Discontinued Operations

9 Months Ended

Sep. 30, 2011

Discontinued Operations [Abstract]

Discontinued Operations

Note 2 – Discontinued Operations

On June 22, 2011, the Company completed the sale of its wholly owned manufacturing subsidiary, LeTourneau Technologies, Inc, (“LeTourneau”), at a price of $1.1 billion in cash, less a post-closing working capital adjustment in the amount of $46.7 million, and recognized a gain on sale of $660.9 million ($424.5 million, net of tax) in the second quarter of 2011.  The operations of LeTourneau have been included in “Discontinued operations, net of tax,” in the Condensed Consolidated Statements of Income for all periods presented.

In connection with the sale, the Company entered into certain other agreements with LeTourneau including a facilities lease agreement, an employee services agreement, and an amendment to the construction contract for the Joe Douglas drilling rig in order for the Company to direct the completion of construction, commissioning and delivery of such rig.  The lease and employee services agreements shall terminate at the earliest of (i) 120 days following completion of construction, (ii) one year following the Closing Date or (iii) the effective date of any other termination of the lease or employee services agreements pursuant to the agreements.  Costs incurred in connection with the facilities lease and employee services agreements will be capitalized as part of the cost of the rig.

On September 1, 2011, the Company completed the sale of its land drilling services business for $510 million in cash, plus an estimated working capital adjustment of approximately $27 million, and recognized a gain on sale of approximately $214.8 million ($155.0 million, net of tax) in the third quarter of 2011.  The results of land drilling services have been reclassified to discontinued operations for all periods presented.

The following table sets forth the components of “Discontinued operations, net of tax,” for the three and nine months ended September 30, 2011 and 2010 (in thousands):

	2011									2010
	Manufacturing			Drilling			Total			Manufacturing			Drilling		Total
Three months ended September 30:
Revenues	$	-		$	35,804		$	35,804		$	147,998		$	51,388	$	199,386
Pretax income (loss)	$	(8,449	)	$	6,429		$	(2,020	)	$	8,324		$	8,423	$	16,747
Provision (benefit) for
taxes on income		(312	)		(495	)		(807	)		6,721			2,997		9,718
Income (loss) from discontinued
operations, net of tax		(8,137	)		6,924			(1,213	)		1,603			5,426		7,029
Pretax gain on sale of
discontinued operations		9,571			214,803			224,374			-			-		-
Provision for tax on gain on sale		990			59,786			60,776			-			-		-
Gain on sale of discontinued
operations, net of tax		8,581			155,017			163,598			-			-		-
Discontinued operations, net of tax	$	444		$	161,941		$	162,385		$	1,603		$	5,426	$	7,029
	Manufacturing			Drilling			Total			Manufacturing			Drilling		Total
Nine months ended September 30:
Revenues	$	224,488		$	128,318		$	352,806		$	411,178		$	139,969	$	551,147
Pretax income (loss)	$	(9,399	)	$	16,083		$	6,684		$	(24,194	)	$	14,696	$	(9,498	)
Provision (benefit) for
taxes on income		2,694			2,943			5,637			(4,926	)		5,239		313
Income (loss) from discontinued
operations, net of tax		(12,093	)		13,140			1,047			(19,268	)		9,457		(9,811	)
Pretax gain on sale of
discontinued operations		670,448			214,803			885,251			-			-		-
Provision for tax on gain on sale		237,394			59,786			297,180			-			-		-
Gain on sale of discontinued
operations, net of tax		433,054			155,017			588,071			-			-		-
Discontinued operations, net of tax	$	420,961		$	168,157		$	589,118		$	(19,268	)	$	9,457	$	(9,811	)

During the first quarter of 2010, the Drilling Products and Systems Manufacturing segment performed an assessment of its Houston-based raw materials and supplies inventory.  As a result, the Company increased its inventory valuation reserve by approximately $42.0 million and recorded a corresponding charge to its operations during the period to reflect a reduction in the estimated realizable value of items that were deemed to be nonconforming or slow-moving.  Such amount is included in discontinued operations for manufacturing for the nine months ended September 30, 2010.

The following assets and liabilities have been segregated and included in “Assets of discontinued operations” and “Liabilities of discontinued operations,” as appropriate, in the Condensed Consolidated Balance Sheets at September 30, 2011, and December 31, 2010 (in thousands):

	September 30, 2011						December 31, 2010
	Manufacturing		Drilling		Total		Manufacturing		Drilling		Total
Cash and cash equivalents	$	-	$	-	$	-	$	-	$	-	$	-
Receivables - trade and other		-		-		-		106,705		41,280		147,985
Inventories - raw materials and supplies		-		-		-		277,527		-		277,527
Inventories - work-in-progress		-		-		-		70,114		-		70,114
Inventories - finished goods		-		-		-		212		-		212
Prepaid expenses and other current assets		-		-		-		37,368		332		37,700
Property and equipment, net		-		-		-		137,624		311,291		448,915
Other assets		22,111		17,829		39,940		1,569		-		1,569
Assets of discontinued operations	$	22,111	$	17,829	$	39,940	$	631,119	$	352,903	$	984,022
Accounts payable - trade	$	-	$	-	$	-	$	44,223	$	5,876	$	50,099
Deferred revenues		20,122		-		20,122		143,950		1,748		145,698
Billings in excess of costs and estimated
profits on uncompleted contracts		-		-		-		7,915		-		7,915
Accrued compensation and related costs		-		-		-		20,217		2,738		22,955
Other current liabilities		10,208		3,700		13,908		47,737		3,607		51,344
Liabilities of discontinued operations	$	30,330	$	3,700	$	34,030	$	264,042	$	13,969	$	278,011

In connection with the sale of LeTourneau, the Company took ownership of a land rig that LeTourneau was constructing on behalf of a customer, plus a related customer deposit.  The Company is holding the asset for sale.  The asset and related deposit are classified as other assets and deferred revenues, respectively, at September 30, 2011, in the table above.