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EX-32.2 - EXHIBIT 32.2 CFO 906 CERT WFT 033118 - Weatherford International plcex322cfo906certwft33118.htm
EX-32.1 - EXHIBIT 32.1 CEO 906 CERT WFT 033118 - Weatherford International plcex321ceo906certwft33118.htm
EX-31.2 - EXHIBIT 31.2 CFO 302 CERT WFT 033118 - Weatherford International plcex312cfo302certwft33118.htm
EX-31.1 - EXHIBIT 31.1 CEO 302 CERT WFT 033118 - Weatherford International plcex311ceo302certwft33118.htm

            

 
UNITED STATES
 
 
SECURITIES AND EXCHANGE COMMISSION
 
 
WASHINGTON, D.C. 20549
 
(Mark One)
 
Form 10-Q
 
 
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the quarterly period ended March 31, 2018
 
 
or
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the transition period from __________________________________to __________________________________
 
 
Commission file number 001-36504
 

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

Registrant’s Telephone Number, Including Area Code: +41.22.816.1500
 
N/A
 
 
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ
Accelerated filer o
Non-accelerated filer (Do not check if a smaller reporting company) o
Smaller reporting company o
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 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 April 24, 2018, there were 996,749,190 Weatherford ordinary shares, $0.001 par value per share, outstanding.




Weatherford International public limited company
Form 10-Q for the Three Months Ended March 31, 2018



1


PART I FINANCIAL INFORMATION
Item 1. Financial Statements.

WEATHERFORD INTERNATIONAL PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 
Three Months Ended March 31,
(Dollars and shares in millions, except per share amounts)
2018
 
2017
Revenues:
 
 
 
Products
$
501

 
$
511

Services
922

 
875

Total Revenues
1,423

 
1,386

 
 
 
 
Costs and Expenses:
 
 
 
Cost of Products
465

 
486

Cost of Services
680

 
720

Research and Development
38

 
39

Selling, General and Administrative Attributable to Segments
200

 
230

Corporate General and Administrative
36

 
33

Asset Write-Downs and Other
18

 
17

Restructuring and Transformation Charges
25

 
75

Total Costs and Expenses
1,462

 
1,600

 
 
 
 
Operating Loss
(39
)
 
(214
)
 
 
 
 
Other Income (Expense):
 
 
 
Interest Expense, Net
(149
)
 
(141
)
Warrant Fair Value Adjustment
46

 
(62
)
Bond Tender and Call Premium
(34
)
 

Currency Devaluation Charges
(26
)
 

Other Income (Expense), Net
(8
)
 
7

 
 
 
 
Loss Before Income Taxes
(210
)
 
(410
)
Income Tax Provision
(32
)
 
(33
)
Net Loss
(242
)
 
(443
)
Net Income Attributable to Noncontrolling Interests
3

 
5

Net Loss Attributable to Weatherford
$
(245
)
 
$
(448
)
 
 
 
 
Loss Per Share Attributable to Weatherford:
 
 
 
Basic & Diluted
$
(0.25
)
 
$
(0.45
)
 
 
 
 
Weighted Average Shares Outstanding:
 
 
 
Basic & Diluted
994

 
988


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


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

 
Three Months Ended March 31,
(Dollars in millions)
2018
 
2017
Net Loss
$
(242
)
 
$
(443
)
 
 
 
 
Currency Translation Adjustments
5

 
63

Defined Benefit Pension Activity

 
(20
)
Other Comprehensive Income (Loss)
5

 
43

Comprehensive Loss
(237
)
 
(400
)
Comprehensive Income Attributable to Noncontrolling Interests
3

 
5

Comprehensive Loss Attributable to Weatherford
$
(240
)
 
$
(405
)

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


WEATHERFORD INTERNATIONAL PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 
March 31,
 
December 31,
(Dollars and shares in millions, except par value)
2018
 
2017
 
(Unaudited)
 
 
Current Assets:
 
 
 
Cash and Cash Equivalents
$
459

 
$
613

Accounts Receivable, Net of Allowance for Uncollectible Accounts of $149 in 2018 and $156 in 2017
1,100

 
1,103

Inventories, Net
1,225

 
1,234

Prepaid Expenses
127

 
237

Other Current Assets
335

 
332

Assets Held for Sale
369

 
359

Total Current Assets
3,615

 
3,878

 
 
 
 
Property, Plant and Equipment, Net of Accumulated Depreciation of $7,423 in 2018 and $7,462 in 2017
2,580

 
2,708

Goodwill
2,740

 
2,727

Other Intangible Assets, Net of Accumulated Amortization of $887 in 2018 and $870 in 2017
228

 
213

Equity Investments
26

 
62

Other Non-Current Assets
145

 
159

Total Assets
$
9,334

 
$
9,747

 
 
 
 
Current Liabilities:
 
 
 
Short-term Borrowings and Current Portion of Long-term Debt
$
153

 
$
148

Accounts Payable
809

 
856

Accrued Salaries and Benefits
311

 
308

Income Taxes Payable
201

 
228

Other Current Liabilities
618

 
690

Total Current Liabilities
2,092

 
2,230

 
 
 
 
Long-term Debt
7,639

 
7,541

Other Non-Current Liabilities
501

 
547

Total Liabilities
10,232

 
10,318

 
 
 
 
Shareholders’ Equity:
 
 
 
Shares - Par Value $0.001; Authorized 1,356 shares, Issued and Outstanding 996 shares at March 31, 2018 and 993 shares at December 31, 2017
$
1

 
$
1

Capital in Excess of Par Value
6,676

 
6,655

Retained Deficit
(6,105
)
 
(5,763
)
Accumulated Other Comprehensive Loss
(1,514
)
 
(1,519
)
Weatherford Shareholders’ Equity
(942
)
 
(626
)
Noncontrolling Interests
44

 
55

Total Shareholders’ Equity
(898
)
 
(571
)
Total Liabilities and Shareholders’ Equity
$
9,334

 
$
9,747

 

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


WEATHERFORD INTERNATIONAL PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 
Three Months Ended March 31,
(Dollars in millions)
2018
 
2017
Cash Flows From Operating Activities:
 
 
 
Net Loss
$
(242
)
 
$
(443
)
Adjustments to Reconcile Net Loss to Net Cash Provided by (Used in) Operating Activities:
 
 
 
Depreciation and Amortization
147

 
208

Employee Share-Based Compensation Expense
13

 
24

Inventory Write-off and Other Related Charges
29

 
20

Asset Write-Downs and Other Charges
29

 
19

Bad Debt Expense
(7
)
 

Bond Tender and Call Premium
34

 

Deferred Income Tax Provision
13

 
18

Currency Devaluation Charges
26

 

Warrant Fair Value Adjustment
(46
)
 
62

Other, Net
1

 
(7
)
Change in Operating Assets and Liabilities, Net of Effect of Businesses Acquired:
 
 
 
Accounts Receivable
23

 
51

Inventories
(13
)
 

Other Current Assets
(7
)
 
6

Accounts Payable
(55
)
 
(48
)
Accrued Litigation and Settlements
(8
)
 
(30
)
Other Current Liabilities
(56
)
 
(38
)
Other, Net
(66
)
 
(21
)
Net Cash Used in Operating Activities
(185
)
 
(179
)
 
 
 
 
Cash Flows From Investing Activities:
 
 
 
Capital Expenditures for Property, Plant and Equipment
(29
)
 
(40
)
Capital Expenditures and Acquisition of Assets Held for Sale
(9
)
 
(240
)
Acquisitions of Businesses, Net of Cash Acquired
4

 

Acquisition of Intellectual Property
(3
)
 
(2
)
Proceeds from Sale of Assets
12

 
4

Proceeds (Payments) from Sale of Businesses, Net
25

 
(1
)
Net Cash Used in Investing Activities

 
(279
)
 
 
 
 
Cash Flows From Financing Activities:
 
 
 
Borrowings of Long-term Debt
588

 

Repayments of Long-term Debt
(440
)
 
(18
)
Repayments of Short-term Debt, Net
(54
)
 
(7
)
Bond Tender Premium
(30
)
 

Other Financing Activities
(10
)
 
(11
)
Net Cash Provided by (Used in) Financing Activities
54

 
(36
)
Effect of Exchange Rate Changes on Cash and Cash Equivalents
(23
)
 
3

 
 
 
 
Net Decrease in Cash and Cash Equivalents
(154
)
 
(491
)
Cash and Cash Equivalents at Beginning of Period
613

 
1,037

Cash and Cash Equivalents at End of Period
$
459

 
$
546

 
 
 
 
Supplemental Cash Flow Information:
 
 
 
Interest Paid
$
174

 
$
144

Income Taxes Paid, Net of Refunds
$
47

 
$
43

 

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


WEATHERFORD INTERNATIONAL PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




1.  General

The accompanying unaudited Condensed Consolidated Financial Statements of Weatherford International plc (the “Company” or “Weatherford Ireland”) are prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and include all adjustments (consisting of normal recurring adjustments) which, in our opinion, are considered necessary to present fairly our Condensed Consolidated Balance Sheets at March 31, 2018 and Consolidated Financial Statements at December 31, 2017, and Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Comprehensive Loss and Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2018 and 2017. When referring to “Weatherford” and using phrases such as “we,” “us,” and “our,” the intent is to refer to Weatherford International plc, a public limited company organized under the law of Ireland, and its subsidiaries as a whole or on a regional basis, depending on the context in which the statements are made.
Although we believe the disclosures in these financial statements are adequate, certain information relating to our organization and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted in this Form 10-Q pursuant to U.S. Securities and Exchange Commission (“SEC”) rules and regulations. These financial statements should be read in conjunction with the audited Consolidated Financial Statements for the year ended December 31, 2017 included in our Annual Report on Form 10-K. The results of operations for the three months ended March 31, 2018 are not necessarily indicative of the results expected for the year ending December 31, 2018.
Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements, the reported amounts of revenues and expenses during the reporting period, and disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates and assumptions, including those related to uncollectible accounts receivable, lower of cost or net realizable value of inventories, equity investments, derivative financial instruments, intangible assets and goodwill, property, plant and equipment (“PP&E”), income taxes, accounting for long-term contracts, self-insurance, foreign currency exchange rates, pension and post-retirement benefit plans, disputes, litigation, 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.

Reclassifications

Certain prior year income statement amounts have been reclassified to conform to the current year presentation related to the adoption of new accounting standards. Net income for 2017 and shareholders’ equity as of December 31, 2017 were not affected by these reclassifications. See “Note 2 – New Accounting Pronouncements” for additional details.

Currency Devaluation Charges

Currency devaluation charges are included in current earnings in “Currency Devaluation Charges” on the accompanying Condensed Consolidated Statements of Operations. In the first quarter of 2018, currency devaluation charges of $26 million reflected the impact of the devaluation of the Angolan kwanza of $24 million and the Venezuelan bolivar of $2 million. In the first quarter of 2017, we had no currency devaluation charges. The devaluation of the Angolan kwanza was due to a change in the central bank policy in January 2018.


6


2. New Accounting Pronouncements

Accounting Changes

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which replaced most existing revenue recognition guidance in U.S. GAAP. We adopted the new guidance and all of the related amendments, collectively Topic 606, using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. We recognized the cumulative effect of initially applying the new guidance as an adjustment to the opening balance of retained earnings as of January 1, 2018. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The impact of the adoption of the new guidance is immaterial to our consolidated net loss.

The primary impact on adopting Topic 606 on our Condensed Consolidated Financial Statements is in our Well Construction product line, where we receive customer payments related to the demobilization of drilling equipment and crew. Under the adoption of Topic 606, we now recognize revenue on demobilization equally over the term of the contract, subject to any constraint as discussed in “Note 3 – Revenues” to our Condensed Consolidated Financial Statements. Prior to the adoption of Topic 606, we recognized demobilization revenue once the service was completed. These changes did not have any impact on our Condensed Consolidated Statements of Cash Flows.

The cumulative effect of the changes made to our January 1, 2018 Condensed Consolidated Balance Sheet for the adoption of Topic 606, were as follows:
(Dollars in millions)
Balance at December 31, 2017
Adjustments Due to Topic 606
Balance at January 1, 2018
Assets and Liabilities:
 
 
 
Other Current Assets
$
332

$
10

$
342

Other Current Liabilities
690

2

692

 
 
 
 
Shareholders’ Equity:
 
 
 
Retained Deficit
(5,763
)
8

(5,755
)

The impact of adopting Topic 606 on the Company’s Condensed Consolidated Financial Statements for the quarter ended March 31, 2018 was less than $1 million.

In March 2017, the Financial Accounting Standards Board (“FASB”) issued ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which amends the presentation of net periodic pension and postretirement benefit costs (“net benefit cost”). The service cost component of net benefit cost will be bifurcated and presented with other employee compensation costs, while other components of net benefit costs will be presented separately outside of income from operations. We adopted ASU 2017-07 in the first quarter of 2018 on a retrospective basis which resulted in the reclassification $18 million of income from “Total Costs and Expenses” to “Other Income (Expense), net” on our Condensed Consolidated Statements of Operations.

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, which eliminates a current exception in U.S. GAAP to the recognition of the income tax effects of temporary differences that result from intra-entity transfers of non-inventory assets. We adopted ASU 2016-16 in the first quarter of 2018 on a modified retrospective basis. The impact that this new standard has on our Consolidated Financial Statements is a reversal of $105 million of prepaid taxes through retained earnings. Prospectively, any taxes accrued that result from the intra-entity transfers of non-inventory assets will be recognized in current tax expense.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which reduces diversity in practice as to how certain transactions are classified in the statement of cash flows. We adopted ASU 2016-15 in the first quarter of 2018 on a retrospective basis and the adoption of this ASU has no material impact on our Condensed Consolidated Statement of Cash Flows.


7


Accounting Standards Issued Not Yet Adopted

In February 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which permits a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. The standard is required to be applied in the period of adoption or on a retrospective basis to each period affected, and will be effective beginning in the first quarter of 2019, although early adoption is permitted. We are evaluating the impact that this new standard will have on our Consolidated Financial Statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires a lessee to recognize a lease asset and lease liability for most leases, including those classified as operating leases under existing U.S. GAAP. The ASU also changes the definition of a lease and requires expanded quantitative and qualitative disclosures for both lessees and lessors.

Under ASU 2016-02, and all the related amendments, we will revise our leasing policies to require most of the leases, where we are the lessee, to be recognized on the balance sheet as a lease asset and lease liability whereas currently we do not recognize operating leases on our balance sheet. Further, we will separate leases from other contracts where we are either the lessor or lessee when the rights conveyed under the contract indicate there is a lease, where we may not be required to do so under existing policies. While we cannot calculate the impact ASU 2016-02 will have on Weatherford’s financial statements, we anticipate that Weatherford’s assets and liabilities will increase by a significant amount.

This standard will be effective for us beginning with the first quarter of 2019. We do not anticipate adopting ASU 2016-02 early, which is permitted under the standard. ASU 2016-02 requires lessees and lessors to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective transition method but permits certain practical expedients to be applied, which may exclude certain leases that commenced before the effective date.

3. Revenues

Revenue Recognition

The majority of our revenue is derived from short term contracts. We account for revenue in accordance with Topic 606, which we adopted on January 1, 2018, using the modified retrospective method. We recognized the cumulative effect of initially applying the new guidance as an adjustment to the opening balance of retained earnings. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. See Note 2 – New Accounting Pronouncements for further discussion of the adoption, including the impact on our 2018 Condensed Consolidated Financial Statements.

Revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

The following tables disaggregate our product and service revenues from contracts with customers by major product line and geographic region for the three months ended March 31, 2018:
 
Three Months Ended March 31, 2018
 
(Unaudited)
(Dollars in millions)
Western Hemisphere
 
Eastern Hemisphere
 
Total Excluding Rental Revenues
 
Rental Revenues
 
Total Revenues
Product Lines:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Production
$
286

 
$
95

 
$
381

 
$

 
$
381

  Completions
157

 
136

 
293

 
1

 
294

  Drilling and Evaluation
156

 
194

 
350

 
8

 
358

  Well Construction
101

 
216

 
317

 
73

 
390

Total
$
700

 
$
641

 
$
1,341

 
$
82

 
$
1,423


8








 
Three Months Ended March 31, 2018
(Dollars in millions)
(Unaudited)
Geographic Areas:
 
 
 
  United States
$
345

  Latin America
226

  Canada
129

  Western Hemisphere
700

 
 
  Middle East & North Africa
363

  Europe/Sub-Sahara Africa/Russia
222

  Asia
56

  Eastern Hemisphere
641

 
 
Total Product and Service Revenue before Rental Revenues
1,341

  Rental Revenues
82

Total Revenues
$
1,423


Contract Balances

The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables, contract assets, and customer advances and deposits (contract liabilities classified as deferred revenues) on the Condensed Consolidated Balance Sheets.

Receivables for products and services with customers, under Topic 606, are included in “Accounts Receivable, Net”, contract assets in “Other Current Assets” and contract liabilities in ”Other Current Liabilities” on our Condensed Consolidated Balance Sheets.

The following table provides information about receivables for product and services included in “Accounts Receivable, Net” at March 31, 2018 and January 1, 2018, respectively:
(Dollars in millions)
March 31, 2018
January 1, 2018
Receivables for Product and Services in Accounts Receivable, Net
$
1,037

$
1,081


Consideration under certain contracts such as turnkey or lump sum contracts may be classified as contract assets as the invoicing occurs once the performance obligations have been satisfied while the customer simultaneously receives and consumes the benefits provided. We also have receivables for work completed but not billed in which the rights to consideration are conditional and would be classified as contract assets. These are primarily related to service contracts and are not material to our Condensed Consolidated Financial Statements. We may also have contract liabilities, and defer revenues for certain product sales that are not distinct from their installation.

We did not recognize any revenues during the three months ended March 31, 2018 related to performance obligations satisfied prior to January 1, 2018.


9


Significant changes in the contract assets and liabilities balances during the period are as follows:
(Dollars in millions)
Contract Assets
Contract Liabilities
Balance, as of January 1, 2018
$
10

$
42

Revenue recognized that was included in the deferred revenue balance at the beginning of the period

(20
)
Increase due to cash received, excluding amount recognized as revenue during the period

25

Increase due to revenue recognized during the period but contingent on future performance
6


Transferred to receivables from contract assets recognized at the beginning of the period
(1
)

Balance, as of March 31, 2018
$
15

$
47


Performance Obligations

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in Topic 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.

Our principal business is to provide equipment and services to the oil and natural gas exploration and production industry, both on land and offshore, through our major product lines: Production, Completions, Drilling and Evaluation and Well Construction.

Generally, our revenue is recognized for services over time as the services are rendered and we primarily utilize an output method such as time elapsed or footage drilled which coincides with how customers receive the benefit. Both contract drilling and pipeline service revenue is contractual by nature and generally governed by day-rate based contracts. Revenue is recognized on product sales at a point in time when control passes and is generally upon delivery but is dependent on the terms of the contract.

Our services and products are generally sold based upon purchase orders, contracts or call-out work orders that include fixed per unit prices or variable consideration but do not generally include right of return provisions or other significant post-delivery obligations. We generally bill our sales of services and products upon completion of the performance obligation. Product sales are billed and recognized when control passes to the customer. Our products are produced in a standard manufacturing operation, even if produced to our customer’s specifications. Services are billed and recognized as revenue at the amount to which we have the right to invoice for services performed. Our payment terms vary by the type and location of our customer and the products or services offered. The term between invoicing and when payment is due is not significant. For certain products or services and customer types, we require payment before the products or services are delivered to the customer. We defer revenue recognition on such payments when the products or services are delivered to the customer.

From time to time, we may enter into bill and hold arrangements. When we enter into these arrangements, we determine if the customer has obtained control of the product by determining (a) the reason for the bill-and-hold arrangement; (b) whether the product is identified separately as belonging to the customer; (c) whether the product is ready for physical transfer to the customer; and (d) whether we are unable to utilize the product or direct it to another customer.

We account for individual products and services separately if they are distinct and the product or service is separately identifiable from other items in the contract and if a customer can benefit from it on its own or with other resources that are readily available to the customer. The consideration, including any discounts, is allocated between separate products and services based on their standalone selling prices. The standalone selling prices are determined based on the prices at which we separately sell our products and services. For items not sold separately (e.g. term software licenses in our Production product line), we estimate standalone selling prices using the adjusted market assessment approach.

Up-front payments for preparation and mobilization of equipment and personnel in connection with new drilling contracts are deferred along with any related incremental costs incurred directly related to preparation and mobilization. The deferred revenue and costs are recognized over the contract term using the straight-line method. Costs of relocating equipment without contracts are expensed as incurred. Demobilization fees received are recognized over the contract period and may be constrained to the amount that it is probable a significant reversal in the fees will not occur. When determining if such variable consideration should be constrained, management considers whether there are factors outside the Company’s control that could result in a significant reversal of revenue as well as the likelihood and magnitude of such a potential reversal.


10


The nature of our contracts gives rise to several types of variable consideration, including claims and lost-in-hole charges. Our claims are not significant and lost-in-hole charges are constrained variable consideration. We do not estimate revenue associated with these types of variable consideration.

We incur rebillable expenses including shipping and handling, third-party inspection and repairs, and customs costs and duties. We recognize the revenue associated with these rebillable expenses when reimbursed by customers as Product Revenues and all related costs as “Cost of Products” in the accompanying Condensed Consolidated Statements of Operations.

We provide certain assurance warranties on product sales which range from one to five years but do not offer extended warranties on any of our products or services. These assurance warranties are not separate performance obligations, thus no portion of the transaction price is allocated to our obligations under the assurance warranties.

In the following table, estimated revenue expected to be recognized in the future related to performance obligations that are either unsatisfied or partially unsatisfied as of March 31, 2018 relate to subsea services, an artificial lift contract, long-term early production facility construction contracts and rigs demobilization:
(Dollars in millions)
2018

2019

2020

2021

Thereafter

Total

Service revenue
$
80

51

20



$
151


All consideration from contracts with customers is included in the amounts presented above.

Practical Expedients

We generally expense sales commissions paid when incurred as a result of obtaining a contract because the amortization period would have been one year or less. These costs are recorded within “Selling, General and Administrative Attributable to Segments” on our Condensed Consolidated Statements of Operations.

We do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.

4.  Business Combinations and Divestitures

Acquisitions

On March 26, 2018, we acquired the remaining 50% equity interest in our Qatar joint venture that we previously accounted for as an equity method investment. The joint venture was established in 2008 to provide energy related services required for the drilling and completion of oil and gas wells at onshore and offshore locations within the State of Qatar. The total consideration to purchase the remaining equity interest was $87 million, comprised of cash consideration of $72 million, of which $48 million was paid in accordance with closing terms through the joint venture, an additional payment of $24 million that will be made 2 years from closing and estimated contingent consideration of $15 million payable related to services the Qatar entity will render under new contracts. As a result of this step acquisition transaction with a change in control, we remeasured our previously held equity investment to fair value, recognizing a $12 million gain. The Level 3 fair value of the acquisition was determined using an income approach. The unobservable inputs to the income approach included the Qatar entity’s estimated future cash flows and estimates of discount rates commensurate with the entity’s risks. Upon acquisition, we recognized intangible assets of $26 million, PP&E of $25 million, goodwill of $23 million, other current assets of $16 million, and other liabilities of $43 million as a result of the purchase accounting assessment. The Qatar entity is consolidated and its revenues and net income subsequent to acquisition during the quarter were immaterial.

Divestitures

In March 2018, we completed the sale of our continuous sucker rod service business in Canada for a total amount of $25 million in cash and recognized a gain of $2 million. The carrying amounts of the major classes of assets sold are PP&E of $14 million, allocated goodwill of $8 million and inventory of $1 million.

11



Held for Sale

During the fourth quarter of 2017, we committed to a plan to divest our land drilling rigs assets. As a result, we reclassified the carrying amounts of the assets we plan to divest as held for sale as of March 31, 2018 and December 31, 2017, which included $276 million of PP&E and other assets and $64 million of inventory. As of March 31, 2018, we also classified $29 million of other PP&E as held for sale, primarily real estate.

5. Restructuring and Transformation Charges

Due to the ongoing lower than anticipated levels of exploration and production spending, we continue to reduce our overall cost structure and workforce to better align with current activity levels. The ongoing cost reduction plans, which began in 2018 and are expected to continue through 2019 (the “Transformation Plan”), included a workforce reduction, organization restructure, facility consolidations and other cost reduction measures and efficiency initiatives across our geographic regions.

In connection with the Transformation Plan, we recognized restructuring and transformation charges of $25 million in the first quarter of 2018, which include termination (severance) charges of $11 million and other restructuring charges of $14 million. Other restructuring charges include contract termination costs, relocation and other associated costs.

In connection with the 2016-17 Plan, we recognized restructuring charges of $75 million in the first quarter of 2017, which include termination (severance) charges of $34 million, other restructuring charges of $29 million and restructuring related asset charges of $12 million. Other restructuring charges include contract termination costs, relocation and other associated costs.

The following tables present the components of restructuring charges by segment for the first quarter of 2018 and 2017.
 
Three Months Ended March 31, 2018
 
 
 
Total
(Dollars in millions)
Severance
Other
Severance and
Transformation Plan
Charges
Charges
Other Charges
Western Hemisphere
$
4

$

$
4

Eastern Hemisphere
4

5

9

Corporate
3

9

12

  Total
$
11

$
14

$
25


 
Three Months Ended March 31, 2017
 
 
 
Total
(Dollars in millions)
Severance
Other
Severance and
2016-17 Plan
Charges
Charges
Other Charges
Western Hemisphere
$
5

$
18

$
23

Eastern Hemisphere
7

19

26

Corporate
22

4

26

  Total
$
34

$
41

$
75



12


The severance and other restructuring charges gave rise to certain liabilities, the components of which are summarized below, and largely relate to liabilities accrued as part of the 2016-17 and Prior Plans that will be paid pursuant to the respective arrangements and statutory requirements.
 
At March 31, 2018
 
Transformation Plan
 
2016-17 and Prior Plans
Total
 
 
 
 
 
 
Severance
 
Severance
Other
 
Severance
Other
and Other
(Dollars in millions)
Liability
Liability
 
Liability
Liability
Liability
Western Hemisphere
$

$

 
$
2

$
14

$
16

Eastern Hemisphere
2

1

 
3

20

26

Corporate
2

6

 
10


18

  Total
$
4

$
7

 
$
15

$
34

$
60

The following table presents the restructuring liability activity for the first three months of 2018.
 
 
 
Three Months Ended March 31, 2018
 
 
(Dollars in millions)
Accrued Balance at December 31, 2017
 
Charges
 
Cash Payments
 
Other 
 
Accrued Balance at March 31, 2018
Transformation Plan
 
 
 
 
 
 
 
 
 
Severance liability
$

 
$
11

 
$
(8
)
 
$
1

 
$
4

Other restructuring liability

 
$
14

 
$
(6
)
 
$
(1
)
 
$
7

 
 
 
 
 
 
 
 
 
 
2016-17 and Prior Plans:
 
 
 
 
 
 
 
 
 
Severance liability
21

 

 
(7
)
 
1

 
15

Other restructuring liability
40

 

 
(5
)
 
(1
)
 
34

Total severance and other restructuring liability
$
61

 
$
25

 
$
(26
)
 
$

 
$
60


6.  Accounts Receivable Factoring and Other Receivables

From time to time, we participate in factoring arrangements to sell accounts receivable to third-party financial institutions. In the first three months of 2018, we sold accounts receivable of $96 million and recognized a loss of approximately $0.6 million on these sales. We received cash proceeds totaling $93 million. In the first three months of 2017, we sold approximately $38 million and recognized a loss of $0.2 million. Our factoring transactions in the first three months of 2018 and 2017 were recognized as sales, and the proceeds are included as operating cash flows in our Condensed Consolidated Statements of Cash Flows.

In the first quarter of 2017, Weatherford converted trade receivables of $65 million into a note from the customer with a face value of $65 million. The note had a three year term at a 4.625% stated interest rate. We reported the note as a trading security within “Other Current Assets” at fair value on the Condensed Consolidated Balance Sheets at its fair value of $58 million on March 31, 2017. The note fair value was considered a Level 2 valuation and was estimated using secondary market data for similar bonds. During the second quarter of 2017, we sold the note for $59 million.


13


7.  Inventories, Net

Inventories, net of reserves, by category were as follows:
(Dollars in millions)
March 31, 2018
 
December 31, 2017
Raw materials, components and supplies
$
158

 
$
144

Work in process
53

 
47

Finished goods
1,014

 
1,043

 
$
1,225

 
$
1,234


8.  Goodwill

The changes in the carrying amount of goodwill by reportable segment for the three months ended March 31, 2018, were as follows:
(Dollars in millions)
Western Hemisphere
 
Eastern Hemisphere
 
Total
Balance at December 31, 2017
$
1,958

 
$
769

 
$
2,727

Acquisitions

 
23

 
23

Dispositions
(8
)
 

 
(8
)
  Foreign currency translation adjustments
(21
)
 
19

 
(2
)
Balance at March 31, 2018
$
1,929

 
$
811

 
$
2,740



9.  Short-Term Borrowings and Other Debt Obligations
(Dollars in millions)
March 31, 2018
 
December 31, 2017
Revolving Credit Agreement
$
25

 
$

Other Short-term Loans
4

 
11

Current Portion of Long-term Debt
124

 
137

Short-term Borrowings and Current Portion of Long-term Debt
$
153

 
$
148


Revolving Credit Agreement and Secured Term Loan Agreement

At March 31, 2018, we had total commitments under our revolving credit facility (the “Revolving Credit Agreement”) maturing in July of 2019 of $900 million and borrowings of $363 million under our secured term loan agreement (“the Term Loan Agreement and collectively with the Revolving Credit Agreement, the “Credit Agreements”) maturing in July of 2020. At March 31, 2018, we had $744 million available under the Credit Agreements and the following table summarizes our borrowing availability under these agreements:
(Dollars in millions)
March 31, 2018
Facilities
$
1,263

Less uses of facilities:
 
Revolving Credit Agreement
25

Letters of Credit
131

  Secured Term Loan Principal Borrowing
363

Borrowing Availability
$
744


Loans under the Credit Agreements are subject to varying interest rates based on whether the loan is a Eurodollar or alternate base rate loan. We also incur a quarterly facility fee on the amount of the Revolving Credit Agreement. For the three months ended

14


March 31, 2018, the interest rate for the Revolving Credit Agreement was LIBOR plus a margin rate of 2.80%. For the three months ended March 31, 2018, the interest rate for the Term Loan Agreement was LIBOR plus a margin rate of 2.30%.

Our Credit Agreements contain customary events of default, including in the event of our failure to comply with our financial covenants. We must maintain a leverage ratio of no greater than 2.5 to 1, a leverage and letters of credit ratio of no greater than 3.5 to 1, and an asset coverage ratio of at least 4.0 to 1, in each case with the terms and definitions for the ratios as provided in the Credit Agreements. At March 31, 2018, we were in compliance with these financial covenants. For additional information on our credit agreement covenants, please see “Note 12 – Short-term Borrowings and Other Debt Obligations” to the Condensed Consolidated Financial Statements contained in our Annual Report on Form 10-K for the year ended December 31, 2017.

Senior Notes and Tender Offers

In February 2018, we issued $600 million in aggregate principal amount of our 9.875% senior notes due 2025. We used part of the proceeds from our debt offering to repay in full our 6.00% senior notes due March 2018 and to fund a concurrent tender offer to purchase for cash any and all of our 9.625% senior notes due 2019. We settled the tender offer in cash for the amount of $475 million, retiring an aggregate face value of $425 million and accrued interest of $20 million. In April 2018, we repaid the remaining principal outstanding on an early redemption of the bond. We recognized a cumulative loss of $34 million on these transactions in “Bond Tender and Call Premium” on the accompanying Condensed Consolidated Statements of Operations.

Other Borrowings and Debt Activity

We have short-term borrowings with various domestic and international institutions pursuant to uncommitted credit facilities. At March 31, 2018, we had $4 million in short-term borrowings under these arrangements. In addition, we had $356 million of letters of credit under various uncommitted facilities and $131 million of letters of credit under the Revolving Credit Agreement. At March 31, 2018, we have cash collateralized $89 million of our letters of credit, which is included “Cash and Cash Equivalentsin the accompanying Condensed Consolidated Balance Sheets. We have $15 million of surety bonds, primarily performance bonds, issued by financial sureties against an indemnification from us at March 31, 2018.

10.  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 derivative instruments discussed in “Note 11 – Derivative Instruments”, we had no other material assets or liabilities measured and recognized at fair value on a recurring basis at March 31, 2018 and December 31, 2017.

Fair Value of Other Financial Instruments

Our other financial instruments include cash and cash equivalents, accounts receivable, accounts payable, and short-term borrowings and long-term debt. The carrying value of our cash and cash equivalents, accounts receivable, accounts payable, short-term borrowings approximates their fair value due to their short maturities. These short-term borrowings are classified as Level 2 in the fair value hierarchy.

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


15


The fair value and carrying value of our senior notes were as follows: 
(Dollars in millions)
March 31, 2018
 
December 31, 2017
Fair Value
$
6,376

 
$
7,060

Carrying Value
7,319

 
7,218


11.  Derivative Instruments

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. We enter into foreign currency forward contracts and cross-currency swap contracts to economically hedge our exposure to fluctuations in various foreign currencies. 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, changes in foreign exchange rates and the creditworthiness of the counterparties in such transactions.

We 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.

Warrant

During the fourth quarter of 2016, in conjunction with the issuance of 84.5 million ordinary shares, we issued a warrant that gives the holder the option to acquire an additional 84.5 million ordinary shares. The exercise price on the warrant is $6.43 per share and is exercisable any time prior to May 21, 2019. The warrant is classified as a liability and carried at fair value with changes in its fair value reported through earnings. The warrant participates in dividends and other distributions as if the shares subject to the warrants were outstanding. In addition, the warrant permits early redemption due to a change in control.

The warrant fair value is considered a Level 3 valuation and is estimated using a combination of the Black Scholes option valuation model and Monte-Carlo simulation. Inputs to these models include Weatherford’s share price and volatility and the risk free interest rate. The valuation also considers the probabilities of future share issuances and anticipated issuance discounts, which are considered Level 3 inputs. The fair value of the warrant was $24 million on March 31, 2018 and $70 million on December 31, 2017, generating an unrealized gain of $46 million and unrealized loss of $62 million for the first quarter of 2018 and 2017, respectively. The change in fair value of the warrant during the first quarter of 2018 was principally due to a decrease in Weatherford’s stock price. The warrant valuation would be negatively affected due to an increase in the likelihood of a future stock issuance. 

Fair Value Hedges
 
We may use interest rate swaps to help mitigate exposures related to changes in the fair values of the fixed-rate debt. The interest rate swap is recorded at fair value with changes in fair value recorded in earnings. The carrying value of fixed-rate debt is also adjusted for changes in interest rates, with the changes in value recorded in earnings. After termination of the hedge, any discount or premium on the fixed-rate debt is amortized to interest expense over the remaining term of the debt. As of March 31, 2018, we did not have any fair value hedges designated.

As of March 31, 2018, we had net unamortized premiums on fixed-rate debt of nil associated with fair value hedge terminations. These premiums were being amortized over the remaining term of the originally hedged debt as a reduction in interest expense included in “Interest Expense, Net” on the accompanying Condensed Consolidated Statements of Operations.

Cash Flow Hedges

In 2008, we entered into interest rate derivative instruments to hedge projected exposures to interest rates in anticipation of a debt offering. These hedges were terminated at the time of the issuance of the debt, and the associated loss is being amortized from “Accumulated Other Comprehensive Loss” to interest expense over the remaining term of the debt. As of March 31, 2018, we had net unamortized losses of $9 million associated with our cash flow hedge terminations. As of March 31, 2018, we did not have any cash flow hedges designated.


16


Foreign Currency and Warrant Derivative Instruments

At March 31, 2018 and December 31, 2017, we had outstanding foreign currency forward contracts with notional amounts aggregating to $734 million and $767 million, respectively. The notional amounts of our foreign currency forward contracts do not generally represent amounts exchanged by the parties and thus are not a measure of the cash requirements related to these contracts or of any possible loss exposure. The amounts actually exchanged at maturity are calculated by reference to the notional amounts and by other terms of the derivative contracts, such as exchange rates.

Our foreign currency derivatives are not designated as hedges under ASC 815, and the changes in fair value of the contracts are recorded each period in “Other Income (Expense), Net” on the accompanying Condensed Consolidated Statements of Operations.

The total estimated fair values of our foreign currency forward contracts and warrant derivative were as follows:
(Dollars in millions)
 
March 31, 2018
 
December 31, 2017
 
Classification
Derivative assets not designated as hedges:
 
 
 
 
 
 
Foreign currency forward contracts
 
$
3

 
$
5

 
Other Current Assets
 
 
 
 
 
 
 
Derivative liabilities not designated as hedges:
 
 
 
 
 
 
Foreign currency forward contracts
 
(2
)
 
(4
)
 
Other Current Liabilities
Warrant on Weatherford Shares
 
(24
)
 
(70
)
 
Other Non-Current Liabilities

The amount of derivative instruments’ gain or (loss) on the Condensed Consolidated Statements of Operations is in the table below.
 
 
Three Months Ended March 31,
 
 
(Dollars in millions)
 
2018
 
2017
 
Classification
Foreign currency forward contracts
 
$
1

 
$
(7
)
 
Other Income (Expense), Net
Warrant on Weatherford Shares
 
46

 
(62
)
 
Warrant Fair Value Adjustment

12. Income Taxes

We have historically calculated the provision for income taxes during interim reporting periods by applying an estimate of the annual effective tax rate for the full fiscal year to ordinary income or loss (pre-tax income or loss excluding unusual or infrequently occurring discrete items and pre-tax losses for which no benefit has been recognized) for the reporting period. Beginning in first quarter of 2017 and continuing for the three months period ended March 31, 2018, we have determined that since small changes in estimated ordinary annual income would result in significant changes in the estimated annual effective tax rate, the use of a discrete effective tax rate is appropriate for the current quarter. The discrete method treats the year-to-date period as if it was the annual period and determines the income tax expense or benefit on that basis. We will continue to use this method each quarter until the annual effective tax rate method is deemed appropriate. For the first quarter of 2018, we had a tax expense of $32 million on a loss before income taxes of $210 million. Results for the first quarter of 2018 include losses with no significant tax benefit. The tax expense for the quarter also includes withholding taxes and deemed profit taxes that do not directly correlate to ordinary income or loss.

On December 22, 2017, the U.S. enacted into law a comprehensive tax reform bill (the “Tax Cuts and Jobs Act,” or “TCJA”). The TCJA significantly revises the U.S. corporate income tax by, among other things, lowering the statutory corporate tax rate from 35% to 21%, eliminating certain deductions, imposing a mandatory one-time tax on accumulated earnings of foreign subsidiaries as of 2017 held in cash and illiquid assets (with the latter taxed at a lower rate), and a shift of the U.S. taxation of multinational corporations from a tax on worldwide income to a partial territorial system (along with certain rules designed to prevent erosion of the U.S. income tax base, such as the base erosion and anti-abuse tax). The SEC has issued guidance that allows for a measurement period of up to one year after the enactment date of the legislation to finalize the recording of the related tax impacts. In the fourth quarter of 2017, the Company did not have all the necessary information to analyze all effects of this tax reform, as a result we recorded a provisional amount which we believe represents a reasonable estimate of the accounting

17


implications of this tax reform. In addition, the various impacts of the TCJA may materially differ from the estimated impacts recognized in the fourth quarter due to regulatory guidance that may be issued in the future, tax law technical corrections, refined computations, and possible changes in the Company’s interpretations, assumptions, and actions as a result of the tax legislation. No adjustment to the provisional amount was recorded in the first quarter of 2018. We will continue to evaluate tax reform, and adjust the provisional amounts as additional information is obtained. Any adjustment to these provisional amounts will be reported in the reporting period in which any such adjustments are determined, which will be no later than the fourth quarter of 2018. 

We are continuously under tax examination in various jurisdictions. We cannot predict the timing or outcome regarding resolution of these tax examinations or if they will have a material impact on our financial statements. We continue to anticipate a possible reduction in the balance of uncertain tax positions of approximately $19 million in the next twelve months due to expiration of statutes of limitations, settlements and/or conclusions of tax examinations.

For the first quarter of 2017, we had a tax expense of $33 million on a loss before income taxes of $410 million. Results for the first quarter of 2017 include losses with no significant tax benefit. The tax expense for the quarter also included withholding taxes and deemed profit taxes that do not directly correlate to ordinary income or loss.

13.  Shareholders’ Equity

The following summarizes our shareholders’ equity activity for the first three months of 2018 and 2017:
(Dollars in millions)
Par Value of Issued Shares
 
Capital in Excess of Par Value
 
Retained Earnings (Deficit)
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Non-controlling Interests
 
Total Shareholders’ Equity
Balance at December 31, 2016
$
1

 
$
6,571

 
$
(2,950
)
 
$
(1,610
)
 
$
56

 
$
2,068

Net Income (Loss)

 

 
(448
)
 

 
5

 
(443
)
Other Comprehensive Income

 

 

 
43

 

 
43

Dividends Paid to Noncontrolling Interests

 

 

 

 
(5
)
 
(5
)
Equity Awards Granted, Vested and Exercised

 
28

 

 

 

 
28

Balance at March 31, 2017
$
1

 
$
6,599

 
$
(3,398
)
 
$
(1,567
)
 
$
56

 
$
1,691

 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2017
$
1

 
$
6,655

 
$
(5,763
)
 
$
(1,519
)
 
$
55

 
$
(571
)
Net Income (Loss)

 

 
(245
)
 

 
3

 
(242
)
Other Comprehensive Income

 

 

 
5

 

 
5

Dividends Paid to Noncontrolling Interests

 

 

 

 
(4
)
 
(4
)
Equity Awards Granted, Vested and Exercised

 
17

 

 

 

 
17

Adoption of Intra-Entity Transfers of Assets Other Than Inventory and Revenue from Contracts with Customers

 

 
(97
)
 

 

 
(97
)
Other

 
4

 

 

 
(10
)
 
(6
)
Balance at March 31, 2018
$
1

 
$
6,676

 
$
(6,105
)
 
$
(1,514
)
 
$
44

 
$
(898
)


18


The following table presents the changes in our accumulated other comprehensive loss by component for the first three months of 2018 and 2017:
(Dollars in millions)
Currency Translation Adjustment
 
Defined Benefit Pension
 
Deferred Loss on Derivatives
 
Total
Balance at December 31, 2016
$
(1,614
)
 
$
13

 
$
(9
)
 
$
(1,610
)
 
 
 
 
 
 
 
 
Other Comprehensive Income before Reclassifications
63

 

 

 
63

Reclassifications

 
(20
)
 

 
(20
)
Net activity
63

 
(20
)
 

 
43

 
 
 
 
 
 
 
 
Balance at March 31, 2017
$
(1,551
)
 
$
(7
)
 
$
(9
)
 
$
(1,567
)
 
 
 
 
 
 
 
 
Balance at December 31, 2017
$
(1,484
)
 
$
(26
)
 
$
(9
)
 
$
(1,519
)
 
 
 
 
 
 
 
 
Other Comprehensive Income before Reclassifications
5

 

 

 
5

Reclassifications

 

 

 

Net activity
5

 

 

 
5

 
 
 
 
 
 
 
 
Balance at March 31, 2018
$
(1,479
)
 
$
(26
)
 
$
(9
)
 
$
(1,514
)

Defined benefit pension reclassifications relate to amortization of unrecognized net gains associated primarily with our supplemental executive retirement plan.

14.  Earnings per Share

Basic earnings per share for all periods presented equals net income (loss) divided by the weighted average number of our shares outstanding during the period including participating securities. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of our shares outstanding during the period including participating securities and potentially dilutive shares. The following table presents our basic and diluted weighted average shares outstanding for the first quarter of 2018 and 2017:
 
Three Months Ended March 31,
(Shares in millions)
2018
 
2017
Basic and Diluted weighted average shares outstanding
994

 
988


Our basic and diluted weighted average shares outstanding for the periods presented are equivalent due to the net loss attributable to shareholders. Diluted weighted average shares outstanding for the first quarter of 2018 and 2017 exclude potential shares for stock options, restricted shares, performance units, exchangeable notes, warrant outstanding and the Employee Stock Purchase Plan 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 for the first quarter of 2018 and 2017:
 
Three Months Ended March 31,
(Shares in millions)
2018
 
2017
Anti-dilutive potential shares due to net loss
250

 
250



19


15. Share-Based Compensation

We recognized the following employee share-based compensation expense during the first quarter of 2018 and 2017:
 
Three Months Ended March 31,
(Dollars in millions)
2018
 
2017
Share-based compensation
$
13

 
$
24

Related tax benefit

 


During the first quarter of 2018, we granted to certain employees 1.3 million performance share units that will vest with continued employment if the Company meets certain market-based goals. These performance share units have a weighted average grant date fair value of $5.41 per share based on the Monte Carlo simulation method. The assumptions used in the Monte Carlo simulation included a weighted average risk-free rate of 2.28%, volatility of 63% and a zero dividend yield. We also granted 1.3 million performance shares that will vest with continued employment if the Company meets a certain performance goal. These performance share units have a weighted average grant date fair value of $3.94. As of March 31, 2018, there was $16 million of unrecognized compensation expense related to our performance share units. This cost is expected to be recognized over a weighted average period of 2 years.

During the first quarter of 2018, we also granted 2.9 million restricted share units at a weighted average grant date fair value of $3.89 per share. As of March 31, 2018, there was $55 million of unrecognized compensation expense related to our unvested restricted share grants. This cost is expected to be recognized over a weighted average period of 2 years.

16. Segment Information
 
Financial information by segment is summarized below. Revenues are attributable to countries based on the ultimate destination of the sale of products or performance of services. The accounting policies of the segments are the same as those described in the summary of significant accounting policies as presented in our Form 10-K.
 
Three Months Ended March 31, 2018
(Dollars in millions)
Revenues
 
Income (Loss)
from
Operations
 
Depreciation
and
Amortization
Western Hemisphere
$
756

 
$
24

 
$
60

Eastern Hemisphere
667

 
16

 
86

 
1,423

 
40

 
146

Corporate General and Administrative
 
 
(36
)
 
1

Restructuring and Transformation Charges
 
 
(25
)
 
 
Asset Write-Downs and Other (a)
 
 
 
(18
)
 
 
Total
$
1,423

 
$
(39
)
 
$
147

(a)
Includes asset write-downs and inventory charges, partially offset by gain on purchase of the remaining interest in a joint venture.



20


 
Three Months Ended March 31, 2017
(Dollars in millions)
Revenues
 
Loss
from
Operations
 
Depreciation
and
Amortization
Western Hemisphere
$
733

 
$
(30
)
 
$
91

Eastern Hemisphere
653

 
(59
)
 
115

 
1,386

 
(89
)
 
206

Corporate General and Administrative
 
 
(33
)
 
2

Restructuring Charges
 
 
(75
)
 
 
Asset Write-Downs and Other (b)
 
 
(17
)
 
 
Total
$
1,386

 
$
(214
)
 
$
208

(b)
Includes asset write-downs and inventory charges.

17. Disputes, Litigation and Contingencies

Shareholder Litigation
 
In 2010, three shareholder derivative actions were filed, purportedly on behalf of the Company, asserting breach of duty and other claims against certain current and former officers and directors of the Company related to the United Nations oil-for-food program governing sales of goods into Iraq, the Foreign Corrupt Practices Act of 1977 and trade sanctions related to the U.S. government investigations disclosed in our SEC filings since 2007. Those shareholder derivative cases were filed in Harris County, Texas state court and consolidated under the caption Neff v. Brady, et al., No. 2010040764 (collectively referred to as the “Neff Case”). Other shareholder demand letters covering the same subject matter were received by the Company in early 2014, and a fourth shareholder derivative action was filed, purportedly on behalf of the Company, also asserting breach of duty and other claims against certain current and former officers and directors of the Company related to the same subject matter as the Neff Case. That case, captioned Erste-Sparinvest KAG v. Duroc-Danner, et al., No. 201420933 (Harris County, Texas) was consolidated into the Neff Case in September 2014. A motion to dismiss was granted May 15, 2015, and an appeal was filed on June 15, 2015. Following briefing and oral argument, on June 29, 2017, the Texas Court of Appeals denied in part and granted in part the shareholders’ appeal. The Court ruled that the shareholders lacked standing to bring claims that arose prior to the Company’s redomestication to Switzerland in 2009, and upheld the dismissal of those claims. The Court reversed as premature the trial court’s dismissal of claims arising after the redomestication and remanded to the trial court for further proceedings. On February 1, 2018, the individual defendants and nominal defendant Weatherford filed a motion for summary judgment on the remaining claims in the case. On February 13, 2018 the trial court dismissed with prejudice certain directors for lack of jurisdiction. The plaintiffs have appealed the jurisdictional ruling and the parties have jointly moved for a stay of the case during the pendency of the appeal. We cannot reliably predict the outcome of the remaining claims, including the amount of any possible loss.

U.S. Government and Other Investigations
 
The SEC and the U.S. Department of Justice investigated certain accounting issues associated with the material weakness in our 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. As disclosed in the Form 8-K filed on September 27, 2016, the Company settled with the SEC without admitting or denying the findings of the SEC, by consenting to the entry of an administrative order that requires the Company to cease and desist from committing or causing any violations and any future violations of the anti-fraud provisions of the Securities Act of 1933 (as amended, the “Securities Act”), and the anti-fraud, reporting, books and records, and internal controls provisions of the Securities Exchange Act of 1934 (as amended, the “Exchange Act”), and the rules promulgated thereunder. As part of the terms of the SEC settlement, the Company agreed to pay in installments a total civil monetary penalty of $140 million, beginning in the fourth quarter of 2016 and concluding in September 2017. In addition, certain reports and certifications regarding our tax internal controls were to be delivered to the SEC during the two years following the settlement. We completed and delivered the third and final report in April of 2018.


21


Rapid Completions and Packers Plus Litigation

Several subsidiaries of the Company are defendants in a patent infringement lawsuit filed by Rapid Completions LLC (“RC”) in U.S. District Court for the Eastern District of Texas on July 31, 2015. RC claims that we and other defendants are liable for infringement of seven U.S. patents related to specific downhole completion equipment and the methods of using such equipment. These patents have been assigned to Packers Plus Energy Services, Inc., a Canadian corporation (“Packers Plus”), and purportedly exclusively licensed to RC. RC is seeking a permanent injunction against further alleged infringement, unspecified damages for infringement, supplemental and enhanced damages, and additional relief such as attorneys’ fees. The Company has filed a counterclaim against Packers Plus, seeking declarations of non-infringement, invalidity, and unenforceability of the four patents that remain asserted against the Company on the grounds of inequitable conduct. The Company is seeking attorneys’ fees and costs incurred in the lawsuit. The litigation was stayed, pending resolution of inter partes reviews (“IPR”) of each of the four patents before the Patent Trial and Appeal Board (“PTAB”) of the U.S. Patent and Trademark Office (“USPTO”). On February 22, 2018, the PTAB issued IPR decisions finding that all of the claims of the ‘505, ‘634, and ‘774 patents that were challenged by the Company in the IPRs are invalid. There is one more pending IPR relating to the ‘501 patent. Given the similarities among the four patents, the Company believes it will obtain a favorable outcome in the remaining IPR. RC has appealed the PTAB’s decisions.

On October 14, 2015, Packers Plus and RC filed suit in Federal Court in Toronto, Canada against the Company and certain subsidiaries alleging infringement of a related Canadian patent and seeking unspecified damages and an accounting of the Company’s profits. Trial on the validity of the Canadian patent was completed in March 2017. On November 3, 2017, the Federal Court issued its decision, wherein it concluded that the defendants proved that the patent-in-suit was invalid and dismissed Packers Plus and RC’s claims of infringement. On January 5, 2018, Packers Plus and RC filed their Notice of Appeal.

If one or more negative outcomes were to occur in either case, the impact to our financial position, results of operations, or cash flows could be material.

Other Disputes and Litigation

We are aware of various other 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 for which we do not believe a negative outcome is probable or for which we can only estimate a range of liability. It is possible, however, that an unexpected judgment could be rendered against us, or we could decide to resolve a case or cases, that would result in liability that could be uninsured and beyond the amounts we currently have reserved and in some cases those losses could be material. If one or more negative outcomes were to occur relative to these matters, the aggregate impact to our financial condition could be material.

Accrued litigation and settlements recorded in “Other Current Liabilities” on the accompanying Condensed Consolidated Balance Sheets as of March 31, 2018 and December 31, 2017 were $47 million and $51 million, respectively.

Other Contingencies

We have minimum purchase commitments related to supply contracts and maintain a liability at March 31, 2018 of $47 million for expected penalties to be paid, of which $22 million is recorded in “Other Current Liabilities,” $25 million is recorded in “Other Non-Current Liabilities” on our Condensed Consolidated Balance Sheets.

18. Condensed Consolidating Financial Statements

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

The 6.80% senior notes due 2037 of Weatherford Delaware were guaranteed by Weatherford Bermuda at March 31, 2018 and December 31, 2017. At March 31, 2018, Weatherford Bermuda also guaranteed the 9.875% senior notes due 2025.
 
The following obligations of Weatherford Bermuda were guaranteed by Weatherford Delaware at March 31, 2018 and December 31, 2017: (1) Revolving Credit Agreement, (2) Term Loan Agreement, (3) 9.625% senior notes due 2019, which were

22


repaid in full through early redemption of the bond in April 2018 (4) 6.50% senior notes due 2036, (5) 7.00% senior notes due 2038, (6) 9.875% senior notes due 2039, (7) 5.125% senior notes due 2020, (8) 6.75% senior notes due 2040, (9) 4.50% senior notes due 2021, (10) 5.95% senior notes due 2042, (11) 5.875% exchangeable senior notes due 2021, (12) 7.75% senior notes due 2021, (13) 8.25% senior notes due 2023 and (14) 9.875% senior notes due 2024. At December 31, 2017, Weatherford Delaware also guaranteed the 6.00% senior notes due 2018, which were repaid in full in March 2018.

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

Condensed Consolidating Statement of Operations and
Comprehensive Income (Loss)
Three Months Ended March 31, 2018
(Unaudited)
(Dollars in millions)
Weatherford
Ireland
 
Weatherford Bermuda
 
Weatherford Delaware
 
Other
Subsidiaries
 
Eliminations
 
Consolidation
Revenues
$

 
$

 
$

 
$
1,423

 
$

 
$
1,423

Costs and Expenses
2

 

 

 
(1,464
)
 

 
(1,462
)
Operating Income (Loss)
2

 

 

 
(41
)
 

 
(39
)
 
 
 
 
 
 
 
 
 
 
 
 
Other Income (Expense):
 
 
 
 
 
 
 
 
 
 
 
Interest Expense, Net

 
(144
)
 
(14
)
 
4

 
5

 
(149
)
Intercompany Charges, Net
(18
)
 
(3
)
 
11

 
(594
)
 
604

 

Equity in Subsidiary Income (Loss)
(275
)
 
(350
)
 
(133
)
 

 
758

 

Other, Net
46

 
90

 
122

 
(157
)
 
(123
)
 
(22
)
Income (Loss) Before Income Taxes
(245
)
 
(407
)
 
(14
)
 
(788
)
 
1,244

 
(210
)
(Provision) Benefit for Income Taxes

 

 

 
(32
)
 

 
(32
)
Net Income (Loss)
(245
)
 
(407
)
 
(14
)
 
(820
)
 
1,244

 
(242
)
Noncontrolling Interests

 

 

 
3

 

 
3

Net Income (Loss) Attributable to Weatherford
$
(245
)
 
$
(407
)
 
$
(14
)
 
$
(823
)
 
$
1,244

 
$
(245
)
Comprehensive Income (Loss) Attributable to Weatherford
$
(240
)
 
$
(401
)
 
$
(2
)
 
$
(818
)
 
$
1,221

 
$
(240
)
 

23


Condensed Consolidating Statement of Operations and
Comprehensive Income (Loss)
Three Months Ended March 31, 2017
(Unaudited) 
(Dollars in millions)
Weatherford
Ireland
 
Weatherford
Bermuda
 
Weatherford
Delaware
 
Other
Subsidiaries
 
Eliminations
 
Consolidation
Revenues
$

 
$

 
$

 
$
1,386

 
$

 
$
1,386

Costs and Expenses
(3
)
 
20

 

 
(1,617
)
 

 
(1,600
)
Operating Income (Loss)
(3
)
 
20

 

 
(231
)
 

 
(214
)
 
 
 
 
 
 
 
 
 
 
 
 
Other Income (Expense):
 
 
 
 
 
 
 
 
 
 
 
Interest Expense, Net

 
(139
)
 
(21
)
 
4

 
15

 
(141
)
Intercompany Charges, Net
1

 
(8
)
 
(2
)
 
9

 

 

Equity in Subsidiary Income
(384
)
 
172

 
219

 

 
(7
)
 

Other, Net
(62
)
 
(216
)
 
(139
)
 
223

 
139

 
(55
)
Income (Loss) Before Income Taxes
(448
)
 
(171
)
 
57

 
5

 
147

 
(410
)
(Provision) Benefit for Income Taxes

 

 

 
(33
)
 

 
(33
)
Net Income (Loss)
(448
)
 
(171
)
 
57

 
(28
)
 
147

 
(443
)
Noncontrolling Interests

 

 

 
5

 

 
5

Net Income (Loss) Attributable to Weatherford
$
(448
)
 
$
(171
)
 
$
57

 
$
(33
)
 
$
147

 
$
(448
)
Comprehensive Income (Loss) Attributable to Weatherford
$
(405
)
 
$
(176
)
 
$
(26
)
 
$
10

 
$
192

 
$
(405
)
 

 





24


Condensed Consolidating Balance Sheet
March 31, 2018
(Unaudited)
(Dollars in millions)
Weatherford
Ireland
 
Weatherford
Bermuda
 
Weatherford
Delaware
 
Other
Subsidiaries
 
Eliminations
 
Consolidation
Current Assets:
 
 
 
 
 
 
 
 
 
 
 
Cash and Cash Equivalents
$

 
$
106

 
$

 
$
353

 
$

 
$
459

Other Current Assets
1

 

 
506

 
3,191

 
(542
)
 
3,156

Total Current Assets
1

 
106

 
506

 
3,544

 
(542
)
 
3,615

 
 
 
 
 
 
 
 
 
 
 
 
Equity Investments in Affiliates
(810
)
 
7,647

 
7,718

 
794

 
(15,349
)
 

Intercompany Receivables, Net

 

 

 
3,139

 
(3,139
)
 

Other Assets

 
7

 
5

 
5,707

 

 
5,719

Total Assets
$
(809
)
 
$
7,760

 
$
8,229

 
$
13,184

 
$
(19,030
)
 
$
9,334

 
 
 
 
 
 
 
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Short-term Borrowings and Current Portion of Long-Term Debt
$

 
$
137

 
$

 
$
16

 
$

 
$
153

Accounts Payable and Other Current Liabilities
7

 
142

 

 
2,332

 
(542
)
 
1,939

Total Current Liabilities
7

 
279

 

 
2,348

 
(542
)
 
2,092

 
 
 
 
 
 
 
 
 
 
 
 
Long-term Debt

 
6,643

 
758

 
154

 
84

 
7,639

Intercompany Payables, Net
102

 
258

 
2,779

 

 
(3,139
)
 

Other Long-term Liabilities
24

 
23

 
14

 
454

 
(14
)
 
501

Total Liabilities
133

 
7,203

 
3,551

 
2,956

 
(3,611
)
 
10,232

 
 
 
 
 
 
 
 
 
 
 
 
Weatherford Shareholders’ Equity
(942
)
 
557

 
4,678

 
10,184

 
(15,419
)
 
(942
)
Noncontrolling Interests

 

 

 
44

 

 
44

Total Liabilities and Shareholders’ Equity
$
(809
)
 
$
7,760

 
$
8,229

 
$
13,184

 
$
(19,030
)
 
$
9,334


25


Condensed Consolidating Balance Sheet
December 31, 2017

(Dollars in millions)
Weatherford
Ireland
 
Weatherford
Bermuda
 
Weatherford
Delaware
 
Other
Subsidiaries
 
Eliminations
 
Consolidation
Current Assets:
 
 
 
 
 
 
 
 
 
 
 
Cash and Cash Equivalents
$

 
$
195

 
$