Edgar Filing: NABORS INDUSTRIES LTD

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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, 2014

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

(441) 292-1510

(Address of principal executive office)

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 x NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, 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 x 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.

Large Accelerated Filer x		Accelerated Filer o

Non-accelerated Filer o		Smaller Reporting Company o

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

The number of common shares, par value $.001 per share, outstanding as of May 5, 2014 was 297,444,279.

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NABORS INDUSTRIES LTD. AND SUBSIDIARIES

Index

PART I FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets as of March 31, 2014 and December 31, 2013 (Unaudited)	3

	Consolidated Statements of Income (Loss) for the Three Months Ended March 31, 2014 and 2013 (Unaudited)	4

	Consolidated Statements of Other Comprehensive Income (Loss) for the Three Months Ended March 31, 2014 and 2013 (Unaudited)	5

	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2014 and 2013 (Unaudited)	6

	Consolidated Statements of Changes in Equity for the Three Months Ended March 31, 2014 and 2013 (Unaudited)	7

	Notes to Consolidated Financial Statements	8

	Report of Independent Registered Public Accounting Firm	33

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	44

Item 4.	Controls and Procedures	44

PART II OTHER INFORMATION

Item 1.	Legal Proceedings	45

Item 1A.	Risk Factors	45

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45

Item 3.	Defaults Upon Senior Securities	45

Item 4.	Mine Safety Disclosures	45

Item 5.	Other Information	45

Item 6.	Exhibits	46

Signatures		47

Exhibit Index		48

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NABORS INDUSTRIES LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	March 31,			December 31,
(In thousands, except share amounts)	2014			2013

ASSETS
Current assets:
Cash and cash equivalents	$	326,881		$	389,915
Short-term investments	97,886			117,218
Assets held for sale	231,880			243,264
Accounts receivable, net	1,454,368			1,399,543
Inventory	194,371			209,793
Deferred income taxes	133,667			121,316
Other current assets	252,215			272,781
Total current assets	2,691,268			2,753,830
Long-term investments and other receivables	2,915			3,236
Property, plant and equipment, net	8,690,759			8,597,813
Goodwill	512,391			512,964
Investment in unconsolidated affiliates	63,069			64,260
Other long-term assets	226,671			227,708
Total assets	$	12,187,073		$	12,159,811

LIABILITIES AND EQUITY
Current liabilities:
Current portion of debt	$	5,296		$	10,185
Trade accounts payable	631,015			545,512
Accrued liabilities	584,748			697,093
Income taxes payable	17,083			58,634
Total current liabilities	1,238,142			1,311,424
Long-term debt	3,812,476			3,904,117
Other long-term liabilities	569,993			377,744
Deferred income taxes	526,005			516,161
Total liabilities	6,146,616			6,109,446

Commitments and contingencies (Note 9)
Subsidiary preferred stock	69,188			69,188

Equity:
Shareholders’ equity:
Common shares, par value $0.001 per share:
Authorized common shares 800,000; issued 325,772 and 323,711, respectively	326			324
Capital in excess of par value	2,401,614			2,392,585
Accumulated other comprehensive income (Revised)	160,466			216,140
Retained earnings (Revised)	4,342,690			4,304,664
Less: treasury shares, at cost, 28,414 common shares	(944,627		)	(944,627		)
Total shareholders’ equity	5,960,469			5,969,086
Noncontrolling interest	10,800			12,091
Total equity	5,971,269			5,981,177
Total liabilities and equity	$	12,187,073		$	12,159,811

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

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NABORS INDUSTRIES LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(Unaudited)

	Three Months Ended March 31,
(In thousands, except per share amounts)	2014			2013

Revenues and other income:
Operating revenues	$	1,589,618		$	1,535,478
Earnings (losses) from unconsolidated affiliates	(2,445		)	2,895
Investment income (loss)	980			79,421
Total revenues and other income	1,588,153			1,617,794

Costs and other deductions:
Direct costs	1,061,739			994,992
General and administrative expenses	134,266			130,878
Depreciation and amortization	282,127			269,365
Interest expense	44,810			60,011
Losses (gains) on sales and disposals of long-lived assets and other expense (income), net	1,476			59,737
Total costs and other deductions	1,524,418			1,514,983
Income (loss) from continuing operations before income tax	63,735			102,811
Income tax expense (benefit):
Current	13,658			18,829
Deferred	350			(8,975		)
Total income tax expense (benefit)	14,008			9,854
Subsidiary preferred stock dividend	750			750
Income (loss) from continuing operations, net of tax	48,977			92,207
Income (loss) from discontinued operations, net of tax	1,515			7,011
Net income (loss)	50,492			99,218
Less: Net (income) loss attributable to noncontrolling interest	(573		)	(97		)
Net income (loss) attributable to Nabors	$	49,919		$	99,121

Earnings (losses) per share:
Basic from continuing operations	$	0.16		$	0.31
Basic from discontinued operations	0.01			0.03
Total Basic	$	0.17		$	0.34

Diluted from continuing operations	$	0.16		$	0.31
Diluted from discontinued operations	—			0.02
Total Diluted	$	0.16		$	0.33

Weighted-average number of common shares outstanding:
Basic	296,210			291,687
Diluted	299,050			294,170

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

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NABORS INDUSTRIES LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME (LOSS)

(Unaudited)

	Three Months Ended March 31,
(In thousands)	2014			2013

Net income (loss) attributable to Nabors	$	49,919		$	99,121
Other comprehensive income (loss), before tax:
Translation adjustment attributable to Nabors	(36,594		)	(23,265		)
Unrealized gains/(losses) on marketable securities:
Unrealized gains/(losses) on marketable securities	(19,208		)	10,139
Less: reclassification adjustment for (gains)/losses on marketable securities	—			(75,974		)
Unrealized gains/(losses) on marketable securities	(19,208		)	(65,835		)
Pension liability amortization and adjustment	123			281
Unrealized gains/(losses) and amortization of cash flow hedges	153			153
Other comprehensive income (loss), before tax	(55,526		)	(88,666		)
Income tax expense (benefit) related to items of other comprehensive income (loss)	148			(214		)
Other comprehensive income (loss), net of tax	(55,674		)	(88,452		)
Comprehensive income (loss) attributable to Nabors	(5,755		)	10,669
Net income (loss) attributable to noncontrolling interest	573			97
Translation adjustment attributable to noncontrolling interest	(481		)	(1,414		)
Comprehensive income (loss) attributable to noncontrolling interest	92			(1,317		)
Comprehensive income (loss)	$	(5,663	)	$	9,352

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

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NABORS INDUSTRIES LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three Months Ended March 31,
	2014			2013
	(In thousands)
Cash flows from operating activities:
Net income (loss)	$	50,492		$	99,218
Adjustments to net income (loss):
Depreciation and amortization	282,349			273,423
Deferred income tax expense (benefit)	451			(5,371		)
Losses (gains) on long-lived assets, net	3,517			—
Losses (gains) on investments, net	(7		)	(78,655		)
Share-based compensation	10,685			32,853
Foreign currency transaction losses (gains), net	(3,293		)	4,316
Equity in (earnings) losses of unconsolidated affiliates, net of dividends	2,445			(2,896		)
Other	910			12,827
Changes in operating assets and liabilities, net of effects from acquisitions:
Accounts receivable	(57,004		)	(61,399		)
Inventory	14,480			5,500
Other current assets	4,742			(33,829		)
Other long-term assets	1,275			16,233
Trade accounts payable and accrued liabilities	(28,471		)	(63,130		)
Income taxes payable	(26,036		)	11,327
Other long-term liabilities	188,028			(31,123		)
Net cash provided by operating activities	444,563			179,295
Cash flows from investing activities:
Purchases of investments	(286		)	—
Sales and maturities of investments	733			142,336
Proceeds from sale of unconsolidated affiliates				—
Cash paid for acquisition of businesses, net	(10,200		)	(37,516		)
Investment in unconsolidated affiliates	(1,255		)	(12		)
Capital expenditures	(396,465		)	(235,539		)
Proceeds from sales of assets and insurance claims	21,605			6,605
Net cash used for investing activities	(385,868		)	(124,126		)
Cash flows from financing activities:
Increase (decrease) in cash overdrafts	(1,822		)	(1,975		)
Proceeds from (payments for) issuance of common shares	4,931			1,027
Dividends to shareholders	(11,893		)	—
Proceeds from (payment for) commercial paper, net	(39,594		)	(12,891		)
Proceeds from revolving credit facilities	15,000			—
Reduction in revolving credit facilities	(67,500		)	—
Other	(11,585		)	1,395
Net cash (used for) provided by financing activities	(112,463		)	(12,444		)
Effect of exchange rate changes on cash and cash equivalents	(9,266		)	(2,759		)
Net increase (decrease) in cash and cash equivalents	(63,034		)	39,966
Cash and cash equivalents, beginning of period	389,915			524,922
Cash and cash equivalents, end of period	$	326,881		$	564,888

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

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NABORS INDUSTRIES LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)

				Capital			Accumulated
	Common Shares			in Excess			Other									Non-
		Par		of Par			Comprehensive			Retained			Treasury			controlling			Total
(In thousands)	Shares	Value		Value			Income			Earnings			Shares			Interest			Equity

As of December 31, 2012 (As previously reported)	318,813	$	319	$	2,337,244		$	431,595		$	4,120,398		$	(944,627	)	$	12,188		$	5,957,117
Revision (Note 2)							(91,452		)	91,452									—
As of December 31, 2012 (Revised)	318,813	319		2,337,244			340,143			4,211,850			(944,627		)	12,188			5,957,117
Net income (loss)										99,121						97			99,218
Dividends to shareholders ($.04/share)										(12,891		)							(12,891		)
Other comprehensive income (loss), net of tax							(88,452		)							(1,414		)	(89,866		)
Issuance of common shares for stock options exercised	108			1,027															1,027
Share-based compensation				32,853															32,853
Other	4,098	4		(2,777		)													(2,773		)
As of March 31, 2013	323,019	$	323	$	2,368,347		$	251,691		$	4,298,080		$	(944,627	)	$	10,871		$	5,984,685

As of December 31, 2013 (As previously reported)	323,711	$	324	$	2,392,585		$	307,592		$	4,213,212		$	(944,627	)	$	12,091		$	5,981,177
Revision (Note 2)							(91,452		)	91,452									—
As of December 31, 2013 (Revised)	323,711	324		2,392,585			216,140			4,304,664			(944,627		)	12,091			5,981,177
Net income (loss)										49,919						573			50,492
Dividends to shareholders ($.04/share)										(11,893		)							(11,893		)
Other comprehensive income (loss), net of tax							(55,674		)							(481		)	(56,155		)
Issuance of common shares for stock options exercised	517	1		4,930															4,931
Share-based compensation				10,685															10,685
Other	1,544	1		(6,586		)										(1,383		)	(7,968		)
As of March 31, 2014	325,772	$	326	$	2,401,614		$	160,466		$	4,342,690		$	(944,627	)	$	10,800		$	5,971,269

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

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Nabors Industries Ltd. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 Nature of Operations

Nabors has grown from a land drilling business centered in the United States and Canada to a global business aimed at optimizing the entire well life cycle, with operations on land and offshore in most of the major oil and gas markets in the world. The majority of our business is conducted through two business lines:

Drilling & Rig Services

This business line is comprised of our global drilling rig operations and drilling-related services, consisting of equipment manufacturing, instrumentation optimization software and directional drilling services.

Completion & Production Services

This business line is comprised of our operations involved in the completion, life-of-well maintenance and eventual plugging and abandonment of a well. These services include stimulation, coiled-tubing, cementing, wireline, workover, well-servicing and fluids management.

As a global provider of services for land-based and offshore oil and natural gas wells, Nabors’ fleet of rigs and equipment includes:

· 493 actively marketed land drilling rigs for oil and gas land drilling operations in the United States, Canada and over 20 other countries throughout the world.

· 445 actively marketed rigs for land well-servicing and workover services in the United States and approximately 98 rigs for land well-servicing and workover services in Canada.

· 39 platform, 7 jackup and 4 barge rigs actively marketed in the United States and multiple international markets.

· Approximately 800,000 hydraulic horsepower for hydraulic fracturing, cementing, nitrogen and acid pressure pumping services in key basins throughout the United States and Canada.

In addition:

· We offer a wide range of ancillary well-site services, including engineering, transportation and disposal, construction, maintenance, well logging, directional drilling, rig instrumentation, data collection and other support services in select U.S. 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 have a 51% ownership interest in a joint venture in Saudi Arabia, which owns and actively markets 5 rigs in addition to the rigs we lease to the joint venture.

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, including Nabors Industries, Inc., a Delaware corporation (“Nabors Delaware”), our wholly owned subsidiary.

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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”). 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, 2013 (“2013 Annual Report”). In management’s opinion, the consolidated financial statements contain all adjustments necessary to present fairly our financial position as of March 31, 2014, as well as the results of our operations, other comprehensive income, our cash flows and changes in equity for the three months ended March 31, 2014 and 2013, in accordance with GAAP. Interim results for the three months ended March 31, 2014 may not be indicative of results that will be realized for the full year ending December 31, 2014.

Our independent registered public accounting firm has reviewed 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 such Act.

Prior Period Revision

During the first quarter of 2014, we determined that we had incorrectly applied certain aspects of ASC 830 - Foreign Currency Matters with respect to the recording of foreign currency gains or losses on certain intercompany transactions. GAAP requires the recognition of foreign currency gains or losses on U.S. dollar denominated intercompany balances of our subsidiaries that have a functional currency other than the U.S. dollar. The primary years impacted were 2002 and 2009, which is the period over which a series of intercompany loans were outstanding between our Canadian subsidiary, whose functional currency is the Canadian dollar, and other subsidiaries whose functional currencies are the U.S. dollar.

The net effect understated net income for periods before 2009 by approximately $91.5 million, due to foreign currency gains that should have been recorded through net income, rather than through Cumulative Translation Adjustments (a component of Accumulated Other Comprehensive Income). The correction of this error resulted in a revision to increase the beginning Retained Earnings at January 1, 2010 by approximately $91.5 million with the offset being a decrease to Accumulated Other Comprehensive Income, both of which are components of Shareholders’ Equity. There was no other material impact to our assets, liabilities, cash flows or profit and loss for any periods presented. We do not consider this revision material to any period.

Principles of Consolidation

Our consolidated financial statements include the accounts of Nabors, as well as all majority owned and non-majority owned subsidiaries required to be consolidated under GAAP. All significant intercompany accounts and transactions are eliminated in consolidation.

Investments in operating entities where we have the ability to exert significant influence, but where we do not control operating and financial policies, are accounted for using the equity method. Our share of the net income (loss) of these entities is recorded as earnings (losses) from unconsolidated affiliates in our consolidated statements of income (loss). The investments in these entities are included in investment in unconsolidated affiliates in our consolidated balance sheets.

Inventory

Inventory is stated at the lower of cost or market. 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,
	2014		2013
	(In thousands)
Raw materials	$	121,780	$	128,606
Work-in-progress	27,009		26,762
Finished goods	45,582		54,425
	$	194,371	$	209,793

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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 exceed their fair value. We initially assess goodwill for impairment based on qualitative factors to determine whether to perform the two-step annual goodwill impairment test, a Level 3 fair value measurement. After our qualitative assessment, step one of the impairment test compares the estimated fair value of the reporting unit to its carrying amount. If the carrying amount exceeds the fair value, a second step is required to measure the goodwill impairment loss. The second step compares the implied fair value of the reporting unit’s goodwill to its carrying amount. If the carrying amount exceeds the implied fair value, an impairment loss is recognized in an amount equal to the excess.

Our estimated fair values of our reporting units incorporate judgment and the use of estimates by management. Potential factors requiring assessment include a further or sustained decline in our stock price, declines in oil and natural gas prices, a variance in results of operations from forecasts, a change in operating strategy for particular assets and additional transactions in the oil and gas industry. 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 compare the sum of our reporting units’ estimated fair value, which includes the estimated fair value of non-operating assets and liabilities, less debt, to our market capitalization and assess 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.

Note 3 Cash and Cash Equivalents and Short-term Investments

Certain information related to our cash and cash equivalents and short-term investments follows:

	March 31, 2014							December 31, 2013
	Fair Value		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses			Fair Value		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses
	(In thousands)
Cash and cash equivalents	$	326,881	$	—	$	—		$	389,915	$	—	$	—
Short-term investments:
Available-for-sale equity securities	77,591		49,045		—			96,942		68,395		—
Available-for-sale debt securities:
Corporate debt securities	19,525		4,252		—			19,388		4,122		—
Mortgage-backed debt securities	209		11		—			210		11		—
Mortgage-CMO debt securities	20		—		(1		)	20		—		(2		)
Asset-backed debt securities	541		1		(37		)	658		2		(54		)
Total available-for-sale debt securities	20,295		4,264		(38		)	20,276		4,135		(56		)
Total available-for-sale securities	97,886		53,309		(38		)	117,218		72,530		(56		)
Total short-term investments	97,886		53,309		(38		)	117,218		72,530		(56		)
Total cash, cash equivalents and short-term investments	$	424,767	$	53,309	$	(38	)	$	507,133	$	72,530	$	(56	)

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Certain information related to the gross unrealized losses of our cash and cash equivalents and short-term investments follows:

	As of March 31, 2014
	Less Than 12 Months				More Than 12 Months
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
	(In thousands)

Available-for-sale debt securities: (1)
Mortgage-CMO debt securities	$	20	$	1	$	—	$	—
Asset-backed debt securities	—		—		361		37
Total available-for-sale debt securities	20		1		361		37
Total	$	20	$	1	$	361	$	37

(1) Our unrealized losses on available-for-sale debt securities held for more than one year are comprised of 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 to be of high credit quality. In each case, we do not intend to sell these investments, and it is less likely than not that we will be required to sell them to satisfy our own cash flow and working capital requirements. We believe that we will be able to collect all amounts due according to the contractual terms of each investment and, therefore, do not consider the decline in value of these investments to be other-than-temporary at March 31, 2014.

The estimated fair values of our corporate, mortgage-backed, mortgage-CMO and asset-backed debt securities at March 31, 2014, classified by time to contractual maturity, are shown below. Expected maturities may 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
	March 31, 2014
	(In thousands)
Debt securities:
Due in one year or less	$	—
Due after one year through five years	15,525
Due in more than five years	4,770
Total debt securities	$	20,295

Certain information regarding our debt and equity securities is presented below:

	Three Months Ended March 31,
	2014		2013
	(In thousands)
Available-for-sale
Proceeds from sales and maturities	$	135	$	86,601
Realized gains (losses), net	$	—	$	75,974

Note 4 Fair Value Measurements

The following table sets forth, by level within the fair value hierarchy, our financial assets and liabilities that are accounted for at fair value on a recurring basis as of March 31, 2014. 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 March 31, 2014, there were no transfers of our financial assets between Level 1 and Level 2 measures. 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.

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	Fair Value as of March 31, 2014
	Level 1		Level 2		Level 3		Total
	(In thousands)
Assets:
Short-term investments:
Available-for-sale equity securities (energy industry)	$	76,729	$	862	$	—	$	77,591
Available-for-sale debt securities:
Corporate debt securities	—		19,525		—		19,525
Mortgage-backed debt securities	—		209		—		209
Mortgage-CMO debt securities	—		20		—		20
Asset-backed debt securities	541		—		—		541
Total short-term investments	$	77,270	$	20,616	$	—	$	97,886

Nonrecurring Fair Value Measurements

Fair value measurements were applied with respect to our nonfinancial assets and liabilities measured on a nonrecurring basis, which would consist of measurements primarily to assets held-for-sale, goodwill, intangible assets and other long-lived assets, assets acquired and liabilities assumed in a business combination, asset retirement obligations and our pipeline contractual commitment.

Fair Value of Financial Instruments

The fair value of our financial instruments has been estimated in accordance with GAAP. The fair value of our long-term debt, revolving credit facility, commercial paper and subsidiary preferred stock is estimated based on quoted market prices or prices quoted from third-party financial institutions. The carrying and fair values of these liabilities were as follows:

	March 31, 2014				December 31, 2013
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(In thousands)
2.35% senior notes due September 2016	$	349,836	$	357,851	$	349,820	$	354,694
6.15% senior notes due February 2018	970,234		1,102,511		969,928		1,097,480
9.25% senior notes due January 2019	339,607		427,966		339,607		428,733
5.00% senior notes due September 2020	698,208		748,720		697,947		731,955
4.625% senior notes due September 2021	698,024		723,030		698,148		709,793
5.10% senior notes due September 2023	348,797		362,250		348,765		349,731
Subsidiary preferred stock	69,188		69,000		69,188		69,000
Revolving credit facility	117,500		117,500		170,000		170,000
Commercial paper	290,250		290,250		329,844		329,844
Other	5,316		5,316		10,243		10,243
Total	$	3,886,960	$	4,204,394	$	3,983,490	$	4,251,473

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 Share-Based Compensation

We have several share-based employee and director compensation plans, which are more fully described in Note 9 — Share-Based Compensation in our 2013 Annual Report. Total share-based compensation expense, which includes stock options and restricted stock, totaled $10.7 million and $32.9 million for the three months ended March 31, 2014 and 2013, respectively. Share-based compensation expense has been allocated to our various operating segments. See Note 13 — Segment Information.

Stock Options

The total intrinsic value of stock options exercised during the three months ended March 31, 2014 and 2013 was $6.0 million and $0.7 million, respectively. The total fair value of stock options that vested during the three months ended March 31, 2014 and 2013 was $1.5 million and $3.8 million, respectively.

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Restricted Stock

During the three months ended March 31, 2014 and 2013, we awarded 1,106,919 and 4,061,027 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 date of grant of $25.2 million and $66.8 million, respectively. The fair value of restricted stock that vested during the three months ended March 31, 2014 and 2013 was $22.4 million and $35.5 million, respectively.

Restricted Stock Based on Performance

During the three months ended March 31, 2014, we awarded 362,311 shares of restricted stock, vesting over a period of three years to some of our executives. The performance awards granted were based upon achievement of specific financial or operational objectives. The number of shares granted was determined by the number of performance goals achieved during the period January 1, 2013 through December 31, 2013.

Our performance awards based on performance conditions are liability-classified awards until shares are granted, of which our accrued liabilities included $0.4 million at March 31, 2014 for the performance period beginning January 1, 2014 through December 31, 2014. The fair value of these awards are estimated at each reporting period, based on internal metrics and marked to market.

Restricted Stock Based on Market Conditions

During the three months ended March 31, 2014 and 2013, we awarded 395,550 and 353,933 shares of restricted stock, respectively, which will vest based on our performance compared to our peer group over a three-year period. These awards had an aggregate value at their date of grant of $4.5 million and $3.7 million, respectively, after consideration of all assumptions. The grant date fair value of these awards was based on a Monte Carlo model, using the following assumptions during the three months ended March 31, 2014 and 2013:

	2014			2013
Risk free interest rate	0.80		%	0.41		%
Expected volatility	40.00		%	46.00		%
Closing stock price	$	18.19		$	16.53
Expected term (in years)	2.97 years			2.82 years

Note 6 Debt

Debt consisted of the following:

	March 31,		December 31,
	2014		2013
	(In thousands)
2.35% senior notes due September 2016	$	349,836	$	349,820
6.15% senior notes due February 2018	970,234		969,928
9.25% senior notes due January 2019	339,607		339,607
5.00% senior notes due September 2020	698,208		697,947
4.625% senior notes due September 2021	698,024		698,148
5.10% senior notes due September 2023	348,797		348,765
Revolving credit facility	117,500		170,000
Commercial paper	290,250		329,844
Other	5,316		10,243
	$	3,817,772	$	3,914,302
Less: current portion	5,296		10,185
	$	3,812,476	$	3,904,117

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Commercial Paper Program

As of March 31, 2014, we had approximately $290.3 million of commercial paper outstanding. The weighted average interest rate on borrowings at March 31, 2014 was 0.33%. Our commercial paper borrowings are classified as long-term debt because the borrowings are fully supported by availability under our revolving credit facility, which matures as currently structured in November 2017, more than one year from now.

Revolving Credit Facility

As of March 31, 2014, we had approximately $117.5 million of borrowings outstanding. The weighted average interest rate on borrowings at March 31, 2014 was 1.46%. The revolving credit facility contains various covenants and restrictive provisions that limit our ability to incur additional indebtedness, make investments or loans and create liens and require us to maintain a net funded indebtedness to total capitalization ratio, as defined in each agreement. We were in compliance with all covenants under the agreement at March 31, 2014. If we fail to perform our obligations under the covenants, the revolving credit commitment could be terminated, and any outstanding borrowings under the facility could be declared immediately due and payable.

Note 7 Common Shares

During the three months ended March 31, 2014 and 2013, our employees exercised vested options to acquire 0.5 million and 0.1 million of our common shares, respectively, resulting in proceeds of $4.9 million and $1.0 million respectively. During the three months ended March 31, 2014 and 2013, we withheld 0.3 million and 0.2 million, respectively, of our common shares with a fair value of $6.6 million and $2.8 million, respectively, to satisfy tax withholding obligations in connection with the vesting of all stock awards.

On February 21, 2014, a cash dividend of $0.04 per share was declared for shareholders of record on March 10, 2014. The dividend was paid on March 31, 2014 in the amount of $11.9 million and was charged to retained earnings in our consolidated statement of changes in equity for the three months ended March 31, 2014.

Note 8 Subsidiary Preferred Stock

As of March 31, 2014, dividends on outstanding shares of preferred stock had been declared and paid in full with respect to each quarter since their issuance.

Note 9 Commitments and Contingencies

Commitments

Employment Agreement

Effective March 3, 2014, we entered an employment agreement with William Restrepo, our Chief Financial Officer. The employment agreement provides for an initial term through December 2017, with automatic one-year extensions at the end of each term, subject to a 365-day notice of termination provided within the agreement. Mr. Restrepo’s annual base salary was set at $0.65 million. In addition, the employment agreement provides for an annual bonus targeted at base salary, with a cap of twice that amount, based on the achievement of one or more annual financial and operational performance goals, as determined by the Compensation Committee of our Board of Directors.

The employment agreement also provides for long-term equity incentive awards. Mr. Restrepo will receive awards of restricted stock that may or may not vest depending upon the Company’s performance relative to a Performance Peer Group (as defined) over a three-year period (“TSR Shares”). The agreement provides that the target number of TSR Shares that will vest is valued at 100% of base salary, with a maximum number of TSR Shares valued at twice that amount. In addition, Mr. Restrepo’s employment agreement provides for long-term equity incentive awards in the form of restricted stock based upon the achievement of specific financial or operational objectives (“Performance Shares”). Once earned, Performance Shares are then subject to three-year vesting requirements. Performance Shares are targeted at 100% of base salary, with a maximum award of twice that amount, and are also subject to a minimum threshold before any amount can be earned.

As an inducement to join the Company and to make him whole for certain foregone amounts at his prior employer, Mr. Restrepo received an award of restricted stock with a grant-date fair value of $4.9 million. The award vests over four years.

Mr. Restrepo’s employment agreement provides for severance payments in the event the agreement is terminated, including in connection with a change in control (as defined in the employment agreement), (i) by the Company prior to the expiration date of the agreement for any reason other than for cause, or (ii) by Mr. Restrepo for constructive termination without cause, each as defined in the employment agreement. Mr. Restrepo would have the right to receive within 30 days of a termination without cause or constructive termination without cause, 2.99 times the sum of the average of his base salary and annual bonus during the three fiscal years preceding the termination (or, if employed less than three completed fiscal years, his then-current base salary and target annual bonus would be used for the years not employed).

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Mr. Restrepo’s employment agreement also provides that, upon death, disability, termination without cause, or constructive termination without cause, he would receive (a) any unvested stock options and restricted stock outstanding (except for TSR Shares), which will immediately and fully vest; (b) any amounts earned, accrued or owing to him but not yet paid (including executive benefits, life insurance, disability benefits and reimbursement of expenses and perquisites); (c) continued participation in medical, dental and life insurance coverage; and (d) certain perquisites and other or additional benefits in accordance with applicable plans and programs of Nabors. In addition, under the employment agreement, any unvested TSR Shares at the time of termination for these reasons will vest at target levels.

Contingencies

Income Tax

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 audited 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 income tax provisions and accruals. An audit or litigation could materially affect our financial position, income tax provision, net income, or cash flows in the period or periods challenged.

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 14 — Income Taxes to our 2013 Annual Report for additional discussion.

In 2006, Nabors Drilling International Limited, one of our wholly owned Bermuda subsidiaries (“NDIL”), received a Notice of Assessment from Mexico’s federal tax authorities in connection with the audit of NDIL’s Mexico branch for 2003. The notice proposed to deny depreciation expense deductions relating to drilling rigs operating in Mexico in 2003. The notice also proposed to deny a deduction for payments made to an affiliated company for the procurement of labor services in Mexico. NDIL’s Mexico branch took similar deductions for depreciation and labor expenses from 2004 to 2008. In 2009, the government 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 through 2008 and against NDIL II for 2007 to 2010. Although we previously concluded that the deductions were appropriate for each of the years, a reserve has been recorded in accordance with GAAP. During 2013, we reached a negotiated settlement for NDIL’s 2003, 2005 and 2006 tax years (the statute of limitations had previously expired on the 2004 tax year) and NDIL II’s 2006 tax year. Accordingly, the corresponding reserves were reduced by approximately $20 million during 2013. After this settlement, the remaining amounts assessed or expected to be assessed in the aggregate, range from $30 million to $35 million, for which reserves are recorded in accordance with GAAP. If we ultimately do not prevail, we would be required to recognize additional tax expense for any amount in excess of 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 and are actuarially supported. 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, 2014, some of our workers’ compensation claims, employers’ liability and marine employers’ liability claims are subject to a $3.0 million per-occurrence deductible; additionally, some of our automobile liability claims are subject to a $2.5 million deductible. General liability claims remain subject to a $5.0 million per-occurrence deductible.

In addition, we are subject to a $5.0 million deductible for land rigs and for offshore rigs. This applies to all kinds of risks of physical damage except for named windstorms in the U.S. Gulf of Mexico for which we are self-insured.

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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 2009, the Court of Ouargla entered a judgment of approximately $17.7 million (at current exchange rates) against us relating to alleged customs infractions in Algeria. We believe we did not receive proper notice of the judicial proceedings, and that the amount of the judgment was excessive in any case. We asserted the lack of legally required notice as a basis for challenging the judgment on appeal to the Algeria Supreme Court. In May 2012, that court reversed the lower court and remanded the case to the Ouargla Court of Appeals for treatment consistent with the Supreme Court’s ruling. In January 2013, the Ouargla Court of Appeals reinstated the judgment. We have again lodged an appeal to the Algeria Supreme Court, asserting the same challenges as before. Based upon our understanding of applicable law and precedent, we continue to believe that we will prevail. Although the appeal remains ongoing at this time, the Hassi Messaoud customs office recently initiated efforts to collect the judgment prior to the Supreme Court’s decision in the case. As a result, we paid approximately $3.1 million and posted security of approximately $1.33 million to suspend those collection efforts and to enter into a formal negotiations process with the customs authority. We have recorded a reserve in the amount of the posted security. If we are ultimately required to pay a fine or judgment related to this matter, the resulting loss could be up to $13.3 million in excess of amounts accrued.

In March 2011, the Court of Ouargla entered a judgment of approximately $34.8 million (at current 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 Algerian law. An intermediate court of appeals has upheld the lower court’s ruling, and we have appealed the matter to the Algeria 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 $26.8 million in excess of amounts accrued.

In 2012, Nabors Global Holdings II Limited (“NGH2L”) signed a contract with ERG Resources, LLC (“ERG”) relating to the sale of all of the Class A shares of NGH2L’s wholly owned subsidiary, Ramshorn International Limited, an oil and gas exploration company. When ERG failed to meet its closing obligations, NGH2L terminated the transaction on March 19, 2012 and, as contemplated in the agreement, retained ERG’s $3.0 million escrow deposit. ERG filed suit the following day in the 61st Judicial District Court of Harris County, Texas, in a case styled ERG Resources, LLC v. Nabors Global Holdings II Limited, Ramshorn International Limited, and Parex Resources, Inc.; Cause No. 2012-16446, seeking injunctive relief to halt any sale of the shares to a third party, specifically naming as defendant Parex Resources, Inc. (“Parex”). The lawsuit also seeks monetary damages of up to $750.0 million based on an alleged breach of contract by NGH2L and alleged tortious interference with contractual relations by Parex. Nabors successfully defeated ERG’s effort to obtain a temporary restraining order from the Texas court on March 20, 2012. Nabors completed the sale of Ramshorn’s Class A shares to a Parex affiliate in April 2012, which mooted ERG’s application for a temporary injunction. The lawsuit is staid, pending further court actions. ERG retains its causes of action for monetary damages, but Nabors believes the claims are foreclosed by the terms of the agreement and are without factual or legal merit. Although we are vigorously defending the lawsuit, its ultimate outcome cannot be determined at this time.

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. 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.

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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
	Remainder of 2014		2015		2016		Thereafter		Total
	(In thousands)
Financial standby letters of credit and other financial surety instruments	$	115,018	$	40,408	$	—	$	19	$	155,445

Note 10 Earnings (Losses) Per Share

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,
	2014			2013
	(In thousands, except per share amounts)

Net income (loss) (numerator):
Income (loss) from continuing operations, net of tax	$	48,977		$	92,207
Less: net (income) loss attributable to noncontrolling interest	(573		)	(97		)
Less: (earnings) losses allocated to unvested shareholders	(733		)	(814		)
Adjusted income (loss) from continuing operations - basic and diluted	$	47,671		$	91,296
Income (loss) from discontinued operations, net of tax	$	1,515		$	7,011

Earnings (losses) per share:
Basic from continuing operations	$	0.16		$	0.31
Basic from discontinued operations	0.01			0.03
Total Basic	$	0.17		$	0.34

Diluted from continuing operations	$	0.16		$	0.31
Diluted from discontinued operations	—			0.02
Total Diluted	$	0.16		$	0.33

Shares (denominator):
Weighted-average number of shares outstanding - basic	296,210			291,687
Net effect of dilutive stock options, warrants and restricted stock awards based on the if-converted method	2,840			2,483
Weighted-average number of shares outstanding - diluted	299,050			294,170

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 our common shares, because their inclusion would be anti-dilutive and because they are not considered participating securities. The average number of options and warrants that were excluded from diluted earnings (losses) per share that would potentially dilute earnings per share were 7,853,509 and 12,452,263 shares during the three months ended March 31, 2014 and 2013, respectively. In any period during which the average market price of our common shares exceeds the exercise prices of these stock options and warrants, such stock options and warrants 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.

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Note 11 Supplemental Balance Sheet, Income Statement and Cash Flow Information

Accrued liabilities include the following:

	March 31,		December 31,
	2014		2013
	(In thousands)
Accrued compensation	$	158,676	$	172,803
Deferred revenue	234,900		202,918
Other taxes payable	41,047		76,781
Workers’ compensation liabilities	29,459		29,459
Interest payable	18,284		64,728
Warranty accrual	4,240		4,653
Litigation reserves	24,774		30,784
Current liability to discontinued operations	29,381		64,404
Professional fees	2,652		2,971
Current deferred tax liability	3,075		3,075
Current liability to acquisition of KVS	22,033		22,033
Other accrued liabilities	16,227		22,484
	$	584,748	$	697,093

Investment income (loss) includes the following:

	Three Months Ended March 31,
	2014		2013
	(In thousands)

Interest and dividend income	$	970	$	776
Gains (losses) on investments, net	10		78,645		(1)
	$	980	$	79,421

(1) Includes realized gains of $76.2 million from the sale of short-term and other long-term investments and net realized gains of $2.4 million from the sale of our trading securities.

Losses (gains) on sales and disposals of long-lived assets and other expense (income), net include the following:

	Three Months Ended March 31,
	2014			2013
	(In thousands)

Losses (gains) on sales, disposals and involuntary conversions of long-lived assets	$	2,432		$	3,411
Termination of employment contract	—			45,000		(1)
Litigation expenses	3,060			6,161
Foreign currency transaction losses (gains)	(3,293		)	4,317
Other losses (gains)	(723		)	848
	$	1,476		$	59,737

(1) Represents a one-time stock grant valued at $27 million, which vested immediately and $18 million in cash awarded and paid to Mr. Petrello in connection with the termination of his prior employment agreement. See Note 9 — Commitments and Contingencies to our 2013 Annual Report for additional discussion.

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The changes in accumulated other comprehensive income (loss), by component, includes the following:

				Unrealized
				gains (losses)			Defined
	Gains (losses)			on available-			benefit
	on cash flow			for-sale			pension plan			Foreign
	hedges			securities			items			currency items			Total
	(In thousands)(1)
As of January 1, 2013	$	(2,793	)	$	134,229		$	(7,632	)	$	216,339	(2)	$	340,143	(2)
Other comprehensive income (loss) before reclassifications, net of tax of $70	—			10,069			—			(23,265		)	(13,196		)
Amounts reclassified from accumulated other comprehensive income (loss)	94			(75,523		)	173			—			(75,256		)
Net other comprehensive income (loss)	94			(65,454		)	173			(23,265		)	(88,452		)
As of March 31, 2013	$	(2,699	)	$	68,775		$	(7,459	)	$	193,074		$	251,691

	Gains (losses) on cash flow hedges			Unrealized gains (losses) on available- for-sale securities			Defined benefit pension plan items			Foreign currency items			Total
	(In thousands)(1)
As of January 1, 2014	$	(2,419	)	$	71,742		$	(4,075	)	$	150,892	(2)	$	216,140	(2)
Other comprehensive income (loss) before reclassifications	—			(19,248		)	—			(36,594		)	(55,842		)
Amounts reclassified from accumulated other comprehensive income (loss)	93			—			75			—			168
Net other comprehensive income (loss)	93			(19,248		)	75			(36,594		)	(55,674		)
As of March 31, 2014	$	(2,326	)	$	52,494		$	(4,000	)	$	114,298		$	160,466

(1) All amounts are net of tax. Amounts in parentheses indicate debits.

(2) Reflects amounts reclassified from foreign currency translation adjustment to retained earnings as discussed in Note 2 - Summary of Significant Accounting Policies.

The line items that were reclassified from net income include the following:

	Three Months Ended March 31,
Line item in consolidated statement of income (loss)	2014			2013
	(In thousands)

Investment income (loss), net of income taxes of $0 and $(451)	$	—		$	(75,974	)
Interest expense, net of income taxes of $60 and $59	(153		)	(153		)
General and administrative expenses, net of income taxes of $48 and $108	(123		)	(281		)
Total before tax	$	276		$	(75,540	)
Tax expense (benefit)	108			(284		)
Reclassification adjustment for (gains)/losses included in net income (loss)	$	168		$	(75,256	)

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Note 12 Assets Held-for-Sale and Discontinued Operations

	March 31,		December 31,
Assets Held-for-Sale	2014		2013
	(In thousands)
Oil and Gas	$	231,880	$	239,936
Rig Services	—		3,328
	$	231,880	$	243,264

We have contracts with pipeline companies to pay specified fees based on committed volumes for gas transport and processing. At March 31, 2014, our undiscounted contractual commitments for these contracts approximated $145.4 million and we had liabilities of $64.9 million, $29.4 million of which were classified as current and were included in accrued liabilities. At December 31, 2013, we had liabilities of $113.6 million, $64.4 million of which were classified as current and were included in accrued liabilities. These amounts represent our best estimate of the fair value of the excess capacity of the pipeline commitments calculated using a discounted cash flow model, when considering our disposal plan, current production levels, natural gas prices and expected utilization of the pipeline over the remaining contractual term. Decreases in actual production or natural gas prices could result in future charges related to excess pipeline commitments.

Discontinued Operations

Our condensed statements of income (loss) from discontinued operations for each operating segment were as follows:

	Three Months Ended March 31,
	2014		2013
	(In thousands)
Operating revenues

Oil and Gas	$	5,057	$	9,989
Rig Services	$	—	$	47,204

Income (loss) from Oil and Gas discontinued operations:
Income (loss) from discontinued operations	$	2,618	$	2,070
Less: Impairment charges or other (gains) and losses on sale of wholly owned assets	1,002		2,000
Less: Income tax expense (benefit)	101		(283		)
Income (loss) from Oil and Gas discontinued operations, net of tax	$	1,515	$	353

Income (loss) from Rig Services discontinued operations:
Income (loss) from discontinued operations	$	—	$	9,371
Less: Impairment charges or other (gains) and losses on sale of long-lived assets	—		323
Less: Income tax expense (benefit)	—		2,390
Income (loss) from Rig Services discontinued operations, net of tax	$	—	$	6,658

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Note 13 Segment Information

The following table sets forth financial information with respect to our operating segments:

	Three Months Ended March 31,
	2014			2013
	(In thousands)
Operating revenues and Earnings (losses) from unconsolidated affiliates: (1)

Drilling & Rig Services:
U.S.	$	510,476		$	484,773
Canada	111,621			126,867
International	375,069			321,516
Rig Services (2)	143,726			134,231
Subtotal Drilling & Rig Services (3)	1,140,892			1,067,387
Completion & Production Services:
Completion Services	227,899			262,138
Production Services	275,400			251,571
Subtotal Completion & Production Services (4)	503,299			513,709

Other reconciling items (5)	(57,018		)	(42,723		)
Total	$	1,587,173		$	1,538,373

	Three Months Ended March 31,
	2014			2013
	(In thousands)
Adjusted income (loss) derived from operating activities (1) (6)

Drilling & Rig Services:
U.S.	$	72,494		$	77,595
Canada	26,160			30,518
International	48,119			21,469
Rig Services (2)	8,728			1,287
Subtotal Drilling & Rig Services (3)	155,501			130,869
Completion & Production Services:
Completion Services	(33,635		)	17,756
Production Services	30,591			26,014
Subtotal Completion & Production Services (4)	(3,044		)	43,770
Other reconciling items (5)	(43,416		)	(31,501		)
Total adjusted income (loss) derived from operating activities	$	109,041		$	143,138
Interest expense	(44,810		)	(60,011		)
Investment income (loss)	980			79,421
Gains (losses) on sales and disposals of long-lived assets and other income (expense), net	(1,476		)	(59,737		)
Income (loss) from continuing operations before income taxes	63,735			102,811

Income tax expense (benefit)	14,008			9,854
Subsidiary preferred stock dividend	750			750
Income (loss) from continuing operations, net of tax	48,977			92,207
Income (loss) from discontinued operations, net of tax	1,515			7,011
Net income (loss)	50,492			99,218
Less: Net (income) loss attributable to noncontrolling interest	(573		)	(97		)
Net income (loss) attributable to Nabors	$	49,919		$	99,121

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	March 31,		December 31,
	2014		2013
	(In thousands)
Total assets:
Drilling & Rig Services:
U.S.	$	4,340,581	$	4,248,630
Canada	608,533		608,018
International	3,668,340		3,584,339
Rig Services	479,252		474,275
Subtotal Drilling & Rig Services (7)	9,096,706		8,915,262
Completion & Production Services (8) (9)	2,314,481		2,394,865
Other reconciling items (5)	775,886		849,684
Total assets:	$	12,187,073	$	12,159,811

(1) All periods present the operating activities of our wholly owned oil and gas businesses, our previously held equity interests in oil and gas joint ventures in Canada and Colombia, aircraft logistics operations and construction services as discontinued operations.

(2) Includes our drilling technology and top drive manufacturing, directional drilling, rig instrumentation and software services. These services represent our other companies that are not aggregated into a reportable operating segment.

(3) Includes earnings (losses), net from unconsolidated affiliates, accounted for using the equity method, of ($2.5) million and $2.8 million for the three months ended March 31, 2014 and 2013, respectively.

(4) Includes earnings (losses), net from unconsolidated affiliates, accounted for using the equity method, of $0.1 for each of the three months ended March 31, 2014 and 2013.

(5) Represents the elimination of inter-segment transactions and unallocated corporate expenses and assets.

(6) Adjusted income (loss) derived from operating activities is computed by subtracting the sum of direct costs, general and administrative expenses, depreciation and amortization from the sum of Operating revenues and Earnings (losses) from unconsolidated affiliates. These amounts should not be used as a substitute for the amounts reported in accordance with GAAP. However, management evaluates the performance of our business units and the consolidated company based on several criteria, including adjusted income (loss) derived from operating activities, because it believes that these financial measures accurately reflect 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 in the above table.

(7) Includes $54.4 million and $56.9 million of investments in unconsolidated affiliates accounted for using the equity method as of March 31, 2014 and December 31, 2013, respectively.

(8) Reflects assets allocated to the line of business necessary to conduct its operations. Further allocation to individual operating segments of Completion & Production Services is not available.

(9) Includes $8.7 million and $7.4 million of investments in unconsolidated affiliates accounted for using the equity method as of March 31, 2014 and December 31, 2013, respectively.

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Note 14 Condensed Consolidating Financial Information

Nabors has fully and unconditionally guaranteed all of the issued public debt securities of Nabors Delaware. The following condensed consolidating financial information is included so that separate financial statements of Nabors Delaware 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 March 31, 2014 and December 31, 2013 and statements of income (loss), statements of other comprehensive income (loss) and statements of cash flows for the three months ended March 31, 2014 and 2013 of (a) Nabors, parent/guarantor, (b) Nabors Delaware, issuer of public debt securities guaranteed by Nabors, (c) the non-guarantor subsidiaries, (d) consolidating adjustments necessary to consolidate Nabors and its subsidiaries and (e) Nabors on a consolidated basis.

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Condensed Consolidating Balance Sheets

March 31, 2014

Other

Nabors

Subsidiaries

(Parent/

Delaware

(Non-

Consolidating

Guarantor)

(Issuer)

Guarantors)

Adjustments