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, 2009
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
incorporation or organization)
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(I.R.S. Employer
Identification No.) |
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Alpenstrasse 15, 6300 Zug, Switzerland
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Not Applicable |
(Address of principal executive offices)
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(Zip Code) |
Registrants telephone number, including area code: +41-41-729-4242
515 Post Oak Boulevard, Houston, Texas 77027-3415
(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 o
No o
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in
Rule 12b-2 of the Exchange Act. (Check one):
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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
May 4, 2009,
there were
698,239,760
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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2009 |
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2008 |
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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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$ |
161,716 |
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$ |
238,398 |
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Accounts Receivable, Net of Allowance for
Uncollectible Accounts of $17,962 and $16,425,
Respectively |
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2,287,519 |
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2,442,848 |
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Inventories |
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2,231,643 |
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2,088,342 |
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Current Deferred Tax Assets |
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368,581 |
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270,252 |
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Other Current Assets |
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643,528 |
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530,442 |
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5,692,987 |
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5,570,282 |
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Property, Plant and Equipment, Net of Accumulated
Depreciation of $2,814,160 and $2,690,996,
Respectively |
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6,261,761 |
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5,922,172 |
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Goodwill |
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3,521,492 |
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3,530,915 |
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Other Intangible Assets, Net of Accumulated Amortization of
$286,464 and $268,857, Respectively |
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692,505 |
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701,483 |
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Equity Investments |
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514,707 |
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515,770 |
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Other Assets |
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261,698 |
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235,891 |
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$ |
16,945,150 |
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$ |
16,476,513 |
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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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$ |
382,828 |
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$ |
1,255,947 |
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Accounts Payable |
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940,625 |
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886,104 |
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Other Current Liabilities |
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724,320 |
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880,042 |
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2,047,773 |
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3,022,093 |
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Long-term Debt |
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5,804,442 |
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4,564,255 |
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Other Liabilities |
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597,181 |
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524,116 |
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8,449,396 |
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8,110,464 |
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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 728,869 Shares at
March 31, 2009; Common Shares, $1 Par Value, Authorized
1,000,000 Shares, Issued 728,689 Shares at December 31,
2008 |
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728,869 |
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728,689 |
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Capital in Excess of Par Value |
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4,061,348 |
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4,059,112 |
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Treasury Shares, Net |
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(751,674 |
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(759,477 |
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Retained Earnings |
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4,688,887 |
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4,524,085 |
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Accumulated Other Comprehensive Loss |
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(315,369 |
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(266,761 |
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Weatherford Shareholders Equity |
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8,412,061 |
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8,285,648 |
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Noncontrolling Interests |
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83,693 |
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80,401 |
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8,495,754 |
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8,366,049 |
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$ |
16,945,150 |
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$ |
16,476,513 |
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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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2009 |
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2008 |
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Revenues: |
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Products |
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$ |
742,900 |
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$ |
829,183 |
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Services |
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1,513,241 |
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1,366,709 |
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2,256,141 |
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2,195,892 |
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Costs and Expenses |
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Cost of Products |
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569,056 |
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598,790 |
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Cost of Services |
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965,464 |
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850,888 |
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Research and Development |
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49,021 |
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42,639 |
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Selling, General and Administrative
Attributable to Segments |
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308,744 |
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240,867 |
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Corporate General and Administrative |
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53,131 |
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47,174 |
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Operating Income |
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310,725 |
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415,534 |
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Other Expense: |
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Interest Expense, Net |
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(91,063 |
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(52,803 |
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Other, Net |
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(13,539 |
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499 |
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Income from Continuing Operations Before
Income Taxes |
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206,123 |
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363,230 |
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Provision for Income Taxes |
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(32,463 |
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(73,625 |
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Income from Continuing Operations, Net of Taxes |
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173,660 |
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289,605 |
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Loss from Discontinued Operation, Net of Taxes |
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(19,868 |
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Net Income |
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173,660 |
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269,737 |
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Net Income Attributable to Noncontrolling Interests |
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(8,858 |
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(5,536 |
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Net Income Attributable to Weatherford |
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$ |
164,802 |
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$ |
264,201 |
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Basic Earnings Per Share Attributable to Weatherford: |
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Income from Continuing Operations |
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$ |
0.24 |
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$ |
0.42 |
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Loss from Discontinued Operation |
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(0.03 |
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Net Income |
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$ |
0.24 |
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$ |
0.39 |
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Diluted Earnings Per Share Attributable to Weatherford: |
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Income from Continuing Operations |
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$ |
0.23 |
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$ |
0.41 |
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Loss from Discontinued Operation |
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(0.03 |
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Net Income |
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$ |
0.23 |
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$ |
0.38 |
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Amounts Attributable to Weatherford Registered
Shareholders: |
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Income from Continuing Operations, Net of Taxes |
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$ |
164,802 |
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$ |
284,069 |
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Loss from Discontinued Operation, Net of Taxes |
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(19,868 |
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Net Income |
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$ |
164,802 |
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$ |
264,201 |
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Weighted Average Shares Outstanding: |
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Basic |
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698,327 |
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680,190 |
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Diluted |
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702,636 |
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697,086 |
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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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2009 |
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2008 |
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Cash Flows from Operating Activities: |
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Net Income Attributable to Weatherford |
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$ |
164,802 |
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$ |
264,201 |
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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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201,394 |
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169,288 |
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Gain on Sales of Assets and Businesses,
Net |
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(3,727 |
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(2,221 |
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Loss from Discontinued Operation |
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19,868 |
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Employee Share-Based Compensation
Expense |
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26,429 |
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23,474 |
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Excess Tax (Benefits) Deficits from
Share-Based Compensation |
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4,796 |
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(7,555 |
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Noncontrolling Interests |
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8,858 |
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5,536 |
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Deferred Income Tax Benefit |
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(23,594 |
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(10,514 |
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Other, Net |
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4,077 |
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(1,130 |
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Change in Operating Assets and
Liabilities, Net of Effect of Businesses Acquired
Accounts Receivable |
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152,807 |
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(131,985 |
) |
Inventories |
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(147,536 |
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(151,666 |
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Accounts Payable |
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53,453 |
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59,341 |
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Other |
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(274,027 |
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(85,974 |
) |
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Net Cash
Provided by Operating Activities Continuing
Operations |
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167,732 |
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150,663 |
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Net Cash Used
by Operating Activities Discontinued Operation |
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(1,294 |
) |
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Net Cash
Provided by Operating Activities |
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167,732 |
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149,369 |
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Cash Flows from Investing Activities: |
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Acquisitions of Businesses, Net of Cash Acquired |
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(7,094 |
) |
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(113,013 |
) |
Capital Expenditures for Property, Plant and
Equipment |
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(583,719 |
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(588,639 |
) |
Acquisition of Intellectual Property |
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(11,096 |
) |
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(2,787 |
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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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30,616 |
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112,260 |
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Net Cash Used by Investing
Activities Continuing Operations |
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(597,802 |
) |
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(592,179 |
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Net Cash Provided by
Investing Activities Discontinued Operation |
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Net Cash Used by Investing
Activities |
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(597,802 |
) |
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(592,179 |
) |
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Cash Flows from Financing Activities: |
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Repayments on Short-term Debt, Net |
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(873,938 |
) |
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(585,075 |
) |
Borrowings of Long-term Debt, Net |
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1,231,209 |
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1,487,439 |
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Other Financing Activities, Net |
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(3,883 |
) |
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(3,830 |
) |
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Net Cash Provided by
Financing Activities Continuing Operations |
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353,388 |
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898,534 |
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Net Cash Provided by
Financing Activities Discontinued Operation |
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Net Cash Provided by
Financing Activities |
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353,388 |
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898,534 |
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Net Increase (Decrease) in Cash and Cash Equivalents |
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(76,682 |
) |
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|
455,724 |
|
Cash and Cash Equivalents at Beginning of Period |
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|
238,398 |
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|
170,714 |
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Cash and Cash Equivalents at End of Period |
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$ |
161,716 |
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$ |
626,438 |
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Supplemental Cash Flow Information: |
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Interest Paid |
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$ |
98,725 |
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$ |
42,776 |
|
Income Taxes Paid, Net of Refunds |
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|
128,632 |
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|
62,418 |
|
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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|
2009 |
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|
2008 |
|
Net Income |
|
$ |
173,660 |
|
|
$ |
269,737 |
|
Other Comprehensive Income: |
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|
Deferred Loss on Derivative Instruments |
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|
(12,576 |
) |
Amortization of Pension Components |
|
|
1,180 |
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|
4,636 |
|
Foreign Currency Translation Adjustment |
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|
(50,060 |
) |
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|
4,877 |
|
Other |
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|
151 |
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40 |
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Comprehensive Income |
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|
124,931 |
|
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|
266,714 |
|
Comprehensive Income Attributable to Noncontrolling Interests |
|
|
(8,737 |
) |
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|
(5,536 |
) |
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Comprehensive Income
Attributable to Weatherford |
|
$ |
116,194 |
|
|
$ |
261,178 |
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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) include all adjustments of a
normal recurring nature which, in the opinion of management, are necessary to present fairly the
Companys Condensed Consolidated Balance Sheet at March 31, 2009, 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, 2009 and 2008. Although the Company
believes the disclosures in these financial statements are adequate to make the interim information
presented not misleading, certain information relating to the Companys organization and footnote
disclosures normally included in financial statements prepared in accordance with U.S. generally
accepted accounting principles have been condensed or omitted in this Form 10-Q pursuant to 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, 2008 and the related notes included in the Companys Annual Report on Form 10-K. The
results of operations for the three months ended March 31, 2009 are not necessarily indicative of
the results expected for the full year.
The preparation of financial statements in conformity with U.S. generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period and disclosure of contingent liabilities. On an
ongoing basis, the Company evaluates its estimates, including those related to uncollectible
accounts receivable, lower of cost or market of inventories, equity investments, intangible assets
and goodwill, property, plant and equipment, income taxes, percentage-of-completion accounting for
long-term contracts, self-insurance, pension and post retirement benefit plans and contingent
liabilities. The Company bases its estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results could differ from those estimates.
In February 2009, Weatherford International Ltd., a Bermuda exempted company (Weatherford
Bermuda), and Weatherford International Ltd., a Swiss joint stock corporation (Weatherford
Switzerland), completed a share exchange transaction under the terms of a share exchange
agreement, dated as of December 10, 2008, effected by way of a scheme of arrangement under Bermuda
law, for purposes of changing the Companys place of incorporation from Bermuda to Switzerland
(collectively, the Transaction). Pursuant to the Transaction, each common share, par value U.S.
$1.00 per share, of Weatherford Bermuda was exchanged for one registered share, par value 1.16
Swiss francs per share, of Weatherford Switzerland. As a result of the Transaction, Weatherford
Bermuda became a direct, wholly-owned subsidiary of Weatherford Switzerland.
Certain reclassifications have been made to conform prior year financial information to the
current period presentation. Effective January 1, 2009, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 160, Noncontrolling Interests in Consolidated Financial
Statements an amendment of ARB No. 51 (SFAS No. 160). SFAS No. 160 establishes accounting and
reporting standards for ownership interests in subsidiaries held by parties other than the parent,
the amount of consolidated net income attributable to the parent and to the noncontrolling
interest, changes in a parents ownership interest and the valuation of retained noncontrolling
equity investments when a subsidiary is deconsolidated. The statement also establishes reporting
requirements that provide sufficient disclosures that clearly identify and distinguish between the
interest of the parent and the interest of the noncontrolling owners.
This standard changed the accounting for and reporting of minority interest (now called
noncontrolling interest) in the consolidated financial statements. Upon adoption, certain prior
period amounts have been reclassified to conform to the current period financial statement
presentation.
2. Business Combinations
Effective January 1, 2009, the Company adopted SFAS No. 141(R), Business Combination, (SFAS
No. 141(R)). SFAS No. 141(R) establishes principles and requirements for how a company recognizes
assets acquired, liabilities assumed, contractual contingencies and contingent consideration
measured at fair value at the acquisition
6
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
date. The statement also establishes disclosure
requirements which will enable users to evaluate the nature and financial effect of the business
combination. Due to the fact that SFAS No. 141(R) is applicable to acquisitions completed after
January 1, 2009 and the Company did not have any material business combinations this quarter, the
adoption of SFAS No. 141(R) did not have a material impact on the Companys condensed consolidated
financial statements.
The Company has acquired businesses critical to its long-term growth strategy. Results of
operations for acquisitions are included in the accompanying Condensed Consolidated Statements of
Income from the date of acquisition. The balances included in the Condensed Consolidated Balance
Sheets related to recent acquisitions are based on preliminary information and are subject to
change when final asset valuations are obtained and the potential for liabilities has been
evaluated. Acquisitions are accounted for using the purchase method of accounting and the purchase
price is allocated to the net assets acquired based upon their estimated fair values at the date of
acquisition.
In association with a prior acquisition, the Company identified pre-acquisition contingencies
related to duties and taxes associated with the importation of certain equipment assets to foreign
jurisdictions. At March 31, 2009, the Company has a liability in the amount of $9 million for this
matter. If the Company used the high end of the range, the aggregate potential liability would be
approximately $10 million higher.
3. Equity Investment Acquisition
The Company acquired a 33% ownership interest in Premier Business Solutions (PBS) in June
2007 for approximately $330 million. PBS conducts business in Russia and is the worlds largest
electric submersible pump manufacturer by volume. In January 2008, the Company sold its electrical
submersible pumps (ESP) product line to PBS and received a combination of cash and an additional
equity investment in PBS in consideration of the sale. This transaction increased the Companys
ownership percentage to approximately 40%. The Companys investment in PBS is included in Equity
Investments in the accompanying Condensed Consolidated Balance Sheets at March 31, 2009 and
December 31, 2008.
4. Discontinued Operations
In 2007, the Companys management approved a plan to sell its oil and gas development and
production business. The Company finalized the divestiture of the business in June 2008. Included
in the loss for the three months ended March 31, 2008, is approximately $19 million, net of taxes,
incurred in connection with the settlement of a legal dispute regarding the business.
5. Inventories
The components of inventory were as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Raw materials, components and supplies |
|
$ |
415,286 |
|
|
$ |
430,352 |
|
Work in process |
|
|
160,483 |
|
|
|
152,864 |
|
Finished goods |
|
|
1,655,874 |
|
|
|
1,505,126 |
|
|
|
|
|
|
|
|
|
|
$ |
2,231,643 |
|
|
$ |
2,088,342 |
|
|
|
|
|
|
|
|
Work in process and finished goods inventories include the cost of materials, labor and plant
overhead.
7
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. Goodwill
Goodwill is evaluated for impairment on at least an annual basis. The Company performs its
annual goodwill impairment test as of October 1. In addition, the Company updated its goodwill
impairment test in December 2008 as a result of the decline in its common share price during the
fourth quarter of 2008. The Companys 2008 impairment tests indicated goodwill was not impaired.
The Company will continue to test its goodwill annually as of October 1 unless events occur or
circumstances change between annual tests that would more likely than not reduce the fair value of
a reporting unit below its carrying amount.
The changes in the carrying amount of goodwill for the three months ended March 31, 2009 were
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Middle East/ |
|
|
Europe/ |
|
|
|
|
|
|
|
|
|
North |
|
|
North Africa/ |
|
|
West Africa/ |
|
|
Latin |
|
|
|
|
|
|
America |
|
|
Asia |
|
|
CIS |
|
|
America |
|
|
Total |
|
|
|
(In thousands) |
|
As of December 31,
2008 |
|
$ |
1,813,710 |
|
|
$ |
675,558 |
|
|
$ |
734,930 |
|
|
$ |
306,717 |
|
|
$ |
3,530,915 |
|
Acquisitions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Disposals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase price and
other
adjustments |
|
|
(1,154 |
) |
|
|
3,225 |
|
|
|
1,575 |
|
|
|
(5,261 |
) |
|
|
(1,615 |
) |
Foreign currency
translation |
|
|
(6,292 |
) |
|
|
512 |
|
|
|
(1,951 |
) |
|
|
(77 |
) |
|
|
(7,808 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2009 |
|
$ |
1,806,264 |
|
|
$ |
679,295 |
|
|
$ |
734,554 |
|
|
$ |
301,379 |
|
|
$ |
3,521,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7. Short-term Borrowings and Current Portion of Long-term Debt
The components of short-term borrowings were as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Revolving credit facilities |
|
$ |
253,000 |
|
|
$ |
1,068,000 |
|
Commercial paper program |
|
|
72,967 |
|
|
|
127,884 |
|
Other short-term bank loans |
|
|
44,076 |
|
|
|
44,205 |
|
|
|
|
|
|
|
|
Total short-term borrowings |
|
|
370,043 |
|
|
|
1,240,089 |
|
Current portion of long-term debt |
|
|
12,785 |
|
|
|
15,858 |
|
|
|
|
|
|
|
|
Short-term borrowings and current portion of long-term debt |
|
$ |
382,828 |
|
|
$ |
1,255,947 |
|
|
|
|
|
|
|
|
In January 2009, the Company completed a $1.25 billion long-term debt offering comprised of
(i) $1 billion of 9.625% senior notes due in 2019 (9.625% Senior Notes) and (ii) $250 million of
9.875% senior notes due in 2039 (9.875% Senior Notes). Net proceeds of $1.23 billion were used
to repay short-term borrowings and for general corporate purposes. Interest on these notes is due
semi-annually on March 1 and September 1 of each year.
The Company maintains various revolving credit facilities with syndicates of banks. These
facilities allow for an aggregate availability of $2.3 billion, and can be used for a combination
of borrowings, support of the Companys commercial paper program and issuances of letters of
credit. Facilities with $550 million in availability will mature in October 2009 and the remaining
facilities mature in May 2011. There were $91 million in outstanding letters of credit under
these facilities at March 31, 2009.
8
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
These borrowing facilities require the Company to maintain a debt-to-capitalization
ratio of less than 60% and contain other covenants and representations customary for an
investment-grade commercial credit. The Company was in compliance with these covenants at March
31, 2009.
The Company has a $1.5 billion commercial paper program under which it may from time to time
issue short-term unsecured notes. The commercial paper program is supported by the Companys
revolving credit facilities. The weighted average interest rate related to outstanding commercial
paper issuances at March 31, 2009 was 0.5%.
The Company has short-term borrowings with various domestic and international institutions
pursuant to uncommitted facilities. At March 31, 2009, the Company had $44 million in short-term
borrowings outstanding under these arrangements with a weighted average interest rate of 4.8%. In
addition, the Company had $194 million of letters of credit and bid and performance bonds
outstanding under these uncommitted facilities.
The Companys short-term borrowings approximate their fair value at March 31, 2009 and
December 31, 2008.
8. Financial Instruments and Fair Value Measures
Effective January 1, 2009, the Company adopted SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities (SFAS No. 161). SFAS No. 161 requires enhanced disclosures
about an entitys derivative and hedging activity. Entities are required to provide enhanced
disclosures about how and why they use derivative instruments, how derivative instruments and
related hedged items are accounted for under SFAS No. 133 and how derivative instruments and
related hedged items affect an entitys financial position, financial performance and cash flows.
The Company is exposed to market risk from changes in foreign currency and changes in interest
rates. From time to time, the Company may enter into derivative financial instrument transactions
to manage or reduce its market risk, but does not enter into derivative transactions for
speculative purposes. The Company manages its 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 the Companys interest rate swaps are multinational commercial
banks.
Interest Rate Swaps
In December 2008, the Company entered into an interest rate swap agreement on an aggregate
notional amount of $150 million against one of its revolving credit facilities. This agreement was
outstanding at March 31, 2009. The fair value of the interest rate swap at March 31, 2009 resulted
in an asset of less than $0.1 million.
Upon completion of the long-term debt offering in March 2008, the Company entered into
interest rate swap agreements on an aggregate notional amount of $500 million against its 5.15%
senior notes due in 2013 (5.15% Senior Notes). These agreements were terminated in December
2008. As a result of these terminations, the Company received cash proceeds, net of accrued
interest, of $12 million. The gain associated with this interest rate swap termination has been
deferred and will be amortized to interest expense over the remaining term of the 5.15% Senior
Notes.
Cash Flow Hedges
In March 2008, the Company entered into interest rate derivative instruments for a notional
amount of $500 million to hedge projected exposures to interest rates in anticipation of the
issuance of the 7.00% senior notes due in 2038 (7.00% Senior Notes). Those hedges were
terminated in March 2008 at the time of the issuance. The Company paid a cash settlement of $13
million at termination, and the loss on these hedges is being amortized to interest expense over
the life of the 7.00% Senior Notes.
9
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Other Derivative Instruments
As of March 31, 2009, the Company had several foreign currency forward contracts and two
option contracts with notional amounts aggregating $394 million, which were entered into to hedge
exposure to currency fluctuations in various foreign currencies, including, but not limited to, the
British pound sterling, the Canadian dollar, the euro and the Norwegian kroner. The total
estimated fair value of these contracts at March 31, 2009 resulted in a net liability of $10
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.
In addition, after the closing of the acquisition of Precision Energy Services and Precision
Drilling International, the Company entered into a series of cross-currency swaps between the U.S.
dollar and Canadian dollar to hedge certain exposures to the Canadian dollar created as a result of
the acquisition. At March 31, 2009, the Company had notional amounts outstanding of $168 million.
The total estimated fair value of these contracts at March 31, 2009 resulted in an asset of $5
million. These derivative instruments were not designated as hedges and the changes in fair value
of the contracts are recorded each period in the accompanying Condensed Consolidated Statements of
Income.
Effective January 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements, (SFAS
No. 157) as it relates to financial assets and financial liabilities. In February 2008, the
Financial Accounting Standards Board (FASB) issued FASB Staff Position No. FAS 157-2, Effective
Date of FASB Statement No. 157, which delayed the effective date of SFAS No. 157 for all
nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at
fair value in the financial statements on at least an annual basis, until January 1, 2009 for
calendar year-end entities.
On January 1, 2009, the Company adopted without material impact on its condensed consolidated
financial statements the provisions of SFAS No. 157 related to nonfinancial assets and nonfinancial
liabilities not recognized or disclosed at fair value in the financial statements on a recurring
basis, which include those measured at fair value in goodwill impairment testing, indefinite-lived
intangible assets measured at fair value for impairment assessment, nonfinancial long-lived assets
measured at fair value for impairment assessment and those initially measured at fair value in a
business combination.
SFAS No. 157 defines fair value, establishes a framework for measuring fair value under
generally accepted accounting principals and expands disclosures about fair value measurements. The
provisions of this standard apply to other accounting pronouncements that require or permit fair
value measurements. The adoption of SFAS No. 157 had no impact on the Companys consolidated
financial position, results of operations and cash flows.
SFAS No. 157 defines fair value as the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants at the measurement
date. SFAS No. 157 establishes a fair value hierarchy that distinguishes between market
participant assumptions developed based on market data obtained from independent sources
(observable inputs) and an entitys own assumptions about market participant assumptions developed
based on the best information available in the circumstances (unobservable inputs). The fair value
hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted
prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to
unobservable inputs (Level 3).
In accordance with SFAS No. 157 and SFAS No. 161, the following table presents the Companys
assets and liabilities (along with their balance sheet classification) 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, 2009:
10
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009 |
|
|
|
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
|
(In thousands) |
|
Other Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
$ |
|
|
|
$ |
10,166 |
|
|
$ |
|
|
|
$ |
10,166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross-currency swaps |
|
|
|
|
|
|
4,519 |
|
|
|
|
|
|
|
4,519 |
|
Other investments |
|
|
|
|
|
|
29,732 |
|
|
|
|
|
|
|
29,732 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,251 |
|
|
|
|
|
|
|
34,251 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Current Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
|
|
|
|
|
20,189 |
|
|
|
|
|
|
|
20,189 |
|
9. Income Taxes
The Companys effective tax rates were 15.7% and 20.3% for the three months ended March 2009
and 2008, respectively. The decrease in the effective tax rate is due to the decrease in earnings
in certain jurisdictions and benefits realized from the refinement of the Companys international
tax structure.
10. Shareholders Equity
The following summarizes the Companys shareholders equity activity for the period presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling |
|
|
|
Total |
|
|
Company |
|
|
Interests in |
|
|
|
Shareholders |
|
|
Shareholders |
|
|
Consolidated |
|
|
|
Equity |
|
|
Equity |
|
|
Subsidiaries |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Balance at December 31, 2008 |
|
$ |
8,366,049 |
|
|
$ |
8,285,648 |
|
|
$ |
80,401 |
|
|
Comprehensive Income: |
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income |
|
|
173,660 |
|
|
|
164,802 |
|
|
|
8,858 |
|
Amortization of Pension Components |
|
|
1,180 |
|
|
|
1,180 |
|
|
|
|
|
Foreign Currency Translation Adjustments |
|
|
(50,060 |
) |
|
|
(49,939 |
) |
|
|
(121 |
) |
Other |
|
|
151 |
|
|
|
151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income |
|
|
124,931 |
|
|
|
116,194 |
|
|
|
8,737 |
|
Transactions with Shareholders |
|
|
10,219 |
|
|
|
10,219 |
|
|
|
|
|
Dividends paid to Noncontrolling Interests |
|
|
(5,500 |
) |
|
|
|
|
|
|
(5,500 |
) |
Other |
|
|
55 |
|
|
|
|
|
|
|
55 |
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2009 |
|
$ |
8,495,754 |
|
|
$ |
8,412,061 |
|
|
$ |
83,693 |
|
|
|
|
|
|
|
|
|
|
|
11. Earnings Per Share
Basic earnings per share for all periods presented equals net income divided by the weighted
average number of the Companys registered shares, par value
1.16 Swiss Francs (CHF) (Registered Shares)
outstanding during the period. Diluted earnings per share is computed by dividing net income by
the weighted average number of Registered Shares outstanding during the period, as adjusted for the
dilutive effect of the Companys stock option and restricted share plans and warrant.
Effective January 1, 2009, the Company implemented FASB Staff Position (FSP) EITF 03-6-1,
Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating
Securities,
11
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(FSP EITF 03-6-1). FSP EITF 03-6-1 addresses whether instruments granted in
share-based payment transactions are participating securities. Under the guidance of FSP EITF
03-6-1, unvested share-based payment awards that contain nonforfeitable rights to dividends or
dividend equivalents, whether paid or unpaid, are participating securities and shall be included in
the computation of earnings-per-share pursuant to the two-class method. Accordingly, the Company
now includes its restricted share awards that contain the right to vote and receive dividends in
the computation of both basic and diluted earnings per share. FSP EITF 03-6-1 has not been applied
to prior periods as the impact is immaterial.
The Companys Board of Directors approved a two-for-one share split of its common shares
effected through a share dividend. Shareholders of record on May 9, 2008 were entitled to the
dividend, which was distributed on May 23, 2008. All share and option amounts included in the
accompanying consolidated financial statements and related notes reflect the effect of the share
split.
The following reconciles basic and diluted weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Ended March 31, |
|
|
2009 |
|
2008 |
|
|
(In thousands) |
Basic weighted average shares outstanding |
|
|
698,327 |
|
|
|
680,190 |
|
Dilutive effect of: |
|
|
|
|
|
|
|
|
Warrant |
|
|
|
|
|
|
6,946 |
|
Stock options and restricted shares |
|
|
4,309 |
|
|
|
9,950 |
|
|
|
|
|
|
|
|
|
|
Diluted
weighted average shares outstanding |
|
|
702,636 |
|
|
|
697,086 |
|
|
|
|
|
|
|
|
|
|
The diluted earning per share calculation excludes 19 million potential shares for the three
months ended March 31, 2009, due to their antidilutive effect. Antidilutive potential shares were
not significant for the three months ended March 31, 2008.
12. Share-Based Compensation
The Company recognized the following employee share-based compensation expense during the
three months ended March 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
Ended March 31, |
|
|
2009 |
|
2008 |
|
|
(In thousands) |
Share-based compensation |
|
$ |
26,429 |
|
|
$ |
23,474 |
|
Related tax benefit |
|
|
9,250 |
|
|
|
8,216 |
|
During the three months ended March 31, 2009, the Company granted 4 million restricted share
awards and units at a weighted average grant date fair value of $11.38 per share.
As of March 31, 2009, there was $264 million of total unrecognized compensation cost related
to the Companys unvested stock options and restricted share grants. This cost is expected to be
recognized over a weighted-average period of 2 years.
12
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
13. Retirement and Employee Benefit Plans
The Company has defined benefit pension and other post-retirement benefit plans covering
certain employees. The components of net periodic benefit cost for the three months ended March
31, 2009 and 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
United |
|
|
|
|
|
|
United |
|
|
|
|
|
|
States |
|
|
International |
|
|
States |
|
|
International |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Service cost |
|
$ |
875 |
|
|
$ |
1,604 |
|
|
$ |
720 |
|
|
$ |
3,488 |
|
Interest cost |
|
|
1,706 |
|
|
|
1,596 |
|
|
|
1,511 |
|
|
|
2,610 |
|
Expected return on plan assets |
|
|
(165 |
) |
|
|
(954 |
) |
|
|
(179 |
) |
|
|
(2,306 |
) |
Amortization of transition obligation |
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
(1 |
) |
Amortization of prior service cost
(credit) |
|
|
458 |
|
|
|
(11 |
) |
|
|
458 |
|
|
|
(20 |
) |
Amortization of loss |
|
|
1,025 |
|
|
|
228 |
|
|
|
964 |
|
|
|
101 |
|
Curtailment/settlement loss |
|
|
|
|
|
|
|
|
|
|
5,621 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
3,899 |
|
|
$ |
2,462 |
|
|
$ |
9,095 |
|
|
$ |
3,872 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company previously disclosed in its financial statements for the year ended December 31,
2008, that it expected to contribute approximately $10 million to its pension and other
postretirement benefit plans during 2009. Due to the amendment of one of our foreign plans, the
Company currently anticipates total 2009 contributions for the defined benefit plans to approximate
$6 million. As of March 31, 2009, the Company has contributed approximately $1 million to these
plans.
14. Segment Information
Financial information by segment is summarized below. Revenues are attributable to countries
based on the ultimate destination of the sale of products or performance of services. The
accounting policies of the segments are the same as those described in the summary of significant
accounting policies.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended 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/CIS |
|
|
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 (a) |
|
|
|
|
|
|
(24,877 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,256,141 |
|
|
$ |
310,725 |
|
|
$ |
201,394 |
|
|
|
|
|
|
|
|
|
|
|
13
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2008 |
|
|
|
Net |
|
|
Income |
|
|
Depreciation |
|
|
|
Operating |
|
|
from |
|
|
and |
|
|
|
Revenues |
|
|
Operations |
|
|
Amortization |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
North America |
|
$ |
1,090,362 |
|
|
$ |
291,653 |
|
|
$ |
74,787 |
|
Middle East/North Africa/Asia |
|
|
521,884 |
|
|
|
120,674 |
|
|
|
45,736 |
|
Europe/West Africa/CIS |
|
|
347,629 |
|
|
|
93,213 |
|
|
|
26,621 |
|
Latin America |
|
|
236,017 |
|
|
|
60,498 |
|
|
|
19,682 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,195,892 |
|
|
|
566,038 |
|
|
|
166,826 |
|
Corporate and Research and Development |
|
|
|
|
|
|
(76,271 |
) |
|
|
2,462 |
|
Other (b) |
|
|
|
|
|
|
(74,233 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,195,892 |
|
|
$ |
415,534 |
|
|
$ |
169,288 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The three months ended March 31, 2009 includes $13 million for costs incurred in connection
with on-going investigations by the U.S. government and $12 million for severance charges
associated with reorganization activities. |
|
(b) |
|
The three months ended March 31, 2008 includes $51 million for costs incurred in connection
with the Companys exit from sanctioned countries, $15 million for severance charges
associated with reorganization activities and $8 million in costs incurred in connection with
on-going investigations by the U.S. government. |
14
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
15. Disputes, Litigation and Contingencies
U.S. Government and Internal Investigations
The Company is currently involved in government and internal investigations involving various
areas of its operations. The Company participated in the United Nations oil-for-food program
governing sales of goods and services into Iraq. The SEC and the U.S. Department of Justice (DOJ)
are conducting investigations of the Companys participation in the oil-for-food program and have
subpoenaed certain documents in connection with these investigations. The Company is cooperating
fully with these investigations. The Company has retained legal counsel, reporting to its audit
committee, to investigate this matter. These investigations are ongoing, and the Company cannot
anticipate the timing, outcome or possible impact of these investigations, financial or otherwise.
The U.S. Department of Commerce, Bureau of Industry & Security, Office of Foreign Assets
Control and the DOJ are investigating allegations of improper sales of products and services by the
Company and its subsidiaries in sanctioned countries. The Company is cooperating fully with this
investigation. The Company has retained legal counsel, reporting to its audit committee, to
investigate this matter. This investigation is ongoing, and the Company cannot anticipate the
timing, outcome or possible impact of the investigation, financial or otherwise.
In light of this investigation and of the current U.S. and foreign policy environment and the
inherent uncertainties surrounding these countries, the Company decided in September 2007 to direct
its foreign subsidiaries to discontinue doing business in countries that are subject to U.S.
economic and trade sanctions, including Cuba, Iran, Sudan and Syria. Effective September 2007, the
Company ceased entering into any new contracts relating to these countries and began an orderly
discontinuation and winding down of its existing business in these sanctioned countries. Effective
March 31, 2008, the Company completed its withdrawal from these countries.
With the assistance of outside counsel and in connection with the U.S. government
investigations, the Company is conducting investigations regarding the embezzlement of
approximately $175,000 at a European subsidiary and the possible improper use of these funds,
including possible payments to government officials in Europe, during the period from 2000 to 2004,
and the Companys compliance with the Foreign Corrupt Practices Act and other laws worldwide. As
part of these investigations, the Company has also uncovered potential violations of U.S.
law in connection with a joint venture in Angola. These investigations are ongoing, and
the Company cannot anticipate the timing, outcome or possible impact, if any, of the
investigations, financial or otherwise. The Company has informed the
SEC and the DOJ of these investigations, and the results of the investigations will be provided to the SEC
and DOJ.
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 trading
sanctions laws, the Foreign Corrupt Practices Act and other federal statutes including, but not
limited to, injunctive relief, disgorgement, fines, penalties and modifications to business
practices and compliance programs. In recent years, these agencies and authorities have entered
into agreements with, and obtained a range of penalties against, several public corporations and
individuals in similar investigations, under which civil and criminal penalties were imposed,
including in some cases fines and other penalties and sanctions in the tens and hundreds of
millions of dollars. Under trading
sanctions laws, the DOJ may also seek to impose modifications to business practices, including
immediate cessation of all business activities in sanctioned countries, and modifications to
compliance programs, which may increase compliance costs. In addition, the Companys 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 its registered shares. Based on available
information, the Company cannot predict what, if any, actions the DOJ, SEC or other authorities may
take in its situation or the effect any such actions may have on its consolidated financial
position or results of operations. To the extent the Company violated U.S. export regulations,
fines and other penalties may be imposed. Because these matters are now pending before the
indicated agencies, there can be no assurance that actual fines or penalties, if any, will not have
a material adverse affect on its business, financial condition, liquidity or results of operations.
During the three months ended March 31, 2009 and 2008, the Company incurred $13 million and $8
million, respectively, in connection with these on-going investigations. In addition, the Company
incurred $51 million for costs incurred in connection with our exit from sanctioned countries
during the three months ended March 31, 2008.
15
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Other Litigation and Disputes
The Company is aware of various disputes and potential claims and is a party in various
litigation involving claims against the Company, some of which are covered by insurance. Based on
facts currently known, the Company believes that the ultimate liability, if any, which may result
from known claims, disputes and pending litigation, would not have a material adverse effect on the
Companys consolidated financial position, results of operations or cash flows.
16. New Accounting Pronouncements
In December 2008, the FASB issued FSP SFAS 132(R)-1, Employers Disclosures about
Postretirement Benefit Plan Assets (FSP SFAS No. 132(R)-1). This FSP amends the disclosure
requirements for employers disclosure of plan assets for defined benefit pensions and other
postretirement plans. The objective of this FSP is to provide users of financial statements with
an understanding of how investment allocation decisions are made, the major categories of plan
assets held by the plans, the inputs and valuation techniques used to measure the fair value of
plan assets, significant concentration of risk within the Companys plan assets, and for fair value
measurements determined using significant unobservable inputs a reconciliation of changes between
the beginning and ending balances. FSP SFAS No. 132(R)-1 is effective for fiscal years ending after
December 15, 2009. The Company will adopt the new disclosure requirements in the 2009 annual
reporting period.
17. Condensed Consolidating Financial Statements
During the first quarter of 2009, the Company completed a transaction that changed its place
of incorporation from Bermuda to Switzerland. A new Swiss corporation named Weatherford
International Ltd. was formed and is now the ultimate parent (Weatherford Switzerland) of the
Weatherford group. It 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, 2009 and December 31, 2008: (i) the 6.625% Senior Notes, (ii) the 5.95% Senior Notes,
(iii) the 6.35% Senior Notes and (iv) the 6.80% Senior Notes.
The following obligations of Weatherford Bermuda were guaranteed by Weatherford Delaware at
March 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 and (viii) the 9.625% Senior Notes, (ix) the 9.875% Senior Notes and
(x) issuances of notes under the commercial paper program.
The following obligations of Weatherford Bermuda were guaranteed by Weatherford Delaware at
December 31, 2008: (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 and (viii) issuances of notes under the commercial paper
program.
As a result of these guarantee arrangements, the Company is required to present the following
condensed consolidating financial information. The accompanying guarantor financial information is
presented on the equity method of accounting for all periods presented. Under this method,
investments in subsidiaries are recorded at cost and adjusted for the Companys share in the
subsidiaries cumulative results of operations, capital contributions and distributions and other
changes in equity. Elimination entries relate primarily to the elimination of investments in
subsidiaries and associated intercompany balances and transactions. Certain prior year amounts
have been reclassified to conform to the current year presentation.
16
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Condensed Consolidating Balance Sheet
March 31, 2009
(unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Bermuda |
|
|
Delaware |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidation |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents |
|
$ |
102 |
|
|
$ |
26 |
|
|
$ |
126 |
|
|
$ |
161,462 |
|
|
$ |
|
|
|
$ |
161,716 |
|
Other
Current
Assets |
|
|
|
|
|
|
11,905 |
|
|
|
81,639 |
|
|
|
5,437,727 |
|
|
|
|
|
|
|
5,531,271 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
102 |
|
|
|
11,931 |
|
|
|
81,765 |
|
|
|
5,599,189 |
|
|
|
|
|
|
|
5,692,987 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Investments
in Affiliates |
|
|
8,450,484 |
|
|
|
14,833,800 |
|
|
|
6,407,976 |
|
|
|
12,280,321 |
|
|
|
(41,972,581 |
) |
|
|
|
|
Shares Held in
Parent |
|
|
|
|
|
|
|
|
|
|
125,717 |
|
|
|
625,957 |
|
|
|
(751,674 |
) |
|
|
|
|
Intercompany
Receivables, Net |
|
|
|
|
|
|
1,618,187 |
|
|
|
1,070,688 |
|
|
|
|
|
|
|
(2,688,875 |
) |
|
|
|
|
Other Assets |
|
|
|
|
|
|
66,369 |
|
|
|
184,301 |
|
|
|
11,001,493 |
|
|
|
|
|
|
|
11,252,163 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
8,450,586 |
|
|
$ |
16,530,287 |
|
|
$ |
7,870,447 |
|
|
$ |
29,506,960 |
|
|
$ |
(45,413,130 |
) |
|
$ |
16,945,150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS
EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term Borrowings and Current Portion of
Long-term Debt |
|
$ |
|
|
|
$ |
226,546 |
|
|
$ |
1,785 |
|
|
$ |
154,497 |
|
|
$ |
|
|
|
$ |
382,828 |
|
Accounts
Payable and Other Current Liabilities |
|
|
|
|
|
|
38,794 |
|
|
|
87,230 |
|
|
|
1,538,921 |
|
|
|
|
|
|
|
1,664,945 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
265,340 |
|
|
|
89,015 |
|
|
|
1,693,418 |
|
|
|
|
|
|
|
2,047,773 |
|
Long-term Debt |
|
|
|
|
|
|
3,943,172 |
|
|
|
1,849,126 |
|
|
|
12,144 |
|
|
|
|
|
|
|
5,804,442 |
|
Intercompany
Payables, Net |
|
|
4,743 |
|
|
|
|
|
|
|
|
|
|
|
2,684,132 |
|
|
|
(2,688,875 |
) |
|
|
|
|
Other Long-term
Liabilities |
|
|
|
|
|
|
113,661 |
|
|
|
2,450 |
|
|
|
481,070 |
|
|
|
|
|
|
|
597,181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,743 |
|
|
|
4,322,173 |
|
|
|
1,940,591 |
|
|
|
4,870,764 |
|
|
|
(2,688,875 |
) |
|
|
8,449,396 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weatherford
Shareholders
Equity |
|
|
8,445,843 |
|
|
|
12,208,114 |
|
|
|
5,929,856 |
|
|
|
24,552,503 |
|
|
|
(42,724,255 |
) |
|
|
8,412,061 |
|
Noncontrolling
Interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83,693 |
|
|
|
|
|
|
|
83,693 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
8,450,586 |
|
|
$ |
16,530,287 |
|
|
$ |
7,870,447 |
|
|
$ |
29,506,960 |
|
|
$ |
(45,413,130 |
) |
|
$ |
16,945,150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Condensed Consolidating Balance Sheet
December 31, 2008
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Bermuda |
|
|
Delaware |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidation |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and
Cash Equivalents |
|
$ |
24 |
|
|
$ |
50 |
|
|
$ |
238,324 |
|
|
$ |
|
|
|
$ |
238,398 |
|
Other
Current Assets |
|
|
11,547 |
|
|
|
90,626 |
|
|
|
5,229,711 |
|
|
|
|
|
|
|
5,331,884 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,571 |
|
|
|
90,676 |
|
|
|
5,468,035 |
|
|
|
|
|
|
|
5,570,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Investments
in Affiliates |
|
|
14,335,661 |
|
|
|
6,231,144 |
|
|
|
12,611,943 |
|
|
|
(33,178,748 |
) |
|
|
|
|
Shares Held in Parent |
|
|
|
|
|
|
133,519 |
|
|
|
625,958 |
|
|
|
(759,477 |
) |
|
|
|
|
Intercompany
Receivables, Net |
|
|
1,289,507 |
|
|
|
906,534 |
|
|
|
|
|
|
|
(2,196,041 |
) |
|
|
|
|
Other Assets |
|
|
59,325 |
|
|
|
184,869 |
|
|
|
10,662,037 |
|
|
|
|
|
|
|
10,906,231 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
15,696,064 |
|
|
$ |
7,546,742 |
|
|
$ |
29,367,973 |
|
|
$ |
(36,134,266 |
) |
|
$ |
16,476,513 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS
EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
Borrowings and
Current
Portion of Long-term
Debt |
|
$ |
781,443 |
|
|
$ |
1,758 |
|
|
$ |
472,746 |
|
|
$ |
|
|
|
$ |
1,255,947 |
|
Accounts
Payable and Other
Current
Liabilities |
|
|
59,534 |
|
|
|
39,764 |
|
|
|
1,666,848 |
|
|
|
|
|
|
|
1,766,146 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
840,977 |
|
|
|
41,522 |
|
|
|
2,139,594 |
|
|
|
|
|
|
|
3,022,093 |
|
Long-term Debt |
|
|
2,701,747 |
|
|
|
1,849,428 |
|
|
|
13,080 |
|
|
|
|
|
|
|
4,564,255 |
|
Intercompany
Payables, Net |
|
|
|
|
|
|
|
|
|
|
2,196,041 |
|
|
|
(2,196,041 |
) |
|
|
|
|
Other Long-term
Liabilities |
|
|
110,627 |
|
|
|
2,502 |
|
|
|
410,987 |
|
|
|
|
|
|
|
524,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,653,351 |
|
|
|
1,893,452 |
|
|
|
4,759,702 |
|
|
|
(2,196,041 |
) |
|
|
8,110,464 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weatherford
Shareholders
Equity |
|
|
12,042,713 |
|
|
|
5,653,290 |
|
|
|
24,527,870 |
|
|
|
(33,938,225 |
) |
|
|
8,285,648 |
|
Noncontrolling
Interests |
|
|
|
|
|
|
|
|
|
|
80,401 |
|
|
|
|
|
|
|
80,401 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
15,696,064 |
|
|
$ |
7,546,742 |
|
|
$ |
29,367,973 |
|
|
$ |
(36,134,266 |
) |
|
$ |
16,476,513 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 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
Continuing
Operations
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 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from
Continuing
Operations |
|
|
164,802 |
|
|
|
164,836 |
|
|
|
166,556 |
|
|
|
185,651 |
|
|
|
(508,185 |
) |
|
|
173,660 |
|
Loss from
Discontinued
Operation,
Net of Taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Condensed Consolidating Statements of Income
Three Months Ended March 31, 2008
(unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Bermuda |
|
|
Delaware |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidation |
|
Revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
2,195,892 |
|
|
$ |
|
|
|
$ |
2,195,892 |
|
Costs and Expenses |
|
|
(12,155 |
) |
|
|
(690 |
) |
|
|
(1,767,513 |
) |
|
|
|
|
|
|
(1,780,358 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss) |
|
|
(12,155 |
) |
|
|
(690 |
) |
|
|
428,379 |
|
|
|
|
|
|
|
415,534 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Expense, Net |
|
|
(22,696 |
) |
|
|
(29,645 |
) |
|
|
(462 |
) |
|
|
|
|
|
|
(52,803 |
) |
Intercompany
Charges, Net |
|
|
2,995 |
|
|
|
|
|
|
|
(2,995 |
) |
|
|
|
|
|
|
|
|
Equity in
Subsidiary Income |
|
|
283,120 |
|
|
|
303,252 |
|
|
|
|
|
|
|
(586,372 |
) |
|
|
|
|
Other, Net |
|
|
12,966 |
|
|
|
(257 |
) |
|
|
(12,210 |
) |
|
|
|
|
|
|
499 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from
Continuing Operations
Before
Income Taxes |
|
|
264,230 |
|
|
|
272,660 |
|
|
|
412,712 |
|
|
|
(586,372 |
) |
|
|
363,230 |
|
Provision for Income Taxes |
|
|
(29 |
) |
|
|
10,460 |
|
|
|
(84,056 |
) |
|
|
|
|
|
|
(73,625 |
) |
Loss from Discontinued
Operation, Net of Taxes |
|
|
|
|
|
|
|
|
|
|
(19,868 |
) |
|
|
|
|
|
|
(19,868 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
|
|
264,201 |
|
|
|
283,120 |
|
|
|
308,788 |
|
|
|
(586,372 |
) |
|
|
269,737 |
|
Noncontrolling Interests |
|
|
|
|
|
|
|
|
|
|
(5,536 |
) |
|
|
|
|
|
|
(5,536 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Attributable
to Weatherford |
|
$ |
264,201 |
|
|
$ |
283,120 |
|
|
$ |
303,252 |
|
|
$ |
(586,372 |
) |
|
$ |
264,201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
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) Attributable to Weatherford |
|
$ |
164,802 |
|
|
$ |
164,836 |
|
|
$ |
166,556 |
|
|
$ |
176,793 |
|
|
$ |
(508,185 |
) |
|
$ |
164,802 |
|
Adjustments to Reconcile
Net Income (Loss) to Net
Cash Provided (Used) by
Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charges from Parent or
Subsidiary |
|
|
|
|
|
|
(71,124 |
) |
|
|
|
|
|
|
71,124 |
|
|
|
|
|
|
|
|
|
(Gain) Loss from
Discontinued Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
(57,731 |
) |
|
|
|
|
|
|
26,524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash
Provided (Used) by
Operating
Activities-Continuing
Operations |
|
|
|
|
|
|
(98,146 |
) |
|
|
108,272 |
|
|
|
157,606 |
|
|
|
|
|
|
|
167,732 |
|
Net Cash
Used by Operating Activities
Discontinued Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash
Provided (Used) by
Operating Activities |
|
|
|
|
|
|
(98,146 |
) |
|
|
108,272 |
|
|
|
157,606 |
|
|
|
|
|
|
|
167,732 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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-Continuing
Operations |
|
|
|
|
|
|
(331,584 |
) |
|
|
(39 |
) |
|
|
(597,802 |
) |
|
|
331,623 |
|
|
|
(597,802 |
) |
Net Cash
Provided by
Investing
Activities-Discontinued
Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
Continuing
Operations |
|
|
|
|
|
|
429,732 |
|
|
|
(108,157 |
) |
|
|
363,436 |
|
|
|
(331,623 |
) |
|
|
353,388 |
|
Net Cash
Provided (Used) by
Financing Activities
Discontinued
Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash
Provided (Used) by
Financing
Activities |
|
|
|
|
|
|
429,732 |
|
|
|
(108,157 |
) |
|
|
363,436 |
|
|
|
(331,623 |
) |
|
|
353,388 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Condensed Consolidating Statement of Cash Flows
Three Months Ended March 31, 2008
(unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Bermuda |
|
|
Delaware |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidation |
|
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Attributable to Weatherford |
|
$ |
264,201 |
|
|
$ |
283,120 |
|
|
$ |
303,252 |
|
|
$ |
(586,372 |
) |
|
$ |
264,201 |
|
Adjustments to Reconcile Net Income (Loss) to Net
Cash Provided (Used) by Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charges from Parent or Subsidiary |
|
|
(2,995 |
) |
|
|
|
|
|
|
2,995 |
|
|
|
|
|
|
|
|
|
(Gain) Loss from Discontinued Operations |
|
|
|
|
|
|
|
|
|
|
19,868 |
|
|
|
|
|
|
|
19,868 |
|
Equity in (Earnings) Loss of Affiliates |
|
|
(283,120 |
) |
|
|
(303,252 |
) |
|
|
|
|
|
|
586,372 |
|
|
|
|
|
Deferred Income Tax Provision (Benefit) |
|
|
|
|
|
|
(251 |
) |
|
|
(10,263 |
) |
|
|
|
|
|
|
(10,514 |
) |
Other Adjustments |
|
|
(23,138 |
) |
|
|
19,152 |
|
|
|
(118,906 |
) |
|
|
|
|
|
|
(122,892 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided (Used) by Operating
Activities-Continuing Operations |
|
|
(45,052 |
) |
|
|
(1,231 |
) |
|
|
196,946 |
|
|
|
|
|
|
|
150,663 |
|
Net Cash Used by Operating Activities-
Discontinued Operations |
|
|
|
|
|
|
|
|
|
|
(1,294 |
) |
|
|
|
|
|
|
(1,294 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided (Used) by Operating
Activities |
|
|
(45,052 |
) |
|
|
(1,231 |
) |
|
|
195,652 |
|
|
|
|
|
|
|
149,369 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions of Businesses, Net of Cash Acquired |
|
|
|
|
|
|
|
|
|
|
(113,013 |
) |
|
|
|
|
|
|
(113,013 |
) |
Capital Expenditures for Property, Plant and
Equipment |
|
|
|
|
|
|
|
|
|
|
(588,639 |
) |
|
|
|
|
|
|
(588,639 |
) |
Acquisition of Intellectual Property |
|
|
|
|
|
|
|
|
|
|
(2,787 |
) |
|
|
|
|
|
|
(2,787 |
) |
Purchase of Equity Investment in Unconsolidated
Affiliate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from Sale of Assets and Businesses, Net |
|
|
|
|
|
|
|
|
|
|
112,260 |
|
|
|
|
|
|
|
112,260 |
|
Capital Contribution to Subsidiary |
|
|
(103,043 |
) |
|
|
(5,000 |
) |
|
|
|
|
|
|
108,043 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided (Used) by Investing
Activities-Continuing Operations |
|
|
(103,043 |
) |
|
|
(5,000 |
) |
|
|
(592,179 |
) |
|
|
108,043 |
|
|
|
(592,179 |
) |
Net Cash Provided by Investing Activities-
Discontinued Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided (Used) by Investing
Activities |
|
|
(103,043 |
) |
|
|
(5,000 |
) |
|
|
(592,179 |
) |
|
|
108,043 |
|
|
|
(592,179 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings of (Repayments on) Short-term
Debt, Net |
|
|
(481,612 |
) |
|
|
(21,521 |
) |
|
|
(81,942 |
) |
|
|
|
|
|
|
(585,075 |
) |
Borrowings of (Repayments on) Long-term
Debt, Net |
|
|
1,483,931 |
|
|
|
(285 |
) |
|
|
3,793 |
|
|
|
|
|
|
|
1,487,439 |
|
Borrowings (Repayments) Between
Subsidiaries, Net |
|
|
(375,912 |
) |
|
|
18,603 |
|
|
|
357,309 |
|
|
|
|
|
|
|
|
|
Proceeds from Capital Contribution |
|
|
|
|
|
|
|
|
|
|
108,043 |
|
|
|
(108,043 |
) |
|
|
|
|
Other, Net |
|
|
(12,576 |
) |
|
|
8,746 |
|
|
|
|
|
|
|
|
|
|
|
(3,830 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided (Used) by Financing
Activities Continuing Operations |
|
|
613,831 |
|
|
|
5,543 |
|
|
|
387,203 |
|
|
|
(108,043 |
) |
|
|
898,534 |
|
Net Cash Provided (Used) by Financing
Activities Discontinued Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided (Used) by Financing
Activities |
|
|
613,831 |
|
|
|
5,543 |
|
|
|
387,203 |
|
|
|
(108,043 |
) |
|
|
898,534 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase
(Decrease) in Cash and Cash Equivalents |
|
|
465,736 |
|
|
|
(688 |
) |
|
|
(9,324 |
) |
|
|
|
|
|
|
455,724 |
|
Cash and Cash Equivalents at Beginning of Year |
|
|
228 |
|
|
|
1,489 |
|
|
|
168,997 |
|
|
|
|
|
|
|
170,714 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of Year |
|
$ |
465,964 |
|
|
$ |
801 |
|
|
$ |
159,673 |
|
|
$ |
|
|
|
$ |
626,438 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 2009. Next, we analyze the results of our
operations for the three months ended March 31, 2009 and 2008, 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.
The Company, we, us and our refer to Weatherford International Ltd., a Swiss
joint stock corporation, or, prior to February 26, 2009, to Weatherford International Ltd., a
Bermuda exempted company, which, as of that date, became a direct, wholly owned subsidiary of
Weatherford International Ltd., a Swiss joint stock corporation.
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, 2008
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, 2009 |
|
$ |
49.90 |
|
|
$ |
3.78 |
|
|
|
1,301 |
|
|
|
1,104 |
|
December 31, 2008 |
|
|
44.60 |
|
|
|
5.62 |
|
|
|
2,143 |
|
|
|
1,175 |
|
March 31, 2008 |
|
|
101.58 |
|
|
|
10.10 |
|
|
|
2,205 |
|
|
|
1,146 |
|
|
|
|
(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 2009, ranging from a low of $33.98 per
barrel in mid-February to a high of $54.34 per barrel late in March. Natural gas prices decreased
during the first quarter of 2009, and ranged from a low of $3.63 MM/BTU near the end of March to a
high of $6.07 MM/BTU in early January. Since September 30, 2008, oil and natural gas prices have
experienced significant declines due to the economic downturn. Factors influencing oil and natural
gas prices during the period include hydrocarbon inventory levels,
23
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.
The North American rig count has decreased approximately 39% during 2009. The international
rig count has decreased approximately 6% since the end of 2008.
According to a recent study by Barclays Capital, exploration and production expenditures
during 2009 are anticipated to decrease 40% in North America and 10% internationally. The decrease
is in response to the significant decline in commodity prices, constrained cash flow and tight
credit markets.
Outlook
The nature of our industry offers many opportunities and challenges. We have created a
long-term strategy aimed at growing our business, servicing our customers, and most importantly,
creating value for our shareholders. The success of our long-term strategy will be determined by
our ability to manage effectively any industry cyclicality, respond to industry demands and
successfully maximize the benefits from our acquisitions.
The cyclicality of the energy industry impacts the demand for our products and services.
Certain of our products and services, such as our drilling and evaluation services, well
installation services and well completion services, depend on the level of exploration and
development activity and the completion phase of the well life cycle. Other products and services,
such as our production optimization and artificial lift systems, are dependent on production
activity. We believe that decline rates, a measure of the fall in production from a well over
time, are accelerating. We also believe that there has been, and will continue to be, a
deterioration in the quality of incremental hydrocarbon formations that our customers develop and
that these formations will require more of our products and services than higher quality
formations. The market for oilfield services will grow relative to the decline rates and the
implicit rate of demand growth. We are aggressively, but methodically, growing our employee base,
manufacturing capacity and equipment capacity, in certain regions, to meet the demands of the
industry.
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 given the dramatically weakened picture of
the global economy stemming from a severe dislocation in credit markets and money flows around the
world. Climate, natural gas storage levels and commodity prices, as well as expectations for the
U.S. economy, will dictate the level of oilfield service activity in North America for 2009. While
these factors are difficult to predict with any certainty over short periods of time, we anticipate
a significant pull back in North American average rig activity compared to 2008 levels with the low
point being reached by mid-year. This pull back is principally due to existing natural gas storage
levels, lower natural gas prices and a dampened prognosis for the U.S. economy. We believe we have
prepared for this decline by adjusting our cost structure in North America to reflect the reality
of the reservoirs our customers will pursue for the foreseeable future.
We also expect international rig activity to decrease in 2009 as compared to 2008. However, we
anticipate the decrease to be less severe than North America given that international spending is
driven by major and national oil companies, which take a longer-term view and therefore respond
less quickly to short-term changes in commodity prices.
We expect all of our growth in 2009 will come out of the international markets. While it is
difficult to predict exact growth rates given the current fluid economic conditions and volatility,
we expect our international markets combined growth rate for 2009 to be in the double digits, which
will be primarily driven by a substantial increase in Latin America. We expect North Africa,
Middle East, China and Central Europe to show the largest year-on-year growth in the Eastern
Hemisphere. In Latin America, we anticipate our larger growth improvements stemming from Brazil
and Mexico.
24
Pricing in the U.S. and Canada is showing weakness with rigs, tubulars and stimulation showing
the strongest pressures. With a pull back in activity in North America, we would expect pricing in
general to come under pressure, with the magnitude dependant upon the extent to which activity
declines. In the international markets, pricing is softening where and when contractual terms come
to renewal time. Requests by clients to renegotiate existing contracts are yielding more modest
price erosion with significant differences between international regions.
Overall, the level of improvements for our businesses for 2009 will continue to depend heavily
on our ability to further penetrate existing markets with our younger technologies and to
successfully introduce these technologies to new markets. The recruitment, training and retention
of personnel will also be a critical factor in growing our 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. The
extreme volatility of our markets makes predictions regarding future results difficult.
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, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
|
Ended March 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands, except percentages |
|
|
|
and per share data) |
|
Revenues: |
|
|
|
|
|
|
|
|
North
America |
|
$ |
837,353 |
|
|
$ |
1,090,362 |
|
Middle East/North Africa/Asia |
|
|
581,946 |
|
|
|
521,884 |
|
Europe/West Africa/CIS |
|
|
368,843 |
|
|
|
347,629 |
|
Latin
America |
|
|
467,999 |
|
|
|
236,017 |
|
|
|
|
|
|
|
|
|
|
|
2,256,141 |
|
|
|
2,195,892 |
|
|
|
|
|
|
|
|
|
|
Operating Income: |
|
|
|
|
|
|
|
|
North
America |
|
|
123,036 |
|
|
|
291,653 |
|
Middle East/North Africa/Asia |
|
|
134,026 |
|
|
|
120,674 |
|
Europe/West Africa/CIS |
|
|
74,943 |
|
|
|
93,213 |
|
Latin
America |
|
|
92,217 |
|
|
|
60,498 |
|
Research and Development |
|
|
(49,021 |
) |
|
|
(42,639 |
) |
Corporate |
|
|
(39,599 |
) |
|
|
(33,632 |
) |
Exit and Restructuring |
|
|
(24,877 |
) |
|
|
(74,233 |
) |
|
|
|
|
|
|
|
|
|
|
310,725 |
|
|
|
415,534 |
|
|
|
|
|
|
|
|
|
|
Interest Expense, Net |
|
|
(91,063 |
) |
|
|
(52,803 |
) |
|
|
|
|
|
|
|
|
|
Other, Net |
|
|
(13,539 |
) |
|
|
499 |
|
|
|
|
|
|
|
|
|
|
Effective Tax Rate |
|
|
15.7 |
% |
|
|
20.3 |
% |
|
|
|
|
|
|
|
|
|
Net Income per Diluted Share from Continuing Operations |
|
$ |
0.23 |
|
|
$ |
0.41 |
|
|
|
|
|
|
|
|
|
|
Loss from Discontinued Operation per
Diluted
Share |
|
$ |
|
|
|
$ |
(0.03 |
) |
|
|
|
|
|
|
|
|
|
Net Income per Diluted Share |
|
$ |
0.23 |
|
|
$ |
0.38 |
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization |
|
|
201,394 |
|
|
|
169,288 |
|
25
Revenues
The following chart contains consolidated revenues by product line for the three months ended
March 31, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
|
Ended March 31, |
|
|
|
2009 |
|
|
2008 |
|
Drilling Services |
|
|
17 |
% |
|
|
15 |
% |
Artificial Lift Systems |
|
|
16 |
|
|
|
16 |
|
Well Construction |
|
|
15 |
|
|
|
16 |
|
Completion Systems |
|
|
11 |
|
|
|
10 |
|
Integrated Drilling |
|
|
10 |
|
|
|
5 |
|
Drilling Tools |
|
|
9 |
|
|
|
11 |
|
Re-entry & Fishing |
|
|
7 |
|
|
|
8 |
|
Stimulation & Chemicals Services |
|
|
7 |
|
|
|
7 |
|
Wireline |
|
|
6 |
|
|
|
9 |
|
Pipeline & Specialty Services |
|
|
2 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
Consolidated revenues increased $60 million, or 3%, in the first quarter of 2009 as compared
to the first quarter of 2008. Our revenue growth was derived outside of North America.
International revenues increased $313 million, or 28%, in the first quarter of 2009 as compared to
the first quarter of 2008 while North America revenue decreased $253 million, or 23%. This
international growth was against a 2% decline in international rig count. Our integrated drilling
product line was the strongest contributor to the quarter-over-quarter increase.
Operating Income
Consolidated operating income decreased $105 million, or 25%, in the first quarter of 2009 as
compared to the first quarter of 2008. Our operating segments contributed $142 million of the
decrease during the current quarter as compared to the same quarter of the prior year while
corporate and research and development expenditures were $12 million higher over the same period.
The increase in corporate and research and development expenses was primarily attributable to
higher employee compensation costs. In addition, current quarter results include $25 million in
exit and restructuring charges, which is $49 million lower as compared to the first quarter of
2008.
Exit and restructuring charges for the three months ended March 31, 2009 includes $13 million
for legal costs associated with on-going investigations by the U.S. Department of Justice and the
U.S. Securities and Exchange Commission (SEC) and severance charges of $12 million primarily due
to headcount reductions in North America. Exit and restructuring charges for the three months
ended March 31, 2008 totaled $74 million and is comprised of $51 million for costs incurred in
connection with our exit from sanctioned countries, $15 million for severance charges associated
with reorganization activities and $8 million for legal costs incurred in connection with on-going
investigations by the U.S. government.
Interest Expense, Net
Interest expense, net increased $38 million, or 72%, during the three months ended March 31,
2009 as compared to the same period of the prior year. We issued $1.5 billion in senior notes in
March 2008 and an additional $1.25 billion of senior notes in January 2009. This increase was
partially offset by lower weighted average short-term borrowing rates over the comparable periods.
The incremental borrowings added during the comparable periods were used to fund capital
expenditures and to fund acquisitions.
Income Taxes
Our effective tax rates were 15.7% and 20.3% for the first quarter of 2009 and 2008,
respectively. The decrease in our effective tax rate is due to the decrease in earnings in certain
jurisdictions and the net benefits realized from the refinement of our international tax structure.
26
Segment Results
North America
North
American revenues decreased $253 million, or 23%, in the first quarter of 2009 as
compared to the first quarter of 2008 on a 27% decline in average North American rig count over the
comparable period. Operating income decreased $169 million, or 58%, in the first quarter of 2009 as
compared to the first quarter of 2008. Operating margins were 15% in the first quarter of 2009 and
27% in the first quarter of 2008. The decline in revenues and margins was due to severe pricing
and volume declines experienced during the quarter. Pricing concessions were across all product
lines.
Middle East/North Africa/Asia
Middle East/North Africa/Asia revenues increased $60 million, or 12%, in the first quarter of
2009 as compared to the first quarter of 2008. This increase was against a 3% decline in rig count
over the comparable period. Our drilling services and integrated drilling product lines were the
strongest contributors to the increase in revenue.
Operating income increased $13 million, or 11%, during the first quarter of 2009 compared to
the same quarter of the prior year. Operating margins were 23% for both the first quarter of 2009
and 2008.
Europe/West Africa/CIS
Revenues in our Europe/West Africa/CIS segment increased $21 million, or 6%, in the first
quarter of 2009 as compared to the same quarter of the prior year against a flat rig count over the
comparable period. Our drilling services, artificial lift and integrated drilling product lines
were the strongest contributors to the increase in revenue.
Operating income decreased $18 million, or 20%, during the first quarter of 2009 compared to
the same quarter of the prior year. Operating margins were 20% in the first quarter of 2009 and
27% in the first quarter of 2008. The decline in operating income and margin was primarily due to
pricing declines and lower absorption during the first quarter of 2009.
Latin America
Revenues
in our Latin American segment increased $232 million, or 98%, in the first quarter of
2009 as compared to the same quarter of the prior year against an average rig count decrease of 2%
over the comparable period. Latin America was the strongest contributor to our revenue growth in
the first quarter of 2009 compared to the first quarter of 2008. Revenue growth was generated in
all product lines during the three month period ended March 31, 2009 as compared to the same period
of the prior year.
Operating income increased $32 million, or 52%, for the three months ended March 31, 2009,
over the comparable period of the prior year. Operating margins were 20% in the first quarter of
2009 and 26% in the first quarter of 2008. Strong performances in Mexico and Brazil were largely
offset by declines in other markets, including Venezuela and Argentina.
Discontinued Operations
Our discontinued operation in the first quarter of 2008 consisted of our oil and gas
development and production company. We had a loss from our discontinued operation, net of taxes, of
$20 million for the first quarter of 2008. That amount includes charges, net of taxes, of
approximately $19 million incurred in connection with the settlement of a legal dispute regarding
the business.
Liquidity and Capital Resources
Sources of Liquidity
Our sources of liquidity include current cash and cash equivalent balances, cash generated
from operations and committed availabilities under bank lines of credit. We maintain a shelf
registration statement covering the future issuance of various types of securities, including debt,
registered shares, preferred shares and warrants.
Committed Borrowing Facilities
27
We maintain various revolving credit facilities with syndicates of banks. These facilities
allow for an aggregate availability of $2.3 billion, and can be used for a combination of
borrowings, support of our commercial paper program and issuances of letters of credit. Facilities
with $550 million in availability will mature in October 2009, and the remaining facilities mature
in May 2011. 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 42% at March 31, 2009,
which is in compliance with these covenants.
The following is a recap of our availability under our committed borrowing facilities at March
31, 2009 (in millions):
|
|
|
|
|
Facilities |
|
$ |
2,300 |
|
|
|
|
|
|
Less: |
|
|
|
|
Amount drawn |
|
|
253 |
|
Commercial paper |
|
|
73 |
|
Letters of credit |
|
|
91 |
|
|
|
|
|
|
|
|
|
|
Availability |
|
$ |
1,883 |
|
|
|
|
|
Commercial Paper
We have a $1.5 billion commercial paper program under which we may from time to time issue
short-term, unsecured notes, subject to market conditions. The commercial paper program is
supported by our revolving credit facilities. The weighted average interest rate related to
outstanding commercial paper issuances at March 31, 2009 was 0.5%.
Debt Offering
In January 2009, we completed a $1.25 billion long-term debt offering comprised of (i) $1
billion of 9.625% senior notes due in 2019 (9.625% Senior Notes) and (ii) $250 million of 9.875%
senior notes due in 2039 (9.875% Senior Notes). Net proceeds of $1.23 billion were used to repay
short-term borrowings with maturities of less than one month and for general corporate purposes.
Interest on these notes is due semi-annually on March 1 and September 1 of each year.
Cash Requirements
During 2009, 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 2009 are projected to be approximately $1.4 billion, net of proceeds
from tools lost down hole. The expenditures are expected to be used primarily to support the growth
of our business and operations. Capital expenditures during the three months ended March 31, 2009
were $555 million, net of proceeds from tools lost down hole.
28
Derivative Instruments
Interest Rate Swaps
In December 2008, we entered into an interest rate swap agreement on an aggregate notional
amount of $150 million against one of our revolving credit facilities. This agreement was
outstanding at March 31, 2009. The fair value of the interest rate swap at March 31, 2009 resulted
in an asset of less than $0.1 million.
Upon completion of the long-term debt offering in March 2008, we entered into interest rate
swap agreements on an aggregate notional amount of $500 million against our 5.15% senior notes due
2013 (5.15% Senior Notes). These agreements were terminated in December 2008. As a result of
these terminations, we received cash proceeds, net of accrued interest, of $12 million. The gain
associated with this interest rate swap termination has been deferred and will be amortized over
the remaining term of the 5.15% Senior Notes.
Cash Flow Hedges
In March 2008, we entered into interest rate derivative instruments for a notional amount of
$500 million to hedge projected exposures to interest rates in anticipation of the issuance of the
7.00% senior notes due 2038 (7.00% Senior Notes). Those hedges were terminated in March 2008 at
the time of the issuance. We paid a cash settlement of $13 million at termination, and the loss on
these hedges is being amortized to interest expense over the life of the 7.00% Senior Notes.
Other Derivative Instruments
As of March 31, 2009, we had several foreign currency forward contracts and two option
contracts with notional amounts aggregating $394 million, which were entered into to hedge exposure
to currency fluctuations in various foreign currencies, including, but not limited to, the British
pound sterling, the Canadian dollar, the euro and the Norwegian kroner. The total estimated fair
value of these contracts at March 31, 2009 resulted in a net liability of $10 million. These
derivative instruments were not designated as hedges and the changes in fair value of the contracts
were recorded each period in current earnings.
In addition, after the closing of the acquisition of Precision Energy Services and Precision
Drilling International on August 31, 2005, we entered into a series of cross-currency swaps between
the U.S. dollar and Canadian dollar to hedge certain exposures to the Canadian dollar created as a
result of the acquisition. At March 31, 2009, we had notional amounts outstanding of $168 million.
The total estimated fair value of these contracts at March 31, 2009 resulted in an asset of $5
million. These derivative instruments were not designated as hedges and the changes in fair value
of the contracts were recorded each period in current earnings.
Off Balance Sheet Arrangements
During the first quarter of 2009, we completed a transaction that changed our place of
incorporation from Bermuda to Switzerland. A new Swiss corporation named Weatherford International
Ltd. was formed and is now 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, 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, 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.
29
Letters of Credit
We execute letters of credit in the normal course of business. While these obligations are
not normally called, these obligations could be called by the beneficiaries at any time before the
expiration date should we breach certain contractual or payment obligations. As of March 31, 2009,
we had $285 million of letters of credit and bid and performance bonds outstanding, consisting of
$194 million outstanding under various uncommitted credit facilities and $91 million letters of
credit outstanding under our committed facilities. If the beneficiaries called these letters of
credit our available liquidity would be reduced by the amount called.
New Accounting Pronouncements
See Note 16 to our condensed consolidated financial statements included elsewhere in this
report.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations is based upon
our consolidated financial statements. We prepare these financial statements in conformity with
U.S. generally accepted accounting principles. As such, we are required to make certain estimates,
judgments and assumptions that affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses during the periods
presented. We base our estimates on historical experience, available information and various other
assumptions we believe to be reasonable under the circumstances. On an on-going basis, we evaluate
our estimates; however, actual results may differ from these estimates under different assumptions
or conditions. There have been no material changes or developments in our evaluation of the
accounting estimates and the underlying assumptions or methodologies that we believe to be Critical
Accounting Policies and Estimates as disclosed in our Form 10-K, for the year ended December 31,
2008.
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
This report, as well as other filings made by us with the 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 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 current global economic
climate has resulted in lower demand and lower prices for oil and natural gas, which has
reduced drilling and production activity and may therefore affect our future revenues |
30
|
|
|
and income. We cannot accurately predict how much lower commodity prices and drilling activity may go, or when they may recover. Worldwide drilling activity and global demand for oil and natural gas may also be affected by changes in governmental policies, 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 be down slightly in 2009 compared to 2008. In 2009, worldwide demand may be significantly weaker than we have assumed. |
|
|
|
|
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. |
|
|
|
|
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 recent 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 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. |
|
|
|
|
The cyclical nature of or a prolonged downturn in our industry could affect the carrying
value of our goodwill. As of March 31, 2009, we had approximately $3.5 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. |
|
|
|
|
Currency fluctuations could have a material adverse financial impact on our business. A
material change in currency rates in our markets could affect our future results as well as
affect the carrying values of our assets. World currencies have been subject to much
volatility. Our forward-looking statements assume no material impact from future changes
in currency exchange rates. |
|
|
|
|
Adverse weather conditions in certain regions could adversely affect our operations. In
the summers of 2005 and 2008, the Gulf of Mexico suffered several significant hurricanes.
These hurricanes and associated hurricane threats reduced the number of days on which we
and our customers could operate, which resulted in lower revenues than we otherwise would
have achieved. In parts of 2006, and particularly in the second 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 in Russia and
in the North Sea could reduce our operations and revenues from that area during the
relevant period. Our forward-looking statements assume weather patterns in our primary
areas of operations will be conducive to our operations. |
31
|
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U.S. Government and internal investigations could affect our results of operations. We
are currently involved in government and internal investigations involving various of our
operations. These investigations are ongoing, and we cannot anticipate the timing, outcome
or possible impact of these investigations, financial or otherwise. The governmental
agencies involved in these investigations have a broad range of civil and criminal
penalties they may seek to impose against corporations and individuals for violations of
trading sanctions laws, the Foreign Corrupt Practices Act and other federal statutes
including, but not limited to, injunctive relief, disgorgement, fines, penalties and
modifications to business practices and compliance programs. In recent years, these
agencies and authorities have entered into agreements with, and obtained a range of
penalties against, several public corporations and individuals in similar investigations,
under which civil and criminal penalties were imposed, including in some cases fines and
other penalties and sanctions in the tens and hundreds of millions of dollars. Under
trading sanctions 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. Additionally, during 2008, we incurred $56 million for costs in connection
with our exit from sanctioned countries and, to date, we have incurred $74 million for
legal and professional fees in connection with complying with and conducting these on-going
investigations. We will have additional charges related to these matters in future periods,
which costs may include labor claims, contractual claims, penalties assessed by customers,
and costs, fines, taxes and penalties assessed by the local governments, but we cannot
quantify those charges or be certain of the timing of them. |
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|
Political disturbances, war, or terrorist attacks and changes in global trade policies
could adversely impact our operations. We have assumed there will be no material political
disturbances or terrorist attacks and there will be no material changes in global trade
policies. Any further military action undertaken by the U.S. or other countries or
political disturbances in the countries in which we conduct business could adversely affect
our results of operations. |
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|
Current turmoil in the credit markets may reduce our access to capital or reduce the
availability of financial risk-mitigation tools. In recent quarters, the worldwide credit
markets have experienced almost unprecedented turmoil and uncertainty. Our forward-looking
statements assume that the financial institutions that have committed to extend us credit
will honor their commitments under our credit facilities. If one or more of those
institutions becomes unwilling or unable to honor its commitments, our access to liquidity
could be impaired and our cost of capital to fund growth could further increase. We use
interest-rate and foreign-exchange swap transactions with financial institutions to
mitigate certain interest-rate and foreign-exchange risks associated with our capital
structure and our business. Our forward-looking statements assume that those tools will
continue to be available to us. However, the failure of any swap counter party to honor a
swap agreement could reduce the availability of these financial risk-mitigation tools or
could result in the loss of expected financial benefits. 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 2009 than in 2008. 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. |
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|
Increases in the prices and availability of our raw materials could affect our results
of operations. We use large amounts of raw materials 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. |
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|
Nonrealization of expected benefits from our acquisitions could affect our projected
results. We expect to gain certain business, financial and strategic advantages as a
result of business acquisitions we undertake, including synergies and operating
efficiencies. Our forward-looking statements assume that we will successfully integrate
our business acquisitions and realize the benefits of that. An inability to realize |
32
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expected strategic advantages as a result of any acquisition would negatively affect the
anticipated benefits of the acquisition. |
Finally, our future results will depend upon various other risks and uncertainties, including,
but not limited to, those detailed in our other filings with the SEC. For additional information
regarding risks and uncertainties, see our other filings with the SEC under the Securities Exchange
Act of 1934, as amended, and the Securities Act of 1933, as amended, available free of charge at
the SECs website at www.sec.gov.
Available Information
We make available, free of charge, on our website (www.weatherford.com) our annual
reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to
those reports filed or furnished pursuant to Section 13(a) or 15(d) of the 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 financial instruments follows.
Foreign Currency Exchange Rates
We operate in virtually every oil and natural gas exploration and production region in the
world. In some parts of the world, such as the Middle East and Southeast Asia, the currency of our
primary economic environment is the U.S. dollar. We use this as our functional currency. In other
parts of the world, we conduct our business in currencies other than the U.S. dollar and the
functional currency is the applicable local currency. In those countries in which we operate in
the local currency, the effects of foreign currency fluctuations are largely mitigated because
local expenses of such foreign operations are also generally denominated in the same currency.
Assets and liabilities of which the functional currency is the local currency are translated
into U.S. dollars using the exchange rates in effect at the balance sheet date, resulting in
translation adjustments that are reflected as Accumulated Other Comprehensive Income in the
shareholders equity section on our Condensed Consolidated Balance Sheets. A portion of our net
assets are impacted by changes in foreign currencies in relation to the U.S. dollar. We recorded a
$50 million adjustment to decrease our equity account for the three month period ended March 31,
2009, to reflect the net impact of the strengthening of the U.S. dollar against various foreign
currencies.
As of March 31, 2009, we had several foreign currency forward contracts and two option
contracts with notional amounts aggregating $394 million to hedge exposure to currency fluctuations
in various foreign currencies, including, but not limited to, the British pound sterling, the
Canadian dollar, the euro, and the Norwegian kroner. The total estimated fair value of these
contracts at March 31, 2009 resulted in a net liability of $10 million. These derivative
instruments were not designated as hedges and the changes in fair value of the contracts are
recorded each period in current earnings.
In addition, after the closing of the acquisition of Precision Energy Services and Precision
Drilling International, we entered into a series of cross-currency swaps between the U.S. dollar
and Canadian dollar to hedge certain exposures to the Canadian dollar created as a result of the
acquisition. At March 31, 2009, we had notional amounts outstanding of $168 million. The
estimated fair value of these contracts at March 31, 2009 resulted in an asset of $5 million.
These derivative instruments were not designated as hedges and the changes in fair value of the
contracts are recorded each period in current earnings.
Interest Rates
We are subject to interest rate risk on our fixed-interest and variable-interest rate
borrowings. Variable rate debt, where the interest rate fluctuates periodically, exposes us to
short-term changes in market interest rates. Fixed- rate debt, where the interest rate is fixed
over the life of the instrument, exposes us to changes in market interest rates reflected in the
fair value of the debt and to the risk that we may need to refinance maturing debt with new debt at
a higher rate. All other things being equal, the fair value of our fixed-rate debt will increase
or decrease as interest rates change.
33
Our long-term borrowings that were outstanding at March 31, 2009 subject to interest rate risk
consisted of the following:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009 |
|
|
December 31, 2008 |
|
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
|
|
Amount |
|
|
Value |
|
|
Amount |
|
|
Value |
|
|
|
|
|
|
|
(In millions) |
|
|
|
|
|
6.625% Senior
Notes due 2011 |
|
$ |
354 |
|
|
$ |
363 |
|
|
$ |
354 |
|
|
$ |
330 |
|
5.95% Senior Notes
due 2012 |
|
|
599 |
|
|
|
582 |
|
|
|
599 |
|
|
|
585 |
|
5.15% Senior Notes
due 2013 |
|
|
510 |
|
|
|
474 |
|
|
|
511 |
|
|
|
463 |
|
4.95% Senior Notes
due 2013 |
|
|
254 |
|
|
|
222 |
|
|
|
254 |
|
|
|
213 |
|
5.50% Senior Notes
due 2016 |
|
|
349 |
|
|
|
295 |
|
|
|
349 |
|
|
|
306 |
|
6.35% Senior Notes
due 2017 |
|
|
600 |
|
|
|
521 |
|
|
|
600 |
|
|
|
513 |
|
6.00% Senior Notes
due 2018 |
|
|
498 |
|
|
|
415 |
|
|
|
498 |
|
|
|
456 |
|
9.625% Senior
Notes due 2019 |
|
|
995 |
|
|
|
1,043 |
|
|
|
|
|
|
|
|
|
6.50% Senior Notes
due 2036 |
|
|
596 |
|
|
|
432 |
|
|
|
596 |
|
|
|
495 |
|
6.80% Senior Notes
due 2037 |
|
|
298 |
|
|
|
209 |
|
|
|
298 |
|
|
|
227 |
|
7.00% Senior Notes
due 2038 |
|
|
498 |
|
|
|
358 |
|
|
|
498 |
|
|
|
394 |
|
9.875% Senior
Notes due 2039 |
|
|
247 |
|
|
|
247 |
|
|
|
|
|
|
|
|
|
We have various other long-term debt instruments of $20 million, but believe the impact of
changes in interest rates in the near term will not be material to these instruments. Short-term
borrowings of $383 million at March 31, 2009 approximate fair value.
As it relates to our variable rate debt, if market interest rates average 1% more for the
remainder of 2009 than the rates as of March 31, 2009, interest expense for the remainder of 2009
would increase by approximately $3 million. This amount was determined by calculating the effect
of the hypothetical interest rate on our variable rate debt. This sensitivity analysis assumes
there are no changes in our capital structure.
Interest Rate Swaps and Derivatives
We manage our debt portfolio to achieve an overall desired position of fixed and floating
rates and may employ interest rate swaps as a tool to achieve that goal. The major risks from
interest rate derivatives include changes in the interest rates affecting the fair value of such
instruments, potential increases in interest expense due to market increases in floating interest
rates and the creditworthiness of the counterparties in such transactions. The counterparties to
our interest rate swaps are multinational commercial banks. In light of recent events in the
global credit markets and the potential impact of these events on the liquidity of the banking
industry, we continue to monitor the creditworthiness of our counterparties.
We use interest rate swap agreements to take advantage of available short-term interest rates.
Amounts received upon termination of the swaps represent the fair value of the agreements at the
time of termination and are recorded as an adjustment to the carrying value of the related debt.
These amounts are being amortized as a reduction to interest expense over the remaining term of the
debt.
In December 2008, we entered into an interest rate swap agreement on an aggregate notional
amount of $150 million against one of our revolving credit facilities. This agreement was
outstanding at March 31, 2009. The fair value of the interest rate swap at March 31, 2009 resulted
in an asset of less than $0.1 million.
Upon completion of the long-term debt offering in March 2008, we entered into interest rate
swap agreements on an aggregate notional amount of $500 million against our 5.15% Senior Notes.
These agreements were terminated in December 2008. As a result of these terminations, we received
cash proceeds, net of accrued interest, of $12 million. The gain associated with this interest
rate swap termination has been deferred and will be amortized over the remaining term of the 5.15%
Senior Notes.
34
We may utilize interest rate derivatives to hedge projected exposures to interest rates in
anticipation of future debt issuances. Amounts received or paid upon termination of these hedges
represent the fair value of the agreements at the time of termination. These amounts are amortized
as an adjustment to interest expense over the remaining life of the debt.
In March 2008, we entered into interest rate derivative instruments for a notional amount of
$500 million to hedge projected exposures to interest rates in anticipation of the 7.00% Senior
Notes issued in March 2008. Those hedges were terminated at the time of the issuance. We paid a
cash settlement of $13 million at termination, and the loss on these hedges is being amortized to
interest expense over the life of the 7.00% Senior Notes.
ITEM 4. CONTROLS AND PROCEDURES
At the end of the period covered by this Quarterly Report on Form 10-Q, the Company carried
out an evaluation, under the supervision and with the participation of management, including the
Chief Executive Officer (CEO) and the Chief Financial Officer (CFO), of the effectiveness of
the Companys disclosure controls and procedures (as defined in Rules 13a-15 (e) and 15d-15 (e)
under the Exchange Act). Based upon that evaluation, the Companys CEO and CFO have concluded the
Companys disclosure controls and procedures are effective as of the end of the period covered by
this report to ensure that information required to be disclosed by the Company in the reports it
files or submits under the Exchange Act is recorded, processed, summarized and reported within the
time periods specified in the SECs rules and forms and that information relating to the Company
(including its consolidated subsidiaries) required to be disclosed is accumulated and communicated
to management, including the CEO and CFO, to allow timely decisions regarding required disclosure.
The Companys management, including the CEO and CFO, identified no change in the Companys internal
control over financial reporting that occurred during the Companys fiscal quarter ended March 31,
2009, that has materially affected, or is reasonably likely to materially affect, the Companys
internal controls over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 15 to our condensed consolidated financial statements included elsewhere in this report.
ITEM 1A. RISK FACTORS
There have been no material changes during the three months ended March 31, 2009 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, 2008 filed with the SEC on February 24, 2009.
ITEM 2. UNREGISTERED SALES OF EQUITY IN SECURITIES AND USE OF PROCEEDS
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, 2009, 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, 2009, we withheld registered shares to satisfy these tax withholding
obligations as follows:
|
|
|
|
|
|
|
|
|
Period |
|
No. of Shares |
|
Average Price |
January 1 January 31, 2009 |
|
|
406,322 |
|
|
$ |
12.86 |
|
February 1 February 28, 2009 |
|
|
139,664 |
|
|
|
11.04 |
|
March 1 March 31, 2009 |
|
|
34,694 |
|
|
|
10.67 |
|
35
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At a special meeting of our shareholders held on February 17, 2009, our shareholders approved
the scheme of arrangement under Bermuda law, for purposes of changing the Companys place of
incorporation from Bermuda to Switzerland. The voting results are listed below.
|
|
|
|
|
|
|
|
|
For |
|
Against |
|
Abstain |
524,213,227 |
|
|
4,654,748 |
|
|
|
2,229,159 |
|
36
ITEM 6. EXHIBITS
(a) Exhibits:
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|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
3.1
|
|
Articles of Association of Weatherford International Ltd., a Swiss
joint stock corporation (incorporated by reference to Exhibit 3.1
to the Registrants Current Report on Form 8-K (File No. 1-34258)
filed February 26, 2009). |
|
|
|
3.2
|
|
Organizational Regulations of Weatherford International Ltd., a
Swiss joint stock corporation (incorporated by reference to
Exhibit 3.2 to the Registrants Current Report on Form 8-K (File
No. 1-34258) filed February 26, 2009). |
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|
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4.1
|
|
Fifth Supplemental Indenture, dated as of February 26, 2009, among
Weatherford International, Inc., a Delaware corporation,
Weatherford International Ltd., a Bermuda exempted company,
Weatherford International Ltd., a Swiss joint stock corporation,
and The Bank of New York, as successor trustee, to the Indenture
dated as of May 17, 1996 (the 1996 Indenture) (incorporated by
reference to Exhibit 4.1 to the Registrants Current Report on
Form 8-K (File No. 1-34258) filed February 26, 2009). |
|
|
|
4.2
|
|
Third Supplemental Indenture, dated as of February 26, 2009, among
Weatherford International Ltd., a Bermuda exempted company,
Weatherford International, Inc., a Delaware corporation,
Weatherford International Ltd., a Swiss joint stock corporation,
and Deutsche Bank Trust Company Americas, as trustee, to the
Indenture dated as of October 1, 2003 (the 2003 Indenture)
(incorporated by reference to Exhibit 4.2 to the Registrants
Current Report on Form 8-K (File No. 1-34258) filed February 26,
2009). |
|
|
|
4.3
|
|
Second Supplemental Indenture, dated as of February 26, 2009,
among Weatherford International, Inc., a Delaware corporation,
Weatherford International Ltd., a Bermuda exempted company,
Weatherford International Ltd., a Swiss joint stock corporation,
and Deutsche Bank Trust Company Americas, as trustee, to the
Indenture dated as of June 18, 2007 (the 2007 Indenture)
(incorporated by reference to Exhibit 4.3 to the Registrants
Current Report on Form 8-K (File No. 1-34258) filed February 26,
2009). |
|
|
|
5.1
|
|
Opinion of Baker & McKenzie Geneva relating to the guarantees of
Weatherford International Ltd., a Swiss joint stock corporation,
with respect to the 9.625% Senior Notes due 2019 and 9.875% Senior
Notes due 2039, issued by Weatherford International Ltd., a
Bermuda exempted company, under the 2003 Indenture (incorporated
by reference to Exhibit 5.1 to the Registrants Current Report on
Form 8-K (File No. 1-34258) filed February 26, 2009). |
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|
|
5.2
|
|
Opinion of Andrews Kurth relating to the guarantees of Weatherford
International Ltd., a Swiss joint stock corporation, with respect
to the 9.625% Senior Notes due 2019 and 9.875% Senior Notes due
2039, issued by Weatherford International Ltd., a Bermuda exempted
company, under the 2003 Indenture (incorporated by reference to
Exhibit 5.2 to the Registrants Current Report on Form 8-K (File
No. 1-34258) filed February 26, 2009). |
|
|
|
10.1
|
|
Warrant Assignment and Assumption Agreement, dated February 26,
2009, between Weatherford International Ltd., a Bermuda exempted
company, and Weatherford International Ltd., a Swiss joint stock
corporation (incorporated by reference to Exhibit 10.1 to the
Registrants Current Report on Form 8-K (File No. 1-34258) filed
February 26, 2009). |
37
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
10.2
|
|
Guaranty Agreement, dated as of February 26, 2009, by Weatherford
International Ltd., a Swiss joint stock corporation, in favor of
the lenders and certain other parties under the Second Amended and
Restated Credit Agreement dated as of May 2, 2006, among
Weatherford International Ltd., a Bermuda exempted company,
Weatherford International, Inc., Weatherford Liquidity Management Hungary Limited Liability Company, JPMorgan Chase Bank as Administrative Agent, and the other Lenders party thereto. (incorporated by reference to Exhibit 10.2 to the
Registrants Current Report on Form 8-K (File No. 1-34258) filed
February 26, 2009). |
|
|
|
10.3
|
|
Guaranty Agreement, dated as of February 26, 2009, by Weatherford International Ltd.,
a Swiss joint stock corporation, in favor of the lenders and certain other parties under the Credit Agreement dated as of March 19, 2008,
among Weatherford International Ltd., a Bermuda exempted company, Weatherford International, Inc., Deutsche Bank AG Cayman Islands Branch
as Administrative Agent, and the other Lenders party thereto (incorporated by reference to Exhibit 10.3 to the Registrants Current
Report on Form 8-K (File No. 1-34258) filed February 26, 2009). |
|
|
|
10.4
|
|
Guaranty Agreement, dated as of February 26, 2009, by Weatherford International Ltd., a Swiss joint stock
corporation, in favor of the lenders and certain other parties under the Credit Agreement dated as of October 20, 2008, among Weatherford
International Ltd., a Bermuda exempted company, Weatherford International, Inc., UBS AG, Stamford Branch as Administrative Agent, and the
other Lenders party thereto (incorporated by reference to Exhibit 10.4 to the Registrants Current Report on Form 8-K
(File No. 1-34258) filed February 26, 2009). |
|
|
|
10.5
|
|
Assumption and General Amendment Agreement, dated February 25, 2009, between Weatherford International
Ltd., a Bermuda exempted company, and Weatherford International Ltd., a Swiss joint stock corporation (incorporated by reference to
Exhibit 10.5 to the Registrants Current Report on Form 8-K (File No. 1-34258) filed February 26, 2009). |
|
|
|
10.6
|
|
Form of Indemnification Agreement of Weatherford International Ltd., a Swiss joint stock corporation,
for use with directors and executive officers (incorporated by reference to Exhibit 10.6 to the Registrants Current Report on Form 8-K
(File No. 1-34258) filed February 26, 2009). |
|
|
|
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. |
38
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.
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|
Weatherford International Ltd. |
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By:
|
|
/s/ Bernard J. Duroc-Danner
Bernard J. Duroc-Danner
Chief Executive Officer
(Principal Executive Officer)
|
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|
|
|
|
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|
|
/s/ Andrew P. Becnel |
|
|
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|
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|
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|
|
Andrew P. Becnel
Senior Vice President and Chief Financial Officer
(Principal Financial Officer) |
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|
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|
|
/s/ Jessica Abarca |
|
|
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|
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|
|
|
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|
|
Jessica Abarca
Vice President Accounting and Chief
Accounting Officer
(Principal Accounting Officer) |
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|
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|
|
Date: May 7, 2009 |
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39