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 June 30, 2013

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 £

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 July 29, 2013 was 295,048,631.

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NABORS INDUSTRIES LTD. AND SUBSIDIARIES

Index

	PART I FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012	3

	Consolidated Statements of Income (Loss) for the Three and Six Months Ended June 30, 2013 and 2012	4

	Consolidated Statements of Other Comprehensive Income for the Three and Six Months Ended June 30, 2013 and 2012	5

	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2013 and 2012	6

	Consolidated Statements of Changes in Equity for the Six Months Ended June 30, 2013 and 2012	7

	Notes to Consolidated Financial Statements	8

	Report of Independent Registered Public Accounting Firm	40

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	41

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	53

Item 4.	Controls and Procedures	53

	PART II OTHER INFORMATION

Item 1.	Legal Proceedings	54

Item 1A.	Risk Factors	54

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	54

Item 3.	Defaults Upon Senior Securities	55

Item 4.	Mine Safety Disclosures	55

Item 5.	Other Information	55

Item 6.	Exhibits	56

Signatures		57

Exhibit Index		58

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NABORS INDUSTRIES LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	June 30,			December 31,
(In thousands, except share amounts)	2013			2012
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	508,128		$	524,922
Short-term investments	99,832			253,282
Assets held for sale	351,263			383,857
Accounts receivable, net	1,342,386			1,382,623
Inventory	235,042			251,133
Deferred income taxes	103,779			110,480
Other current assets	252,402			226,560
Total current assets	2,892,832			3,132,857
Long-term investments and other receivables	3,629			4,269
Property, plant and equipment, net	8,577,586			8,712,088
Goodwill	487,252			472,326
Investment in unconsolidated affiliates	68,444			61,690
Other long-term assets	237,160			272,792
Total assets	$	12,266,903		$	12,656,022

LIABILITIES AND EQUITY
Current liabilities:
Current portion of debt	$	11,445		$	364
Trade accounts payable	498,081			499,010
Accrued liabilities	634,835			599,380
Income taxes payable	35,795			33,628
Total current liabilities	1,180,156			1,132,382
Long-term debt	4,071,191			4,379,336
Other long-term liabilities	464,465			518,664
Deferred income taxes	548,618			599,335
Total liabilities	6,264,430			6,629,717

Commitments and contingencies (Note 9)
Subsidiary preferred stock (Note 8)	69,188			69,188

Equity:
Shareholders’ equity:
Common shares, par value $0.001 per share: Authorized common shares 800,000; issued 323,421 and 318,813, respectively	323			319
Capital in excess of par value	2,376,245			2,337,244
Accumulated other comprehensive income	299,016			431,595
Retained earnings	4,191,606			4,120,398
Less: treasury shares, at cost, 28,414 common shares	(944,627		)	(944,627		)
Total shareholders’ equity	5,922,563			5,944,929
Noncontrolling interest	10,722			12,188
Total equity	5,933,285			5,957,117
Total liabilities and equity	$	12,266,903		$	12,656,022

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 June 30,						Six Months Ended June 30,
(In thousands, except per share amounts)	2013			2012			2013			2012

Revenues and other income:
Operating revenues	$	1,491,586		$	1,737,114		$	3,070,231		$	3,627,540
Earnings (losses) from unconsolidated affiliates	1,360			(134,317		)	4,255			(202,986		)
Investment income (loss)	14,821			5,368			94,242			25,620
Total revenues and other income	1,507,767			1,608,165			3,168,728			3,450,174

Costs and other deductions:
Direct costs	999,192			1,123,256			2,025,234			2,308,072
General and administrative expenses	132,612			133,612			265,157			269,958
Depreciation and amortization	270,199			261,016			543,564			508,637
Interest expense	60,271			63,459			120,279			126,113
Losses (gains) on sales and disposals of long-lived assets and other expense (income), net	9,312			160,917			69,119			159,077
Total costs and other deductions	1,471,586			1,742,260			3,023,353			3,371,857
Income (loss) from continuing operations before income taxes	36,181			(134,095		)	145,375			78,317
Income tax expense (benefit):
Current	11,381			34,698			30,210			60,704
Deferred	(5,209		)	(70,890		)	(12,766		)	(27,852		)
Total income tax expense (benefit)	6,172			(36,192		)	17,444			32,852
Subsidiary preferred stock dividend	750			750			1,500			1,500
Income (loss) from continuing operations, net of tax	29,259			(98,653		)	126,431			43,965
Income (loss) from discontinued operations, net of tax	(28,004		)	24,690			(25,958		)	15,895
Net income (loss)	1,255			(73,963		)	100,473			59,860
Less: Net (income) loss attributable to noncontrolling interest	(5,616		)	1,174			(5,713		)	1,441
Net income (loss) attributable to Nabors	$	(4,361	)	$	(72,789	)	$	94,760		$	61,301

Earnings (losses) per share:
Basic from continuing operations	$	0.08		$	(0.34	)	$	0.41		$	0.16
Basic from discontinued operations	(0.09		)	0.09			(0.09		)	0.05
Total Basic	$	(0.01	)	$	(0.25	)	$	0.32		$	0.21

Diluted from continuing operations	$	0.08		$	(0.34	)	$	0.41		$	0.16
Diluted from discontinued operations	(0.09		)	0.09			(0.09		)	0.05
Total Diluted	$	(0.01	)	$	(0.25	)	$	0.32		$	0.21

Weighted-average number of common shares outstanding:
Basic	294,747			290,311			293,217			289,550
Diluted	297,119			290,311			295,644			292,185

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 June 30,						Six Months Ended June 30,
(In thousands)	2013			2012			2013			2012

Net income (loss) attributable to Nabors	$	(4,361	)	$	(72,789	)	$	94,760		$	61,301
Other comprehensive income (loss), before tax:
Translation adjustment attributable to Nabors	(29,304		)	(19,659		)	(52,569		)	(2,393		)
Unrealized gains/(losses) on marketable securities	(5,137		)	(5,008		)	5,002			7,215
Less: reclassification adjustment for (gains)/losses included in net income (loss) (Note 11)	(12,183		)	(19		)	(88,157		)	(12,484		)
Unrealized gains/(losses) on marketable securities	(17,320		)	(5,027		)	(83,155		)	(5,269		)
Pension liability amortization	281			260			562			520
Unrealized gains/(losses) on cash flow hedges	153			191			306			382
Other comprehensive income (loss), before tax	(46,190		)	(24,235		)	(134,856		)	(6,760		)
Income tax expense (benefit) related to items of other comprehensive income (loss)	(2,063		)	140			(2,277		)	(3,584		)
Other comprehensive income (loss), net of tax	(44,127		)	(24,375		)	(132,579		)	(3,176		)
Comprehensive income (loss) attributable to Nabors	(48,488		)	(97,164		)	(37,819		)	58,125
Net income (loss) attributable to noncontrolling interest	5,616			(1,174		)	5,713			(1,441		)
Translation adjustment attributable to noncontrolling interest	613			(216		)	(801		)	27
Comprehensive income (loss) attributable to noncontrolling interest	6,229			(1,390		)	4,912			(1,414		)
Comprehensive income (loss)	$	(42,259	)	$	(98,554	)	$	(32,907	)	$	56,711

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

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NABORS INDUSTRIES LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended June 30,
(In thousands)	2013			2012

Cash flows from operating activities:
Net income (loss) attributable to Nabors	$	94,760		$	61,301
Adjustments to net income (loss):
Depreciation and amortization	543,637			508,748
Depletion and other oil and gas expenses	14,182			151
Deferred income tax expense (benefit)	(20,720		)	(15,404		)
Impairments and other charges	34,983			159,950
Losses (gains) on investments, net	(91,140		)	(21,400		)
Share-based compensation	38,824			8,784
Foreign currency transaction losses (gains), net	7,311			2,285
Gain on sale of oil and gas operations	—			(48,486		)
Equity in (earnings) losses of unconsolidated affiliates, net of dividends	(3,891		)	202,985
Other	15,422			12,586
Changes in operating assets and liabilities, net of effects from acquisitions:
Accounts receivable	22,556			(33,981		)
Inventory	13,893			6,636
Other current assets	(3,402		)	(26,906		)
Other long-term assets	25,820			6,693
Trade accounts payable and accrued liabilities	38,216			(94,423		)
Income taxes payable	(28,834		)	(33,147		)
Other long-term liabilities	(36,209		)	15,565
Net cash provided by operating activities	665,408			711,937
Cash flows from investing activities:
Purchases of investments	—			(795		)
Sales and maturities of investments	163,161			25,517
Proceeds from sales of unconsolidated affiliates	10,000			—
Investment in unconsolidated affiliate	(3,927		)	—
Cash paid for acquisition of businesses, net	(37,516		)	—
Capital expenditures	(500,368		)	(967,861		)
Proceeds from sales of assets and insurance claims	29,731			116,923
Other	(3,142		)	—
Net cash used for investing activities	(342,061		)	(826,216		)
Cash flows from financing activities:
Increase (decrease) in cash overdrafts	(8,686		)	(2,060		)
Dividends to shareholders	(23,552		)	—
Proceeds from debt	11,569			—
Debt issuance costs	(87		)	—
Proceeds from revolving credit facility	—			200,000
Proceeds from (payments for) commercial paper, net	295,000			—
Proceeds from (payments for) issuance of common shares	3,200			(5,066		)
Reduction in long-term debt	(17,853		)	(1,235		)
Reduction in revolving credit facility	(590,000		)	(150,000		)
Purchase of restricted stock	(3,023		)	(2,071		)
Tax (expense) benefit related to share-based awards	—			(36		)
Net cash (used for) provided by financing activities	(333,432		)	39,532
Effect of exchange rate changes on cash and cash equivalents	(6,709		)	(3,430		)
Net increase (decrease) in cash and cash equivalents	(16,794		)	(78,177		)
Cash and cash equivalents, beginning of period	524,922			398,575
Cash and cash equivalents, end of period	$	508,128		$	320,398

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, 2011	317,042	$	317	$	2,287,743		$	321,264		$	3,956,364		$	(977,873	)	$	13,402		$	5,601,217
Net income (loss)										61,301						(1,441		)	59,860
Other comprehensive income (loss), net of tax							(3,176		)							27			(3,149		)
Issuance of common shares for stock options exercised, net of surrender of unexercised stock options	999	1		(5,067		)													(5,066		)
Capital contribution from forgiveness of liability, net of tax				62,734															62,734
Issuance of treasury shares, net of tax benefit				(25,496		)							33,246						7,750
Share-based compensation	678	1		8,783															8,784
Other				(2,107		)										(1,121		)	(3,228		)
As of June 30, 2012	318,719	$	319	$	2,326,590		$	318,088		$	4,017,665		$	(944,627	)	$	10,867		$	5,728,902

As of December 31, 2012	318,813	$	319	$	2,337,244		$	431,595		$	4,120,398		$	(944,627	)	$	12,188		$	5,957,117
Net income (loss)										94,760						5,713			100,473
Dividends to shareholders ($.04/share)										(23,552		)							(23,552		)
Other comprehensive income (loss), net of tax							(132,579		)							(801		)	(133,380		)
Issuance of common shares for stock options exercised, net of surrender of unexercised stock options	343	—		3,200															3,200
Deconsolidation of non- controlling interest																(2,899		)	(2,899		)
Share-based compensation	4,265	4		38,824															38,828
Other				(3,023		)										(3,479		)	(6,502		)
As of June 30, 2013	323,421	$	323	$	2,376,245		$	299,016		$	4,191,606		$	(944,627	)	$	10,722		$	5,933,285

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 U.S. Lower 48 states, Canada and Alaska 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 oil and natural gas wells, on land and offshore, Nabors’ fleet of rigs and equipment includes:

· 473 actively marketed land drilling rigs for oil and gas land drilling operations in the U.S. Lower 48 states, Alaska, Canada and over 20 other countries throughout the world.

· 442 actively marketed rigs for land well-servicing and workover services in the United States and approximately 102 rigs for land well-servicing and workover services in Canada.

· 36 platform, 5 jackup and 4 barge rigs actively marketed in the United States, including the Gulf of Mexico, 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 to the foregoing:

· 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.

Note 2 Summary of Significant Accounting Policies

Interim Financial Information

The unaudited consolidated financial statements of Nabors are prepared in conformity with accounting principles generally accepted in the United States (“GAAP”). Certain reclassifications have been made to the prior period to conform to the current-period presentation, with no effect on our consolidated financial position, results of operations or cash flows. Pursuant to the rules and

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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, 2012 (“2012 Annual Report”). In management’s opinion, the consolidated financial statements contain all adjustments necessary to present fairly our financial position as of June 30, 2013, as well as the results of our operations and other comprehensive income for the three and six months ended June 30, 2013 and 2012, and our cash flows and changes in equity for the six months ended June 30, 2013 and 2012, in accordance with GAAP. Interim results for the six months ended June 30, 2013 may not be indicative of results that will be realized for the full year ending December 31, 2013.

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.

Principles of Consolidation

Our consolidated financial statements include the accounts of Nabors, as well as all majority-owned and nonmajority-owned subsidiaries required to be consolidated under GAAP. 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 method and includes the cost of materials, labor and manufacturing overhead. Inventory included the following:

	June 30,		December 31,
	2013		2012
	(In thousands)
Raw materials	$	139,413	$	148,822
Work-in-progress	34,572		45,733
Finished goods	61,057		56,578
	$	235,042	$	251,133

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Goodwill

The carrying amount and changes in recorded goodwill for our business lines as of and for the six months ended June 30, 2013 were as follows:

			Acquisitions
			and
	Balance at		Purchase			Disposals		Cumulative			Balance at
	December 31,		Price			and		Translation			June 30,
	2012		Adjustments			Impairments		Adjustment			2013
	(In thousands)
Drilling & Rig Services:
U.S.	$	50,149	$	—		$	—	$	—		$	50,149
Rig Services	32,113		15,828		(1)	—		(902		)	47,039
Subtotal Drilling & Rig Services	82,262		15,828			—		(902		)	97,188
Completion & Production Services	390,064		—			—		—			390,064
Total	$	472,326	$	15,828		$	—	$	(902	)	$	487,252

(1) Represents the goodwill recorded in connection with our acquisition of Navigate Energy Services, Inc. (“NES”). See Note 11 - Supplemental Information for additional discussion.

Note 3 Cash and Cash Equivalents and Short-term Investments

Our cash and cash equivalents and short-term investments consisted of the following:

	June 30,		December 31,
	2013		2012
	(In thousands)
Cash and cash equivalents	$	508,128	$	524,922
Short-term investments:
Trading equity securities	$	—	$	52,705
Available-for-sale equity securities	78,662		174,610
Available-for-sale debt securities	21,170		25,967
Total short-term investments	$	99,832	$	253,282

We sold our trading equity securities during the first quarter of 2013.

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

	June 30, 2013							December 31, 2012
	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	$	508,128	$	—	$	—		$	524,922	$	—	$	—
Short-term investments:
Trading equity securities	—		—		—			52,705		46,981		—
Available-for-sale equity securities	78,662		50,115		—			174,610		137,282		(1,030		)
Available-for-sale debt securities:
Commercial paper and CDs	—		—		—			206		—		—
Corporate debt securities	19,685		4,432		—			23,399		1,870		—
Mortgage-backed debt securities	216		13		—			244		15		—
Mortgage-CMO debt securities	209		4		(3		)	523		10		(3		)
Asset-backed debt securities	1,060		—		(88		)	1,595		28		(192		)
Total available-for-sale debt securities	21,170		4,449		(91		)	25,967		1,923		(195		)
Total available-for-sale securities	99,832		54,564		(91		)	200,577		139,205		(1,225		)
Total short-term investments	99,832		54,564		(91		)	253,282		186,186		(1,225		)
Total cash, cash equivalents and short-term investments	$	607,960	$	54,564	$	(91	)	$	778,204	$	186,186	$	(1,225	)

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

	As of June 30, 2013
	Less Than 12 Months					More Than 12 Months
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
	(In thousands)
Available-for-sale equity securities	$	—	$	—		$	—	$	—
Available-for-sale debt securities: (1)
Mortgage-CMO debt securities	21		(2		)	108		(1		)
Asset-backed debt securities	554		(1		)	506		(87		)
Total available-for-sale debt securities	575		(3		)	614		(88		)
Total	$	575	$	(3	)	$	614	$	(88	)

(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 June 30, 2013.

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The estimated fair values of our corporate, mortgage-backed, mortgage-CMO and asset-backed debt securities at June 30, 2013, 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
	June 30, 2013
	(In thousands)
Debt securities:
Due in one year or less	$	—
Due after one year through five years	15,413
Due in more than five years	5,757
Total debt securities	$	21,170

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
	(In thousands)
Available-for-sale
Proceeds from sales and maturities	$	20,352	$	796	$	106,953	$	19,233
Realized gains (losses), net	$	12,183	$	19	$	88,157	$	12,484

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 June 30, 2013. Our debt securities could transfer into or out of a Level 1 or 2 measure depending on the availability of independent and current pricing at the end of each quarter. During the three months ended June 30, 2013, 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.

	Fair Value as of June 30, 2013
	Level 1		Level 2		Level 3		Total
	(In thousands)
Assets:
Short-term investments:
Available-for-sale equity securities from energy industry	$	77,800	$	862	$	—	$	78,662
Available-for-sale debt securities:
Corporate debt securities	—		19,685		—		19,685
Mortgage-backed debt securities	—		216		—		216
Mortgage-CMO debt securities	—		209		—		209
Asset-backed debt securities	1,060		—		—		1,060
Total short-term investments	$	78,860	$	20,972	$	—	$	99,832

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 contractual pipeline commitment.

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Fair Value of Financial Instruments

The fair value of our financial instruments has been estimated in accordance with GAAP. The fair value of our debt, revolving credit facility and subsidiary preferred stock is estimated based on quoted market prices or prices quoted from third-party financial institutions and other observable inputs, all of which represent Level 2 fair value measurements. The carrying and fair values of these liabilities were as follows:

	June 30, 2013				December 31, 2012
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(In thousands)
6.15% senior notes due February 2018	$	969,318	$	1,082,328	$	968,708	$	1,164,813
9.25% senior notes due January 2019	1,111,000		1,383,806		1,125,000		1,492,819
5.00% senior notes due September 2020	697,795		717,535		697,648		770,707
4.625% senior notes due September 2021	698,027		696,367		697,907		755,517
Subsidiary preferred stock	69,188		70,500		69,188		68,625
Revolving credit facility	300,000		300,000		890,000		890,000
Commercial paper	295,000		295,000		—		—
Other	11,496		11,496		437		437
	$	4,151,824	$	4,557,032	$	4,448,888	$	5,142,918

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.

As of June 30, 2013, our short-term investments were carried at fair market value and classified as available-for-sale. As of December 31, 2012, our short-term investments were carried at fair market value and included $200.6 million and $52.7 million in securities classified as available-for-sale and trading, respectively.

Note 5 Share-Based Compensation

Our share-based employee and director compensation plans are more fully described in Note 8 — Share-Based Compensation in our 2012 Annual Report. Total share-based compensation expense, which includes stock options and restricted stock, totaled $6.0 million and $4.3 million for the three months ended June 30, 2013 and 2012, respectively, and $38.8 million and $8.8 million for the six months ended June 30, 2013 and 2012, respectively. Total share-based compensation expense for the six months ended June 30, 2013 included a one-time stock grant valued at $27.0 million, which vested immediately, in connection with the termination of the 2009 employment agreement with Anthony Petrello, our Chairman, President and Chief Executive Officer. This share-based compensation expense has been recognized in other (losses) gains on sales and disposals of long-lived assets and other expense (income), net in our consolidated statement of income (loss). See Note 9 — Commitments and Contingencies for additional discussion. All other share-based compensation expense is included in direct costs and general and administrative expenses in our consolidated statements of income (loss). Share-based compensation expense has been allocated to our various operating segments. See Note 13 — Segment Information.

During the six months ended June 30, 2013 and 2012, we awarded 4,688,514 and 923,131 shares of restricted stock, respectively, vesting over periods of up to four years, to our employees and directors. Some of the restricted stock awards made during the six months ended June 30, 2013 contain provisions relating to market conditions or performance measures, which may affect the grant date or vesting of such awards. All of these awards had an aggregate value at their grant date of $76.2 million and $19.2 million, respectively. The fair value of restricted stock that vested during the six months ended June 30, 2013 and 2012 was $36.3 million and $9.3 million, respectively.

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During the six months ended June 30, 2013 and 2012, we awarded options vesting over periods up to four years to purchase 44,375 and 634,974 of our common shares, respectively, to our employees and directors. The fair value of stock options granted during the six months ended June 30, 2013 and 2012 was calculated using the Black-Scholes option pricing model and the following weighted-average assumptions:

	Six Months Ended June 30,
	2013			2012
Weighted average fair value of options granted	$	6.25		$	9.52
Weighted average risk free interest rate	0.64		%	0.63		%
Dividend yield	0.78		%	0.00		%
Volatility (1)	51.01		%	55.91		%
Expected life	4.0 years			4.0 years

(1) Expected volatilities are based on implied volatilities from publicly traded options to purchase Nabors’ common shares, historical volatility of Nabors’ common shares and other factors.

The total intrinsic value of stock options exercised during the six months ended June 30, 2013 and 2012 was $2.4 million and $5.1 million, respectively. Additionally, the intrinsic value of stock options surrendered during the six months ended June 30, 2012 was $17.9 million. The total fair value of stock options that vested during the six months ended June 30, 2013 and 2012 was $3.9 million and $7.6 million, respectively.

Note 6 Debt

Debt consisted of the following:

	June 30,		December 31,
	2013		2012
	(In thousands)
6.15% senior notes due February 2018	$	969,318	$	968,708
9.25% senior notes due January 2019	1,111,000		1,125,000
5.00% senior notes due September 2020	697,795		697,648
4.625% senior notes due September 2021	698,027		697,907
Revolving credit facility	300,000		890,000
Commercial paper	295,000		—
Other	11,496		437
	$	4,082,636	$	4,379,700
Less: current portion of debt	11,445		364
	$	4,071,191	$	4,379,336

Commercial Paper Program

During April 2013, Nabors Delaware established a commercial paper program. This program allows the issuance from time to time of up to an aggregate amount of $1.5 billion in commercial paper with a maturity of no more than 397 days. Our commercial paper borrowings are classified as long-term debt because the borrowings are fully supported by availability under our revolving credit facility; that facility matures in November 2017, which is more than one year from now. As of June 30, 2013, we had issued $295.0 million in commercial paper, using the proceeds to reduce borrowings on our revolving credit facility. The weighted average interest rate on borrowings at June 30, 2013 was 0.4%.

Revolving Credit Facility

At June 30, 2013, we had $1.2 billion of remaining availability from a total of $1.5 billion under our existing revolving credit facility. The weighted average interest rate on borrowings at June 30, 2013 was 1.54%. 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

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with all covenants under the agreement at June 30, 2013 and December 31, 2012. If we should 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 six months ended June 30, 2013, our employees exercised vested options to acquire .3 million of our common shares, resulting in proceeds of $3.2 million. During the six months ended June 30, 2012, our employees exercised vested options and surrendered unexercised vested stock options to acquire 1.0 million of our common shares. We received $15.9 million relating to exercised options. We used approximately $21.0 million to repurchase surrendered unexercised vested options and to satisfy related tax withholding obligations pursuant to stock option share settlements and exercises by some employees. For the six months ended June 30, 2013 and 2012, we withheld .2 million and .1 million, respectively, of our common shares with a fair value of $3.0 million and $2.1 million, respectively, to satisfy tax withholding obligations in connection with the vesting of all stock awards.

During the three months ended June 30, 2013, cash dividends of $0.04 per share were declared for shareholders of record on June 7, 2013. Dividends of $23.6 million have been paid during the six months ended June 30, 2013 (including dividends declared in February 2013 and paid in March 2013) and charged to retained earnings in our consolidated statement of changes in equity.

Note 8 Subsidiary Preferred Stock

As of June 30, 2013, 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 Contracts

During the first quarter of 2013, the Compensation Committee authorized a new employment agreement for Mr. Petrello effective January 1, 2013 that significantly restructured his compensation arrangements. The new employment agreement provides for an initial term of five years, with automatic one-year extensions at the end of each term, subject to a 90-day notice of termination provided within the agreement.

· The new employment agreement provides for an annual cash bonus targeted at base salary, with a cap of twice that amount, based on the achievement of certain financial and operational performance metrics and defined performance criteria.

· The new employment agreement provides for long-term equity incentive awards. Mr. Petrello may receive 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 150% of base salary, with a maximum number of TSR Shares valued at twice that amount.

· The 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 200% 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.

· In the event of Mr. Petrello’s Termination Without Cause (including in the event of a change of control), or his death or disability, either he or his estate would be entitled to receive, within 30 days thereafter, 2.99 times the average of his base salary and annual cash bonus during the three fiscal years preceding the termination.

We do not have insurance to cover, and we have not recorded an expense or accrued a liability relating to any potential termination obligation.

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Contingencies

Income Tax Contingencies

We are subject to income taxes in the United States and numerous other jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes. In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain. We are regularly 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 13 — Income Taxes to our 2012 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 Nabors and its tax advisors 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 the first quarter of 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 for any amount in excess of the current reserve.

Self-Insurance

We estimate the level of our liability related to self-insured claims, 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. Some workers’ compensation claims, employers’ liability and marine employers’ liability claims are subject to a $2.0 million per-occurrence deductible. Some automobile liability claims are subject to a $1.0 million deductible. General liability claims are subject to a $5.0 million per-occurrence deductible.

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.

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In 2009, the Court of Ouargla entered a judgment of approximately $18.2 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. The Hassi Messaoud customs office recently initiated efforts to collect the judgment prior to the Supreme Court’s decision in the case, as permitted by Algerian law. We intend to post security to suspend those efforts and have recorded a reserve in the anticipation of that security. If we are ultimately required to pay a fine or judgment related to this matter, the resulting loss could be up to $13.6 million in excess of amounts accrued.

In March 2011, the Court of Ouargla entered a judgment of approximately $35.8 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 $27.8 million in excess of amounts accrued.

On September 21, 2011, we received an informal inquiry from the SEC related to perquisites and personal benefits received by the officers and directors of Nabors, including their use of non-commercial aircraft. Our Audit Committee and Board of Directors were apprised of this inquiry and we cooperated with the SEC. On June 6, 2013, the staff of the SEC informed us that it had concluded its inquiry and determined not to recommend any enforcement action to the Commission.

On March 9, 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 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 $100 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 on April 12, 2012, which mooted ERG’s application for a temporary injunction that was scheduled for hearing by the Texas court on April 13, 2012. 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 2013		2014	2015	Thereafter	Total
	(In thousands)
Financial standby letters of credit and other financial surety instruments	$	16,513	18,402	—	—	$	34,915

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 June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
	(In thousands, except per share amounts)

Net income (loss) (numerator):
Income (loss) from continuing operations, net of tax	$	29,259		$	(98,653	)	$	126,431		$	43,965
Less: net (income) loss attributable to noncontrolling interest	(5,616		)	1,174			(5,713		)	1,441
Less: earnings allocated to unvested shareholders	74			—			(740		)	—
Adjusted income (loss) from continuing operations - basic and diluted	$	23,717		$	(97,479	)	$	119,978		$	45,406
Income (loss) from discontinued operations, net of tax	$	(28,004	)	$	24,690		$	(25,958	)	$	15,895

Earnings (losses) per share:
Basic from continuing operations	$	0.08		$	(0.34	)	$	0.41		$	0.16
Basic from discontinued operations	(0.09		)	0.09			(0.09		)	0.05
Total Basic	$	(0.01	)	$	(0.25	)	$	0.32		$	0.21

Diluted from continuing operations	$	0.08		$	(0.34	)	$	0.41		$	0.16
Diluted from discontinued operations	(0.09		)	0.09			(0.09		)	0.05
Total Diluted	$	(0.01	)	$	(0.25	)	$	0.32		$	0.21

Shares (denominator):
Weighted-average number of shares outstanding - basic	294,747			290,311			293,217			289,550
Net effect of dilutive stock options, warrants and restricted stock awards based on the if-converted method	2,372			—			2,427			2,635
Weighted-average number of shares outstanding - diluted	297,119			290,311			295,644			292,185

For all periods presented, the computation of diluted earnings (losses) per share excludes outstanding stock options and warrants 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 11,578,175 and 17,635,173 shares during the three months ended June 30, 2013 and 2012, respectively, and 12,015,219 and 13,395,935 shares during the six months ended June 30, 2013 and 2012, 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 Information

Accrued liabilities include the following:

	June 30,		December 31,
	2013		2012
	(In thousands)
Accrued compensation	$	150,867	$	158,095
Deferred revenue	183,383		148,165
Other taxes payable	66,304		58,590
Workers’ compensation liabilities	22,645		22,645
Interest payable	90,285		90,878
Warranty accrual	6,458		6,436
Litigation reserves	33,592		26,782
Current liability to discontinued operations	57,737		68,961
Professional fees	3,147		2,989
Current deferred tax liability	12,005		10,721
Other accrued liabilities	8,412		5,118
	$	634,835	$	599,380

Investment income (loss) includes the following:

	Three Months Ended June 30,					Six Months Ended June 30,
	2013		2012			2013			2012
	(In thousands)

Interest and dividend income	$	2,342	$	3,594		$	3,118		$	4,949
Gains (losses) on investments, net	12,479		1,774		(1)	91,124		(2)	20,671		(1)(3)
	$	14,821	$	5,368		$	94,242		$	25,620

(1) Includes net unrealized gains of $1.4 million and $7.4 million from our trading securities during the three and six months ended June 30, 2012, respectively.

(2) Includes realized gains of $88.7 million from available-for-sale debt and equity securities and net realized gains of $2.4 million from our trading securities.

(3) Includes $12.5 million realized gain related to debt securities in addition to unrealized gains discussed above.

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
	(In thousands)

Losses (gains) on sales, disposals and involuntary conversions of long-lived assets	$	1,977		$	5,962		$	5,436		$	4,180
Provision for retirement of assets	—			46,264		(1)	—			46,264		(1)
Intangible asset impairment	—			74,960		(2)	—			74,960		(2)
Goodwill impairment	—			26,279		(3)	—			26,279		(3)
Termination of employment contract	—			—			45,000		(4)	—
Litigation expenses	(502		)	4,996			5,659			5,536
Foreign currency transaction losses (gains)	2,990			2,710			7,307			2,255
Losses (gains) on derivative instruments	—			(551		)	—			(1,013		)
Other losses (gains)	4,847			297			5,717			616
	$	9,312		$	160,917		$	69,119		$	159,077

(1) Represents a provision for retirement of long-lived assets totaling $46.3 million in multiple operating segments, which reduced the carrying value of some assets to their salvage value. The retirements in our Canada operations included functionally inoperable rigs and other drilling equipment. In our Production and Completion operations, the retirements related to rigs and vehicles that would require significant repair to return to work and other non-core assets when we consolidated our pressure pumping and well-servicing operations into one business line. A prolonged period of lower natural gas and oil prices and its potential impact on our utilization and dayrates could result in the recognition of future impairment charges to additional assets if future cash flow estimates, based upon information then available to management, indicate that the carrying value of those assets may not be recoverable.

(2) Represents impairment of the Superior trade name. The Superior trade name was initially classified as a ten-year intangible asset at the date of acquisition in September 2010. The impairment is a result of the decision to cease using the Superior trade name to reduce confusion in the marketplace and enhance the Nabors brand.

(3) Represents the impairment of goodwill associated with our U.S. Offshore and International reporting units. The impairments were deemed necessary due to the prolonged uncertainty of utilization of some of our rigs as a result of changes in our customers’ plans for future drilling operations in the Gulf of Mexico as well as our international markets. A significantly prolonged period of lower natural gas prices or changes in laws and regulations could continue to adversely affect the demand for and prices of our services, which could result in future goodwill impairment charges for other reporting units due to the potential impact on our estimate of our future operating results.

(4) 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 for additional discussion.

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

	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 (a))
As of January 1, 2012	$	(3,254	)	$	45,179		$	(7,378	)	$	286,717		$	321,264
Other comprehensive income (loss) before reclassifications	—			7,215			—			(2,393		)	4,822
Amounts reclassified from accumulated other comprehensive income (loss)	263			(8,579		)	318			—			(7,998		)
Net other comprehensive income (loss)	263			(1,364		)	318			(2,393		)	(3,176		)
As of June 30, 2012	$	(2,991	)	$	43,815		$	(7,060	)	$	284,324		$	318,088

As of January 1, 2013	$	(2,793	)	$	134,229		$	(7,632	)	$	307,791		$	431,595
Other comprehensive income (loss) before reclassifications	—			4,913			—			(52,569		)	(47,656		)
Amounts reclassified from accumulated other comprehensive income (loss)	187			(85,454		)	344			—			(84,923		)
Net other comprehensive income (loss)	187			(80,541		)	344			(52,569		)	(132,579		)
As of June 30, 2013	$	(2,606	)	$	53,688		$	(7,288	)	$	255,222		$	299,016

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

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

	Three Months Ended June 30,				Six Months Ended June 30,
Line item in consolidated statement of income (loss)	2013		2012		2013		2012
	(In thousands)

Investment income (loss)	$	12,183	$	19	$	88,157	$