e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2011
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
001-34258
(Commission file number)
WEATHERFORD INTERNATIONAL LTD.
(Exact name of registrant as specified in its charter)
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Switzerland
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98-0606750 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
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4-6 Rue Jean-Francois Bartholoni, 1204 Geneva, Switzerland
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Not Applicable |
(Address of principal executive offices)
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(Zip Code) |
Registrants telephone number, including area code: 41.22.816.1500
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files).
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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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 þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date:
As of
October 21, 2011 there were 754,068,167 shares of Weatherford registered shares, 1.16 Swiss
francs par value per share, outstanding.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
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September 30, |
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December 31, |
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2011 |
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2010 |
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(unaudited) |
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ASSETS |
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Current Assets: |
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Cash and Cash Equivalents |
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$ |
273,562 |
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$ |
415,772 |
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Accounts Receivable, Net of Allowance for Uncollectible
Accounts of $56,557 and $58,756, Respectively |
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3,180,861 |
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2,629,403 |
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Inventories |
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3,071,830 |
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2,590,008 |
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Current Deferred Tax Assets |
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261,500 |
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255,476 |
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Other Current Assets |
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806,795 |
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601,408 |
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Total Current Assets |
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7,594,548 |
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6,492,067 |
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Property, Plant and Equipment, Net of Accumulated Depreciation of
$4,800,326 and $4,221,880, Respectively |
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7,140,692 |
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6,939,754 |
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Goodwill |
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4,351,160 |
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4,185,477 |
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Other Intangible Assets, Net of Accumulated Amortization of
$519,278 and $452,923, Respectively |
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722,315 |
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730,429 |
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Equity Investments |
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599,730 |
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539,580 |
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Other Assets |
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258,831 |
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244,347 |
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Total Assets |
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$ |
20,667,276 |
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$ |
19,131,654 |
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LIABILITIES AND SHAREHOLDERS EQUITY |
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Current Liabilities: |
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Short-term Borrowings and Current Portion of Long-term Debt |
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$ |
1,349,624 |
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$ |
235,392 |
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Accounts Payable |
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1,565,728 |
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1,335,020 |
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Other Current Liabilities |
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1,122,803 |
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1,012,567 |
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Total Current Liabilities |
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4,038,155 |
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2,582,979 |
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Long-term Debt |
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6,266,190 |
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6,529,998 |
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Other Liabilities |
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466,358 |
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553,830 |
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Total Liabilities |
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10,770,703 |
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9,666,807 |
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Shareholders Equity: |
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Shares, CHF 1.16 Par Value: Authorized 1,137,670 Shares, Conditionally
Authorized 379,223 Shares, Issued 764,774 Shares at September
30, 2011; Authorized 1,137,670 Shares, Conditionally Authorized
379,223
Shares, Issued 758,447 Shares at December 31, 2010 |
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769,254 |
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761,077 |
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Capital in Excess of Par Value |
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4,807,181 |
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4,701,797 |
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Treasury Shares, Net |
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(485,246 |
) |
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(562,906 |
) |
Retained Earnings |
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4,700,272 |
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4,348,845 |
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Accumulated Other Comprehensive Income |
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80,860 |
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152,118 |
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Weatherford Shareholders Equity |
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9,872,321 |
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9,400,931 |
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Noncontrolling Interests |
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24,252 |
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63,916 |
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Total Shareholders Equity |
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9,896,573 |
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9,464,847 |
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Total Liabilities and Shareholders Equity |
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$ |
20,667,276 |
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$ |
19,131,654 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
2
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In thousands, except per share amounts)
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Three Months |
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Nine Months |
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Ended September 30, |
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Ended September 30, |
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2011 |
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2010 |
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2011 |
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2010 |
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Revenues: |
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Products |
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$ |
1,254,809 |
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$ |
910,653 |
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$ |
3,470,878 |
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$ |
2,522,867 |
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Services |
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2,117,841 |
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1,619,099 |
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5,809,772 |
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4,775,115 |
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3,372,650 |
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2,529,752 |
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9,280,650 |
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7,297,982 |
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Costs and Expenses: |
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Cost of Products |
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949,509 |
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640,752 |
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2,607,630 |
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1,817,693 |
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Cost of Services |
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1,527,586 |
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1,255,104 |
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4,260,347 |
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3,637,374 |
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Research and Development |
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58,888 |
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54,457 |
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185,666 |
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156,844 |
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Selling, General and Administrative
Attributable to Segments |
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377,654 |
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257,063 |
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1,145,725 |
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1,012,853 |
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Corporate, General and Administrative |
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43,307 |
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46,952 |
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156,473 |
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185,144 |
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2,956,944 |
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2,254,328 |
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8,355,841 |
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6,809,908 |
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Operating Income |
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415,706 |
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|
275,424 |
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924,809 |
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488,074 |
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Other Expense: |
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Interest Expense, Net |
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(114,448 |
) |
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(99,318 |
) |
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(340,638 |
) |
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(290,376 |
) |
Bond Tender Premium |
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(10,731 |
) |
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|
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(10,731 |
) |
Devaluation of Venezuelan Bolivar |
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(63,859 |
) |
Other, Net |
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(26,261 |
) |
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(12,277 |
) |
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(67,194 |
) |
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|
(35,681 |
) |
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Income Before Income Taxes |
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|
274,997 |
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|
153,098 |
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516,977 |
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|
87,427 |
|
Provision for Income Taxes |
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(81,856 |
) |
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(54,159 |
) |
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(147,261 |
) |
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|
(97,384 |
) |
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|
|
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Net Income (Loss) |
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|
193,141 |
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|
98,939 |
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|
|
369,716 |
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|
(9,957 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Net Income Attributable to Noncontrolling
Interests |
|
|
(2,781 |
) |
|
|
(4,286 |
) |
|
|
(10,057 |
) |
|
|
(11,637 |
) |
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Net Income (Loss) Attributable to
Weatherford |
|
$ |
190,360 |
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|
$ |
94,653 |
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|
$ |
359,659 |
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$ |
(21,594 |
) |
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Earnings (Loss) Per Share Attributable to
Weatherford: |
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Basic |
|
$ |
0.25 |
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$ |
0.13 |
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|
$ |
0.48 |
|
|
$ |
(0.03 |
) |
Diluted |
|
$ |
0.25 |
|
|
$ |
0.13 |
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|
$ |
0.47 |
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|
$ |
(0.03 |
) |
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Weighted Average Shares Outstanding: |
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Basic |
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|
753,896 |
|
|
|
745,502 |
|
|
|
750,634 |
|
|
|
742,192 |
|
Diluted |
|
|
759,946 |
|
|
|
751,394 |
|
|
|
758,491 |
|
|
|
742,192 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
|
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|
|
|
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Nine Months |
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|
Ended September 30, |
|
|
|
2011 |
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|
2010 |
|
Cash Flows from Operating Activities: |
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|
Net Income (Loss) |
|
$ |
369,716 |
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|
$ |
(9,957 |
) |
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities: |
|
|
|
|
|
|
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|
Depreciation and Amortization |
|
|
847,673 |
|
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|
775,484 |
|
Employee Share-Based Compensation Expense |
|
|
65,848 |
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|
75,167 |
|
Loss on Sales of Assets and Businesses, Net |
|
|
16,418 |
|
|
|
20,843 |
|
Deferred Income Tax Benefit |
|
|
(79,346 |
) |
|
|
(102,102 |
) |
Devaluation of Venezuelan Bolivar |
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|
|
|
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|
63,859 |
|
Supplemental Executive Retirement Plan |
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|
|
|
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|
38,021 |
|
Revaluation of Contingent Consideration |
|
|
|
|
|
|
2,752 |
|
Other, Net |
|
|
18,756 |
|
|
|
11,930 |
|
Change in Operating Assets and Liabilities, Net of Effect of
Businesses Acquired: |
|
|
|
|
|
|
|
|
Accounts Receivable |
|
|
(541,822 |
) |
|
|
(59,226 |
) |
Inventories |
|
|
(515,831 |
) |
|
|
(273,887 |
) |
Other Current Assets |
|
|
(192,551 |
) |
|
|
317,023 |
|
Accounts Payable |
|
|
236,291 |
|
|
|
176,284 |
|
Other Current Liabilities |
|
|
83,820 |
|
|
|
(262,650 |
) |
Other |
|
|
(70,733 |
) |
|
|
(37,690 |
) |
|
|
|
|
|
|
|
Net Cash Provided by Operating Activities |
|
|
238,239 |
|
|
|
735,851 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
Capital Expenditures for Property, Plant and Equipment |
|
|
(1,120,325 |
) |
|
|
(717,556 |
) |
Acquisitions of Businesses, Net of Cash Acquired |
|
|
(83,270 |
) |
|
|
(58,417 |
) |
Acquisition of Intellectual Property |
|
|
(7,605 |
) |
|
|
(20,784 |
) |
Acquisition of Equity Investments in Unconsolidated Affiliates |
|
|
(7,273 |
) |
|
|
(1,750 |
) |
Proceeds from Sale of Assets and Businesses, Net |
|
|
24,659 |
|
|
|
191,115 |
|
Other Investing Activities |
|
|
(15,242 |
) |
|
|
41,840 |
|
|
|
|
|
|
|
|
Net Cash Used by Investing Activities |
|
|
(1,209,056 |
) |
|
|
(565,552 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
Borrowings (Repayments) of Short-term Debt, Net |
|
|
836,217 |
|
|
|
(841,058 |
) |
Borrowings (Repayments) of Long-term Debt, Net |
|
|
(4,898 |
) |
|
|
1,396,553 |
|
Other Financing Activities, Net |
|
|
(2,429 |
) |
|
|
(7,403 |
) |
|
|
|
|
|
|
|
Net Cash Provided by Financing Activities |
|
|
828,890 |
|
|
|
548,092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Exchange Rate Changes on Cash and Cash Equivalents |
|
|
(283 |
) |
|
|
(19,528 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Cash and Cash Equivalents |
|
|
(142,210 |
) |
|
|
698,863 |
|
Cash and Cash Equivalents at Beginning of Period |
|
|
415,772 |
|
|
|
252,519 |
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of Period |
|
$ |
273,562 |
|
|
$ |
951,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information: |
|
|
|
|
|
|
|
|
Interest Paid |
|
$ |
413,677 |
|
|
$ |
354,677 |
|
Income Taxes Paid, Net of Refunds |
|
|
194,730 |
|
|
|
257,605 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Nine Months |
|
|
|
Ended September 30, |
|
|
Ended September 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Net Income (Loss) |
|
$ |
193,141 |
|
|
$ |
98,939 |
|
|
$ |
369,716 |
|
|
$ |
(9,957 |
) |
Other Comprehensive Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Curtailment and Remeasurement of
Supplemental Executive Retirement
Plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,111 |
|
Amortization of Pension Components |
|
|
292 |
|
|
|
173 |
|
|
|
1,515 |
|
|
|
1,819 |
|
Foreign Currency Translation Adjustment |
|
|
(255,300 |
) |
|
|
143,587 |
|
|
|
(59,619 |
) |
|
|
(9,017 |
) |
Other |
|
|
(13,475 |
) |
|
|
157 |
|
|
|
(13,154 |
) |
|
|
468 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income (Loss) |
|
|
(75,342 |
) |
|
|
242,856 |
|
|
|
298,458 |
|
|
|
18,424 |
|
Comprehensive Income Attributable to
Noncontrolling Interests |
|
|
(2,781 |
) |
|
|
(4,286 |
) |
|
|
(10,057 |
) |
|
|
(11,637 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income (Loss) Attributable
to Weatherford |
|
$ |
(78,123 |
) |
|
$ |
238,570 |
|
|
$ |
288,401 |
|
|
$ |
6,787 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. General
The accompanying unaudited condensed consolidated financial statements of Weatherford
International Ltd. (the Company) are prepared in accordance with U.S. generally accepted
accounting principles and include all adjustments of a normal recurring nature which, in the
opinion of management, are necessary to present fairly our Condensed Consolidated Balance Sheet at
September 30, 2011, Condensed Consolidated Statements of Income and Condensed Consolidated
Statements of Comprehensive Income for the three and nine months ended September 30, 2011 and 2010
and Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2011
and 2010. When referring to the Company and using phrases such as we, us and our, the intent
is to refer to Weatherford International Ltd. and its subsidiaries as a whole or on a regional
basis, depending on the context in which the statements are made. Although we believe the
disclosures in these financial statements are adequate to make the interim financial information
presented not misleading, certain information relating to our organization and footnote disclosures
normally included in financial statements prepared in accordance with U.S. generally accepted
accounting principles have been condensed or omitted in this Form 10-Q pursuant to U.S. Securities
and Exchange Commission (SEC) rules and regulations. These financial statements should be read
in conjunction with the audited consolidated financial statements and notes thereto as of December
31, 2010 and 2009 and for each of the three years in the period ended December 31, 2010 included in
our Annual Report on Form 10-K, as amended. The results of operations for the three and nine
months ended September 30, 2011 are not necessarily indicative of the results expected for the year
ending December 31, 2011.
The preparation of financial statements in conformity with U.S. generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period and disclosures of contingent assets and
liabilities. On an ongoing basis, we evaluate our estimates and assumptions, including those
related to uncollectible accounts receivable, lower of cost or market of inventories, equity
investments, intangible assets and goodwill, property, plant and equipment, income taxes,
percentage-of-completion accounting for long-term contracts, self-insurance, pension and post
retirement benefit plans, contingencies and share-based compensation. We base our estimates on
historical experience and on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources. Actual results could
differ from those estimates.
Principles of Consolidation
We
consolidate wholly-owned subsidiaries, controlled joint ventures and variable interest
entities where the Company has determined it is the primary beneficiary for accounting purposes.
Investments in affiliates in which we exercise significant influence over operating and
financial policies are accounted for using the equity method. All material intercompany accounts
and transactions have been eliminated in consolidation.
2. Business Combinations
We have acquired businesses we feel are important to our long-term growth strategy. Results
of operations for acquisitions are included in the accompanying Condensed Consolidated Statements
of Income from the date of acquisition. The balances included in the Condensed Consolidated
Balance Sheets related to recent acquisitions are based on preliminary information and are subject
to change when final asset valuations are obtained and the potential for liabilities has been
evaluated. The purchase price is allocated to the net assets acquired based upon their estimated
fair values at the date of acquisition.
During the nine months ended September 30, 2011, we paid cash consideration of $83 million,
net of cash acquired, and issued total share consideration of approximately 7.7 million shares
valued at $134 million for acquisitions.
6
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Our results for the nine months ended September 30, 2010 include a loss of $3 million related
to the revaluation of contingent consideration issued in connection with the acquisition of the
Oilfield Services Division of TNK-BP. This loss was recorded in the Selling, General and
Administrative Attributable to Segments line in the Condensed Consolidated Statements of Income.
The contingent consideration arrangement was settled in the fourth quarter of 2010.
3. Inventories
The components of inventory were as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(In thousands) |
|
Raw materials, components and supplies |
|
$ |
428,874 |
|
|
$ |
383,639 |
|
Work in process |
|
|
159,318 |
|
|
|
114,266 |
|
Finished goods |
|
|
2,483,638 |
|
|
|
2,092,103 |
|
|
|
|
|
|
|
|
|
|
$ |
3,071,830 |
|
|
$ |
2,590,008 |
|
|
|
|
|
|
|
|
Work in process and finished goods inventories include the cost of materials, labor and
manufacturing overhead.
4. Goodwill
We perform an impairment test for goodwill and indefinite-lived intangible assets annually as
of October 1, or more frequently if indicators of potential impairment exist. During September
2011, the market price of our common stock declined significantly. As a result, we considered
whether it was more likely than not that an impairment of our goodwill had occurred. We concluded
that this decline did not constitute an indicator of potential impairment. In reaching this
conclusion, we considered that there has not been a significant change in the estimated future cash
flows of our reporting units and that, by mid-October 2011, the market price of our common stock
had recovered to prices reflective of the market in early September 2011. Our annual impairment
test for goodwill is underway and will be completed in the fourth quarter of 2011. At this time, no
impairment has been identified. However, the decline in our market capitalization does suggest that the margin
by which the fair value of our Middle East/North Africa, FSU and West Africa reporting units executed their book value may have decreased since our last annual test and may be at risk of impairment. As of September 30, 2011, goodwill attributable to our
Middle East/North Africa, FSU and West Africa reporting units totaled $501 million, $273 million
and $74 million, respectively.
The changes in the carrying amount of goodwill for the nine months ended September 30, 2011,
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Middle East/ North |
|
|
Europe/ |
|
|
Latin |
|
|
|
|
|
|
North America |
|
|
Africa/ Asia |
|
|
West Africa/ FSU |
|
|
America |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
As of December 31, 2010 |
|
$ |
2,133,020 |
|
|
$ |
731,828 |
|
|
$ |
1,007,605 |
|
|
$ |
313,024 |
|
|
$ |
4,185,477 |
|
Acquisitions |
|
|
63,609 |
|
|
|
|
|
|
|
5,964 |
|
|
|
65,482 |
|
|
|
135,055 |
|
Purchase price and other
adjustments |
|
|
723 |
|
|
|
(4,195 |
) |
|
|
1,687 |
|
|
|
(375 |
) |
|
|
(2,160 |
) |
Foreign currency translation |
|
|
48,400 |
|
|
|
(1,770 |
) |
|
|
(8,412 |
) |
|
|
(5,430 |
) |
|
|
32,788 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2011 |
|
$ |
2,245,752 |
|
|
$ |
725,863 |
|
|
$ |
1,006,844 |
|
|
$ |
372,701 |
|
|
$ |
4,351,160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. Short-term Borrowings and Current Portion of Long-term Debt
The components of short-term borrowings were as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(In thousands) |
|
Revolving credit facilities |
|
$ |
210,000 |
|
|
$ |
|
|
Commercial paper |
|
|
632,919 |
|
|
|
|
|
Other short-term bank loans |
|
|
12,188 |
|
|
|
18,001 |
|
|
|
|
|
|
|
|
Total short-term borrowings |
|
|
855,107 |
|
|
|
18,001 |
|
Current portion of long-term debt |
|
|
494,517 |
|
|
|
217,391 |
|
|
|
|
|
|
|
|
Short-term borrowings and current portion of long-term debt |
|
$ |
1,349,624 |
|
|
$ |
235,392 |
|
|
|
|
|
|
|
|
Prior to July 2011, we maintained a $1.75 billion unsecured, revolving credit agreement (the
Credit Agreement) with JPMorgan Chase Bank, N.A., as administrative agent. The Credit Agreement
had a scheduled maturity date of October 15, 2013, and could be used for a combination of
borrowings, support for our commercial paper program and issuances of letters of credit. The
Credit Agreement required that we maintain a debt-to-capitalization ratio of less than 60%.
On July 13, 2011, we amended the Credit Agreement to increase the facility size from $1.75
billion to $2.25 billion and extend the scheduled maturity date to July 13, 2016. The amendment
also decreased interest rate margins under the facility. The Credit Agreement, as amended, remains
available to support our commercial paper program and issuances of letters of credit. At September
30, 2011, we had $210 million in revolver borrowings outstanding with a weighted average interest rate
of 1% per annum. The amended Credit Agreement did not change the required debt-to-capitalization
ratio. We were in compliance with these covenants at September 30, 2011. There were $63 million
in outstanding letters of credit under this facility at September 30, 2011.
We have a $1.5 billion commercial paper program under which we may from time to time issue
short-term unsecured notes. The commercial paper program is supported by our revolving credit
facility. The weighted average interest rate related to outstanding commercial paper issuances at
September 30, 2011 was 1% per annum.
We have short-term borrowings with various domestic and international institutions pursuant to
uncommitted facilities. At September 30, 2011, we had $12 million in short-term borrowings under
these arrangements with a weighted average interest rate of 5% per annum.
The current portion of long-term debt at September 30, 2011 includes $183 million for our
senior notes due November 2011, $273 million for our senior notes due June 2012 and other long-term
debt totaling $39 million.
6. Financial Instruments
Financial Instruments Measured and Recognized at Fair Value
We estimate fair value at a price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants in the principal market for the
asset or liability. Our valuation techniques require inputs that we categorize using a three level
hierarchy, from highest to lowest level of observable inputs. Level 1 inputs are unadjusted quoted
prices in active markets for identical assets or liabilities. Level 2 inputs are quoted prices or
other market data for similar assets and liabilities in active markets or inputs that are
observable for the asset or liability, either directly or indirectly through market corroboration,
for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs
based upon our own judgment and assumptions used to measure assets and liabilities at fair value.
Classification of a financial asset or liability within the hierarchy is
8
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
determined based on the
lowest level of input that is significant to the fair value measurement. Other than disclosed
below under derivative instruments, we had no assets or liabilities measured and recognized at
fair value on a recurring basis at September 30, 2011 and December 31, 2010.
Fair Value of Other Financial Instruments
Our other financial instruments include cash and cash equivalents, accounts receivable, notes
receivable, accounts payable, short-term borrowings and long-term debt. With the exception of
long-term debt, the carrying value of these financial instruments approximates their fair value due
primarily to their short-term nature.
The fair value of outstanding debt fluctuates with changes in applicable interest rates. Fair
value will exceed carrying value when the current market interest rate is lower than the interest
rate at which the debt was originally issued. The fair value of a companys debt is a measure of
its current value under present market conditions. It does not impact the financial statements
under current accounting rules. The fair value of our long-term debt was established based on
quoted market prices.
The fair value and carrying value of our long-term debt and current portion of long-term debt
were as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(In thousands) |
|
Fair value |
|
$ |
7,392,647 |
|
|
$ |
7,329,299 |
|
Carrying value |
|
|
6,760,708 |
|
|
|
6,747,389 |
|
7. Derivative Instruments
We are exposed to market risk from changes in foreign currency and changes in interest rates.
From time to time, we may enter into derivative financial instrument transactions to manage or
reduce our market risk. We manage our debt portfolio to achieve an overall desired position of
fixed and floating rates and we may employ interest rate swaps as a tool to achieve that goal. The
major risks from interest rate derivatives include changes in the interest rates affecting the fair
value of such instruments, potential increases in interest expense due to market increases in
floating interest rates and the creditworthiness of the counterparties in such transactions. In
light of events in the global credit markets and the potential impact of these events on the
liquidity of the banking industry, we continue to monitor the creditworthiness of our
counterparties, which are multinational commercial banks.
The fair values of all our outstanding derivative instruments are determined using a model
with Level 2 inputs including quoted market prices in active markets for contracts with similar
terms and maturity dates.
Fair Value Hedges
We may use interest rate swaps to help mitigate exposures related to changes in the fair
values of the hedged debt. Amounts paid or received upon termination of interest rate swaps
accounted for as fair value hedges represent the fair value of the agreements at the time of
termination and are recorded as an adjustment to the carrying value of the related debt. These
amounts are amortized as a reduction, in the case of gains, or as an increase, in the case of
losses, of interest expense over the remaining term of the debt. As of September 30, 2011, we had
net unamortized gains of $48 million associated with interest rate swap terminations.
In July 2011, we entered into interest rate swap agreements to pay a variable interest rate
and receive a fixed interest rate with an aggregate notional amount of $300 million. These swaps
were designated as fair value hedges of our 6.35% Senior Notes. These agreements are determined to
be highly effective and the effects of any ineffectiveness were not material to the Condensed Consolidated
Statements of Income as the changes in the fair values of the interest rate swaps offset changes in
the fair value of the underlying debt. The aggregate fair value of the interest rate swaps at
9
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September 30, 2011 resulted in an asset of $13 million with a corresponding increase to Long-term
Debt on the accompanying Condensed Consolidated Balance Sheets.
Cash Flow Hedges
In 2008, we entered into interest rate derivative instruments to hedge projected exposures to
interest rates in anticipation of a debt offering. Those hedges were terminated at the time of the
issuance of the debt, and the loss on these hedges is amortized from Accumulated Other
Comprehensive Income to interest expense over the remaining term of the debt. As of September 30,
2011, we had net unamortized losses of $12 million associated with our cash flow hedge
terminations.
In August 2011, we entered into interest rate derivative instruments for a notional amount of
$294 million to hedge projected exposures to interest rates in anticipation of a refinancing
transaction. The aggregate fair value of these interest rate derivatives at September 30, 2011
resulted in the recognition of a current liability of $14 million, with a corresponding unrealized
loss recognized in Accumulated Other Comprehensive Income. Ineffectiveness related to these cash flow hedges during
the three month period ended September 30, 2011 was not material.
Other Derivative Instruments
As of September 30, 2011, we had foreign currency forward contracts with notional amounts
aggregating to $551 million, which were entered into to hedge exposure to currency fluctuations in
various foreign currencies. The total estimated fair value of these contracts at September 30,
2011, resulted in a net asset of approximately $58 million. These derivative instruments were not
designated as hedges and the changes in fair value of the contracts are recorded in Other, Net in
the accompanying Condensed Consolidated Statements of Income.
We have cross-currency swaps between the U.S. dollar and Canadian dollar to hedge certain
exposures to the Canadian dollar. At September 30, 2011, we had notional amounts outstanding of
$168 million. The total estimated fair value of these contracts at September 30, 2011, resulted in
a liability of $30 million. These derivative instruments were not designated as hedges and the
changes in fair value of the contracts are recorded in Other, Net in the accompanying Condensed
Consolidated Statements of Income.
The fair values of outstanding derivative instruments are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
Classifications |
|
|
|
(In thousands) |
|
|
|
|
|
Derivative assets not designated as hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
$ |
72,388 |
|
|
$ |
8,155 |
|
|
Other Current Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities not designated as hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
|
14,007 |
|
|
|
21,664 |
|
|
Other Current Liabilities |
Cross-currency swap contracts |
|
|
29,748 |
|
|
|
34,783 |
|
|
Other Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets designated as hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
|
12,555 |
|
|
|
|
|
|
Other Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities designated as hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate locks |
|
|
13,637 |
|
|
|
|
|
|
Other Current Liabilities |
During the nine months ended September 30, 2011 and 2010, we recognized foreign currency
losses of $54 million and $25 million, respectively.
10
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
8. Income Taxes
For the three and nine months ended September 30, 2011, we had a tax provision of $82 million
and $147 million on income before taxes of $275 million and $517 million, respectively. Our tax
provision for the three months ended September 30, 2011 includes discrete tax benefits of $29
million which lowered our effective tax rate
for the period to 29.8%. Our tax provision for the nine months ended September 30, 2011 includes
discrete tax benefits of $58 million which lowered our
year-to-date effective tax rate to 28.5%. Included in the discrete tax benefits for the three and nine-months ended September 30, 2011 are $16 million and $11 million, respectively, of income tax benefits related to prior periods. The impact of these amounts is not material to any individual prior period.
For the nine months ended September 30, 2011, the balance of unrecognized tax benefits
decreased by $6 million and the balance of accrued interest and penalties decreased by $7 million.
For the three months ended September 30, 2010, we had a tax provision of $54 million on income
before taxes of $153 million. Our income before taxes for the three months ended September 30,
2010, includes a $90 million gain on the fair value adjustment to the put option issued in
connection with the OFS acquisition for which no tax expense was recorded. For the nine months ended
September 30, 2010, we had a provision of $97 million on income before taxes of $87 million that
includes curtailment expense on our SERP for which no related tax benefit was recorded. Our tax
provision for the nine months ended September 30, 2010, includes minimum tax in Mexico and the tax
impact of changes in our geographic earnings mix, both of which were partially offset by a tax
benefit related to the devaluation of the Venezuelan bolivar.
9. Shareholders Equity
The following summarizes our shareholders equity activity for the nine months ended September
30, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling |
|
|
|
Total |
|
|
Company |
|
|
Interests in |
|
|
|
Shareholders |
|
|
Shareholders |
|
|
Consolidated |
|
|
|
Equity |
|
|
Equity |
|
|
Subsidiaries |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Balance at December 31, 2010 |
|
$ |
9,464,847 |
|
|
$ |
9,400,931 |
|
|
$ |
63,916 |
|
Comprehensive Income: |
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
369,716 |
|
|
|
359,659 |
|
|
|
10,057 |
|
Amortization of Pension Components |
|
|
1,515 |
|
|
|
1,515 |
|
|
|
|
|
Foreign Currency Translation Adjustments |
|
|
(59,619 |
) |
|
|
(59,619 |
) |
|
|
|
|
Other |
|
|
(13,154 |
) |
|
|
(13,154 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income |
|
|
298,458 |
|
|
|
288,401 |
|
|
|
10,057 |
|
Transactions with Shareholders |
|
|
191,221 |
|
|
|
191,221 |
|
|
|
|
|
Dividends Paid to Noncontrolling Interests |
|
|
(21,631 |
) |
|
|
|
|
|
|
(21,631 |
) |
Other |
|
|
(36,322 |
) |
|
|
(8,232 |
) |
|
|
(28,090 |
) |
|
|
|
|
|
|
|
|
|
|
Balance September 30, 2011 |
|
$ |
9,896,573 |
|
|
$ |
9,872,321 |
|
|
$ |
24,252 |
|
|
|
|
|
|
|
|
|
|
|
11
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling |
|
|
|
Total |
|
|
Company |
|
|
Interests in |
|
|
|
Shareholders |
|
|
Shareholders |
|
|
Consolidated |
|
|
|
Equity |
|
|
Equity |
|
|
Subsidiaries |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Balance at December 31, 2009 |
|
$ |
9,438,373 |
|
|
$ |
9,359,341 |
|
|
$ |
79,032 |
|
Comprehensive Income: |
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
|
|
(9,957 |
) |
|
|
(21,594 |
) |
|
|
11,637 |
|
Curtailment of Supplemental
Executive Retirement Plan |
|
|
35,111 |
|
|
|
35,111 |
|
|
|
|
|
Amortization of Pension Components |
|
|
1,819 |
|
|
|
1,819 |
|
|
|
|
|
Foreign Currency Translation Adjustments |
|
|
(9,017 |
) |
|
|
(9,017 |
) |
|
|
|
|
Other |
|
|
468 |
|
|
|
468 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income (Loss) |
|
|
18,424 |
|
|
|
6,787 |
|
|
|
11,637 |
|
Transactions with Shareholders |
|
|
90,611 |
|
|
|
90,611 |
|
|
|
|
|
Dividends Paid to Noncontrolling Interests |
|
|
(21,378 |
) |
|
|
|
|
|
|
(21,378 |
) |
Other |
|
|
297 |
|
|
|
|
|
|
|
297 |
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2010 |
|
$ |
9,526,327 |
|
|
$ |
9,456,739 |
|
|
$ |
69,588 |
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2010, warrants were outstanding to purchase up to 12.9 million of our shares
at a price of $15.00 per share. On March 4, 2011, 4.3 million of these warrants were exercised
through net share settlement resulting in the issuance of 1.7 million shares. At September 30,
2011, 8.6 million warrants remain outstanding and are exercisable until February 28, 2012.
These warrants are subject to adjustment for changes in our capital structure or the issuance of
dividends. Future settlements may occur through physical delivery, net share settlement, net cash
settlement or a combination of those methods. The net cash settlement option is available at our
sole discretion.
During the three month period ended September 30, 2011, we deconsolidated three joint ventures
that should have been deconsolidated as of January 1, 2010 in
accordance with the variable interest entity accounting guidance that became effective in
2010. We recognized equity investments totaling $43 million and derecognized the associated
noncontrolling interests totaling $29 million. The consolidation of these joint ventures in prior
periods and deconsolidation in the current period did not have a material impact on our statement
of financial position or our results of operations for the current or prior periods.
10. Earnings Per Share
Basic earnings per share for all periods presented equals net income divided by the weighted
average number of our shares outstanding during the period. Diluted earnings per share is computed
by dividing net income by the weighted average number of our shares outstanding during the period,
adjusted for the dilutive effect of our stock options, restricted shares, performance units and our
outstanding warrants. Our diluted earnings per share calculation excludes three million and two
million potential shares for the three and nine months ended September 30, 2011, respectively, and
three million potential shares for the three and nine months ended September 30, 2010, due to their
anti-dilutive effect. Our diluted earnings per share calculation for the nine months ended
September 30, 2010 also excludes six million potential shares that would have been included if we
had net income for that period, but are excluded as we had a net loss and their inclusion would
have been anti-dilutive.
12
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following reconciles basic and diluted weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Nine Months |
|
|
|
Ended September 30, |
|
|
Ended September 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Basic weighted average shares
outstanding |
|
|
753,896 |
|
|
|
745,502 |
|
|
|
750,634 |
|
|
|
742,192 |
|
Dilutive effect of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants |
|
|
1,107 |
|
|
|
553 |
|
|
|
2,368 |
|
|
|
|
|
Stock options and restricted shares |
|
|
4,943 |
|
|
|
5,339 |
|
|
|
5,489 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares
outstanding |
|
|
759,946 |
|
|
|
751,394 |
|
|
|
758,491 |
|
|
|
742,192 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11. Share-Based Compensation
We recognized the following employee share-based compensation expense during the three and
nine months ended September 30, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Nine Months |
|
|
|
Ended September 30, |
|
|
Ended September 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Share-based compensation |
|
$ |
17,915 |
|
|
$ |
25,298 |
|
|
$ |
65,848 |
|
|
$ |
75,167 |
|
Related tax benefit |
|
|
6,270 |
|
|
|
8,854 |
|
|
|
23,047 |
|
|
|
26,308 |
|
During the nine months ended September 30, 2011, we issued approximately one million
performance units, which will vest assuming continued employment and assuming the Company meets
certain market-based performance goals. The performance units have a weighted average grant date
fair value of $28.75 per share based on the Monte Carlo simulation method. As of September 30,
2011, there was $21 million of unrecognized compensation related to our performance units. This
cost is expected to be recognized over a weighted average period of two years.
During the nine months ended September 30, 2011, we also granted three million restricted
share awards at a weighted average grant date fair value of $23.14 per share. As of September 30,
2011, there was $111 million of unrecognized compensation cost related to our unvested
restricted share grants. This cost is expected to be recognized over a weighted average period of
less than two years.
13
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
12. Retirement and Employee Benefit Plans
We
have defined benefit pension and other post retirement benefit plans covering certain
employees. The components of net periodic benefit cost for the three and nine months ended
September 30, 2011 and 2010 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
|
2011 |
|
|
2010 |
|
|
|
United States |
|
|
Non-U.S. |
|
|
United States |
|
|
Non-U.S. |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Service cost |
|
$ |
8 |
|
|
$ |
1,719 |
|
|
$ |
|
|
|
$ |
1,450 |
|
Interest cost |
|
|
755 |
|
|
|
2,155 |
|
|
|
765 |
|
|
|
1,797 |
|
Expected return on plan assets |
|
|
(147 |
) |
|
|
(1,267 |
) |
|
|
(149 |
) |
|
|
(1,172 |
) |
Amortization of prior service cost (credit) |
|
|
22 |
|
|
|
(15 |
) |
|
|
|
|
|
|
(14 |
) |
Amortization of loss |
|
|
184 |
|
|
|
234 |
|
|
|
225 |
|
|
|
41 |
|
Curtailment/settlement loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
822 |
|
|
$ |
2,826 |
|
|
$ |
841 |
|
|
$ |
2,102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
2011 |
|
|
2010 |
|
|
|
United States |
|
|
Non-U.S. |
|
|
United States |
|
|
Non-U.S. |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Service cost |
|
$ |
24 |
|
|
$ |
5,103 |
|
|
$ |
978 |
|
|
$ |
4,415 |
|
Interest cost |
|
|
2,265 |
|
|
|
6,423 |
|
|
|
3,921 |
|
|
|
5,373 |
|
Expected return on plan assets |
|
|
(441 |
) |
|
|
(3,792 |
) |
|
|
(447 |
) |
|
|
(3,514 |
) |
Amortization of prior service cost (credit) |
|
|
66 |
|
|
|
(45 |
) |
|
|
1,534 |
|
|
|
(40 |
) |
Amortization of loss |
|
|
552 |
|
|
|
698 |
|
|
|
1,139 |
|
|
|
122 |
|
Curtailment/settlement loss (a) |
|
|
|
|
|
|
|
|
|
|
35,453 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
2,466 |
|
|
$ |
8,387 |
|
|
$ |
42,578 |
|
|
$ |
6,356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Our SERP was amended effective March 31, 2010 to freeze the benefits under the plan, resulting
in a net curtailment loss. |
As of September 30, 2011, we have contributed approximately $8 million to our pension and other
post retirement benefit plans and currently anticipate total contributions for 2011 to approximate
$11 million.
14
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
13. Segment Information
Financial information by segment is summarized below. Revenues are attributable to countries
based on the ultimate destination of the sale of products or performance of services.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2011 |
|
|
|
Net |
|
|
Income |
|
|
Depreciation |
|
|
|
Operating |
|
|
from |
|
|
and |
|
|
|
Revenues |
|
|
Operations |
|
|
Amortization |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
North America |
|
$ |
1,619,601 |
|
|
$ |
352,163 |
|
|
$ |
90,994 |
|
Middle East/North Africa/Asia |
|
|
572,707 |
|
|
|
15,341 |
|
|
|
83,441 |
|
Europe/West Africa/FSU |
|
|
588,572 |
|
|
|
86,595 |
|
|
|
58,782 |
|
Latin America |
|
|
591,770 |
|
|
|
70,878 |
|
|
|
50,577 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,372,650 |
|
|
|
524,977 |
|
|
|
283,794 |
|
Corporate and Research and
Development |
|
|
|
|
|
|
(100,869 |
) |
|
|
4,656 |
|
Other (a) |
|
|
|
|
|
|
(8,402 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,372,650 |
|
|
$ |
415,706 |
|
|
$ |
288,450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2010 |
|
|
|
Net |
|
|
Income |
|
|
Depreciation |
|
|
|
Operating |
|
|
from |
|
|
and |
|
|
|
Revenues |
|
|
Operations |
|
|
Amortization |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
North America |
|
$ |
1,096,963 |
|
|
$ |
199,029 |
|
|
$ |
81,843 |
|
Middle East/North Africa/Asia |
|
|
601,215 |
|
|
|
65,718 |
|
|
|
75,968 |
|
Europe/West Africa/FSU |
|
|
496,113 |
|
|
|
63,236 |
|
|
|
56,960 |
|
Latin America (b) |
|
|
335,461 |
|
|
|
(35,182 |
) |
|
|
46,527 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,529,752 |
|
|
|
292,801 |
|
|
|
261,298 |
|
Corporate and Research and
Development |
|
|
|
|
|
|
(96,364 |
) |
|
|
5,911 |
|
Revaluation of Contingent
Consideration |
|
|
|
|
|
|
90,011 |
|
|
|
|
|
Other (c) |
|
|
|
|
|
|
(11,024 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,529,752 |
|
|
$ |
275,424 |
|
|
$ |
267,209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The three months ended September 30, 2011 includes $7 million for severance and exit costs and
$1 million for legal, professional and related fees incurred in connection with our on-going
investigations. |
|
(b) |
|
The three months ended September 30, 2010 includes $76 million for revisions to our
profitability estimates on our project management contracts in Mexico, as the client requested
a slowdown in drilling activity to near zero while they re-evaluated the pace of drilling and
capital expenditures in 2010. |
|
(c) |
|
The three months ended September 30, 2010 includes $8 million for severance and exit costs and
$3 million for legal, professional and related fees incurred in connection with our on-going
investigations. |
15
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2011 |
|
|
|
Net |
|
|
Income |
|
|
Depreciation |
|
|
|
Operating |
|
|
from |
|
|
and |
|
|
|
Revenues |
|
|
Operations |
|
|
Amortization |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
North America |
|
$ |
4,324,318 |
|
|
$ |
879,473 |
|
|
$ |
266,793 |
|
Middle East/North Africa/Asia |
|
|
1,765,609 |
|
|
|
60,109 |
|
|
|
247,369 |
|
Europe/West Africa/FSU |
|
|
1,691,453 |
|
|
|
216,610 |
|
|
|
173,072 |
|
Latin America (d) |
|
|
1,499,270 |
|
|
|
143,050 |
|
|
|
145,687 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,280,650 |
|
|
|
1,299,242 |
|
|
|
832,921 |
|
Corporate and Research and
Development |
|
|
|
|
|
|
(326,506 |
) |
|
|
14,752 |
|
Other (e) |
|
|
|
|
|
|
(47,927 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
9,280,650 |
|
|
$ |
924,809 |
|
|
$ |
847,673 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2010 |
|
|
|
Net |
|
|
Income |
|
|
Depreciation |
|
|
|
Operating |
|
|
from |
|
|
and |
|
|
|
Revenues |
|
|
Operations |
|
|
Amortization |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
North America |
|
$ |
2,903,238 |
|
|
$ |
434,462 |
|
|
$ |
243,543 |
|
Middle East/North Africa/Asia |
|
|
1,765,873 |
|
|
|
215,425 |
|
|
|
223,397 |
|
Europe/West Africa/FSU |
|
|
1,456,049 |
|
|
|
176,900 |
|
|
|
158,602 |
|
Latin America (f) |
|
|
1,172,822 |
|
|
|
32,883 |
|
|
|
133,759 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,297,982 |
|
|
|
859,670 |
|
|
|
759,301 |
|
Corporate and Research and
Development |
|
|
|
|
|
|
(286,479 |
) |
|
|
16,183 |
|
Revaluation of Contingent
Consideration |
|
|
|
|
|
|
(2,752 |
) |
|
|
|
|
Other (g) |
|
|
|
|
|
|
(82,365 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
7,297,982 |
|
|
$ |
488,074 |
|
|
$ |
775,484 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(d) |
|
The nine months ended September 30, 2011 was negatively impacted by a $16 million charge due to
an equity tax enacted in Colombia during the first quarter of 2011. |
|
(e) |
|
The nine months ended September 30, 2011 includes $34 million for severance and exit costs, $9
million in connection with the termination of a corporate consulting contract and $5 million for
legal, professional and related fees incurred in connection with our on-going investigations. |
|
(f) |
|
The nine months ended September 30, 2010 includes a $76 million charge for revisions to our
profitability estimates on our project management contracts in Mexico. |
|
(g) |
|
The nine months ended September 30, 2010 includes a $38 million charge related to our SERP,
which was frozen on March 31, 2010, $44 million for severance and exit costs and $5 million for
legal, professional and related fees incurred in connection with on-going investigations. These changes
were offset by a $5 million benefit related to the reversal of prior cost accruals for our exit
from certain sanctioned countries. |
16
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Total assets at September 30, 2011 and December 31, 2010 by reporting segments were as
follows:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(In thousands) |
|
North America |
|
$ |
7,542,233 |
|
|
$ |
6,569,694 |
|
Middle East/North Africa/Asia |
|
|
5,131,820 |
|
|
|
4,921,588 |
|
Europe/West Africa/FSU |
|
|
3,799,154 |
|
|
|
3,626,904 |
|
Latin America |
|
|
3,370,814 |
|
|
|
2,728,061 |
|
|
|
|
|
|
|
|
|
|
|
19,844,021 |
|
|
|
17,846,247 |
|
|
|
|
|
|
|
|
|
|
Corporate |
|
|
823,255 |
|
|
|
1,285,407 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
20,667,276 |
|
|
$ |
19,131,654 |
|
|
|
|
|
|
|
|
In early 2011, our operations in Tunisia, Egypt, and Libya and to a lesser extent Yemen and
Bahrain were disrupted by political revolutions and uprisings in these countries. Civil war in
Libya and lesser political disturbances elsewhere in the Middle East and North Africa are ongoing.
We do not expect our operations in Libya to resume in 2011. At September 30, 2011, we had in Libya
inventory, property, plant and equipment with a carrying value of approximately $134 million,
as well as cash, accounts receivable, prepaid expenses and other assets totaling approximately $79
million, including approximately $57 million of accounts receivable that currently are subject to
sanctions recently imposed by western governments. In Libya, we determined the safest course of
action was to evacuate most of our personnel. In cases where we must evacuate personnel, it may be
difficult, if not impossible, for us to safeguard and recover all of our operating assets, and our
ability to do so will depend on the local turn of events. In these areas we also may not be able to
perform the work we are contracted to perform, which could lead to forfeiture of performance bonds.
We currently have outstanding approximately $18 million of performance bonds related to contracts
in Libya. Our personnel in Libya have been able to verify the existence of our significant tangible assets and as a result we are aware of no material losses. However, subject to security and logistical concerns, we expect to complete a full examination of our Libya assets before the end of 2011.
14. Disputes, Litigation and Contingencies
U.S. Government and Internal Investigations
We are currently involved in government and internal investigations involving various areas of
our operations.
Until 2003, we participated in the United Nations oil-for-food program governing sales of
goods and services into Iraq. The U.S. Department of Justice (DOJ) and the SEC have undertaken
investigations of our participation in the oil-for-food program and have subpoenaed certain
documents in connection with these investigations. We have cooperated fully with these
investigations. We have retained legal counsel, reporting to our audit committee, to investigate
this matter. We are in negotiations with the government agencies to resolve these matters, but we
cannot yet anticipate the timing, outcome or possible impact of the ultimate resolution of the
investigations, financial or otherwise.
The U.S. Department of Commerce, Bureau of Industry & Security, Office of Foreign Assets
Control (OFAC), DOJ and SEC have undertaken investigations of allegations of improper sales of
products and services by the Company and its subsidiaries in certain sanctioned countries. We have
cooperated fully with this investigation. We have retained legal counsel, reporting directly to our
audit committee, to investigate these matters. We are in negotiations with the government agencies
to resolve these matters, but we cannot yet anticipate the timing, outcome or possible impact of
the ultimate resolution of the investigation, financial or otherwise.
17
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In light of these investigations, the U.S. and foreign policy environment and the inherent
uncertainties surrounding these countries, we decided in September 2007 to direct our foreign
subsidiaries to discontinue doing business in countries that are subject to comprehensive U.S.
economic and trade sanctions, specifically Cuba, Iran, and Sudan, as well as Syria. Effective
September 2007, we ceased entering into any new contracts in these countries and began an orderly
discontinuation and winding down of our existing business in these sanctioned countries. Effective
March 31, 2008, we substantially completed our winding down of business in these countries. We can
complete the withdrawal process only pursuant to licenses issued by OFAC. Our remaining activities
in Iran, Sudan and Syria include ongoing withdrawal activities such as attempts to collect accounts
receivable, attempts to settle tax liabilities or legal claims and attempts to recover or liquidate
assets, including equipment and funds. Certain of our subsidiaries continue to conduct business in
countries such as Myanmar that are subject to more limited U.S. trading sanctions.
The DOJ and SEC are investigating our compliance with the Foreign Corrupt Practices Act
(FCPA) and other laws worldwide. We have retained legal counsel, reporting to our audit
committee, to investigate these matters and to cooperate fully with the DOJ and SEC. As part of
our investigations, we have uncovered potential violations of U.S. law in connection with
activities in several jurisdictions. We are in negotiations with the government agencies to
resolve these matters, but we cannot yet anticipate the timing, outcome or possible impact of the
ultimate resolution of the investigations, financial or otherwise.
The DOJ, SEC and other agencies and authorities have a broad range of civil and criminal
penalties they may seek to impose against corporations and individuals for violations of trade
sanctions laws, the FCPA and other federal statutes including, but not limited to, injunctive
relief, disgorgement, fines, penalties and modifications to business practices and compliance
programs. In recent years, these agencies and authorities have entered into agreements with, and
obtained a range of penalties against, several corporations and individuals in similar
investigations, under which civil and criminal penalties were imposed, including in some cases
fines and other penalties and sanctions in the tens and hundreds of millions of dollars. These
agencies are seeking to impose penalties against us for past conduct, but the ultimate amount of
any penalties we may pay currently cannot be reasonably estimated. Under trade sanctions laws, the
DOJ may also seek to impose modifications to business practices, including immediate cessation of
all business activities in specific countries or other limitations that decrease our business, and
modifications to compliance programs, which may increase compliance costs. Any injunctive relief,
disgorgement, fines, penalties, sanctions or imposed modifications to business practices resulting
from these investigations could adversely affect our results of operations and the cost of our
investigations have been significant. In addition, our historical activities in sanctioned
countries, such as Sudan and Iran, could result in certain investors, such as government-sponsored
pension funds, divesting or not investing in our shares. Based on available information, we cannot
predict what, if any, actions the DOJ, SEC or other authorities will take in our situation or the
effect any such actions will have on our consolidated financial position or results of operations.
To the extent we violated trade sanctions laws, the FCPA, or other laws or regulations, fines and
other penalties may be imposed. Because these matters are now pending before the indicated
agencies, and we currently cannot reasonably estimate the ultimate amount of any penalties we may
pay, there can be no assurance that actual fines or penalties, if any, will not have a material
adverse effect on our business, financial condition, liquidity or results of operations.
Through September 30, 2011, we have incurred $49 million for costs in connection with our exit
from sanctioned countries and incurred $118 million for legal, professional and related fees in
connection with complying with and conducting these on-going investigations.
In addition, the SEC is investigating the circumstances surrounding the material weakness in
the Companys internal controls over financial reporting for income taxes that was disclosed on
Forms 12b-25 and 8-K on March 1, 2011 and the related restatement of historical financial
statements. We are cooperating with the investigation.
Macondo Litigation
On April 20, 2010, the Deepwater Horizon rig operating under contract with BP at the Macondo
well in the Gulf of Mexico exploded and sank, resulting in 11 deaths, several injuries and
significant damages to property and the environment.
18
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
We provided the following services and products to BP on the Macondo well: (1) connected and
tightened four intermediate casing strings and one tapered production string (long string); (2)
furnished a liner hanger on one casing string; (3) furnished centralizers, most of which were not
used in the well, and (4) provided float equipment on the long string. The float equipment
consisted of a reamer shoe, a float collar and wiper plugs. The float collar is
designed to control backflow or ingress of the cement through the shoe track while the cement
hardens. At the time of the explosion, we had two employees on the Deepwater Horizon; they
sustained minor injuries.
As a result of the explosion, approximately 400 lawsuits were filed, mainly for personal
injuries, wrongful death and pollution damage. We currently are named, along with BP and other
defendants, in several dozen of these lawsuits. The United States Judicial Panel on Multidistrict
Litigation issued an order centralizing most of these cases in the Federal District Court for the
Eastern District of Louisiana. The pollution damage complaints generally refer to the Oil
Pollution Act of 1990 (OPA) and allege, among other things, negligence and gross negligence by us
and other defendants. They allege that we and the other defendants are responsible for property
damage, trespass, nuisance and economic loss as a result of environmental pollution and generally
seek awards of unspecified economic, compensatory, and punitive damages, as well as injunctive
relief. Additional lawsuits may be filed in the future relating to the Macondo incident.
We were not designated as a Responsible Party, as that term is defined by OPA. Therefore,
we were not charged with responsibility for cleaning up the oil released from the Macondo well or
handling any claims. The Responsible Party may make a claim for contribution against any other
party it alleges contributed to the oil spill. Since we have not been named a Responsible Party,
we have sought to be dismissed from any and all OPA-related claims.
In June 2011, we reached an agreement with BP wherein BP agreed to indemnify us for the vast
majority of our potential exposure related to the Macondo incident, including OPA claims. Pursuant
to this agreement, we agreed to pay BP $75 million, an amount covered by our insurance policies.
We might be held liable in one or more of the civil actions brought as a result of the
aforementioned deaths, personal injuries, property and/or environmental damage. The cause of the
Macondo incident remains under investigation and has yet to be determined. We believe our
exposure, to the extent it is not covered by the agreement with BP, is within the limits of our
remaining insurance coverage. We have a self-insured retention of $2 million. Above that amount,
we have aggregate liability insurance coverage with limits of $303 million for the time period
covered by the Macondo incident. With regard to the Macondo incident, $228 million of that
coverage remains extant following the agreement with BP. However, given the complexity of the
litigation surrounding these matters, it is reasonably possible that we could be adjudged to be
liable in an amount in excess of our policy limits.
The litigation surrounding these matters is complex and likely to continue for some time, and
the potential damages claimed are significant. We cannot predict the ultimate outcome of these
claims.
We are cooperating fully with the investigations of the accident initiated by various agencies
of the U.S. government and, to the extent requested, have responded to several subpoenas,
information and document requests and requests for testimony of employees.
Shareholder Litigation
In June and July 2010, shareholders filed suit in Weatherfords name against those directors
in place before June 2010 and certain current and former members of management relating to the U.S.
government and internal investigations disclosed above and in our SEC filings since 2007.
Separately, shareholders have also filed suit relating to the material weakness in the Companys
internal controls over financial reporting for income taxes that was disclosed on Forms 12b-25 and
8-K on March 1, 2011 and the related restatement of historical financial statements. These suits
name the Company as well as current and former members of management as well as our directors. We
will investigate these claims appropriately. We cannot predict the ultimate outcome of these
claims.
19
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Other Disputes
Our former Senior Vice President and General Counsel (the Executive) left the Company in
June 2009. The Executive had employment agreements with us that terminated on his departure.
There is currently a dispute between the Executive and us as to the amount of compensation we are
obligated to pay under these employment agreements based on the Executives separation. This
dispute has not resulted in a lawsuit being filed. It is our belief that an unfavorable outcome
regarding this dispute is not probable, and as such, we have not accrued for $9 million of the
Executives claimed severance and other benefits.
Additionally, we are aware of various disputes and potential claims and are a party in various
litigation involving claims against us, some of which are covered by insurance. For claims,
disputes and pending litigation in which we believe a negative outcome is probable and a loss or
range of loss can be reasonably estimated, we have recorded a liability for the expected loss.
These liabilities are immaterial to our financial condition and results of operations. In addition
we have certain claims, disputes and pending litigation in which we do not believe a negative
outcome is probable. If one or more negative outcomes were to occur, the impact to our financial
condition could be as high as $80 million.
15. New Accounting Pronouncements
In January 2011, we adopted an update to existing guidance on revenue recognition for
arrangements with multiple deliverables. This update requires companies to allocate consideration
for qualified separate deliverables using estimated selling price for both delivered and
undelivered items when vendor-specific objective evidence or third-party evidence is unavailable.
It also requires additional disclosures on the nature of multiple element arrangements, the types
of deliverables under the arrangements, the general timing of their delivery and significant
factors and estimates used to determine estimated selling prices. The adoption of this update did
not have a material impact on our condensed consolidated financial statements or existing revenue
recognition policies.
In April 2011, the Financial Accounting Standards Board (FASB) issued new guidance to
achieve common fair value measurement and disclosure requirements between U.S. generally accepted
accounting principles and International Financial Reporting Standards. This new guidance amends
current fair value measurement and disclosure guidance to include increased transparency around
valuation inputs and investment categorization. This new guidance is effective for fiscal years and
interim periods beginning after December 15, 2011. We do not believe our adoption of the new
guidance will have an impact on our consolidated financial position, results of operations or cash
flows.
In June 2011, the FASB issued new guidance on the presentation of comprehensive income. The
new guidance allows an entity to present components of net income and other comprehensive income in
one continuous statement, referred to as the statement of comprehensive income, or in two separate,
but consecutive statements. The new guidance eliminates the current option to report other
comprehensive income and its components in the statement of changes of shareholders equity. While
the new guidance changes the presentation of comprehensive income, there are no changes to the
components that are recognized in net income or other comprehensive income under current accounting
guidance. This new guidance is effective for fiscal years and interim periods beginning after
December 15, 2011.
In September 2011, the FASB issued an accounting update that gives companies the option to
make a qualitative evaluation about the likelihood of goodwill impairment. Companies will be
required to perform the two-step impairment test only if it concludes that the fair value of a
reporting unit is more likely than not less than its carrying value. The accounting update is
effective for annual and interim goodwill impairment tests performed for fiscal years beginning
after December 15, 2011, with early adoption permitted. We do not intend to early adopt this
guidance and do not believe our adoption of the new guidance will have a material impact on our
consolidated financial position, results of operations or cash flows.
In September 2011, the FASB issued an accounting update that requires additional qualitative
and quantitative disclosures by employers that participate in multi-employer pension plans. The
amendments are effective for annual
20
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
periods for the fiscal years ending after December 15, 2011.
We do not believe our adoption of the new guidance will have a material impact on our consolidated
financial position, results of operations or cash flows.
16. Condensed Consolidating Financial Statements
A Swiss corporation named Weatherford International Ltd. (Weatherford Switzerland) is the
ultimate parent of the Weatherford group. Weatherford Switzerland guarantees the obligations of
Weatherford International Ltd. incorporated in Bermuda (Weatherford Bermuda) and Weatherford
International, Inc. incorporated in Delaware (Weatherford Delaware) noted below.
The following obligations of Weatherford Delaware were guaranteed by Weatherford Bermuda at
September 30, 2011 and December 31, 2010: (i) the 6.625% Senior Notes, (ii) the 5.95% Senior Notes,
(iii) the 6.35% Senior Notes and (iv) the 6.80% Senior Notes.
The following obligations of Weatherford Bermuda were guaranteed by Weatherford Delaware at
September 30, 2011 and December 31, 2010: (i) the revolving credit facility, (ii) the 4.95% Senior
Notes, (iii) the 5.50% Senior Notes, (iv) the 6.50% Senior Notes, (v) the 5.15% Senior Notes, (vi)
the 6.00% Senior Notes, (vii) the 7.00% Senior Notes, (viii) the 9.625% Senior Notes, (ix) the
9.875% Senior Notes, (x) the 5.125% Senior Notes and (xi) the 6.75% Senior Notes.
As a result of the guarantee arrangements, we are required to present the following condensed
consolidating financial information. The accompanying guarantor financial information is presented
on the equity method of accounting for all periods presented. Under this method, investments in
subsidiaries are recorded at cost and adjusted for our share in the subsidiaries cumulative
results of operations, capital contributions and distributions and other changes in equity.
Elimination entries relate primarily to the elimination of investments in subsidiaries and
associated intercompany balances and transactions.
21
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Condensed Consolidating Balance Sheet
September 30, 2011
(unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weatherford |
|
|
Weatherford |
|
|
Weatherford |
|
|
Other |
|
|
|
|
|
|
|
|
|
Switzerland |
|
|
Bermuda |
|
|
Delaware |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidation |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents |
|
$ |
217 |
|
|
$ |
167 |
|
|
$ |
139 |
|
|
$ |
273,039 |
|
|
$ |
|
|
|
$ |
273,562 |
|
Other Current Assets |
|
|
2,817 |
|
|
|
73,102 |
|
|
|
111,322 |
|
|
|
7,133,745 |
|
|
|
|
|
|
|
7,320,986 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets |
|
|
3,034 |
|
|
|
73,269 |
|
|
|
111,461 |
|
|
|
7,406,784 |
|
|
|
|
|
|
|
7,594,548 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Investments in Affiliates |
|
|
9,659,950 |
|
|
|
16,229,434 |
|
|
|
6,723,519 |
|
|
|
10,399,429 |
|
|
|
(43,012,332 |
) |
|
|
|
|
Shares Held in Weatherford
Switzerland |
|
|
|
|
|
|
|
|
|
|
84,107 |
|
|
|
401,139 |
|
|
|
(485,246 |
) |
|
|
|
|
Intercompany Receivables, Net |
|
|
|
|
|
|
1,396,542 |
|
|
|
399,026 |
|
|
|
|
|
|
|
(1,795,568 |
) |
|
|
|
|
Other Assets |
|
|
21,063 |
|
|
|
38,055 |
|
|
|
167,534 |
|
|
|
12,846,076 |
|
|
|
|
|
|
|
13,072,728 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
9,684,047 |
|
|
$ |
17,737,300 |
|
|
$ |
7,485,647 |
|
|
$ |
31,053,428 |
|
|
$ |
(45,293,146 |
) |
|
$ |
20,667,276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS
EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term Borrowings and
Current Portion of Long-term
Debt |
|
$ |
|
|
|
$ |
851,123 |
|
|
$ |
476,112 |
|
|
$ |
22,389 |
|
|
$ |
|
|
|
$ |
1,349,624 |
|
Accounts Payable and Other
Current Liabilities |
|
|
12,602 |
|
|
|
59,411 |
|
|
|
128,895 |
|
|
|
2,487,623 |
|
|
|
|
|
|
|
2,688,531 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities |
|
|
12,602 |
|
|
|
910,534 |
|
|
|
605,007 |
|
|
|
2,510,012 |
|
|
|
|
|
|
|
4,038,155 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term Debt |
|
|
|
|
|
|
5,165,036 |
|
|
|
1,050,437 |
|
|
|
50,717 |
|
|
|
|
|
|
|
6,266,190 |
|
Intercompany Payables, Net |
|
|
310,051 |
|
|
|
|
|
|
|
|
|
|
|
1,485,517 |
|
|
|
(1,795,568 |
) |
|
|
|
|
Other Long-term Liabilities |
|
|
|
|
|
|
79,965 |
|
|
|
8,365 |
|
|
|
378,028 |
|
|
|
|
|
|
|
466,358 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
322,653 |
|
|
|
6,155,535 |
|
|
|
1,663,809 |
|
|
|
4,424,274 |
|
|
|
(1,795,568 |
) |
|
|
10,770,703 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weatherford Shareholders Equity |
|
|
9,361,394 |
|
|
|
11,581,765 |
|
|
|
5,821,838 |
|
|
|
26,604,902 |
|
|
|
(43,497,578 |
) |
|
|
9,872,321 |
|
Noncontrolling Interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,252 |
|
|
|
|
|
|
|
24,252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and
Shareholders Equity |
|
$ |
9,684,047 |
|
|
$ |
17,737,300 |
|
|
$ |
7,485,647 |
|
|
$ |
31,053,428 |
|
|
$ |
(45,293,146 |
) |
|
$ |
20,667,276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Condensed Consolidating Balance Sheet
December 31, 2010
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weatherford |
|
|
Weatherford |
|
|
Weatherford |
|
|
Other |
|
|
|
|
|
|
|
|
|
Switzerland |
|
|
Bermuda |
|
|
Delaware |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidation |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents |
|
$ |
124 |
|
|
$ |
113,443 |
|
|
$ |
11,433 |
|
|
$ |
290,772 |
|
|
$ |
|
|
|
$ |
415,772 |
|
Other Current Assets |
|
|
10,018 |
|
|
|
9,107 |
|
|
|
85,342 |
|
|
|
5,971,828 |
|
|
|
|
|
|
|
6,076,295 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets |
|
|
10,142 |
|
|
|
122,550 |
|
|
|
96,775 |
|
|
|
6,262,600 |
|
|
|
|
|
|
|
6,492,067 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Investments in Affiliates |
|
|
9,143,623 |
|
|
|
15,901,543 |
|
|
|
5,656,040 |
|
|
|
11,941,645 |
|
|
|
(42,642,851 |
) |
|
|
|
|
Shares Held in Weatherford
Switzerland |
|
|
|
|
|
|
|
|
|
|
94,105 |
|
|
|
468,801 |
|
|
|
(562,906 |
) |
|
|
|
|
Intercompany Receivables, Net |
|
|
|
|
|
|
2,233,910 |
|
|
|
420,066 |
|
|
|
|
|
|
|
(2,653,976 |
) |
|
|
|
|
Other Assets |
|
|
8,124 |
|
|
|
39,318 |
|
|
|
294,821 |
|
|
|
12,297,324 |
|
|
|
|
|
|
|
12,639,587 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
9,161,889 |
|
|
$ |
18,297,321 |
|
|
$ |
6,561,807 |
|
|
$ |
30,970,370 |
|
|
$ |
(45,859,733 |
) |
|
$ |
19,131,654 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS
EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term Borrowings and
Current Portion of
Long-Term
Debt |
|
$ |
|
|
|
$ |
7,887 |
|
|
$ |
201,676 |
|
|
$ |
25,829 |
|
|
$ |
|
|
|
$ |
235,392 |
|
Accounts Payable and Other
Current Liabilities |
|
|
21,657 |
|
|
|
133,850 |
|
|
|
114,023 |
|
|
|
2,078,057 |
|
|
|
|
|
|
|
2,347,587 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities |
|
|
21,657 |
|
|
|
141,737 |
|
|
|
315,699 |
|
|
|
2,103,886 |
|
|
|
|
|
|
|
2,582,979 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term Debt |
|
|
|
|
|
|
5,170,323 |
|
|
|
1,324,743 |
|
|
|
34,932 |
|
|
|
|
|
|
|
6,529,998 |
|
Intercompany Payables, Net |
|
|
226,167 |
|
|
|
|
|
|
|
|
|
|
|
2,427,809 |
|
|
|
(2,653,976 |
) |
|
|
|
|
Other Long-term Liabilities |
|
|
5,924 |
|
|
|
77,049 |
|
|
|
2,115 |
|
|
|
468,742 |
|
|
|
|
|
|
|
553,830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
253,748 |
|
|
|
5,389,109 |
|
|
|
1,642,557 |
|
|
|
5,035,369 |
|
|
|
(2,653,976 |
) |
|
|
9,666,807 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weatherford Shareholders Equity |
|
|
8,908,141 |
|
|
|
12,908,212 |
|
|
|
4,919,250 |
|
|
|
25,871,085 |
|
|
|
(43,205,757 |
) |
|
|
9,400,931 |
|
Noncontrolling Interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63,916 |
|
|
|
|
|
|
|
63,916 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and
Shareholders Equity |
|
$ |
9,161,889 |
|
|
$ |
18,297,321 |
|
|
$ |
6,561,807 |
|
|
$ |
30,970,370 |
|
|
$ |
(45,859,733 |
) |
|
$ |
19,131,654 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Condensed Consolidating Statements of Income
Three Months Ended September 30, 2011
(unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weatherford |
|
|
Weatherford |
|
|
Weatherford |
|
|
Other |
|
|
|
|
|
|
|
|
|
Switzerland |
|
|
Bermuda |
|
|
Delaware |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidation |
|
Revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3,372,650 |
|
|
$ |
|
|
|
$ |
3,372,650 |
|
Costs and Expenses |
|
|
(7,869 |
) |
|
|
(748 |
) |
|
|
(986 |
) |
|
|
(2,947,341 |
) |
|
|
|
|
|
|
(2,956,944 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss) |
|
|
(7,869 |
) |
|
|
(748 |
) |
|
|
(986 |
) |
|
|
425,309 |
|
|
|
|
|
|
|
415,706 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Income (Expense), Net |
|
|
|
|
|
|
(89,316 |
) |
|
|
(22,485 |
) |
|
|
(2,647 |
) |
|
|
|
|
|
|
(114,448 |
) |
Intercompany Charges, Net |
|
|
(9,605 |
) |
|
|
410,631 |
|
|
|
(42,292 |
) |
|
|
(358,734 |
) |
|
|
|
|
|
|
|
|
Equity in Subsidiary Income (Loss) |
|
|
207,935 |
|
|
|
(194,936 |
) |
|
|
431,014 |
|
|
|
|
|
|
|
(444,013 |
) |
|
|
|
|
Other, Net |
|
|
(101 |
) |
|
|
68,516 |
|
|
|
(517 |
) |
|
|
(94,159 |
) |
|
|
|
|
|
|
(26,261 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income
Taxes |
|
|
190,360 |
|
|
|
194,147 |
|
|
|
364,734 |
|
|
|
(30,231 |
) |
|
|
(444,013 |
) |
|
|
274,997 |
|
(Provision) Benefit for Income Taxes |
|
|
|
|
|
|
56 |
|
|
|
60,072 |
|
|
|
(141,984 |
) |
|
|
|
|
|
|
(81,856 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
|
|
190,360 |
|
|
|
194,203 |
|
|
|
424,806 |
|
|
|
(172,215 |
) |
|
|
(444,013 |
) |
|
|
193,141 |
|
Noncontrolling Interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,781 |
) |
|
|
|
|
|
|
(2,781 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Attributable to
Weatherford |
|
$ |
190,360 |
|
|
$ |
194,203 |
|
|
$ |
424,806 |
|
|
$ |
(174,996 |
) |
|
$ |
(444,013 |
) |
|
$ |
190,360 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statements of Income
Three Months Ended September 30, 2010
(unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weatherford |
|
|
Weatherford |
|
|
Weatherford |
|
|
Other |
|
|
|
|
|
|
|
|
|
Switzerland |
|
|
Bermuda |
|
|
Delaware |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidation |
|
Revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2,529,752 |
|
|
$ |
|
|
|
$ |
2,529,752 |
|
Costs and Expenses |
|
|
52,507 |
|
|
|
(724 |
) |
|
|
(716 |
) |
|
|
(2,305,395 |
) |
|
|
|
|
|
|
(2,254,328 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss) |
|
|
52,507 |
|
|
|
(724 |
) |
|
|
(716 |
) |
|
|
224,357 |
|
|
|
|
|
|
|
275,424 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Income (Expense), Net |
|
|
(35 |
) |
|
|
(68,428 |
) |
|
|
(30,431 |
) |
|
|
(424 |
) |
|
|
|
|
|
|
(99,318 |
) |
Bond Tender Premium |
|
|
|
|
|
|
|
|
|
|
(10,731 |
) |
|
|
|
|
|
|
|
|
|
|
(10,731 |
) |
Devaluation of Venezuelan
Bolivar |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany Charges, Net |
|
|
(10,604 |
) |
|
|
542 |
|
|
|
(44,386 |
) |
|
|
54,448 |
|
|
|
|
|
|
|
|
|
Equity in Subsidiary Income
(Loss) |
|
|
52,759 |
|
|
|
71,414 |
|
|
|
366,072 |
|
|
|
|
|
|
|
(490,245 |
) |
|
|
|
|
Other, Net |
|
|
26 |
|
|
|
27,940 |
|
|
|
(236 |
) |
|
|
(40,007 |
) |
|
|
|
|
|
|
(12,277 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Before Income
Taxes |
|
|
94,653 |
|
|
|
30,744 |
|
|
|
279,572 |
|
|
|
238,374 |
|
|
|
(490,245 |
) |
|
|
153,098 |
|
Provision for Income Taxes |
|
|
|
|
|
|
(4 |
) |
|
|
37,863 |
|
|
|
(92,018 |
) |
|
|
|
|
|
|
(54,159 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
|
|
94,653 |
|
|
|
30,740 |
|
|
|
317,435 |
|
|
|
146,356 |
|
|
|
(490,245 |
) |
|
|
98,939 |
|
Noncontrolling Interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,286 |
) |
|
|
|
|
|
|
(4,286 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Attributable to
Weatherford |
|
$ |
94,653 |
|
|
$ |
30,740 |
|
|
$ |
317,435 |
|
|
$ |
142,070 |
|
|
$ |
(490,245 |
) |
|
$ |
94,653 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Condensed Consolidating Statements of Income
Nine Months Ended September 30, 2011
(unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weatherford |
|
|
Weatherford |
|
|
Weatherford |
|
|
Other |
|
|
|
|
|
|
|
|
|
Switzerland |
|
|
Bermuda |
|
|
Delaware |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidation |
|
Revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
9,280,650 |
|
|
$ |
|
|
|
$ |
9,280,650 |
|
Costs and Expenses |
|
|
(38,948 |
) |
|
|
(2,254 |
) |
|
|
(2,845 |
) |
|
|
(8,311,794 |
) |
|
|
|
|
|
|
(8,355,841 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss) |
|
|
(38,948 |
) |
|
|
(2,254 |
) |
|
|
(2,845 |
) |
|
|
968,856 |
|
|
|
|
|
|
|
924,809 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Income (Expense), Net |
|
|
|
|
|
|
(263,711 |
) |
|
|
(69,734 |
) |
|
|
(7,193 |
) |
|
|
|
|
|
|
(340,638 |
) |
Intercompany Charges, Net |
|
|
(38,221 |
) |
|
|
410,512 |
|
|
|
(45,562 |
) |
|
|
(326,729 |
) |
|
|
|
|
|
|
|
|
Equity in Subsidiary Income (Loss) |
|
|
437,142 |
|
|
|
303,271 |
|
|
|
1,005,530 |
|
|
|
|
|
|
|
(1,745,943 |
) |
|
|
|
|
Other, Net |
|
|
(314 |
) |
|
|
(10,203 |
) |
|
|
(889 |
) |
|
|
(55,788 |
) |
|
|
|
|
|
|
(67,194 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income
Taxes |
|
|
359,659 |
|
|
|
437,615 |
|
|
|
886,500 |
|
|
|
579,146 |
|
|
|
(1,745,943 |
) |
|
|
516,977 |
|
Provision for Income Taxes |
|
|
|
|
|
|
56 |
|
|
|
41,545 |
|
|
|
(188,862 |
) |
|
|
|
|
|
|
(147,261 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
|
|
359,659 |
|
|
|
437,671 |
|
|
|
928,045 |
|
|
|
390,284 |
|
|
|
(1,745,943 |
) |
|
|
369,716 |
|
Noncontrolling Interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,057 |
) |
|
|
|
|
|
|
(10,057 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Attributable to
Weatherford |
|
$ |
359,659 |
|
|
$ |
437,671 |
|
|
$ |
928,045 |
|
|
$ |
380,227 |
|
|
$ |
(1,745,943 |
) |
|
$ |
359,659 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statements of Income
Nine Months Ended September 30, 2010
(unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weatherford |
|
|
Weatherford |
|
|
Weatherford |
|
|
Other |
|
|
|
|
|
|
|
|
|
Switzerland |
|
|
Bermuda |
|
|
Delaware |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidation |
|
Revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
7,297,982 |
|
|
$ |
|
|
|
$ |
7,297,982 |
|
Costs and Expenses |
|
|
(42,384 |
) |
|
|
(43,352 |
) |
|
|
(1,967 |
) |
|
|
(6,722,205 |
) |
|
|
|
|
|
|
(6,809,908 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss) |
|
|
(42,384 |
) |
|
|
(43,352 |
) |
|
|
(1,967 |
) |
|
|
575,777 |
|
|
|
|
|
|
|
488,074 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Income (Expense), Net |
|
|
(982 |
) |
|
|
(198,470 |
) |
|
|
(88,456 |
) |
|
|
(2,468 |
) |
|
|
|
|
|
|
(290,376 |
) |
Bond Tender Premium |
|
|
|
|
|
|
|
|
|
|
(10,731 |
) |
|
|
|
|
|
|
|
|
|
|
(10,731 |
) |
Devaluation of Venezuelan Bolivar |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(63,859 |
) |
|
|
|
|
|
|
(63,859 |
) |
Intercompany Charges, Net |
|
|
(21,972 |
) |
|
|
2,289 |
|
|
|
(130,257 |
) |
|
|
149,940 |
|
|
|
|
|
|
|
|
|
Equity in Subsidiary Income (Loss) |
|
|
43,774 |
|
|
|
65,775 |
|
|
|
721,199 |
|
|
|
|
|
|
|
(830,748 |
) |
|
|
|
|
Other, Net |
|
|
(30 |
) |
|
|
185,191 |
|
|
|
(646 |
) |
|
|
(220,196 |
) |
|
|
|
|
|
|
(35,681 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes |
|
|
(21,594 |
) |
|
|
11,433 |
|
|
|
489,142 |
|
|
|
439,194 |
|
|
|
(830,748 |
) |
|
|
87,427 |
|
Provision for Income Taxes |
|
|
|
|
|
|
(4 |
) |
|
|
72,683 |
|
|
|
(170,063 |
) |
|
|
|
|
|
|
(97,384 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
|
|
(21,594 |
) |
|
|
11,429 |
|
|
|
561,825 |
|
|
|
269,131 |
|
|
|
(830,748 |
) |
|
|
(9,957 |
) |
Noncontrolling Interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,637 |
) |
|
|
|
|
|
|
(11,637 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Attributable to
Weatherford |
|
$ |
(21,594 |
) |
|
$ |
11,429 |
|
|
$ |
561,825 |
|
|
$ |
257,494 |
|
|
$ |
(830,748 |
) |
|
$ |
(21,594 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Condensed Consolidating Statement of Cash Flows
Nine Months Ended September 30, 2011
(unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weatherford |
|
|
Weatherford |
|
|
Weatherford |
|
|
Other |
|
|
|
|
|
|
|
|
|
Switzerland |
|
|
Bermuda |
|
|
Delaware |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidation |
|
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
|
$ |
359,659 |
|
|
$ |
437,671 |
|
|
$ |
928,045 |
|
|
$ |
390,284 |
|
|
$ |
(1,745,943 |
) |
|
$ |
369,716 |
|
Adjustments to Reconcile Net Income
(Loss) to Net Cash Provided (Used) by
Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charges from Weatherford Switzerland
or Subsidiary |
|
|
38,221 |
|
|
|
(410,512 |
) |
|
|
45,562 |
|
|
|
326,729 |
|
|
|
|
|
|
|
|
|
Equity in (Earnings) Loss of Affiliates |
|
|
(437,142 |
) |
|
|
(303,271 |
) |
|
|
(1,005,530 |
) |
|
|
|
|
|
|
1,745,943 |
|
|
|
|
|
Deferred Income Tax Benefit |
|
|
|
|
|
|
|
|
|
|
(41,598 |
) |
|
|
(37,748 |
) |
|
|
|
|
|
|
(79,346 |
) |
Other Adjustments |
|
|
3,744 |
|
|
|
768,958 |
|
|
|
(3,266 |
) |
|
|
(821,567 |
) |
|
|
|
|
|
|
(52,131 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided (Used) by
Operating Activities |
|
|
(35,518 |
) |
|
|
492,846 |
|
|
|
(76,787 |
) |
|
|
(142,302 |
) |
|
|
|
|
|
|
238,239 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures for Property,
Plant and Equipment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,120,325 |
) |
|
|
|
|
|
|
(1,120,325 |
) |
Acquisitions of Businesses,
Net of Cash Acquired |
|
|
(4,421 |
) |
|
|
|
|
|
|
|
|
|
|
(78,849 |
) |
|
|
|
|
|
|
(83,270 |
) |
Acquisition of Intellectual Property |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,605 |
) |
|
|
|
|
|
|
(7,605 |
) |
Acquisition of Equity Investments in
Unconsolidated Affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,273 |
) |
|
|
|
|
|
|
(7,273 |
) |
Proceeds from Sale of Assets and
Businesses, Net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,659 |
|
|
|
|
|
|
|
24,659 |
|
Capital Contribution to Subsidiary |
|
|
(4,400 |
) |
|
|
(24,620 |
) |
|
|
|
|
|
|
|
|
|
|
29,020 |
|
|
|
|
|
Other Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,242 |
) |
|
|
|
|
|
|
(15,242 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided (Used) by
Investing Activities |
|
|
(8,821 |
) |
|
|
(24,620 |
) |
|
|
|
|
|
|
(1,204,635 |
) |
|
|
29,020 |
|
|
|
(1,209,056 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings (Repayments) Short-term
Debt, Net |
|
|
|
|
|
|
843 |
|
|
|
1 |
|
|
|
835,373 |
|
|
|
|
|
|
|
836,217 |
|
Borrowings (Repayments) Long-term
Debt, Net |
|
|
|
|
|
|
|
|
|
|
(13 |
) |
|
|
(4,885 |
) |
|
|
|
|
|
|
(4,898 |
) |
Borrowings (Repayments) Between
Subsidiaries, Net |
|
|
44,432 |
|
|
|
(582,345 |
) |
|
|
67,934 |
|
|
|
469,979 |
|
|
|
|
|
|
|
|
|
Proceeds from Capital Contribution |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,020 |
|
|
|
(29,020 |
) |
|
|
|
|
Other, Net |
|
|
|
|
|
|
|
|
|
|
(2,429 |
) |
|
|
|
|
|
|
|
|
|
|
(2,429 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided (Used) by Financing
Activities |
|
|
44,432 |
|
|
|
(581,502 |
) |
|
|
65,493 |
|
|
|
1,329,487 |
|
|
|
(29,020 |
) |
|
|
828,890 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Exchange Rate Changes on Cash
and Cash Equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(283 |
) |
|
|
|
|
|
|
(283 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Cash and Cash
Equivalents |
|
|
93 |
|
|
|
(113,276 |
) |
|
|
(11,294 |
) |
|
|
(17,733 |
) |
|
|
|
|
|
|
(142,210 |
) |
Cash and Cash Equivalents at Beginning of Year |
|
|
124 |
|
|
|
113,443 |
|
|
|
11,433 |
|
|
|
290,772 |
|
|
|
|
|
|
|
415,772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of Year |
|
$ |
217 |
|
|
$ |
167 |
|
|
$ |
139 |
|
|
$ |
273,039 |
|
|
$ |
|
|
|
$ |
273,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Condensed Consolidating Statement of Cash Flows
Nine Months Ended September 30, 2010
(unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weatherford |
|
|
Weatherford |
|
|
Weatherford |
|
|
Other |
|
|
|
|
|
|
|
|
|
Switzerland |
|
|
Bermuda |
|
|
Delaware |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidation |
|
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
|
$ |
(21,594 |
) |
|
$ |
11,429 |
|
|
$ |
561,825 |
|
|
$ |
269,131 |
|
|
$ |
(830,748 |
) |
|
$ |
(9,957 |
) |
Adjustments to Reconcile Net Income
(Loss) to Net Cash Provided (Used) by
Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charges from Weatherford Switzerland
or Subsidiary |
|
|
21,972 |
|
|
|
(2,289 |
) |
|
|
130,257 |
|
|
|
(149,940 |
) |
|
|
|
|
|
|
|
|
Equity in (Earnings) Loss of Affiliates. |
|
|
(43,774 |
) |
|
|
(65,775 |
) |
|
|
(721,199 |
) |
|
|
|
|
|
|
830,748 |
|
|
|
|
|
Deferred Income Tax Benefit |
|
|
|
|
|
|
|
|
|
|
(72,687 |
) |
|
|
(29,415 |
) |
|
|
|
|
|
|
(102,102 |
) |
Other Adjustments |
|
|
26,713 |
|
|
|
(145,518 |
) |
|
|
(5,158 |
) |
|
|
971,873 |
|
|
|
|
|
|
|
847,910 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided (Used) by
Operating Activities |
|
|
(16,683 |
) |
|
|
(202,153 |
) |
|
|
(106,962 |
) |
|
|
1,061,649 |
|
|
|
|
|
|
|
735,851 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions of Businesses,
Net of Cash Acquired |
|
|
(44,489 |
) |
|
|
|
|
|
|
|
|
|
|
(13,928 |
) |
|
|
|
|
|
|
(58,417 |
) |
Capital Expenditures for Property,
Plant and Equipment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(717,556 |
) |
|
|
|
|
|
|
(717,556 |
) |
Acquisition of Intellectual Property |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,784 |
) |
|
|
|
|
|
|
(20,784 |
) |
Purchase of Equity Investment in
Unconsolidated Affiliate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,750 |
) |
|
|
|
|
|
|
(1,750 |
) |
Proceeds from Sale of Assets and
Businesses, Net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
191,115 |
|
|
|
|
|
|
|
191,115 |
|
Capital Contribution to Subsidiary |
|
|
|
|
|
|
(873 |
) |
|
|
(25 |
) |
|
|
|
|
|
|
898 |
|
|
|
|
|
Other Investing Activities |
|
|
|
|
|
|
41,840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided (Used) by
Investing Activities |
|
|
(44,489 |
) |
|
|
40,967 |
|
|
|
(25 |
) |
|
|
(562,903 |
) |
|
|
898 |
|
|
|
(565,552 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings (Repayments) Short-term
Debt, Net |
|
|
|
|
|
|
(343,073 |
) |
|
|
(735 |
) |
|
|
(497,250 |
) |
|
|
|
|
|
|
(841,058 |
) |
Borrowings (Repayments) Long-term Debt,
Net Debt, Net |
|
|
|
|
|
|
1,386,010 |
|
|
|
(169,945 |
) |
|
|
180,488 |
|
|
|
|
|
|
|
1,396,553 |
|
Borrowings (Repayments) Between
Subsidiaries, Net |
|
|
66,036 |
|
|
|
(538,745 |
) |
|
|
566,326 |
|
|
|
(93,617 |
) |
|
|
|
|
|
|
|
|
Proceeds from Capital Contribution |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
898 |
|
|
|
(898 |
) |
|
|
|
|
Other, Net |
|
|
|
|
|
|
|
|
|
|
(7,403 |
) |
|
|
|
|
|
|
|
|
|
|
(7,403 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided (Used) by Financing
Activities |
|
|
66,036 |
|
|
|
504,192 |
|
|
|
388,243 |
|
|
|
(409,481 |
) |
|
|
(898 |
) |
|
|
548,092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Exchange Rate on Cash and Cash
Equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,528 |
) |
|
|
|
|
|
|
(19,528 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Cash and Cash
Equivalents |
|
|
4,864 |
|
|
|
343,006 |
|
|
|
281,256 |
|
|
|
69,737 |
|
|
|
|
|
|
|
698,863 |
|
Cash and Cash Equivalents at Beginning of Year |
|
|
102 |
|
|
|
47 |
|
|
|
421 |
|
|
|
251,949 |
|
|
|
|
|
|
|
252,519 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of Year |
|
$ |
4,966 |
|
|
$ |
343,053 |
|
|
$ |
281,677 |
|
|
$ |
321,686 |
|
|
$ |
|
|
|
$ |
951,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
|
|
|
ITEM 2. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS |
Our Managements Discussion and Analysis of Financial Condition and Results of Operations
(MD&A) begins with an executive level overview, which provides a general description of our
company today, a synopsis of industry market trends, insight into managements perspective of the
opportunities and challenges we face and our outlook for the remainder of 2011 and into 2012. Next, we analyze
the results of our operations for the three and nine months ended September 30, 2011 and 2010, and
the trends in our overall business. Then we review our liquidity and capital resources. We
conclude with a discussion of our critical accounting policies and estimates and a summary of
recently issued accounting pronouncements. When using phrases such as Company, we, us and
our the intent is to refer to Weatherford International Ltd.
Overview
General
The following discussion should be read in conjunction with our financial statements included
with this report and our financial statements and related MD&A for the year ended December 31, 2010
included in our Annual Report on Form 10-K, as amended. Our discussion and analysis includes
various forward-looking statements about our markets, the demand for our products and services and
our future results. These statements are based on certain assumptions we consider reasonable. For
information about these assumptions, you should refer to the section entitled Forward-Looking
Statements.
Our principal business is to provide equipment and services to the oil and natural gas
exploration and production industry both on land and offshore, including our ten product and
service lines, as described in our Form 10-K. We may sell our products and services separately or
may bundle them together to provide integrated solutions, up to and including integrated well
construction where we are responsible for the entire process of drilling, constructing and
completing a well. Our customers include both exploration and production companies and other
oilfield service companies. Depending on the service line, customer and location, our contracts
vary in their terms, provisions and indemnities. We earn revenues under our contracts when
products and services are delivered. Typically, we provide products and services at a well site
where our personnel and equipment may be located together with personnel and equipment of our
customer and third parties, such as other service providers.
Industry Trends
Changes in the current price and expected future prices of oil and natural gas influence the
level of energy industry spending. Changes in expenditures result in an increased or decreased
demand for our products and services. Rig count is an indicator of the level of spending for the
exploration for and production of oil and natural gas reserves.
The following chart sets forth certain statistics that reflect historical market conditions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American Rig |
|
|
International Rig |
|
|
|
WTI Oil (1) |
|
|
Henry Hub Gas (2) |
|
|
Count (3) |
|
|
Count (3) |
|
September 30, 2011 |
|
$ |
87.27 |
|
|
$ |
3.86 |
|
|
|
2,488 |
|
|
|
1,174 |
|
December 31, 2010 |
|
|
91.38 |
|
|
|
4.41 |
|
|
|
2,108 |
|
|
|
1,118 |
|
September 30, 2010 |
|
|
79.97 |
|
|
|
3.87 |
|
|
|
1,995 |
|
|
|
1,120 |
|
|
|
|
(1) |
|
Price per barrel as of September 30 and December 31 Source: Thomson Reuters |
|
(2) |
|
Price per MM/BTU as of September 30 and December 31 Source: Thomson Reuters |
|
(3) |
|
Average rig count for the applicable month Source: Baker Hughes Rig Count |
Oil prices fluctuated during the first nine months of 2011, ranging from a high of $113.93 per
barrel at the end of April to a low of $79.30 per barrel at mid-August and September. Natural gas
prices experienced price fluctuations during the first nine months of 2011 and ranged from a high
of $4.87 MM/BTU in early June to a low of $3.78 MM/BTU at the beginning of March. Factors
influencing oil and natural gas prices during the period include hydrocarbon inventory levels,
realized and expected global economic growth, realized and expected levels of
28
hydrocarbon demand, levels of spare production capacity within the Organization of Petroleum
Exporting Countries (OPEC), weather and geopolitical uncertainty.
Outlook
We believe the long-term outlook for our businesses is favorable. As production decline rates
accelerate and reservoir productivity complexities increase, our clients will face growing
challenges securing desired rates of production growth. These challenges increase our customers
requirements for technologies that improve productivity and efficiency and increase demand for our
products and services. These phenomena provide us with a positive outlook over the longer term.
We anticipate our fourth quarter of 2011 revenues will increase approximately 20% from the
fourth quarter of 2010, with year-on-year growth stronger in North America than in the
international markets.
We expect North American revenues to continue to improve in the fourth quarter of 2011,
primarily driven by continued strengthening in oil shale activity in the U.S. and an increase in
Canadian activity, partially offset by declines in natural gas activity in the U.S. We anticipate
gradually higher margins in North America for the fourth quarter provided there are no
weather-related disruptions and the industry works through the holidays.
For our international segments we expect low double-digit revenue growth for the full
year of 2011. We expect that Latin America growth will be primarily driven by Colombia, Brazil,
Argentina and Venezuela. Mexico should be flat to slightly up year-on-year. We anticipate the
fourth quarter of 2011 will be stronger than the fourth quarter of 2010. In the Eastern
Hemisphere, Middle East/North Africa/Asia is relatively flat in 2011, as improvements in our
Asia-Pacific operation and progression in Iraq, Kuwait and Saudi Arabia are offset by political
disruption in the region. We do not expect the return of our business in Libya this year.
Finally, we expect our operations in Sub-Saharan Africa to show growth in the fourth quarter, while
North Sea and Russia are susceptible to seasonal pull back due to winter weather in the fourth
quarter of 2011. Overall, we anticipate international margins from operations to improve in the
fourth quarter of 2011.
The level of improvement in our businesses in 2011 and into 2012 will continue to depend
heavily on pricing volume increases, our control of costs and our ability to further penetrate
existing markets with our younger technologies as well as to successfully introduce these
technologies to new markets.
For 2012, we maintain a positive, if more measured, outlook with respect to increases in North
American revenue and profitability above and beyond levels we expect to achieve during the fourth
quarter of 2011. Assuming a flat rig count, we expect revenue to increase modestly compared to
2011 exit rates and continued margin expansion. We believe
the predominance of oil activity in Canada and the strength of oil-based activity in the United
States will more than offset likely declines in natural gas related activity in the North American
market. As a result, our artificial lift, production optimization, formation evaluation, open hole
completion and wireline product lines should show meaningful growth compared to 2011. However, in
our stimulation and chemicals product lines, we anticipate some weakness and a correction due to
low barriers to entry and rapid expansion of capacity, a migration from natural gas activity to oil
activity and improvements in stimulation efficiency.
Similar to 2011, Latin America should continue to grow revenue and profitability in 2012 with
activity improvements expected in Argentina, Brazil, Colombia, Mexico and Venezuela. In the
Eastern Hemisphere, we expect 2012 to be a better year than 2011 with growth in Europe and Russia
and stronger activity levels in Algeria, Iraq, Kuwait and Saudi Arabia, as well as Australia and
China. In addition, our ability to grow our business aggressively will rely on our demonstration
of a high level of operational efficacy for our clients including the efficiency of mobilization
related to planned startups. The recruitment, training and retention of personnel will also be a
critical factor in growing our businesses. The continued and increasing strength of the industry,
including client spending, will be highly dependent on many external factors, such as world
economic and political conditions, member-country quota compliance within OPEC and weather
conditions, including the factors described under Forward-Looking Statements.
29
Results of Operations
The following charts contain selected financial data comparing our consolidated and segment
results from operations for the three and nine months ended September 30, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Nine Months |
|
|
|
Ended September 30, |
|
|
Ended September 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
|
(In thousands, except percentages and per share data) |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
1,619,601 |
|
|
$ |
1,096,963 |
|
|
$ |
4,324,318 |
|
|
$ |
2,903,238 |
|
Middle East/North Africa/Asia |
|
|
572,707 |
|
|
|
601,215 |
|
|
|
1,765,609 |
|
|
|
1,765,873 |
|
Europe/West Africa/FSU |
|
|
588,572 |
|
|
|
496,113 |
|
|
|
1,691,453 |
|
|
|
1,456,049 |
|
Latin America |
|
|
591,770 |
|
|
|
335,461 |
|
|
|
1,499,270 |
|
|
|
1,172,822 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,372,650 |
|
|
|
2,529,752 |
|
|
|
9,280,650 |
|
|
|
7,297,982 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
352,163 |
|
|
|
199,029 |
|
|
|
879,473 |
|
|
|
434,462 |
|
Middle East/North Africa/Asia |
|
|
15,341 |
|
|
|
65,718 |
|
|
|
60,109 |
|
|
|
215,425 |
|
Europe/West Africa/FSU |
|
|
86,595 |
|
|
|
63,236 |
|
|
|
216,610 |
|
|
|
176,900 |
|
Latin America |
|
|
70,878 |
|
|
|
(35,182 |
) |
|
|
143,050 |
|
|
|
32,883 |
|
Research and Development |
|
|
(58,888 |
) |
|
|
(54,457 |
) |
|
|
(185,666 |
) |
|
|
(156,844 |
) |
Corporate |
|
|
(41,981 |
) |
|
|
(41,907 |
) |
|
|
(140,840 |
) |
|
|
(129,635 |
) |
Revaluation of Contingent
Consideration |
|
|
|
|
|
|
90,011 |
|
|
|
|
|
|
|
(2,752 |
) |
Severance, Exit and Other
Adjustments |
|
|
(8,402 |
) |
|
|
(11,024 |
) |
|
|
(47,927 |
) |
|
|
(82,365 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
415,706 |
|
|
|
275,424 |
|
|
|
924,809 |
|
|
|
488,074 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense, Net |
|
|
(114,448 |
) |
|
|
(99,318 |
) |
|
|
(340,638 |
) |
|
|
(290,376 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bond Tender Premium |
|
|
|
|
|
|
(10,731 |
) |
|
|
|
|
|
|
(10,731 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Devaluation of Venezuelan Bolivar |
|
|
|
|
|
|
¯ |
|
|
|
|
|
|
|
(63,859 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other, Net |
|
|
(26,261 |
) |
|
|
(12,277 |
) |
|
|
(67,194 |
) |
|
|
(35,681 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective Tax Rate |
|
|
29.8 |
% |
|
|
35.4 |
% |
|
|
28.5 |
% |
|
|
111.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income per Diluted Share |
|
$ |
0.25 |
|
|
$ |
0.13 |
|
|
$ |
0.47 |
|
|
$ |
(0.03 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization |
|
|
288,450 |
|
|
|
267,209 |
|
|
|
847,675 |
|
|
|
775,484 |
|
30
Revenues
The following chart contains consolidated revenues by product line for the three and nine
months ended September 30, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Nine Months |
|
|
|
Ended September 30, |
|
|
Ended September 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Artificial Lift Systems |
|
|
18 |
% |
|
|
17 |
% |
|
|
17 |
% |
|
|
16 |
% |
Stimulation and Chemicals |
|
|
17 |
|
|
|
13 |
|
|
|
17 |
|
|
|
7 |
|
Drilling Services |
|
|
16 |
|
|
|
17 |
|
|
|
16 |
|
|
|
16 |
|
Well Construction |
|
|
12 |
|
|
|
15 |
|
|
|
12 |
|
|
|
16 |
|
Integrated Drilling |
|
|
10 |
|
|
|
9 |
|
|
|
11 |
|
|
|
11 |
|
Completion Systems |
|
|
8 |
|
|
|
7 |
|
|
|
8 |
|
|
|
12 |
|
Drilling Tools |
|
|
7 |
|
|
|
8 |
|
|
|
7 |
|
|
|
8 |
|
Wireline and Evaluation Services |
|
|
6 |
|
|
|
6 |
|
|
|
6 |
|
|
|
6 |
|
Re-entry and Fishing |
|
|
5 |
|
|
|
6 |
|
|
|
5 |
|
|
|
6 |
|
Pipeline and Specialty Services |
|
|
1 |
|
|
|
2 |
|
|
|
1 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated revenues increased $843 million, or 33%, in the third quarter of 2011 as compared
to the third quarter of 2010. This increase outpaced the 16% increase in average rig count over
the comparable period. Our revenues in North America increased $523 million, or 48%, in the third
quarter of 2011 as compared to the same quarter of the prior year. International revenues
increased $320 million, or 22%, in the third quarter of 2011 as compared to the third quarter of
2010. Our stimulation and chemicals, artificial lift systems, and drilling services product lines
were the strongest contributors to the increase over the year-ago period.
For the first nine months of 2011, consolidated revenues increased $1,983 million, or 27%, as
compared to the first nine months of 2010. Similar to what was experienced in the third quarter of
2011, the increase in revenues during the first nine months of 2011 compared to the first nine
months of 2010 was mostly driven by North America. International revenue increased $562 million,
or 13%, when compared to the first nine months of 2010.
Operating Income
Consolidated operating income increased $140 million, or 51%, in the third quarter of 2011 as
compared to the third quarter of 2010. Our operating segments contributed $232 million of
incremental operating income during the current quarter as compared to the same quarter of the
prior year. Severance, exit and other adjustments during the third quarter of 2011 decreased by $3
million as compared to the third quarter of 2010. The third quarter of 2010 included an $90 million
gain related to the revaluation of contingent consideration associated with our acquisition of the
Oilfield Services Division of TNK-BP (OFS). The contingent consideration terms were settled in
the fourth quarter of 2010. Corporate and research and development expenditures increased by $5
million. The increase in corporate expenses was primarily attributable to higher employee
compensation costs and professional fees.
During the first nine months of 2011, consolidated operating income increased $437 million, or
90%, as compared to the first nine months of 2010. Our operating segments contributed $440 million
of this increase. The first nine months of 2010 included a $3 million loss related to the
revaluation of contingent consideration associated with our acquisition of OFS.
Severance, exit and other adjustments during the nine months ended September 30, 2011 includes
(i) $34 million for severance and exit costs, (ii) $5 million for legal, professional and related
fees incurred in connection with our on-going investigations and (iii) $9 million in connection
with the termination of a corporate consulting contract.
Severance, exit and other adjustments during the nine months ended September 30, 2010 include
(i) a $38 million charge related to our Supplemental Executive Retirement Plan (SERP), which was
frozen on March 31, 2010, (ii) $44 million for severance and facility closure costs and (iii) $5
million for legal, professional and related
31
fees incurred in connection with our on-going investigations. These charges were
offset by a $5 million benefit related to the reversal of prior cost accruals for our exit from
sanctioned countries.
Devaluation of Venezuelan Bolivar
In January 2010, the Venezuelan government announced its intention to devalue its currency and
move to a two tier exchange structure. The official exchange moved from 2.15 to 2.60 for essential
goods and 4.30 for non-essential goods and services. In connection with this devaluation, we
incurred a charge of $64 million in the first quarter of 2010 for the remeasurement of our net
monetary assets denominated in Venezuelan bolivars at the date of the devaluation.
Interest Expense, Net
Interest expense, net increased $15 million, or 15%, in the third quarter of 2011 as compared
to the same period in 2010 and $50 million, or 17% for the first nine months of 2011, as compared
to the same periods of the prior year. The increase in interest expense was primarily the result
of replacing our short term debt with higher-rate senior notes through the debt offering and bond
tender completed in the second half of 2010.
Income Taxes
For the three and nine months ended September 30, 2011, we had a tax provision of $82 million
and $147 million on income before taxes of $275 million and $517 million, respectively. Our tax
provision for the three months ended September 30, 2011 includes discrete tax benefits of $29
million which lowered our effective tax rate for the period to 29.8%. Our tax provision for the
nine months ended September 30, 2011 includes discrete tax benefits of $58 million which lowered
our year-to-date effective tax rate to 28.5%. Included in the discrete tax benefits for the three and nine-months ended September 30, 2011 are $16 million and $11 million, respectively, of income tax benefits related to prior periods. The impact of these amounts is not material to any individual prior period.
For the nine months ended September 30, 2011, the balance of unrecognized tax benefits
decreased by $6 million and the balance of accrued interest and penalties decreased by $7 million.
For the three months ended September 30, 2010, we had a tax provision of $54 million on income
before taxes of $153 million. Our income before taxes for the three months ended September 30,
2010 includes a $90 million gain on the fair value adjustment to the put option issued in
connection of the OFS acquisition for which no tax expense was recorded. For the nine months ended
September 30, 2010, we had a provision of $97 million on income before taxes of $87 million that
includes curtailment expense on our SERP for which no related tax benefit was recorded. Our tax
provision for the nine months ended September 30, 2010 includes minimum tax in Mexico and the tax
impact of changes in our geographic earnings mix, both of which were partially offset by a tax
benefit related to the devaluation of the Venezuelan bolivar.
Segment Results
North America
North American revenues increased $523 million, or 48%, in the third quarter of 2011 as
compared to the third quarter of 2010. This increase outpaced the 21% increase in the average North
American rig count over the comparable period. Revenues increased $1,421 million, or 49%, during
the first nine months of 2011 as compared to the same period of the prior year, again outpacing the
23% increase in the average North American rig count over the comparable period. Revenues from our
stimulation and chemicals, artificial lift and drilling product lines were the strongest
contributors to the year-over-year increase.
32
Operating income increased $153 million, or 77%, in the third quarter of 2011 as compared to
the third quarter of the prior year. For the first nine months of 2011, operating income increased
$445 million, or 102%, compared to the same period of the prior year. Operating margins were 22%
in the third quarter of 2011 and 18% in the third quarter of 2010. Operating margin improved to
20% for the first nine months of 2011 compared to 15% for the first nine months of 2010. Increases
in volume and pricing contributed to the improved margins over the comparable periods of the prior
year.
Middle East/North Africa/Asia
Middle East/North Africa/Asia revenues decreased $29 million, or 5%, in the third quarter of
2011 as compared to the third quarter of 2010. Revenues were essentially flat during the first
nine months of 2011 as compared to the first nine months of 2010.
Operating income decreased $50 million, or 77%, during the third quarter of 2011 compared to
the same quarter of the prior year and decreased $155 million, or 72%, during the first nine months
of 2011 compared to the first nine months of 2010. Operating margins were 3% in the third quarter
of 2011 and 11% in the third quarter of 2010. On a year-to-date basis, operating margins were 3%
for the first nine months of 2011 as compared to 12% for the first nine months of 2010. Political
disruptions in the Middle East and North Africa, primarily Libya, were significant drivers of the
year-over-year decrease.
Europe/West Africa/FSU
Revenues in our Europe/West Africa/FSU segment increased $92 million, or 19%, in the third
quarter of 2011 compared to the same quarter of the prior year. On a year-to-date basis, revenues
increased $235 million, or 16%, compared to the first nine months of 2010. Our drilling services,
stimulation and chemical, well construction and artificial lift product lines were the strongest
contributors to the increase in the current quarter as compared to the same period of the prior
year.
Operating income increased $23 million, or 37%, in the third quarter of 2011 compared to the
same quarter of the prior year and increased $40 million, or 22%, during the first nine months of
2011 compared to the first nine months of 2010. Operating margins were 15% in the third quarter of
2011 and 13% in the third quarter of 2010. Operating margins were 13% and 12% for the first nine
months of 2011 and 2010, respectively.
Latin America
Revenues in our Latin America segment increased $256 million, or 76%, in the third quarter of
2011 as compared to the same quarter of the prior year. Revenues increased $326 million, or 28%,
during the first nine months of 2011 compared to the same period of the prior year. The increase
in revenue was mostly due to improved demand in our artificial lift, drilling services and
stimulation and chemicals product lines. Geographically, the increase in revenues was noted in
Mexico, Colombia and Venezuela.
Operating income increased $106 million, or 302%, in the third quarter of 2011 over the
comparable period of the prior year and increased $110 million, or 335%, during the first nine
months of 2011 as compared to the first nine months of 2010. Operating margins were 10% and 3% for
the first nine months of 2011 and 2010, respectively. During the quarter ended September 30, 2010,
we incurred a $76 million charge for revisions to our profitability estimates on our project
management contracts in Mexico, as the client requested a slowdown in drilling activity to near
zero while they re-evaluated the pace of drilling and capital expenditures in the current year.
Liquidity and Capital Resources
Sources of Liquidity
Our sources of liquidity include current cash and cash equivalent balances, cash generated
from operations and committed availabilities under bank lines of credit. We also historically have
accessed banks for short-term loans from uncommitted borrowing arrangements and the capital markets
with debt, equity and convertible bond offerings
and may from time to time dispose of businesses or capital assets that are no longer core to
our long-term growth strategy.
33
Committed Borrowing Facilities
Prior to July 2011, we maintained a $1.75 billion unsecured, revolving credit agreement (the
Credit Agreement) with JPMorgan Chase Bank, N.A., as administrative agent. The Credit Agreement
had a scheduled maturity date of October 15, 2013, and could be used for a combination of
borrowings, support for our commercial paper program and issuances of letters of credit. The
Credit Agreement required that we maintain a debt-to-capitalization ratio of less than 60%.
On July 13, 2011, we amended the Credit Agreement to increase the facility size from $1.75
billion to $2.25 billion and extend the scheduled maturity date to July 13, 2016. The amendment
also decreased interest rate margins under the facility. The Credit Agreement, as amended, remains
available to support our commercial paper program and issuances of letters of credit. Similarly,
the Credit Agreement did not change the required debt-to-capitalization ratio. We were in
compliance with these covenants at September 30, 2011. There were $63 million in outstanding
letters of credit under this facility at September 30, 2011.
The following is a recap of our availability under our committed borrowing facility at
September 30, 2011 (in millions):
|
|
|
|
|
Facilities |
|
$ |
2,250 |
|
|
|
|
|
|
Less: |
|
|
|
|
Amount drawn |
|
|
210 |
|
Commercial paper |
|
|
633 |
|
Letters of credit |
|
|
63 |
|
|
|
|
|
|
|
|
|
|
Availability |
|
$ |
1,344 |
|
|
|
|
|
Commercial Paper
We have a $1.5 billion commercial paper program under which we may from time to time issue
short-term unsecured notes. The commercial paper program is supported by our revolving credit
facility.
Cash Requirements
During the remainder of 2011, we anticipate our cash requirements will include interest
payments on our outstanding debt, the payment of $183 million of senior notes due in the fourth
quarter of 2011, working capital needs, capital expenditures and may include opportunistic business
acquisitions. We anticipate funding these requirements from cash generated from operations,
availability under our committed borrowing facility, the issuance of commercial paper and the
proceeds of disposals of businesses or capital assets that are no longer core to our
long-term growth strategy.
Capital expenditures for 2011 are projected to be approximately $1.5 billion. The expenditures
are expected to be used primarily to support anticipated near-term growth. Capital expenditures
during the nine months ended September 30, 2011 were $1.1 billion.
During 2012, we anticipate our cash requirements will include interest payments on our
outstanding debt, the payment of $273 million of senior notes due in the second quarter of 2012,
working capital needs, capital expenditures and may include opportunistic business acquisitions.
Consistent with 2011, we anticipate funding these requirements from cash generated from operations,
availability under our committed borrowing facility, the issuance of commercial paper and the
proceeds of disposals of businesses or capital assets that are no longer core to our long-term
growth strategy.
34
Derivative Instruments
Fair Value Hedges
We may use interest rate swaps to help mitigate exposures related to changes in the fair
values of the hedged debt. Amounts paid or received upon termination of interest rate swaps
accounted for as fair value hedges represent the fair value of the agreements at the time of
termination and are recorded as an adjustment to the carrying value of the related debt. These
amounts are amortized as a reduction (in the case of gains) or as an increase (in the case of
losses) to interest expense over the remaining term of the debt. As of September 30, 2011, we had
net unamortized gains of $48 million associated with interest rate swap terminations.
In July 2011, the Company entered into interest rate swap agreements to pay a variable
interest rate and receive a fixed interest rate with an aggregate notional amount of $300 million
against its 6.35% Senior Notes. These agreements are designated as fair value hedges and are
determined to be highly effective and the effects of any ineffectiveness were not material to the Condensed
Consolidated Statements of Income as the changes in the fair values of the interest rate swaps will
be offset by changes in fair values of the underlying debt. The aggregate fair value of the
interest rate swaps at September 30, 2011 resulted in an asset of $13 million, with a corresponding
increase to Long-term Debt on the accompanying Condensed Consolidated Balance Sheets.
Cash Flow Hedges
In 2008, we entered into interest rate derivative instruments to hedge projected exposures to
interest rates in anticipation of a debt offering. Those hedges were terminated at the time of the
issuance of the debt, and the loss on these hedges is amortized from Accumulated Other
Comprehensive Income to interest expense over the remaining term of the debt. As of September 30,
2011, we had net unamortized losses of $12 million associated with our cash flow hedge
terminations.
In August 2011, we entered into interest rate derivative instruments for a notional amount of
$294 million to hedge projected exposures to interest rates in anticipation of a debt transaction.
The aggregate fair value of these interest rate derivatives at September 30, 2011 resulted in the
recognition of a current liability of $14 million, with a corresponding unrealized loss recognized
in Accumulated Other Comprehensive Income. Ineffectiveness related to these cash flow hedges during the three month
period ended September 30, 2011 was not material.
Other Derivative Instruments
As of September 30, 2011, we had foreign currency forward contracts with notional amounts
aggregating to $551 million, which were entered into to hedge exposure to currency fluctuations in
various foreign currencies. The total estimated fair value of these contracts at September 30,
2011, resulted in a net asset of approximately $58 million. These derivative instruments were not
designated as hedges and the changes in fair value of the contracts are recorded in Other, Net in
the accompanying Condensed Consolidated Statements of Income.
We have cross-currency swaps between the U.S. dollar and Canadian dollar to hedge certain
exposures to the Canadian dollar. At September 30, 2011, we had notional amounts outstanding of
$168 million. The total estimated fair value of these contracts at September 30, 2011, resulted in
a liability of $30 million. These derivative instruments were not designated as hedges and the
changes in fair value of the contracts are recorded in Other, Net in the accompanying Condensed
Consolidated Statements of Income.
Off Balance Sheet Arrangements
A Swiss corporation named Weatherford International Ltd. (Weatherford Switzerland) is the
ultimate parent of the Weatherford group and guarantees the obligations of Weatherford
International Ltd. incorporated in Bermuda
(Weatherford Bermuda) and Weatherford International, Inc. incorporated in Delaware
(Weatherford Delaware) noted below.
35
The following obligations of Weatherford Delaware were guaranteed by Weatherford Bermuda at
September 30, 2011: (i) the 6.625% Senior Notes, (ii) the 5.95% Senior Notes, (iii) the 6.35%
Senior Notes and (iv) the 6.80% Senior Notes.
The following obligations of Weatherford Bermuda were guaranteed by Weatherford Delaware at
September 30, 2011: (i) the revolving credit facility, (ii) the 4.95% Senior Notes, (iii) the 5.50%
Senior Notes, (iv) the 6.50% Senior Notes, (v) the 5.15% Senior Notes, (vi) the 6.00% Senior Notes,
(vii) the 7.00% Senior Notes, (viii) the 9.625% Senior Notes, (ix) the 9.875% Senior Notes, (x) the
5.125% Senior Notes and (xi) the 6.75% Senior Notes.
Letters of Credit and Performance and Bid Bonds
We use letters of credit and performance and bid bonds in the normal course of our business.
As of September 30, 2011, we had $647 million of letters of credit and performance and bid bonds
outstanding, consisting of $405 million outstanding under various uncommitted credit facilities,
$63 million letters of credit outstanding under our committed facility and $179 million of
performance bonds issued by financial sureties against an indemnification from us. These
obligations could be called by the beneficiaries should we breach certain contractual or
performance obligations. If the beneficiaries were to call the letters of credit under our
committed facilities, our available liquidity would be reduced by the amount called.
Goodwill
We perform an impairment test for goodwill and indefinite-lived intangible assets annually as
of October 1, or more frequently if indicators of potential impairment exist. During September
2011, the market price of our common stock declined significantly. As a result, we considered
whether it was more likely than not that an impairment of our goodwill had occurred. We concluded
that this decline did not constitute an indicator of potential impairment. In reaching this
conclusion, we considered that there has not been a significant change in the estimated future cash
flows of our reporting units and that, by mid-October 2011, the market price of our common stock
had recovered to prices reflective of the market in early September 2011. Our annual impairment
test for goodwill is underway and will be completed in the fourth quarter of 2011. At this time, no
impairment has been identified.
However, the decline in our market capitalization does suggest that the margin by which the fair value of our Middle
East/North Africa, FSU and West Africa reporting units executed their book value may have decreased since our last annual test and
may be at risk of impairment.
As of September 30, 2011, goodwill attributable to our
Middle East/North Africa, FSU and West Africa reporting units totaled $501 million, $273 million
and $74 million, respectively.
New Accounting Pronouncements
See Note 15 to our condensed consolidated financial statements included elsewhere in this
report.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations is based upon
our consolidated financial statements. We prepare these financial statements in conformity with
U.S. generally accepted accounting principles. As such, we are required to make certain estimates,
judgments and assumptions that affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses during the periods
presented. We base our estimates on historical experience, available information and various other
assumptions we believe to be reasonable under the circumstances. On an on-going basis, we evaluate
our estimates; however, actual results may differ from these estimates under different assumptions
or conditions. There have been no material changes or developments in our evaluation of the
accounting estimates and the underlying assumptions or methodologies that we believe to be Critical
Accounting Policies and Estimates as disclosed in our Form 10-K, as amended, for the year ended
December 31, 2010.
Exposures
An investment in our registered shares involves various risks. When considering an investment
in our Company, you should consider carefully all of the risk factors described in our most recent
Annual Report on Form
10-K, as amended, under the heading Item 1A. Risk Factors as well as the information below
and other information included and incorporated by reference in this report.
36
Forward-Looking Statements
This report, as well as other filings made by us with the Securities and Exchange Commission
(SEC), and our releases issued to the public contain various statements relating to future
financial performance and results, including certain projections and business trends and other
statements that are not historical facts. We believe these statements constitute Forward-Looking
Statements as defined in the Private Securities Litigation Reform Act of 1995. These
forward-looking statements generally are identified by the words believe, project, expect,
anticipate, estimate, intend, strategy, plan, may, should, could, will, would,
will be, will continue, will likely result, and similar expressions, although not all
forward-looking statements contain these identifying words.
From time to time, we update the various factors we consider in making our forward-looking
statements and the assumptions we use in those statements. However, we undertake no obligation to
publicly update or revise any forward-looking events or circumstances that may arise after the date
of this report. The following sets forth the various assumptions we use in our forward-looking
statements, as well as risks and uncertainties relating to those statements. Certain of the risks
and uncertainties may cause actual results to be materially different from projected results
contained in forward-looking statements in this report and in our other disclosures. These risks
and uncertainties include, but are not limited to, the following:
|
|
|
Global political, economic and market conditions could affect projected results. Our
operating results and the forward-looking information we provide are based on our current
assumptions about oil and natural gas supply and demand, oil and natural gas prices, rig
count and other market trends. Our assumptions on these matters are in turn based on
currently available information, which is subject to change. The oil and natural gas
industry is extremely volatile and subject to change based on political and economic
factors outside our control. A weakened global economic climate generally results in lower
demand and lower prices for oil and natural gas, which reduces drilling and production
activity, which in turn results in lower revenues and income for us. Worldwide drilling
activity and global demand for oil and natural gas may also be affected by changes in
governmental policies and sovereign debt, laws and regulations related to environmental or
energy security matters, including those addressing alternative energy sources and the
risks of global climate change. Worldwide economic conditions, and the related demand for
oil and natural gas, may in future periods be significantly weaker than we have
assumed. |
|
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|
We may be unable to recognize our expected revenues from current and future
contracts. Our customers, many of whom are national oil companies, often have significant
bargaining leverage over us and may elect to cancel or revoke contracts, not renew
contracts, modify the scope of contracts or delay contracts, in some cases preventing us
from realizing expected revenues and/or profits. In 2011, western governments imposed
trading sanctions on Libya that require approvals to collect outstanding accounts
receivable from government-affiliated customers. This may slow, and could ultimately
prevent, collection of certain accounts receivable generated in Libya before the sanctions
were imposed. Our projections assume that our customers will honor the contracts we have
been awarded and that those contracts and the business that we believe is otherwise
substantially firm will result in anticipated revenues in the periods for which they are
scheduled. |
|
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|
Currency fluctuations could have a material adverse financial impact on our business. A
material change in currency rates in our markets, such as the devaluation of the Venezuelan
bolivar experienced during the first quarter of 2010, could affect our future results as
well as affect the carrying values of our assets. World currencies have been subject to
significant volatility; in particular as various sovereign debt have become a market focus.
In addition, due to the volatility we may be unable to enter into foreign currency
contracts at a reasonable cost. As we are not able to predict changes in currency
valuations, our forward-looking statements assume no material impact from future changes in
currency exchange rates. |
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|
Our ability to manage our workforce could affect our projected results. We employ tens
of thousands of people on six continents in a multitude of legal jurisdictions with
differing labor laws. Our need for human
resources varies from time to time and place to place corresponding largely to global
drilling and production activity. In a climate of decreasing demand, we are faced with
managing our workforce levels to control costs without impairing our ability to provide
service to our customers and in compliance with various local laws. Conversely, in a
climate of increasing demand, we are faced with the challenge of |
37
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|
|
recruiting and retaining a skilled workforce at a reasonable cost. Our forward-looking
statements assume we will be able to manage our workforce in all jurisdictions in which we
operate in both up cycles and down cycles. |
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|
|
Increases in the prices and availability of our raw materials could affect our results
of operations. We use large amounts of raw materials (including steel and other metals,
chemicals, plastics, polymers and energy inputs) for manufacturing our products and some of
our fixed assets. The price of these raw materials has a significant impact on our cost of
producing products for sale or producing fixed assets used in our business. We have
assumed that the prices of our raw materials will remain within a manageable range and will
be readily available. If we are unable to obtain necessary raw materials or if we are
unable to minimize the impact of increased raw material costs or to realize the benefit of
cost decreases in a timely fashion through our supply chain initiatives or pricing, our
margins and results of operations could be adversely affected. |
|
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|
|
Our ability to manage our supply chain and business processes could affect our projected
results. We have undertaken efforts to improve our supply chain, invoicing and collection
processes and procedures. These undertakings include costs, which we expect will result in
long-term benefits for our business processes. Our forward-looking statements assume we
will realize the benefits of these efforts. |
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|
Rapid increases in demand for our products may challenge our supply chain. Many of our
products have months-long manufacturing lead times, and we must maintain appropriate levels
of manufacturing facilities and trained personnel to ensure the quality and safety of our
supply chain. During periods of rapidly increasing or unexpected demand, we may not be
able to manufacture sufficient quantities of certain products to meet our customers
demands, which could result in lost opportunities and reputational damage. Conversely,
during periods of rapidly decreasing or unexpected declines in demand, we may have
committed resources to manufacturing resulting in excess inventories, or we may have
underutilized manufacturing capacity, which could adversely affect our financial condition.
Our forward-looking statements assume we will be able to forecast and manage our supply
chain needs and inventory levels. |
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|
Our long-term growth depends upon technological innovation and commercialization. Our
ability to deliver our long-term growth strategy depends in part on the commercialization
of new technology. A central aspect of our growth strategy is to improve our products and
services through innovation, to obtain technologically advanced products through internal
research and development and/or acquisitions, to protect proprietary technology from
unauthorized use and to expand the markets for new technology by leveraging our worldwide
infrastructure. The key to our success will be our ability to commercialize the technology
that we have acquired and demonstrate the enhanced value our technology brings to our
customers operations. Our major technological advances include, but are not limited to,
those related to controlled pressure drilling and testing systems, expandable solid
tubulars, expandable sand screens and intelligent well completion. Our forward-looking
statements have assumed successful commercialization of, and above-average growth from, our
new products and services, as well as legal protection of our intellectual property rights. |
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|
Nonrealization of expected benefits from our redomestication could affect our projected
results. We operate through our various subsidiaries in numerous countries throughout the
world including the United States. During the first quarter of 2009, we completed a
transaction in which our former Bermuda incorporated parent company became a wholly-owned
subsidiary of Weatherford Switzerland, a Swiss joint-stock corporation, and holders of
common shares of the Bermuda company received one registered share of Weatherford
Switzerland in exchange for each common share that they held. Consequently, we are or may
become subject to changes in tax laws, treaties or regulations or the interpretation or
enforcement thereof in the U.S., Bermuda, Switzerland or any other jurisdictions in which
we or any of our subsidiaries operate or are resident. Our income tax expense is based upon
our interpretation of the tax laws in effect in various countries at the time that the
expense was incurred. If the U.S. Internal Revenue Service or other taxing authorities do
not agree with our assessment of the effects of such laws, treaties and regulations, this
could have a material adverse effect on us, including the imposition of a higher effective
tax rate on our worldwide earnings or a reclassification of the tax impact of our
significant corporate restructuring transactions. In addition, our realization of expected
tax benefits is based upon the assumption that we take successful planning steps and that
we maintain and execute adequate processes to support our planning activities. If we fail
to do so, we may not achieve the expected benefits. |
38
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|
|
Nonrealization of expected benefits from our acquisitions or business dispositions could
affect our projected results. We expect to gain certain business, financial and strategic
advantages as a result of business acquisitions we undertake, including synergies and
operating efficiencies. Our forward-looking statements assume that we will successfully
integrate our business acquisitions and realize the benefits of those acquisitions.
Further, we may from time to time undertake to dispose of businesses or capital assets that
are no longer core to our long-term growth strategy and the disposition of which may
improve our capital structure. Our forward-looking statements assume that if we decide to
dispose of a business or asset we will find a buyer willing to pay a price we deem
favorable to Weatherford and that we will successfully dispose of the business or asset.
Our inability to complete dispositions timely and at attractive prices may impair our
ability to improve our capital structure as rapidly as our forward-looking statements may
indicate. |
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A downturn in our industry could affect the carrying value of our goodwill. As of
September 30, 2011, we had approximately $4.3 billion of goodwill. Our estimates of the
value of our goodwill could be reduced in the future as a result of various factors,
including market factors, some of which are beyond our control. Our forward-looking
statements do not assume any future goodwill impairment. Any reduction in the fair value
of our businesses may result in an impairment charge and therefore adversely affect our
results. |
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Adverse weather conditions in certain regions could adversely affect our operations.
From time to time, hurricanes, typhoons and severe weather impact our operations in the
Gulf of Mexico and Southeast Asia. These storms and associated threats reduce the number
of days on which we and our customers operate which results in lower revenues than we
otherwise would have achieved. Our Canadian operations, particularly in the second quarter
of each year, may vary greatly depending on the timing of break-up, or the spring thaw,
which annually results in a period in which conditions are not conducive to operations.
Similarly, unfavorable weather in Russia, Caspian, China, Mexico, Australia and in the
North Sea, as well as exceedingly cold winters in other areas of the world, could reduce
our operations and revenues from these areas during the relevant period. Our
forward-looking statements assume weather patterns in our primary areas of operations will
be conducive to our operations. |
|
|
|
|
U.S. Government and internal investigations could affect our results of
operations. We are currently involved in government and internal investigations involving
our operations. We are in negotiations with the government agencies to resolve these
matters, but we cannot yet anticipate the timing, outcome or possible impact of the
ultimate resolution of these investigations, financial or otherwise. The governmental
agencies involved in these investigations have a broad range of civil and criminal
penalties they may seek to impose against corporations and individuals for violations of
trade sanction laws, the Foreign Corrupt Practices Act and other federal statutes
including, but not limited to, injunctive relief, disgorgement, fines, penalties and
modifications to business practices and compliance programs. In recent years, these
agencies and authorities have entered into agreements with, and obtained a range of
penalties against, several corporations and individuals in similar investigations, under
which civil and criminal penalties were imposed, including in some cases fines and other
penalties and sanctions in the tens and hundreds of millions of dollars. These agencies
likely will seek to impose penalties of some amount against us for past conduct in several
countries, but the ultimate amount of any penalties we may pay currently cannot be
reasonably estimated. Under trade sanction laws, the U.S. Department of Justice may also
seek to impose modifications to business practices, including immediate cessation
of all business activities in specific countries or other limitations that
decrease our business, and modifications to compliance programs, which may increase
compliance costs. Any injunctive relief, disgorgement, fines, penalties, sanctions or
imposed modifications to business practices and the on-going costs resulting from these
investigations could adversely affect our results of operations. Through
September 30, 2011, we have incurred $49 million for costs in connection with our exit from
certain sanctioned countries and incurred $118 million for legal and professional fees in
connection with complying with and conducting these on-going investigations. This amount
excludes the costs we have incurred to augment and improve our compliance function. We may
have additional charges related to these matters in future periods, which costs may include
labor claims, contractual claims, penalties assessed by customers, and costs, fines, taxes
and penalties assessed by local governments, but we cannot quantify those charges or be
certain of the timing of them. In addition, the SEC is investigating the circumstances
surrounding the material weakness in the Companys internal controls over financial
reporting for income taxes that was disclosed on Forms 12b-25 and 8-K on March 1, 2011 and
the related restatement of historical financial statements. We are cooperating with the
SECs investigation. |
39
|
|
|
Failure in the future to ensure ongoing compliance with certain laws could affect our
results of operations. In 2009, we substantially augmented our compliance infrastructure
with increased staff and more rigorous policies, procedures and training of our employees
regarding compliance with applicable anti-corruption laws, trade sanctions laws and
import/export laws. As part of this effort, we now undertake audits of our compliance
performance in various countries. Our forward-looking statements assume that our
compliance efforts will be successful and that we will comply with our internal policies
and applicable laws regarding these issues. Our failure to do so could result in
additional enforcement action in the future, the results of which could be material and
adverse to us. |
|
|
|
|
Political disturbances, war, or terrorist attacks and changes in global trade policies
could adversely impact our operations. We operate in over 100 countries, and as such are
at risk of various types of political activities, including acts of insurrection, war,
terrorism, nationalization of assets and changes in trade policies. We have assumed there
will be no material political disturbances or terrorist attacks and there will be no
material changes in global trade policies that affect our business. In early 2011, our
operations in Tunisia, Egypt, Libya and to a lesser extent Yemen and Bahrain were disrupted
by political revolutions and uprisings in these countries. Civil war in Libya and lesser
political disturbances elsewhere in the Middle East and North Africa regions are ongoing,
and our operations in Libya have not resumed. During 2010, these five countries accounted
for approximately 3% of our global revenue. We have taken steps to secure our personnel and
assets in affected areas and to resume or continue operations where it is safe for us to do
so, and our forward-looking statements assume we will do so successfully. In Libya, we
evacuated all of our non-Libyan employees and their families shortly after hostilities
commenced. At September 30, 2011, we had in Libya inventory, property, plant and equipment
with a carrying value of approximately $134 million, $57 million of accounts
receivable that currently are subject to sanctions imposed by western governments as well
as cash and other current assets of approximately $22 million. In cases where we must
evacuate personnel, it may be difficult, if not impossible, for us to safeguard and recover
all of our operating assets, and our ability to do so will depend on the local turn of
events. In these areas we also may not be able to perform the work we are contracted to
perform, which could lead to forfeiture of performance bonds. We currently have outstanding
approximately $18 million of performance bonds related to contracts in Libya. Our personnel in Libya have been able to verify the existence of our significant tangible assets and as a result we are aware of no material losses. However, subject to security and logistical concerns, we expect to complete a full examination of our Libya assets before the end of 2011. Our forward-looking
statements assume that we will not incur a substantial loss with respect to our assets or
performance bonds located in or related to affected areas. We have assumed our operations
in Libya will not resume in 2011. We have assumed that cessation of business activities in
other parts of the Middle East and North Africa regions due to political turmoil will be
short-lived, that the negative impact on our business will not be material, and that the
region will not experience further disruptive political revolution in the near term.
However, if political violence were to curtail our activities in other countries in the
region from which we derive greater business, such as Saudi Arabia, Iraq and Algeria, and
particularly if political activities were to result in prolonged violence or civil war, we
may fail to achieve the results reflected in our forward-looking statements. |
|
|
|
|
The material weakness in accounting for income taxes could have an adverse effect on our
share price or our debt ratings and our ability to report our financial information timely
and accurately. If we are unable to effectively remediate this material weakness in a
timely manner, we could lose investor confidence in the accuracy and completeness of our
financial reports, which could have an adverse effect on our share price and could subject
us to additional potentially costly shareholder litigation or government inquiries.
Further, if we are unable to effectively remediate this material weakness in a timely
manner, our failure to do so could limit our ability to obtain financing, harm our
reputation, result in debt rating agencies adjusting the ratings on our debt downward. Our
forward-looking statements assume we will be able to remediate the material weakness in a
timely manner and will maintain an effective internal control environment in the future. |
|
|
|
|
Recent turmoil in the credit markets may reduce our access to capital or reduce the
availability of financial risk-mitigation tools. The worldwide credit markets experienced
turmoil and uncertainty from mid-2008 through most of 2009, and certain markets remained
challenging in parts of 2010. In 2011, several important financial and banking
institutions are perceived to be overexposed to credit risks with respect to |
40
|
|
|
certain sovereign debt. We do not have access to complete information about the exposures of
any particular institution, and we cannot predict what systemic risks may exist to a
failure of any sovereign debtor, major financial institution or bank. Our forward-looking
statements assume that the financial institutions that have committed to extend us credit
will honor their commitments under our credit facilities and that capital markets will
remain orderly. If one or more of those institutions becomes unwilling or unable to honor
its commitments, our access to liquidity could be impaired and our cost of capital to fund
growth could increase. We use interest rate and foreign exchange swap transactions with
financial institutions to mitigate certain interest rate and foreign exchange risks
associated with our capital structure and our business. Our forward-looking statements
assume that those tools will continue to be available to us at prices we deem reasonable.
However, the failure of any counterparty to honor a swap agreement could reduce the
availability of these financial risk mitigation tools or could result in the loss of
expected financial benefits. |
Finally, our future results will depend upon various other risks and uncertainties, including,
but not limited to, those detailed in our other filings with the SEC under the Securities Exchange
Act of 1934, as amended, and the Securities Act of 1933, as amended. For additional information
regarding risks and uncertainties, see our other filings with the SEC. Our annual reports on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports
filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act of 1934 are made
available free of charge on our internet web site
www.weatherford.com as soon as reasonably
practicable after we have electronically filed the material with, or furnished it to, the SEC.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We are currently exposed to market risk from changes in foreign currency and changes in
interest rates. From time to time, we may enter into derivative financial instrument transactions
to manage or reduce our market risk. A discussion of our market risk exposure in these financial
instruments follows.
Foreign Currency Exchange Rates
We operate in virtually every oil and natural gas exploration and production region in the
world. In some parts of the world, such as the Middle East and Southeast Asia, the currency of our
primary economic environment is the U.S. dollar. We use this as our functional currency. In other
parts of the world, we conduct our business in currencies other than the U.S. dollar and the
functional currency is the applicable local currency.
In January 2010, the Venezuelan government announced its intention to devalue its currency and
move to a two-tier exchange structure. The official exchange rate moved from 2.15 to 2.60 for
essential goods and from 2.15 to 4.30 for non-essential goods and services. Our Venezuelan
entities maintain the U.S. dollar as their functional currency. In connection with this
devaluation, we incurred a charge of $64 million for the remeasurement of our net monetary assets
denominated in Venezuelan bolivars at the date of the devaluation, which was not tax deductible in
Venezuela. We also recorded a $24 million tax benefit for local Venezuelan income tax purposes
related to our net U.S. dollar-denominated monetary liability position in the country. Effective
January 1, 2011, the Venezuelan government again modified the fixed rate of exchange, eliminating
the two-tier structure and establishing 4.30 as the official exchange rate for all goods and
services. This modification did not have a material impact to our financial position or results of
operations. As of September 30, 2011, we had a net monetary asset position denominated in
Venezuelan bolivars of approximately $135 million comprised primarily of cash and accounts
receivable. We are continuing to explore opportunities to reduce our exposure but should another
devaluation occur in the future, we may be required to take further charges related to the
remeasurement of our net monetary asset position. For example, if the Venezuela bolivar devalued
by an additional 10% in the future, we would record a devaluation charge of approximately $14
million.
Assets and liabilities of entities for which the functional currency is the local currency are
translated into U.S. dollars using the exchange rates in effect at the balance sheet date,
resulting in translation adjustments that are reflected in Accumulated Other Comprehensive Income
in the shareholders equity section on our Condensed Consolidated Balance Sheets. A portion of our
net assets are impacted by changes in foreign currencies in relation to the U.S. dollar. We
recorded a $60 million adjustment to decrease our shareholders equity for the nine months ended
September 30, 2011, to reflect the net impact of the change in the U.S. dollar against various
foreign currencies.
41
As of September 30, 2011, we had foreign currency forward contracts with notional amounts
aggregating to $551 million, which were entered into to hedge exposure to fluctuations in various
foreign currencies. The total estimated fair value of these contracts at September 30, 2011,
resulted in a net asset of approximately $58 million. These derivative instruments were not
designated as hedges, and the changes in fair value of the contracts are recorded each period in
current earnings.
We have cross-currency swaps between the U.S. dollar and Canadian dollar to hedge certain
exposures to the Canadian dollar. At September 30, 2011, we had notional amounts outstanding of
$168 million. The total estimated fair value of these contracts at September 30, 2011, resulted in
a liability of $30 million. These derivative instruments were not designated as hedges and the
changes in fair value of the contracts are recorded each period in current earnings.
Interest Rates
We are subject to interest rate risk on our long-term fixed-interest rate debt and
variable-interest rate borrowings. Variable rate debt, where the interest rate fluctuates
periodically, exposes us to short-term changes in market interest rates. Fixed rate debt, where
the interest rate is fixed over the life of the instrument, exposes us to changes in market
interest rates reflected in the fair value of the debt and to the risk that we may need to
refinance maturing debt with new debt at a higher rate. All other things being equal, the fair
value of our fixed rate debt will increase or decrease as interest rates change.
Our long-term borrowings that were outstanding at September 30, 2011 and December 31, 2010,
subject to interest rate risk consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2011 |
|
|
December 31, 2010 |
|
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
|
|
Amount |
|
|
Value |
|
|
Amount |
|
|
Value |
|
|
|
|
|
|
|
(In millions) |
|
|
|
|
|
6.625% Senior Notes due 2011 |
|
$ |
183 |
|
|
$ |
185 |
|
|
$ |
184 |
|
|
$ |
191 |
|
5.95% Senior Notes due 2012 |
|
|
273 |
|
|
|
282 |
|
|
|
273 |
|
|
|
290 |
|
5.15% Senior Notes due 2013 |
|
|
297 |
|
|
|
308 |
|
|
|
299 |
|
|
|
310 |
|
4.95% Senior Notes due 2013 |
|
|
252 |
|
|
|
265 |
|
|
|
252 |
|
|
|
266 |
|
5.50% Senior Notes due 2016 |
|
|
357 |
|
|
|
379 |
|
|
|
358 |
|
|
|
374 |
|
6.35% Senior Notes due 2017 |
|
|
612 |
|
|
|
676 |
|
|
|
600 |
|
|
|
651 |
|
6.00% Senior Notes due 2018 |
|
|
498 |
|
|
|
557 |
|
|
|
498 |
|
|
|
551 |
|
9.625% Senior Notes due 2019 |
|
|
1,031 |
|
|
|
1,287 |
|
|
|
1,033 |
|
|
|
1,287 |
|
5.125% Senior Notes due 2020 |
|
|
799 |
|
|
|
838 |
|
|
|
799 |
|
|
|
794 |
|
6.50% Senior Notes due 2036 |
|
|
596 |
|
|
|
614 |
|
|
|
596 |
|
|
|
595 |
|
6.80% Senior Notes due 2037 |
|
|
298 |
|
|
|
314 |
|
|
|
298 |
|
|
|
312 |
|
7.00% Senior Notes due 2038 |
|
|
499 |
|
|
|
514 |
|
|
|
498 |
|
|
|
535 |
|
9.875% Senior Notes due 2039 |
|
|
247 |
|
|
|
333 |
|
|
|
247 |
|
|
|
335 |
|
6.75% Senior Notes due 2040 |
|
|
598 |
|
|
|
620 |
|
|
|
598 |
|
|
|
624 |
|
We have various other long-term debt instruments of $221 million at September 30, 2011, but
believe the impact of changes in interest rates in the near term will not be material to these
instruments. The carrying value of our short-term borrowings of $855 million at September 30,
2011, approximates their fair value.
As it relates to our variable rate debt, if market interest rates average 1% more for the
remainder of 2011 than the rates as of September 30, 2011, interest expense for the remainder of
2011 would increase by $2 million. This amount was determined by calculating the effect of the
hypothetical interest rate on our variable rate debt. This sensitivity analysis assumes there are
no changes in our financial structure.
42
Fair Value Hedges
We manage our debt portfolio to achieve an overall desired position of fixed and floating
rates and may employ interest rate swaps as a tool to achieve that goal. The major risks from
interest rate derivatives include changes in the interest rates affecting the fair value of such
instruments, potential increases in interest expense due to market increases in floating interest
rates and the creditworthiness of the counterparties in such transactions. When we employ the use
of interest rate swaps, our counterparties are multinational commercial banks. In light of events
in the global credit markets and the potential impact of these events on the liquidity of the
banking industry, we continue to monitor the creditworthiness of our counterparties.
Amounts paid or received upon termination of interest rate swaps represent the fair value of
the agreements at the time of termination and are recorded as an adjustment to the carrying value
of the related debt. These amounts are amortized as a reduction, in the case of gains, or as an
increase, in the case of losses, to interest expense over the remaining term of the debt. As of
September 30, 2011, we had net unamortized gains of $48 million associated with interest rate swap
terminations.
In July 2011, we entered into interest rate swap agreements to pay a variable interest rate
and receive a fixed interest rate with an aggregate notional amount of $300 million. These swaps
were designated as fair value hedges of our 6.35% Senior Notes. These agreements are determined to
be highly effective resulting in no net gain or loss recorded in the Condensed Consolidated
Statement of Income as the changes in the fair values of the interest rate swaps offset changes in
the fair value of the underlying debt. The aggregate fair value of the interest rate swaps at
September 30, 2011 resulted in an asset of $13 million with a corresponding increase to Long-term
Debt on the accompanying Condensed Consolidated Balance Sheets.
ITEM 4. CONTROLS AND PROCEDURES
Material Weakness Previously Disclosed
We disclosed on Item 9A of our 2010 Annual Report on Form 10-K that we identified a material
weakness in our internal controls over financial reporting for income taxes. Our processes,
procedures and controls related to financial reporting were not effective to ensure that amounts
related to current taxes payable, certain deferred tax assets and liabilities, reserves for
uncertain tax positions, the current and deferred income tax expense and related footnote
disclosures were accurate. Specifically, our processes and procedures were not designed to provide
for adequate and timely identification and review of various income tax calculations,
reconciliations and related supporting documentation required to apply our accounting policies for
income taxes in accordance with U.S. GAAP. This material weakness resulted in the restatement for
material errors in the income tax accounts in our 2008 and 2009 consolidated financial statements and
our condensed consolidated financial statements for each of the quarters within 2009 and 2010.
The principal factors contributing to the material weakness were: 1) inadequate staffing and
technical expertise within the company related to taxes, 2) ineffective review and approval
practices relating to taxes, 3) inadequate processes to effectively reconcile income tax accounts
and 4) inadequate controls over the preparation of the quarterly tax provision.
In response to the identified material weakness, management, with oversight from our Audit
Committee, has dedicated resources, including retaining third-party consultants, to improve our
internal controls over accounting for income taxes and to remediate the identified material
weakness.
During the first nine months of 2011, we undertook the following steps:
|
|
|
Engaged third-party tax advisors and consultants to assist with enhancing internal
controls over financial reporting for income taxes and developing and implementing a
remediation plan; |
|
|
|
|
Revised the process for the quarterly and annual tax provisions including additional
resources focused on the review and oversight of the tax accounts and preparation of the
income tax provision; |
|
|
|
|
Began recruitment of various positions within the tax and financial reporting
departments and completed the hiring of the majority of newly created positions by the end
of the third quarter; and |
43
|
|
|
Provided income tax accounting training to tax and financial personnel within
each region. |
We also expect the remediation plan to include the following areas of focus:
|
|
|
Continued enhancement of the processes and procedures surrounding the review of the
income tax provision; |
|
|
|
|
Completion of the review and validation of the current and deferred balance sheet
accounts at significant locations; |
|
|
|
|
Ongoing evaluation of existing roles and responsibilities within the tax function to
ensure they are adequately staffed with appropriate personnel; and |
|
|
|
|
Continued delivery of our income tax accounting training program for tax
and financial personnel. |
We anticipate the actions to be taken, and resulting process improvements, to generally
strengthen our internal control over financial reporting, as well as our disclosure controls and
procedures and over time, to address the material weakness noted in 2010. However, because many of
the remedial actions have only recently been undertaken and because some of our remediation plans
will be put in place over the remainder of the year, management will not be able to assess or
conclude whether the material weakness has been remediated until, at the earliest, the completion of
the 2011 year-end income tax provision. In light of this material weakness, in preparing our
condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, we
performed additional reconciliations and other post-closing procedures to ensure our condensed
consolidated financial statements have been prepared in accordance with U.S. generally accepted
accounting principles. Accordingly, management believes the condensed consolidated financial
statements included in the Quarterly Report on Form 10-Q fairly present, in all material respects,
our financial condition, results of operations and cash flows as of and for each of the periods
presented.
Further, because of its inherent limitations, internal controls over financial reporting may
not prevent or detect misstatements. Projections of any evaluation of the effectiveness of internal
control over financial reporting to future periods are subject to the risks that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Evaluation of Disclosure Controls and Procedures
At the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an
evaluation under the supervision and with the participation of management, including the Chief
Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange
Act of 1934, as amended (Exchange Act)). Based upon that evaluation and the evaluation of the
previously identified material weakness in our internal controls over financial reporting for
income taxes discussed above, our CEO and CFO have concluded our disclosure controls and procedures
(as defined in Rule 13a-15(e) under the Exchange Act) were not effective to provide reasonable
assurance that the information required to be disclosed in the reports we file and submit under the
Exchange Act is recorded, processed, summarized and reported within the time period specified in
the Securities and Exchange Commissions rules and forms and that information relating to us
(including our consolidated subsidiaries) required to be disclosed is accumulated and communicated
to management, including the CEO and CFO, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
Our management, including the CEO and CFO, identified no change in our internal control over
financial reporting that occurred during the quarter ended June 30, 2011, that has materially
affected, or is reasonably likely to materially affect, our internal controls over financial
reporting other than the changes resulting from the remediation activities described above.
44
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 14 to our condensed consolidated financial statements included elsewhere in this report.
ITEM 1A. RISK FACTORS
There have been no material changes during the quarter ended September 30, 2011, to the risk
factors set forth in Part I, Item 1A in our Amended Annual Report on Form 10-K/A for the year ended
December 31, 2010, filed with the SEC on April 14, 2011.
ITEM 2. UNREGISTERED SALES OF EQUITY IN SECURITIES AND USE OF PROCEEDS
On the date listed below, in connection with acquisitions, we sold registered shares to the
shareholders of the acquired company as consideration for the shares of the acquired company. The
sale of our registered shares was exempt from registration under the Securities Act of 1933
pursuant to Section 4(2) of that act and pursuant to Regulation D and Regulation S promulgated
under that act as a non-public sale to accredited investors and/or to non-U.S. persons outside the
United States.
|
|
|
Date |
|
No. of Shares |
September 13, 2011
|
|
4,653,679 |
Under our restricted share plan, employees may elect to have us withhold registered shares to
satisfy minimum statutory federal, state and local tax withholding obligations arising on the
vesting of restricted stock awards and exercise of options. When we withhold these shares, we are
required to remit to the appropriate taxing authorities the market price of the shares withheld,
which could be deemed a purchase of the registered shares by us on the date of withholding. During
the quarter ended September 30, 2011, we withheld registered shares to satisfy these tax
withholding obligations as follows:
|
|
|
|
|
|
|
|
|
|
|
No. of |
|
|
Average |
|
Period |
|
Shares |
|
|
Price |
|
July 1 July 31, 2011 |
|
|
65,734 |
|
|
$ |
18.76 |
|
August 1 August 31, 2011 |
|
|
11,822 |
|
|
|
18.22 |
|
September 1 September 30, 2011 |
|
|
31,224 |
|
|
|
16.25 |
|
45
ITEM 6. EXHIBITS
|
|
|
Exhibit |
|
|
Number |
|
Description |
3.1
|
|
Articles of Association of Weatherford International Ltd. Dated
September 14, 2011 (incorporated by reference to Exhibit 3.1 to
the registrants Current Report on Form 8-K (File
No. 1-34258)
filed September 15, 2011) |
|
|
|
4.1
|
|
Registration Rights Agreement among Weatherford International Ltd.
And certain shareholders dated September 13, 2011 (incorporated by
reference to Exhibit 4.1 to the Registrants Current Report on
Form 8-K (File No. 1-34258) filed September 15, 2011). |
|
|
|
*31.1
|
|
Certification of Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002. |
|
|
|
*31.2
|
|
Certification of Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002. |
|
|
|
**32.1
|
|
Certification of Chief Executive Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002. |
|
|
|
**32.2
|
|
Certification of Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002. |
|
|
|
**101
|
|
The following materials from Weatherford International Ltd.s
Quarterly Report on Form 10-Q for the quarter ended September 30,
2011, formatted in XBRL (Extensible Business Reporting Language): (i) the unaudited Condensed Consolidated Balance
Sheets, (ii) the
unaudited Condensed Consolidated Statements of Income, (iii) the
unaudited Condensed Consolidated Statements of Cash Flows, (iv)
the unaudited Condensed Consolidated Statements of Comprehensive
Income and (v) related notes to the unaudited Condensed
Consolidated Financial Statements. |
|
|
|
* |
|
Filed with this Form 10-Q |
|
** |
|
Furnished with this Form 10-Q |
46
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
|
|
|
Weatherford International Ltd. |
|
|
|
|
|
|
|
By:
|
|
/s/ Bernard J. Duroc-Danner |
|
|
|
|
|
|
|
|
|
Bernard J. Duroc-Danner
Chief Executive Officer
(Principal Executive Officer) |
|
|
|
|
|
|
|
|
|
/s/ Andrew P. Becnel |
|
|
|
|
|
|
|
|
|
Andrew P. Becnel
Senior Vice President and Chief
Financial Officer
(Principal Financial Officer) |
|
|
|
|
|
|
|
|
|
/s/ John H. Briscoe |
|
|
|
|
|
|
|
|
|
John H. Briscoe
Vice President and Chief Accounting
Officer
(Principal Accounting Officer) |
|
|
|
|
|
|
|
|
|
Date: October 27, 2011 |
47