to “we,” “us,” “our,” “the Company,” or “Nabors” mean Nabors Industries Ltd., together with our subsidiaries where the context requires. References in this report to “Nabors Delaware” mean Nabors Industries, Inc., a wholly owned subsidiary of Nabors.

Our business is comprised of our global land-based and offshore drilling rig operations and other rig related services and technologies. These services include tubular running services, wellbore placement solutions , directional drilling, measurement-while-drilling (“MWD”), logging-while-drilling (“LWD”) systems and services, equipment manufacturing, rig instrumentation and optimization software.

With operations in approximately 20 countries, we are a global provider of drilling and drilling-related services for land-based and offshore oil and natural gas wells, with a fleet of rigs and drilling-related equipment which, as of March 31, 2020 included:

366 actively marketed rigs for land-based drilling operations in the United States, Canada and approximately 16 other countries throughout the world; and

33 actively marketed rigs for offshore drilling operations in the United States and multiple international markets.

The outbreak of COVID-19, along with decisions by large oil and natural gas producing countries, has led to decreases in commodity prices, specifically oil and natural gas prices, resulting from oversupply and demand weakness. These price decreases caused significant disruptions and volatility in the global marketplace during the first quarter of 2020, leading to a decrease in the demand for our products and services. Lower prices and the resulting weakness in demand for our services, which have negatively affected our results of operations and cash flows, have persisted into the second quarter, and there remains continuing uncertainty regarding the length and impact of COVID-19 on the energy industry and the outlook for our business.

At a special meeting of shareholders held April 20, 2020, our shareholders authorized a combination of our common shares (the “Reverse Stock Split”) at a ratio of not less than 1-for 15 and not greater than 1-for-50, with the exact ratio to be set within that range at the sole direction of our Board of Directors (the “Board”). On April 20, 2020, the Board set the Reverse Stock Split ratio at 1-for-50. As a result of the Reverse Stock Split, 50 pre-reverse split common shares automatically combined into one new common share, without any action on the part of the shareholders. Nabors’ authorized number of common shares were also proportionally decreased from 800,000,000 to 16,000,000 common shares, and the par value of each common share was proportionally increased from $0.001 to $0.05. In addition, at the special meeting, the shareholders authorized an increase in our common share capital by 100% following the Reverse Stock Split, to $1,600,000. No fractional common shares were issued as a result of the Reverse Stock Split. Any fractional common shares of registered holders resulting from the Reverse Stock Split were rounded up to the nearest whole share. All share and per share information included in the accompanying financial statements has been retrospectively adjusted to reflect this Reverse Stock Split.

Note 2 Summary of Significant Accounting Policies

Interim Financial Information

The accompanying unaudited condensed consolidated financial statements of Nabors have been prepared in conformity with generally accepted accounting principles in the United States (“U.S. GAAP”). 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 U.S. GAAP have been omitted. Therefore, these financial statements should be read together with our annual report on Form 10-K for the year ended December 31, 2019 (“2019 Annual Report”). In management’s opinion, the unaudited condensed consolidated financial statements contain all adjustments necessary to state fairly our financial position as of March 31, 2020 and the results of operations,

8

comprehensive income (loss), cash flows and changes in equity for the periods presented herein. Interim results for the three months ended March 31, 2020 may not be indicative of results that will be realized for the full year ending December 31, 2020.

Principles of Consolidation

Our condensed consolidated financial statements include the accounts of Nabors, as well as all majority owned and non-majority owned subsidiaries consolidated in accordance with U.S. GAAP. All significant intercompany accounts and transactions are eliminated in consolidation.

In addition to the consolidation of our majority owned subsidiaries, we also consolidate variable interest entities (“VIE”) when we are determined to be the primary beneficiary of a VIE. Determination of the primary beneficiary of a VIE is based on whether an entity has (1) the power to direct activities that most significantly impact the economic performance of the VIE and (2) the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. Our joint venture, SANAD, which is equally owned by Saudi Aramco and Nabors, has been consolidated. As we have the power to direct activities that most significantly impact SANAD’s economic performance, including operations, maintenance and certain sourcing and procurement, we have determined Nabors to be the primary beneficiary. See Note 3—Joint Ventures.

Inventory

Inventory is stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out or weighted-average cost methods and includes the cost of materials, labor and manufacturing overhead. Inventory included the following:

March 31,

December 31,

    

2020

    

2019

 

(In thousands)

 

Raw materials

$

143,152

$

130,414

Work-in-progress

 

17,288

 

5,498

Finished goods

 

13,551

 

40,429

$

173,991

$

176,341

9

Goodwill

We review goodwill for impairment annually during the second quarter of each fiscal year or more frequently if events or changes in circumstances indicate that the carrying amount of such goodwill and intangible assets may exceed their fair value. We initially assess goodwill for impairment based on qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of one of our reporting units is greater than its carrying amount. If the carrying amount exceeds the fair value, an impairment charge will be recognized in an amount equal to the excess; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.

Our estimated fair values of our reporting units incorporate judgment and the use of estimates by management. We primarily calculate fair value in these impairment tests using discounted cash flow models, which require the use of significant unobservable inputs, representative of a Level 3 fair value measurement. Our cash flow models involve assumptions based on our utilization of rigs or other oil and gas service equipment, revenues and earnings from affiliates, as well as direct costs, general and administrative costs, depreciation, applicable income taxes, capital expenditures and working capital requirements. Our fair value estimates of these reporting units are sensitive to varying dayrates, utilization and costs. A significantly prolonged period of lower oil and natural gas prices, other than those assumed in developing our forecasts, or changes in laws and regulations could adversely affect the demand for and prices of our services. Our discounted cash flow projections for each reporting unit were based on financial forecasts. The future cash flows were discounted to present value using discount rates determined to be appropriate for each reporting unit. Terminal values for each reporting unit were calculated using a Gordon Growth methodology with a long-term growth rate of approximately 2%. The fair value of certain of our reporting units utilizes a market approach based on comparing the assets and liabilities of companies within our same industry. The market approach involves significant judgment in the selection of the appropriate peer group companies and valuation multiples.

Another factor in determining whether impairment has occurred is the relationship between our market capitalization and our book value. As part of our annual review, we compared the sum of our reporting units’ estimated fair value, which included the estimated fair value of non-operating assets and liabilities, less debt, to our market capitalization and assessed the reasonableness of our estimated fair value. Any of the above-mentioned factors may cause us to re-evaluate goodwill during any quarter throughout the year.

The change in the carrying amount of goodwill for our segments for the three months ended March 31, 2020 was as follows:

    

    

Acquisitions

    

    

    

 

and

 

Balance at

Purchase

Disposals

Cumulative

Balance at

 

December 31,

Price

and

Translation

March 31,

 

2019

Adjustments

Impairments

Adjustment

2020

 

(In thousands)

 

Drilling Solutions

$

11,436

$

$

(11,436)

(1)

$

$

Rig Technologies

 

16,944

 

 

(16,362)

(1)

 

(582)

 

Total

$

28,380

$

$

(27,798)

$

(582)

$

(1) Due to current industry conditions such as the drop in commodity prices and the corresponding impact on future expectations of demand for our products and services, including the effect on our stock price, we performed a quantitative impairment assessment of our goodwill as of March 31, 2020. Based on the results of our goodwill test, we recognized a goodwill impairment of $27.8 million. See Note 10—Impairments and Other Charges.

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which changes accounting requirements for the recognition of credit losses from an incurred or probable impairment methodology to a current expected credit losses (CECL) methodology. The guidance is effective for interim and annual periods beginning after December 15, 2019. The guidance has been applied using the modified retrospective method with a cumulative effect adjustment to beginning retained earnings. Trade receivables (including the allowance for credit losses) is the only financial instrument in scope for ASU 2016-13 currently held by

10

the Company. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements.

Note 3 Joint Ventures

During 2016, we entered into an agreement with Saudi Aramco to form a joint venture known as SANAD to own, manage and operate onshore drilling rigs in the Kingdom of Saudi Arabia. SANAD is equally owned by Saudi Aramco and Nabors.

During 2017, Nabors and Saudi Aramco each contributed $20 million in cash for the purpose of capitalizing the joint venture upon formation. In addition, since inception Nabors and Saudi Aramco have each contributed a combination of drilling rigs, drilling rig equipment and other assets, including cash, each with a value of approximately $394 million to the joint venture. The contributions were received in exchange for redeemable ownership interests which accrue interest annually, have a twenty-five year maturity and are required to be converted to authorized capital should certain events occur, including the accumulation of specified losses. In the accompanying condensed consolidated balance sheet, Nabors has reported Saudi Aramco’s share of authorized capital as a component of noncontrolling interest in equity and Saudi Aramco’s share of the redeemable ownership interests as redeemable noncontrolling interest in subsidiary, classified as mezzanine equity. The accrued interest on the redeemable ownership interest is a non-cash financing activity and is reported as an increase in the redeemable noncontrolling interest in subsidiary line in our condensed consolidated balance sheet. The assets and liabilities included in the condensed balance sheet below are (1) assets that can either be used to settle obligations of the VIE or be made available in the future to the equity owners through dividends, distributions or in exchange of the redeemable ownership interests (upon mutual agreement of the owners) or (2) liabilities for which creditors do not have recourse to other assets of Nabors.

The condensed balance sheet of SANAD, as included in our condensed consolidated balance sheet, is presented below.

March 31,

December 31,

    

2020

    

2019

 

(In thousands)

 

Assets:

Cash and cash equivalents

$

307,119

$

289,575

Accounts receivable

 

91,911

 

68,624

Other current assets

 

18,403

 

18,149

Property, plant and equipment, net

 

450,821

 

455,751

Other long-term assets

 

10,206

 

15,118

Total assets

$

878,460

$

847,217

Liabilities:

Accounts payable

$

67,875

$

64,365

Accrued liabilities

 

20,515

 

17,929

Total liabilities

$

88,390

$

82,294

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 (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

11

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 nature.

Our financial assets and liabilities that are accounted for at fair value on a recurring basis as of March 31, 2020 and December 31, 2019 consisted of available-for-sale equity and debt securities. 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. There were no transfers of our financial assets between Level 1 and Level 2 measures during the three months ended March 31, 2020. Our financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. As of March 31, 2020 and December 31, 2019, our short-term investments were carried at fair market value and totaled $9.1 million and $16.5 million, respectively, and primarily consisted of Level 1 measurements. No material Level 2 or Level 3 measurements exist as of any of the periods presented.

Nonrecurring Fair Value Measurements

We applied fair value measurements to our nonfinancial assets and liabilities measured on a nonrecurring basis, which consist of measurements primarily related to assets held for sale, goodwill, intangible assets and other long-lived assets and assets acquired and liabilities assumed in a business combination. Based upon our review of the fair value hierarchy, the inputs used in these fair value measurements were considered Level 3 inputs.

Fair Value of Financial Instruments

We estimate the fair value of our financial instruments in accordance with U.S. GAAP. The fair value of our long-term debt and revolving credit facilities is estimated based on quoted market prices or prices quoted from third-party financial institutions. The fair value of our debt instruments is determined using Level 2 measurements. The carrying and fair values of these liabilities were as follows:

March 31, 2020

December 31, 2019

Carrying

Fair

Carrying

Fair  

Value

Value

Value

Value

(In thousands)

5.00% senior notes due September 2020

 

$

239,791

$

220,058

 

$

282,046

$

284,907

4.625% senior notes due September 2021

 

 

221,032

 

140,802

 

 

634,588

 

632,516

5.50% senior notes due January 2023

 

 

46,410

 

18,355

 

 

501,003

 

483,834

5.10% senior notes due September 2023

 

 

166,001

 

41,712

 

 

336,810

 

303,860

0.75% senior exchangeable notes due January 2024

 

 

478,305

 

98,774

 

 

472,603

 

431,503

5.75% senior notes due February 2025

 

775,186

 

173,200

 

 

781,502

 

705,040

7.25% senior notes due January 2026

 

600,000

 

200,586

 

 

 

7.50% senior notes due January 2028

 

400,000

 

127,772

 

 

 

2012 Revolving credit facility

 

 

300,000

 

300,000

 

 

355,000

 

355,000

2018 Revolving credit facility

 

 

200,000

 

200,000

 

 

 

3,426,725

$

1,521,259

3,363,552

$

3,196,660

Less: current portion

Less: deferred financing costs

38,711

30,332

$

3,388,014

$

3,333,220

12

The fair values of our cash equivalents, trade receivables and trade payables approximate their carrying values due to the short-term nature of these instruments.

Note 5 Accounts Receivable Sales Agreement

On September 13, 2019, we entered into a $250 million accounts receivable sales agreement (the “A/R Agreement”) whereby certain U.S. operating subsidiaries of the Company (collectively, the “Originators”), sold or contributed, and will on an ongoing basis continue to sell or contribute, certain of their domestic trade accounts receivables to a wholly-owned, bankruptcy-remote, special purpose entity (the “SPE” or “Seller”). The SPE in turn sells, transfers, conveys and assigns to third-party financial institutions (the “Purchasers”) all the rights, title and interest in and to its pool of eligible receivables. The sale of these receivables qualified for sale accounting treatment in accordance with ASC 860. During the period of this program, cash receipts from the Purchasers at the time of the sale were classified as operating activities in our consolidated statement of cash flows. Subsequent collections on the pledged receivables, which were not sold, will be classified as operating cash flows in our consolidated statement of cash flows at the time of collection.

Nabors Delaware and/or another subsidiary of Nabors act as servicers of the sold receivables. The servicers administer, collect and otherwise enforce these receivables and are compensated for doing so on terms that are generally consistent with what would be charged by an unrelated servicer. The servicers initially receive payments made by obligors on the receivables, then remit those payments in accordance with the Receivables Purchase Agreement. The servicers and the Originators have contingent indemnification obligations to the SPE, and the SPE has contingent indemnification obligations to the Purchasers, in each case customary for transactions of this type. These contingent indemnification obligations are guaranteed by the Company pursuant to an Indemnification Guarantee in favor of the Purchasers. The Purchasers have no recourse for receivables that are uncollectible as a result of the insolvency or inability to pay of the account debtors.

The maximum purchase commitment of the Purchasers under the A/R Agreement is $250.0 million. The amount available for sale to the Purchasers under the A/R Agreement fluctuates over time based on the total amount of eligible receivables generated during the normal course of business after excluding excess concentrations and certain other ineligible receivables. As of March 31, 2020, approximately $175.0 million had been sold to the Purchasers. As of December 31, 2019, approximately $140.0 million had been sold to the Purchasers. Trade accounts receivable sold by the SPE to the Purchasers are derecognized from our condensed consolidated balance sheet. The fair value of the sold receivables approximated book value due to the short-term nature of the receivables and, as a result, no gain or loss on the sale of the receivables was recorded. Trade receivables pledged by the SPE as collateral to the Purchasers (excluding receivables sold to the Purchasers) totaled $94.6 million and $143.6 million as of March 31, 2020 and December 31, 2019, respectively, and are included in accounts receivable, net in our condensed consolidated balance sheet. The assets of the SPE cannot be used by the Company for general corporate purposes. Additionally, creditors of the SPE do not have recourse to assets of the Company (other than assets of the SPE).

13

Note 6 Debt

Debt consisted of the following:

March 31,

December 31,

    

2020

    

2019

 

(In thousands)

 

5.00% senior notes due September 2020 (1)

$

239,791

$

282,046

4.625% senior notes due September 2021

 

221,032

 

634,588

5.50% senior notes due January 2023

 

46,410

 

501,003

5.10% senior notes due September 2023

 

166,001

 

336,810

0.75% senior exchangeable notes due January 2024

 

478,305

 

472,603

5.75% senior notes due February 2025

775,186

 

781,502

7.25% senior notes due January 2026

600,000

 

7.50% senior notes due January 2028

400,000

 

2012 Revolving credit facility (1)

 

300,000

355,000

2018 Revolving credit facility

 

200,000

3,426,725

3,363,552

Less: current portion

 

 

Less: deferred financing costs

38,711

30,332

$

3,388,014

$

3,333,220

(1) The 5.00% senior notes due September 2020 and 2012 Revolving Credit Facility have been classified as long-term because we have the ability and intent to repay these obligations utilizing our revolving credit facility (see 2018 Revolving Credit Facility below).

During the three months ended March 31, 2020, we repurchased $1.1 billion aggregate principal amount outstanding of our senior unsecured notes for approximately $1.1 billion in cash, including principal, and $11.2 million in accrued and unpaid interest. Approximately $952.9 million of notes were purchased in the tender offers and consent solicitations described below and the remainder were purchased in the open market. In connection with these repurchases, we recognized a net gain of approximately $15.7 million for the three months ended March 31, 2020 and is included in other, net in our condensed consolidated statement of income (loss).

Subsequent to March 31, 2020 through the date of this report, we repurchased $154.9 million aggregate principal amount outstanding of various series of our senior unsecured notes for approximately $132.9 million in cash, reflecting principal, accrued and unpaid interest.

7.25% and 7.50% Senior Notes Due January 2026 and 2028

In January 2020, Nabors completed a private placement of $600.0 million aggregate principal amount of senior guaranteed notes due 2026 (the “2026 Notes”) and $400.0 million aggregate principal amount of senior guaranteed notes due 2028 (the “2028 Notes” and, together with the 2026 Notes, the “Notes”). The 2026 and 2028 Notes will bear interest at an annual rate of 7.25% and 7.50%, respectively. The Notes are fully and unconditionally guaranteed by certain of Nabors’ indirect wholly-owned subsidiaries.

The proceeds from this offering were primarily used to repurchase $952.9 million aggregate principal amount of certain of Nabors Delaware’s senior notes that were tendered pursuant to an offer to purchase and consent solicitation. The aggregate principal amount repurchased included approximately $407.7 million of our 5.50% senior notes due 2023 (the “5.50% Notes”), $379.7 million of our 4.625% senior notes due 2021 (the “4.625% Notes”) and $165.5 million of our 5.10% senior notes due 2023 (the “5.10% Notes”).

2018 Revolving Credit Facility

On December 13, 2019, Nabors Delaware and Nabors Drilling Canada Limited (“Nabors Canada” and together with Nabors Delaware, the “Borrowers”) entered into Amendment No. 2 (the “Second Amendment”) to the existing credit agreement dated October 11, 2018 (as amended, including such amendment, the “2018 Revolving Credit Facility”) by and among the Borrowers, the Guarantors identified therein, HSBC Bank Canada, as the Canadian lender (the “Canadian Lender”) the issuing banks and other lenders party thereto (the “US Lenders” and, together with the Canadian Lender,

14

the “Lenders”) and Citibank, N.A., as administrative agent solely for the U.S. Lenders. Amendment No. 3 to the 2018 Revolving Credit Facility was entered into on March 3, 2020, in order to permit letters of credit from the Canadian Lender on the portion of the facility dedicated to Canadian borrowings. The 2018 Revolving Credit Facility has a borrowing capacity of $1.0136 billion and is fully and unconditionally guaranteed by Nabors and certain of its wholly owned subsidiaries. The 2018 Revolving Credit Facility matures at the earlier of (a) October 11, 2023 and (b) July 19, 2022, if any of Nabors Delaware’s existing 5.50% senior notes due January 2023 remain outstanding as of such date. Certain lenders have committed to provide Nabors Delaware an aggregate principal amount of $981.6 million under the 2018 Revolving Credit Facility, which may be drawn in U.S. dollars, and the Canadian Lender has committed to provide Nabors Canada an aggregate principal amount of $32.0 million in U.S. dollar equivalent, which can be drawn upon in either U.S. or Canadian dollars. The 2018 Revolving Credit Facility contains certain affirmative and negative covenants, including a financial covenant requiring Nabors to maintain net funded debt to EBITDA (as defined in the Second Amendment) at no greater than 5.5 times EBITDA. Additionally, during any period in which Nabors Delaware fails to maintain an investment grade rating from at least two ratings agencies, the guarantors under the facility and their respective subsidiaries will be required to maintain an asset to debt coverage ratio (as defined in the 2018 Revolving Credit Facility) of at least 2.50:1. As of March 31, 2020, we had $200 million outstanding under our 2018 Revolving Credit Facility. The weighted average interest rate on borrowings at March 31, 2020 was 3.67%. In order to make any future borrowings under the 2018 Revolving Credit Facility, Nabors and certain of its wholly owned subsidiaries are subject to compliance with the conditions and covenants contained therein, including compliance with applicable financial ratios.

As of March 31, 2020, we were in compliance with all covenants under the 2018 Revolving Credit Facility. If we fail to perform our obligations under the covenants, including financial covenants, the revolving credit commitment could be terminated, and any outstanding borrowings under the facilities could be declared immediately due and payable. We expect to remain in compliance with all covenants under the 2018 Revolving Credit Facility during at least the twelve month period following the date of this report based on our current operational and financial projections. However, we can make no assurance of continued compliance if our current projections or material underlying assumptions prove to be incorrect.

2012 Revolving Credit Facility

In connection with entering into the 2018 Revolving Credit Facility, Nabors Delaware entered into Amendment No. 3 to its credit agreement (as amended, including such amendment, the “2012 Revolving Credit Facility”). The 2012 Revolving Credit Facility had a capacity of $666.25 million, of which we had $300.0 million outstanding as of March 31, 2020. The weighted average interest rate on borrowings at March 31, 2020 was 3.02%. The 2012 Revolving credit Facility was due to expire in July 2020, however subsequent to the balance sheet date, we have repaid all outstanding amounts and have terminated the facility.

Note 7 Shareholders’ Equity

Common shares

At a special meeting of shareholders held April 20, 2020, our shareholders authorized the Reverse Stock Split, as described in greater detail in Note 1—General.

Convertible Preferred Shares

During 2018, we issued 5.75 million of our 6% Series A Mandatory Convertible Preferred Shares (the “mandatory convertible preferred shares”), par value $0.001 per share, with a liquidation preference of $50 per share. As of March 31, 2020 and December 31, 2019 we had 4.9 million and 5.6 million mandatory convertible preferred shares outstanding.

The dividends on the mandatory convertible preferred shares are payable on a cumulative basis at a rate of 6% annually on the initial liquidation preference of $50 per share. Dividends accumulate and are paid quarterly to the extent that we have available funds and our Board declares a dividend payable. We may elect to pay any accumulated and unpaid dividends in cash or common shares or any combination thereof. At issuance, each mandatory convertible preferred share was automatically convertible into between 0.1075 and 0.1290 of our common shares based on the average share price over a period of twenty consecutive trading days ending prior to May 1, 2021, subject to anti-dilution adjustments. As a result of the dividends paid on our common shares since the offering, the most recent publicly

15

announced conversion rate for each mandatory convertible preferred share is between 0.1144 and 0.1372 of our common shares. Adjustments to the conversion ratio are required to be made and published when such adjustment would result in an increase or decrease of one percent or more of the conversion rate. At any time prior to May 1, 2021, a holder of mandatory convertible preferred shares may convert such mandatory convertible preferred shares into our common shares at the minimum conversion rate, subject to adjustment. Otherwise, the mandatory convertible preferred shares will automatically convert into common shares on May 1, 2021.

Note 8 Commitments and Contingencies

Contingencies

Income Tax

We operate in a number of countries and our tax returns filed in those jurisdictions are subject to review and examination by tax authorities within those jurisdictions. We do not recognize the benefit of income tax positions we believe are more likely than not to be disallowed upon challenge by a tax authority. If any tax authority successfully challenges our operational structure, intercompany pricing policies or the taxable presence of our subsidiaries in certain countries, if the terms of certain income tax treaties are interpreted in a manner that is adverse to our structure, or if we lose a material tax dispute in any country, our effective tax rate on our worldwide earnings could change substantially.

In certain jurisdictions we have recognized deferred tax assets and liabilities. Judgment and assumptions are required in determining whether deferred tax assets will be fully or partially utilized. When we estimate that all or some portion of certain deferred tax assets such as net operating loss carryforwards will not be utilized, we establish a valuation allowance for the amount we determine to be more likely than not unrealizable. We continually evaluate strategies that could allow for future utilization of our deferred assets. Any change in the ability to utilize such deferred assets will be accounted for in the period of the event affecting the valuation allowance. If facts and circumstances cause us to change our expectations regarding future tax consequences, the resulting adjustments could have a material effect on our financial results or cash flow. At this time, we consider it more likely than not that we will have sufficient taxable income in the future that will allow us to realize the deferred tax assets that we have recognized. However, it is possible that some of our recognized deferred tax assets, relating to net operating loss carryforwards, could expire unused or could carryforward indefinitely without utilization. Therefore, unless we are able to generate sufficient taxable income from our component operations, a substantial valuation allowance to reduce our deferred tax assets may be required, which would materially increase our tax expense in the period the allowance is recognized and materially adversely affect our results of operations and statement of financial condition.

Litigation

Nabors and its subsidiaries are defendants or otherwise involved in a number of lawsuits in the ordinary course of business. We estimate the range of our liability related to pending litigation when we believe the amount and range of loss can be estimated. We record our best estimate of a loss when the loss is considered probable. When a liability is probable and there is a range of estimated loss with no best estimate in the range, we record the minimum estimated liability related to the lawsuits or claims. As additional information becomes available, we assess the potential liability related to our pending litigation and claims and revise our estimates. Due to uncertainties related to the resolution of lawsuits and claims, the ultimate outcome may differ from our estimates. For matters where an unfavorable outcome is reasonably possible and significant, we disclose the nature of the matter and a range of potential exposure, unless an estimate cannot be made at the time of disclosure. 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.

In March 2011, the Court of Ouargla entered a judgment of approximately $22.8 million (at March 31, 2020 exchange rates) against us relating to alleged violations of Algeria’s foreign currency exchange controls, which require that goods and services provided locally be invoiced and paid in local currency. The case relates to certain foreign currency payments made to us by CEPSA, a Spanish operator, for wells drilled in 2006. Approximately $7.5 million of the total contract amount was paid offshore in foreign currency, and approximately $3.2 million was paid in local currency. The judgment includes fines and penalties of approximately four times the amount at issue. We have appealed the ruling based on our understanding that the law in question applies only to resident entities incorporated under

16

Algerian law. An intermediate court of appeals upheld the lower court’s ruling, and we appealed the matter to the Supreme Court. On September 25, 2014, the Supreme Court overturned the verdict against us, and the case was reheard by the Ouargla Court of Appeals on March 22, 2015 in light of the Supreme Court’s opinion. On March 29, 2015, the Ouargla Court of Appeals reinstated the initial judgment against us. We have appealed this decision again to the Supreme Court. While our payments were consistent with our historical operations in the country, and, we believe, those of other multinational corporations there, as well as interpretations of the law by the Central Bank of Algeria, the ultimate resolution of this matter could result in a loss of up to $14.8 million in excess of amounts accrued.

On September 29, 2017, we were sued, along with Tesco Corporation and its Board of Directors, in a putative shareholder class action filed in the United States District Court for the Southern District of Texas, Houston Division. The plaintiff alleges that the September 18, 2017 Preliminary Proxy Statement filed by Tesco with the United States Securities and Exchange Commission omitted material information with respect to the proposed transaction between Tesco and Nabors announced on August 14, 2017. The plaintiff claims that the omissions rendered the Proxy Statement false and misleading, constituting a violation of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934. The court consolidated several matters and entered a lead plaintiff appointment order. The plaintiff filed their amended complaint, adding Nabors Industries Ltd. as a party to the consolidated action. Nabors filed its motion to dismiss, which was granted by the court on March 29, 2019. The parties have filed appellate briefs with the Fifth Circuit Court of Appeals, and arguments were heard on March 4, 2020. Nabors will continue to vigorously defend itself against the allegations.

Following a routine audit conducted in May and June of 2018 by the Atyrau Oblast Ecology Department (the “AOED”), our joint venture in Kazakhstan, KMG Nabors Drilling Company (“KNDC”), was administratively fined for not having emissions permits for KNDC owned or leased equipment. Prior to this audit, the AOED had always accepted the operator’s permits for all of their subcontractors. However, because of major personnel changes, AOED changed this position and is now requiring that the owner/lessor of the equipment that emits the pollutants must have its own permits. Administrative fines have been issued to KNDC and paid in the amount of $0.8 million for violations regarding the failure to have proper permits. AOED had also assessed additional “environmental damages” in the amount of $3.4 million for the period while KNDC did not hold its’ own emissions permit. However, KNDC appealed this fine and the AOED Economic Court ruled in KNDC’s favor. AOED appealed this decision, which was reversed on February 21, 2020. KNDC appealed to the Supreme Court but was unsuccessful in obtaining a reversal of the lower appeals court ruling. Additional damages in the form of later year audits and taxes could become due as well exposing KNDC to possible penalties and fines in an amount estimated to be up to approximately $4.0 million, of which we have fully accrued as a liability. KNDC and the operator have executed an agreement formalizing the operator’s obligation to reimburse KNDC for many of the financial expenses related to this case as well as penalties and expenses related to future audit periods.

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 include the A/R Agreement (see Note 5—Accounts Receivable Sales Agreement) and certain agreements and obligations under which we provide financial or performance assurance to third parties. Certain of these financial or performance assurances 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. In addition, we have provided indemnifications, which serve as guarantees, to some third parties. These guarantees include indemnification provided by Nabors to our share transfer agent and our insurance carriers. We are not able to estimate the potential future maximum payments that might be due under our indemnification guarantees.

Management believes the likelihood that we would be required to perform or otherwise incur any material losses associated with any of these guarantees is remote. The following table summarizes the total maximum amount of financial guarantees issued by Nabors:

Maximum Amount

 

    

2020

    

2021

    

2022

    

Thereafter

    

Total

 

(In thousands)

 

Financial standby letters of credit and other financial surety instruments

$

215,301

 

3,804

 

 

112

$

219,217

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Note 9 Earnings (Losses) Per Share

ASC 260, Earnings per Share, requires companies to treat unvested share-based payment awards that have nonforfeitable rights to dividends or dividend equivalents as a separate class of securities in calculating earnings (losses) per share. We have granted and expect to continue to grant to employees restricted stock grants that contain nonforfeitable rights to dividends. Such grants are considered participating securities under ASC 260. As such, we are required to include these grants in the calculation of our basic earnings (losses) per share and calculate basic earnings (losses) per share using the two-class method. The two-class method of computing earnings per share is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared and participation rights in undistributed earnings. The participating security holders are not contractually obligated to share in losses. Therefore, losses are not allocated to the participating security holders.

Basic earnings (losses) per share is computed utilizing the two-class method and is calculated based on the weighted-average number of common shares outstanding during the periods presented.

Diluted earnings (losses) per share is computed using the weighted-average number of common and common equivalent shares outstanding during the periods utilizing the two-class method for stock options and unvested restricted shares. Shares issuable upon exchange of the $575 million 0.75% exchangeable notes are not included in the calculation of diluted earnings (losses) per share unless the exchange value of the notes exceeds their principal amount at the end of the relevant reporting period, in which case the notes will be accounted for as if the number of common shares that would be necessary to settle the excess are issued. Such shares are only included in the calculation of the weighted-average number of shares outstanding in our diluted earnings (losses) per share calculation, when the price of our shares exceeds $25.16 on the last trading day of the quarter, which did not occur during the three months ended March 31, 2020.

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A reconciliation of the numerators and denominators of the basic and diluted earnings (losses) per share computations is as follows:

Three Months Ended

March 31,

    

2020

    

2019

 

(In thousands, except per share amounts)

BASIC EPS:

Net income (loss) (numerator):

Income (loss) from continuing operations, net of tax

$

(374,269)

$

(103,376)

Less: net (income) loss attributable to noncontrolling interest

 

(17,465)

 

(14,176)

Less: preferred stock dividends

 

(3,652)

 

(4,313)

Less: accrued distribution on redeemable noncontrolling interest in subsidiary

(4,432)

(5,063)

Less: distributed and undistributed earnings allocated to unvested shareholders

(125)

(118)

Numerator for basic earnings per share:

Adjusted income (loss) from continuing operations, net of tax - basic

$

(399,943)

$

(127,046)

Income (loss) from discontinued operations, net of tax

$

(93)

$

(157)

Weighted-average number of shares outstanding - basic

 

7,051

 

7,015

Earnings (losses) per share:

Basic from continuing operations

$

(56.72)

$

(18.11)

Basic from discontinued operations

 

(0.01)

 

(0.02)

Total Basic

$

(56.73)

$

(18.13)

DILUTED EPS:

Adjusted income (loss) from continuing operations, net of tax - basic

$

(399,943)

$

(127,046)

Add: effect of reallocating undistributed earnings of unvested shareholders

Adjusted income (loss) from continuing operations, net of tax - diluted

$

(399,943)

$

(127,046)

Income (loss) from discontinued operations, net of tax

$

(93)

$

(157)

Weighted-average number of shares outstanding - basic

 

7,051

 

7,015

Add: dilutive effect of potential common shares

Weighted-average number of shares outstanding - diluted

7,051

7,015

Earnings (losses) per share:

Diluted from continuing operations

$

(56.72)

$

(18.11)

Diluted from discontinued operations

 

(0.01)

 

(0.02)

Total Diluted

$

(56.73)

$

(18.13)

All share and per share amounts have been adjusted for the 1-for-50 reverse split that became effective at 11:59 p.m. Eastern time on April 22, 2020.

For all periods presented, the computation of diluted earnings (losses) per share excludes outstanding stock options with exercise prices greater than the average market price of Nabors’ common shares, because their inclusion would be anti-dilutive and because they are not considered participating securities. In any period during which the average market price of Nabors’ common shares exceeds the exercise prices of these stock options, such stock options will be 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 such stock is considered participating securities. For periods in which we experience a net loss from continuing operations, all potential common shares have been excluded from the calculation of weighted-average shares outstanding, because their inclusion would be anti-dilutive. The average number of shares from options that were excluded from diluted earnings (losses) per share that would potentially dilute earnings per share in the future were as follows:

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Three Months Ended

March 31,

    

2020

    

2019

 

(In thousands)

Potentially dilutive securities excluded as anti-dilutive

68

51

Additionally, we excluded 0.79 million common shares from the computation of diluted shares issuable upon the conversion of mandatory convertible preferred shares, because their effect would be anti-dilutive under the if-converted method.

Note 10 Impairments and Other Charges

The components of impairments and other charges are provided below:

Three Months Ended

March 31,

    

2020

    

2019

 

(In thousands)

Tangible Assets & Equipment:

Impairment of long-lived assets

$

147,750

Subtotal

147,750

Goodwill & Intangible Assets:

Goodwill impairments

27,798

Intangible asset impairment

83,624