e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|
|
|
þ |
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
September 30, 2008 |
OR
|
|
|
o |
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 |
For the transition period from to
Commission file number 1-31339
WEATHERFORD INTERNATIONAL LTD.
(Exact name of Registrant as specified in its Charter)
|
|
|
Bermuda
|
|
98-0371344 |
|
|
|
(State or other jurisdiction of
|
|
(I.R.S. Employer |
incorporation or organization)
|
|
Identification No.) |
|
|
|
515 Post Oak Boulevard |
|
|
Suite 600 |
|
|
Houston, Texas
|
|
77027-3415 |
|
(Address of principal executive offices)
|
|
(Zip Code) |
(713) 693-4000
(Registrants telephone number, include area code)
(Former name, former address and former fiscal year, if changed since last report)
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 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. (Check one):
|
|
|
|
|
|
|
Large accelerated filer þ |
|
Accelerated filer o |
|
Non-accelerated filer o
(Do not check if a smaller reporting company) |
|
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 shares, as
of the latest practicable date:
|
|
|
Title of Class |
|
Outstanding at October 29, 2008 |
Common Shares, par value $1.00
|
|
681,099,947 |
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)
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
(unaudited) |
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
Cash and Cash Equivalents |
|
$ |
336,546 |
|
|
$ |
170,714 |
|
Accounts Receivable, Net of Allowance for Uncollectible
Accounts of $12,708 and $13,760, Respectively |
|
|
2,425,666 |
|
|
|
1,961,854 |
|
Inventories |
|
|
2,021,814 |
|
|
|
1,607,684 |
|
Other Current Assets |
|
|
723,112 |
|
|
|
731,517 |
|
|
|
|
|
|
|
|
|
|
|
5,507,138 |
|
|
|
4,471,769 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, Plant and Equipment, Net of Accumulated
Depreciation of $2,737,610 and $2,400,062, Respectively |
|
|
5,515,079 |
|
|
|
4,153,845 |
|
Goodwill |
|
|
3,812,643 |
|
|
|
3,358,490 |
|
Other Intangible Assets, Net of Accumulated Amortization of
$260,442 and $227,307 Respectively |
|
|
572,433 |
|
|
|
596,999 |
|
Equity Investments |
|
|
485,331 |
|
|
|
368,618 |
|
Other Assets |
|
|
306,287 |
|
|
|
241,236 |
|
|
|
|
|
|
|
|
|
|
$ |
16,198,911 |
|
|
$ |
13,190,957 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Short-term Borrowings and Current Portion of Long-term Debt |
|
$ |
1,074,000 |
|
|
$ |
774,220 |
|
Accounts Payable |
|
|
813,745 |
|
|
|
612,775 |
|
Other Current Liabilities |
|
|
752,246 |
|
|
|
815,370 |
|
|
|
|
|
|
|
|
|
|
|
2,639,991 |
|
|
|
2,202,365 |
|
Long-term Debt |
|
|
4,544,110 |
|
|
|
3,066,335 |
|
Other Liabilities |
|
|
553,951 |
|
|
|
482,211 |
|
|
|
|
|
|
|
|
|
|
|
7,738,052 |
|
|
|
5,750,911 |
|
|
|
|
|
|
|
|
|
|
Minority Interest in Consolidated Subsidiaries |
|
|
77,581 |
|
|
|
33,327 |
|
|
|
|
|
|
|
|
|
|
Shareholders Equity: |
|
|
|
|
|
|
|
|
Common Shares, $1 Par Value, Authorized 2,000,000 Shares,
Issued 728,266 and 727,204 Shares, Respectively |
|
|
728,266 |
|
|
|
727,204 |
|
Capital in Excess of Par Value |
|
|
4,107,603 |
|
|
|
3,995,747 |
|
Treasury Shares, Net |
|
|
(905,727 |
) |
|
|
(924,202 |
) |
Retained Earnings |
|
|
4,175,967 |
|
|
|
3,170,182 |
|
Accumulated Other Comprehensive Income |
|
|
277,169 |
|
|
|
437,788 |
|
|
|
|
|
|
|
|
|
|
|
8,383,278 |
|
|
|
7,406,719 |
|
|
|
|
|
|
|
|
|
|
$ |
16,198,911 |
|
|
$ |
13,190,957 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Nine Months |
|
|
|
Ended September 30, |
|
|
Ended September 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products |
|
$ |
953,084 |
|
|
$ |
777,243 |
|
|
$ |
2,616,710 |
|
|
$ |
2,136,346 |
|
Services |
|
|
1,587,712 |
|
|
|
1,194,748 |
|
|
|
4,349,228 |
|
|
|
3,503,875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,540,796 |
|
|
|
1,971,991 |
|
|
|
6,965,938 |
|
|
|
5,640,221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Products |
|
|
685,338 |
|
|
|
544,295 |
|
|
|
1,905,964 |
|
|
|
1,647,318 |
|
Cost of Services |
|
|
955,585 |
|
|
|
728,952 |
|
|
|
2,638,791 |
|
|
|
1,982,753 |
|
Research and Development |
|
|
52,026 |
|
|
|
43,199 |
|
|
|
139,095 |
|
|
|
124,413 |
|
Selling, General and Administrative
Attributable to Segments |
|
|
268,710 |
|
|
|
207,383 |
|
|
|
778,375 |
|
|
|
628,799 |
|
Corporate General and Administrative |
|
|
44,397 |
|
|
|
28,573 |
|
|
|
137,859 |
|
|
|
94,194 |
|
Gain on Sale of Subsidiary |
|
|
|
|
|
|
|
|
|
|
(81,344 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income |
|
|
534,740 |
|
|
|
419,589 |
|
|
|
1,447,198 |
|
|
|
1,162,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense, Net |
|
|
(60,521 |
) |
|
|
(50,194 |
) |
|
|
(175,723 |
) |
|
|
(119,258 |
) |
Other, Net |
|
|
(8,243 |
) |
|
|
1,282 |
|
|
|
(13,026 |
) |
|
|
(7,024 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations Before
Income Taxes and Minority Interest |
|
|
465,976 |
|
|
|
370,677 |
|
|
|
1,258,449 |
|
|
|
1,036,462 |
|
Provision for Income Taxes |
|
|
(82,990 |
) |
|
|
(70,429 |
) |
|
|
(214,490 |
) |
|
|
(267,078 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations Before
Minority Interest |
|
|
382,986 |
|
|
|
300,248 |
|
|
|
1,043,959 |
|
|
|
769,384 |
|
Minority Interest, Net of Taxes |
|
|
(12,386 |
) |
|
|
(5,324 |
) |
|
|
(25,246 |
) |
|
|
(14,161 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations |
|
|
370,600 |
|
|
|
294,924 |
|
|
|
1,018,713 |
|
|
|
755,223 |
|
Loss from Discontinued Operation, Net of
Taxes |
|
|
|
|
|
|
(2,211 |
) |
|
|
(12,928 |
) |
|
|
(15,628 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
370,600 |
|
|
$ |
292,713 |
|
|
$ |
1,005,785 |
|
|
$ |
739,595 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations |
|
$ |
0.54 |
|
|
$ |
0.44 |
|
|
$ |
1.49 |
|
|
$ |
1.12 |
|
Loss from Discontinued Operation |
|
|
|
|
|
|
(0.01 |
) |
|
|
(0.01 |
) |
|
|
(0.03 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
0.54 |
|
|
$ |
0.43 |
|
|
$ |
1.48 |
|
|
$ |
1.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations |
|
$ |
0.53 |
|
|
$ |
0.42 |
|
|
$ |
1.46 |
|
|
$ |
1.09 |
|
Loss from Discontinued Operation |
|
|
|
|
|
|
|
|
|
|
(0.02 |
) |
|
|
(0.03 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
0.53 |
|
|
$ |
0.42 |
|
|
$ |
1.44 |
|
|
$ |
1.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
682,532 |
|
|
|
676,352 |
|
|
|
681,531 |
|
|
|
677,012 |
|
Diluted |
|
|
701,284 |
|
|
|
696,496 |
|
|
|
700,099 |
|
|
|
694,916 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Nine Months |
|
|
|
Ended September 30, |
|
|
|
2008 |
|
|
2007 |
|
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
Net Income |
|
$ |
1,005,785 |
|
|
$ |
739,595 |
|
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities: |
|
|
|
|
|
|
|
|
Depreciation and Amortization |
|
|
528,129 |
|
|
|
439,034 |
|
Gain on Sales of Assets and Businesses, Net |
|
|
(111,043 |
) |
|
|
(35,188 |
) |
Loss from Discontinued Operation |
|
|
12,928 |
|
|
|
15,628 |
|
Employee Share-Based Compensation Expense |
|
|
74,760 |
|
|
|
57,109 |
|
Excess Tax Benefits from Share-Based Compensation |
|
|
(15,746 |
) |
|
|
(20,396 |
) |
Minority Interest |
|
|
25,246 |
|
|
|
14,161 |
|
Deferred Income Tax (Benefit) Provision |
|
|
(14,940 |
) |
|
|
140,884 |
|
Other, Net |
|
|
(17,619 |
) |
|
|
9,094 |
|
Change in Operating Assets and Liabilities, Net of Effect of Businesses Acquired
Accounts Receivable |
|
|
(402,682 |
) |
|
|
(292,581 |
) |
Inventories |
|
|
(426,526 |
) |
|
|
(404,821 |
) |
Accounts Payable |
|
|
147,046 |
|
|
|
37,759 |
|
Other |
|
|
(214,763 |
) |
|
|
(169,826 |
) |
|
|
|
|
|
|
|
Net Cash Provided by Operating Activities Continuing Operations |
|
|
590,575 |
|
|
|
530,452 |
|
Net Cash Used by Operating Activities Discontinued Operation |
|
|
(6,219 |
) |
|
|
(9,014 |
) |
|
|
|
|
|
|
|
Net Cash Provided by Operating Activities |
|
|
584,356 |
|
|
|
521,438 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
Acquisitions of Businesses, Net of Cash Acquired |
|
|
(673,845 |
) |
|
|
(224,878 |
) |
Capital Expenditures for Property, Plant and Equipment |
|
|
(1,821,813 |
) |
|
|
(1,097,470 |
) |
Acquisition of Intellectual Property |
|
|
(14,377 |
) |
|
|
(17,683 |
) |
Purchase of Equity Investment in Unconsolidated Affiliates |
|
|
(3,422 |
) |
|
|
(334,520 |
) |
Proceeds from Sale of Assets and Businesses, Net |
|
|
290,974 |
|
|
|
59,927 |
|
|
|
|
|
|
|
|
Net Cash Used by Investing Activities Continuing Operations |
|
|
(2,222,483 |
) |
|
|
(1,614,624 |
) |
Net Cash Provided (Used) by Investing Activities Discontinued Operation |
|
|
11,000 |
|
|
|
(22,361 |
) |
|
|
|
|
|
|
|
Net Cash Used by Investing Activities |
|
|
(2,211,483 |
) |
|
|
(1,636,985 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
Borrowings of (Repayments on) Short-term Debt, Net |
|
|
295,528 |
|
|
|
(228,256 |
) |
Borrowings of Long-term Debt, Net |
|
|
1,482,844 |
|
|
|
1,474,773 |
|
Purchase of Treasury Shares |
|
|
|
|
|
|
(179,262 |
) |
Proceeds from Exercise of Stock Options |
|
|
9,969 |
|
|
|
30,753 |
|
Excess Tax Benefits from Share-Based Compensation |
|
|
15,746 |
|
|
|
20,396 |
|
Other Financing Activities, Net |
|
|
(11,128 |
) |
|
|
(3,146 |
) |
|
|
|
|
|
|
|
Net Cash Provided by Financing Activities Continuing Operations |
|
|
1,792,959 |
|
|
|
1,115,258 |
|
Net Cash Provided by Financing Activities Discontinued Operation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Financing Activities |
|
|
1,792,959 |
|
|
|
1,115,258 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease)in Cash and Cash Equivalents |
|
|
165,832 |
|
|
|
(289 |
) |
Cash and Cash Equivalents at Beginning of Period |
|
|
170,714 |
|
|
|
126,287 |
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of Period |
|
$ |
336,546 |
|
|
$ |
125,998 |
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information: |
|
|
|
|
|
|
|
|
Interest Paid |
|
$ |
188,940 |
|
|
$ |
110,766 |
|
Income Taxes Paid, Net of Refunds |
|
|
231,319 |
|
|
|
241,887 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Nine Months |
|
|
|
Ended September 30, |
|
|
Ended September 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Net Income |
|
$ |
370,600 |
|
|
$ |
292,713 |
|
|
$ |
1,005,785 |
|
|
$ |
739,595 |
|
Other Comprehensive Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Loss on Derivative Instruments |
|
|
|
|
|
|
|
|
|
|
(12,576 |
) |
|
|
|
|
Amortization of Pension Components |
|
|
885 |
|
|
|
1,026 |
|
|
|
6,501 |
|
|
|
5,608 |
|
Pension Remeasurement Loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,427 |
) |
Foreign Currency Translation
Adjustment |
|
|
(192,205 |
) |
|
|
127,370 |
|
|
|
(154,879 |
) |
|
|
255,745 |
|
Other |
|
|
148 |
|
|
|
39 |
|
|
|
335 |
|
|
|
114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income |
|
$ |
179,428 |
|
|
$ |
421,148 |
|
|
$ |
845,166 |
|
|
$ |
985,635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. General
The condensed consolidated financial statements of Weatherford International Ltd. and all
majority-owned subsidiaries (the Company) included herein are unaudited; however, they include
all adjustments of a normal recurring nature which, in the opinion of management, are necessary to
present fairly the Companys Condensed Consolidated Balance Sheet at September 30, 2008, Condensed
Consolidated Statements of Income, Condensed Consolidated Statements of Comprehensive Income and
Condensed Consolidated Statements of Cash Flows for the three and nine months ended September 30,
2008 and 2007. Although the Company believes the disclosures in these financial statements are
adequate to make the interim information presented not misleading, certain information relating to
the Companys 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 Securities and Exchange Commission rules and regulations.
These financial statements should be read in conjunction with the audited consolidated financial
statements for the year ended December 31, 2007 and the notes thereto included in the Companys
Annual Report on Form 10-K. The results of operations for the three and nine months ended
September 30, 2008 are not necessarily indicative of the results expected for the full year.
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 disclosure of contingent liabilities. On an
ongoing basis, the Company evaluates its estimates, 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, self-insurance, pension and post
retirement benefit plans and contingent liabilities. The Company bases its 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.
Certain reclassifications have been made to conform prior year financial information to the
current period presentation.
The Companys Board of Directors approved a two-for-one share split of our common shares
effected through a share dividend. Shareholders of record on May 9, 2008 were entitled to the
dividend, which was distributed on May 23, 2008. All share and option amounts included in the
accompanying consolidated financial statements and related notes reflect the effect of the share
split.
2. Business Combinations
The Company has acquired businesses critical to its 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. Acquisitions are accounted for using the purchase method of accounting and the purchase
price is allocated to the net assets acquired based upon their estimated fair values at the date of
acquisition. Final valuations of assets and liabilities are obtained and recorded within one year
from the date of the acquisition.
In August of 2005, the Company acquired Precision Energy Services and Precision Drilling
International. In association with the acquisition, the Company identified pre-acquisition
contingencies related to duties and taxes associated with the importation of certain equipment
assets to foreign jurisdictions. The Company calculated a range of reasonable estimates of the
costs associated with these duties. As no amount within the range appeared to be a better estimate
than any other, the Company used the amount that is the low end of the range. At September 30,
2008, the Company has a liability in the amount of $13 million for this matter. If the Company
used the high end of the range, the aggregate potential liability would be approximately $19
million higher.
5
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
During the nine months ended September 30, 2008, the Company acquired various businesses for
cash consideration of $683 million and approximately one million common shares valued at $43
million. The largest acquisition during the period was for International Logging, Inc., a provider
of surface logging and formation evaluation and drilling related services.
3. Equity Investment Acquisition
The Company acquired a 33% ownership interest in Premier Business Solutions (PBS) in June
2007 for approximately $330 million. PBS conducts business in Russia and is the worlds largest
electric submersible pump manufacturer by volume. In January 2008, the Company sold its electrical
submersible pumps (ESP) product line to PBS and received a combination of cash and an additional
equity investment in PBS in consideration of the sale. The Companys investment in PBS is included
in Equity Investments in the accompanying Condensed Consolidated Balance Sheets at September 30,
2008 and December 31, 2007. The assets and liabilities of the ESP product line were classified as
held for sale at December 31, 2007 and included in Other Current Assets and Other Current
Liabilities in the Condensed Consolidated Balance Sheet.
4. Discontinued Operations
In June 2007, the Companys management approved a plan to sell its oil and gas development and
production business. The Company finalized the divestiture of the business in June 2008 and
recorded an $11 million gain, net of taxes, during the three months ended June 30, 2008. This gain
was partially offset by operating and legal expenses incurred during the period. Included in the
loss for the nine months ended September 30, 2008, is approximately $21 million, net of taxes,
incurred in connection with the settlement of a legal dispute regarding the business.
5. Inventories
The components of inventory were as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands) |
|
Raw materials, components and supplies |
|
$ |
433,427 |
|
|
$ |
373,383 |
|
Work in process |
|
|
166,272 |
|
|
|
118,407 |
|
Finished goods |
|
|
1,422,115 |
|
|
|
1,115,894 |
|
|
|
|
|
|
|
|
|
|
$ |
2,021,814 |
|
|
$ |
1,607,684 |
|
|
|
|
|
|
|
|
Work in process and finished goods inventories include the cost of materials, labor and plant
overhead.
6. Goodwill
Goodwill is evaluated for impairment on at least an annual basis. The Company performs its
annual goodwill impairment test as of October 1. The Companys 2007 impairment test indicated
goodwill was not impaired. The Company will continue to test its goodwill annually as of October 1
unless events occur or circumstances change between annual tests that would more likely than not
reduce the fair value of a reporting unit below its carrying amount.
6
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
The changes in the carrying amount of goodwill for the nine months ended September 30, 2008
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe/ |
|
|
Middle East/ |
|
|
|
|
|
|
North |
|
|
Latin |
|
|
West Africa/ |
|
|
North Africa/ |
|
|
|
|
|
|
America |
|
|
America |
|
|
CIS |
|
|
Asia |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
December 31, 2007 |
|
$ |
1,918,411 |
|
|
$ |
156,825 |
|
|
$ |
678,433 |
|
|
$ |
604,821 |
|
|
$ |
3,358,490 |
|
Acquisitions |
|
|
104,297 |
|
|
|
77,560 |
|
|
|
196,642 |
|
|
|
152,200 |
|
|
|
530,699 |
|
Disposals |
|
|
(4,380 |
) |
|
|
(27 |
) |
|
|
|
|
|
|
|
|
|
|
(4,407 |
) |
Purchase price and other
adjustments |
|
|
2,222 |
|
|
|
7,161 |
|
|
|
6,644 |
|
|
|
(15,909 |
) |
|
|
118 |
|
Foreign currency
translation |
|
|
(49,034 |
) |
|
|
(1,571 |
) |
|
|
(18,020 |
) |
|
|
(3,632 |
) |
|
|
(72,257 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2008 |
|
$ |
1,971,516 |
|
|
$ |
239,948 |
|
|
$ |
863,699 |
|
|
$ |
737,480 |
|
|
$ |
3,812,643 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7. Short-term Borrowings and Current Portion of Long-term Debt
The components of short-term borrowings were as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands) |
|
Revolving credit facilities |
|
$ |
1,030,000 |
|
|
$ |
491,000 |
|
Commercial paper program |
|
|
|
|
|
|
191,621 |
|
Other short-term bank loans |
|
|
32,415 |
|
|
|
80,025 |
|
|
|
|
|
|
|
|
Total Short-term Borrowings |
|
|
1,062,415 |
|
|
|
762,646 |
|
Current Portion of Long-term Debt |
|
|
11,585 |
|
|
|
11,574 |
|
|
|
|
|
|
|
|
Short-term Borrowings and Current Portion of Long-term Debt |
|
$ |
1,074,000 |
|
|
$ |
774,220 |
|
|
|
|
|
|
|
|
In March 2008, the Company completed a $1.5 billion long-term debt offering comprised of (i)
$500 million of 5.15% Senior Notes due in 2013 (5.15% Senior Notes), (ii) $500 million of 6.00%
Senior Notes due 2018 (6.00% Senior Notes) and (iii) $500 million of 7.00% Senior Notes due 2038
(7.00% Senior Notes). Net proceeds of $1.47 billion were used to repay short-term borrowings and
for general corporate purposes, including capital expenditures and business acquisitions. Interest
on these notes is due semi-annually on March 15 and September 15 of each year.
The Company maintains a revolving credit agreement with a syndicate of banks. The aggregate
lending commitment of this facility is $1.5 billion and allows for a combination of borrowings,
support of the Companys commercial paper program and issuances of letters of credit. There were
$28 million in outstanding letters of credit under this facility at September 30, 2008.
On March 19, 2008, the Company entered into an additional $250 million revolving credit
facility with a syndicate of banks. This facility allows for a combination of borrowings, support
of the Companys commercial paper program and issuances of letters of credit.
Both committed borrowing facilities require the Company to maintain a debt-to-capitalization
ratio of less than 60% and contain other covenants and representations customary for an
investment-grade commercial credit. The Company was in compliance with these covenants at
September 30, 2008.
The Company has a $1.5 billion commercial paper program under which it may from time to time
issue short-term unsecured notes. The commercial paper program is supported by the Companys
revolving credit facilities.
7
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
The Company has short-term borrowings with various domestic and international institutions
pursuant to uncommitted facilities. At September 30, 2008, the Company had $32 million in
short-term borrowings outstanding under these arrangements with a weighted average interest rate of
7.7%. In addition, the Company had $208 million of letters of credit and bid and performance bonds
outstanding under these uncommitted facilities.
The Companys short-term borrowings approximate their fair value at September 30, 2008 and
December 31, 2007.
8. Derivative Instruments
Interest Rate Swaps
Upon completion of the long-term debt offering in March 2008, the Company entered into
interest rate swap agreements on an aggregate notional amount of $500 million against its 5.15%
Senior Notes. These agreements were outstanding at September 30, 2008. The aggregate fair value
of the interest rate swaps at September 30, 2008 resulted in a liability of $14 million with the
offset to Long-term Debt on the accompanying Consolidated Balance Sheet.
Cash Flow Hedges
In March 2008, the Company entered into interest rate derivative instruments for a notional
amount of $500 million to hedge projected exposures to interest rates in anticipation of the 7.00%
Senior Notes issued in March 2008. Those hedges were terminated at the time of the issuance. The
Company paid a cash settlement of $13 million at termination, and the loss on these hedges is being
amortized to interest expense over the life of the 7.00% Senior Notes.
Other Derivative Instruments
As of September 30, 2008, we had several foreign currency forward contracts and one option
contract with notional amounts aggregating $488 million, which were entered into to hedge exposure
to currency fluctuations in various foreign currencies, including, but not limited to, the British
pound sterling, the Canadian dollar, the euro and the Norwegian kroner. The total estimated fair
value of these contracts at September 30, 2008 resulted in a liability of approximately $1 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.
In addition, after the closing of the acquisition of Precision Energy Services and Precision
Drilling International, the Company entered into a series of cross-currency swaps between the U.S.
dollar and Canadian dollar to hedge certain exposures to the Canadian dollar created as a result of
the acquisition. At September 30, 2008, the Company had notional amounts outstanding of $364
million. The total estimated fair value of these contracts at September 30, 2008 resulted in a
liability of $50 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.
Effective January 1, 2008, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 159, The Fair Value Option for Financial Assets and Financial Liabilitiesincluding an
amendment of FASB Statement No. 115, (SFAS No. 159). SFAS No. 159 permits entities to choose to
measure many financial instruments and certain other assets and liabilities at fair value on an
instrument-by-instrument basis (the fair value option) with changes in fair value reported in
earnings. The Company already records derivative contracts and hedging activities at fair value in
accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as
amended. The adoption of SFAS No. 159 had no impact on the financial statements as the Company did
not elect the fair value option for any other financial instruments or certain other assets and
liabilities.
8
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Effective January 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements, (SFAS
No. 157) as it relates to financial assets and financial liabilities. In February 2008, the
Financial Accounting Standards Board (FASB) issued FASB Staff Position No. FAS 157-2, Effective
Date of FASB Statement No. 157, which delayed the effective date of SFAS No. 157 for all
nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at
fair value in the financial statements on at least an annual basis, until January 1, 2009 for
calendar year-end entities. Accordingly, the Company will defer the adoption of SFAS No. 157 for
its nonfinancial assets and nonfinancial liabilities until January 1, 2009.
SFAS No. 157 defines fair value, establishes a framework for measuring fair value under
generally accepted accounting principals and expands disclosures about fair value measurements. The
provisions of this standard apply to other accounting pronouncements that require or permit fair
value measurements. The adoption of SFAS No. 157, as it relates to financial assets, had no impact
on the Companys consolidated financial position, results of operations and cash flows. The
Company is currently evaluating the potential impact of SFAS No. 157, as it relates to nonfinancial
assets and nonfinancial liabilities, on its consolidated financial position, results of operations
and cash flows.
SFAS No. 157 defines fair value as the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants at the measurement
date. SFAS No. 157 establishes a fair value hierarchy that distinguishes between market
participant assumptions developed based on market data obtained from independent sources
(observable inputs) and an entitys own assumptions about market participant assumptions developed
based on the best information available in the circumstances (unobservable inputs). The fair value
hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted
prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to
unobservable inputs (Level 3). The three levels of the fair value hierarchy under SFAS No. 157 are
described below:
Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement
date for identical, unrestricted assets or liabilities.
Level 2 Inputs other than quoted prices included within Level 1 that are observable for the
asset or liability, either directly or indirectly, including quoted prices for similar assets or
liabilities in active markets; quoted prices for identical or similar assets or liabilities in
markets that are not active; inputs other than quoted prices that are observable for the asset or
liability (e.g., interest rates); and inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
Level 3 Inputs that are both significant to the fair value measurement and unobservable.
In accordance with SFAS No. 157, the following table presents the Companys assets and
liabilities that are measured and recognized at fair value on a recurring basis classified under
the appropriate level of the fair value hierarchy as of September 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2008 |
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
|
|
|
|
|
(In thousands) |
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts |
|
|
|
|
|
|
64,810 |
|
|
|
|
|
|
|
64,810 |
|
9
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
9. Income Taxes
The Companys effective tax rates were 17.8% and 17.0% for the three and nine months ended
September 30, 2008, respectively, and 19.0% and 25.8% for the three and nine months ended September
30, 2007, respectively. The decrease in the effective tax rate was due primarily to withholding
taxes of $50 million that were required to be paid on a distribution made to one of the Companys
foreign subsidiaries during the second quarter of 2007. In addition, the Company recognized a gain
of $81 million, with no related tax effect, on its sale of a 50% interest in a subsidiary in the
second quarter of 2008. The remainder of the decrease is due to the net benefits realized from the
refinement of the Companys international tax structure and changes in the Companys geographic
earnings mix.
There were no material changes to the total amount of unrecognized tax benefits during the
first nine months of 2008.
10. Earnings Per Share
Basic earnings per share for all periods presented equals net income divided by the weighted
average number of the Companys common shares, $1.00 par value (Common Shares) outstanding during
the period. Diluted earnings per share is computed by dividing net income by the weighted average
number of Common Shares outstanding during the period, as adjusted for the dilutive effect of the
Companys stock option and restricted share plans and warrant.
The Companys Board of Directors approved a two-for-one share split of its Common Shares
effected through a share dividend. Shareholders of record on May 9, 2008 were entitled to the
dividend, which was distributed on May 23, 2008. All share and option amounts included in the
accompanying consolidated financial statements and related notes reflect the effect of the share
split.
The following reconciles basic and diluted weighted average shares outstanding (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Nine Months |
|
|
|
Ended September 30, |
|
|
Ended September 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Basic weighted average shares outstanding |
|
|
682,532 |
|
|
|
676,352 |
|
|
|
681,531 |
|
|
|
677,012 |
|
Dilutive effect of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant |
|
|
7,553 |
|
|
|
6,250 |
|
|
|
7,626 |
|
|
|
5,114 |
|
Stock option and restricted share plans |
|
|
11,199 |
|
|
|
13,894 |
|
|
|
10,942 |
|
|
|
12,790 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares
outstanding |
|
|
701,284 |
|
|
|
696,496 |
|
|
|
700,099 |
|
|
|
694,916 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11. Supplemental Cash Flow Information
Gain on sales of assets and businesses, net, for the nine months
ended September 30, 2008 of $111 million includes a $19 million
write-off of fixed assets resulting from our exit from sanctioned
countries, an $81 million gain recognized in connection with the sale
of a 50% interest in a subsidiary the Company controls to Qatar
Petroleum and $49 million in gains related to our divesture of other
assets and businesses. For the nine months ended September 30, 2007, the
$35 million gain includes the divestiture of two equity
investments.
During the nine months ended September 30, 2007 there were non-cash
investing activities of $20 million related to a note received in
exchange for the sale of a minority interest in a subsidiary of the
Company.
10
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
12. Share-Based Compensation
The Company recognized the following employee share-based compensation expense during the
three and nine months ended September 30, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
Nine Months |
|
|
Ended September 30, |
|
Ended September 30, |
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
|
|
|
|
|
(In thousands) |
|
|
|
|
Share-based compensation |
|
$ |
26,626 |
|
|
$ |
19,896 |
|
|
$ |
74,760 |
|
|
$ |
57,109 |
|
Related tax benefit |
|
|
9,319 |
|
|
|
6,964 |
|
|
|
26,166 |
|
|
|
19,988 |
|
During the nine months ended September 30, 2008, the Company granted six million restricted
share awards and units at a weighted average grant date fair value of $34.69 per share.
As of September 30, 2008, there was $268 million of total unrecognized compensation cost
related to the Companys unvested stock options and restricted share grants. This cost is expected
to be recognized over a weighted-average period of 2.2 years.
13. Retirement and Employee Benefit Plans
The Company has 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, 2008 and 2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
|
2008 |
|
|
2007 |
|
|
|
United |
|
|
|
|
|
|
United |
|
|
|
|
|
|
States |
|
|
International |
|
|
States |
|
|
International |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Service cost |
|
$ |
720 |
|
|
$ |
3,413 |
|
|
$ |
660 |
|
|
$ |
2,798 |
|
Interest cost |
|
|
1,511 |
|
|
|
2,551 |
|
|
|
1,326 |
|
|
|
2,060 |
|
Expected return on plan assets |
|
|
(179 |
) |
|
|
(2,233 |
) |
|
|
(165 |
) |
|
|
(2,001 |
) |
Amortization of transition obligation |
|
|
|
|
|
|
(1 |
) |
|
|
¾ |
|
|
|
(1 |
) |
Amortization of prior service cost (credit) |
|
|
458 |
|
|
|
(19 |
) |
|
|
527 |
|
|
|
(27 |
) |
Amortization of loss |
|
|
964 |
|
|
|
102 |
|
|
|
1,043 |
|
|
|
39 |
|
Curtailment/settlement loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
3,474 |
|
|
$ |
3,813 |
|
|
$ |
3,391 |
|
|
$ |
2,868 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
2008 |
|
|
2007 |
|
|
|
United |
|
|
|
|
|
|
United |
|
|
|
|
|
|
States |
|
|
International |
|
|
States |
|
|
International |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Service cost |
|
$ |
2,160 |
|
|
$ |
10,456 |
|
|
$ |
1,981 |
|
|
$ |
8,216 |
|
Interest cost |
|
|
4,533 |
|
|
|
7,820 |
|
|
|
3,979 |
|
|
|
6,053 |
|
Expected return on plan assets |
|
|
(537 |
) |
|
|
(6,859 |
) |
|
|
(495 |
) |
|
|
(5,887 |
) |
Amortization of transition obligation |
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
(3 |
) |
Amortization of prior service cost (credit) |
|
|
1,374 |
|
|
|
(59 |
) |
|
|
1,581 |
|
|
|
(79 |
) |
Amortization of loss |
|
|
2,892 |
|
|
|
310 |
|
|
|
3,127 |
|
|
|
113 |
|
Curtailment/settlement loss |
|
|
5,621 |
|
|
|
|
|
|
|
1,881 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
16,043 |
|
|
$ |
11,665 |
|
|
$ |
12,054 |
|
|
$ |
8,413 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
The Company previously disclosed in its financial statements for the year ended December 31,
2007, that it expected to contribute $13 million to its pension and other postretirement benefit
plans during 2008. As of September 30, 2008, the Company has contributed approximately $8 million
to these plans. Currently, the Company anticipates total contributions to approximate the original
estimates previously disclosed.
14. 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. The
accounting policies of the segments are the same as those described in the summary of significant
accounting policies.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2008 |
|
|
|
Net |
|
|
Income |
|
|
Depreciation |
|
|
|
Operating |
|
|
from |
|
|
and |
|
|
|
Revenues |
|
|
Operations |
|
|
Amortization |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
North America |
|
$ |
1,179,605 |
|
|
$ |
312,887 |
|
|
$ |
79,619 |
|
Middle East/North Africa/Asia |
|
|
637,872 |
|
|
|
146,450 |
|
|
|
49,138 |
|
Europe/West Africa/CIS |
|
|
408,993 |
|
|
|
102,385 |
|
|
|
31,911 |
|
Latin America |
|
|
314,326 |
|
|
|
69,521 |
|
|
|
23,561 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,540,796 |
|
|
|
631,243 |
|
|
|
184,229 |
|
Research and Development |
|
|
|
|
|
|
(52,026 |
) |
|
|
1,902 |
|
Corporate |
|
|
|
|
|
|
(30,750 |
) |
|
|
1,000 |
|
Other (a) |
|
|
|
|
|
|
(13,727 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,540,796 |
|
|
$ |
534,740 |
|
|
$ |
187,131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2007 |
|
|
|
Net |
|
|
Income |
|
|
Depreciation |
|
|
|
Operating |
|
|
from |
|
|
and |
|
|
|
Revenues |
|
|
Operations |
|
|
Amortization |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
North America |
|
$ |
993,828 |
|
|
$ |
264,183 |
|
|
$ |
74,047 |
|
Middle East/North Africa/Asia |
|
|
455,932 |
|
|
|
103,839 |
|
|
|
40,983 |
|
Europe/West Africa/CIS |
|
|
308,587 |
|
|
|
77,886 |
|
|
|
22,926 |
|
Latin America |
|
|
213,644 |
|
|
|
45,453 |
|
|
|
18,880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,971,991 |
|
|
|
491,361 |
|
|
|
156,836 |
|
Research and Development |
|
|
|
|
|
|
(43,199 |
) |
|
|
1,678 |
|
Corporate |
|
|
¾ |
|
|
|
(24,945 |
) |
|
|
463 |
|
Other (b) |
|
|
¾ |
|
|
|
(3,628 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,971,991 |
|
|
$ |
419,589 |
|
|
$ |
158,977 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The three months ended September 30, 2008 includes $14 million incurred in
connection with the Companys on-going investigations by the U. S. government. |
|
(b) |
|
The three months ended September 30, 2007 includes $4 million incurred in
connection with the Companys on-going investigations. |
12
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2008 |
|
|
|
Net |
|
|
Income |
|
|
Depreciation |
|
|
|
Operating |
|
|
from |
|
|
and |
|
|
|
Revenues |
|
|
Operations |
|
|
Amortization |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
North America |
|
$ |
3,282,211 |
|
|
$ |
828,792 |
|
|
$ |
229,499 |
|
Middle East/North Africa/Asia |
|
|
1,716,007 |
|
|
|
397,774 |
|
|
|
140,856 |
|
Europe/West Africa/CIS |
|
|
1,146,185 |
|
|
|
294,614 |
|
|
|
86,132 |
|
Latin America |
|
|
821,535 |
|
|
|
188,374 |
|
|
|
63,611 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,965,938 |
|
|
|
1,709,554 |
|
|
|
520,098 |
|
Research and Development |
|
|
|
|
|
|
(139,095 |
) |
|
|
5,463 |
|
Corporate |
|
|
|
|
|
|
(99,657 |
) |
|
|
2,568 |
|
Other (c) |
|
|
|
|
|
|
(23,604 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
6,965,938 |
|
|
$ |
1,447,198 |
|
|
$ |
528,129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2007 |
|
|
|
Net |
|
|
Income |
|
|
Depreciation |
|
|
|
Operating |
|
|
from |
|
|
and |
|
|
|
Revenues |
|
|
Operations |
|
|
Amortization |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
North America |
|
$ |
2,883,825 |
|
|
$ |
756,661 |
|
|
$ |
202,770 |
|
Middle East/North Africa/Asia |
|
|
1,286,022 |
|
|
|
284,310 |
|
|
|
114,101 |
|
Europe/West Africa/CIS |
|
|
844,184 |
|
|
|
202,911 |
|
|
|
62,097 |
|
Latin America |
|
|
626,190 |
|
|
|
139,784 |
|
|
|
52,737 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,640,221 |
|
|
|
1,383,666 |
|
|
|
431,705 |
|
Research and Development |
|
|
|
|
|
|
(124,413 |
) |
|
|
4,967 |
|
Corporate |
|
|
|
|
|
|
(75,565 |
) |
|
|
2,362 |
|
Other (d) |
|
|
|
|
|
|
(20,944 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
5,640,221 |
|
|
$ |
1,162,744 |
|
|
$ |
439,034 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c) |
|
The nine months ended September 30, 2008 includes $57 million for costs
incurred in connection with the Companys withdrawal from sanctioned countries. These
costs were included in the Cost of Products line item in the Condensed Consolidated
Statements of Income. In addition, severance costs of $15 million were incurred
associated with reorganization activities and $33 million was expended in connection
with the Companys on-going investigations. These charges were partially offset by a
gain of $81 million recognized in connection with the sale of a 50% interest in a
subsidiary the Company controls to Qatar Petroleum for cash consideration of $113
million. |
|
(d) |
|
The nine months ended September 30, 2007 includes $17 million for severance
charges associated with reorganization activities and $4 million in investigation costs
incurred in connection with the Companys on-going investigations by the U. S.
government. |
13
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
15. Disputes, Litigation and Contingencies
U.S. Government and Internal Investigations
We are currently involved in government and internal investigations involving various of
our operations. We participated in the United Nations oil-for-food program governing sales of
goods and services into Iraq. The SEC has subpoenaed certain documents in connection with an
investigation into our participation in the oil-for-food program. The U.S. Department of Justice is
also conducting an investigation of our participation in the oil-for-food program. We are
cooperating fully with these investigations. We have retained legal counsel, reporting to our audit
committee, to investigate this matter. These investigations are ongoing, and we cannot anticipate
the timing, outcome or possible impact of these investigations, financial or otherwise.
The U.S. Department of Commerce, Bureau of Industry & Security and the U.S. Department of
Justice are investigating allegations of improper sales of products and services by us and our
subsidiaries in sanctioned countries. We are cooperating fully with this investigation. We have
retained legal counsel, reporting to our audit committee, to investigate this matter. This
investigation is ongoing, and we cannot anticipate the timing, outcome or possible impact of the
investigation, financial or otherwise.
In light of this investigation and of the current 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 U.S. economic
and trade sanctions, including Cuba, Iran, Sudan and Syria. Effective September 2007, we ceased
entering into any new contracts relating to these countries and began an orderly discontinuation
and winding down of our existing business in these sanctioned countries. Effective March 31, 2008,
we completed our withdrawal from these countries.
With the assistance of outside counsel and in connection with the U.S. government
investigations, we are conducting internal investigations regarding the embezzlement of
approximately $175,000 at a European subsidiary and the possible improper use of these funds,
including possible payments to government officials in Europe, during the period from 2000 to 2004,
and the Companys compliance with the Foreign Corrupt Practices
Act and other laws worldwide. As part of this internal investigation, we have also uncovered potential violations of U.S. law in connection with a joint venture in Angola. These
internal investigations are ongoing, and we cannot anticipate the timing, outcome or possible
impact, if any, of the investigations, financial or otherwise. We have informed the SEC and the DOJ
of these internal investigations, and the results of the internal investigations will be provided
to the SEC and DOJ.
The DOJ, the 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
trading sanctions 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 public corporations and
individuals in similar investigations, under which civil and criminal penalties were imposed,
including in some cases multi-million dollar fines and other penalties and sanctions. Under trading
sanctions laws, the DOJ may also seek to impose modifications to business practices, including
immediate cessation of all business activities in sanctioned countries, and modifications to
compliance programs, which may increase compliance costs. In addition, our 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 common shares. Based on available information, we
cannot predict what, if any, actions the DOJ, SEC or other authorities may take in our situation or
the effect any such actions may have on our consolidated financial position or results of
operations. To the extent we violated U.S. export regulations, fines and other penalties may be
imposed. Because these matters are now pending before the indicated agencies, there can be no
assurance that actual fines or penalties, if any, will not have a material adverse affect on our
business, financial condition, liquidity or results of operations.
During the nine months ended September 30, 2008, we incurred $57 million for costs incurred in
connection with our exit from sanctioned countries and $33 million in connection with complying
with these on-going investigations. We will 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 the local governments, but we cannot
quantify those charges or be certain of the timing of them.
14
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Other Litigation and Disputes
The Company is aware of various disputes and potential claims and is a party in various
litigation involving claims against the Company, some of which are covered by insurance. Based on
facts currently known, the Company believes that the ultimate liability, if any, which may result
from known claims, disputes and pending litigation, would not have a material adverse effect on the
Companys consolidated financial position, results of operations or cash flows.
16. New Accounting Pronouncements
In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS
No. 141R). SFAS No. 141R establishes principles and requirements for how a company recognizes
assets acquired, liabilities assumed, contractual contingencies and contingent consideration
measured at fair value at the acquisition date. The statement also establishes disclosure
requirements which will enable users to evaluate the nature and financial effect of the business
combination. SFAS No. 141R is effective for business combinations completed in fiscal years
beginning after December 15, 2008.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements an amendment of ARB No. 51 (SFAS No. 160). SFAS No. 160 establishes
accounting and reporting standards for ownership interests in subsidiaries held by parties other
than the parent, the amount of consolidated net income attributable to the parent and to the
noncontrolling interest, changes in a parents ownership interest and the valuation of retained
noncontrolling equity investments when a subsidiary is deconsolidated. The statement also
establishes reporting requirements that provide sufficient disclosures that clearly identify and
distinguish between the interest of the parent and the interest of the noncontrolling owners. SFAS
No. 160 is effective for fiscal years beginning after December 15, 2008. The Company is currently
evaluating the impact that the adoption of SFAS No. 160 will have on our financial position,
results of operation and cash flows.
In March 2008, the FASB issued Statement No. 161, Disclosures about Derivative Instruments and
Hedging Activities (SFAS No. 161). SFAS No. 161 requires enhanced disclosures about an entitys
derivative and hedging activity. Entities are required to provide enhanced disclosures about how
and why they use derivative instruments, how derivative instruments and related hedged items are
accounted for under SFAS No. 133 and how derivative instruments and related hedged items affect an
entitys financial position, financial performance and cash flows. This statement is effective for
financial statements issued for fiscal years and interim periods beginning after November 15, 2008.
The Company is currently evaluating the potential impact, if any, of the adoption of SFAS No. 161
on its consolidated financial position, results of operations and cash flows.
17. Subsequent Event
In October 2008, the Company entered into an additional $550 million in revolving credit
facilities with a syndicate of banks. These facilities allow for a combination of borrowings and
issuances of letters of credit. These facilities mature in October 2009.
18. Condensed Consolidating Financial Statements
The following obligations of Weatherford International, Inc. (Issuer) were guaranteed by
Weatherford International Ltd. (Parent) at September 30, 2008 and December 31, 2007: (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 the Parent were guaranteed by the Issuer at September 30, 2008:
(i) both revolving credit facilities, (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 and (viii) issuances of notes under the commercial paper program.
15
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
The following obligations of the Parent were guaranteed by the Issuer at December 31, 2007:
(i) the revolving credit facility, (ii) the 4.95% Senior Notes, (iii) the 5.50% Senior Notes, (iv)
the 6.50% Senior Notes and (v) issuances of notes under the commercial paper program.
As a result of these guarantee arrangements, the Company is 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 the Companys 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. Certain prior year amounts
have been reclassified to conform to the current year presentation.
Condensed Consolidating Balance Sheet
September 30, 2008
(unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Issuer |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidation |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents |
|
$ |
399 |
|
|
$ |
27,096 |
|
|
$ |
309,051 |
|
|
$ |
|
|
|
$ |
336,546 |
|
Other Current Assets |
|
|
11,585 |
|
|
|
23,243 |
|
|
|
5,135,764 |
|
|
|
|
|
|
|
5,170,592 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,984 |
|
|
|
50,339 |
|
|
|
5,444,815 |
|
|
|
|
|
|
|
5,507,138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Investments in Affiliates |
|
|
13,895,400 |
|
|
|
5,864,556 |
|
|
|
12,678,730 |
|
|
|
(32,438,686 |
) |
|
|
|
|
Shares Held in Parent |
|
|
|
|
|
|
135,112 |
|
|
|
770,619 |
|
|
|
(905,731 |
) |
|
|
|
|
Intercompany Receivables, Net |
|
|
1,181,406 |
|
|
|
964,157 |
|
|
|
|
|
|
|
(2,145,563 |
) |
|
|
|
|
Other Assets |
|
|
61,300 |
|
|
|
175,313 |
|
|
|
10,455,160 |
|
|
|
|
|
|
|
10,691,773 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
15,150,090 |
|
|
$ |
7,189,477 |
|
|
$ |
29,349,324 |
|
|
$ |
(35,489,980 |
) |
|
$ |
16,198,911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term Borrowings and Current
Portion of Long-term Debt |
|
$ |
615,795 |
|
|
$ |
1,731 |
|
|
$ |
456,474 |
|
|
$ |
|
|
|
$ |
1,074,000 |
|
Accounts Payable and Other Current
Liabilities |
|
|
35,265 |
|
|
|
37,303 |
|
|
|
1,493,423 |
|
|
|
|
|
|
|
1,565,991 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
651,060 |
|
|
|
39,034 |
|
|
|
1,949,897 |
|
|
|
|
|
|
|
2,639,991 |
|
Long-term Debt |
|
|
2,678,794 |
|
|
|
1,849,726 |
|
|
|
15,590 |
|
|
|
|
|
|
|
4,544,110 |
|
Intercompany Payables, Net |
|
|
|
|
|
|
|
|
|
|
2,145,563 |
|
|
|
(2,145,563 |
) |
|
|
|
|
Other Long-term Liabilities |
|
|
111,577 |
|
|
|
12,425 |
|
|
|
429,949 |
|
|
|
|
|
|
|
553,951 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,441,431 |
|
|
|
1,901,185 |
|
|
|
4,540,999 |
|
|
|
(2,145,563 |
) |
|
|
7,738,052 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority Interest in Consolidated
Subsidiaries |
|
|
|
|
|
|
|
|
|
|
77,581 |
|
|
|
|
|
|
|
77,581 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders Equity |
|
|
11,708,659 |
|
|
|
5,288,292 |
|
|
|
24,730,744 |
|
|
|
(33,344,417 |
) |
|
|
8,383,278 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
15,150,090 |
|
|
$ |
7,189,477 |
|
|
$ |
29,349,324 |
|
|
$ |
(35,489,980 |
) |
|
$ |
16,198,911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Condensed Consolidating Balance Sheet
December 31, 2007
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Issuer |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidation |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents |
|
$ |
228 |
|
|
$ |
1,489 |
|
|
$ |
168,997 |
|
|
$ |
|
|
|
$ |
170,714 |
|
Other Current Assets |
|
|
13,591 |
|
|
|
2,537 |
|
|
|
4,284,927 |
|
|
|
|
|
|
|
4,301,055 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,819 |
|
|
|
4,026 |
|
|
|
4,453,924 |
|
|
|
|
|
|
|
4,471,769 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Investments in Affiliates |
|
|
12,008,907 |
|
|
|
4,696,938 |
|
|
|
13,600,365 |
|
|
|
(30,306,210 |
) |
|
|
|
|
Shares Held in Parent |
|
|
¾ |
|
|
|
129,428 |
|
|
|
794,774 |
|
|
|
(924,202 |
) |
|
|
|
|
Intercompany Receivables, Net |
|
|
(127,594 |
) |
|
|
1,233,846 |
|
|
|
¾ |
|
|
|
(1,106,252 |
) |
|
|
|
|
Other Assets |
|
|
52,031 |
|
|
|
34,186 |
|
|
|
8,632,971 |
|
|
|
|
|
|
|
8,719,188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
11,947,163 |
|
|
$ |
6,098,424 |
|
|
$ |
27,482,034 |
|
|
$ |
(32,336,664 |
) |
|
$ |
13,190,957 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term Borrowings and Current
Portion
of Long-term Debt |
|
$ |
582,389 |
|
|
$ |
24,854 |
|
|
$ |
166,977 |
|
|
$ |
|
|
|
$ |
774,220 |
|
Accounts Payable and Other Current
Liabilities |
|
|
47,574 |
|
|
|
7,959 |
|
|
|
1,372,612 |
|
|
|
|
|
|
|
1,428,145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
629,963 |
|
|
|
32,813 |
|
|
|
1,539,589 |
|
|
|
|
|
|
|
2,202,365 |
|
Long-term Debt |
|
|
1,198,418 |
|
|
|
1,850,594 |
|
|
|
17,323 |
|
|
|
|
|
|
|
3,066,335 |
|
Intercompany Payables, Net |
|
|
|
|
|
|
¾ |
|
|
|
1,106,252 |
|
|
|
(1,106,252 |
) |
|
|
|
|
Other Long-term Liabilities |
|
|
91,392 |
|
|
|
22,556 |
|
|
|
368,263 |
|
|
|
|
|
|
|
482,211 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,919,773 |
|
|
|
1,905,963 |
|
|
|
3,031,427 |
|
|
|
(1,106,252 |
) |
|
|
5,750,911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority Interest In Consolidated
Subsidiaries |
|
|
|
|
|
|
|
|
|
|
33,327 |
|
|
|
|
|
|
|
33,327 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders Equity |
|
|
10,027,390 |
|
|
|
4,192,461 |
|
|
|
24,417,280 |
|
|
|
(31,230,412 |
) |
|
|
7,406,719 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
11,947,163 |
|
|
$ |
6,098,424 |
|
|
$ |
27,482,034 |
|
|
$ |
(32,336,664 |
) |
|
$ |
13,190,957 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Condensed Consolidating Statements of Income
Three Months Ended September 30, 2008
(unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Issuer |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidation |
|
Revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
2,540,796 |
|
|
$ |
|
|
|
$ |
2,540,796 |
|
Costs and Expenses |
|
|
(8,211 |
) |
|
|
(611 |
) |
|
|
(1,997,234 |
) |
|
|
|
|
|
|
(2,006,056 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss) |
|
|
(8,211 |
) |
|
|
(611 |
) |
|
|
543,562 |
|
|
|
|
|
|
|
534,740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense, Net |
|
|
(30,446 |
) |
|
|
(28,677 |
) |
|
|
(1,398 |
) |
|
|
|
|
|
|
(60,521 |
) |
Intercompany Charges, Net |
|
|
26,353 |
|
|
|
|
|
|
|
(26,353 |
) |
|
|
|
|
|
|
|
|
Equity in Subsidiary Income |
|
|
393,503 |
|
|
|
479,622 |
|
|
|
|
|
|
|
(873,125 |
) |
|
|
|
|
Other, Net |
|
|
(10,599 |
) |
|
|
(342 |
) |
|
|
2,698 |
|
|
|
|
|
|
|
(8,243 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Continuing Operations
Before Income Taxes and Minority Interest |
|
|
370,600 |
|
|
|
449,992 |
|
|
|
518,509 |
|
|
|
(873,125 |
) |
|
|
465,976 |
|
Provision for Income Taxes |
|
|
|
|
|
|
(56,489 |
) |
|
|
(26,501 |
) |
|
|
|
|
|
|
(82,990 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Continuing Operations
Before Minority Interest |
|
|
370,600 |
|
|
|
393,503 |
|
|
|
492,008 |
|
|
|
(873,125 |
) |
|
|
382,986 |
|
Minority Interest, Net of Taxes |
|
|
|
|
|
|
|
|
|
|
(12,386 |
) |
|
|
|
|
|
|
(12,386 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Continuing Operations |
|
|
370,600 |
|
|
|
393,503 |
|
|
|
479,622 |
|
|
|
(873,125 |
) |
|
|
370,600 |
|
Loss from Discontinued Operation, Net of Taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
|
$ |
370,600 |
|
|
$ |
393,503 |
|
|
$ |
479,622 |
|
|
$ |
(873,125 |
) |
|
$ |
370,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statements of Income
Three Months Ended September 30, 2007
(unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Issuer |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidation |
|
Revenues |
|
$ |
¾ |
|
|
$ |
¾ |
|
|
$ |
1,971,991 |
|
|
$ |
¾ |
|
|
$ |
1,971,991 |
|
Costs and Expenses |
|
|
(3,027 |
) |
|
|
(272 |
) |
|
|
(1,549,103 |
) |
|
|
¾ |
|
|
|
(1,552,402 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss) |
|
|
(3,027 |
) |
|
|
(272 |
) |
|
|
422,888 |
|
|
|
¾ |
|
|
|
419,589 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense, Net |
|
|
(19,087 |
) |
|
|
(30,131 |
) |
|
|
(976 |
) |
|
|
¾ |
|
|
|
(50,194 |
) |
Intercompany Charges, Net |
|
|
36,021 |
|
|
|
26,700 |
|
|
|
(62,721 |
) |
|
|
¾ |
|
|
|
¾ |
|
Equity in Subsidiary Income |
|
|
269,206 |
|
|
|
271,357 |
|
|
|
¾ |
|
|
|
(540,563 |
) |
|
|
¾ |
|
Other, Net |
|
|
9,600 |
|
|
|
114 |
|
|
|
(8,432 |
) |
|
|
¾ |
|
|
|
1,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Continuing Operations
Before Income Taxes and Minority Interest |
|
|
292,713 |
|
|
|
267,768 |
|
|
|
350,759 |
|
|
|
(540,563 |
) |
|
|
370,677 |
|
Benefit (Provision) for Income Taxes |
|
|
¾ |
|
|
|
1,438 |
|
|
|
(71,867 |
) |
|
|
¾ |
|
|
|
(70,429 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Continuing Operations
Before Minority Interest |
|
|
292,713 |
|
|
|
269,206 |
|
|
|
278,892 |
|
|
|
(540,563 |
) |
|
|
300,248 |
|
Minority Interest, Net of Taxes |
|
|
¾ |
|
|
|
¾ |
|
|
|
(5,324 |
) |
|
|
¾ |
|
|
|
(5,324 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Continuing Operations |
|
|
292,713 |
|
|
|
269,206 |
|
|
|
273,568 |
|
|
|
(540,563 |
) |
|
|
294,924 |
|
Loss from Discontinued Operation, Net of Taxes |
|
|
¾ |
|
|
|
¾ |
|
|
|
(2,211 |
) |
|
|
¾ |
|
|
|
(2,211 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
|
$ |
292,713 |
|
|
$ |
269,206 |
|
|
$ |
271,357 |
|
|
$ |
(540,563 |
) |
|
$ |
292,713 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Condensed Consolidating Statements of Income
Nine Months Ended September 30, 2008
(unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Issuer |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidation |
|
Revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
6,965,938 |
|
|
$ |
|
|
|
$ |
6,965,938 |
|
Costs and Expenses |
|
|
(25,632 |
) |
|
|
(1,452 |
) |
|
|
(5,491,656 |
) |
|
|
|
|
|
|
(5,518,740 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss) |
|
|
(25,632 |
) |
|
|
(1,452 |
) |
|
|
1,474,282 |
|
|
|
|
|
|
|
1,447,198 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Income (Expense), Net |
|
|
(88,019 |
) |
|
|
(87,006 |
) |
|
|
(698 |
) |
|
|
|
|
|
|
(175,723 |
) |
Intercompany Charges, Net |
|
|
102,651 |
|
|
|
|
|
|
|
(102,651 |
) |
|
|
|
|
|
|
|
|
Equity in Subsidiary Income |
|
|
1,020,439 |
|
|
|
1,112,038 |
|
|
|
|
|
|
|
(2,132,477 |
) |
|
|
|
|
Other, Net |
|
|
(5,625 |
) |
|
|
(908 |
) |
|
|
(6,493 |
) |
|
|
|
|
|
|
(13,026 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Continuing Operations
Before Income Taxes and Minority Interest |
|
|
1,003,814 |
|
|
|
1,022,672 |
|
|
|
1,364,440 |
|
|
|
(2,132,477 |
) |
|
|
1,258,449 |
|
Provision for Income Taxes |
|
|
(29 |
) |
|
|
(2,233 |
) |
|
|
(212,228 |
) |
|
|
|
|
|
|
(214,490 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Continuing Operations
Before Minority Interest |
|
|
1,003,785 |
|
|
|
1,020,439 |
|
|
|
1,152,212 |
|
|
|
(2,132,477 |
) |
|
|
1,043,959 |
|
Minority Interest, Net of Taxes |
|
|
|
|
|
|
|
|
|
|
(25,246 |
) |
|
|
|
|
|
|
(25,246 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Continuing Operations |
|
|
1,003,785 |
|
|
|
1,020,439 |
|
|
|
1,126,966 |
|
|
|
(2,132,477 |
) |
|
|
1,018,713 |
|
Gain (Loss) from Discontinued Operation,
Net of Taxes |
|
|
2,000 |
|
|
|
|
|
|
|
(14,928 |
) |
|
|
|
|
|
|
(12,928 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
|
$ |
1,005,785 |
|
|
$ |
1,020,439 |
|
|
$ |
1,112,038 |
|
|
$ |
(2,132,477 |
) |
|
$ |
1,005,785 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statements of Income
Nine Months Ended September 30, 2007
(unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Issuer |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidation |
|
Revenues |
|
$ |
¾ |
|
|
$ |
¾ |
|
|
$ |
5,640,221 |
|
|
$ |
¾ |
|
|
$ |
5,640,221 |
|
Costs and Expenses |
|
|
(10,313 |
) |
|
|
(2,783 |
) |
|
|
(4,464,381 |
) |
|
|
¾ |
|
|
|
(4,477,477 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss) |
|
|
(10,313 |
) |
|
|
(2,783 |
) |
|
|
1,175,840 |
|
|
|
¾ |
|
|
|
1,162,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense, Net |
|
|
(73,906 |
) |
|
|
(44,387 |
) |
|
|
(965 |
) |
|
|
¾ |
|
|
|
(119,258 |
) |
Intercompany Charges, Net |
|
|
27,411 |
|
|
|
120,302 |
|
|
|
(147,713 |
) |
|
|
¾ |
|
|
|
¾ |
|
Equity in Subsidiary Income |
|
|
786,917 |
|
|
|
738,658 |
|
|
|
¾ |
|
|
|
(1,525,575 |
) |
|
|
¾ |
|
Other, Net |
|
|
9,486 |
|
|
|
1,346 |
|
|
|
(17,856 |
) |
|
|
¾ |
|
|
|
(7,024 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Continuing Operations
Before Income Taxes and Minority Interest |
|
|
739,595 |
|
|
|
813,136 |
|
|
|
1,009,306 |
|
|
|
(1,525,575 |
) |
|
|
1,036,462 |
|
Provision for Income Taxes |
|
|
¾ |
|
|
|
(26,219 |
) |
|
|
(240,859 |
) |
|
|
¾ |
|
|
|
(267,078 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Continuing Operations
Before Minority Interest |
|
|
739,595 |
|
|
|
786,917 |
|
|
|
768,447 |
|
|
|
(1,525,575 |
) |
|
|
769,384 |
|
Minority Interest, Net of Taxes |
|
|
¾ |
|
|
|
¾ |
|
|
|
(14,161 |
) |
|
|
¾ |
|
|
|
(14,161 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Continuing Operations |
|
|
739,595 |
|
|
|
786,917 |
|
|
|
754,286 |
|
|
|
(1,525,575 |
) |
|
|
755,223 |
|
Loss from Discontinued Operation, Net of Taxes |
|
|
¾ |
|
|
|
¾ |
|
|
|
(15,628 |
) |
|
|
¾ |
|
|
|
(15,628 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
|
$ |
739,595 |
|
|
$ |
786,917 |
|
|
$ |
738,658 |
|
|
$ |
(1,525,575 |
) |
|
$ |
739,595 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Condensed Consolidating Statement of Cash Flows
Nine Months Ended September 30, 2008
(unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Issuer |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidation |
|
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
|
$ |
1,005,785 |
|
|
$ |
1,020,439 |
|
|
$ |
1,112,038 |
|
|
$ |
(2,132,477 |
) |
|
$ |
1,005,785 |
|
Adjustments to Reconcile Net Income (Loss) to Net
Cash Provided (Used) by Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charges from Parent or Subsidiary |
|
|
(102,651 |
) |
|
|
|
|
|
|
102,651 |
|
|
|
|
|
|
|
|
|
(Gain) Loss from Discontinued Operations |
|
|
(2,000 |
) |
|
|
|
|
|
|
14,928 |
|
|
|
|
|
|
|
12,928 |
|
Equity in (Earnings) Loss of Affiliates |
|
|
(1,020,439 |
) |
|
|
(1,112,038 |
) |
|
|
|
|
|
|
2,132,477 |
|
|
|
|
|
Deferred Income Tax Provision (Benefit) |
|
|
|
|
|
|
(35,517 |
) |
|
|
20,577 |
|
|
|
|
|
|
|
(14,940 |
) |
Other Adjustments |
|
|
(17,648 |
) |
|
|
(127,545 |
) |
|
|
(268,005 |
) |
|
|
|
|
|
|
(413,198 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided (Used) by Operating
Activities-Continuing Operations |
|
|
(136,953 |
) |
|
|
(254,661 |
) |
|
|
982,189 |
|
|
|
|
|
|
|
590,575 |
|
Net Cash Used by Operating Activities-
Discontinued Operations |
|
|
|
|
|
|
|
|
|
|
(6,219 |
) |
|
|
|
|
|
|
(6,219 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided (Used) by Operating
Activities |
|
|
(136,953 |
) |
|
|
(254,661 |
) |
|
|
975,970 |
|
|
|
|
|
|
|
584,356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions of Businesses, Net of Cash Acquired |
|
|
|
|
|
|
|
|
|
|
(673,845 |
) |
|
|
|
|
|
|
(673,845 |
) |
Capital Expenditures for Property, Plant and
Equipment |
|
|
|
|
|
|
|
|
|
|
(1,821,813 |
) |
|
|
|
|
|
|
(1,821,813 |
) |
Acquisition of Intellectual Property |
|
|
|
|
|
|
|
|
|
|
(14,377 |
) |
|
|
|
|
|
|
(14,377 |
) |
Purchase of Equity Investment in Unconsolidated
Affiliate |
|
|
|
|
|
|
|
|
|
|
(3,422 |
) |
|
|
|
|
|
|
(3,422 |
) |
Proceeds from Sale of Assets and Businesses, Net |
|
|
|
|
|
|
|
|
|
|
290,974 |
|
|
|
|
|
|
|
290,974 |
|
Capital Contribution to Subsidiary |
|
|
(284,229 |
) |
|
|
(5,000 |
) |
|
|
|
|
|
|
289,229 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided (Used) by Investing
Activities-Continuing Operations |
|
|
(284,229 |
) |
|
|
(5,000 |
) |
|
|
(2,222,483 |
) |
|
|
289,229 |
|
|
|
(2,222,483 |
) |
Net Cash Provided by Investing Activities-
Discontinued Operations |
|
|
11,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided (Used) by Investing
Activities |
|
|
(273,229 |
) |
|
|
(5,000 |
) |
|
|
(2,222,483 |
) |
|
|
289,229 |
|
|
|
(2,211,483 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings of (Repayments on) Short-term
Debt, Net |
|
|
33,406 |
|
|
|
(21,469 |
) |
|
|
283,591 |
|
|
|
|
|
|
|
295,528 |
|
Borrowings of (Repayments on) Long-term
Debt, Net |
|
|
1,483,931 |
|
|
|
(867 |
) |
|
|
(220 |
) |
|
|
|
|
|
|
1,482,844 |
|
Proceeds from Exercise of Stock Options |
|
|
|
|
|
|
9,969 |
|
|
|
|
|
|
|
|
|
|
|
9,969 |
|
Borrowings (Repayments) Between
Subsidiaries, Net |
|
|
(1,094,513 |
) |
|
|
280,546 |
|
|
|
813,967 |
|
|
|
|
|
|
|
|
|
Proceeds from Capital Contribution |
|
|
|
|
|
|
|
|
|
|
289,229 |
|
|
|
(289,229 |
) |
|
|
|
|
Other, Net |
|
|
(12,471 |
) |
|
|
17,089 |
|
|
|
|
|
|
|
|
|
|
|
4,618 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided (Used) by Financing
Activities Continuing Operations |
|
|
410,353 |
|
|
|
285,268 |
|
|
|
1,386,567 |
|
|
|
(289,229 |
) |
|
|
1,792,959 |
|
Net Cash Provided (Used) by Financing
Activities Discontinued Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided (Used) by Financing
Activities |
|
|
410,353 |
|
|
|
285,268 |
|
|
|
1,386,567 |
|
|
|
(289,229 |
) |
|
|
1,792,959 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Decrease in Cash and Cash Equivalents |
|
|
171 |
|
|
|
25,607 |
|
|
|
140,054 |
|
|
|
|
|
|
|
165,832 |
|
Cash and Cash Equivalents at Beginning of Year |
|
|
228 |
|
|
|
1,489 |
|
|
|
168,997 |
|
|
|
|
|
|
|
170,714 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of Year |
|
$ |
399 |
|
|
$ |
27,096 |
|
|
$ |
309,051 |
|
|
$ |
|
|
|
$ |
336,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Condensed Consolidating Statements of Cash Flows
Nine Months Ended September 30, 2007
(unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Issuer |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidation |
|
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
|
$ |
739,595 |
|
|
$ |
786,917 |
|
|
$ |
738,658 |
|
|
$ |
(1,525,575 |
) |
|
$ |
739,595 |
|
Adjustments to Reconcile Net Income (Loss) to
Net Cash Provided (Used) by Operating
Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in (Earnings) Loss of Affiliates |
|
|
(786,917 |
) |
|
|
(738,658 |
) |
|
|
¾ |
|
|
|
1,525,575 |
|
|
|
¾ |
|
Loss from Discontinued Operation |
|
|
¾ |
|
|
|
¾ |
|
|
|
15,628 |
|
|
|
¾ |
|
|
|
15,628 |
|
Charges from Parent or Subsidiary |
|
|
(27,411 |
) |
|
|
(120,302 |
) |
|
|
147,713 |
|
|
|
¾ |
|
|
|
¾ |
|
Deferred Income Tax Provision (Benefit) |
|
|
¾ |
|
|
|
(16,222 |
) |
|
|
157,106 |
|
|
|
¾ |
|
|
|
140,884 |
|
Other Adjustments |
|
|
65,154 |
|
|
|
(59,825 |
) |
|
|
(370,984 |
) |
|
|
¾ |
|
|
|
(365,655 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided (Used) by Operating
Activities- Continuing Operations |
|
|
(9,579 |
) |
|
|
(148,090 |
) |
|
|
688,121 |
|
|
|
¾ |
|
|
|
530,452 |
|
Net Cash Used by Operating Activities-
Discontinued Operation |
|
|
¾ |
|
|
|
¾ |
|
|
|
(9,014 |
) |
|
|
¾ |
|
|
|
(9,014 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided (Used) by Operating
Activities |
|
|
(9,579 |
) |
|
|
(148,090 |
) |
|
|
679,107 |
|
|
|
¾ |
|
|
|
521,438 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of Businesses, Net of Cash
Acquired |
|
|
¾ |
|
|
|
¾ |
|
|
|
(224,878 |
) |
|
|
¾ |
|
|
|
(224,878 |
) |
Capital Expenditures for Property, Plant and
Equipment |
|
|
¾ |
|
|
|
¾ |
|
|
|
(1,097,470 |
) |
|
|
¾ |
|
|
|
(1,097,470 |
) |
Acquisition of Intellectual Property |
|
|
¾ |
|
|
|
¾ |
|
|
|
(17,683 |
) |
|
|
¾ |
|
|
|
(17,683 |
) |
Purchase of Equity Investment in
Unconsolidated Affiliates |
|
|
¾ |
|
|
|
¾ |
|
|
|
(334,520 |
) |
|
|
¾ |
|
|
|
(334,520 |
) |
Proceeds from Sale of Assets |
|
|
¾ |
|
|
|
¾ |
|
|
|
59,927 |
|
|
|
¾ |
|
|
|
59,927 |
|
Capital Contribution to Subsidiary |
|
|
(595,651 |
) |
|
|
(27,100 |
) |
|
|
¾ |
|
|
|
622,751 |
|
|
|
¾ |
|
Distribution of Earnings from Subsidiary |
|
|
¾ |
|
|
|
(1,486,365 |
) |
|
|
1,486,365 |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided (Used) by Investing
Activities- Continuing Operations |
|
|
(595,651 |
) |
|
|
(1,513,465 |
) |
|
|
(128,259 |
) |
|
|
622,751 |
|
|
|
(1,614,624 |
) |
Net Cash Used by Investing Activities-
Discontinued Operation |
|
|
¾ |
|
|
|
¾ |
|
|
|
(22,361 |
) |
|
|
¾ |
|
|
|
(22,361 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided (Used) by Investing
Activities |
|
|
(595,651 |
) |
|
|
(1,513,465 |
) |
|
|
(150,620 |
) |
|
|
622,751 |
|
|
|
(1,636,985 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings of (Repayments on) Short-term Debt,
Net |
|
|
(420,944 |
) |
|
|
84,072 |
|
|
|
108,616 |
|
|
|
¾ |
|
|
|
(228,256 |
) |
Borrowings of (Repayments on) Long-term Debt,
Net |
|
|
¾ |
|
|
|
1,485,497 |
|
|
|
(10,724 |
) |
|
|
¾ |
|
|
|
1,474,773 |
|
Borrowings (Repayments) Between
Subsidiaries, Net |
|
|
1,026,164 |
|
|
|
65,190 |
|
|
|
(1,091,354 |
) |
|
|
¾ |
|
|
|
¾ |
|
Purchase of Treasury Shares |
|
|
¾ |
|
|
|
¾ |
|
|
|
(179,262 |
) |
|
|
¾ |
|
|
|
(179,262 |
) |
Proceeds from Exercise of Stock Options |
|
|
¾ |
|
|
|
30,753 |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
30,753 |
|
Proceeds from Capital Contribution |
|
|
¾ |
|
|
|
¾ |
|
|
|
622,751 |
|
|
|
(622,751 |
) |
|
|
¾ |
|
Other, Net |
|
|
¾ |
|
|
|
17,250 |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
17,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided (Used) by Financing
Activities- Continuing Operations |
|
|
605,220 |
|
|
|
1,682,762 |
|
|
|
(549,973 |
) |
|
|
(622,751 |
) |
|
|
1,115,258 |
|
Net Cash Provided by Financing Activities-
Discontinued Operation |
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided (Used) by Financing
Activities |
|
|
605,220 |
|
|
|
1,682,762 |
|
|
|
(549,973 |
) |
|
|
(622,751 |
) |
|
|
1,115,258 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Decrease in Cash and Cash Equivalents |
|
|
(10 |
) |
|
|
21,207 |
|
|
|
(21,486 |
) |
|
|
¾ |
|
|
|
(289 |
) |
Cash and Cash Equivalents at Beginning of
Period |
|
|
35 |
|
|
|
2,271 |
|
|
|
123,981 |
|
|
|
¾ |
|
|
|
126,287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of Period |
|
$ |
25 |
|
|
$ |
23,478 |
|
|
$ |
102,495 |
|
|
$ |
¾ |
|
|
$ |
125,998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
|
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 2008 and into 2009.
Next, we analyze the results of our operations for the three and nine months ended September 30,
2008 and 2007, including the trends in our overall business. Then we review our liquidity and
capital resources. We conclude with a discussion of our critical accounting judgments and
estimates and a summary of recently issued accounting pronouncements.
Overview
General
The following discussion should be read in conjunction with our financial statements included
with this report and our financial statements and related Managements Discussion and Analysis of
Financial Condition and Results of Operations for the year ended December 31, 2007 included in our
Annual Report on Form 10-K. Our discussion 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.
We provide equipment and services used for drilling, completion and production of oil and
natural gas wells throughout the world. We conduct operations in approximately 100 countries and
have service and sales locations in nearly all of the oil and natural gas producing regions in the
world. Our product offerings can be grouped into ten service lines: 1) artificial lift systems; 2)
drilling services; 3) well construction; 4) drilling tools; 5) completion systems; 6) wireline and
evaluation services; 7) re-entry and fishing; 8) stimulation and chemicals; 9) integrated drilling;
and 10) pipeline and specialty services.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Henry Hub |
|
North American |
|
International |
|
|
WTI Oil (1) |
|
Gas (2) |
|
Rig Count (3) |
|
Rig Count (3) |
September 30, 2008 |
|
$ |
100.64 |
|
|
$ |
7.44 |
|
|
|
2,449 |
|
|
|
1,209 |
|
December 31, 2007 |
|
|
95.98 |
|
|
|
7.48 |
|
|
|
2,171 |
|
|
|
1,122 |
|
September 30, 2007 |
|
|
81.66 |
|
|
|
6.87 |
|
|
|
2,128 |
|
|
|
1,114 |
|
|
|
|
(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 and other
third-party data |
Oil prices increased during the first nine months of 2008, ranging from a low of $86.99 per
barrel in mid-January to a high of $145.29 per barrel early in July. Natural gas prices remained
relatively flat comparing September 30, 2008 to December 31, 2007, but ranged from a low of $7.22
MM/BTU near the end of September to a high of $13.58 MM/BTU in early July. Since September 30,
2008, oil and natural gas prices have experienced significant declines due to the recent economic
downturn reaching $67.81 per barrel and $6.78 MM/BTU as of October 31, 2008. Factors influencing oil
and natural gas prices during the period include hydrocarbon inventory levels, realized and
expected economic growth, realized and expected levels of hydrocarbon demand, levels of spare
production capacity within the Organization of Petroleum Exporting Countries (OPEC), weather and
geopolitical uncertainty.
22
The North American rig count has increased approximately 13% during 2008. The international
rig count has increased approximately 8% since the end of 2007. Latin America and Middle
East/North Africa/Asia regions were the most significant contributors to the increase in
international rig count during 2008.
According to Spears & Associates, 2007 drilling and completion spending was relatively flat in
North America and increased 19% in international markets as compared to 2006 levels. Drilling and
completion spending growth during 2008 is anticipated to be driven by both the international and
North American markets. According to a June 2008 study by Barclays Capital (formerly Lehman
Brothers), 2008 international exploration and production expenditures are forecast to increase 22%
over 2007 levels while expenditures in North America are expected to rise 14%.
Opportunities and Challenges
The nature of our industry offers many opportunities and challenges. We have created a
long-term strategy aimed at growing our business, servicing our customers, and most importantly,
creating value for our shareholders. The success of our long-term strategy will be determined by
our ability to manage effectively any industry cyclicality, respond to industry demands and
successfully maximize the benefits from our acquisitions.
The cyclicality of the energy industry impacts the demand for our products and services.
Certain of our products and services, such as our drilling and evaluation services, well
installation services and well completion services, depend on the level of exploration and
development activity and the completion phase of the well life cycle. Other products and services,
such as our production optimization and artificial lift systems, are dependent on production
activity. We believe that decline rates, a measure of the fall in production from a well over
time, are accelerating. We also believe that there has been, and will continue to be, a
deterioration in the quality of incremental hydrocarbon formations that our customers develop and
that these formations will require more of our products and services than higher quality
formations. The market for oilfield services will grow year-on-year relative to the decline rates
and the implicit rate of demand growth. We are aggressively, but methodically, growing our
employee base, manufacturing capacity and equipment capacity to meet the demands of the industry.
2008 and 2009 Outlook
We believe the long-term outlook for our businesses is favorable. As decline rates accelerate
and reservoir productivity complexities increase, our clients will face growing challenges securing
desired rates of production growth. The acceleration of decline rates and the increasing
complexity of the reservoirs increase our customers requirements for technologies that improve
productivity and efficiency. These phenomena provide us with a positive outlook over the longer
term.
Looking into the remainder of 2008 and into 2009, the near-term outlook is more difficult to
assess given the dramatically weakened picture of the global economy stemming from a severe
dislocation in credit markets and money flows around the world. Beginning in the fourth quarter of
2008, we anticipate a pull back in North American average rig activity compared to third quarter
2008 levels principally due to existing natural gas storage levels, lower natural gas prices and a
dampened prognosis for the U.S. economy. We would expect this pull back in rig count to persist
during 2009, with the North American rig count averaging levels below 2008 levels. In contrast,
we expect international rig activity to increase in 2009 at levels similar to those achieved thus
far in 2008, unless the price of crude oil falls materially below its current trading levels for an
extended period of time. We expect our rate of international growth in 2008 to finish strong, at
levels similar to that achieved during 2007. In 2009, we anticipate a similar level of growth in
the international markets, with the Eastern Hemisphere and Latin America both making significant
contributions. These improvements should be driven by the strength of our technology and our
global infrastructure. We expect our newer technologies to continue to gain traction across a
wider breadth of geographic markets in both 2008 and 2009, similar to our performance in 2007.
Geographic Markets. Climate, natural gas storage levels and commodity prices, as well as
expectations for the U.S. economy, will dictate the level of oilfield service activity in North
America for the remainder of 2008 and into 2009. While these factors are difficult to predict with
any certainty over short periods of time, we anticipate a pull back in drilling activity in both
the U.S. and Canada. We anticipate the pull back will be in the natural gas segment and that oil
will be relatively immune to the recent economic downturn.
23
We expect most of our growth in 2008, and all of our growth in 2009, will come out of the
international markets. We expect Eastern Hemisphere growth rates for 2008 to be similar to our
growth rates achieved for 2007 as compared to 2006. We expect North Africa, Russia, Middle East,
China and Central Europe to show the largest year-on-year growth. We also expect volume increases
in Latin America with the larger growth improvements stemming from Brazil, Mexico, Venezuela and
Argentina. For our international markets combined, we expect to realize revenue growth similar to
the levels achieved during 2007 and 2008.
Pricing. The overall pricing outlook is positive. During 2008, overall pricing has been
trending upwards, concurrently with raw material and labor cost inflation. Pricing in the U.S. and
Canada has been leveling with no discernable movement up or down. In the event of a pull back in
activity in North America, we would expect pricing in general to come under pressure, with the
magnitude dependant upon the extent to which activity declines. In the international markets,
price improvements have been realized on a contract-by-contract basis and have occurred in
different classes of products and service lines depending upon the region. We expect international
pricing to remain positive for the remainder of 2008, net of cost increases.
Overall, the level of improvements for our businesses for 2008 will continue to depend heavily
on our ability to further penetrate existing markets with our younger technologies and to
successfully introduce these technologies to new markets. The recruitment, training and retention
of personnel will also be a critical factor in growing our business. The continued strength of the
industry will be highly dependent on many external factors, such as world economic and political
conditions, member country quota compliance within OPEC and weather conditions. The extreme
volatility of our markets makes predictions regarding future results difficult.
24
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, 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Nine Months |
|
|
|
Ended September 30, |
|
|
Ended September 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands, except percentages and per share data) |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
1,179,605 |
|
|
$ |
993,828 |
|
|
$ |
3,282,211 |
|
|
$ |
2,883,825 |
|
Middle East/North Africa/Asia |
|
|
637,872 |
|
|
|
455,932 |
|
|
|
1,716,007 |
|
|
|
1,286,022 |
|
Europe/West Africa/CIS |
|
|
408,993 |
|
|
|
308,587 |
|
|
|
1,146,185 |
|
|
|
844,184 |
|
Latin America |
|
|
314,326 |
|
|
|
213,644 |
|
|
|
821,535 |
|
|
|
626,190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,540,796 |
|
|
|
1,971,991 |
|
|
|
6,965,938 |
|
|
|
5,640,221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
312,887 |
|
|
|
264,183 |
|
|
|
828,792 |
|
|
|
756,661 |
|
Middle East/North Africa/Asia |
|
|
146,450 |
|
|
|
103,839 |
|
|
|
397,774 |
|
|
|
284,310 |
|
Europe/West Africa/CIS |
|
|
102,385 |
|
|
|
77,886 |
|
|
|
294,614 |
|
|
|
202,911 |
|
Latin America |
|
|
69,521 |
|
|
|
45,453 |
|
|
|
188,374 |
|
|
|
139,784 |
|
Research and Development |
|
|
(52,026 |
) |
|
|
(43,199 |
) |
|
|
(139,095 |
) |
|
|
(124,413 |
) |
Corporate |
|
|
(30,750 |
) |
|
|
(24,945 |
) |
|
|
(99,657 |
) |
|
|
(75,565 |
) |
Exit and Restructuring |
|
|
(13,727 |
) |
|
|
(3,628 |
) |
|
|
(23,604 |
) |
|
|
(20,944 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
534,740 |
|
|
|
419,589 |
|
|
|
1,447,198 |
|
|
|
1,162,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense, Net |
|
|
(60,521 |
) |
|
|
(50,194 |
) |
|
|
(175,723 |
) |
|
|
(119,258 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other, Net |
|
|
(8,243 |
) |
|
|
1,282 |
|
|
|
(13,026 |
) |
|
|
(7,024 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective Tax Rate |
|
|
17.8 |
% |
|
|
19.0 |
% |
|
|
17.0 |
% |
|
|
25.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income per Diluted Share from
Continuing Operations |
|
$ |
0.53 |
|
|
$ |
0.42 |
|
|
$ |
1.46 |
|
|
$ |
1.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from Discontinued Operation,
Net of Taxes |
|
|
|
|
|
|
(2,211 |
) |
|
|
(12,928 |
) |
|
|
(15,628 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income per Diluted Share |
|
$ |
0.53 |
|
|
$ |
0.42 |
|
|
$ |
1.44 |
|
|
$ |
1.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization |
|
|
187,131 |
|
|
|
158,977 |
|
|
|
528,129 |
|
|
|
439,034 |
|
25
Revenues
The following chart contains consolidated revenues by product line for the three and nine
months ended September 30, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
Nine Months |
|
|
Ended September 30, |
|
Ended September 30, |
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
Artificial Lift Systems |
|
|
17 |
% |
|
|
18 |
% |
|
|
17 |
% |
|
|
17 |
% |
Well Construction |
|
|
15 |
|
|
|
16 |
|
|
|
16 |
|
|
|
16 |
|
Drilling Services |
|
|
17 |
|
|
|
16 |
|
|
|
16 |
|
|
|
15 |
|
Drilling Tools |
|
|
11 |
|
|
|
11 |
|
|
|
11 |
|
|
|
12 |
|
Completion Systems |
|
|
9 |
|
|
|
10 |
|
|
|
10 |
|
|
|
10 |
|
Re-entry & Fishing |
|
|
9 |
|
|
|
8 |
|
|
|
8 |
|
|
|
8 |
|
Wireline |
|
|
7 |
|
|
|
7 |
|
|
|
7 |
|
|
|
8 |
|
Stimulation & Chemicals Services |
|
|
6 |
|
|
|
6 |
|
|
|
5 |
|
|
|
7 |
|
Integrated Drilling |
|
|
6 |
|
|
|
5 |
|
|
|
7 |
|
|
|
5 |
|
Pipeline & Specialty Services |
|
|
3 |
|
|
|
3 |
|
|
|
3 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated revenues increased $569 million, or 29%, in the third quarter of 2008 as compared
to the third quarter of 2007. The increase resulted primarily from organic growth as our
businesses continued to benefit from increasing market activity and share gains. Approximately 67%
of our revenue growth was derived outside of North America. International revenues increased $383
million, or 39%, in the third quarter of 2008 as compared to the third quarter of 2007. This
increase outpaced the 8% increase in average international rig count over the comparable period.
All product lines grew compared to the levels achieved in the third quarter of 2007.
For the first nine months of 2008, consolidated revenues increased $1,326 million, or 24%, as
compared to the first nine months of 2007. Similar to what was experienced in the third quarter of
2008, the increase in revenues during the first nine months of 2008 was driven by our international
businesses. Approximately 70% of our revenue growth was from our international regions.
Operating Income
Consolidated operating income increased $115 million, or 27%, in the third quarter of 2008 as
compared to the third quarter of 2007. Our operating segments contributed $140 million of
incremental operating income during the current quarter as compared to the same quarter of the
prior year while corporate and research and development expenditures were $15 million higher over
the same period. The increase in corporate and research and development expenses was primarily
attributable to higher employee compensation costs. In addition, current quarter results include
$14 million in costs incurred in connection with our on-going investigations by the U.S.
government. The three months ended September 30, 2007 included $4 million incurred in connection
with the investigations by the U.S. government.
Consolidated operating income for the first nine months of 2008 increased $284 million, or
24%, as compared to the first nine months of 2007. Our operating segments contributed $326 million
of incremental operating income during the first nine months of 2008 as compared to the same period
of the prior year while corporate and research and development expenditures were $39 million higher
as compared to the same period of the prior year. In addition, results for the first nine months
of 2008 include exit and restructuring charges of $24 million compared to charges of $21 million
during the first nine months of 2007.
Exit and restructuring charges during the first nine months of 2008 include $57 million for
costs incurred in connection with our withdrawal from sanctioned countries, $15 million for
severance costs incurred associated with reorganization activities and $33 million incurred in
connection with our on-going investigations. These charges were offset by an $81 million gain
recognized in the second quarter of 2008 as a result of selling our 50% interest in a subsidiary we
control to Qatar Petroleum for cash consideration of $113 million. Exit and restructuring charges
during the first nine months of 2007 include $17 million in severance charges associated with
reorganization activities and $4 million incurred in connection with the investigations by the U.S.
government.
26
Interest Expense, Net
Interest expense, net increased $10 million, or 21%, and $56 million, or 47% during the three
and nine months ended September 30, 2008 as compared to the same periods of the prior year,
respectively. The increase in interest expense was due to an increase in our total debt. The
incremental borrowings period-over-period were used to fund capital expenditures and acquisitions.
Income Taxes
Our effective tax rates were 17.8% and 19.0% for the third quarter of 2008 and 2007,
respectively, and 17.0% and 25.8% for the first nine months of 2008 and 2007, respectively. The
decrease in our effective tax rates was due primarily to withholding taxes of $50 million that were
required to be paid on a distribution made to one of our foreign subsidiaries during the second
quarter of 2007. In addition, we recognized a gain of $81 million, with no related tax effect,
from the sale of a 50% interest in a subsidiary during the second quarter of 2008. The remainder
of the decrease is due to the net benefits realized from the refinement of our international tax
structure and changes in our geographic earnings mix.
Segment Results
North America
North America revenues increased $186 million, or 19%, in the third quarter of 2008 as
compared to the third quarter of 2007 and outpaced a 13% increase in average North American rig
count over the comparable period. Revenues from our artificial lift, wireline and drilling
services product lines were the strongest contributors to the quarter-over-quarter increase.
North America revenues increased $398 million, or 14%, during the first nine months of 2008 as
compared to the first nine months of 2007. Revenues from our artificial lift, well construction
and stimulation and chemicals product lines were the strongest contributors to the year-to-date
revenue growth.
Operating income increased $49 million, or 18%, in the third quarter of 2008 as compared to
the third quarter of 2007. Operating margins were 27% in both the third quarter of 2008 and 2007.
During the first nine months of 2008, operating income increased
$72 million, or 10%, over the
comparable period of 2007 with operating margins at 25% for the first nine months of 2008 and 26%
for the first nine months of 2007. The decline in operating margin during the first nine months
of 2008 was primarily due to weakness in the Canadian market during the first half of 2008.
Middle East/North Africa/Asia
Middle East/North Africa/Asia revenues increased $182 million, or 40%, in the third quarter of
2008 as compared to the third quarter of 2007. This increase outpaced the 7% increase in rig count
over the comparable period. Middle East/North Africa/Asia was the strongest contributor to our
year-to-date revenue growth. Revenues increased $430 million, or 33%, during the first nine months
of 2008 as compared to the first nine months of 2007. Our drilling services, integrated drilling,
wireline and well construction product lines were the strongest contributors to both the quarterly
and year-to-date increase in revenue over the same periods of the prior year.
Operating income increased $43 million, or 41%, during the third quarter of 2008 compared to
the same quarter of the prior year and $113 million, or 40%, during the first nine months of 2008
compared to the first nine months of 2007. Operating margins were 23% for both the third quarter
of 2008 and 2007. On a year-to-date basis, operating margins were 23% for the first nine months of
2008 as compared to 22% for the first nine months of 2007.
Europe/West Africa/CIS
Revenues in our Europe/West Africa/CIS segment increased $100 million, or 33%, in the third
quarter of 2008 as compared to the same quarter of the prior year,
which outpaced the 17% rig count
increase over the comparable period. On a year-to-date basis, revenues grew $302 million, or 36%,
compared to the same period of 2007. Our drilling services, well construction and wireline product
lines were the strongest contributors to both the quarterly and year-to-date increase in revenue
over the same periods of the prior year.
Operating income increased $24 million, or 32%, during the third quarter of 2008 compared to
the same quarter of the prior year and $92 million, or 45%, during the first nine months of 2008
compared to the first nine months of
27
2007. Operating margins were 25% for both the third quarter of 2008 and 2007. On a
year-to-date basis, margins increased from 24% during the first nine months of 2007 to 26% for the
first nine months of 2008. Both the quarterly and year-to-date improvement in operating income and
margins was primarily the result of higher revenues absorbing the regions fixed cost base as well
as the performance of equity investments.
Latin America
Revenues in our Latin America segment increased $101 million, or 47%, in the third quarter of
2008 as compared to the same quarter of the prior year, which outpaced the average Latin American
rig count increase of 8% over the comparable period. Revenues increased $195 million, or 31%,
during the first nine months of 2008 compared to the same period of the prior year. Revenue growth
was generated in all product lines during the three and nine month periods ended September 30, 2008
as compared to the comparable periods of the prior year.
Operating income increased $24 million, or 53%, and $49 million, or 35%, for the three and
nine months ended September 30, 2008, respectively, over the comparable periods of the prior year.
Operating margins increased by one percent in both the three and nine months ended September 30,
2008 as compared to the same periods of the prior year.
Discontinued Operations
We finalized the divestiture of our discontinued operation consisting of our oil and gas
development and production company during the second quarter of 2008. We recorded a gain of $11
million, net of taxes, in connection with the finalization of the divestiture. On a year-to-date
basis, we had a loss from our discontinued operation, net of taxes, of $13 million, which included
approximately $21 million incurred in connection with the settlement of a legal dispute regarding
the business. This loss was partially offset by the gain recognized in the second quarter.
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 maintain a shelf
registration statement covering the future issuance of various types of securities, including debt,
common shares, preferred shares and warrants.
Committed Borrowing Facilities
We maintain a $1.5 billion revolving credit agreement with a syndicate of banks. This
facility allows for a combination of borrowings, support for our commercial paper program and
issuances of letters of credit.
On March 19, 2008, we entered into an additional $250 million revolving credit facility with a
syndicate of banks. This facility also allows for a combination of borrowings, support for our
commercial paper program and issuances of letters of credit.
Both committed borrowing facilities require us to maintain a debt-to-capitalization ratio of
less than 60% and contain other covenants and representations customary for an investment-grade
commercial credit. We were in compliance with these covenants at September 30, 2008. Both
facilities mature in May 2011.
The following is a recap of our availability under our committed borrowing facilities at
September 30, 2008 (in millions):
|
|
|
|
|
Facilities |
|
$ |
1,750 |
|
|
|
|
|
|
Less: |
|
|
|
|
Amount drawn |
|
|
1,030 |
|
Commercial paper |
|
|
|
|
Letters of credit |
|
|
28 |
|
|
|
|
|
|
|
|
|
|
Availability |
|
$ |
692 |
|
|
|
|
|
28
In October 2008, we entered into an additional $550 million in revolving credit facilities
with a syndicate of banks. These facilities allow for a combination of borrowings and issuances of
letters of credit. These facilities mature in October 2009.
Commercial Paper
We have a $1.5 billion commercial paper program under which we may from time to time issue
short-term, unsecured notes, subject to market conditions. The commercial paper program is
supported by our revolving credit facilities. At September 30, 2008, there were no borrowings
outstanding under this program.
Debt Offering
In March 2008, we completed a $1.5 billion long-term debt offering comprised of (i) $500
million of 5.15% Senior Notes due in 2013 (5.15% Senior Notes), (ii) $500 million of 6.00% Senior
Notes due 2018 (6.00% Senior Notes) and (iii) $500 million of 7.00% Senior Notes due 2038 (7.00%
Senior Notes). Net proceeds of $1.47 billion were used to repay short-term borrowings and for
general corporate purposes, including capital expenditures and business acquisitions. Interest on
these notes is due semi-annually on March 15 and September 15 of each year.
Cash Requirements
During 2008, we anticipate our cash requirements to include working capital needs, capital
expenditures and business acquisitions. We anticipate funding these requirements from cash
generated from operations and availability under our committed borrowing facilities.
Capital expenditures for 2008 are projected to be approximately $2.2 billion. The expenditures
are expected to be used primarily to support the growth of our business and operations. Capital
expenditures during the nine months ended September 30, 2008 were $1.7 billion, net of proceeds
from tools lost down hole.
In December 2005, our board authorized us to repurchase up to $1 billion of our outstanding
common shares. We may from time to time repurchase our common shares depending upon the price of
our common shares, our liquidity and other considerations. There were no repurchases of our common
shares during the nine months ended September 30, 2008.
From time to time we acquire businesses or technologies that increase our range of products
and services, expand our geographic scope or are otherwise strategic to our businesses. During the
nine months ended September 30, 2008, we used approximately $674 million in cash, net of cash
acquired, in business acquisitions. The largest acquisition during the nine months ended September
30, 2008, was for International Logging, Inc., a provider of surface logging and formation
evaluation and drilling related services.
Derivative Instruments
Interest Rate Swaps
Upon completion of the long-term debt offering in March 2008, we entered into interest rate
swap agreements on an aggregate notional amount of $500 million against our 5.15% Senior Notes.
These agreements were outstanding as of September 30, 2008. The aggregate fair value of the
interest rate swaps at September 30, 2008 resulted in a liability of $14 million with the offset to
Long-term Debt in our accompanying Condensed Consolidated Balance Sheet.
Cash Flow Hedges
In March 2008, we entered into interest rate derivative instruments for a notional amount of
$500 million to hedge projected exposures to interest rates in anticipation of the 7.00% Senior
Notes issued in March 2008. Those hedges were terminated at the time of the issuance. We paid a
cash settlement of $13 million at termination, and the loss on these hedges is being amortized to
interest expense over the life of the 7.00% Senior Notes.
29
Other Derivative Instruments
As of September 30, 2008, we had several foreign currency forward contracts and one option
contract with notional amounts aggregating $488 million, which were entered into to hedge exposure
to currency fluctuations in various foreign currencies, including, but not limited to, the British
pound sterling, the Canadian dollar, the euro and the Norwegian kroner. The total estimated fair
value of these contracts at September 30, 2008 resulted in a liability of approximately $1 million.
These derivative instruments were not designated as hedges and the changes in fair value of the
contracts were recorded each period in current earnings.
In addition, after the closing of the acquisition of Precision Energy Services and Precision
Drilling International on August 31, 2005, we entered into a series of cross-currency swaps between
the U.S. dollar and Canadian dollar to hedge certain exposures to the Canadian dollar created as a
result of the acquisition. At September 30, 2008, we had notional amounts outstanding of $364
million. The total estimated fair value of these contracts at September 30, 2008 resulted in a
liability of $50 million. These derivative instruments were not designated as hedges and the
changes in fair value of the contracts were recorded each period in current earnings.
Off Balance Sheet Arrangements
Guarantees
The following obligations of Weatherford International, Inc. were guaranteed by Weatherford
International Ltd. as of September 30, 2008: (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 International Ltd. were guaranteed by Weatherford
International, Inc. as of September 30, 2008: (i) both revolving credit facilities, (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 and (viii) issuances of notes
under the commercial paper program.
Letters of Credit
We execute letters of credit in the normal course of business. While these obligations are
not normally called, these obligations could be called by the beneficiaries at any time before the
expiration date should we breach certain contractual or payment obligations. As of September 30,
2008, we had $236 million of letters of credit and bid and performance bonds outstanding,
consisting of $208 million outstanding under various uncommitted credit facilities and $28 million
letters of credit outstanding under our committed facilities. If the beneficiaries called these
letters of credit our available liquidity would be reduced by the amount called.
New Accounting Pronouncements
See Note 16 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, for the year ended December 31,
2007.
Exposures
An investment in our common 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 under the heading Item 1A. Risk Factors as well as the information
below and other information included and incorporated by reference in this report.
30
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
results, including certain projections and business trends. We believe these statements constitute
Forward-Looking Statements as defined in the Private Securities Litigation Reform Act of 1995.
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:
|
|
|
A downturn in market conditions could affect projected results. Any material changes in
oil and natural gas supply and demand, oil and natural gas prices, rig count or other
market trends would affect our results and would likely affect the forward-looking
information we provide. The oil and natural gas industry is extremely volatile and subject
to change based on political and economic factors outside our control. Worldwide drilling
activity has increased in each year from 2002 to 2008 (through September); however, if an
extended regional and/or worldwide recession were to occur, it would result in lower demand
and lower prices for oil and natural gas, which would adversely affect drilling and
production activity and therefore would affect our revenues and income. We have assumed
worldwide demand growth will slow through the remainder of 2008 and that 2009 demand will
be up modestly compared to 2008. In 2009, worldwide demand may be weaker than we have
assumed. |
|
|
|
|
Availability of a skilled workforce could affect our projected results. Due to the high
activity in the exploration and production and oilfield service industries there is an
increasing shortage of available skilled labor, particularly in our high-growth regions.
Our forward-looking statements assume we will be able to recruit and maintain a sufficient
skilled workforce for activity levels. |
|
|
|
|
Increases in the prices and availability of our raw materials could affect our results
of operations. We use large amounts of raw materials for manufacturing our products. 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 materials costs through our supply chain initiatives or by passing through
these increases to our customers, our margins and results of operations could be adversely
affected. |
|
|
|
|
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 through leverage of 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, these new products and services, as well as legal protection of our
intellectual property rights. |
|
|
|
|
Nonrealization of expected benefits from our 2002 corporate reincorporation could affect
our projected results. We are incorporated in Bermuda and we operate through our various
subsidiaries in numerous countries throughout the world including the United States.
Consequently, we are subject to changes in tax laws, treaties or regulations or the
interpretation or enforcement thereof in the U.S., Bermuda or jurisdictions in which we or
any of our subsidiaries operates or is 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 |
31
|
|
|
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. |
|
|
|
|
Nonrealization of expected benefits from our acquisitions 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 that. An inability to realize
expected strategic advantages as a result of the acquisition would negatively affect the
anticipated benefits of the acquisition. |
|
|
|
|
The cyclical nature of or a prolonged downturn in our industry could affect the carrying
value of our goodwill. As of September 30, 2008, we had approximately $3.8 billion of
goodwill. Our estimates of the value of our goodwill could be reduced in the future as a
result of various factors, some of which are beyond our control. Our forward-looking
statements do not assume any future goodwill impairment. Any reduction in the value of our
goodwill may result in an impairment charge and therefore adversely affect our results. |
|
|
|
|
Currency fluctuations could have a material adverse financial impact on our business. A
material change in currency rates in our markets could affect our future results as well as
affect the carrying values of our assets. World currencies have been subject to much
volatility. Our forward-looking statements assume no material impact from future changes
in currency exchange rates. |
|
|
|
|
Adverse weather conditions in certain regions could
adversely affect our operations. In
the summers of 2005 and 2008, the Gulf of Mexico suffered several significant hurricanes.
These hurricanes and associated hurricane threats reduced the number of days on which we
and our customers could operate, which resulted in lower revenues than we otherwise would
have achieved. In parts of 2006, and particularly in the second quarter of 2007 and 2008,
climatic conditions in Canada were not as favorable to drilling as we anticipated, which
limited our potential results in that region. Similarly, unfavorable weather in Russia and
in the North Sea could reduce our operations and revenues from that area 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 various of our
operations. These investigations are ongoing, and we cannot anticipate the timing, outcome
or possible impact 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
trading sanctions 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 public corporations and individuals in similar investigations,
under which civil and criminal penalties were imposed, including in some cases
multi-million dollar fines and other penalties and sanctions. Under trading sanctions laws,
the Department of Justice (DOJ) may also seek to impose modifications to business
practices, including immediate cessation of all business activities in sanctioned
countries, 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. Additionally, during the nine months ended September 30, 2008, we
incurred $57 million for costs in connection with our exit from sanctioned countries and
$33 million in connection with complying with these on-going investigations. We will 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 the local governments, but we cannot quantify those charges or be
certain of the timing of them. |
|
|
|
|
Political disturbances, war, or terrorist attacks and changes in global trade policies
could adversely impact our operations. We have assumed there will be no material political
disturbances or terrorist attacks and there will be no material changes in global trade
policies. Any further military action undertaken by the U.S. or other countries could
adversely affect our results of operations. |
|
|
|
|
Current turmoil in the credit markets may reduce our access to capital or reduce the
availability of financial risk-mitigation tools. In recent months, the worldwide credit
markets have experienced almost |
32
unprecedented turmoil and uncertainty. Our forward-looking statements assume that the
financial institutions that have committed to extend us credit will honor their commitments
under our credit facilities. 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 further 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.
However, the failure of any swap counter party 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. For additional information
regarding risks and uncertainties, see our other filings with the SEC under the Securities Exchange
Act of 1934, as amended, and the Securities Act of 1933, as amended, available free of charge at
the SECs website at www.sec.gov.
Available Information
We make available, free of charge, on our website (www.weatherford.com) 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 as soon as
reasonably practicable after we electronically file or furnish them 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, but we do not enter into derivative transactions for
speculative purposes. A discussion of our market risk exposure in 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 those countries in which we operate in
the local currency, the effects of foreign currency fluctuations are largely mitigated because
local expenses of such foreign operations are also generally denominated in the same currency.
Assets and liabilities of 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 as 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
$155 million adjustment to decrease our equity account for the nine month period ended September
30, 2008, to reflect the net impact of the strengthening of the U.S. dollar against various foreign
currencies.
As of September 30, 2008, we had several foreign currency forward contracts and one option
contract with notional amounts aggregating $488 million to hedge exposure to currency fluctuations
in various foreign currencies, including, but not limited to, the British pound sterling, the
Canadian dollar, the euro, and the Norwegian kroner. The total estimated fair value of these
contracts at September 30, 2008 resulted in a liability of approximately $1 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.
In addition, after the closing of the acquisition of Precision Energy Services and Precision
Drilling International, we entered into a series of cross-currency swaps between the U.S. dollar
and Canadian dollar to hedge certain exposures to the Canadian dollar created as a result of the
acquisition. At September 30, 2008, we had notional amounts outstanding of $364 million. The
estimated fair value of these contracts at September 30, 2008 resulted in a liability of $50
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.
33
Interest Rates
We are subject to interest rate risk on our fixed-interest 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, 2008 subject to interest rate
risk consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2008 |
|
December 31, 2007 |
|
|
Carrying |
|
Fair |
|
Carrying |
|
Fair |
|
|
Amount |
|
Value |
|
Amount |
|
Value |
|
|
|
|
|
|
(In millions) |
|
|
|
|
6.625% Senior Notes due 2011 |
|
$ |
355 |
|
|
$ |
356 |
|
|
$ |
356 |
|
|
$ |
369 |
|
5.95% Senior Notes due 2012 |
|
|
599 |
|
|
|
592 |
|
|
|
599 |
|
|
|
618 |
|
5.15% Senior Notes due 2013 |
|
|
485 |
|
|
|
479 |
|
|
|
|
|
|
|
|
|
4.95% Senior Notes due 2013 |
|
|
254 |
|
|
|
231 |
|
|
|
255 |
|
|
|
245 |
|
5.50% Senior Notes due 2016 |
|
|
349 |
|
|
|
316 |
|
|
|
349 |
|
|
|
338 |
|
6.00% Senior Notes due 2018 |
|
|
497 |
|
|
|
467 |
|
|
|
|
|
|
|
|
|
6.35% Senior Notes due 2017 |
|
|
600 |
|
|
|
550 |
|
|
|
600 |
|
|
|
624 |
|
6.50% Senior Notes due 2036 |
|
|
596 |
|
|
|
494 |
|
|
|
596 |
|
|
|
598 |
|
6.80% Senior Notes due 2037 |
|
|
298 |
|
|
|
277 |
|
|
|
298 |
|
|
|
313 |
|
7.00% Senior Notes due 2038 |
|
|
498 |
|
|
|
406 |
|
|
|
|
|
|
|
|
|
We have various other long-term debt instruments of $25 million, but believe the impact of
changes in interest rates in the near term will not be material to these instruments. Short-term
borrowings of $1 billion at September 30, 2008 approximate fair value.
As it relates to our variable rate debt, if market interest rates average 1% more for the
remainder of 2008 than the rates as of September 30, 2008, interest expense for the remainder of
2008 would increase by approximately $3 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 capital structure.
Interest Rate Swaps and Derivatives
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. The counterparties to
our interest rate swaps are multinational commercial banks. In light of recent 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.
We use interest rate swap agreements to take advantage of available short-term interest rates.
Amounts received upon termination of the 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 being amortized as a reduction to interest expense over the remaining term of the
debt.
Upon completion of the long-term debt offering in March 2008, we entered into interest rate
swap agreements on an aggregate notional amount of $500 million against our 5.15% Senior Notes.
These agreements were outstanding as of September 30, 2008. The aggregate fair value of the
interest rate swaps at September 30, 2008 resulted in a liability of $14 million with the offset to
Long-term Debt in our accompanying Consolidated Balance Sheet.
34
We may utilize interest rate derivatives to hedge projected exposures to interest rates in
anticipation of future debt issuances. Amounts received or paid upon termination of these hedges
represent the fair value of the agreements at the time of termination. These amounts are amortized
as an adjustment to interest expense over the remaining life of the debt.
In March 2008, we entered into interest rate derivative instruments for a notional amount of
$500 million to hedge projected exposures to interest rates in anticipation of the 7.00% Senior
Notes issued in March 2008. Those hedges were terminated at the time of the issuance. We paid a
cash settlement of $13 million at termination, and the loss on these hedges is being amortized to
interest expense over the life of the 7.00% Senior Notes.
ITEM 4. CONTROLS AND PROCEDURES
At the end of the period covered by this Quarterly Report on Form 10-Q, the Company carried
out an evaluation, under the supervision and with the participation of management, including the
Chief Executive Officer (CEO) and the Chief Financial Officer (CFO), of the effectiveness of
the Companys disclosure controls and procedures (as defined in Rules 13a-15 (e) and 15d-15 (e)
under the Exchange Act). Based upon that evaluation, the Companys CEO and CFO have concluded the
Companys disclosure controls and procedures are effective as of the end of the period covered by
this report to ensure that information required to be disclosed by the Company in the reports it
files or submits under the Exchange Act is recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commissions rules and forms and that
information relating to the Company (including its consolidated subsidiaries) required to be
disclosed is accumulated and communicated to management, including the CEO and CFO, to allow timely
decisions regarding required disclosure. The Companys management, including the CEO and CFO,
identified no change in the Companys internal control over financial reporting that occurred
during the Companys fiscal quarter ended September 30, 2008, that has materially affected, or is
reasonably likely to materially affect, the Companys internal controls over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 15 to our condensed consolidated financial statements included elsewhere in this report.
ITEM 1A. RISK FACTORS
There have been no material changes during the nine months ended September 30, 2008 to the risk
factors set forth in Part I, Item 1A in our Annual Report on Form 10-K for the year ended December
31, 2007 filed with the SEC on February 21, 2008 (Annual Report), except for the supplementary
information we reported in Item 8.01 of our Current Report on Form 8-K dated March 18, 2008, the
text of which follows:
In September 2007, we announced that we had made a strategic decision to discontinue doing
business through our foreign subsidiaries in countries that are subject to U.S. economic and
trade sanctions, including Cuba, Iran, Sudan and Syria, and that we would begin an orderly
discontinuation and winding down of our existing businesses in those sanctioned countries.
We have accelerated our process of winding down those businesses and expect that we will
completely withdraw from those countries by March 31, 2008.
We expect to incur additional costs in the future in connection with these withdrawals,
which costs may include labor claims, contractual claims, penalties assessed by customers,
and costs, fines, taxes and penalties assessed by the local governments. We cannot estimate
the timing or amount, if any, of these potential costs.
ITEM 2. UNREGISTERED SALES OF EQUITY IN SECURITIES AND USE OF PROCEEDS
On September 25, 2008, in connection with an acquisition, we sold 279,124 of our common shares
to the shareholders of the acquired company as consideration for the shares of the acquired
company. The sale of our common 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.
35
In December 2005, our Board of Directors approved a share repurchase program under which up to
$1 billion of our outstanding common shares could be purchased. Future purchases of our shares can
be made in the open market or privately negotiated transactions, at the discretion of management
and as market conditions and our liquidity position warrant. During the quarter ended September
30, 2008, we did not purchase any of our common shares.
Under our restricted share plan, employees may elect to have us withhold common 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 common shares by us on the date of withholding. During the
quarter ended September 30, 2008, we withheld common shares to satisfy these tax withholding
obligations as follows:
|
|
|
|
|
|
|
|
|
Period |
|
No. of Shares |
|
Average Price |
July 1 - July 31, 2008 |
|
|
3,112 |
|
|
$ |
39.76 |
|
August 1 - August 31, 2008 |
|
|
|
|
|
|
|
|
September 1 - September 30, 2008 |
|
|
10,482 |
|
|
|
33.44 |
|
36
ITEM 6. EXHIBITS
(a) Exhibits:
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
4.1
|
|
Credit Agreement, dated October 20, 2008 among Weatherford
International Ltd. as borrower, Weatherford International Inc. as
guarantor, and UBS AG as administrative agent, and other lenders
party thereto (incorporated by reference to Exhibit 4.1 to the
Registrants Current Report on Form 8-K (File No. 1-31339) dated
October 24, 2008). |
|
|
|
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. |
37
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/ Jessica Abarca
Jessica Abarca
|
|
|
|
|
|
|
Vice President Accounting and Chief
Accounting Officer |
|
|
|
|
|
|
(Principal Accounting Officer) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Date: November 3, 2008 |
|
|
38