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Wdesk | WFT 2014 10-Q Q3

            

 
UNITED STATES
 
 
SECURITIES AND EXCHANGE COMMISSION
 
 
WASHINGTON, DC 20549
 
(Mark One)
 
Form 10-Q
 
 
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the quarterly period ended September 30, 2014
 
 
or
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the transition period from __________________________________to __________________________________
 
 
Commission file number 001-36504
 

Weatherford International public limited company
(Exact Name of Registrant as Specified in Its Charter)
Ireland
 
98-0606750
(State or Other Jurisdiction of Incorporation or Organization)
 
(IRS Employer Identification No.)
 
 
 
Bahnhofstrasse 1, 6340 Baar, Switzerland
 
CH 6340
(Address of Principal Executive Offices including Zip Code)
 
(Zip Code)

Registrant’s Telephone Number, Including Area Code: +41.22.816.1500
 
N/A
 
 
(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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
As of October 13, 2014, there were 773,833,345 shares of Weatherford registered shares, $0.001 par value per share, outstanding.



Weatherford International public limited company
(“Weatherford International plc”)
Form 10-Q for the Three and Nine Months Ended September 30, 2014

TABLE OF CONTENTS
PAGE
 
 
 
 
 


1

Table of Contents

PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
WEATHERFORD INTERNATIONAL PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(Dollars and shares in millions, except per share amounts)
2014
 
2013
 
2014
 
2013
Revenues:
 
 
 
 
 
 
 
Products
$
1,552

 
$
1,533

 
$
4,488

 
$
4,510

Services
2,325

 
2,287

 
6,696

 
7,015

Total Revenues
3,877

 
3,820

 
11,184

 
11,525

 
 
 
 
 
 
 
 
Costs and Expenses:
 
 
 
 
 
 
 
Cost of Products
1,260

 
1,158

 
3,425

 
3,372

Cost of Services
1,625

 
1,878

 
5,128

 
5,796

Research and Development
72

 
65

 
216

 
203

Selling, General and Administrative Attributable to Segments
418

 
404

 
1,228

 
1,211

Corporate General and Administrative
72

 
76

 
205

 
225

Long-Lived Assets Impairment
—

 
—

 
143

 
—

Goodwill Impairment
(4
)
 
—

 
121

 
—

Restructuring Charges
154

 
—

 
283

 
—

U.S. Government Investigation Loss
—

 
—

 
—

 
153

Gain on Sale of Businesses, Net
(38
)
 
—

 
(38
)
 
(8
)
Total Costs and Expenses
3,559

 
3,581

 
10,711

 
10,952

 
 
 
 
 
 
 
 
Operating Income
318

 
239

 
473

 
573

 
 
 
 
 
 
 
 
Other Income (Expense):
 
 
 
 
 
 
 
Interest Expense, Net
(122
)
 
(129
)
 
(376
)
 
(388
)
Devaluation of Venezuelan Bolivar
—

 
—

 
—

 
(100
)
Other, Net
(9
)
 
(30
)
 
(37
)
 
(61
)
 
 
 
 
 
 
 
 
Income Before Income Taxes
187

 
80

 
60

 
24

Provision for Income Taxes
(98
)
 
(49
)
 
(136
)
 
(74
)
Net Income (Loss)
89

 
31

 
(76
)
 
(50
)
Net Income Attributable to Noncontrolling Interests
(12
)
 
(9
)
 
(33
)
 
(24
)
Net Income (Loss) Attributable to Weatherford
$
77

 
$
22

 
$
(109
)
 
$
(74
)
 
 
 
 
 
 
 
 
Income (Loss) Per Share Attributable to Weatherford:
 
 
 
 
 
 
 
Basic
$
0.10

 
$
0.03

 
$
(0.14
)
 
$
(0.10
)
Diluted
$
0.10

 
$
0.03

 
$
(0.14
)
 
$
(0.10
)
 
 
 
 
 
 
 
 
Weighted Average Shares Outstanding:
 
 
 
 
 
 
 
Basic
777

 
773

 
776

 
771

Diluted
784

 
779

 
776

 
771



The accompanying notes are an integral part of these condensed consolidated financial statements.
2

Table of Contents

WEATHERFORD INTERNATIONAL PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(Dollars in millions)
2014
 
2013
 
2014
 
2013
Net Income (Loss)
$
89

 
$
31

 
$
(76
)
 
$
(50
)
Other Comprehensive Income (Loss), Net of Tax:
 
 
 
 
 
 
 
Currency Translation Adjustments
(207
)
 
96

 
(243
)
 
(227
)
Defined Benefit Pension
—

 
—

 
—

 
1

Other Comprehensive Income (Loss)
(207
)
 
96

 
(243
)
 
(226
)
Comprehensive Income (Loss)
(118
)
 
127

 
(319
)
 
(276
)
Comprehensive Income Attributable to Noncontrolling Interests
(12
)
 
(9
)
 
(33
)
 
(24
)
Comprehensive Income (Loss) Attributable to Weatherford
$
(130
)
 
$
118

 
$
(352
)
 
$
(300
)

The accompanying notes are an integral part of these condensed consolidated financial statements.
3

Table of Contents

WEATHERFORD INTERNATIONAL PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 
September 30,
 
December 31,
(Dollars and shares in millions, except par value)
2014
 
2013
 
(Unaudited)
 
 
Current Assets:
 
 
 
Cash and Cash Equivalents
$
582

 
$
435

Accounts Receivable, Net of Allowance for Uncollectible Accounts of $100 and $106
3,315

 
3,399

Inventories, Net
3,317

 
3,290

Deferred Tax Assets
291

 
297

Other Current Assets
1,182

 
1,052

Current Assets Held for Sale
240

 
1,311

Total Current Assets
8,927

 
9,784

 
 
 
 
Property, Plant and Equipment, Net of Accumulated Depreciation of $6,801 and $6,370
7,460

 
7,592

Goodwill
3,375

 
3,489

Other Intangible Assets, Net of Accumulated Amortization of $794 and $725
530

 
616

Equity Investments
266

 
296

Other Non-Current Assets
169

 
200

Total Assets
$
20,727

 
$
21,977

 
 
 
 
Current Liabilities:
 
 
 
Short-term Borrowings and Current Portion of Long-term Debt
$
1,715

 
$
1,653

Accounts Payable
1,784

 
1,956

Accrued Salaries and Benefits
442

 
472

Billings in Excess of Costs and Estimated Earnings
—

 
127

Income Taxes Payable
130

 
183

Other Current Liabilities
807

 
1,109

Current Liabilities Held for Sale
—

 
238

Total Current Liabilities
4,878

 
5,738

 
 
 
 
Long-term Debt
7,004

 
7,061

Other Non-Current Liabilities
903

 
975

Total Liabilities
12,785

 
13,774

 
 
 
 
Shareholders’ Equity:
 
 
 
Shares - Par Value $0.001; Authorized 1,356 shares, Issued and Outstanding 774 shares at September 30, 2014 and Par Value 1.16 Swiss Francs; Authorized 840 shares, Conditionally Authorized 372 shares, Issued 840 shares, Outstanding 767 shares at December 31, 2013
1

 
775

Capital in Excess of Par Value
5,390

 
4,600

Retained Earnings
2,902

 
3,011

Accumulated Other Comprehensive Loss
(430
)
 
(187
)
Treasury Shares, 0 shares and 73 shares, at cost, at September 30, 2014 and December 31, 2013, respectively
—

 
(37
)
Weatherford Shareholders’ Equity
7,863

 
8,162

Noncontrolling Interests
79

 
41

Total Shareholders’ Equity
7,942

 
8,203

Total Liabilities and Shareholders’ Equity
$
20,727

 
$
21,977

 

The accompanying notes are an integral part of these condensed consolidated financial statements.
4

Table of Contents

WEATHERFORD INTERNATIONAL PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 
Nine Months Ended September 30,
(Dollars in millions)
2014
 
2013
Cash Flows From Operating Activities:
 
 
 
Net Loss
$
(76
)
 
$
(50
)
Adjustments to Reconcile Net Loss to Net Cash Provided by Operating Activities:
 
 
 
Depreciation and Amortization
1,033

 
1,039

U.S. Government Investigation Loss Contingency
—

 
153

Employee Share-Based Compensation Expense
44

 
45

Long-Lived Assets Impairment
143

 
—

Goodwill Impairment
121

 
—

Restructuring Charges
138

 
—

Deferred Income Tax Provision (Benefit)
31

 
(168
)
Devaluation of Venezuelan Bolivar
—

 
100

Gain on Sale of Businesses, Net
(38
)
 
(8
)
Other, Net
(15
)
 
(30
)
Change in Operating Assets and Liabilities, Net of Effect of Businesses Acquired:
 
 
 
Accounts Receivable
21

 
(308
)
Inventories
(146
)
 
3

Other Current Assets
(163
)
 
69

Accounts Payable
(189
)
 
90

Billings in Excess of Costs and Estimated Earnings
(127
)
 
(164
)
Other Current Liabilities
(315
)
 
(227
)
Other, Net
(83
)
 
23

Net Cash Provided by Operating Activities
379

 
567

 
 
 
 
Cash Flows from Investing Activities:
 
 
 
Capital Expenditures for Property, Plant and Equipment
(1,045
)
 
(1,211
)
Acquisitions of Businesses
17

 
(7
)
Acquisition of Intellectual Property
(3
)
 
(7
)
Proceeds from Sale of Assets and Businesses, Net
781

 
74

Net Cash Used in Investing Activities
(250
)
 
(1,151
)
 
 
 
 
Cash Flows From Financing Activities:
 
 
 
Repayments of Long-term Debt, Net
(49
)
 
(329
)
Borrowings of Short-term Debt, Net
46

 
932

Excess Tax Benefits from Share-Based Compensation
1

 
—

Proceeds from Sale of Executive Deferred Compensation Plan Treasury Shares
22

 
—

Other Financing Activities, Net
(13
)
 
1

Net Cash Provided by Financing Activities
7

 
604

Effect of Exchange Rate Changes on Cash and Cash Equivalents
11

 
(4
)
 
 
 
 
Net Increase in Cash and Cash Equivalents
147

 
16

Cash and Cash Equivalents at Beginning of Period
435

 
300

Cash and Cash Equivalents at End of Period
$
582

 
$
316

 
 
 
 
Supplemental Cash Flow Information:
 
 
 
Interest Paid
$
436

 
$
442

Income Taxes Paid, Net of Refunds
$
291

 
$
336

 

The accompanying notes are an integral part of these condensed consolidated financial statements.
5

Table of Contents
WEATHERFORD INTERNATIONAL PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




1.  General

The accompanying unaudited condensed consolidated financial statements of Weatherford International plc (the “Company”) are prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and include all adjustments of a normal recurring nature which, in our opinion, are necessary to present fairly our Condensed Consolidated Balance Sheet at September 30, 2014, Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2014 and 2013, and Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and 2013. When referring to “Weatherford” and using phrases such as “we,” “us,” and “our,” the intent is to refer to Weatherford International plc, a public limited company organized under the law of Ireland, and its subsidiaries as a whole or on a regional basis, depending on the context in which the statements are made.
On June 17, 2014, we completed the change in our place of incorporation from Switzerland to Ireland, whereby Weatherford International plc, a public limited company (“Weatherford Ireland”) became the new public holding company and the parent of the Weatherford group of companies (the “Merger”). The Merger was effected through an agreement between Weatherford International Ltd., a Swiss joint-stock corporation (“Weatherford Switzerland”) and Weatherford Ireland, dated as of April 2, 2014, pursuant to which each registered share of Weatherford Switzerland was exchanged for the allotment of one ordinary share of Weatherford Ireland. The authorized share capital of Weatherford Ireland includes 1.356 billion ordinary shares with a par value of $0.001 per share. Our ordinary shares are listed on the NYSE under the symbol “WFT,” the same symbol under which Weatherford Switzerland registered shares were previously listed.

Although we believe the disclosures in these financial statements are adequate, certain information relating to our organization and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP 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, 2013 included in our Annual Report on Form 10-K, as amended. The results of operations for the three and nine months ended September 30, 2014 are not necessarily indicative of the results expected for the year ending December 31, 2014.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, the reported amounts of revenues and expenses during the reporting period, and disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates and assumptions, including those related to uncollectible accounts receivable, lower of cost or market of inventories, equity investments, intangible assets and goodwill, property, plant and equipment, income taxes, percentage-of-completion accounting for long-term contracts, self-insurance, foreign currency exchange rates, pension and post-retirement benefit plans, contingencies and share-based compensation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.

Certain prior year amounts have been reclassified to conform to current year presentation. See Note 2 – Business Combinations and Divestitures for additional information.

Principles of Consolidation

We consolidate all wholly-owned subsidiaries, controlled joint ventures and variable interest entities where the Company has determined it is the primary beneficiary. Investments in affiliates in which we exercise significant influence over operating and financial policies are accounted for using the equity method. All material intercompany accounts and transactions have been eliminated in consolidation.


6

Table of Contents

2.  Business Combinations and Divestitures

Acquisitions

From time to time, we acquire businesses we believe are important to our long-term strategy. Results of operations for acquisitions are included in the accompanying Condensed Consolidated Statements of Operations from the date of acquisition. The balances included in the Condensed Consolidated Balance Sheets related to current year acquisitions are based on preliminary information and are subject to change when final asset valuations are obtained and the potential for liabilities has been evaluated. The purchase price for the acquisitions is allocated to the net assets acquired based upon their estimated fair values at the date of acquisition.

In April 2014, we acquired, via a step acquisition, an additional 30% ownership interest in a joint venture in China. We paid $13 million for the incremental interest, thereby increasing our ownership interest from 45% to 75% and gaining control of the joint venture. As a result of this transaction, we adjusted our previously held equity investment to fair value, recognizing an approximate $16 million gain, and we applied the consolidation method of accounting, recognizing $6 million of goodwill and $30 million of cash. During the nine months ended September 30, 2013, we acquired other businesses for cash consideration of $7 million, net of cash acquired.

Divestitures and Assets Held for Sale

In July 2014, we completed the sale of our land drilling and workover rig operations in Russia and Venezuela for proceeds totaling $499 million plus estimated working capital of $10 million. As a result of our commitment to sell, we recorded a $143 million long-lived assets impairment loss and a $121 million goodwill impairment loss in the second quarter of 2014. Of the $121 million goodwill impairment loss, $95 million pertained to goodwill attributable to our divested land drilling and workover rig operations in Russia. See Note 6 – Goodwill for additional information regarding the goodwill impairment. Following the previous recorded impairments, and upon closing the transaction in July 2014, we recognized a loss of approximately $10 million, however, the final proceeds and loss recognition are subject to settlement of working capital adjustments.

In September 2014, we completed the sale of our pipeline and specialty services business for proceeds totaling $246 million. We recognized a gain of approximately $50 million resulting from this transaction. The final proceeds and gain recognition are subject to settlement of working capital adjustments.

Our land drilling and workover rig operations in Russia and Venezuela, pipeline and specialty services business and well testing business were classified as held for sale at December 31, 2013. As indicated above, in the third quarter of 2014, we completed the sale of land drilling and workover rig operations in Russia and Venezuela and pipeline and specialty services business. As of September 30, 2014, only our well testing business was classified as held for sale.


7

Table of Contents

As of September 30, 2014 and December 31, 2013, the assets and liabilities held for sale in connection with our planned divestitures are listed in the table below.
(Dollars in millions)
 
September 30, 2014
 
December 31, 2013
Accounts Receivables, net
 
$
—

 
$
196

Inventories, net
 
20

 
81

Other Current Assets
 
—

 
25

Property, Plant, and Equipment, Net
 
149

 
776

Goodwill
 
71

 
220

Other Intangible Assets, Net
 
—

 
10

Other Assets
 
—

 
3

Total Current Assets Held for Sale
 
$
240

 
$
1,311

 
 
 
 
 
Accounts Payable
 
$
—

 
$
135

Accrued Expenses and Other Liabilities
 
—

 
103

Total Current Liabilities Held for Sale
 
$
—

 
$
238


During the nine months ended September 30, 2013, we completed the sale of our industrial screen business for proceeds totaling $135 million. Proceeds consisted of $100 million in cash and a $35 million receivable, which was subsequently collected. Through our industrial screen operations, we delivered screen technologies used in numerous industries and, as a result, the screen business was not closely aligned with our goals as a leading provider of equipment and services used in the drilling, evaluation, completion, production and intervention of oil and natural gas wells. In the nine months ended September 30, 2013, we recognized gains of $8 million resulting from the industrial screen transactions.

On October 7, 2013, we closed the sale of our 38.5% equity interest in Borets International Limited ("Borets") for $400 million pursuant to an agreement executed August 21, 2013. Borets is an electric submersible pump manufacturer that operates in Russia. The $400 million in consideration consists of $370 million in cash and a three-year $30 million promissory note. At closing we collected $325 million in cash and the remaining cash consideration was collected in November 2013.

3. Restructuring Charges

In the first quarter of 2014, we announced a cost reduction plan (“the Plan”), which includes a worldwide workforce reduction and other cost reduction measures. In connection with the Plan, we recognized restructuring charges of $154 million and $283 million in the three and nine months ended September 30, 2014, respectively.

In the three and nine months ended September 30, 2014, our restructuring charges include one-time termination (severance) benefits of $21 million and $119 million, respectively, asset impairment charges of $117 million and $138 million, respectively, and other restructuring charges of $16 million and $26 million, respectively. Other restructuring charges include contract termination costs, relocation and other associated costs.
 
The impairments recognized in the third quarter primarily pertain to operations in our MENA region, where geopolitical issues and recent disruptions in North Africa, primarily Libya, resulted in the decisions in the third quarter to exit product lines in selected markets. The Plan activities resulted in $93 million of cash payments during the nine months ended September 30, 2014.

8

Table of Contents


As of September 30, 2014, we completed our planned headcount reductions and closures of underperforming operating locations. The following tables present the components of the restructuring charges by segment.
 
Three Months Ended September 30, 2014

(Dollars in millions)
North America
 
MENA/Asia Pacific
 
Europe/SSA/Russia
 
Latin America
 
Corporate and Research and Development
 
Total
Severance, asset impairment and other restructuring charges
$
15

 
$
116

 
$
10

 
$
13

 
$
—

 
$
154

 
Nine Months Ended September 30, 2014

(Dollars in millions)
North America
 
MENA/Asia Pacific
 
Europe/SSA/Russia
 
Latin America
 
Corporate and Research and Development
 
Total
Severance, asset impairment and other restructuring charges
$
44

 
$
135

 
$
37

 
$
37

 
$
30

 
$
283


Total severance, asset impairment and other restructuring charges for the nine months ended September 30, 2014 of $283 million includes $138 million in asset impairments and $145 million of severance and other restructuring charges.

The severance and other restructuring charges gave rise to certain liabilities, the components of which are summarized below, and largely relate to the severance accrued as part of the Plan that will be paid pursuant to the respective arrangements and statutory requirements.
 
At September 30, 2014
(Dollars in millions)
North America
 
MENA/Asia Pacific
 
Europe/SSA/Russia
 
Latin America
 
Corporate and Research and Development
 
Total
Severance and other restructuring liability
$
1

 
$
16

 
$
16

 
$
—

 
$
13

 
$
46

The following table presents the restructuring accrual activity for the nine months ended September 30, 2014.
 
 
 
Nine Months Ended September 30, 2014
 
 
(Dollars in millions)
Accrued Balance at December 31, 2013
 
Charges
 
Cash Payments
 
Other 
 
Accrued Balance at September 30, 2014
Severance charges
$
—

 
$
119


$
(81
)
 
$
(6
)
 
$
32

Other restructuring charges
—

 
26

 
(12
)
 
—

 
14

Severance and other restructuring liability
$
—

 
$
145

 
$
(93
)
 
$
(6
)
 
$
46



9

Table of Contents

4.  Accounts Receivable Factoring

At our option, based on current agreements, we may participate in a factoring program to sell accounts receivable in Mexico to third party financial institutions. We did not sell any accounts receivable during the nine months ended September 30, 2014. In the nine months ended September 30, 2013, we sold approximately $139 million of accounts receivable. We received cash totaling $132 million and ultimately collected amounts that resulted in a loss of approximately $2 million on these sales. Our factoring transactions in the nine months ended September 30, 2013 qualified for sale accounting under U.S. GAAP and the proceeds are included in operating cash flows in our Condensed Consolidated Statements of Cash Flows.

5.  Inventories, Net

Inventories, net of reserves, by category were as follows:
(Dollars in millions)
September 30, 2014
 
December 31, 2013
Raw materials, components and supplies
$
204

 
$
386

Work in process
161

 
130

Finished goods
2,952

 
2,774

 
$
3,317

 
$
3,290


6.  Goodwill

We perform an impairment test for goodwill and indefinite-lived intangible assets annually as of October 1, or more frequently if indicators of potential impairment exist.

During the second quarter of 2014, we engaged in negotiation to sell our land drilling and workover rig operations in Russia and Venezuela and we subsequently entered into an agreement to sell this business in July 2014. During this timeframe we expected the sale would significantly impact the revenues and results of operations of our Russia reporting unit, and consequently, we considered the associated circumstances to assess whether an event or change had occurred that, more likely than not, reduced the fair value of our reporting units below their carrying amount. We concluded that the planned sale represented an indicator of impairment and we prepared the analysis necessary to identify the potential impairment and recognize any necessary impairment loss. The analysis indicated that the goodwill for the Russia reporting unit was impaired and during the nine months ended September 30, 2014 we recognized a goodwill impairment loss of $121 million, $95 million of which pertained to goodwill classified in current assets held for sale. See Note 2 – Business Combinations and Divestitures for additional information regarding the non-cash impairment charges to our current assets held for sale.

The changes in the carrying amount of goodwill by reportable segment for the nine months ended September 30, 2014 were as follows:
(Dollars in millions)
North
America
 
MENA/
Asia Pacific
 
Europe/
SSA/
Russia
 
Latin
America
 
Total
Balance at December 31, 2013 - as Reported
$
2,243

 
$
209

 
$
912

 
$
345

 
$
3,709

Reclassification to current assets held for sale
(46
)
 
(8
)
 
(142
)
 
(24
)
 
(220
)
Balance at December 31, 2013 - as Adjusted
2,197

 
201

 
770

 
321

 
3,489

Impairment
—

 
—

 
(26
)
 
—

 
(26
)
Acquisitions
—

 
6

 
—

 
—

 
6

Purchase price and other adjustments
1

 
—

 
7

 
(14
)
 
(6
)
Foreign currency translation adjustments
(42
)
 
(1
)
 
(41
)
 
(4
)
 
(88
)
Balance at September 30, 2014
$
2,156

 
$
206

 
$
710

 
$
303

 
$
3,375



10

Table of Contents

7.  Short-term Borrowings and Current Portion of Long-term Debt
(Dollars in millions)
September 30, 2014
 
December 31, 2013
Commercial paper program
$
971

 
$
292

Revolving credit facility
—

 
772

364-day term loan facility
400

 
300

Other short-term bank loans
272

 
216

Total short-term borrowings
1,643

 
1,580

Current portion of long-term debt
72

 
73

Short-term borrowings and current portion of long-term debt
$
1,715

 
$
1,653


Revolving Credit Facility

We maintain a $2.25 billion unsecured, revolving credit agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative agent, scheduled to mature July 13, 2016. The Credit Agreement can be used for a combination of borrowings, support for our $2.25 billion commercial paper program and issuances of letters of credit. This agreement requires that we maintain a debt-to-total capitalization ratio of less than 60%. We were in compliance with this covenant at September 30, 2014. At September 30, 2014, there were $32 million in outstanding letters of credit under the Credit Agreement.

364-Day Term Loan Facility

We also have a $400 million, 364-day term loan facility with a syndicate of banks that matures on April 9, 2015. Proceeds from the 364-day term loan facility were used to refinance our previous 364-day term loan facility. The facility has substantially similar terms and conditions to our previously existing $300 million, 364-day term loan facility and also includes the same debt-to-capitalization requirement that is contained in our Credit Agreement, with which we are in compliance. As of September 30, 2014, this facility was fully drawn.

Other Short-Term Borrowings

We have short-term borrowings with various domestic and international institutions pursuant to uncommitted and letter of credit facilities. At September 30, 2014, we had $272 million in short-term borrowings under these arrangements including $180 million borrowed under a credit agreement entered into in March 2014 that matures on March 20, 2016, with a Libor-based interest rate of 1.35% as of September 30, 2014. In addition, we had $584 million of letters of credit under various uncommitted facilities and $277 million of surety bonds, primarily performance bonds, issued by financial sureties against an indemnification from us at September 30, 2014.

The carrying value of our short-term borrowings approximates their fair value as of September 30, 2014. The current portion of long-term debt at September 30, 2014 is primarily related to our capital leases.


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8.  Fair Value of Financial Instruments
 
Financial Instruments Measured and Recognized at Fair Value

We estimate fair value at a price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal market for the asset or liability. Other than the derivative instruments discussed in Note 9 – Derivative Instruments, we had no other material assets or liabilities measured and recognized at fair value on a recurring basis at September 30, 2014 and December 31, 2013.

Fair Value of Other Financial Instruments

Our other financial instruments include short-term borrowings and long-term debt. The carrying value of our commercial paper and other short-term borrowings approximates their fair value due to the short-term duration of the associated interest rate periods. These short-term borrowings are classified as Level 2 in the fair value hierarchy.

The fair value of our long-term debt fluctuates with changes in applicable interest rates among other factors. Fair value will exceed carrying value when the current market interest rate is lower than the interest rate at which the debt was originally issued. The fair value of our long-term debt is classified as Level 2 in the fair value hierarchy and is a measure of its current value under present market conditions and is established based on observable inputs in less active markets. 

The fair value and carrying value of our senior notes were as follows: 
(Dollars in millions)
September 30, 2014
 
December 31, 2013
Fair value
$
7,885

 
$
7,580

Carrying value
6,800

 
6,805


9.  Derivative Instruments

We are exposed to market risk from changes in foreign currency and changes in interest rates. From time to time, we may enter into derivative financial instrument transactions to manage or reduce our market risk. We manage our debt portfolio to achieve an overall desired position of fixed and floating rates, and we may employ interest rate swaps as a tool to achieve that goal. The major risks from interest rate derivatives include changes in the interest rates affecting the fair value of such instruments, potential increases in interest expense due to market increases in floating interest rates and the creditworthiness of the counterparties in such transactions. In light of events in the global credit markets and the potential impact of these events on the liquidity of the banking industry, we continue to monitor the creditworthiness of our counterparties, which are multinational commercial banks. The fair values of all our outstanding derivative instruments are determined using a model with Level 2 inputs including quoted market prices for contracts with similar terms and maturity dates. Level 2 values for financial assets and liabilities are based on quoted prices in inactive markets, or whose values are based on models. Level 2 inputs to those models are observable either directly or indirectly for substantially the full term of the asset or liability. 

Fair Value Hedges
 
We may use interest rate swaps to help mitigate exposures related to changes in the fair values of the associated debt. Amounts paid or received upon termination of interest rate swaps accounted for as fair value hedges represent the fair value of the agreements at the time of termination and are amortized as a reduction, in the case of gains, or as an increase, in the case of losses, of interest expense over the remaining term of the debt. As of September 30, 2014, we had net unamortized gains of $35 million associated with interest rate swap terminations. These gains are being amortized over the remaining term of the originally hedged debt as a reduction in interest expense.
 

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Other Derivative Instruments

We enter into contracts to hedge our exposure to currency fluctuations in various foreign currencies. At September 30, 2014 and December 31, 2013, we had outstanding foreign currency forward contracts with notional amounts aggregating $927 million and $635 million, respectively. The notional amounts of our foreign currency forward contracts do not generally represent amounts exchanged by the parties and, thus are not a measure of the cash requirements related to these contracts or of any possible loss exposure. The amounts actually exchanged are calculated by reference to the notional amounts and by other terms of the derivative contracts, such as exchange rates.

We have cross-currency swaps between the U.S. dollar and Canadian dollar to hedge certain exposures to the Canadian dollar. At September 30, 2014 and December 31, 2013, we had swaps with notional amounts outstanding of $168 million for both periods. These derivative instruments for foreign currency forward contracts and cross-currency swaps were not designated as hedges, and the changes in fair value of the contracts are recorded each period in current earnings in the line captioned “Other, Net” on the accompanying Condensed Consolidated Statements of Operations.

The total estimated fair values of these foreign currency forward contracts and amounts receivable or owed associated with closed foreign currency contracts and the total estimated fair values of our cross-currency contracts are as follows:
(Dollars in millions)
 
September 30, 2014
 
December 31, 2013
 
Classification
Derivative assets not designated as hedges:
 
 
 
 
 
 
Foreign currency forward contracts
 
$
5

 
$
5

 
Other Current Assets
 
 
 
 
 
 
 
Derivative liabilities not designated as hedges:
 
 
 
 
 
 
Foreign currency forward contracts
 
(15
)
 
(6
)
 
Other Current Liabilities
Cross-currency swap contracts
 
(13
)
 
(21
)
 
Other Liabilities

The effect of derivative instruments designated as fair value hedges and those not designated as hedges on the Condensed Consolidated Statements of Operations was as follows:
 
 
Gain (Loss) Recognized in Income
 
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
(Dollars In millions)
 
2014
 
2013
 
2014
 
2013
 
Classification
Derivatives designated as fair value hedges:
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
$
3

 
$
3

 
$
7

 
$
8

 
Interest Expense, Net
 
 
 
 
 
 
 
 
 
 
 
Derivative liabilities not designated as hedges:
 
 
 
 
 
 
 
 
 
 
Foreign currency forward contracts
 
(5
)
 
(15
)
 
(12
)
 
(1
)
 
Other, Net
Cross-currency swap contracts
 
6

 
(4
)
 
7

 
6

 
Other, Net


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10. Income Taxes

We estimate our annual effective tax rate based on year-to-date operating results and our forecast of operating results for the remainder of the year, by jurisdiction, and apply this rate to the year-to-date operating results. If our actual results, by jurisdiction, differ from the forecasted operating results, our effective tax rate can change affecting the tax expense for both successive interim results as well as the annual tax results. For the three and nine months ended September 30, 2014, we had a tax provision of $98 million and $136 million on an income before income taxes of $187 million and $60 million. Our results for the three months ended September 30, 2014 were impacted by discrete income before tax items, including restructuring charges of approximately $154 million, with no significant tax benefit. Our results for the nine months ended September 30, 2014, includes a $143 million impairment loss ($121 million, net of tax) to record the land drilling and workover rig operations in Russia and Venezuela at fair value and a $121 million impairment charge to goodwill triggered by the sale of our land drilling and workover rig operations in Russia, which was non-deductible for income tax purposes. Our results for the nine months ended September 30, 2014 were also impacted by other discrete income before tax items, including restructuring charges of $283 million and project losses of $50 million, with no significant tax benefit.

We are continuously under tax examination in various jurisdictions. We cannot predict the timing or outcome regarding resolution of these tax examinations or if they will have a material impact on our financial statements. We continue to anticipate a possible reduction in the balance of uncertain tax positions by approximately $25 million in the next twelve months due to expiration of statutes of limitations, settlements and/or conclusions of tax examinations.

For the three and nine months ended September 30, 2013, we had a tax provision of $49 million and $74 million on an income before income taxes of $80 million and $24 million. Our income before income taxes for the nine months ended September 30, 2013 includes a $153 million charge for the settlement of the United Nations oil-for-food program governing sales of goods into Iraq and Foreign Corrupt Practices Act (“FCPA”) matters with no tax benefit. Our tax provision for the three months ended September 30, 2013 includes discrete tax benefits primarily due to audit closures and tax planning activities, which decreased our effective tax rate for the period. Our provision for the nine months ended September 30, 2013, in addition to items above, also includes discrete tax benefits due to the devaluation of the Venezuelan bolivar, return-to-accrual adjustments, decreases in reserves for uncertain tax positions due to statute of limitation expiration and the enactment of the American Taxpayer Relief Act, which decreased our effective tax rate for the period.
 

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11.  Shareholders’ Equity

On June 17, 2014, we completed the change in our place of incorporation from Switzerland to Ireland, whereby Weatherford Ireland became the new public holding company and the parent of the Weatherford group of companies, pursuant to which each registered share of Weatherford Switzerland was exchanged as consideration for the allotment of one ordinary share of Weatherford Ireland (excluding shares held by, or for the benefit of, Weatherford Switzerland or any of its subsidiaries). The Weatherford Switzerland shares were then cancelled. The authorized share capital of Weatherford Ireland is 1.356 billion ordinary shares with a par value of $0.001 per share. The change from our previous par value resulted in a $778 million decrease in the Par Value of Issued Shares and a corresponding increase in Capital In Excess of Par. In conjunction with the redomestication, the shares held by our executive deferred compensation plan were sold and the remaining treasury shares were cancelled. As of September 30, 2014, 774 million ordinary shares were issued and outstanding.

The following summarizes our shareholders’ equity activity for the nine months ended September 30, 2014 and 2013:
(Dollars in millions)
Par Value of Issued Shares
 
Capital In Excess of Par Value
 
Retained Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Treasury Shares
 
Non-controlling Interests
 
Total Shareholders’ Equity
Balance at December 31, 2012
$
775

 
$
4,674

 
$
3,356

 
$
163

 
$
(182
)
 
$
32

 
$
8,818

Net Income (Loss)
—

 
—

 
(74
)
 
—

 
—

 
24

 
(50
)
Other Comprehensive Loss
—

 
—

 
—

 
(226
)
 
—

 
—

 
(226
)
Dividends Paid to Noncontrolling Interests
—

 
—

 
—

 
—

 
—

 
(19
)
 
(19
)
Equity Awards Granted, Vested and Exercised
—

 
(51
)
 
—

 
—

 
109

 
—

 
58

Other
—

 
(4
)
 
—

 
—

 
—

 
4

 
—

Balance at September 30, 2013
$
775

 
$
4,619

 
$
3,282

 
$
(63
)
 
$
(73
)
 
$
41

 
$
8,581

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2013
$
775

 
$
4,600

 
$
3,011

 
$
(187
)
 
$
(37
)
 
$
41

 
$
8,203

Net Income (Loss)
—

 
—

 
(109
)
 
—

 
—

 
33

 
(76
)
Other Comprehensive Loss
—

 
—

 
—

 
(243
)
 
—

 
—

 
(243
)
Consolidation of Joint Venture
—

 
—

 
—

 
—

 
—

 
27

 
27

Dividends Paid to Noncontrolling Interests
—

 
—

 
—

 
—

 
—

 
(22
)
 
(22
)
Change in Common Shares, Treasury Shares and Paid in Capital Associated with Redomestication
(778
)
 
750

 
—

 
—

 
39

 
—

 
11

Equity Awards Granted, Vested and Exercised
4

 
40

 
—

 
—

 
(2
)
 
—

 
42

Other
—

 
—

 
—

 
—

 
—

 
—

 
—

Balance at September 30, 2014
$
1

 
$
5,390

 
$
2,902

 
$
(430
)
 
$
—

 
$
79

 
$
7,942




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Table of Contents

The following table presents the changes in our accumulated other comprehensive income (loss) by component for the nine months ended September 30, 2014 and 2013:
(Dollars in millions)
Currency Translation Adjustment
 
Defined Benefit Pension
 
Deferred Loss on Derivatives
 
Total
Balance at December 31, 2012
213

 
(40
)
 
(10
)
 
163

 
 
 
 
 
 
 
 
Other comprehensive loss before reclassifications
(190
)
 
—

 
—

 
(190
)
Reclassifications
(37
)
 
1

 
—

 
(36
)
Net activity
(227
)
 
1

 
—

 
(226
)
 
 
 
 
 
 
 
 
Balance at September 30, 2013
$
(14
)
 
$
(39
)
 
$
(10
)
 
$
(63
)
 
 
 
 
 
 
 
 
Balance at December 31, 2013
$
(140
)
 
$
(38
)
 
$
(9
)
 
$
(187
)
 
 
 
 
 
 
 
 
Other comprehensive loss before reclassifications
(333
)
 
—

 
—

 
(333
)
Reclassifications
90

 
—

 
—

 
90

Net activity
(243
)
 
—

 
—

 
(243
)
 
 
 
 
 
 
 
 
Balance at September 30, 2014
$
(383
)
 
$
(38
)
 
$
(9
)
 
$
(430
)

The reclassification from the currency translation adjustment component of other comprehensive income includes $90 million for the nine months ended September 30, 2014 from the sale of our land drilling and workover rig operations in Russia and Venezuela and pipeline and specialty services business and $30 million for the nine months ended September 30, 2013 from the sale of our industrial screen business. This amount were recognized in the “Gain on Sale of Businesses” line in our Condensed Consolidated Statement of Operations for both the nine months ended September 30, 2014 and 2013.

12.  Earnings per Share

Basic earnings per share for all periods presented equals net income divided by the weighted average number of shares outstanding during the period including participating securities. Diluted earnings per share is computed by dividing net income by the weighted average number of our shares outstanding during the period including participating securities, adjusted for the dilutive effect of our stock options, restricted shares and performance units.

The following reconciles basic and diluted weighted average shares outstanding:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(Shares in millions)
2014
 
2013
 
2014
 
2013
Basic weighted average shares outstanding
777

 
773

 
776

 
771

Dilutive effect of:
 
 
 
 
 
 
 
  Stock options, restricted shares and performance units
7

 
6

 
—

 
—

Diluted weighted average shares outstanding
784

 
779

 
776

 
771



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Table of Contents

Our diluted weighted average shares outstanding for the three and nine months ended September 30, 2014 and 2013, exclude potential shares that are anti-dilutive, such as options where the exercise price exceeds the current market price of our stock. Diluted weighted average shares outstanding for the nine months ended September 30, 2014 and 2013 exclude potential shares for stock options, restricted shares and performance units outstanding as we have net losses for that period and their inclusion would have been anti-dilutive.

The following table discloses the number of anti-dilutive shares excluded:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(Shares in millions)
2014
 
2013
 
2014
 
2013
Anti-dilutive potential shares
—

 
2

 
1

 
2

Anti-dilutive potential shares due to net loss
—

 
—

 
6

 
5


13. Share-Based Compensation

We recognized the following employee share-based compensation expense during the three and nine months ended September 30, 2014 and 2013:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(Dollars in millions)
2014
 
2013
 
2014
 
2013
Share-based compensation
$
13

 
$
18

 
$
44

 
$
45

Related tax benefit
3

 
5

 
9

 
9


During the nine months ended September 30, 2014, we granted approximately 800,000 performance units, which will vest with continued employment, if the Company meets certain market-based performance goals. The performance units have a weighted average grant date fair value of $14.31 per share based on the Monte Carlo simulation method. The assumptions used in the Monte Carlo simulation included a risk-free rate of 0.34%, volatility of 33.53% and a zero dividend yield. As of September 30, 2014, there was $14 million of unrecognized compensation related to our performance units. This cost is expected to be recognized over a weighted average period of 2 years.

During the nine months ended September 30, 2014, we also granted 2.9 million restricted share awards at a weighted average grant date fair value of $19.27 per share. As of September 30, 2014, there was $81 million of unrecognized compensation related to our unvested restricted share grants. This cost is expected to be recognized over a weighted average period of 2 years.


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Table of Contents

14. Segment Information
 
Reporting Segments

Our operational performance is reviewed and managed on a geographic basis. We report the following regions, which are our operating segments, as separate and distinct reporting segments: North America, MENA/Asia Pacific, Europe/SSA/Russia, and Latin America. Financial information by segment is summarized below. Revenues are attributable to countries based on the ultimate destination of the sale of products or performance of services. The accounting policies of the segments are the same as those described in the summary of significant accounting policies.
 
Three Months Ended September 30, 2014
(Dollars in millions)
Net
Operating
Revenues
 
Income
from
Operations
 
Depreciation
and
Amortization
North America
$
1,814

 
$
286

 
$
108

MENA/Asia Pacific (a)
808

 
61

 
98

Europe/SSA/Russia
644

 
139

 
54

Latin America
611

 
89

 
61

 
3,877

 
575

 
321

Corporate and Research and Development
 
 
(117
)
 
6

Goodwill Impairment
 
 
4

 
 
Restructuring Charges (b)
 
 
(154
)
 
 
Gain on Sale of Business
 
 
38

 
 
Other Items (c)
 
 
(28
)
 
 
Total
$
3,877

 
$
318

 
$
327


 
Three Months Ended September 30, 2013
(Dollars in millions)
Net
Operating
Revenues
 
Income
from
Operations
 
Depreciation
and
Amortization
North America
$
1,597

 
$
215

 
$
108

MENA/Asia Pacific
819

 
(38
)
 
101

Europe/SSA/Russia
691

 
103

 
69

Latin America
713

 
115

 
71

 
3,820

 
395

 
349

Corporate and Research and Development
 
 
(110
)
 
3

Other Items (d)
 
 
(46
)
 
 
Total
$
3,820

 
$
239

 
$
352


(a)
During the three months ended September 30, 2014, we recognized estimated project losses of $10 million related to our long-term early production facility construction contracts in Iraq accounted for under the percentage-of-completion method. As of September 30, 2014, our project estimates include $27 million of claims revenue and $35 million of back charges. Claims revenue of $6 million was recognized during three months ended September 30, 2014.
(b)
For the three months ended September 30, 2014, we recognized restructuring charges of $154 million: $15 million in North America, $116 million in MENA/Asia Pacific, $10 million in Europe/SSA/Russia, and $13 million in Latin America.
(c)
The three months ended September 30, 2014 includes professional fees of $24 million related to the divestiture of our non-core businesses, restatement related litigation and the settlement of the U.S. government investigations and other charges of $4 million.
(d)
The three months ended September 30, 2013 includes severance, exit and other charges of $38 million (which includes $20 million of severance and $18 million in legal, professional and other fees incurred primarily in conjunction with our prior investigations) and income tax restatement and material weakness remediation expense of $8 million.

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Table of Contents

 
Nine Months Ended September 30, 2014
(Dollars in millions)
Net
Operating
Revenues
 
Income
from
Operations
 
Depreciation
and
Amortization
North America
$
5,083

 
$
722

 
$
322

MENA/Asia Pacific (a)
2,343

 
121

 
303

Europe/SSA/Russia
2,058

 
317

 
202

Latin America
1,700

 
247

 
189

 
11,184

 
1,407

 
1,016

Corporate and Research and Development
 
 
(353
)
 
17

Long-Lived Assets Impairment
 
 
(143
)
 
 
Goodwill Impairment
 
 
(121
)
 
 
Restructuring Charges (b)
 
 
(283
)
 
 
Gain on Sale of Business
 
 
38

 
 
Other Items (c)
 
 
(72
)
 
 
Total
$
11,184

 
$
473

 
$
1,033


 
Nine Months Ended September 30, 2013
(Dollars in millions)
Net
Operating
Revenues
 
Income
from
Operations
 
Depreciation
and
Amortization
North America
$
4,818

 
$
606

 
$
318

MENA/Asia Pacific
2,523

 
49

 
292

Europe/SSA/Russia
2,005

 
251

 
208

Latin America
2,179

 
303

 
207

 
11,525

 
1,209

 
1,025

Corporate and Research and Development
 
 
(345
)
 
14

U.S. Government Investigation Loss
 
 
(153
)
 
 
Gain on Sale of Businesses
 
 
8

 
 
Other Items (d)
 
 
(146
)
 
 
Total
$
11,525

 
$
573

 
$
1,039


(a)
During the nine months ended September 30, 2014, we recognized estimated project losses of $38 million related to our long-term early production facility construction contracts in Iraq accounted for under the percentage-of-completion method. Total estimated losses on these projects were $345 million at September 30, 2014. As of September 30, 2014, our project estimates include $27 million of claims revenue and $35 million of back charges.
(b)
For the nine months ended September 30, 2014, we recognized restructuring charges of $283 million: $44 million in North America, $135 million in MENA/Asia Pacific, $37 million in Europe/SSA/Russia, $37 million in Latin America and $30 million in Corporate and Research and Development.
(c)
The nine months ended September 30, 2014 includes professional fees of $64 million related to the divestiture of our non-core businesses, restatement related litigation, the settlement of the U.S. government investigations, and our 2014 redomestication from Switzerland to Ireland and other charges of $8 million.
(d)
The nine months ended September 30, 2013 includes severance, exit and other charges of $111 million (which includes $64 million of severance and $47 million in legal, professional and other fees incurred primarily in conjunction with our prior investigations) and income tax restatement and material weakness remediation expenses of $35 million.


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Table of Contents

15. Disputes, Litigation and Contingencies

U.S. Government and Internal Investigations
 
On January 17, 2014, the U.S. District Court for the Southern District of Texas approved the settlement agreements between us and certain of our subsidiaries and the U.S. Department of Justice (“DOJ”). On November 26, 2013, we announced that we and our subsidiaries also entered into settlement agreements with the U.S. Departments of Treasury and Commerce and with the SEC, which the U.S. District Court for the Southern District of Texas entered on December 20, 2013. These agreements collectively resolved investigations of prior alleged violations by us and certain of our subsidiaries relating to certain trade sanctions laws, participation in the United Nations oil-for-food program governing sales of goods into Iraq, and non-compliance with the FCPA matters. 

The $253 million payable by us and our subsidiaries was paid in January and February 2014 pursuant to the terms of the settlement agreements. These agreements include a requirement to retain, for a period of at least 18 months, an independent monitor responsible to assess our compliance with the terms of the agreement so as to address and reduce the risk of recurrence of alleged misconduct, after which we would continue to evaluate our own compliance program and make periodic reports to the DOJ and SEC and maintain agreed compliance monitoring and reporting systems, all of which are costly to us. In April 2014, the independent monitor was retained and the compliance assessment period began. These agreements also require us to retain an independent third party to retroactively audit our compliance with U.S. export control and sanction laws during the years 2012, 2013 and 2014. This audit is on-going.
 
The SEC and DOJ are also investigating the circumstances surrounding the material weakness in our internal controls over financial reporting for income taxes that was disclosed in a notification of late filing on Form 12b-25 filed on March 1, 2011 and in current reports on Form 8-K filed on February 21, 2012 and on July 24, 2012 and the subsequent restatements of our historical financial statements. We are cooperating fully with these investigations. We are unable to predict the outcome of these matters due to the inherent uncertainties presented by such investigations, and we are unable to predict potential outcomes or estimate the range of potential loss contingencies, if any. The government, generally, has a broad range of civil and criminal penalties available for these types of matters under applicable law and regulation, including injunctive relief, fines, penalties and modifications to business practices, some of which, if imposed on us, could be material to our business, financial condition or results of operations.

Shareholder Litigation
 
In 2010, three shareholder derivative actions were filed, purportedly on behalf of the Company, asserting breach of duty and other claims against certain current and former officers and directors of the Company related to the United Nations oil-for-food program governing sales of goods into Iraq, FCPA and trade sanctions related to the U.S. government investigations disclosed above and in our SEC filings since 2007. Those shareholder derivative cases, captioned Neff v. Brady, et al., No. 201040764, Rosner v. Brady, et al., No. 201047343, and Hess v. Duroc-Danner, et al., No. 201040765, were filed in Harris County, Texas state court and consolidated (collectively referred to as the “Neff Case”). In 2014, one of the three cases, Hess v. Duroc-Danner, et al., No. 201040765, was voluntarily dismissed from the Neff Case. Other shareholder demand letters covering the same subject matter were received by the Company in early 2014, and a fourth shareholder derivative action was filed, purportedly on behalf of the Company, also asserting breach of duty and other claims against certain current and former officers and directors of the Company related to the same subject matter as the Neff Case. That case, captioned Erste-Sparinvest KAG v. Duroc-Danner, et al., No. 2014-20933 (Harris County, Texas) was consolidated into the Neff Case in September 2014. A motion to dismiss the consolidated action is pending.

In March 2011, a shareholder derivative action, Iron Workers Mid-South Pension Fund v. Duroc-Danner, et al., No. 201119822, was filed in Harris County, Texas, civil court, purportedly on behalf of the Company, against certain current and former officers and directors, alleging breaches of duty related to the material weakness and restatement announcements. In February 2012, a second substantially similar shareholder derivative action, Wandel v. Duroc-Danner, et al., No. 1:12-cv-01305-LAK (SDNY), was filed in federal court in the Southern District of New York. In March 2012, a purported securities class action captioned Freedman v. Weatherford International Ltd., et al., No. 1:12-cv-02121-LAK (SDNY) was filed in the Southern District of New York against us and certain current and former officers. That case alleges violation of the federal securities laws related to the restatement of our historical financial statements announced on February 21, 2012, and later added claims related to the announcement of a subsequent restatement on July 24, 2012.

We cannot predict the outcome of these cases including the amount of any possible loss. If one or more negative outcomes were to occur relative to these cases, the aggregate impact to our financial condition could be material.

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In March 2011, a purported shareholder class action captioned Dobina v. Weatherford International Ltd., et al., No. 1:11-cv-01646-LAK (SDNY), was filed in the U.S. District Court for the Southern District of New York, following our announcement on March 1, 2011 of a material weakness in our internal controls over financial reporting for income taxes, and restatement of our historical financial statements (the “2011 Class Action”). The lawsuit alleged violation of the federal securities laws by us and certain current and former officers. During the three months ended December 31, 2013, we entered into negotiations to settle the 2011 Class Action. As a result of these negotiations, settlement became probable and a settlement agreement was signed on January 29, 2014. The settlement agreement was submitted to the court for approval and notice to the class. A final fairness hearing on the motion for approval of the settlement was held on September 15, 2014. That motion is pending. The settlement agreement required payments totaling approximately $53 million which was entirely funded by our insurers.

Other Disputes
 
A former Senior Vice President and General Counsel (the “Executive”) left the Company in June 2009. The Executive had employment agreements that terminated upon his departure. Since that time there has been a dispute between the Executive and the Company as to the amount of compensation we are obligated to pay under the employment agreements. In the third quarter we reached a settlement with the executive and recognized an immaterial additional accrual.

Additionally, we are aware of various disputes and potential claims and are a party in various litigation involving claims against us, some of which are covered by insurance. For claims, disputes and pending litigation in which we believe a negative outcome is probable and a loss can be reasonably estimated, we have recorded a liability for the expected loss. These liabilities are immaterial to our financial condition and results of operations. In addition we have certain claims, disputes and pending litigation regarding which we do not believe a negative outcome is probable or for which we can only estimate a range of liability. It is possible, however, an unexpected judgment could be rendered against us, or we could decide to resolve a case or cases, that would result in liability that could be uninsured and beyond the amounts we currently have reserved and in some cases those losses could be material. If one or more negative outcomes were to occur relative to these matters, the aggregate impact to our financial condition could be material.


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16. New Accounting Pronouncements

In June 2014, the FASB issued amended guidance on the accounting for certain share-based employee compensation awards. The amended guidance applies to share-based employee compensation awards that include a performance target that affects vesting when the performance target can be achieved after the requisite service period. These targets are to be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award and compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved. This guidance is effective beginning with the first quarter of 2016 and early adoption is permitted. We currently do not expect the impact of our pending adoption of this guidance to have a material effect on our consolidated financial statements or disclosures.

In May 2014, the Financial Accounting Standards Board (“FASB”) issued new guidance intended to change the criteria for recognition of revenue. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this core principal, an entity should apply the following five steps: (1) Identify contracts with customers, (2) Identify the performance obligations in the contracts, (3) Determine the transaction price, (4) Allocate the transaction price to the performance obligation in the contract, and (5) Recognize revenue as the entity satisfies performance obligations. This guidance is effective beginning with the first quarter of 2017 and early adoption is not permitted. We are currently evaluating what impact the adoption of this guidance would have on our financial position, results of operations, cash flows or disclosures.

In April 2014, the FASB issued guidance intended to change the criteria for reporting discontinued operations while enhancing disclosures for discontinued operations. Under the guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. Examples include a disposal of a major geographic area, a major line of business, or a major equity method investment. The guidance also requires expanded disclosures about discontinued operations intended to provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. Finally, the guidance requires disclosure of the pre-tax income attributable to a disposal of a significant part of an organization that does not qualify for discontinued operations reporting. This guidance is effective beginning with the first quarter of 2015 and early adoption is permissible. We elected to early adopt this guidance in three months ended June 2014 and, as required, we have prospectively assessed our assets held for sale in accordance with this guidance. Upon adoption, we recognized no significant impact on our financial position, results of operations or cash flows.


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17. Condensed Consolidating Financial Statements

Weatherford International plc (“Weatherford Ireland”), a public limited company organized under the laws of Ireland, and the ultimate parent of the Weatherford group guarantees certain obligations of Weatherford International Ltd., a Bermuda exempted company (“Weatherford Bermuda”), and Weatherford International, LLC, a Delaware limited liability company (“Weatherford Delaware”), including the notes and credit facilities listed below.

The following obligations of Weatherford Delaware were guaranteed by Weatherford Bermuda at September 30, 2014 and December 31, 2013: (1) 6.35% senior notes and (2) 6.80% senior notes.
 
The following obligations of Weatherford Bermuda were guaranteed by Weatherford Delaware at September 30, 2014 and December 31, 2013: (1) revolving credit facility, (2) 5.50% senior notes, (3) 6.50% senior notes, (4) 6.00% senior notes, (5) 7.00% senior notes, (6) 9.625% senior notes, (7) 9.875% senior notes, (8) 5.125% senior notes, (9) 6.75% senior notes, (10) 4.50% senior notes and (11) 5.95% senior notes. In 2013, we entered into a 364-day term loan facility, which was an obligation of Weatherford Bermuda guaranteed by Weatherford Delaware as of December 31, 2013. In 2014, we refinanced the 364-day term loan facility with a new 364-day term loan facility, which was an obligation of Weatherford Bermuda guaranteed by Weatherford Delaware as of September 30, 2014.

As a result of certain of these guarantee arrangements, we are required to present the following condensed consolidating financial information. The accompanying guarantor financial information is presented on the equity method of accounting for all periods presented. Under this method, investments in subsidiaries are recorded at cost and adjusted for our share in the subsidiaries’ cumulative results of operations, capital contributions and distributions and other changes in equity. Elimination entries relate primarily to the elimination of investments in subsidiaries and associated intercompany balances and transactions.

Condensed Consolidating Statement of Operations and
Comprehensive Income (Loss)
Three Months Ended September 30, 2014
(Unaudited)
(Dollars in millions)
Weatherford
Ireland
 
Weatherford Bermuda
 
Weatherford Delaware
 
Other
Subsidiaries
 
Eliminations
 
Consolidation
Revenues
$
—

 
$
—

 
$
—

 
$
3,877

 
$
—

 
$
3,877

Costs and Expenses
(6
)
 
—

 
—

 
(3,553
)
 
—

 
(3,559
)
Operating Income (Loss)
(6
)
 
—

 
—

 
324

 
—

 
318

 
 
 
 
 
 
 
 
 
 
 
 
Other Income (Expense):
 
 
 
 
 
 
 
 
 
 
 
Interest Expense, Net
—

 
(106
)
 
(14
)
 
(2
)
 
—

 
(122
)
Intercompany Charges, Net
(31
)
 
5

 
(28
)
 
54

 
—

 
—

Equity in Subsidiary Income
112

 
242

 
429

 
(1
)
 
(782
)
 
—

Other, Net
1

 
15

 
—

 
(25
)
 
—

 
(9
)
Income (Loss) Before Income Taxes
76

 
156

 
387

 
350

 
(782
)
 
187

(Provision) Benefit for Income Taxes
1

 
—

 
15

 
(114
)
 
—

 
(98
)
Net Income (Loss)
77

 
156

 
402

 
236

 
(782
)
 
89

Noncontrolling Interests
—

 
—

 
—

 
(12
)
 
—

 
(12
)
Net Income (Loss) Attributable to Weatherford
$
77

 
$
156

 
$
402

 
$
224

 
$
(782
)
 
$
77

Comprehensive Income (Loss) Attributable to Weatherford
$
(130
)
 
$
175

 
$
450

 
$
161

 
$
(786
)
 
$
(130
)
 

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Condensed Consolidating Statement of Operations and
Comprehensive Income (Loss)
Three Months Ended September 30, 2013
(Unaudited) 
(Dollars in millions)
Weatherford
Switzerland
 
Weatherford
Bermuda
 
Weatherford
Delaware
 
Other
Subsidiaries
 
Eliminations
 
Consolidation
Revenues
$
—

 
$
—

 
$
—

 
$
3,820

 
$
—

 
$
3,820

Costs and Expenses
(6
)
 
—

 
(1
)
 
(3,574
)
 
—

 
(3,581
)
Operating Income (Loss)
(6
)
 
—

 
(1
)
 
246

 
—

 
239

 
 
 
 
 
 
 
 
 
 
 
 
Other Income (Expense):
 
 
 
 
 
 
 
 
 
 
 
Interest Expense, Net
—

 
(108
)
 
(15
)
 
(6
)
 
—

 
(129
)
Intercompany Charges, Net
(2
)
 
12

 
(85
)
 
75

 
—

 
—

Equity in Subsidiary Income
31

 
35

 
62

 
—

 
(128
)
 
—

Other, Net
(1
)
 
(26
)
 
—

 
(3
)
 
—

 
(30
)
Income (Loss) Before Income Taxes
22

 
(87
)
 
(39
)
 
312

 
(128
)
 
80

(Provision) Benefit for Income Taxes
—

 
—

 
35

 
(84
)
 
—

 
(49
)
Net Income (Loss)
22

 
(87
)
 
(4
)
 
228

 
(128
)
 
31

Noncontrolling Interests
—

 
—

 
—

 
(9
)
 
—

 
(9
)
Net Income (Loss) Attributable to Weatherford
$
22

 
$
(87
)
 
$
(4
)
 
$
219

 
$
(128
)
 
$
22

Comprehensive Income (Loss) Attributable to Weatherford
$
118

 
$
(10
)
 
$
73

 
$
314

 
$
(377
)
 
$
118

 
 

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Table of Contents

Condensed Consolidating Statement of Operations and
Comprehensive Income (Loss)
Nine Months Ended September 30, 2014
(Unaudited) 
(Dollars in millions)
Weatherford
Ireland
 
Weatherford
Bermuda
 
Weatherford
Delaware
 
Other
Subsidiaries
 
Eliminations
 
Consolidation
Revenues
$
—

 
$
—

 
$
—

 
$
11,184

 
$
—

 
$
11,184

Costs and Expenses
(34
)
 
(1
)
 
(1
)
 
(10,675
)
 
—