e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 |
For the quarterly period ended March 31, 2010
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
WEATHERFORD INTERNATIONAL LTD.
(Exact name of registrant as specified in its charter)
001-34258
(Commission file number)
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Switzerland
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98-0606750 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
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4-6 Rue Jean-Francois Bartholoni, 1204 Geneva, Switzerland
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Not Applicable |
(Address of principal executive offices)
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(Zip Code) |
Registrants telephone number, including area code: 41.22.816.1500
(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 has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files).
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date:
As of April 23, 2010, there were 740,659,690 shares of Weatherford registered shares, 1.16 Swiss
francs par value per share, outstanding.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
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March 31, |
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December 31, |
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2010 |
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2009 |
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(unaudited) |
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ASSETS |
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Current Assets: |
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Cash and Cash Equivalents |
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$ |
207,099 |
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$ |
252,519 |
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Accounts Receivable, Net of Allowance for Uncollectible
Accounts of $21,847 and $20,466, Respectively |
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2,655,677 |
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2,504,876 |
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Inventories |
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2,316,155 |
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2,239,762 |
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Current Deferred Tax Assets |
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258,790 |
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259,077 |
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Other Current Assets |
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889,984 |
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884,372 |
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Total Current Assets |
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6,327,705 |
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6,140,606 |
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Property, Plant and Equipment, Net of Accumulated
Depreciation of $3,602,222 and $3,438,248, Respectively |
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6,883,744 |
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6,991,579 |
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Goodwill |
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4,141,362 |
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4,156,105 |
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Other Intangible Assets, Net of Accumulated Amortization of
$379,789 and $359,052, Respectively |
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761,716 |
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778,786 |
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Equity Investments |
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538,621 |
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542,667 |
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Other Assets |
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304,611 |
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256,440 |
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Total Assets |
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$ |
18,957,759 |
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$ |
18,866,183 |
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LIABILITIES AND SHAREHOLDERS EQUITY |
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Current Liabilities: |
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Short-term Borrowings and Current Portion of Long-term Debt |
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$ |
991,440 |
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$ |
869,581 |
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Accounts Payable |
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1,121,175 |
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1,002,359 |
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Other Current Liabilities |
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840,863 |
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924,948 |
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Total Current Liabilities |
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2,953,478 |
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2,796,888 |
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Long-term Debt |
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5,844,610 |
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5,847,258 |
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Other Liabilities |
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383,547 |
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423,333 |
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Total Liabilities |
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9,181,635 |
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9,067,479 |
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Shareholders Equity: |
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Shares, CHF 1.16 Par Value, Authorized 1,093,303 Shares,
Conditionally Authorized 364,434 Shares, Issued 758,447
Shares at March 31, 2010 and at December 31, 2009 |
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761,077 |
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761,077 |
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Capital in Excess of Par Value |
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4,640,579 |
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4,642,800 |
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Treasury Shares, Net |
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(573,847 |
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(616,048 |
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Retained Earnings |
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4,777,092 |
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4,817,101 |
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Accumulated Other Comprehensive Income |
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94,260 |
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114,742 |
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Weatherford Shareholders Equity |
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9,699,161 |
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9,719,672 |
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Noncontrolling Interests |
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76,963 |
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79,032 |
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Total Shareholders Equity |
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9,776,124 |
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9,798,704 |
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Total Liabilities and Shareholders Equity |
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$ |
18,957,759 |
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$ |
18,866,183 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
2
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In thousands, except per share amounts)
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Three Months |
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Ended March 31, |
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2010 |
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2009 |
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Revenues: |
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Products |
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$ |
781,056 |
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$ |
742,900 |
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Services |
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1,557,192 |
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1,513,241 |
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2,338,248 |
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2,256,141 |
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Costs and Expenses: |
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Cost of Products |
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573,797 |
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569,056 |
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Cost of Services |
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1,175,523 |
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965,464 |
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Research and Development |
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48,857 |
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49,021 |
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Selling, General and Administrative Attributable
to Segments |
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336,845 |
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308,744 |
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Corporate General and Administrative |
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86,315 |
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53,131 |
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Operating Income |
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116,911 |
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310,725 |
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Other Expense: |
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Interest Expense, Net |
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(95,339 |
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(91,063 |
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Devaluation of Venezuelan Bolivar |
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(63,859 |
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Other, Net |
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(9,218 |
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(13,539 |
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Income (Loss) Before Income Taxes |
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(51,505 |
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206,123 |
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Benefit (Provision) for Income Taxes |
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15,531 |
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(32,463 |
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Net Income (Loss) |
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(35,974 |
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173,660 |
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Net Income Attributable to Noncontrolling Interests |
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(4,035 |
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(8,858 |
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Net Income (Loss) Attributable to Weatherford |
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$ |
(40,009 |
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$ |
164,802 |
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Earnings (Loss) Per Share Attributable to Weatherford: |
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Basic |
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$ |
(0.05 |
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$ |
0.24 |
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Diluted |
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$ |
(0.05 |
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$ |
0.23 |
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Weighted Average Shares Outstanding: |
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Basic |
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737,865 |
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698,327 |
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Diluted |
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737,865 |
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702,636 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
3
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
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Three Months |
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Ended March 31, |
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2010 |
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2009 |
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Cash Flows from Operating Activities: |
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Net Income (Loss) |
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$ |
(35,974 |
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$ |
173,660 |
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Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: |
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Depreciation and Amortization |
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249,392 |
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201,394 |
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Employee Share-Based Compensation Expense |
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22,974 |
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26,429 |
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Deferred Income Tax Benefit |
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(93,623 |
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(23,594 |
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Devaluation of Venezuelan Bolivar |
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63,859 |
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Supplemental Executive Retirement Plan |
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38,021 |
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Other, Net |
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22,456 |
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5,146 |
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Change in Operating Assets and Liabilities, Net of Effect of Businesses Acquired |
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Accounts Receivable |
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(219,098 |
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152,807 |
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Inventories |
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(98,444 |
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(147,536 |
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Accounts Payable |
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128,522 |
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53,453 |
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Other |
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(72,554 |
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(274,201 |
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Net Cash Provided by Operating Activities |
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5,531 |
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167,558 |
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Cash Flows from Investing Activities: |
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Acquisitions of Businesses, Net of Cash Acquired |
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(46,579 |
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(7,094 |
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Capital Expenditures for Property, Plant and Equipment |
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(231,087 |
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(583,719 |
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Acquisition of Intellectual Property |
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(6,647 |
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(11,096 |
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Acquisition of Equity Investments in Unconsolidated Affiliates |
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(26,509 |
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Proceeds from Sale of Assets and Businesses, Net |
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87,790 |
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30,616 |
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Other Investing Activities |
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41,840 |
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Net Cash Used by Investing Activities |
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(154,683 |
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(597,802 |
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Cash Flows from Financing Activities: |
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Borrowings (Repayments) of Short-term Debt, Net |
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122,746 |
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(873,938 |
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Borrowings (Repayments) of Long-term Debt, Net |
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(2,113 |
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1,231,209 |
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Other Financing Activities, Net |
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3,227 |
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(3,883 |
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Net Cash Provided by Financing Activities |
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123,860 |
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353,388 |
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Effect of Exchange Rate Changes on Cash and Cash Equivalents |
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(20,128 |
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174 |
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Net Decrease in Cash and Cash Equivalents |
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(45,420 |
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(76,682 |
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Cash and Cash Equivalents at Beginning of Period |
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252,519 |
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238,398 |
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Cash and Cash Equivalents at End of Period |
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$ |
207,099 |
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$ |
161,716 |
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Supplemental Cash Flow Information: |
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Interest Paid |
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$ |
139,597 |
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$ |
98,725 |
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Income Taxes Paid, Net of Refunds |
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90,735 |
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128,632 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
4
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(In thousands)
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Three Months |
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Ended March 31, |
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2010 |
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2009 |
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Net Income (Loss) |
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$ |
(35,974 |
) |
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$ |
173,660 |
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Other Comprehensive Income: |
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Curtailment of Supplemental Executive Retirement Plan |
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45,237 |
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Amortization of Pension Components |
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1,513 |
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1,180 |
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Foreign Currency Translation Adjustment |
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(67,387 |
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(50,060 |
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Other |
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155 |
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151 |
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Comprehensive Income (Loss) |
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(56,456 |
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124,931 |
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Comprehensive Income Attributable to Noncontrolling Interests |
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(4,035 |
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(8,737 |
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Comprehensive Income (Loss) Attributable to Weatherford |
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$ |
(60,491 |
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$ |
116,194 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
5
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. General
The accompanying unaudited condensed consolidated financial statements of Weatherford
International Ltd. and all majority-owned subsidiaries (the Company) are prepared in accordance
with U.S. generally accepted accounting principles and include all adjustments of a normal
recurring nature which, in the opinion of management, are necessary to present fairly our Condensed
Consolidated Balance Sheet at March 31, 2010, Condensed Consolidated Statements of Income,
Condensed Consolidated Statements of Comprehensive Income and Condensed Consolidated Statements of
Cash Flows for the three months ended March 31, 2010 and 2009. Although we believe the disclosures
in these financial statements are adequate to make the interim information presented not
misleading, certain information relating to our organization and footnote disclosures normally
included in financial statements prepared in accordance with U.S. generally accepted accounting
principles have been condensed or omitted in this Form 10-Q pursuant to U.S. Securities and
Exchange Commission (SEC) rules and regulations. These financial statements should be read in
conjunction with the audited consolidated financial statements for the year ended December 31, 2009
and the related notes included in our Annual Report on Form 10-K. The results of operations for
the three months ended March 31, 2010 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, we evaluate our 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, percentage-of-completion accounting for
long-term contracts, self-insurance, pension and post retirement benefit plans and contingent
liabilities. We base our estimates on historical experience and on various other assumptions that
are believed to be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of Weatherford International Ltd.,
all majority-owned subsidiaries, all controlled joint ventures and variable interest entities where
the Company has determined it is the primary beneficiary. When referring to Weatherford and using
phrases such as we, us, and our, the intent is to refer to Weatherford International Ltd. and
its subsidiaries as a whole or on a regional basis, depending on the context in which the
statements are made.
Investments in affiliates in which we exercise significant influence over operating and
financial policies are accounted for using the equity method. All material intercompany accounts
and transactions have been eliminated in consolidation.
2. Business Combinations
We have acquired businesses we feel are important to our long-term growth strategy. Results
of operations for acquisitions are included in the accompanying Condensed Consolidated Statements
of Income from the date of acquisition. The balances included in the Condensed Consolidated
Balance Sheets related to recent acquisitions are based on preliminary information and are subject
to change when final asset valuations are obtained and the potential for liabilities has been
evaluated. The purchase price is allocated to the net assets acquired based upon their estimated
fair values at the date of acquisition.
In July 2009, we acquired the Oilfield Services Division (OFS) of TNK-BP. In this
transaction, we acquired drilling, well workover and cementing services operations in West
Siberia, East Siberia and the Volga-Urals region. We issued 24.3 million shares valued at
approximately $450 million. In addition, if TNK-BP sells the shares it received in consideration
for the transaction for a price less than $18.50 per share prior to June 29, 2010, we are
obligated to pay TNK-BP additional consideration in an amount equal to the difference between
the price at which the shares were sold and $18.50. We will pay any additional consideration in
cash or, at our option in certain instances, in additional shares following such date. We made a
preliminary allocation of the purchase price as of the
6
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
date of the acquisition. We will continue to adjust the allocations until final valuation of the
assets and liabilities are completed.
Accounting guidance for business combinations requires contingent consideration to be
recognized at its acquisition date fair value. Based on the terms of the arrangement, we
classified the contingent consideration as a liability. Such liabilities are required to be
remeasured to fair value at each reporting date until the contingency is resolved, with changes in
fair value being recognized in earnings. We estimated the fair value of the contingent
consideration for the OFS acquisition at the date of acquisition to be a liability of $84 million
and $63 million at December 31, 2009. This liability was estimated to have a fair value of $71
million at March 31, 2010, resulting in the recognition of an $8 million loss during 2010. This
loss was recorded in the Selling, General and Administrative Attributable to Segments line in the
Consolidated Statements of Income. The valuation of the contingent consideration was determined
using a lattice-based model incorporating the term of the contingency, the price of our shares over
the relevant periods and the volatility of our stock price.
In November 2008, we acquired a group of affiliated companies in Latin America, which provide
project management services, drilling fluids, contract drilling and environmental services in that
region. Consideration for the transaction totaled approximately $160 million, which was comprised
of approximately six million shares valued at approximately $65 million, non-cash consideration of
approximately $75 million and cash of approximately $20 million. Additional consideration of up to
$65 million in cash or the issuance of shares of equivalent value, at our option, is contingent on
the occurrence of future events and circumstances. We will record this contingent consideration
when and if these events occur.
During the three months ended March 31, 2010, we paid $45 million to TNK-BP related to working
capital adjustments in connection with the OFS acquisition. In addition, we paid cash
consideration of $2 million and approximately 1.8 million common shares valued at $28 million for
other acquisitions.
3. Inventories
The components of inventory were as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Raw materials, components and supplies |
|
$ |
337,061 |
|
|
$ |
328,253 |
|
Work in process |
|
|
117,082 |
|
|
|
115,564 |
|
Finished goods |
|
|
1,862,012 |
|
|
|
1,795,945 |
|
|
|
|
|
|
|
|
|
|
$ |
2,316,155 |
|
|
$ |
2,239,762 |
|
|
|
|
|
|
|
|
Work in process and finished goods inventories include the cost of materials, labor and plant
overhead.
4. Goodwill
Goodwill is evaluated for impairment on at least an annual basis. We perform our annual
goodwill impairment test as of October 1. Our 2009 impairment tests indicated goodwill was not
impaired. We will continue to test our 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.
7
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The changes in the carrying amount of goodwill for the three months ended March 31, 2010 were
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Middle East/ |
|
|
Europe/ |
|
|
|
|
|
|
|
|
|
North |
|
|
North Africa/ |
|
|
West Africa/ |
|
|
Latin |
|
|
|
|
|
|
America |
|
|
Asia |
|
|
FSU |
|
|
America |
|
|
Total |
|
|
|
(In thousands) |
|
As of December 31, 2009 |
|
$ |
2,097,549 |
|
|
$ |
698,896 |
|
|
$ |
1,045,577 |
|
|
$ |
314,083 |
|
|
$ |
4,156,105 |
|
Acquisitions |
|
|
3,463 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,463 |
|
Disposals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase price and other
adjustments |
|
|
(3,482 |
) |
|
|
(643 |
) |
|
|
(1,093 |
) |
|
|
(906 |
) |
|
|
(6,124 |
) |
Foreign currency translation |
|
|
16,299 |
|
|
|
1,541 |
|
|
|
(27,803 |
) |
|
|
(2,119 |
) |
|
|
(12,082 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2010 |
|
$ |
2,113,829 |
|
|
$ |
699,794 |
|
|
$ |
1,016,681 |
|
|
$ |
311,058 |
|
|
$ |
4,141,362 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5. Short-term Borrowings and Current Portion of Long-term Debt
The components of short-term borrowings were as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Revolving credit facilities |
|
$ |
943,000 |
|
|
$ |
798,500 |
|
Commercial paper program |
|
|
|
|
|
|
|
|
Other short-term bank loans |
|
|
30,849 |
|
|
|
53,007 |
|
|
|
|
|
|
|
|
Total short-term borrowings |
|
|
973,849 |
|
|
|
851,507 |
|
Current portion of long-term debt |
|
|
17,591 |
|
|
|
18,074 |
|
|
|
|
|
|
|
|
Short-term borrowings and current portion of long-term debt |
|
$ |
991,440 |
|
|
$ |
869,581 |
|
|
|
|
|
|
|
|
We maintain various revolving credit facilities with syndicates of banks that can be used for
a combination of borrowings, support for our commercial paper program and issuances of letters of
credit. At March 31, 2010, these facilities allow for an aggregate availability of $1.8 billion
and mature in May 2011. The weighted average interest rate on outstanding borrowings of these
facilities at March 31, 2010 was 1.0%. There were $75 million in outstanding letters of credit
under these facilities at March 31, 2010.
These 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 are in compliance with these covenants at March 31, 2010.
We have a $1.5 billion commercial paper program under which we may from time to time issue
short-term unsecured notes. The commercial paper program is supported by our revolving credit
facilities. There was no commercial paper outstanding at March 31, 2010.
We have short-term borrowings with various domestic and international institutions pursuant to
uncommitted facilities. At March 31, 2010, we had $31 million in short-term borrowings under these
arrangements with a weighted average interest rate of 1.4%. In addition, we had $276 million of
letters of credit and bid and performance bonds under these uncommitted facilities. The carrying
value of our short-term borrowings approximates their fair value as of March 31, 2010.
8
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. Fair Value of Financial Instruments
Financial Instruments Measured and Recognized at Fair Value
The accounting guidance for fair value measurements establishes a valuation hierarchy for
disclosure of the inputs to the valuations used to measure fair value. This hierarchy prioritizes
the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in
active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar
assets and liabilities in active markets or inputs that are observable for the asset or liability,
either directly or indirectly through market corroboration, for substantially the full term of the
financial instrument. Level 3 inputs are unobservable inputs based upon our own assumptions used to
measure assets and liabilities at fair value. A financial asset or liabilitys classification
within the hierarchy is determined based on the lowest level of input that is significant to the
fair value measurement.
The following table presents our non-derivative 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 March 31, 2010 and December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
|
(In thousands) |
Other Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other investments |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Other Current
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent
consideration on
acquisition (See
Note 2) |
|
|
|
|
|
|
|
|
|
|
70,573 |
|
|
|
70,573 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
|
(In thousands) |
Other Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other investments |
|
$ |
|
|
|
$ |
40,822 |
|
|
$ |
|
|
|
$ |
40,822 |
|
Other Current
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent
consideration on
acquisition (See
Note 2) |
|
|
|
|
|
|
|
|
|
|
62,763 |
|
|
|
62,763 |
|
During the first quarter of 2010, we received proceeds of approximately $42 million from the
redemption of our other investments recorded at fair value at December 31, 2009. The proceeds are
included in investing activities in the Condensed Consolidated Statement of Cash Flows for the
period ended March 31, 2010.
The following table provides a summary of changes in fair value of our Level 3 financial
liability for the three months ended March 31, 2010:
|
|
|
|
|
|
|
Three Months |
|
|
|
Ended March 31, |
|
|
|
2010 |
|
|
|
(In thousands) |
|
Balance at beginning of period |
|
$ |
62,763 |
|
Contingent consideration on acquisition (See Note 2) |
|
|
|
|
Unrealized loss on contingent consideration on
acquisition included in earnings |
|
|
7,810 |
|
|
|
|
|
Balance at end of period |
|
$ |
70,573 |
|
|
|
|
|
The $8 million loss recorded during the first quarter of 2010 is included in the Selling,
General and Administrative Attributable to Segments line in the Consolidated Statements of Income.
9
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Fair Value of Other Financial Instruments
Our other financial instruments include cash and cash equivalents, foreign currency exchange
contracts, interest rate swaps, accounts receivable, notes receivable, accounts payable and short
and long-term debt. With the exception of long-term debt, the carrying value of these financial
instruments approximates their fair value.
The fair value of outstanding debt fluctuates with changes in applicable interest rates. Fair
value will exceed carrying value when the current market interest rate is lower than the interest
rate at which the debt was originally issued. The fair value of a companys debt is a measure of
its current value under present market conditions. It does not impact the financial statements
under current accounting rules. The fair value of our long-term debt was established based on
quoted market prices.
The fair value and carrying value of our long-term debt is as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
December 31, |
|
|
2010 |
|
2009 |
|
|
(In thousands) |
Fair value |
|
$ |
6,392,261 |
|
|
$ |
6,285,129 |
|
Carrying value |
|
|
5,844,610 |
|
|
|
5,847,258 |
|
7. Derivative Instruments
We are exposed to market risk from changes in foreign currency and changes in interest rates.
From time to time, we may enter into derivative financial instrument transactions to manage or
reduce our market risk, but we do not enter into derivative transactions for speculative purposes.
We manage our debt portfolio to achieve an overall desired position of fixed and floating rates and
we may employ interest rate swaps as a tool to achieve that goal. The major risks from interest
rate derivatives include changes in the interest rates affecting the fair value of such
instruments, potential increases in interest expense due to market increases in floating interest
rates and the creditworthiness of the counterparties in such transactions. In light of events in
the global credit markets and the potential impact of these events on the liquidity of the banking
industry, we continue to monitor the creditworthiness of our counterparties, which are
multinational commercial banks.
The fair values of all our outstanding derivative instruments are determined using a model
with Level 2 inputs including quoted market prices for contracts with similar terms and maturity
dates.
Interest Rate Swaps
We use interest rate swaps to help mitigate exposures related to interest rate movements.
Amounts received upon termination of the swaps accounted for as fair value hedges represent the
fair value of the agreements at the time of termination and are recorded as an adjustment to the
carrying value of the related debt. These amounts are being amortized as a reduction to interest
expense over the remaining term of the debt. We have no interest rate swaps outstanding at March
31, 2010. As of March 31, 2010, we had net unamortized gains of $67 million, associated with
interest rate swap terminations.
Cash Flow Hedges
In 2008, we entered into interest rate derivative instruments to hedge projected exposures to
interest rates in anticipation of a debt offering. Those hedges were terminated at the time of the
issuance of the debt, and the loss on these hedges is being amortized from Accumulated Other
Comprehensive Income to interest expense over the remaining term of the debt. As of March 31,
2010, we had net unamortized losses of $13 million associated with our cash flow hedge
terminations.
10
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Other Derivative Instruments
As of March 31, 2010, we had several foreign currency forward and option contracts with
notional amounts aggregating to $620 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 krone. The total estimated fair value of
these contracts at March 31, 2010 resulted in a net liability of approximately $8 million. These
derivative instruments were not designated as hedges and the changes in fair value of the contracts
are recorded each period in Other, Net in the accompanying Condensed Consolidated Statements of
Income.
We have cross-currency swaps between the U.S. dollar and Canadian dollar to hedge certain
exposures to the Canadian dollar. At March 31, 2010, we had notional amounts outstanding of $335
million. The total estimated fair value of these contracts at March 31, 2010 resulted in a
liability of $33 million. These derivative instruments were not designated as hedges and the
changes in fair value of the contracts are recorded each period in Other, Net in the accompanying
Condensed Consolidated Statements of Income.
The fair values of outstanding derivative instruments are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
December 31, |
|
|
|
|
2010 |
|
2009 |
|
Classifications |
|
|
(In thousands) |
|
|
Derivative assets not
designated as hedges: |
|
|
|
|
|
|
|
|
|
|
Foreign
exchange contracts |
|
|
7,778 |
|
|
$ |
9,831 |
|
|
Other Current Assets |
Derivative liabilities not
designated as hedges: |
|
|
|
|
|
|
|
|
|
|
Foreign
exchange contracts |
|
|
15,872 |
|
|
|
18,939 |
|
|
Other Current Liabilities |
Cross-currency swap contracts |
|
|
33,293 |
|
|
|
26,170 |
|
|
Other Liabilities |
8. Income Taxes
Our effective tax rate was a benefit of 30.2% and a provision of 15.7% for the three months
ended March 31, 2010 and 2009, respectively. The change in the effective tax rate is primarily due
to the tax benefit related to the devaluation of the Venezuelan Bolivar, which was partially offset
by curtailment expense on our supplemental executive retirement plan (SERP) that had no related
tax benefit and changes in our geographic earnings mix.
11
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
9. Shareholders Equity
The following summarizes our shareholders equity activity for the period presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling |
|
|
|
Total |
|
|
Company |
|
|
Interests in |
|
|
|
Shareholders |
|
|
Shareholders |
|
|
Consolidated |
|
|
|
Equity |
|
|
Equity |
|
|
Subsidiaries |
|
|
|
(In thousands) |
|
Balance at December 31, 2009 |
|
$ |
9,798,704 |
|
|
$ |
9,719,672 |
|
|
$ |
79,032 |
|
Comprehensive Income: |
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
|
|
(35,974 |
) |
|
|
(40,009 |
) |
|
|
4,035 |
|
Curtailment of Supplemental Executive
Retirement Plan |
|
|
45,237 |
|
|
|
45,237 |
|
|
|
|
|
Amortization of Pension Components |
|
|
1,513 |
|
|
|
1,513 |
|
|
|
|
|
Foreign Currency Translation Adjustments |
|
|
(67,387 |
) |
|
|
(67,387 |
) |
|
|
|
|
Other |
|
|
155 |
|
|
|
155 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income (Loss) |
|
|
(56,456 |
) |
|
|
(60,491 |
) |
|
|
4,035 |
|
Transactions with Shareholders |
|
|
39,980 |
|
|
|
39,980 |
|
|
|
|
|
Dividends paid to Noncontrolling Interests |
|
|
(6,442 |
) |
|
|
|
|
|
|
(6,442 |
) |
Other |
|
|
338 |
|
|
|
|
|
|
|
338 |
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2010 |
|
$ |
9,776,124 |
|
|
$ |
9,699,161 |
|
|
$ |
76,963 |
|
|
|
|
|
|
|
|
|
|
|
10. Earnings Per Share
Basic earnings per share for all periods presented equals net income divided by the weighted
average number of our shares outstanding during the period. Diluted earnings per share is computed
by dividing net income by the weighted average number of our shares outstanding during the period,
adjusted for the dilutive effect of our stock option and restricted share plans and our outstanding
warrants. Our diluted earnings per share calculation excludes three million potential shares for
the three months ended March 31, 2010 and 19 million potential shares for the three months ended
March 31, 2009, due to their antidilutive effect. Our diluted earnings per share calculation for
the three months ended March 31, 2010 also excludes 10 million potential shares that would have
been included if we had net income for that period, but are excluded as we had a net loss and their
inclusion would have been anti-dilutive.
The following reconciles basic and diluted weighted average of shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
|
Ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Basic weighted average shares
outstanding |
|
|
737,865 |
|
|
|
698,327 |
|
Dilutive effect of: |
|
|
|
|
|
|
|
|
Warrants |
|
|
|
|
|
|
|
|
Stock options and restricted shares |
|
|
|
|
|
|
4,309 |
|
|
|
|
|
|
|
|
Diluted weighted average shares
outstanding |
|
|
737,865 |
|
|
|
702,636 |
|
|
|
|
|
|
|
|
12
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
11. Share-Based Compensation
In March 2010, our compensation committee of our board of directors authorized the award of
performance units to officers under our 2006 Omnibus Incentive Plan. Subsequently, we issued
707,000 performance units, which will vest ratably over a three-year period assuming continued
employment of the officer and if the Company meets certain market-based performance goals. The
performance units were valued at $13.19 based on the Monte Carlo simulation method.
We recognized the following employee share-based compensation expense during the three months
ended March 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Ended March 31, |
|
|
2010 |
|
2009 |
|
|
(In thousands) |
Share-based compensation |
|
$ |
22,974 |
|
|
$ |
26,429 |
|
Related tax benefit |
|
|
8,041 |
|
|
|
9,250 |
|
During the three months ended March 31, 2010, we granted one million restricted share
awards and units at a weighted average grant date fair value of $14.49 per share.
As of March 31, 2010, there was $216 million of total unrecognized compensation cost related
to our unvested stock options, restricted share grants, and units. This cost is expected to be
recognized over a weighted average period of 2 years.
12. Retirement and Employee Benefit Plans
We have defined benefit pension and other post-retirement benefit plans covering certain
employees. The components of net periodic benefit cost for the three months ended March 31, 2010
and 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
United |
|
|
|
|
|
|
United |
|
|
|
|
|
|
States |
|
|
International |
|
|
States |
|
|
International |
|
|
|
(In thousands) |
|
Service cost |
|
$ |
951 |
|
|
$ |
1,528 |
|
|
$ |
875 |
|
|
$ |
1,604 |
|
Interest cost |
|
|
1,937 |
|
|
|
1,830 |
|
|
|
1,706 |
|
|
|
1,596 |
|
Expected return on plan assets |
|
|
(149 |
) |
|
|
(1,201 |
) |
|
|
(165 |
) |
|
|
(954 |
) |
Amortization of transition obligation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
Amortization of prior service cost (credit) |
|
|
1,512 |
|
|
|
(13 |
) |
|
|
458 |
|
|
|
(11 |
) |
Amortization of loss |
|
|
772 |
|
|
|
42 |
|
|
|
1,025 |
|
|
|
228 |
|
Curtailment/settlement loss |
|
|
34,958 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
39,981 |
|
|
$ |
2,186 |
|
|
$ |
3,899 |
|
|
$ |
2,462 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The net curtailment loss shown above primarily represents the accelerated recognition of prior
service costs associated with the amendment of our SERP which was effective as of March 31, 2010
and resulted in the freezing of the benefits under this plan.
13
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The
freezing of the SERP may constitute good reason for five of our executive officers to terminate their
employment under their employment agreements, if they choose to do
so, which would entitle these officers to certain
termination benefits. Our CEO
entered into a new employment agreement effectively waiving his right to assert
good reason due to the freezing of the SERP. However, one
of our operational vice presidents, David Colley, has
notified the Company of his intention to terminate his employment for good reason, and we expect
to record a charge of approximately $4 million in connection with his termination and pay out total cash consideration
of approximately $7 million, both during 2010. The amount recorded related to the curtailment of the SERP for the three
months ended March 31, 2010 does not include any accrual for any executives potential termination
for good reason. If the remaining three executives were to terminate their employment for good
reason, we would anticipate recording an expense of
approximately $25 million and make total cash consideration payments
of approximately $41 million.
We previously disclosed in our financial statements for the year ended December 31, 2009, that
we expected to contribute approximately $7 million to our pension and other postretirement benefit
plans during 2010. As of March 31, 2010, we have contributed approximately $2 million to these
plans and anticipate total annual contributions to approximate original estimates previously
disclosed and pay out total cash consideration of approximately $7
million, both during 2010.
13. Segment Information
Financial information by segment is summarized below. Revenues are attributable to countries
based on the ultimate destination of the sale of products or performance of services.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2010 |
|
|
|
Net |
|
|
Income |
|
|
Depreciation |
|
|
|
Operating |
|
|
from |
|
|
and |
|
|
|
Revenues |
|
|
Operations |
|
|
Amortization |
|
|
|
(In thousands) |
|
North America |
|
$ |
890,544 |
|
|
$ |
112,327 |
|
|
$ |
80,660 |
|
Middle East/North Africa/Asia |
|
|
564,979 |
|
|
|
82,796 |
|
|
|
72,290 |
|
Europe/West Africa/FSU |
|
|
454,701 |
|
|
|
30,718 |
|
|
|
48,958 |
|
Latin America |
|
|
428,024 |
|
|
|
31,079 |
|
|
|
42,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,338,248 |
|
|
|
256,920 |
|
|
|
244,387 |
|
Corporate and Research and Development |
|
|
|
|
|
|
(95,977 |
) |
|
|
5,005 |
|
Other (a) |
|
|
|
|
|
|
(44,032 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,338,248 |
|
|
$ |
116,911 |
|
|
$ |
249,392 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2009 |
|
|
|
Net |
|
|
Income |
|
|
Depreciation |
|
|
|
Operating |
|
|
from |
|
|
and |
|
|
|
Revenues |
|
|
Operations |
|
|
Amortization |
|
|
|
(In thousands) |
|
North America |
|
$ |
837,353 |
|
|
$ |
123,036 |
|
|
$ |
75,098 |
|
Middle East/North Africa/Asia |
|
|
581,946 |
|
|
|
134,026 |
|
|
|
57,634 |
|
Europe/West Africa/FSU |
|
|
368,843 |
|
|
|
74,943 |
|
|
|
34,678 |
|
Latin America |
|
|
467,999 |
|
|
|
92,217 |
|
|
|
30,442 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,256,141 |
|
|
|
424,222 |
|
|
|
197,852 |
|
Corporate and Research and Development |
|
|
|
|
|
|
(88,620 |
) |
|
|
3,542 |
|
Other (b) |
|
|
|
|
|
|
(24,877 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,256,141 |
|
|
$ |
310,725 |
|
|
$ |
201,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The three months ended March 31, 2010 includes $2 million for costs incurred in connection
with on-going investigations by the U.S. government, $9 million for severance and facility
closure costs associated with |
14
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
|
|
|
|
reorganization activities and a $38 million charge related to
our SERP which was frozen on March 31, 2010. These changes were offset by a $5 million
benefit related to the reversal of prior cost accruals for our exit from certain sanctioned
countries. |
|
(b) |
|
The three months ended March 31, 2009 includes $12 million for severance charges associated
with reorganization activities and $13 million in costs incurred in connection with on-going
investigations by the U.S. government. |
14. Disputes, Litigation and Contingencies
U.S. Government and Internal Investigations
We are currently involved in government and internal investigations involving various
areas of our operations.
Until 2003, we participated in the United Nations oil-for-food program governing sales of
goods and services into Iraq. The U.S. Department of Justice (DOJ) and the SEC have undertaken
investigations of our participation in the oil-for-food program and have subpoenaed certain
documents in connection with these investigations. We have cooperated fully with these
investigations. We have retained legal counsel, reporting to our audit committee, to investigate
this matter. These investigations are not yet resolved, and we cannot anticipate the timing,
outcome or possible impact of the ultimate resolution of the investigations, financial or
otherwise.
The U.S. Department of Commerce, Bureau of Industry & Security, Office of Foreign Assets
Control (OFAC), DOJ and SEC have undertaken investigations of allegations of improper sales of
products and services by the Company and its subsidiaries in certain sanctioned countries. We have
cooperated fully with this investigation. We have retained legal counsel, reporting to our audit
committee, to investigate these matters and to cooperate fully with these agencies. This
investigation is not yet resolved, and we cannot anticipate the timing, outcome or possible impact
of the ultimate resolution 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 comprehensive
U.S. economic and trade sanctions, specifically Cuba, Iran, and Sudan, as well as Syria.
Effective September 2007, we ceased entering into any new contracts in these countries and began an
orderly discontinuation and winding down of our existing business in these sanctioned countries.
Effective March 31, 2008, we substantially completed our winding down of business in these
countries. We can complete the withdrawal process only pursuant to licenses issued by OFAC. Our
remaining activities in Iran, Sudan and Syria include ongoing withdrawal activities such as
attempts to collect accounts receivable, attempts to settle tax liabilities or legal claims and
attempts to recover or liquidate assets, including equipment and funds. Certain of our
subsidiaries continue to conduct business in countries such as Myanmar that are subject to more
limited U.S. trading sanctions.
The DOJ and SEC are investigating 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 our compliance with the
Foreign Corrupt Practices Act (FCPA) and other laws worldwide. We have retained legal counsel,
reporting to our audit committee, to investigate these matters and to cooperate fully with the DOJ
and SEC. As part of our investigations, we have uncovered potential violations of U.S. law in
connection with activities in West Africa. These investigations are not yet resolved, and we
cannot anticipate the timing, outcome or possible impact of the ultimate resolution of the
investigations, financial or otherwise.
The DOJ, SEC and other agencies and authorities have a broad range of civil and criminal
penalties they may seek to impose against corporations and individuals for violations of trade
sanctions laws, the FCPA and other federal statutes including, but not limited to, injunctive
relief, disgorgement, fines, penalties and modifications to business practices and compliance
programs. In recent years, these agencies and authorities have entered into agreements with, and
obtained a range of penalties against, several public corporations and individuals in similar
investigations, under which civil and criminal penalties were imposed, including in some cases
fines and other penalties and sanctions in the tens and hundreds of millions of dollars. These
agencies are seeking to impose penalties against us for past conduct, but the ultimate amount of
any penalties we may pay currently cannot be
15
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
reasonably estimated. Under trade sanctions laws, the
DOJ may also seek to impose modifications to business practices, including immediate cessation of
all business activities in specific countries or other limitations that decrease our business, and
modifications to compliance programs, which may increase compliance costs. Any
injunctive relief, disgorgement, fines, penalties, sanctions or imposed modifications to business
practices resulting from these investigations could adversely affect our results of operations. 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 registered
shares. Based on available information, we cannot predict what, if any, actions the DOJ, SEC or
other authorities will take in our situation or the effect any such actions will have on our
consolidated financial position or results of operations. To the extent we violated trade sanctions
laws, the FCPA, or other laws or regulations, fines and other penalties may be imposed. Because
these matters are now pending before the indicated agencies, 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 three months ended March 31, 2010 and 2009, we incurred $2 million and $13 million,
respectively, in connection with these on-going investigations.
Other Litigation and Disputes
We are aware of various disputes and potential claims and are a party in various litigation
involving claims against us, some of which are covered by insurance. For claims, disputes and
pending litigation in which we believe a negative outcome is probable and a loss can be reasonably
estimated, we have recorded a liability for the expected loss. These liabilities are immaterial to
our financial condition and results of operations. In addition we have certain claims, disputes
and pending litigation in which we do not believe a negative outcome is probable. If one or more
negative outcomes were to occur, the impact to our financial condition could be as high as $180
million.
Our former Senior Vice President and General Counsel (the Executive) left the Company in
June 2009. The Executive had employment agreements with us that terminated on his departure.
There is currently a dispute between the Executive and us as to the amount of compensation we are
obligated to pay under these employment agreements based on the Executives separation. This
dispute has not resulted in a lawsuit being filed. It is our belief that an unfavorable outcome
regarding this dispute is not probable, and as such, we have not accrued for $9 million of the
Executives claimed severance and other benefits.
15. New Accounting Pronouncements
In October 2009, the FASB issued an update to existing guidance on revenue recognition
for arrangements with multiple deliverables. This update will allow companies to allocate
consideration received for qualified separate deliverables using estimated selling price for both
delivered and undelivered items when vendor-specific objective evidence or third-party evidence is
unavailable. Additional disclosures discussing the nature of multiple element arrangements, the
types of deliverables under the arrangements, the general timing of their delivery, and significant
factors and estimates used to determine estimated selling prices are required. We will adopt this
update for new revenue arrangements entered into or materially modified beginning January 1,
2011. We do not expect the provisions of this update to have a material impact on our condensed
consolidated financial statements.
16. Condensed Consolidating Financial Statements
A Swiss corporation named Weatherford International Ltd. is the ultimate parent of the
Weatherford group (Parent). The Parent guarantees the obligations of Weatherford International
Ltd. incorporated in Bermuda (Weatherford Bermuda) and Weatherford International, Inc.
incorporated in Delaware (Weatherford Delaware) noted below.
The following obligations of Weatherford Delaware were guaranteed by Weatherford Bermuda at
March 31, 2010 and December 31, 2009: (i) the 6.625% Senior Notes, (ii) the 5.95% Senior Notes,
(iii) the 6.35% Senior Notes and (iv) the 6.80% Senior Notes.
The following obligations of Weatherford Bermuda were guaranteed by Weatherford Delaware at
March 31, 2010 and December 31, 2009: (i) the revolving credit facilities, (ii) the 4.95% Senior
Notes, (iii) the 5.50% Senior
16
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Notes, (iv) the 6.50% Senior Notes, (v) the 5.15% Senior Notes, (vi)
the 6.00% Senior Notes, (vii) the 7.00% Senior Notes (viii) the 9.625% Senior Notes, (ix) the
9.875% Senior Notes and (x) issuances of notes under the commercial paper program.
As a result of these guarantee arrangements, we are required to present the following
condensed consolidating financial information. The accompanying guarantor financial information is
presented on the equity method of accounting for all periods presented. Under this method,
investments in subsidiaries are recorded at cost and adjusted for our share in the subsidiaries
cumulative results of operations, capital contributions and distributions and other changes in
equity. Elimination entries relate primarily to the elimination of investments in subsidiaries and
associated intercompany balances and transactions.
17
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Condensed Consolidating Balance Sheet
March 31, 2010
(unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Bermuda |
|
|
Delaware |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidation |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents |
|
$ |
1,462 |
|
|
$ |
24 |
|
|
$ |
51 |
|
|
$ |
205,562 |
|
|
$ |
|
|
|
$ |
207,099 |
|
Other Current Assets |
|
|
3,923 |
|
|
|
10,276 |
|
|
|
101,799 |
|
|
|
6,004,608 |
|
|
|
|
|
|
|
6,120,606 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets |
|
|
5,385 |
|
|
|
10,300 |
|
|
|
101,850 |
|
|
|
6,210,170 |
|
|
|
|
|
|
|
6,327,705 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Investments in Affiliates |
|
|
8,591,895 |
|
|
|
15,179,580 |
|
|
|
6,820,587 |
|
|
|
12,092,067 |
|
|
|
(42,684,129 |
) |
|
|
|
|
Shares Held in Parent |
|
|
|
|
|
|
|
|
|
|
105,372 |
|
|
|
468,800 |
|
|
|
(574,172 |
) |
|
|
|
|
Intercompany Receivables, Net |
|
|
|
|
|
|
1,872,468 |
|
|
|
978,812 |
|
|
|
|
|
|
|
(2,851,280 |
) |
|
|
|
|
Other Assets |
|
|
9,271 |
|
|
|
27,296 |
|
|
|
185,889 |
|
|
|
12,407,598 |
|
|
|
|
|
|
|
12,630,054 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
8,606,551 |
|
|
$ |
17,089,644 |
|
|
$ |
8,192,510 |
|
|
$ |
31,178,635 |
|
|
$ |
(46,109,581 |
) |
|
$ |
18,957,759 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS
EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term Borrowings and
Current Portion of Long-term
Debt |
|
$ |
|
|
|
$ |
576,103 |
|
|
$ |
1,897 |
|
|
$ |
413,440 |
|
|
$ |
|
|
|
$ |
991,440 |
|
Accounts Payable and Other
Current Liabilities |
|
|
10,140 |
|
|
|
44,560 |
|
|
|
139,352 |
|
|
|
1,767,986 |
|
|
|
|
|
|
|
1,962,038 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities |
|
|
10,140 |
|
|
|
620,663 |
|
|
|
141,249 |
|
|
|
2,181,426 |
|
|
|
|
|
|
|
2,953,478 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term Debt |
|
|
|
|
|
|
3,987,773 |
|
|
|
1,847,871 |
|
|
|
8,966 |
|
|
|
|
|
|
|
5,844,610 |
|
Intercompany Payables, Net |
|
|
95,749 |
|
|
|
|
|
|
|
|
|
|
|
2,755,531 |
|
|
|
(2,851,280 |
) |
|
|
|
|
Other Long-term Liabilities |
|
|
6,216 |
|
|
|
99,704 |
|
|
|
2,264 |
|
|
|
275,363 |
|
|
|
|
|
|
|
383,547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
112,105 |
|
|
|
4,708,140 |
|
|
|
1,991,384 |
|
|
|
5,221,286 |
|
|
|
(2,851,280 |
) |
|
|
9,181,635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weatherford Shareholders Equity |
|
|
8,494,446 |
|
|
|
12,381,504 |
|
|
|
6,201,126 |
|
|
|
25,880,386 |
|
|
|
(43,258,301 |
) |
|
|
9,699,161 |
|
Noncontrolling Interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76,963 |
|
|
|
|
|
|
|
76,963 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and
Shareholders Equity |
|
$ |
8,606,551 |
|
|
$ |
17,089,644 |
|
|
$ |
8,192,510 |
|
|
$ |
31,178,635 |
|
|
$ |
(46,109,581 |
) |
|
$ |
18,957,759 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Condensed Consolidating Balance Sheet
December 31, 2009
(unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Bermuda |
|
|
Delaware |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidation |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents |
|
$ |
102 |
|
|
$ |
47 |
|
|
$ |
421 |
|
|
$ |
251,949 |
|
|
$ |
|
|
|
$ |
252,519 |
|
Other Current Assets |
|
|
510 |
|
|
|
11,163 |
|
|
|
98,033 |
|
|
|
5,778,381 |
|
|
|
|
|
|
|
5,888,087 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets |
|
|
612 |
|
|
|
11,210 |
|
|
|
98,454 |
|
|
|
6,030,330 |
|
|
|
|
|
|
|
6,140,606 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Investments in Affiliates |
|
|
8,615,365 |
|
|
|
15,160,748 |
|
|
|
6,754,566 |
|
|
|
12,092,950 |
|
|
|
(42,623,629 |
) |
|
|
|
|
Shares Held in Parent |
|
|
|
|
|
|
|
|
|
|
108,268 |
|
|
|
507,780 |
|
|
|
(616,048 |
) |
|
|
|
|
Intercompany Receivables, Net |
|
|
|
|
|
|
1,671,487 |
|
|
|
1,017,215 |
|
|
|
|
|
|
|
(2,688,702 |
) |
|
|
|
|
Other Assets |
|
|
9,376 |
|
|
|
68,960 |
|
|
|
190,175 |
|
|
|
12,457,066 |
|
|
|
|
|
|
|
12,725,577 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
8,625,353 |
|
|
$ |
16,912,405 |
|
|
$ |
8,168,678 |
|
|
$ |
31,088,126 |
|
|
$ |
(45,928,379 |
) |
|
$ |
18,866,183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS
EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term Borrowings and
Current Portion of Long-Term
Debt |
|
$ |
|
|
|
$ |
352,373 |
|
|
$ |
1,868 |
|
|
$ |
515,340 |
|
|
$ |
|
|
|
$ |
869,581 |
|
Accounts Payable and Other
Current Liabilities |
|
|
46,160 |
|
|
|
107,984 |
|
|
|
116,404 |
|
|
|
1,656,759 |
|
|
|
|
|
|
|
1,927,307 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities |
|
|
46,160 |
|
|
|
460,357 |
|
|
|
118,272 |
|
|
|
2,172,099 |
|
|
|
|
|
|
|
2,796,888 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term Debt |
|
|
|
|
|
|
3,988,162 |
|
|
|
1,848,191 |
|
|
|
10,905 |
|
|
|
|
|
|
|
5,847,258 |
|
Intercompany Payables, Net |
|
|
36,606 |
|
|
|
|
|
|
|
|
|
|
|
2,652,096 |
|
|
|
(2,688,702 |
) |
|
|
|
|
Other Long-term Liabilities |
|
|
8,132 |
|
|
|
132,155 |
|
|
|
2,309 |
|
|
|
280,737 |
|
|
|
|
|
|
|
423,333 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
90,898 |
|
|
|
4,580,674 |
|
|
|
1,968,772 |
|
|
|
5,115,837 |
|
|
|
(2,688,702 |
) |
|
|
9,067,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weatherford Shareholders Equity |
|
|
8,534,455 |
|
|
|
12,331,731 |
|
|
|
6,199,906 |
|
|
|
25,893,257 |
|
|
|
(43,239,677 |
) |
|
|
9,719,672 |
|
Noncontrolling Interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79,032 |
|
|
|
|
|
|
|
79,032 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and
Shareholders Equity |
|
$ |
8,625,353 |
|
|
$ |
16,912,405 |
|
|
$ |
8,168,678 |
|
|
$ |
31,088,126 |
|
|
$ |
(45,928,379 |
) |
|
$ |
18,866,183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
`
19
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Condensed Consolidating Statements of Income
Three Months Ended March 31, 2010
(unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Bermuda |
|
|
Delaware |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidation |
|
Revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2,338,248 |
|
|
$ |
|
|
|
$ |
2,338,248 |
|
Costs and Expenses |
|
|
(15,250 |
) |
|
|
(39,357 |
) |
|
|
(607 |
) |
|
|
(2,166,123 |
) |
|
|
|
|
|
|
(2,221,337 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss) |
|
|
(15,250 |
) |
|
|
(39,357 |
) |
|
|
(607 |
) |
|
|
172,125 |
|
|
|
|
|
|
|
116,911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Income (Expense), Net |
|
|
(947 |
) |
|
|
(64,200 |
) |
|
|
(28,848 |
) |
|
|
(1,344 |
) |
|
|
|
|
|
|
(95,339 |
) |
Devaluation of Venezuelan Bolivar |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(63,859 |
) |
|
|
|
|
|
|
(63,859 |
) |
Intercompany Charges, Net |
|
|
(300 |
) |
|
|
716 |
|
|
|
(43,553 |
) |
|
|
43,137 |
|
|
|
|
|
|
|
|
|
Equity in Subsidiary Income (Loss) |
|
|
(23,470 |
) |
|
|
17,959 |
|
|
|
66,011 |
|
|
|
|
|
|
|
(60,500 |
) |
|
|
|
|
Other, Net |
|
|
(42 |
) |
|
|
61,412 |
|
|
|
(191 |
) |
|
|
(70,397 |
) |
|
|
|
|
|
|
(9,218 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Before Income Taxes |
|
|
(40,009 |
) |
|
|
(23,470 |
) |
|
|
(7,188 |
) |
|
|
79,662 |
|
|
|
(60,500 |
) |
|
|
(51,505 |
) |
Provision for Income Taxes |
|
|
|
|
|
|
|
|
|
|
25,147 |
|
|
|
(9,616 |
) |
|
|
|
|
|
|
15,531 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
|
|
(40,009 |
) |
|
|
(23,470 |
) |
|
|
17,959 |
|
|
|
70,046 |
|
|
|
(60,500 |
) |
|
|
(35,974 |
) |
Noncontrolling Interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,035 |
) |
|
|
|
|
|
|
(4,035 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Attributable to Weatherford |
|
$ |
(40,009 |
) |
|
$ |
(23,470 |
) |
|
$ |
17,959 |
|
|
$ |
66,011 |
|
|
$ |
(60,500 |
) |
|
$ |
(40,009 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statements of Income
Three Months Ended March 31, 2009
(unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Bermuda |
|
|
Delaware |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidation |
|
Revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2,256,141 |
|
|
$ |
|
|
|
$ |
2,256,141 |
|
Costs and Expenses |
|
|
(34 |
) |
|
|
(6,508 |
) |
|
|
(344 |
) |
|
|
(1,938,530 |
) |
|
|
|
|
|
|
(1,945,416 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss) |
|
|
(34 |
) |
|
|
(6,508 |
) |
|
|
(344 |
) |
|
|
317,611 |
|
|
|
|
|
|
|
310,725 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Income (Expense), Net |
|
|
|
|
|
|
(64,052 |
) |
|
|
(28,432 |
) |
|
|
1,421 |
|
|
|
|
|
|
|
(91,063 |
) |
Intercompany Charges, Net |
|
|
|
|
|
|
71,124 |
|
|
|
|
|
|
|
(71,124 |
) |
|
|
|
|
|
|
|
|
Equity in Subsidiary Income |
|
|
164,836 |
|
|
|
166,556 |
|
|
|
176,793 |
|
|
|
|
|
|
|
(508,185 |
) |
|
|
|
|
Other, Net |
|
|
|
|
|
|
(2,284 |
) |
|
|
(287 |
) |
|
|
(10,968 |
) |
|
|
|
|
|
|
(13,539 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Before Income Taxes |
|
|
164,802 |
|
|
|
164,836 |
|
|
|
147,730 |
|
|
|
236,940 |
|
|
|
(508,185 |
) |
|
|
206,123 |
|
Provision for Income Taxes |
|
|
|
|
|
|
|
|
|
|
18,826 |
|
|
|
(51,289 |
) |
|
|
|
|
|
|
(32,463 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
|
|
164,802 |
|
|
|
164,836 |
|
|
|
166,556 |
|
|
|
185,651 |
|
|
|
(508,185 |
) |
|
|
173,660 |
|
Noncontrolling Interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,858 |
) |
|
|
|
|
|
|
(8,858 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Attributable to Weatherford |
|
$ |
164,802 |
|
|
$ |
164,836 |
|
|
$ |
166,556 |
|
|
$ |
176,793 |
|
|
$ |
(508,185 |
) |
|
$ |
164,802 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Condensed Consolidating Statement of Cash Flows
Three Months Ended March 31, 2010
(unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Bermuda |
|
|
Delaware |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidation |
|
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
|
$ |
(40,009 |
) |
|
$ |
(23,470 |
) |
|
$ |
17,959 |
|
|
$ |
70,046 |
|
|
$ |
(60,500 |
) |
|
$ |
(35,974 |
) |
Adjustments to Reconcile Net Income (Loss)
to Net Cash Provided (Used) by Operating
Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charges from Parent or Subsidiary |
|
|
300 |
|
|
|
(716 |
) |
|
|
43,553 |
|
|
|
(43,137 |
) |
|
|
|
|
|
|
|
|
Equity in (Earnings) Loss of Affiliates |
|
|
23,470 |
|
|
|
(17,959 |
) |
|
|
(66,011 |
) |
|
|
|
|
|
|
60,500 |
|
|
|
|
|
Deferred Income Tax (Benefit) |
|
|
|
|
|
|
|
|
|
|
(25,147 |
) |
|
|
(68,476 |
) |
|
|
|
|
|
|
(93,623 |
) |
Other Adjustments |
|
|
(31,562 |
) |
|
|
(55,183 |
) |
|
|
52,692 |
|
|
|
169,181 |
|
|
|
|
|
|
|
135,128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided (Used) by Operating
Activities |
|
|
(47,801 |
) |
|
|
(97,328 |
) |
|
|
23,046 |
|
|
|
127,614 |
|
|
|
|
|
|
|
5,531 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions of Businesses, Net of Cash
Acquired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(46,579 |
) |
|
|
|
|
|
|
(46,579 |
) |
Capital Expenditures for Property, Plant and
Equipment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(231,087 |
) |
|
|
|
|
|
|
(231,087 |
) |
Acquisition of Intellectual Property |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,647 |
) |
|
|
|
|
|
|
(6,647 |
) |
Proceeds from Sale of Assets and Businesses,
Net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87,790 |
|
|
|
|
|
|
|
87,790 |
|
Capital Contribution to Subsidiary |
|
|
|
|
|
|
(873 |
) |
|
|
(10 |
) |
|
|
|
|
|
|
883 |
|
|
|
|
|
Other Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,840 |
|
|
|
|
|
|
|
41,840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided (Used) by Investing
Activities |
|
|
|
|
|
|
(873 |
) |
|
|
(10 |
) |
|
|
(154,683 |
) |
|
|
883 |
|
|
|
(154,683 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings of (Repayments on) Short-term
Debt, Net |
|
|
|
|
|
|
223,730 |
|
|
|
29 |
|
|
|
(101,013 |
) |
|
|
|
|
|
|
122,746 |
|
Repayments on Long-term Debt, Net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,113 |
) |
|
|
|
|
|
|
(2,113 |
) |
Borrowings (Repayments) Between
Subsidiaries, Net |
|
|
49,161 |
|
|
|
(125,552 |
) |
|
|
(26,662 |
) |
|
|
103,053 |
|
|
|
|
|
|
|
|
|
Proceeds from Capital Contribution |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
883 |
|
|
|
(883 |
) |
|
|
|
|
Other, Net |
|
|
|
|
|
|
|
|
|
|
3,227 |
|
|
|
|
|
|
|
|
|
|
|
3,227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided (Used) by Financing
Activities |
|
|
49,161 |
|
|
|
98,178 |
|
|
|
(23,406 |
) |
|
|
810 |
|
|
|
(883 |
) |
|
|
123,860 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Exchange Rate on Cash and Cash
Equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,128 |
) |
|
|
|
|
|
|
(20,128 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Cash and Cash
Equivalents |
|
|
1,360 |
|
|
|
(23 |
) |
|
|
(370 |
) |
|
|
(46,387 |
) |
|
|
|
|
|
|
(45,420 |
) |
Cash and Cash Equivalents at Beginning of Year |
|
|
102 |
|
|
|
47 |
|
|
|
421 |
|
|
|
251,949 |
|
|
|
|
|
|
|
252,519 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of Year |
|
$ |
1,462 |
|
|
$ |
24 |
|
|
$ |
51 |
|
|
$ |
205,562 |
|
|
$ |
|
|
|
$ |
207,099 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Condensed Consolidating Statement of Cash Flows
Three Months Ended March 31, 2009
(unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Bermuda |
|
|
Delaware |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidation |
|
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
|
$ |
164,802 |
|
|
$ |
164,836 |
|
|
$ |
166,556 |
|
|
$ |
185,651 |
|
|
$ |
(508,185 |
) |
|
$ |
173,660 |
|
Adjustments to Reconcile Net Income (Loss)
to Net Cash Provided (Used) by Operating
Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charges from Parent or Subsidiary |
|
|
|
|
|
|
(71,124 |
) |
|
|
|
|
|
|
71,124 |
|
|
|
|
|
|
|
|
|
Equity in (Earnings) Loss of Affiliates |
|
|
(164,836 |
) |
|
|
(166,556 |
) |
|
|
(176,793 |
) |
|
|
|
|
|
|
508,185 |
|
|
|
|
|
Deferred Income Tax Provision (Benefit) |
|
|
|
|
|
|
|
|
|
|
8,986 |
|
|
|
(32,580 |
) |
|
|
|
|
|
|
(23,594 |
) |
Other Adjustments |
|
|
34 |
|
|
|
(25,302 |
) |
|
|
109,523 |
|
|
|
(66,763 |
) |
|
|
|
|
|
|
17,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided (Used) by Operating
Activities |
|
|
|
|
|
|
(98,146 |
) |
|
|
108,272 |
|
|
|
157,432 |
|
|
|
|
|
|
|
167,558 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions of Businesses, Net of Cash
Acquired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,094 |
) |
|
|
|
|
|
|
(7,094 |
) |
Capital Expenditures for Property, Plant and
Equipment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(583,719 |
) |
|
|
|
|
|
|
(583,719 |
) |
Acquisition of Intellectual Property |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,096 |
) |
|
|
|
|
|
|
(11,096 |
) |
Purchase of Equity Investment in
Unconsolidated Affiliate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26,509 |
) |
|
|
|
|
|
|
(26,509 |
) |
Proceeds from Sale of Assets and Businesses,
Net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,616 |
|
|
|
|
|
|
|
30,616 |
|
Capital Contribution to Subsidiary |
|
|
|
|
|
|
(331,584 |
) |
|
|
(39 |
) |
|
|
|
|
|
|
331,623 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided (Used) by Investing
Activities |
|
|
|
|
|
|
(331,584 |
) |
|
|
(39 |
) |
|
|
(597,802 |
) |
|
|
331,623 |
|
|
|
(597,802 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings of (Repayments on) Short-term
Debt, Net |
|
|
|
|
|
|
(554,898 |
) |
|
|
27 |
|
|
|
(319,067 |
) |
|
|
|
|
|
|
(873,938 |
) |
Borrowings of (Repayments on) Long-term
Debt, Net |
|
|
|
|
|
|
1,233,301 |
|
|
|
|
|
|
|
(2,092 |
) |
|
|
|
|
|
|
1,231,209 |
|
Borrowings (Repayments) Between
Subsidiaries, Net |
|
|
|
|
|
|
(248,671 |
) |
|
|
(104,301 |
) |
|
|
352,972 |
|
|
|
|
|
|
|
|
|
Proceeds from Capital Contribution |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
331,623 |
|
|
|
(331,623 |
) |
|
|
|
|
Other, Net |
|
|
|
|
|
|
|
|
|
|
(3,883 |
) |
|
|
|
|
|
|
|
|
|
|
(3,883 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided (Used) by Financing
Activities |
|
|
|
|
|
|
429,732 |
|
|
|
(108,157 |
) |
|
|
363,436 |
|
|
|
(331,623 |
) |
|
|
353,388 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Exchange Rate on Cash and Cash
Equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
174 |
|
|
|
|
|
|
|
174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Cash and Cash
Equivalents |
|
|
|
|
|
|
2 |
|
|
|
76 |
|
|
|
(76,760 |
) |
|
|
|
|
|
|
(76,682 |
) |
Cash and Cash Equivalents at Beginning of Year |
|
|
102 |
|
|
|
24 |
|
|
|
50 |
|
|
|
238,222 |
|
|
|
|
|
|
|
238,398 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of Year |
|
$ |
102 |
|
|
$ |
26 |
|
|
$ |
126 |
|
|
$ |
161,462 |
|
|
$ |
|
|
|
$ |
161,716 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
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 2010. Next, we analyze the results of our
operations for the three months ended March 31, 2010 and 2009, including the trends in our overall
business. Then we review our liquidity and capital resources. We conclude with a discussion of
our critical accounting policies and estimates and a summary of recently issued accounting
pronouncements. When using phrases such as Company, we, us and our the intent is to refer
to Weatherford International Ltd.
Overview
General
The following discussion should be read in conjunction with our financial statements included
with this report and our financial statements and related MD&A for the year ended December 31, 2009
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) drilling
services; 2) artificial lift systems; 3) well construction; 4) completion systems; 5) integrated
drilling; 6) drilling tools; 7) re-entry and fishing; 8) stimulation and chemicals services; 9)
wireline and evaluation services; 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) |
March 31, 2010 |
|
$ |
83.76 |
|
|
$ |
3.87 |
|
|
|
1,767 |
|
|
|
1,164 |
|
December 31, 2009 |
|
|
79.36 |
|
|
|
5.57 |
|
|
|
1,485 |
|
|
|
1,113 |
|
March 31, 2009 |
|
|
49.90 |
|
|
|
3.78 |
|
|
|
1,301 |
|
|
|
1,104 |
|
|
|
|
(1) |
|
Price per barrel as of March 31 and December 31 Source: Thomson Reuters |
|
(2) |
|
Price per MM/BTU as of March 31 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 three months of 2010, ranging from a low of $71.19 per
barrel in early February to a high of $83.76 per barrel at the end of March. Natural gas prices
decreased during the first quarter of 2010 and ranged from a high of $6.01 MM/BTU in early January
to a low of $3.84 MM/BTU near the end of March. 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.
23
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 and for our products and services. These phenomena provide us with a
positive outlook over the longer term.
The near-term outlook is more difficult to assess. 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. The prognosis for North America in 2010 is favorable, but
limited in scope and scale by the relative elasticity of the gas supply curve. We are currently
anticipating that North America will experience an increase in volume during 2010 as compared to
2009 levels but that activity will be relatively flat as compared to first quarter levels,
excluding the seasonal impact of spring break-up during the second quarter in Canada.
While it is difficult to predict exact growth rates given the current fluid economic
conditions and volatility, we expect our total international businesses to grow 20% in 2010 as
compared to 2009. The Eastern Hemisphere is anticipated to contribute all of the year-over-year
increase in revenues. We anticipate Latin America to decline year-over-year, but with sequential
margin recovery through the year. This anticipated year-over-year decline is due to the decline in
project activity in Mexico and a poor prognosis in the Venezuelan economy. This decline is
expected to be partially offset by year-over-year growth in Brazil, Colombia, Ecuador, Argentina
and Peru.
Overall, the level of improvements for our businesses for 2010 will continue to depend heavily
on volume increases and our ability to further penetrate existing markets with our younger
technologies as well as to successfully introduce these technologies to new markets. In addition,
our ability to continue to grow our business aggressively will rely on our continued demonstration
of a high level of operational efficacy for our clients on project management opportunities. The
recruitment, training and retention of personnel will also be a critical factor in growing our
businesses. 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, including the factors described above under Forward-Looking
Statements.
24
Results of Operations
The following charts contain selected financial data comparing our consolidated and segment
results from operations for the three months ended March 31, 2010 and 2009.
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
|
Ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands, except percentages |
|
|
|
and per share data) |
|
Revenues: |
|
|
|
|
|
|
|
|
North America |
|
$ |
890,544 |
|
|
$ |
837,353 |
|
Middle East/North Africa/Asia |
|
|
564,979 |
|
|
|
581,946 |
|
Europe/West Africa/FSU |
|
|
454,701 |
|
|
|
368,843 |
|
Latin America |
|
|
428,024 |
|
|
|
467,999 |
|
|
|
|
|
|
|
|
|
|
|
2,338,248 |
|
|
|
2,256,141 |
|
|
|
|
|
|
|
|
|
|
Operating Income: |
|
|
|
|
|
|
|
|
North America |
|
|
112,327 |
|
|
|
123,036 |
|
Middle East/North Africa/Asia |
|
|
82,796 |
|
|
|
134,026 |
|
Europe/West Africa/FSU |
|
|
30,718 |
|
|
|
74,943 |
|
Latin America |
|
|
31,079 |
|
|
|
92,217 |
|
Research and Development |
|
|
(48,857 |
) |
|
|
(49,021 |
) |
Corporate |
|
|
(47,120 |
) |
|
|
(39,599 |
) |
Exit and Restructuring |
|
|
(44,032 |
) |
|
|
(24,877 |
) |
|
|
|
|
|
|
|
|
|
|
116,911 |
|
|
|
310,725 |
|
|
|
|
|
|
|
|
|
|
Interest Expense, Net |
|
|
(95,339 |
) |
|
|
(91,063 |
) |
|
|
|
|
|
|
|
|
|
Devaluation of Venezuelan Bolivar |
|
|
(63,859 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other, Net |
|
|
(9,218 |
) |
|
|
(13,539 |
) |
|
|
|
|
|
|
|
|
|
Effective Tax Rate |
|
|
30.2 |
% |
|
|
15.7 |
% |
|
|
|
|
|
|
|
|
|
Net Income (Loss) per Diluted Share |
|
$ |
(0.05 |
) |
|
$ |
0.23 |
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization |
|
|
249,392 |
|
|
|
201,394 |
|
25
Revenues
The following chart contains consolidated revenues by product line for the three months ended
March 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Ended March 31, |
|
|
2010 |
|
2009 |
Well Construction |
|
|
17 |
% |
|
|
15 |
% |
Drilling Services |
|
|
16 |
|
|
|
17 |
|
Artificial Lift Systems |
|
|
15 |
|
|
|
16 |
|
Integrated Drilling |
|
|
13 |
|
|
|
10 |
|
Stimulation & Chemicals Services |
|
|
9 |
|
|
|
7 |
|
Drilling Tools |
|
|
8 |
|
|
|
9 |
|
Completion Systems |
|
|
7 |
|
|
|
11 |
|
Wireline |
|
|
7 |
|
|
|
6 |
|
Re-entry & Fishing |
|
|
6 |
|
|
|
7 |
|
Pipeline & Specialty Services |
|
|
2 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
Consolidated revenues increased $82 million, or 4%, in the first quarter of 2010 as compared
to the first quarter of 2009. This increase in revenues was against a 6% increase in average
worldwide rig count. The majority of our year-over-year revenue growth was derived from North
America, where revenue increased $53 million, or 6% in the current quarter as compared to the same
quarter of the prior year. International revenues increased $29 million, or 2%, in the first
quarter of 2010 as compared to the first quarter of 2009. Our Integrated Drilling product line was
the strongest contributor to the year-over-year increase.
Operating Income
Consolidated operating income decreased $194 million, or 62%, in the first quarter of 2010 as
compared to the first quarter of 2009. Our operating segments accounted for $167 million of the
decrease during the current quarter as compared to the same quarter of the prior year while
corporate expenditures were $8 million higher over the same period. The increase in corporate
expenses was primarily attributable to higher costs associated with business process optimization
initiatives that should be ongoing over the next two years and professional fees. We also
augmented our compliance infrastructure with increased staff and more rigorous policies, procedures
and training of our employees regarding compliance with applicable anti-corruption laws, trade
sanction laws and import/export laws. In addition, current quarter results include $44 million in
exit and restructuring charges, which is $19 million higher as compared to the first quarter of
2009.
Exit and restructuring charges for the three months ended March 31, 2010 include (i) a $38
million charge related to our supplemental executive retirement plan (SERP) that was frozen on
March 31, 2010, (ii) $9 million for severance and facility closure costs, primarily in the Western
Hemisphere, (iii) a $5 million benefit related to the reversal of prior cost accruals for our exit
from certain sanctioned countries and (iv) $2 million for legal and professional fees incurred
in connection with our on-going investigations.
Exit and restructuring charges for the three months ended March 31, 2009 include (i) $13
million for legal and professional fees incurred in connection with our on-going
investigations and (ii) $12 million for severance and facility closure costs.
Devaluation of Venezuelan Bolivar
In January 2010, the Venezuelan government announced its intention to devalue its currency
(Bolivar) and move to a two tier exchange structure. The official exchange rate moved from 2.15
to 2.60 for essential goods and 2.15 to 4.30 for non-essential goods and services. In connection
with this devaluation, we incurred a charge of $64 million ($40 million net of tax) for the
remeasurement of our net monetary assets denominated in Bolivars at the date of the devaluation.
26
Income Taxes
Our effective tax rate was a benefit of 30.2% and a provision of 15.7% for the three months
ended March 31, 2010 and 2009, respectively. The change in the effective tax rate is primarily due
to the tax benefit related to the devaluation of the Venezuelan Bolivar, which was partially offset
by curtailment expense on our SERP that had no related tax benefit and changes in our geographic
earnings mix.
Segment Results
North America
North American revenues increased $53 million, or 6%, in the first quarter of 2010 as compared
to the first quarter of 2009 on a 7% increase in average North American rig count over the
comparable period. Revenues from all product lines increased, other than Drilling Tools, Fishing &
Re-Entry and Pipeline Services. The region benefited from higher activity in unconventional plays
in heavy oil and shales.
Operating income decreased $11 million, or 9%, in the first quarter of 2010 as compared to the
first quarter of 2009. Operating margins were 13% in the current quarter and 15% in the same
quarter of the prior year.
Middle East/North Africa/Asia
Middle East/North Africa/Asia revenues decreased $17 million, or 3%, in the first quarter of
2010 as compared to the first quarter of 2009. This decrease was against a 2% increase in rig
count over the comparable period. Flooding in Australia, curtailment of drilling programs in India,
exceptionally cold weather in China and politically induced delays in Algeria were large drivers
behind the year-over-year decrease.
Operating income decreased $51 million, or 38%, during the first quarter of 2010 compared to
the same quarter of the prior year. Operating margins were 15% for the first quarter of 2010 and
23% for the first quarter of 2009. The decline in margins year-over-year were primarily due to
inclement weather in certain areas, our continued mobilization efforts in the region and decreased
utilization.
Europe/West Africa/FSU
Revenues in our Europe/West Africa/FSU segment increased $86 million, or 23%, in the first
quarter of 2010 as compared to the same quarter of the prior year and outpaced the 13% increase in
average rig count over the comparable period. The year-over-year increase in revenue was driven by
our acquisition of the Oilfield Services Division (OFS) of TNK-BP in July 2009. Our Integrated
Drilling product line was the strongest contributor to the increase in revenue.
Operating income decreased $44 million, or 59%, during the first quarter of 2010 compared to
the same quarter of the prior year. Operating margins were 7% in the first quarter of 2010 and 20%
in the first quarter of 2009. The decline in operating income and margin was partially due to $8
million related to a loss recorded in connection with the revaluation of contingent consideration
included as part of the acquisition of OFS and $7 million in charges related to write-offs at a
less-than-majority owned subsidiary.
Latin America
Revenues in our Latin American segment decreased $40 million, or 9%, in the first quarter of
2010 as compared to the same quarter of the prior year against an average rig count increase of 2%
over the comparable period. The decrease in revenue is the result of reduced project activity in
Mexico and the deterioration in the Venezuelan market.
Operating income decreased $61 million, or 66%, for the three months ended March 31, 2010,
over the comparable period of the prior year. Operating margins were 7% in the first quarter of
2010 and 20% in the first quarter of 2009. The decline in operating income was due to the reduced
scale of project work in Mexico.
27
Liquidity and Capital Resources
Sources of Liquidity
Our sources of liquidity include current cash and cash equivalent balances, cash generated
from operations and committed availabilities under bank lines of credit. We also historically have
accessed banks for short-term loans from uncommitted borrowing arrangements and the capital markets
with debt, equity and convertible offerings.
Committed Borrowing Facilities
We maintain various revolving credit facilities with syndicates of banks that can be used for
a combination of borrowings, support for our commercial paper program and issuances of letters of
credit. At March 31, 2010, these facilities allow for an aggregate availability of $1.8 billion
and mature in May 2011. The weighted average interest rate on outstanding borrowings of these
facilities at March 31, 2010, was 1.0%.
Our 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. Our debt-to-capitalization ratio was 41.2% at March 31, 2010, which is in
compliance with these covenants.
The following is a recap of our availability under our committed borrowing facilities at March
31, 2010 (in millions):
|
|
|
|
|
Facilities |
|
$ |
1,750 |
|
|
|
|
|
|
Less: |
|
|
|
|
Amount drawn |
|
|
943 |
|
Commercial paper |
|
|
|
|
Letters of credit |
|
|
75 |
|
|
|
|
|
|
|
|
|
|
|
Availability |
|
$ |
732 |
|
|
|
|
|
|
Commercial Paper
We have a $1.5 billion commercial paper program under which we may from time to time issue
short-term unsecured notes. The commercial paper program is supported by our revolving credit
facilities. There was no commercial paper outstanding at March 31, 2010.
Cash Requirements
During 2010, we anticipate our cash requirements will include working capital needs, capital
expenditures and may include opportunistic business acquisitions. We anticipate funding these
requirements from cash generated from operations and availability under our committed borrowing
facilities.
Capital expenditures for 2010 are projected to be approximately $1.1 billion, net of proceeds
from tools lost down hole. The expenditures are expected to be used primarily to support the growth
of our businesses and operations. Capital expenditures during the three months ended March 31,
2010 were $209 million, net of proceeds from tools lost down hole.
Derivative Instruments
Interest Rate Swaps
We use interest rate swaps to help mitigate exposures related to interest rate movements.
Amounts received upon termination of the swaps accounted for as fair value hedges represent the
fair value of the agreements at the time of termination and are recorded as an adjustment to the
carrying value of the related debt. These amounts are being amortized as a reduction to interest
expense over the remaining term of the debt. We have no interest rate swaps outstanding at March
31, 2010. As of March 31, 2010 we had net unamortized gains of $67 million associated with
interest rate swap terminations.
28
Cash Flow Hedges
In 2008, we entered into interest rate derivative instruments to hedge projected exposures to
interest rates in anticipation of a debt offering. Those hedges were terminated at the time of the
issuance of the debt, and the loss on these hedges is being amortized from Accumulated Other
Comprehensive Income to interest expense over the remaining term of the debt. As of March 31,
2010, we had net unamortized losses of $13 million associated with our cash flow hedge
terminations.
Other Derivative Instruments
As of March 31, 2010, we had several foreign currency forward and option contracts with
notional amounts aggregating to $620 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 krone. The total estimated fair value of
these contracts at March 31, 2010 resulted in a net liability of approximately $8 million. These
derivative instruments were not designated as hedges and the changes in fair value of the contracts
are recorded each period in Other, Net in the accompanying Consolidated Statements of Income.
Off Balance Sheet Arrangements
A Swiss corporation named Weatherford International Ltd. is the ultimate parent (Weatherford
Switzerland) of the Weatherford group and guarantees the obligations of Weatherford International
Ltd. incorporated in Bermuda (Weatherford Bermuda) and Weatherford International, Inc.
incorporated in Delaware (Weatherford Delaware) noted below.
The following obligations of Weatherford Delaware were guaranteed by Weatherford Bermuda at
March 31, 2010 and December 31, 2009: (i) the 6.625% Senior Notes, (ii) the 5.95% Senior Notes,
(iii) the 6.35% Senior Notes and (iv) the 6.80% Senior Notes.
The following obligations of Weatherford Bermuda were guaranteed by Weatherford Delaware at
March 31, 2010 and December 31, 2009: (i) the 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, (viii) the 9.625% Senior Notes, (ix) the
9.875% Senior Notes and (x) issuances of notes under the commercial paper program.
Letters of Credit
We execute letters of credit and bid and performance bonds 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 March 31, 2010, we had $351 million of letters of credit and bid and
performance bonds outstanding, consisting of $276 million outstanding under various uncommitted
credit facilities and $75 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 15 to our condensed consolidated financial statements included elsewhere in this
report.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations is based upon
our consolidated financial statements. We prepare these financial statements in conformity with
U.S. generally accepted accounting principles. As such, we are required to make certain estimates,
judgments and assumptions that affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses during the periods
presented. We base our estimates on historical experience, available information and various other
assumptions we believe to be reasonable under the circumstances. On an on-going basis, we evaluate
our estimates; however, actual results may differ from these estimates under different assumptions
or conditions. There have been no material changes or developments in our evaluation of the
accounting estimates and the underlying assumptions or methodologies that we believe to be Critical
Accounting Policies and Estimates as disclosed in our Form 10-K, for the year ended December 31,
2009.
29
Exposures
An investment in our registered shares involves various risks. When considering an investment
in our Company, you should consider carefully all of the risk factors described in our most recent
Annual Report on Form 10-K under the heading Item 1A. Risk Factors as well as the information
below and other information included and incorporated by reference in this report.
Forward-Looking Statements
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.
These forward-looking statements generally are identified by the words believe, project,
expect, anticipate, estimate, intend, strategy, plan, may, should, will, would,
will be, will continue, will likely result, and similar expressions, although not all
forward-looking statements contain these identifying words.
From time to time, we update the various factors we consider in making our forward-looking
statements and the assumptions we use in those statements. However, we undertake no obligation to
publicly update or revise any forward-looking events or circumstances that may arise after the date
of this report. The following sets forth the various assumptions we use in our forward-looking
statements, as well as risks and uncertainties relating to those statements. Certain of the risks
and uncertainties may cause actual results to be materially different from projected results
contained in forward-looking statements in this report and in our other disclosures. These risks
and uncertainties include, but are not limited to, the following:
|
|
|
Global political, economic and market conditions could affect projected results. Our
operating results and the forward-looking information we provide are based on our current
assumptions about oil and natural gas supply and demand, oil and natural gas prices, rig
count and other market trends. Our assumptions on these matters are in turn based on
currently available information, which is subject to change. The oil and natural gas
industry is extremely volatile and subject to change based on political and economic
factors outside our control. Worldwide drilling activity, as measured by average worldwide
rig counts, increased in each year from 2002 to 2008. However, activity began declining in
the fourth quarter of 2008, particularly in North America. The weakened global economic
climate has resulted in lower demand and lower prices for oil and natural gas, which has
reduced drilling and production activity, which has in turn resulted in lower than expected
revenues and income in 2009 and may affect our future revenues and income. Our projections
assume that the decline in North America rig activity reached its trough during 2009.
Worldwide drilling activity and global demand for oil and natural gas may also be affected
by changes in governmental policies and debt loads, laws and regulations related to
environmental or energy security matters, including those addressing alternative energy
sources and the risks of global climate change. We have assumed global demand will
continue to be down in 2010 compared to 2008 and only slightly up compared to 2009. In
2010, worldwide demand may be significantly weaker than we have assumed. |
|
|
|
|
We may be unable to recognize our expected revenues from current and future
contracts. Our customers, many of whom are national oil companies, often have significant
bargaining leverage over us and may elect to cancel or revoke contracts, not renew
contracts, modify the scope of contracts or delay contracts, in some cases preventing us
from realizing expected revenues and/or profits. Our projections assume that our customers
will honor the contracts we have been awarded and that those contracts and the business
that we believe is otherwise substantially firm will result in anticipated revenues in the
periods for which they are scheduled. |
|
|
|
|
Currency fluctuations could have a material adverse financial impact on our business. A
material change in currency rates in our markets, such as the devaluation of the Venezuelan
Bolivar experienced during the first quarter of 2010, could affect our future results as
well as affect the carrying values of our assets. World currencies have been subject to
much volatility. As we are not able to predict changes in currency valuations, our
forward-looking statements assume no material impact from future changes in currency
exchange rates. |
30
|
|
|
Our ability to manage our workforce could affect our projected results. In a climate of
decreasing demand, we are faced with managing our workforce levels to control costs without
impairing our ability to provide service to our customers. Our forward-looking statements
assume we will be able to do so. |
|
|
|
|
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 material costs or to realize the benefit of cost decreases in a timely
fashion through our supply chain initiatives or pricing, our margins and results of
operations could be adversely affected. |
|
|
|
|
Our ability to manage our supply chain could affect our projected results. We have
undertaken efforts to improve our supply chain, invoicing and collection processes and
procedures. These undertakings include costs, which we expect will result in long-term
benefits of our business processes. Our forward-looking statements assume we will realize
the benefits of these efforts. |
|
|
|
|
Our long-term growth depends upon technological innovation and commercialization. Our
ability to deliver our long-term growth strategy depends in part on the commercialization
of new technology. A central aspect of our growth strategy is to improve our products and
services through innovation, to obtain technologically advanced products through internal
research and development and/or acquisitions, to protect proprietary technology from
unauthorized use and to expand the markets for new technology by leveraging our worldwide
infrastructure. The key to our success will be our ability to commercialize the technology
that we have acquired and demonstrate the enhanced value our technology brings to our
customers operations. Our major technological advances include, but are not limited to,
those related to controlled pressure drilling and testing systems, expandable solid
tubulars, expandable sand screens and intelligent well completion. Our forward-looking
statements have assumed successful commercialization of, and above-average growth from,
these new products and services, as well as legal protection of our intellectual property
rights. |
|
|
|
|
Nonrealization of expected benefits from our redomestication could affect our projected
results. We operate through our various subsidiaries in numerous countries throughout the
world including the United States. During the first quarter of 2009, we completed a
transaction in which our former parent Bermuda company became a wholly-owned subsidiary of
Weatherford International Ltd., a Swiss joint-stock corporation, and holders of common shares of the Bermuda company received one registered share of the Swiss company in
exchange for each common share that they held. Consequently, we are or may become subject
to changes in tax laws, treaties or regulations or the interpretation or enforcement
thereof in the U.S., Bermuda, Switzerland or any other jurisdictions in which we or any of
our subsidiaries 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 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 those acquisitions. |
|
|
|
|
The downturn in our industry could affect the carrying value of our goodwill. As of
March 31, 2010, we had approximately $4.1 billion of goodwill. Our estimates of the value
of our goodwill could be reduced in the future as a result of various factors, including
market factors, some of which are beyond our control. Our forward-looking statements do
not assume any future goodwill impairment. Any reduction in the fair value of our
businesses may result in an impairment charge and therefore adversely affect our results. |
|
|
|
|
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 quarters 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 |
31
|
|
|
in Russia, Mexico 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 not yet resolved, and we cannot
anticipate the timing, outcome or possible impact of the ultimate resolution of these
investigations, financial or otherwise. The governmental agencies involved in these
investigations have a broad range of civil and criminal penalties they may seek to impose
against corporations and individuals for violations of trade sanction laws, the Foreign
Corrupt Practices Act and other federal statutes including, but not limited to, injunctive
relief, disgorgement, fines, penalties and modifications to business practices and
compliance programs. In recent years, these agencies and authorities have entered into
agreements with, and obtained a range of penalties against, several public corporations and
individuals in similar investigations, under which civil and criminal penalties were
imposed, including in some cases fines and other penalties and sanctions in the tens and
hundreds of millions of dollars. These agencies likely will seek to impose penalties of
some amount against us for past conduct, but the ultimate amount of any penalties we may
pay currently cannot be reasonably estimated. Under trade sanction laws, the U.S.
Department of Justice may also seek to impose modifications to business practices,
including immediate cessation of all business activities in specific
countries or other limitations that decrease our business, and modifications to compliance
programs, which may increase compliance costs. Any injunctive relief, disgorgement, fines,
penalties, sanctions or imposed modifications to business practices resulting from these
investigations could adversely affect our results of operations. To date, we
have incurred $53 million for costs in connection with our exit from certain sanctioned
countries and incurred $108 million for legal and professional fees in connection with
complying with and conducting these on-going investigations. This amount excludes the
costs we have incurred to augment and improve our compliance function. We may have
additional charges related to these matters in future periods, which costs may include
labor claims, contractual claims, penalties assessed by customers, and costs, fines, taxes
and penalties assessed by the local governments, but we cannot quantify those charges or be
certain of the timing of them. |
|
|
|
|
Failure in the future to ensure ongoing compliance with certain laws could affect our
results of operations. In 2009, we substantially augmented our compliance infrastructure
with increased staff and more rigorous policies, procedures and training of our employees
regarding compliance with applicable anti-corruption laws, trade sanctions laws and
import/export laws. As part of this effort, we now undertake audits of our compliance
performance in various countries. Our forward-looking statements assume that our
compliance efforts will be successful and that we will comply with our internal policies
and applicable laws regarding these issues. Our failure to do so could result in
additional enforcement action in the future. |
|
|
|
|
Political disturbances, war, or terrorist attacks and changes in global trade policies
could adversely impact our operations. We operate in over 100 countries, and as such are
at risk of various types of political activities, including acts of insurrections, war,
terrorism, nationalization of assets and changes in trade policies. We have assumed there
will be no material political disturbances or terrorist attacks and there will be no
material changes in global trade policies that affect our business. Any further military
action undertaken by the U.S. or other countries or political disturbances in the countries
in which we conduct business 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. The worldwide credit markets have
experienced turmoil and uncertainty since mid-2008. 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 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. In response to credit market conditions and the
global economic and business environment, we have undertaken measures to reduce our use of
capital going forward. Our forward-looking statements assume that we will operate with
lower capital expenditures in 2010 than in 2009. |
32
|
|
|
However, as the business climate changes and if attractive opportunities for organic or
acquisitive growth become available, we may spend capital selectively above the amounts we
have budgeted. |
Finally, our future results will depend upon various other risks and uncertainties, including,
but not limited to, those detailed in our other filings with the SEC under the Securities Exchange
Act of 1934, as amended, and the Securities Act of 1933, as amended. For additional information
regarding risks and uncertainties, see our other filings with the SEC 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 Securities Exchange Act of
1934, as amended, 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 these financial instruments
follows.
Foreign Currency Exchange Rates
We operate in virtually every oil and natural gas exploration and production region in the
world. In some parts of the world, such as the Middle East and Southeast Asia, the currency of our
primary economic environment is the U.S. dollar. We use this as our functional currency. In other
parts of the world, we conduct our business in currencies other than the U.S. dollar and the
functional currency is the applicable local currency. In 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.
In January 2010, the Venezuelan government announced its intention to devalue its currency
(Bolivar) and move to a two tier exchange structure. The official exchange rate moved from 2.15
to 2.60 for essential goods and 2.15 to 4.30 for non-essential goods and services. Our Venezuelan
entities maintain the U.S. dollar as their functional currency. In connection with this
devaluation, we incurred a charge of $64 million ($40 million net of tax) for the remeasurement of
our net monetary assets denominated in Bolivars at the date of the devaluation.
Assets and liabilities of entities for which the functional currency is the local currency are
translated into U.S. dollars using the exchange rates in effect at the balance sheet date,
resulting in translation adjustments that are reflected in Accumulated Other Comprehensive Income
in the shareholders equity section on our Condensed Consolidated Balance Sheets. A portion of our
net assets are impacted by changes in foreign currencies in relation to the U.S. dollar. We
recorded a $67 million adjustment to reduce our equity account for the three months ended March 31,
2010 to reflect the net impact of the strengthening of the U.S. dollar against various foreign
currencies.
As of March 31, 2010, we had several foreign currency forward and option contracts with
notional amounts aggregating to $620 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 krone. The total estimated fair value of
these contracts at March 31, 2010 resulted in a net liability of approximately $8 million. These
derivative instruments were not designated as hedges and the changes in fair value of the contracts
are recorded each period in current earnings.
We have cross-currency swaps between the U.S. dollar and Canadian dollar to hedge certain
exposures to the Canadian dollar. At March 31, 2010, we had notional amounts outstanding of $335
million. The total estimated fair value of these contracts at March 31, 2010 resulted in a
liability of $33 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 long-term fixed-interest rate debt and
variable-interest rate borrowings. Variable rate debt, where the interest rate fluctuates
periodically, exposes us to short-term changes in market interest rates. Fixed rate debt, where
the interest rate is fixed over the life of the instrument, exposes us to changes in market
interest rates reflected in the fair value of the debt and to the risk that we may need to
refinance maturing debt with new debt at a higher rate. All other things being equal, the fair
value of our fixed rate debt will increase or decrease as interest rates change.
Our long-term borrowings that were outstanding at March 31, 2010 and December 31, 2009 subject
to interest rate risk consist of the following:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
December 31, 2009 |
|
|
Carrying |
|
Fair |
|
Carrying |
|
Fair |
|
|
Amount |
|
Value |
|
Amount |
|
Value |
|
|
(In millions) |
6.625% Senior Notes due 2011 |
|
$ |
353 |
|
|
$ |
372 |
|
|
$ |
353 |
|
|
$ |
380 |
|
5.95% Senior Notes due 2012 |
|
|
599 |
|
|
|
646 |
|
|
|
599 |
|
|
|
648 |
|
5.15% Senior Notes due 2013 |
|
|
511 |
|
|
|
529 |
|
|
|
511 |
|
|
|
526 |
|
4.95% Senior Notes due 2013 |
|
|
253 |
|
|
|
264 |
|
|
|
253 |
|
|
|
263 |
|
5.50% Senior Notes due 2016 |
|
|
359 |
|
|
|
369 |
|
|
|
360 |
|
|
|
351 |
|
6.35% Senior Notes due 2017 |
|
|
600 |
|
|
|
649 |
|
|
|
600 |
|
|
|
647 |
|
6.00% Senior Notes due 2018 |
|
|
498 |
|
|
|
532 |
|
|
|
498 |
|
|
|
514 |
|
9.625% Senior Notes due 2019 |
|
|
1,035 |
|
|
|
1,271 |
|
|
|
1,034 |
|
|
|
1,236 |
|
6.50% Senior Notes due 2036 |
|
|
596 |
|
|
|
591 |
|
|
|
596 |
|
|
|
574 |
|
6.80% Senior Notes due 2037 |
|
|
298 |
|
|
|
304 |
|
|
|
298 |
|
|
|
303 |
|
7.00% Senior Notes due 2038 |
|
|
498 |
|
|
|
536 |
|
|
|
498 |
|
|
|
517 |
|
9.875% Senior Notes due 2039 |
|
|
247 |
|
|
|
331 |
|
|
|
247 |
|
|
|
326 |
|
We have various other long-term debt instruments of $16 million at March 31, 2010, but believe
the impact of changes in interest rates in the near term will not be material to these instruments.
The carrying value of our short-term borrowings of $974 million at March 31, 2010 approximates
their fair value.
As it relates to our variable rate debt, if market interest rates average 1% more for the
remainder of 2010 than the rates as of March 31, 2010, interest expense for the remainder of 2010
would increase by $7 million. This amount was determined by calculating the effect of the
hypothetical interest rate on our variable rate debt. This sensitivity analysis assumes there are
no changes in our financial structure.
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 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 swaps 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.
We have no interest rate swaps outstanding at March 31, 2010. As of March, 31 2010 we had net
unamortized gains of $67 million, associated with interest rate swap terminations.
34
ITEM 4. CONTROLS AND PROCEDURES
At the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an
evaluation, under the supervision and with the participation of management, including the Chief
Executive Officer (CEO) and the Chief Financial Officer (CFO), of the effectiveness of our
disclosure controls and procedures (as defined in Rules 13a-15 (e) and 15d-15 (e) under the
Exchange Act). Based upon that evaluation, our CEO and CFO have concluded our 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 us in the reports we file or submit 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 us (including our
consolidated subsidiaries) required to be disclosed is accumulated and communicated to management,
including the CEO and CFO, to allow timely decisions regarding required disclosure. Our
management, including the CEO and CFO, identified no change in our internal control over financial
reporting that occurred during our fiscal quarter ended March 31, 2010 that has materially
affected, or is reasonably likely to materially affect, our internal controls over financial
reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 14 to our condensed consolidated financial statements included elsewhere in this report.
ITEM 1A. RISK FACTORS
There have been no material changes during the three months ended March 31, 2010 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, 2009 filed with the SEC on March 1, 2010.
ITEM 2. UNREGISTERED SALES OF EQUITY IN SECURITIES AND USE OF PROCEEDS
On the dates listed below, in connection with acquisitions, we sold registered shares to the
shareholders of the acquired company as consideration for the shares of the acquired company. The
sale of our registered shares was exempt from registration under the Securities Act of 1933
pursuant to Section 4(2) of that act and pursuant to Regulation D and Regulation S promulgated
under that act as a non-public sale to accredited investors and/or to non-U.S. persons outside the
United States.
|
|
|
|
|
Date |
|
No. of Shares |
February 2, 2010 |
|
|
214,585 |
|
March 31, 2010 |
|
|
596,121 |
|
In December 2005, our Board of Directors approved a share repurchase program under which up to
$1 billion of our outstanding common shares (now registered 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 March 31, 2010, we did not purchase any of our registered shares.
Under our restricted share plan, employees may elect to have us withhold registered shares to
satisfy minimum statutory federal, state and local tax withholding obligations arising on the
vesting of restricted stock awards and exercise of options. When we withhold these shares, we are
required to remit to the appropriate taxing authorities the market price of the shares withheld,
which could be deemed a purchase of the registered shares by us on the date of withholding. During
the quarter ended March 31, 2010, we withheld registered shares to satisfy these tax withholding
obligations as follows:
|
|
|
|
|
|
|
|
|
Period |
|
No. of Shares |
|
Average Price |
January 1 January 31, 2010 |
|
|
237,018 |
|
|
$ |
17.96 |
|
February 1 February 28, 2010 |
|
|
16,048 |
|
|
|
15.45 |
|
March 1 March 31, 2010 |
|
|
256,849 |
|
|
|
17.22 |
|
35
ITEM 6. EXHIBITS
(a) Exhibits:
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
10.1
|
|
First amendment to the Weatherford International Ltd., a Swiss
joint-stock corporation, Supplemental Executive Retirement Plan,
effective March 31, 2010 (incorporated by reference to Exhibit
10.1 to the Registrants Current Report on Form 8-K (File No.
1-34258) filed March 23, 2010). |
|
|
|
10.2
|
|
Weatherford International Ltd., a Swiss joint-stock corporation,
Performance Unit Award Agreement, (incorporated by reference to
Exhibit 10.2 to the Registrants Current Report on Form 8-K (File
No. 1-34258) filed March 23, 2010). |
|
|
|
10.3
|
|
Second amendment to the Weatherford International Lt., a Swiss
joint-stock corporation, Supplemental Executive Retirement Plan,
effective April 8, 2010 (incorporated by reference to Exhibit 10.1
to the Registrants Current Report on Form 8-K (File No. 1-34258)
filed April 9, 2010). |
|
|
|
10.4
|
|
Amended and Restated Employment Agreement, between Weatherford
International Ltd., a Swiss joint-stock corporation, and Bernard
J. Duroc-Danner, Peter T. Fontana, Joseph C. Henry, Carel W. J.
Hoyer, James M. Hudgins and William B. Jacobson (incorporated by
reference to Exhibit 10.1 to the Registrants Current Report on
Form 8-K (File No. 1-34258) filed April 13, 2010). |
|
|
|
*31.1
|
|
Certification of Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002. |
|
|
|
*31.2
|
|
Certification of Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002. |
|
|
|
**32.1
|
|
Certification of Chief Executive Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002. |
|
|
|
**32.2
|
|
Certification of Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002. |
|
|
|
**101
|
|
The following materials from Weatherford International Ltd.s, a
Swiss joint-stock corporation, Quarterly Report on Form 10-Q for
the quarter ended March 31, 2010, formatted in XBRL eXtensible
Business Reporting Language): (i) the unaudited Condensed
Consolidated Balance Sheets, (ii) the unaudited Condensed
Consolidated Statements of Income, (iii) the unaudited Condensed
Consolidated Statement of Cash Flows, (iv) the unaudited Condensed
Consolidated Statements of Comprehensive Income and (v) the notes
to the condensed consolidated financial statements, tagged as
blocks of text. |
|
|
|
* |
|
Filed with this Form 10-Q |
|
** |
|
Furnished with this Form 10-Q |
36
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: May 3, 2010
37