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10-Q
WEATHERFORD INTERNATIONAL LTD./SWITZERLAND filed this Form 10-Q on 11/05/2013
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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 September 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)

41.22.816.1500
(Registrant's telephone number, including area code)

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 October 31, 2013, there were 769,395,168 registered shares, 1.16 Swiss francs par value per share, of the registrant 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)


 
 
September 30, 2013
   
December 31,
2012
 
 
 
(Unaudited)
   
 
Current Assets:
 
   
 
Cash and Cash Equivalents
 
$
316
   
$
300
 
Accounts Receivable, Net of Allowance for Uncollectible Accounts of $85 and $84
   
4,004
     
3,885
 
Inventories, Net
   
3,580
     
3,675
 
Current Deferred Tax Assets
   
362
     
376
 
Other Current Assets
   
811
     
793
 
Total Current Assets
   
9,073
     
9,029
 
 
               
Property, Plant and Equipment, Net of Accumulated Depreciation of $6,708 and $6,030
   
8,397
     
8,299
 
Goodwill
   
3,754
     
3,871
 
Other Intangible Assets, Net of Accumulated Amortization of $720 and $658
   
667
     
766
 
Equity Investments
   
686
     
646
 
Other Non-current Assets
   
360
     
184
 
Total Assets
 
$
22,937
   
$
22,795
 
 
               
 
               
Current Liabilities:
               
Short-term Borrowings and Current Portion of Long-term Debt
 
$
2,230
   
$
1,585
 
Accounts Payable
   
2,117
     
2,108
 
Other Current Liabilities
   
1,804
     
2,017
 
Total Current Liabilities
   
6,151
     
5,710
 
 
               
Long-term Debt
   
7,065
     
7,049
 
Other Non-current Liabilities
   
1,140
     
1,218
 
Total Liabilities
   
14,356
     
13,977
 
 
               
Shareholders' Equity:
               
Shares, CHF 1.16 Par Value: Authorized 840, Conditionally Authorized 372, Issued 840 at September 30, 2013 and December 31, 2012
   
775
     
775
 
Capital in Excess of Par Value
   
4,619
     
4,674
 
Treasury Shares, at Cost
   
(73
)
   
(182
)
Retained Earnings
   
3,282
     
3,356
 
Accumulated Other Comprehensive Income (Loss)
   
(63
)
   
163
 
Weatherford Shareholders' Equity
   
8,540
     
8,786
 
Noncontrolling Interests
   
41
     
32
 
Total Shareholders' Equity
   
8,581
     
8,818
 
Total Liabilities and Shareholders' Equity
 
$
22,937
   
$
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 September 30,
   
Nine Months Ended September 30,
 
 
 
2013
   
2012
   
2013
   
2012
 
 
 
   
   
   
 
Revenues:
 
   
   
   
 
Products
 
$
1,533
   
$
1,535
   
$
4,510
   
$
4,456
 
Services
   
2,287
     
2,284
     
7,015
     
6,701
 
 
   
3,820
     
3,819
     
11,525
     
11,157
 
 
                               
Costs and Expenses:
                               
Cost of Products
   
1,158
     
1,208
     
3,372
     
3,414
 
Cost of Services
   
1,878
     
1,759
     
5,796
     
5,224
 
Research and Development
   
65
     
68
     
203
     
194
 
Selling, General and Administrative Attributable to Segments
   
404
     
382
     
1,211
     
1,162
 
Corporate, General and Administrative
   
76
     
87
     
225
     
245
 
Goodwill and Equity Investment Impairment
   
     
     
     
793
 
U.S. Government Investigation Loss Contingency
   
     
     
153
     
100
 
Gain on Sale of Business
   
     
     
(8
)
   
(28
)
 
   
3,581
     
3,504
     
10,952
     
11,104
 
 
                               
Operating Income
   
239
     
315
     
573
     
53
 
 
                               
Interest Expense, Net
   
(129
)
   
(127
)
   
(388
)
   
(360
)
Devaluation of Venezuelan Bolivar
   
     
     
(100
)
   
 
Other, Net
   
(30
)
   
(25
)
   
(61
)
   
(70
)
 
                               
Income (Loss) Before Income Taxes
   
80
     
163
     
24
     
(377
)
Provision for Income Taxes
   
(49
)
   
(86
)
   
(74
)
   
(259
)
Net Income (Loss)
   
31
     
77
     
(50
)
   
(636
)
 
                               
Net Income Attributable to Noncontrolling Interests
   
(9
)
   
(7
)
   
(24
)
   
(20
)
Net Income (Loss) Attributable to Weatherford
 
$
22
   
$
70
   
$
(74
)
 
$
(656
)
 
                               
Income (Loss) Per Share Attributable to Weatherford:
                               
Basic
 
$
0.03
   
$
0.09
   
$
(0.10
)
 
$
(0.86
)
Diluted
 
$
0.03
   
$
0.09
   
$
(0.10
)
 
$
(0.86
)
 
                               
Weighted Average Shares Outstanding:
                               
Basic
   
773
     
767
     
771
     
764
 
Diluted
   
779
     
771
     
771
     
764
 


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 September 30,
   
Nine Months Ended September 30,
 
 
 
2013
   
2012
   
2013
   
2012
 
 
 
   
   
   
 
Net Income (Loss)
 
$
31
   
$
77
   
$
(50
)
 
$
(636
)
Other Comprehensive Income (Loss):
                               
Foreign Currency Translation
   
96
     
215
     
(227
)
   
82
 
Defined Benefit Pension Activity
   
     
     
1
     
1
 
Other Comprehensive Income (Loss)
   
96
     
215
     
(226
)
   
83
 
Comprehensive Income (Loss)
   
127
     
292
     
(276
)
   
(553
)
Comprehensive Income Attributable to Noncontrolling Interests
   
(9
)
   
(7
)
   
(24
)
   
(20
)
Comprehensive Income (Loss) Attributable to Weatherford
 
$
118
   
$
285
   
$
(300
)
 
$
(573
)

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)


 
 
Nine Months Ended September 30,
 
 
 
2013
   
2012
 
 
 
   
 
Cash Flows from Operating Activities:
 
   
 
Net Income (Loss)
 
$
(50
)
 
$
(636
)
Adjustments to Reconcile Net Loss to Net Cash Provided by Operating Activities:
               
Depreciation and Amortization
   
1,039
     
939
 
Goodwill and Equity Investment Impairment
   
     
793
 
U.S. Government Investigation Loss Contingency
   
153
     
100
 
Employee Share-Based Compensation Expense
   
45
     
54
 
Deferred Income Tax Provision (Benefit)
   
(168
)
   
36
 
Devaluation of Venezuelan Bolivar
   
100
     
 
Loss (Gain) on Sale of Assets and Businesses
   
7
     
(22
)
Other, Net
   
(45
)
   
72
 
Change in Operating Assets and Liabilities, Net of Effect of Businesses Acquired:
               
Accounts Receivable
   
(308
)
   
(739
)
Inventories
   
3
     
(753
)
Billings in Excess of Costs and Estimated Earnings
   
(164
)
   
10
 
Other Current Assets
   
69
     
(221
)
Accounts Payable
   
90
     
474
 
Other Current Liabilities
   
(227
)
   
335
 
Other
   
23
     
74
 
Net Cash Provided by Operating Activities
   
567
     
516
 
 
               
Cash Flows from Investing Activities:
               
Capital Expenditures for Property, Plant and Equipment
   
(1,211
)
   
(1,670
)
Acquisitions of Businesses, Net of Cash Acquired
   
(7
)
   
(156
)
Acquisition of Intellectual Property
   
(7
)
   
(16
)
Acquisition of Equity Investments in Unconsolidated Affiliates
   
     
(8
)
Proceeds from Sale of Assets and Businesses, Net
   
74
     
33
 
Net Cash Used by Investing Activities
   
(1,151
)
   
(1,817
)
 
               
Cash Flows from Financing Activities:
               
Borrowings (Repayments) Long-term Debt, Net
   
(329
)
   
1,002
 
Borrowings (Repayments) of Short-term Debt, Net
   
932
     
257
 
Proceeds from Exercise of Warrants
   
     
65
 
Other Financing Activities
   
1
     
(30
)
Net Cash Provided by Financing Activities
   
604
     
1,294
 
 
               
Effect of Exchange Rate Changes on Cash and Cash Equivalents, Excluding Devaluation of Venezuelan Bolivar
   
(4
)
   
1
 
 
               
Net (Decrease) Increase in Cash and Cash Equivalents
   
16
     
(6
)
Cash and Cash Equivalents at Beginning of Period
   
300
     
371
 
Cash and Cash Equivalents at End of Period
 
$
316
   
$
365
 
 
               
Supplemental Cash Flow Information:
               
Interest Paid
 
$
442
   
$
401
 
Income Taxes Paid, Net of Refunds
   
336
     
299
 

The accompanying notes are an integral part of these condensed consolidated financial statements.
6

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 September 30, 2013, Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Comprehensive Income and Condensed Consolidated Statements of Cash Flows for the three and nine months ended September 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, 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 nine months ended September 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 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 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 nine months ended September 30, 2013, we acquired businesses for cash consideration of $7 million, net of cash acquired.
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.  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 totaling $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.
7

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

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 expect to collect the remaining cash consideration in November 2013.
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 $9 million at September 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
During the nine months ended September 30, 2013, we sold approximately $139 million of accounts receivable under our factoring program in Mexico. We received cash totaling $132 million and recognized a loss of approximately $2 million on the sales. These sales occurred in the first and third quarters of 2013.  During the three and nine months ended September 30, 2012, we sold approximately $96 million and $147 million, respectively, of accounts receivable under the program.  We received cash totaling $136 million and ultimately collected amounts that resulted in a loss of less than $1 million on these sales.
Our factoring transactions qualify for sale accounting under the accounting standards and the proceeds are included in operating cash flows in our Condensed Consolidated Statements of Cash Flows.
4.    Inventories
The components of inventory were as follows:
 
 
September 30,
2013
   
December 31,
2012
 
 
 
(In millions)
 
 
 
   
 
Raw materials, components and supplies
 
$
438
   
$
461
 
Work in process
   
140
     
166
 
Finished goods
   
3,002
     
3,048
 
 
 
$
3,580
   
$
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").
8

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 reporting unit in Latin America 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 nine months ended September 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
   
1
     
     
(2
)
   
2
     
1
 
Foreign currency translation
   
(39
)
   
(6
)
   
(27
)
   
(7
)
   
(79
)
Balance at September 30, 2013
 
$
2,275
   
$
216
   
$
915
   
$
348
   
$
3,754
 

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


 
 
September 30,
2013
   
December 31,
2012
 
 
 
(In millions)
 
 
 
   
 
Commercial paper
 
$
968
   
$
888
 
Revolving credit facility
   
450
     
 
364-day term loan facility
   
300
     
 
Other short-term bank loans
   
194
     
109
 
Total short-term borrowings
   
1,912
     
997
 
Current portion of long-term debt
   
318
     
588
 
 
 
$
2,230
   
$
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 September 30, 2013. At September 30, 2013, our borrowings under our commercial paper program had a weighted average interest rate of 1.01% and there were $41 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.
9

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 September 30, 2013, we had $194 million in short-term borrowings under these arrangements with a weighted average interest rate of 5.05%.  In addition, we had $557 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 September 30, 2013.

The carrying value of our short-term borrowings approximates their fair value as of September 30, 2013.  The current portion of long-term debt at September 30, 2013 includes $250 million of 4.95% Senior Notes due October 2013 and other debt maturing in 2013 totaling $68 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 September 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:

 
 
September 30,
2013
   
December 31,
2012
 
 
 
(In millions)
 
 
 
   
 
Fair value
 
$
7,671
   
$
8,368
 
Carrying value
   
7,056
     
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.
10

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

Fair Value Hedges
From time to time 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 September 30, 2013, we had net unamortized gains of $44 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 September 30, 2013, we had net unamortized losses of $11 million associated with our cash flow hedge terminations.
Other Derivative Instruments
As of September 30, 2013, we had foreign currency forward contracts with notional amounts aggregating to $753 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 liability of approximately $11 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 September 30, 2013, we had notional amounts outstanding of $168 million.  The total estimated fair value of these contracts at September 30, 2013, resulted in a liability of $27 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:

 
 
September 30, 2013
   
December 31,
2012
 
Classifications
 
 
(In millions)
 
 
 
 
   
 
    
Derivative assets not designated as hedges:
 
   
 
   
Foreign currency forward contracts
 
$
7
   
$
5
 
Other Current Assets
 
               
    
Derivative liabilities not designated as hedges:
               
   
Foreign currency forward contracts
   
(18
)
   
(20
)
Other Current Liabilities
Cross-currency swap contracts
   
(27
)
   
(34
)
Other Liabilities

9.    Income Tax
For the three and nine months ended September 30, 2013, we had a tax provision of $49 million and $74 million on income before tax of $80 million and $24 million.  Our effective tax rate for the three and nine months ended September 30, 2013 is 61% and 308%, respectively.  Our income before taxes for the nine months ended September 30, 2013 includes a $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 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.
11

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


For the three and nine months ended September 30, 2012, we had a tax provision of $86 million and $259 million on income before tax of $163 million and loss before tax of $377 million. Our effective tax rate for the three and nine months ended September 30, 2012 was 53% and (69)%, respectively.  Our loss before taxes for the nine months ended September 30, 2012 includes a $589 million charge for the impairment of goodwill, substantially all of which was non- deductible, a $204 million equity method impairment charge and a $100 million accrual for a loss contingency, both of which were fully non-deductible.
We anticipate a possible reduction in the balance of uncertain tax positions between $60 million to $100 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 nine months ended September 30, 2013 and 2012:


 
 
Issued
Shares
   
Capital In Excess
of Par Value
   
Retained Earnings
   
Accumulated Other Comprehensive Income (Loss)
   
Treasury Shares
   
Noncontrolling Interests
   
Total
 
 
 
(In millions)
 
 
         
           
   
 
Balance at December 31, 2011
 
$
769
   
$
4,675
   
$
4,134
   
$
80
   
$
(334
)
 
$
21
   
$
9,345
 
Net Income (Loss)
   
     
     
(656
)
   
     
     
20
     
(636
)
Other Comprehensive Loss
   
     
     
     
83
     
     
     
83
 
Dividends Paid to Noncontrolling Interests
   
     
     
     
     
     
(16
)
   
(16
)
Shares Issued for Acquisitions
   
     
(27
)
   
     
     
66
     
     
39
 
Equity Awards Granted, Vested and Exercised
   
     
(16
)
   
     
     
51
     
     
35
 
Other
   
6
     
51
     
     
     
     
8
     
65
 
Balance at September 30, 2012
 
$
775
   
$
4,683
   
$
3,478
   
$
163
   
$
(217
)
 
$
33
   
$
8,915
 
 
                                                       
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
 

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.
12

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 nine months ended September 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
   
82
     
     
     
82
 
Reclassifications
   
     
1
     
     
1
 
Net activity
   
82
     
1
     
     
83
 
 
                               
Balance at September 30, 2012
 
$
209
   
$
(35
)
 
$
(11
)
 
$
163
 
 
                               
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
)

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 nine months ended September 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 table presents a reconciliation of basic and diluted weighted average of shares outstanding:

 
 
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
 
 
2013
   
2012
   
2013
   
2012
 
 
 
(In millions)
 
 
 
   
   
   
 
Basic weighted average shares outstanding
   
773
     
767
     
771
     
764
 
Dilutive effect of:
                               
Stock options, restricted shares and performance units
   
6
     
4
     
     
 
Diluted weighted average shares outstanding
   
779
     
771
     
771
     
764
 

13

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

 
Our diluted weighted average shares outstanding for the three and nine months ended September 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 nine months ended September 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 September 30,
   
Nine Months Ended September 30,
 
 
 
2013
   
2012
   
2013
   
2012
 
 
 
(In millions)
 
 
 
   
   
   
 
Anti-dilutive potential shares
   
2
     
3
     
2
     
3
 
Anti-dilutive potential shares due to net loss
   
     
     
5
     
4
 

12.    Share-Based Compensation
We recognized the following employee share-based compensation expense during the three and nine months ended September 30, 2013 and 2012:

 
 
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
 
 
2013
   
2012
   
2013
   
2012
 
 
 
(In millions)
 
 
 
   
   
   
 
Share-based compensation
 
$
18
   
$
17
   
$
45
   
$
54
 
Related tax benefit
   
5
     
6
     
9
     
19
 

During the nine months ended September 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 September 30, 2013, there was $20 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 nine months ended September 30, 2013, we also granted 4.1 million restricted share awards at a weighted average grant date fair value of $13.08 per share.  As of September 30, 2013, there was $74 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.
14

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 September 30, 2013
 
 
 
Net
Operating
Revenues
   
Income
from
Operations
   
Depreciation
and
Amortization
 
 
 
(In millions)
 
 
 
   
   
 
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 (a)
   
     
(46
)
   
 
Total
 
$
3,820
   
$
239
   
$
352
 


 
 
Three Months Ended September 30, 2012
 
 
 
Net
Operating
Revenues
   
Income
from
Operations
   
Depreciation
and
Amortization
 
 
 
(In millions)
 
 
 
   
   
 
North America
 
$
1,725
   
$
268
   
$
108
 
MENA/Asia Pacific
   
700
     
22
     
90
 
Europe/SSA/Russia
   
626
     
88
     
63
 
Latin America
   
768
     
97
     
61
 
 
   
3,819
     
475
     
322
 
Corporate and Research and Development
   
     
(116
)
   
7
 
Other (b)
   
     
(44
)
   
 
Total
 
$
3,819
   
$
315
   
$
329
 

a)
The three months ended September 30, 2013, includes $16 million in professional fees and expenses related to the historical U.S. government investigations and the on-going remediation of our material weakness related to income taxes as well as $30 million in severance, exit and other charges, including $20 million in severance.

b)
The three months ended September 30, 2012, includes $27 million in professional fees and expenses related to the historical U.S. government investigations and the on-going remediation of our material weakness related to income taxes as well as $11 million in fees and expenses associated with our third quarter 2012 debt consent solicitation and severance, exit and other charges of $6 million.
15

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


 
 
Nine Months Ended September 30, 2013
 
 
 
Net
Operating
Revenues
   
Income
From
Operations
   
Depreciation
and
Amortization
 
 
 
(In millions)
 
 
 
   
 
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 Contingency
   
     
(153
)
   
 
Other (a)
   
     
(138
)
   
 
Total
 
$
11,525
   
$
573
   
$
1,039
 

 
 
Nine Months Ended September 30, 2012
 
 
 
Net
Operating
Revenues
   
Income
From
Operations
   
Depreciation
and
Amortization
 
 
 
(In millions)
 
 
 
   
   
 
North America
 
$
5,142
   
$
852
   
$
304
 
MENA/Asia Pacific
   
1,944
     
6
     
258
 
Europe/SSA/Russia
   
1,850
     
256
     
184
 
Latin America
   
2,221
     
270
     
175
 
 
   
11,157
     
1,384
     
921
 
Corporate and Research and Development
   
     
(341
)
   
18
 
Goodwill and Equity Investment Impairment
   
     
(793
)
   
 
U.S. Government Investigation Loss Contingency
   
     
(100
)
   
 
Other (b)
   
     
(97
)
   
 
Total
 
$
11,157
   
$
53
   
$
939
 

a)
The nine months ended September 30, 2013, includes $60 million in professional fees and expenses related to the historical U.S. government investigations and the on-going remediation of our material weakness related to income taxes as well as severance, exit and other charges of $78 million, including $64 million of severance and an $8 million gain related to the sale of our industrial screen business.

b)
The nine months ended September 30, 2012, includes $55 million in professional fees and expenses related to the historical U.S. government investigations and the on-going remediation of our material weakness related to income taxes, $11 million in fees and expenses associated with our third quarter 2012 debt consent solicitation, as well as and severance, exit and other charges of $59 million offset by a $28 million gain related to the sale of our subsea controls business.
16

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
During the three and nine months ended September 30, 2013, we recognized estimated project losses of $85 million and $84 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 $160 million at September 30, 2013.  In the nine months ended September 30, 2012, we recognized losses of $87 million related to a long-term early production facility construction contract in Iraq.  As of September 30, 2013, our project estimates include $36 million of claims revenue.
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 amount of this loss is $100 million and recognized a loss contingency equal to such amount in the quarter ended June 30, 2012.  We have reached agreements of terms and fine payments relating to the alleged violations of the trade sanctions laws with the DOJ and government agency representatives.  Final settlement will require definitive documentation, acceptance by supervising officials and judicial approval.  The proposed agreement contemplates total payments to government agencies of $100 million, the amount for which the Company recognized a loss contingency in the quarter ended June 30, 2012.  The settlement would also require an agreement under which criminal prosecution for the Company would be deferred for two years and plea agreements imposing potential criminal convictions on two of the Company's subsidiaries.
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 have also investigated 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.
17

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

We have been in frequent negotiations with the government agencies to resolve these matters. 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.  The Company estimates that the amount of this loss is $153 million and recognized a loss contingency equal to such amount in the quarter ended June 30, 2013.  Since our last 10-Q filing, substantial progress in the negotiations was made, and these negotiations have recently concluded. These negotiations have resulted in agreements with representatives of the DOJ and the SEC enforcement staff relating to terms and total payments to be made to government agencies relating to the oil-for-food and FCPA matters subject in each case to final review and approval by the DOJ and SEC Commission as well as judicial approval.  The agreements would require total payments to government agencies equal to the $153 million loss contingency that the Company recognized in the quarter ended June 30, 2013.  The agreements would also include (1) an agreement under which criminal prosecution for the Company would be deferred for three years and a plea agreement would impose a criminal conviction on one of the Company's subsidiaries; (2) a requirement to retain, for a period of at least 18 months, an independent monitor responsible to assess the Company's compliance with the terms of the agreement so as to address and reduce the risk of recurrence of alleged misconduct, after which the Company would continue to evaluate its own compliance program and make periodic reports to the DOJ and SEC; and (3) a requirement to maintain agreed compliance monitoring and reporting systems.  If final settlement terms differ from the agreements we have reached with DOJ and SEC representatives or if necessary approvals are not ultimately obtained, we could become subject to injunctive relief, disgorgement, fines, penalties, sanctions or imposed modifications to business practices that could adversely affect our results of operations.
The SEC and DOJ are also investigating the circumstances surrounding the material weakness in the Company's internal control 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 they present while investigations are pending, 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 the Company, could be material to our business, financial condition or results of operations. In September 2013, we also received the final decision of the SIX Swiss Exchange Sanction Commission regarding its investigation for similar internal controls and restatement matters.  The decision resulted in a fine of $270,000 plus costs; we do not plan to appeal.
18

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

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 oil for food, FCPA and trade sanctions U.S. government investigations disclosed above and in our SEC filings since 2007.  Those shareholder derivative cases are pending in the Harris County, Texas, civil court and are captioned Neff v. Brady, et al., No. 201040764, Hess v. Duroc-Danner, et al., No. 201040765, and Rosner v. Brady, et al., No. 201047343.
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 the Company's announcement on March 1, 2011 of a material weakness in its internal controls over financial reporting for income taxes, and restatement of our historical financial statements.  The Dobina complaint alleged violation of the federal securities laws by the Company and certain current and former officers and directors.  Also 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 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 second 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 the Company, 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.
Other Disputes
A 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, the aggregate impact to our financial condition could be material.
15.    New Accounting Pronouncements
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 became 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.
19

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

In July 2013, the FASB issued new guidance intended to clarify the presentation of unrecognized tax benefits. An unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carry forward, a similar tax loss, or a tax credit carryforward, with certain exceptions.  The unrecognized tax benefit should be presented as a liability and should not be combined with deferred tax assets to the extent that: 1) the deferred tax asset is not available under the tax law of the applicable jurisdiction to settle additional income taxes resulting from disallowance of the tax position, or 2) the entity is not required to use the deferred tax asset under the tax law of the applicable jurisdiction and the entity does not intend to use the deferred tax asset to offset additional taxes that would result from disallowance of the position.  This guidance will be effective for us beginning with the first quarter of 2014 and may be adopted prospectively for all unrecognized tax benefits that exist at the effective date or retrospectively.  The adoption of this guidance is not expected to have a material impact on our financial position, results of operations or cash flows.
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 September 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 September 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 guarantees 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.
20

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
Condensed Consolidating Balance Sheet
September 30, 2013
(Unaudited)
(In millions)

 
 
Weatherford
Switzerland
   
Weatherford
Bermuda
   
Weatherford
Delaware
   
Other
Subsidiaries
   
Eliminations
   
Consolidation
 
 
 
   
   
   
   
   
 
Current Assets:
 
   
   
   
   
   
 
Cash and Cash Equivalents
 
$
1
   
$
3
   
$
   
$
312
   
$
   
$
316
 
Other Current Assets
   
4
     
45
     
282
     
8,716
     
(290
)
   
8,757
 
Total Current Assets
   
5
     
48
     
282
     
9,028
     
(290
)
   
9,073
 
 
                                               
Equity Investments in Affiliates
   
8,989
     
10,185
     
7,897
     
13,349
     
(40,420
)
   
 
Shares Held in Parent
   
     
     
10
     
63
     
(73
)
   
 
Intercompany Receivables, Net
   
     
1,503
     
     
     
(1,503
)
   
 
Other Non-current Assets
   
7
     
42
     
15
     
13,800
     
     
13,864
 
Total Assets
 
$
9,001
   
$
11,778
   
$
8,204
   
$
36,240
   
$
(42,286
)
 
$
22,937
 
 
                                               
Current Liabilities:
                                               
Short-term Borrowings and Current Portion of Long-term Debt
 
$
   
$
2,049
   
$
23
   
$
158
   
$
   
$
2,230
 
Accounts Payable and Other Current Liabilities
   
8
     
334
     
     
3,869
     
(290
)
   
3,921
 
Total Current Liabilities
   
8
     
2,383
     
23
     
4,027
     
(290
)
   
6,151
 
 
                                               
Long-term Debt
   
     
5,892
     
999
     
174
     
     
7,065
 
Intercompany Payables, Net
   
442
     
     
667
     
393
     
(1,502
)
   
 
Other Non-current Liabilities
   
11
     
77
     
2
     
1,050
     
     
1,140
 
Total Liabilities
   
461
     
8,352
     
1,691
     
5,644
     
(1,792
)
   
14,356
 
 
                                               
Weatherford Shareholders' Equity
   
8,540
     
3,426
     
6,513
     
30,555
     
(40,494
)
   
8,540
 
Noncontrolling Interests
   
     
     
     
41
     
     
41
 
Total Liabilities and Shareholders' Equity
 
$
9,001
   
$
11,778
   
$
8,204
   
$
36,240
   
$
(42,286
)
 
$
22,937
 

21

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
 

22

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
Condensed Consolidating Statements of Comprehensive Income (Loss)
Three Months Ended September 30, 2013
(Unaudited)
(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 (Loss)
   
31
     
35
     
62
     
     
(128
)
   
 
Other, Net
   
(1
)
   
(26
)
   
     
(3
)
   
     
(30
)
Income (Loss) Before Income Taxes
   
22
     
(87
)
   
(39
)
   
312
     
(128
)
   
80
 
Benefit (Provision) 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
 


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

 
 
Weatherford
Switzerland
   
Weatherford
Bermuda
   
Weatherford
Delaware
   
Other
Subsidiaries
   
Eliminations
   
Consolidation
 
 
 
   
   
   
   
   
 
Revenues
 
$
   
$
   
$
   
$
3,819
   
$
   
$
3,819
 
Costs and Expenses
   
(8
)
   
(11
)
   
(2
)
   
(3,483
)
   
     
(3,504
)
Operating Income (Loss)
   
(8
)
   
(11
)
   
(2
)
   
336
     
     
315
 
 
                                               
Other Income (Expense):
                                               
Interest Expense, Net
   
     
(106
)
   
(17
)
   
(4
)
   
     
(127
)
Intercompany Charges, Net
   
13
     
7
     
(56
)
   
36
     
     
 
Equity in Subsidiary Income (Loss)
   
65
     
70
     
128
     
     
(263
)
   
 
Other, Net
   
     
(33
)
   
     
8
     
     
(25
)
Income (Loss) Before Income Taxes
   
70
     
(73
)
   
53
     
376
     
(263
)
   
163
 
Benefit (Provision) for Income Taxes
   
     
     
27
     
(113
)
   
     
(86
)
Net Income (Loss)
   
70
     
(73
)
   
80
     
263
     
(263
)
   
77
 
Noncontrolling Interests
   
     
     
     
(7
)
   
     
(7
)
Net Income (Loss) Attributable to Weatherford
 
$
70
   
$
(73
)
 
$
80
   
$
256
   
$
(263
)
 
$
70
 
Comprehensive Income (Loss) Attributable to Weatherford
 
$
70
   
$
(73
)
 
$
80
   
$
471
   
$
(263
)
 
$
285
 

23

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
Condensed Consolidating Statements of Income
Nine Months Ended September 30, 2013
(Unaudited)
(In millions)

 
 
Weatherford
Switzerland
   
Weatherford
Bermuda
   
Weatherford
Delaware
   
Other
Subsidiaries
   
Eliminations
   
Consolidation
 
 
 
   
   
   
   
   
 
Revenues
 
$