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10-Q
WEATHERFORD INTERNATIONAL LTD./SWITZERLAND filed this Form 10-Q on 07/31/2013
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

þ              QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2013

OR
o        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

001-34258
(Commission file number)

 WEATHERFORD INTERNATIONAL LTD.
(Exact name of registrant as specified in its charter)

Switzerland
 
98-0606750
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)

4-6 Rue Jean-Francois Bartholoni, 1204 Geneva, Switzerland
 
Not Applicable
(Address of principal executive offices)
 
(Zip Code)

Registrant's telephone number, including area code: 41.22.816.1500

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  þ                                No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes  þ                                No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

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 July 26, 2013, there were 767,710,942 shares of Weatherford shares, 1.16 Swiss francs par value per share, outstanding.
 





TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except par value)


 
 
June 30, 2013
   
December 31, 2012
 
 
 
(Unaudited)
   
 
Current Assets:
 
   
 
Cash and Cash Equivalents
 
$
295
   
$
300
 
Accounts Receivable, Net of Allowance for Uncollectible Accounts of $87 and $84
   
3,837
     
3,885
 
Inventories, Net
   
3,637
     
3,675
 
Current Deferred Tax Assets
   
360
     
376
 
Other Current Assets
   
819
     
793
 
Total Current Assets
   
8,948
     
9,029
 
 
               
Property, Plant and Equipment, Net of Accumulated Depreciation of $6,405 and $6,030
   
8,333
     
8,299
 
Goodwill
   
3,714
     
3,871
 
Other Intangible Assets, Net of Accumulated Amortization of $699 and $658
   
688
     
766
 
Equity Investments
   
671
     
646
 
Other Non-current Assets
   
278
     
184
 
Total Assets
 
$
22,632
   
$
22,795
 
 
               
 
               
Current Liabilities:
               
Short-term Borrowings and Current Portion of Long-term Debt
 
$
2,148
   
$
1,585
 
Accounts Payable
   
2,144
     
2,108
 
Other Current Liabilities
   
1,658
     
2,017
 
Total Current Liabilities
   
5,950
     
5,710
 
 
               
Long-term Debt
   
7,087
     
7,049
 
Other Non-current Liabilities
   
1,156
     
1,218
 
Total Liabilities
   
14,193
     
13,977
 
 
               
Shareholders' Equity:
               
Shares, CHF 1.16 Par Value: Authorized 840, Conditionally Authorized 372, Issued 840 at June 30, 2013 and December 31, 2012
   
775
     
775
 
Capital in Excess of Par Value
   
4,608
     
4,674
 
Treasury Shares, at Cost
   
(83
)
   
(182
)
Retained Earnings
   
3,260
     
3,356
 
Accumulated Other Comprehensive Income
   
(159
)
   
163
 
Weatherford Shareholders' Equity
   
8,401
     
8,786
 
Noncontrolling Interests
   
38
     
32
 
Total Shareholders' Equity
   
8,439
     
8,818
 
Total Liabilities and Shareholders' Equity
 
$
22,632
   
$
22,795
 


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

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In millions, except per share amounts)


 
 
Three Months Ended June 30,
   
Six Months Ended June 30,
 
 
 
2013
   
2012
   
2013
   
2012
 
 
 
   
   
   
 
Revenues:
 
   
   
   
 
Products
 
$
1,509
   
$
1,510
   
$
2,977
   
$
2,922
 
Services
   
2,359
     
2,237
     
4,728
     
4,416
 
 
   
3,868
     
3,747
     
7,705
     
7,338
 
 
                               
Costs and Expenses:
                               
Cost of Products
   
1,069
     
1,153
     
2,214
     
2,206
 
Cost of Services
   
2,057
     
1,818
     
3,918
     
3,465
 
Research and Development
   
71
     
64
     
138
     
126
 
Selling, General and Administrative Attributable to Segments
   
392
     
408
     
807
     
780
 
Corporate, General and Administrative
   
73
     
71
     
149
     
158
 
Goodwill and Equity Investment Impairment
   
     
793
     
     
793
 
US Government Investigation Loss Contingency
   
153
     
100
     
153
     
100
 
Gain on Sale of Business
   
(2
)
   
(28
)
   
(8
)
   
(28
)
 
   
3,813
     
4,379
     
7,371
     
7,600
 
 
                               
Operating Income (Loss)
   
55
     
(632
)
   
334
     
(262
)
 
                               
Interest Expense, Net
   
(128
)
   
(121
)
   
(259
)
   
(233
)
Devaluation of Venezuelan Bolivar
   
     
     
(100
)
   
 
Other, Net
   
(18
)
   
(27
)
   
(31
)
   
(45
)
 
                               
Loss Before Income Taxes
   
(91
)
   
(780
)
   
(56
)
   
(540
)
Provision for Income Taxes
   
(20
)
   
(63
)
   
(25
)
   
(173
)
Net Loss
   
(111
)
   
(843
)
   
(81
)
   
(713
)
 
                               
Net Income Attributable to Noncontrolling Interests
   
(7
)
   
(6
)
   
(15
)
   
(13
)
Net Loss Attributable to Weatherford
 
$
(118
)
 
$
(849
)
 
$
(96
)
 
$
(726
)
 
                               
Loss Per Share Attributable to Weatherford:
                               
Basic
 
$
(0.15
)
 
$
(1.11
)
 
$
(0.12
)
 
$
(0.95
)
Diluted
 
$
(0.15
)
 
$
(1.11
)
 
$
(0.12
)
 
$
(0.95
)
 
                               
Weighted Average Shares Outstanding:
                               
Basic
   
770
     
765
     
770
     
763
 
Diluted
   
770
     
765
     
770
     
763
 



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

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(In millions)


 
 
Three Months Ended June 30,
   
Six Months Ended June 30,
 
 
 
2013
   
2012
   
2013
   
2012
 
 
 
   
   
   
 
Net Loss
 
$
(111
)
 
$
(843
)
 
$
(81
)
 
$
(713
)
Other Comprehensive Loss:
                               
Foreign Currency Translation
   
(173
)
   
(316
)
   
(323
)
   
(133
)
Defined Benefit Pension Activity
   
     
     
1
     
1
 
Other Comprehensive Loss
   
(173
)
   
(316
)
   
(322
)
   
(132
)
Comprehensive Loss
   
(284
)
   
(1,159
)
   
(403
)
   
(845
)
Comprehensive Income Attributable to Noncontrolling Interests
   
(7
)
   
(6
)
   
(15
)
   
(13
)
Comprehensive Loss Attributable to Weatherford
 
$
(291
)
 
$
(1,165
)
 
$
(418
)
 
$
(858
)

The accompanying notes are an integral part of these condensed consolidated financial statements.
 
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In millions)


 
 
Six Months Ended June 30,
 
 
 
2013
   
2012
 
 
 
   
 
Cash Flows from Operating Activities:
 
   
 
Net Loss
 
$
(81
)
 
$
(713
)
Adjustments to Reconcile Net Loss to Net Cash Provided by Operating Activities:
               
Goodwill and Equity Investment Impairment
   
     
793
 
Depreciation and Amortization
   
687
     
610
 
Employee Share-Based Compensation Expense
   
27
     
37
 
Deferred Income Tax Provision (Benefit)
   
(93
)
   
40
 
Devaluation of Venezuelan Bolivar
   
100
     
 
Loss (Gain) on Sale of Assets and Businesses
   
1
     
(19
)
Other, Net
   
(27
)
   
44
 
Change in Operating Assets and Liabilities, Net of Effect of Businesses Acquired:
               
Accounts Receivable
   
(50
)
   
(380
)
Inventories
   
48
     
(374
)
Billings in Excess of Costs and Estimated Earnings
   
(159
)
   
63
 
Other Current Assets
   
7
     
(206
)
Accounts Payable
   
122
     
63
 
Other Current Liabilities
   
(205
)
   
264
 
Other
   
(136
)
   
63
 
Net Cash Provided by Operating Activities
   
241
     
285
 
 
               
Cash Flows from Investing Activities:
               
Capital Expenditures for Property, Plant and Equipment
   
(846
)
   
(1,098
)
Acquisitions of Businesses, Net of Cash Acquired
   
(7
)
   
(156
)
Acquisition of Intellectual Property
   
(3
)
   
(6
)
Acquisition of Equity Investments in Unconsolidated Affiliates
   
     
(8
)
Proceeds from Sale of Assets and Businesses, Net
   
66
     
16
 
Net Cash Used by Investing Activities
   
(790
)
   
(1,252
)
 
               
Cash Flows from Financing Activities:
               
Borrowings (Repayments) Long-term Debt, Net
   
(310
)
   
1,013
 
Borrowings (Repayments) of Short-term Debt, Net
   
854
     
(86
)
Proceeds from Exercise of Warrants
   
     
65
 
Other Financing Activities
   
4
     
(12
)
Net Cash Provided by Financing Activities
   
548
     
980
 
 
               
Effect of Exchange Rate Changes on Cash and Cash Equivalents, Excluding Devaluation of Venezuelan Bolivar
   
(4
)
   
(3
)
 
               
Net (Decrease) Increase in Cash and Cash Equivalents
   
(5
)
   
10
 
Cash and Cash Equivalents at Beginning of Period
   
300
     
371
 
Cash and Cash Equivalents at End of Period
 
$
295
   
$
381
 
 
               
Supplemental Cash Flow Information:
               
Interest Paid
   
264
     
224
 
Income Taxes Paid, Net of Refunds
   
257
     
244
 

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

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. General

The accompanying unaudited condensed consolidated financial statements of Weatherford International Ltd.  (the "Company") are prepared in accordance with U.S. generally accepted accounting principles and include all adjustments of a normal recurring nature which, in the opinion of management, are necessary to present fairly our Condensed Consolidated Balance Sheet at June 30, 2013, Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Comprehensive Income and Condensed Consolidated Statements of Cash Flows for the three and six months ended June 30, 2013 and 2012. When referring to "Weatherford" and using phrases such as "we", "us", and "our", the intent is to refer to Weatherford International Ltd., a Swiss joint-stock company, and its subsidiaries as a whole or on a regional basis, depending on the context in which the statements are made.

Although we believe the disclosures in these financial statements are adequate to make the interim information presented not misleading, certain information relating to our organization and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted in this Form 10-Q pursuant to U.S. Securities and Exchange Commission ("SEC") rules and regulations.  These financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2012 included in our Annual Report on Form 10-K.  The results of operations for the three and six months ended June 30, 2013 are not necessarily indicative of the results expected for the year ending December 31, 2013.

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 assets and liabilities.  On an ongoing basis, we evaluate our estimates and assumptions, including those related to uncollectible accounts receivable, lower of cost or market of inventories, equity investments, intangible assets and goodwill, property, plant and equipment, income taxes, percentage-of-completion accounting for long-term contracts, self-insurance, pension and post retirement benefit plans, contingencies and share-based compensation.  We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  Actual results could differ from those estimates.


Principles of Consolidation

We consolidate 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.

2. Business Combinations and Dispositions

We have acquired businesses we feel 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 recent acquisitions are based on preliminary information and are subject to change when final asset valuations are obtained and potential liabilities have been evaluated.  The purchase price is allocated to the net assets acquired based upon their estimated fair values at the date of acquisition.  During the six months ended June 30, 2013, we acquired businesses and equity investments for cash consideration of $7 million, net of cash acquired.

During the six months ended June 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.  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 three and six months ended June 30, 2013 we recognized gains of $2 million and $8 million resulting from the industrial screen transactions.  The major classes of assets sold in these transactions included $54 million in Cash, $36 million of Accounts Receivable, $37 million of Inventory, $92 million of other assets primarily comprised of Property, Plant and Equipment, Other Intangible Assets and Goodwill.  Liabilities of $69 million were also transferred in the sale, of which $60 million were Current Liabilities.
 
6

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

In 2012, we acquired a company that designs and produces well completion tools.  As part of the purchase consideration, we entered into a contingent consideration arrangement valued at approximately $10 million at June 30, 2013 that will be settled in early 2015.  This contingent consideration arrangement is dependent on the acquired company's 2014 results of operations.  This obligation will be marked to market through current earnings in each reporting period prior to settlement and the liability is valued using a Monte Carlo simulation and Level 3 inputs.

 
3. Accounts Receivable Factoring

In 2010, we entered into a factoring program to sell certain accounts receivable in Mexico to third party financial institutions.  In the six months ended June 30, 2013, we sold approximately $83 million under the program, received cash totaling $80 million and recognized a loss of approximately $1 million on these sales. In the six months ended June 30, 2012, we sold approximately $51 million under the program, initially received cash totaling $47 million and ultimately collected amounts that resulted in a loss of less than $1 million on these sales.  These sales occurred in the first quarter of 2013 and 2012 and no factoring occurred in the second quarter periods.  In each of the years since 2010, our factoring transactions qualified for sale accounting under the accounting standards and proceeds are included in operating cash flows in our Condensed Consolidated Statements of Cash Flows.

4.     Inventories

The components of inventory were as follows:

 
 
June 30,
2013
   
December 31,
2012
 
 
 
(In millions)
 
 
 
   
 
Raw materials, components and supplies
 
$
452
   
$
461
 
Work in process
   
147
     
166
 
Finished goods
   
3,038
     
3,048
 
 
 
$
3,637
   
$
3,675
 


Work in process and finished goods inventories include cost of materials, labor and manufacturing overhead.

5.    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.  Our goodwill impairment test involves a comparison of the fair value of each of our reporting units with its carrying amount. Fair value is estimated using discounted cash flows and a discount rate based on the weighted average cost of capital of the reporting unit. Our reporting units are based on our regional structure and consist of the United States, Canada, Latin America, Europe, Sub-Sahara Africa ("SSA"), Russia, Middle East/North Africa ("MENA") and Asia Pacific ("AP").
 
7

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The fair value of all our reporting units was in excess of their carrying value as of our October 1, 2012 annual impairment test. The fair value of our Latin America reporting unit was closest to its carrying value and was 16% in excess of its carrying value at October 1, 2012.
 
The changes in the carrying amount of goodwill by segment for the six months ended June 30, 2013, were as follows:

 
 
North America
   
MENA/
Asia Pacific
   
Europe/
SSA/ Russia
   
Latin
America
   
Total
 
 
 
   
(In millions)
   
   
 
 
 
   
   
   
   
 
Balance at December 31, 2012
 
$
2,336
   
$
226
   
$
955
   
$
354
   
$
3,871
 
Acquisitions
   
     
     
2
     
     
2
 
Disposals
   
(23
)
   
(4
)
   
(13
)
   
(1
)
   
(41
)
Purchase price and other adjustments
   
     
     
     
2
     
2
 
Foreign currency translation
   
(59
)
   
(7
)
   
(49
)
   
(5
)
   
(120
)
Balance at June 30, 2013
 
$
2,254
   
$
215
   
$
895
   
$
350
   
$
3,714
 

6.       Short-term Borrowings and Current Portion of Long-term Debt
The components of short-term borrowings were as follows:


 
 
June 30,
2013
   
December 31,
2012
 
 
 
(In millions)
 
 
 
   
 
Commercial paper
 
$
840
   
$
888
 
Revolving credit facility
   
525
     
 
364-day term loan facility
   
300
     
 
Other short-term bank loans
   
167
     
109
 
Total short-term borrowings
   
1,832
     
997
 
Current portion of long-term debt
   
316
     
588
 
Short-term borrowings and current portion of long-term debt
 
$
2,148
   
$
1,585
 

We maintain a $2.25 billion unsecured, revolving credit agreement (the "Credit Agreement") with JPMorgan Chase Bank, N.A., as administrative agent.  The Credit Agreement has a scheduled maturity date of July 13, 2016, and can be used for a combination of borrowings, support for our commercial paper program and issuances of letters of credit.  This agreement requires us to maintain a debt-to-capitalization ratio of less than 60%.  We are in compliance with this covenant at June 30, 2013. At June 30, 2013, our borrowings under our commercial paper program had a weighted average interest rate of 1.04% and there were $121 million in outstanding letters of credit under the Credit Agreement.

On May 1, 2013, we entered into a $300 million, 364-day, term loan facility with a syndicate of banks.  The facility was fully drawn on May 1, 2013 and will mature on April 30, 2014.  The terms and conditions of the facility are substantially similar to our $2.25 billion revolving credit agreement.  The facility is used for general corporate purposes, including the repayment of other credit facility borrowings and the reduction of outstanding commercial paper.
 
8

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

We also have short-term borrowings with various domestic and international institutions pursuant to uncommitted facilities.  At June 30, 2013, we had $167 million in short-term borrowings under these arrangements with a weighted average interest rate of 5.05%.  In addition, we had $524 million of letters of credit under various uncommitted facilities and $265 million of performance bonds issued by financial sureties against an indemnification from us at June 30, 2013.

The carrying value of our short-term borrowings approximates their fair value as of June 30, 2013.  The current portion of long-term debt at June 30, 2013 includes $250 million of 4.95% Senior Notes due October 2013 and other debt maturing in 2013 totaling $66 million.

7. 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.  Our valuation techniques require inputs that we categorize using a three level hierarchy, from highest to lowest level of observable inputs.  Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 inputs are quoted prices or other market data for similar assets and liabilities in active markets, or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based upon our own judgment and assumptions used to measure assets and liabilities at fair value. Classification of a financial asset or liability within the hierarchy is determined based on the lowest level of input that is significant to the fair value measurement.  Other than the contingent consideration discussed in Note 2 and  our derivative instruments discussed in Note 8, we had no assets or liabilities measured and recognized at fair value on a recurring basis at June 30, 2013 and December 31, 2012.

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.  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 a measure of its current value under present market conditions and is established based on observable inputs in non-active markets.  Our long-term debt is classified as Level 2 in the fair value hierarchy.

The fair value and carrying value of our Senior Notes were as follows:

 
 
June 30,
2013
   
December 31,
2012
 
 
 
(In millions)
 
 
 
   
 
Fair value
 
$
7,619
   
$
8,368
 
Carrying value
   
7,058
     
7,355
 

8. 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.
 
9

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Fair Value Hedges

We may use interest rate swaps to help mitigate exposures related to changes in the fair values of our debt.  Amounts paid or received upon termination of interest rate swaps accounted for as fair value hedges represent the fair value of the agreements at the time of termination and are recorded as an adjustment to the carrying value of the related debt.  These amounts are amortized as a reduction, in the case of gains, or as an increase, in the case of losses, of interest expense over the remaining term of the debt. As of June 30, 2013, we had net unamortized gains of $47 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.

Cash Flow Hedges

We entered into interest rate derivative instruments to hedge projected exposures to interest rates in anticipation of a debt offering in 2008.  Those hedges were terminated at the time of the issuance of the debt, and the loss on these hedges is being amortized from Accumulated Other Comprehensive Income (Loss) into interest expense over the remaining term of the debt.  As of June 30, 2013, we had net unamortized losses of $11 million associated with our cash flow hedge terminations.

Other Derivative Instruments

As of June 30, 2013, we had foreign currency forward contracts with notional amounts aggregating to $934 million. These contracts were entered into to hedge exposure to currency fluctuations in various foreign currencies.  The total estimated fair value of these contracts, and amounts receivable or owed associated with closed contracts, resulted in a net asset of approximately $26 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 Operations.

We have cross-currency swaps between the U.S. dollar and Canadian dollar to hedge certain exposures to the Canadian dollar.  At June 30, 2013, we had notional amounts outstanding of $168 million.  The total estimated fair value of these contracts at June 30, 2013, resulted in a liability of $23 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 Operations.

The fair values of outstanding derivative instruments are summarized as follows:

 
 
June 30,
2013
   
December 31,
2012
 
Classifications
 
 
(In millions)
 
 
 
 
   
 
    
Derivative assets not designated as hedges:
 
   
 
   
Foreign currency forward contracts
 
$
37
   
$
5
 
Other Current Assets
 
               
    
Derivative liabilities not designated as hedges:
               
   
Foreign currency forward contracts
   
(11
)
   
(20
)
Other Current Liabilities
Cross-currency swap contracts
   
(23
)
   
(34
)
Other Liabilities

9. Income Tax

For the three and six months ended June 30, 2013, we had a tax provision of $20 million and $25 million on pre-tax losses of $91 million and $56 million.  Our effective tax rate for the three and six months ended June 30, 2013 is (22)% and (44)% respectively.  Our loss before taxes for the three and six months ended June 30, 2013 includes $153 million charge for the potential settlement of the oil-for-food and Foreign Corrupt Practices Act matters with no tax benefit.  Our tax provision for the three months ended June 30, 2013 includes one-time tax benefits mostly due to tax restructuring benefits, decreases in reserves for uncertain tax positions due to statute of limitation expiration and audit settlements, and return to accrual adjustments, which decreased our effective tax rate for the period. Our provision for the six months ended June 30, 2013, in addition to items above, also includes one-time tax benefits due to the devaluation of the Venezuelan bolivar, and enactment of the American Taxpayer Relief Act, which decreased our effective tax rate for the period.

For the three and six months ended June 30, 2012, we had a tax provision of $63 million and $173 million on pre-tax losses of $780 million and $540 million. Our effective tax rate for the three and six months ended June 30, 2012 was (8)% and (32)% respectively.  Our loss before taxes for the three and six months ended June 30, 2012, includes a $589 million charge for the impairment of goodwill, substantially all of which was non-deductible.
 
10

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

We anticipate a possible reduction in the balance of uncertain tax positions between $25 million to $50 million in the next twelve months due to expiration of statutes of limitations, settlements and/or conclusions of tax examinations.

10. Shareholders' Equity

The following summarizes our shareholders' equity activity for the six months ended June 30, 2013 and 2012:


 
 
Issued
Shares
   
Capital In Excess of Par Value
   
Retained Earnings
   
Accumulated Other Comprehensive Income (Loss)
   
Treasury Shares
   
Noncontrolling Interests
   
Total Shareholders' Equity
 
 
         
(In millions)
       
   
 
 
         
           
   
 
Balance at December 31, 2011
 
$
769
   
$
4,675
   
$
4,134
   
$
80
   
$
(334
)
 
$
21
   
$
9,345
 
Net Income (Loss)
   
     
     
(726
)
   
     
     
13
     
(713
)
Other Comprehensive Loss
   
     
     
     
(132
)
   
     
     
(132
)
Dividends Paid to Noncontrolling Interests
   
     
     
     
     
     
(11
)
   
(11
)
Shares Issued for Acquisitions
   
     
(27
)
   
     
     
66
     
     
39
 
Equity Awards Granted, Vested and Exercised
   
     
(20
)
   
     
     
39
     
     
19
 
Other
   
6
     
58
     
     
     
     
     
64
 
Balance at June 30, 2012
 
$
775
   
$
4,686
   
$
3,408
   
$
(52
)
 
$
(229
)
 
$
23
   
$
8,611
 
 
                                                       
Balance at December 31, 2012
 
$
775
   
$
4,674
   
$
3,356
   
$
163
   
$
(182
)
 
$
32
   
$
8,818
 
Net Income (Loss)
   
     
     
(96
)
   
     
     
15
     
(81
)
Other Comprehensive Loss
   
     
     
     
(322
)
   
     
     
(322
)
Dividends Paid to Noncontrolling Interests
   
     
     
     
     
     
(13
)
   
(13
)
Equity Awards Granted, Vested and Exercised
   
     
(63
)
   
     
     
99
     
     
36
 
Other
   
     
(3
)
   
     
     
     
4
     
1
 
Balance at June 30, 2013
 
$
775
   
$
4,608
   
$
3,260
   
$
(159
)
 
$
(83
)
 
$
38
   
$
8,439
 

At December 31, 2011, warrants were outstanding to purchase up to 8.6  million of our shares at a price of $15.00 per share. On February 28, 2012, 4.3 million of these warrants were exercised through physical delivery of shares in exchange for $65 million and the remaining 4.3 million of these warrants were exercised through net share settlement resulting in the issuance of 494,000 shares.
 
11

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The following table presents the changes in our accumulated other comprehensive income by component for the six months ended June 30, 2013 and 2012:

 
 
Currency
Translation
Adjustment
   
Defined
Benefit
Pension
   
Deferred
Loss on
Derivatives
   
Total
 
 
 
   
(In millions)
   
 
 
 
   
   
   
 
Balance at December 31, 2011
 
$
127
   
$
(36
)
 
$
(11
)
 
$
80
 
 
                               
Other comprehensive income before reclassifications
   
(133
)
   
     
     
(133
)
Reclassifications
   
     
1
     
     
1
 
Net activity
   
(133
)
   
1
     
     
(132
)
 
                               
Balance at June 30, 2012
 
$
(6
)
 
$
(35
)
 
$
(11
)
 
$
(52
)
 
                               
Balance at December 31, 2012
   
213
     
(40
)
   
(10
)
   
163
 
 
                               
Other comprehensive loss before reclassifications
   
(286
)
   
     
     
(286
)
Reclassifications
   
(37
)
   
1
     
     
(36
)
Net activity
   
(323
)
   
1
     
     
(322
)
 
                               
Balance at June 30, 2013
 
$
(110
)
 
$
(39
)
 
$
(10
)
 
$
(159
)

The reclassification from the Currency Translation Adjustment component of Other Comprehensive Income includes $30 million from the sale of our industrial screen business.  This amount was recognized in the Gain on Sale of Business line in our Condensed Consolidated Statement of Operations in the six months ended June 30, 2013.

11.    Earnings per Share

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

The following reconciles basic and diluted weighted average of shares outstanding:

 
 
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
 
 
2013
   
2012
   
2013
   
2012
 
 
 
(In millions)
 
 
 
   
   
 
Basic weighted average shares outstanding
   
770
     
765
     
770
     
763
 
Dilutive effect of:
                               
Stock options, restricted shares and performance units
   
     
     
     
 
Diluted weighted average shares outstanding
   
770
     
765
     
770
     
763
 

12

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Our diluted weighted average shares outstanding for the three and six months ended June 30, 2013 and 2012, exclude potential shares that are anti-dilutive, such as options where the exercise price exceeds the current market price of our stock.  In addition, diluted weighted average shares outstanding for the three and six months ended June 30, 2013 and 2012, exclude potential shares for stock options, restricted shares and performance units outstanding as we have net losses for those periods and their inclusion would be anti-dilutive.

The following table discloses the number of anti-dilutive shares excluded:

 
 
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
 
 
2013
   
2012
   
2013
   
2012
 
 
 
(In millions)
 
 
 
   
   
 
Anti-dilutive potential shares
   
2
     
3
     
3
     
3
 
Anti-dilutive potential shares due to net loss
   
6
     
4
     
4
     
4
 

12.   Share-Based Compensation

We recognized the following employee share-based compensation expense during the three and six months ended June 30, 2013 and 2012:

 
 
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
 
 
2013
   
2012
   
2013
   
2012
 
 
 
(In millions)
 
 
 
   
 
Share-based compensation
 
$
16
   
$
15
   
$
27
   
$
37
 
Related tax benefit
   
6
     
5
     
10
     
13
 

During the six months ended June 30, 2013, we issued 1.9 million performance units, which will vest with continued employment and if the Company meets certain market-based performance goals. The performance units have a weighted average grant date fair value of $10.81 per share based on the Monte Carlo simulation method.  As of June 30, 2013, there was $28 million of unrecognized compensation expense related to our performance units.  This cost is expected to be recognized over a weighted average period of two years.

During the six months ended June 30, 2013, we also granted 3.8 million restricted share awards at a weighted average grant date fair value of $12.99 per share.  As of June 30, 2013, there was $82 million of unrecognized compensation related to our unvested restricted share grants. This cost is expected to be recognized over a weighted average period of two years.
13

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

13. Segment Information

Financial information by segment is summarized below.  Revenues are attributable to countries based on the ultimate destination of the sale of products or performance of services.


 
 
Three Months Ended June 30, 2013
 
 
 
Net
Operating
Revenues
   
Income
from
Operations
   
Depreciation
and
Amortization
 
 
 
(In millions)
 
 
 
   
   
 
North America
 
$
1,529
   
$
167
   
$
102
 
MENA/Asia Pacific
   
919
     
45
     
98
 
Europe/SSA/Russia
   
681
     
83
     
68
 
Latin America
   
739
     
90
     
68
 
 
   
3,868
     
385
     
336
 
Corporate and Research and Development
   
     
(120
)
   
5
 
US Government Investigation Loss Contingency
   
     
(153
)
   
 
Other (a)
   
     
(57
)
   
 
Total
 
$
3,868
   
$
55
   
$
341
 

 
 
Three Months Ended June 30, 2012
 
 
 
Net
Operating
Revenues
   
Income
from
Operations (c)
   
Depreciation
and
Amortization
 
 
 
(In millions)
 
 
 
   
   
 
North America
 
$
1,663
   
$
226
   
$
101
 
MENA/Asia Pacific
   
649
     
(38
)
   
85
 
Europe/SSA/Russia
   
653
     
102
     
60
 
Latin America
   
782
     
90
     
59
 
 
   
3,747
     
380
     
305
 
Corporate and Research and Development
   
     
(113
)
   
6
 
Goodwill and Equity Investment Impairment
   
     
(793
)
   
 
US Government Investigation Loss Contingency
   
     
(100
)
   
 
Other (b)
   
     
(6
)
   
 
Total
 
$
3,747
   
$
(632
)
 
$
311
 

a)
The three months ended June 30, 2013 includes a $2 million gain related to the sale of our industrial screen business, income tax restatement and material weakness remediation expenses of $6 million and severance, exit and other charges of $53 million, including $36 million in severance and $12 million in legal and professional fees incurred in conjunction with our on-going investigations.

b)
The three months ended June 30, 2012 includes $23 million for severance and exit costs, income tax restatement and remediation expenses of $11 million and an offsetting gain of $28 million related to the sale of our subsea controls business.

c)
During the three months ended June 30, 2012, we recognized a charge for excess and obsolete inventory of $64 million attributable to each reporting segment as follows: $22 million for North America, $14 million for MENA/Asia Pacific, $20 million for Europe/SSA/Russia and $8 million for Latin America.
14

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

 
 
Six Months Ended June 30, 2013
 
 
 
Net
Operating
Revenues
   
Income
From
Operations
   
Depreciation
and
Amortization
 
 
 
(In millions)
 
 
 
 
North America
 
$
3,221
   
$
391
   
$
210
 
MENA/Asia Pacific
   
1,704
     
87
     
191
 
Europe/SSA/Russia
   
1,314
     
148
     
139
 
Latin America
   
1,466
     
188
     
136
 
 
   
7,705
     
814
     
676
 
Corporate and Research and Development
   
     
(235
)
   
11
 
US Government Investigation Loss Contingency
   
     
(153
)
   
 
Other (a)
   
     
(92
)
   
 
Total
 
$
7,705
   
$
334
   
$
687
 

 
 
Six Months Ended June 30, 2012
 
 
 
Net
Operating
Revenues
   
Income
From
Operations (c)
   
Depreciation
and
Amortization
 
 
 
(In millions)
 
 
 
   
   
 
North America
 
$
3,417
   
$
584
   
$
196
 
MENA/Asia Pacific
   
1,244
     
(16
)
   
168
 
Europe/SSA/Russia
   
1,224
     
168
     
121
 
Latin America
   
1,453
     
173
     
114
 
 
   
7,338
     
909
     
599
 
Corporate and Research and Development
   
     
(225
)
   
11
 
Goodwill and Equity Investment Impairment
   
     
(793
)
   
 
US Government Investigation Loss Contingency
   
     
(100
)
   
 
Other (b)
   
     
(53
)
   
 
Total
 
$
7,338
   
$
(262
)
 
$
610
 

a)
The six months ended June 30, 2013 includes a $8 million gain related to the sale of our industrial screen business, income tax restatement and material weakness remediation expenses of $27 million and severance, exit and other charges of $73 million, including $44 million of severance and $16 million in legal and professional fees incurred in conjunction with our on-going investigations.

b)
The six months ended June 30, 2012 includes $53 million for severance, exit and other costs, $3 million in legal and professional fees incurred in connection with our on-going investigations, income tax restatement and material weakness remediation expenses of $25 million and an offsetting gain of $28 million related to the sale of our subsea controls business.

c)
During the six months ended June 30, 2012, we recognized a charge for excess and obsolete inventory of $64 million attributable to each reporting segment as follows: $22 million for North America, $14 million for MENA/Asia Pacific, $20 million for Europe/SSA/Russia and $8 million for Latin America.

During the second quarter of 2013, we included $40 million in claim revenue in our total revenue estimate on a percentage-of-completion contract.  Of this claim revenue, $19 million was recognized during the current quarter based on the estimated percentage completed. This claim was recognized by our MENA/Asia Pacific segment upon identifying certain costs that we are legally entitled to recover from a customer under the terms of the contract. 
15

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

14.  Disputes, Litigation and Contingencies

U.S. Government and Internal Investigations

We are currently involved in government and internal investigations.

The U.S. Department of Commerce, Bureau of Industry & Security, Office of Foreign Assets Control ("OFAC"), Department of Justice ("DOJ") and SEC have undertaken investigations of allegations of improper sales of products and services by the Company and its subsidiaries in certain sanctioned countries. We have cooperated fully with these investigations and we have retained legal counsel, reporting directly to our Audit Committee, to investigate these matters.

In light of these investigations, the U.S. and foreign policy environment and the inherent uncertainties surrounding these countries, we decided in September 2007 to direct our foreign subsidiaries to discontinue doing business in countries that are subject to comprehensive U.S. economic and trade sanctions, specifically Cuba, Iran and Sudan, as well as Syria. Effective September 2007, we ceased entering into any new contracts in these countries and began an orderly discontinuation and winding down of our existing business in these sanctioned countries.

Effective March 31, 2008, we substantially completed our winding down of business in these countries and conducted further withdrawal activities, pursuant to the licenses issued by OFAC, which have now ceased. Certain of our subsidiaries continue to conduct business in countries such as Myanmar which was subject to more limited U.S. trading sanctions until 2012.

We have been in negotiations with the government agencies to resolve the investigation into alleged violations of the trade sanctions laws for more than two years, and these negotiations have advanced significantly.  During the quarter ended June 30, 2012, the negotiations progressed to a point where we recognized a liability for a loss contingency that we believe is probable and for which a reasonable estimate can be made. The Company estimates that the most likely amount of this loss is $100 million and recognized a loss contingency equal to such amount in the quarter ended June 30, 2012, although the actual amount could be greater or less, and the timing of the payment cannot yet be determined.  However, uncertainties remain and therefore an exposure to loss could be greater or less than the amount accrued, pending the ultimate resolution of the investigation, and we may not ultimately reach a final settlement with the government.  As with any potential resolution, the government may seek to impose modifications to business practices, that decrease our business and modifications to the Company's compliance programs, which may increase compliance costs. There can be no assurance that actual fines or penalties, if any, will not have a material adverse effect on our business, financial condition, liquidity or results of operations.

Until 2003, we participated in the United Nations oil-for-food program governing sales of goods and services into Iraq. The DOJ and SEC have undertaken investigations of our participation in the oil-for-food program and have subpoenaed certain documents in connection with these investigations.  We have cooperated fully with these investigations. We have retained legal counsel, reporting to our Audit Committee, to investigate this matter.

The DOJ and SEC are also investigating our compliance with the Foreign Corrupt Practices Act ("FCPA") and other laws worldwide. We have retained legal counsel, reporting to our Audit Committee, to investigate these matters and we are cooperating fully with the DOJ and SEC.  As part of our internal investigations, we have uncovered potential violations of U.S. law in connection with activities in several jurisdictions.  We have been in frequent negotiations with the government agencies to resolve these matters and these negotiations have advanced significantly.

During the quarter ended June 30, 2013, negotiations related to the oil-for-food and FCPA matters progressed to a point where we recognized a liability for a loss contingency that we believe is probable and for which a reasonable estimate can be made.  Certain significant issues remain unresolved in the negotiations and, if these issues are not resolved to the Company's satisfaction, negotiations may be discontinued and such unresolved issues may ultimately impact our ability to reach a negotiated resolution of the matters.  At this time, the Company estimates that the most likely amount of this loss is $153 million.  However, uncertainties remain, and therefore an exposure to loss may exist in excess of the amount accrued pending the ultimate resolution of the investigations, and/or we may not ultimately reach final settlement of these matters with the government agencies, and/or we may not obtain court approval of any potential settlement agreement reached with the government, which would be required for final resolution.  Any final settlement may contain other features, including: (1) an agreement under which criminal prosecution for the Company would be deferred for three years, but which would be accompanied by a plea agreement imposing a potential criminal conviction on one of the Company's subsidiaries; (2) a requirement to retain, for a period expected to be 18 months, an independent monitor responsible to assess the Company's compliance with the terms of any agreement that may be reached, to be followed by a period of the Company evaluating its own compliance
16

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

program and making periodic reports to the DOJ and SEC thereon; and (3) a requirement to maintain compliance monitoring and reporting systems meeting certain criteria to be established in the agreement.  The above sentence is not meant to be an exhaustive listing of the non-monetary terms that may be imposed by any potential settlement, and such additional terms may be more or less onerous than those listed above.  The Company recognized a $153 million loss contingency in the quarter ended June 30, 2013 for the potential settlement of the oil-for-food and FCPA matters.

The DOJ, SEC and other agencies and authorities have a broad range of civil and criminal penalties they may seek to impose against corporations and individuals for violations of trade sanctions laws, the FCPA and other federal statutes including, but not limited to, injunctive relief, disgorgement, fines, penalties and modifications to business practices and compliance programs. In recent years, these agencies and authorities have entered into agreements with, and obtained a range of penalties against, several corporations and individuals in similar investigations, under which civil and criminal penalties were imposed, including in some cases fines and other penalties and sanctions in the tens and hundreds of millions of dollars. Any injunctive relief, disgorgement, fines, penalties, sanctions or imposed modifications to business practices resulting from these investigations could adversely affect our results of operations, and the cost of our investigations have been significant.

To the extent we violated trade sanctions laws, the FCPA, or other laws or regulations, fines and other penalties may be imposed.  Because these matters are now pending before the indicated agencies, there is some uncertainty as to the ultimate amount of any penalties we may pay.   There can be no assurance that actual fines or penalties, if any, will not have a material adverse effect on our business, financial condition, liquidity or results of operations.

The SEC and DOJ are investigating the circumstances surrounding the material weakness in the Company's internal controls over financial reporting for income taxes that was disclosed on Forms 8-K and 12b-25 on March 1, 2011, February 21, 2012 and July 24, 2012, respectively, and the subsequent restatements of our historical financial statements.  In addition, the SIX Sanction Commission has received an application from the SIX (Swiss) Exchange Regulation regarding sanctions for similar internal controls and restatement matters. We are cooperating fully with these investigations.

Shareholder Litigation

In 2010, shareholders filed suit in Weatherford's name against those directors in place before June 2010 and certain current and former members of management relating to the U.S. government and internal investigations disclosed above and in our SEC filings since 2007. Separately, in 2011 and 2012, shareholders filed suit relating to the material weakness in the Company's internal controls over financial reporting for income taxes that was disclosed on the Forms 8-K and 12b-25 filed on March 1, 2011, February 21, 2012 and July 24, 2012, and the related restatement of historical financial statements. These suits name the Company as well as current and former members of management and our directors. We cannot predict the ultimate outcome of these claims.

Other Disputes

Our former Senior Vice President and General Counsel (the "Executive") left the Company in June 2009. The Executive had employment agreements with us that terminated on his departure. There is currently a dispute between the Executive and us as to the amount of compensation we are obligated to pay under these employment agreements based on the Executive's separation. This dispute has not resulted in a lawsuit being filed. It is our belief that an unfavorable outcome regarding this dispute is not probable, and as such, we have not accrued for $9 million of the Executive's claimed severance and other benefits.

Additionally, we are aware of various disputes and potential claims and are a party in various litigation involving claims against us, some of which are covered by insurance. For claims, disputes and pending litigation in which we believe a negative outcome is probable and a loss can be reasonably estimated, we have recorded a liability for the expected loss. These liabilities are immaterial to our financial condition and results of operations. In addition we have certain claims, disputes and pending litigation in which we do not believe a negative outcome is probable or for which we can only estimate a range of liability.  If one or more negative outcomes were to occur relative to these matters, we do not believe that the impact to our financial condition would be material.
17

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

15. New Accounting Pronouncements

In July 2012, the FASB issued new guidance allowing entities to use a qualitative approach to test indefinite-lived intangible assets for impairment.  The guidance permits an entity to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying value. If it is concluded that this is the case, it is necessary to perform the currently prescribed quantitative impairment test by comparing the fair value of the indefinite-lived intangible asset with its carrying value. Otherwise, the quantitative impairment test is not required. This new guidance is effective for fiscal years and interim periods beginning after September 15, 2012.  We did not utilize this option in 2012 or in the first six months of 2013.

In February 2013, the FASB issued new guidance intended to improve the reporting of reclassifications out of accumulated other comprehensive income. The guidance requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under U.S. GAAP to be reclassified in its entirety to net income. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety from accumulated other comprehensive income to net income in the same reporting period, an entity is required to cross-reference other disclosures required under U.S. GAAP that provide additional detail about those amounts. This guidance is effective for us in our second quarter of 2013.  Please see Note 10 — Shareholders' Equity, which presents the reclassifications out of Accumulated Other Comprehensive Income.
18

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

16. Condensed Consolidating Financial Statements

Weatherford International Ltd., a Swiss joint-stock company, is the ultimate parent of the Weatherford group ("Weatherford Switzerland or Parent").  The Parent guarantees certain obligations of Weatherford International Ltd., a Bermuda company ("Weatherford Bermuda") and Weatherford International, LLC., a Delaware limited liability company ("Weatherford Delaware"), noted below.

The following obligations of Weatherford Delaware were guaranteed by Weatherford Bermuda at June 30, 2013 and December 31, 2012: (1) the 6.35% Senior Notes and (2) the 6.80% Senior Notes.

The following obligations of Weatherford Bermuda were guaranteed by Weatherford Delaware at June 30, 2013: (1) the revolving credit facility, (2) the 4.95% Senior Notes, (3) the 5.50% Senior Notes, (4) the 6.50% Senior Notes, (5) the 6.00% Senior Notes, (6) the 7.00% Senior Notes, (7) the 9.625% Senior Notes, (8) the 9.875% Senior Notes, (9) the 5.125% Senior Notes, (10) the 6.75% Senior Notes, (11) the 4.50% Senior Notes and (12) the 5.95% Senior Notes.

The following obligations of Weatherford Bermuda were guaranteed by Weatherford Delaware at  December 31, 2012: (1) the revolving credit facility, (2) the 4.95% Senior Notes, (3) the 5.50% Senior Notes, (4) the 6.50% Senior Notes, (5) the 5.15% Senior Notes, (6) the 6.00% Senior Notes, (7) the 7.00% Senior Notes, (8) the 9.625% Senior Notes, (9) the 9.875% Senior Notes, (10) the 5.125% Senior Notes, (11) the 6.75% Senior Notes, (12) the 4.50% Senior Notes and (13) the 5.95% Senior Notes.

As a result of these guarantee arrangements, we are required to present the following condensed consolidating financial information.  The accompanying guarantor financial information is presented on the equity method of accounting for all periods presented.  Under this method, investments in subsidiaries are recorded at cost and adjusted for our share in the subsidiaries' cumulative results of operations, capital contributions and distributions and other changes in equity.  Elimination entries relate primarily to the elimination of investments in subsidiaries and associated intercompany balances and transactions.
19

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

 
Condensed Consolidating Balance Sheet
June 30, 2013
(Unaudited)
(In millions)

 
 
Weatherford
Switzerland
   
Weatherford
Bermuda
   
Weatherford
Delaware
   
Other
Subsidiaries
   
Eliminations
   
Consolidation
 
 
 
   
   
   
   
   
 
Current Assets:
 
   
   
   
   
   
 
Cash and Cash Equivalents
 
$
1
   
$
   
$
1
   
$
293
   
$
   
$
295
 
Other Current Assets
   
5
     
75
     
275
     
8,566
     
(268
)
   
8,653
 
Total Current Assets
   
6
     
75
     
276
     
8,859
     
(268
)
   
8,948
 
 
                                               
Equity Investments in Affiliates
   
8,842
     
9,401
     
7,909
     
14,022
     
(40,174
)
   
 
Shares Held in Parent
   
     
     
10
     
73
     
(83
)
   
 
Intercompany Receivables, Net
   
     
2,103
     
     
     
(2,103
)
   
 
Other Non-current Assets
   
16
     
43
     
14
     
13,611
     
     
13,684
 
Total Assets
 
$
8,864
   
$
11,622
   
$
8,209
   
$
36,565
   
$
(42,628
)
 
$
22,632
 
 
                                               
Current Liabilities:
                                               
Short-term Borrowings and Current Portion of Long-term Debt
 
$
   
$
1,980
   
$
23
   
$
145
   
$
   
$
2,148
 
Accounts Payable and Other Current Liabilities
   
4
     
389
     
     
3,677
     
(268
)
   
3,802
 
Total Current Liabilities
   
4
     
2,369
     
23
     
3,822
     
(268
)
   
5,950
 
 
                                               
Long-term Debt
   
     
5,893
     
1,006
     
188
     
     
7,087
 
Intercompany Payables, Net
   
446
     
     
595
     
1,063
     
(2,104
)
   
 
Other Non-current Liabilities
   
13
     
77
     
1
     
1,065
     
     
1,156
 
Total Liabilities
   
463
     
8,339
     
1,625
     
6,138
     
(2,372
)
   
14,193
 
 
                                               
Weatherford Shareholders' Equity
   
8,401
     
3,283
     
6,584
     
30,389
     
(40,256
)
   
8,401
 
Noncontrolling Interests
   
     
     
     
38
     
     
38
 
Total Liabilities and Shareholders' Equity
 
$
8,864
   
$
11,622
   
$
8,209
   
$
36,565
   
$
(42,628
)
 
$
22,632
 

20

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

 
Condensed Consolidating Balance Sheet
December 31, 2012
(In millions)

 
 
Weatherford
Switzerland
   
Weatherford
Bermuda
   
Weatherford
Delaware
   
Other
Subsidiaries
   
Eliminations
   
Consolidation
 
 
 
   
   
   
   
   
 
Current Assets:
 
   
   
   
   
   
 
Cash and Cash Equivalents
 
$
   
$
   
$
   
$
300
   
$
   
$
300
 
Other Current Assets
   
5
     
5
     
256
     
8,682
     
(219
)
   
8,729
 
Total Current Assets
   
5
     
5
     
256
     
8,982
     
(219
)
   
9,029
 
 
                                               
Equity Investments in Affiliates
   
9,184
     
14,790
     
7,675
     
8,458
     
(40,107
)
   
 
Shares Held in Parent
   
     
     
10
     
172
     
(182
)
   
 
Intercompany Receivables, Net
   
     
1,872
     
     
     
(1,872
)
   
 
Other Non-current Assets
   
17
     
45
     
14
     
13,690
     
     
13,766
 
Total Assets
 
$
9,206
   
$
16,712
   
$
7,955
   
$
31,302
   
$
(42,380
)
 
$
22,795
 
 
                                               
Current Liabilities:
                                               
Short-term Borrowings and Current Portion of Long-term Debt
 
$
   
$
1,439
   
$
26
   
$
120
   
$
   
$
1,585
 
Accounts Payable and Other Current Liabilities
   
8
     
246
     
     
4,089
     
(218
)
   
4,125
 
Total Current Liabilities
   
8
     
1,685
     
26
     
4,209
     
(218
)
   
5,710
 
 
                                               
Long-term Debt
   
     
5,895
     
1,019
     
135
     
     
7,049
 
Intercompany Payables, Net
   
400
     
     
477
     
995
     
(1,872
)
   
 
Other Non-current Liabilities
   
12
     
76
     
3
     
1,127
     
     
1,218
 
Total Liabilities
   
420
     
7,656
     
1,525
     
6,466
     
(2,090
)
   
13,977
 
 
                                               
Weatherford Shareholders' Equity
   
8,786
     
9,056
     
6,430
     
24,804
     
(40,290
)
   
8,786
 
Noncontrolling Interests
   
     
     
     
32
     
     
32
 
Total Liabilities and Shareholders' Equity
 
$
9,206
   
$
16,712
   
$
7,955
   
$
31,302
   
$
(42,380
)
 
$
22,795
 

21

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

 
Condensed Consolidating Statements of Comprehensive Income (Loss)
Three Months Ended June 30, 2013
(Unaudited)
(In millions)

 
 
Weatherford
Switzerland
   
Weatherford
Bermuda
   
Weatherford
Delaware
   
Other
Subsidiaries
   
Eliminations
   
Consolidation
 
 
 
   
   
   
   
   
 
Revenues
 
$
   
$
   
$
   
$
3,868
   
$
   
$
3,868
 
Costs and Expenses
   
(9
)
   
(132
)
   
(1
)
   
(3,671
)
   
     
(3,813
)
Operating Income (Loss)
   
(9
)
   
(132
)
   
(1
)
   
197
     
     
55
 
 
                                               
Other Income (Expense):
                                               
Interest Expense, Net
   
     
(107
)
   
(15
)
   
(6
)
   
     
(128
)
Intercompany Charges, Net
   
(25
)
   
13
     
(109
)
   
121
     
     
 
Equity in Subsidiary Income (Loss)
   
(85
)
   
(17
)
   
114
     
     
(12
)
   
 
Other, Net
   
1
     
24
     
(1
)
   
(42
)
   
     
(18
)
Income (Loss) Before Income Taxes
   
(118
)
   
(219
)
   
(12
)
   
270
     
(12
)
   
(91
)
Benefit (Provision) for Income Taxes
   
     
     
45
     
(65
)
   
     
(20
)
Net Income (Loss)
   
(118
)
   
(219
)
   
33
     
205
     
(12
)
   
(111
)
Noncontrolling Interests
   
     
     
     
(7
)
   
     
(7
)
Net Income (Loss) Attributable to Weatherford
 
$
(118
)
 
$
(219
)
 
$
33
   
$
198
   
$
(12
)
 
$
(118
)
Comprehensive Income (Loss) Attributable to Weatherford
 
$
(291
)
 
$
(325
)
 
$
(21
)
 
$
25
   
$
321
   
$
(291
)


Condensed Consolidating Statements of Comprehensive Income
Three Months Ended June 30, 2012
(Unaudited)
(In millions)

 
 
Weatherford
Switzerland
   
Weatherford
Bermuda
   
Weatherford
Delaware
   
Other
Subsidiaries
   
Eliminations
   
Consolidation
 
 
 
   
   
   
   
   
 
Revenues
 
$
   
$
   
$
   
$
3,747
   
$
   
$
3,747
 
Costs and Expenses
   
(110
)
   
     
     
(4,269
)
   
     
(4,379
)
Operating Income (Loss)
   
(110
)
   
     
     
(522
)
   
     
(632
)
 
                                               
Other Income (Expense):
                                               
Interest Expense, Net
   
     
(101
)
   
(17
)
   
(3
)
   
     
(121
)
Intercompany Charges, Net
   
(27
)
   
7
     
(52
)
   
72
     
     
 
Equity in Subsidiary Income (Loss)
   
(711
)
   
(785
)
   
(447
)
   
     
1,943
     
 
Other, Net
   
(1
)
   
55
     
(1
)
   
(80
)
   
     
(27
)
Income (Loss) Before Income Taxes
   
(849
)
   
(824
)
   
(517
)
   
(533
)
   
1,943
     
(780
)
Benefit (Provision) for Income Taxes
   
     
     
25
     
(88
)
   
     
(63
)
Net Income (Loss)
   
(849
)
   
(824
)
   
(492
)
   
(621
)
   
1,943
     
(843
)
Noncontrolling Interests
   
     
     
     
(6
)
   
     
(6
)
Net Income (Loss) Attributable to Weatherford
 
$
(849