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, 2019
 
 
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 ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes þ No ¨
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
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. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of each exchange on which registered
Ordinary shares, $0.001 par value per share
WFT
New York Stock Exchange
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
As of May 3, 2019, there were 1,003,878,163 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, 2019

TABLE OF CONTENTS
PAGE
 
 
 
 
 


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Table of Contents

PART I FINANCIAL INFORMATION
Item 1. Financial Statements.

WEATHERFORD INTERNATIONAL PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 
Three Months Ended March 31,
(Dollars and shares in millions, except per share amounts)
2019
 
2018
Revenues:
 
 
 
Products
$
496

 
$
501

Services
850

 
922

Total Revenues
1,346

 
1,423

 
 
 
 
Costs and Expenses:
 
 
 
Cost of Products
468

 
465

Cost of Services
614

 
680

Research and Development
36

 
38

Selling, General and Administrative Attributable to Segments
199

 
200

Corporate General and Administrative
32

 
36

Goodwill Impairment
229

 

Asset Write-Downs and Other
49

 
18

Restructuring and Transformation Charges
20

 
25

Total Costs and Expenses
1,647

 
1,462

 
 
 
 
Operating Loss
(301
)
 
(39
)
 
 
 
 
Other Income (Expense):
 
 
 
Interest Expense, Net
(155
)
 
(149
)
Warrant Fair Value Adjustment

 
46

Bond Tender and Call Premium

 
(34
)
Currency Devaluation Charges

 
(26
)
Other Expense, Net
(9
)
 
(8
)
 
 
 
 
Loss Before Income Taxes
(465
)
 
(210
)
Income Tax Provision
(12
)
 
(32
)
Net Loss
(477
)
 
(242
)
Net Income Attributable to Noncontrolling Interests
4

 
3

Net Loss Attributable to Weatherford
$
(481
)
 
$
(245
)
 
 
 
 
Loss Per Share Attributable to Weatherford:
 
 
 
Basic & Diluted
$
(0.48
)
 
$
(0.25
)
 
 
 
 
Weighted Average Shares Outstanding:
 
 
 
Basic & Diluted
1,003

 
994


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

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

 
Three Months Ended March 31,
(Dollars in millions)
2019
 
2018
Net Loss
$
(477
)
 
$
(242
)
 
 
 
 
Currency Translation Adjustments
33

 
5

Other Comprehensive Income
33

 
5

Comprehensive Loss
(444
)
 
(237
)
Comprehensive Income Attributable to Noncontrolling Interests
4

 
3

Comprehensive Loss Attributable to Weatherford
$
(448
)
 
$
(240
)

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

WEATHERFORD INTERNATIONAL PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 
March 31,
 
December 31,
(Dollars and shares in millions, except par value)
2019
 
2018
 
(Unaudited)
 
 
Current Assets:
 
 
 
Cash and Cash Equivalents
$
598

 
$
602

Accounts Receivable, Net of Allowance for Uncollectible Accounts of $124 at March 31, 2019 and $123 at December 31, 2018
1,154

 
1,130

Inventories, Net
1,050

 
1,025

Other Current Assets
434

 
428

Assets Held for Sale
170

 
265

Total Current Assets
3,406

 
3,450

 
 
 
 
Property, Plant and Equipment, Net of Accumulated Depreciation of $5,784 at March 31, 2019 and $5,786 at December 31, 2018
1,994

 
2,086

Goodwill
504

 
713

Other Non-Current Assets
615

 
352

Total Assets
$
6,519

 
$
6,601

 
 
 
 
Current Liabilities:
 
 
 
Short-term Borrowings and Current Portion of Long-term Debt
$
612

 
$
383

Accounts Payable
746

 
732

Accrued Salaries and Benefits
236

 
249

Income Taxes Payable
198

 
214

Other Current Liabilities
712

 
722

Total Current Liabilities
2,504

 
2,300

 
 
 
 
Long-term Debt
7,606

 
7,605

Other Non-Current Liabilities
515

 
362

Total Liabilities
10,625

 
10,267

 
 
 
 
Shareholders’ Deficiency:
 
 
 
Shares - Par Value $0.001; Authorized 1,356 shares, Issued and Outstanding 1,003 shares at March 31, 2019 and 1,002 shares at December 31, 2018
$
1

 
$
1

Capital in Excess of Par Value
6,719

 
6,711

Retained Deficit
(9,152
)
 
(8,671
)
Accumulated Other Comprehensive Loss
(1,713
)
 
(1,746
)
Weatherford Shareholders’ Deficiency
(4,145
)
 
(3,705
)
Noncontrolling Interests
39

 
39

Total Shareholders’ Deficiency
(4,106
)
 
(3,666
)
Total Liabilities and Shareholders’ Deficiency
$
6,519

 
$
6,601

 

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

WEATHERFORD INTERNATIONAL PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 
Three Months Ended March 31,
(Dollars in millions)
2019
 
2018
Cash Flows From Operating Activities:
 
 
 
Net Loss
$
(477
)
 
$
(242
)
Adjustments to Reconcile Net Loss to Net Cash From Operating Activities:
 
 
 
Depreciation and Amortization
123

 
147

Goodwill Impairment
229

 

Employee Share-Based Compensation Expense
8

 
13

Inventory Write-off and Other Related Charges
12

 
29

Asset Write-Downs and Other Charges
19

 
29

Loss on Sale of Assets and Businesses, Net
36

 

Bond Tender and Call Premium

 
34

Currency Devaluation Charges

 
26

Warrant Fair Value Adjustment

 
(46
)
Other, Net
(12
)
 
7

Change in Operating Assets and Liabilities, Net of Effect of Businesses Acquired:
 
 
 
Accounts Receivable
(18
)
 
23

Inventories
(40
)
 
(13
)
Other Current Assets
(25
)
 
(7
)
Accounts Payable
11

 
(55
)
Accrued Litigation and Settlements
(3
)
 
(8
)
Other Current Liabilities
(106
)
 
(56
)
Other, Net
(6
)
 
(66
)
Net Cash Used in Operating Activities
(249
)
 
(185
)
 
 
 
 
Cash Flows From Investing Activities:
 
 
 
Capital Expenditures for Property, Plant and Equipment
(58
)
 
(29
)
Capital Expenditures for and Acquisition of Assets Held for Sale
(1
)
 
(9
)
Acquisitions of Businesses, Net of Cash Acquired

 
4

Acquisition of Intellectual Property
(5
)
 
(3
)
Proceeds from Sale of Assets
26

 
12

Proceeds from Sale of Businesses, Net
74

 
25

Net Cash Provided by Investing Activities
36

 

 
 
 
 
Cash Flows From Financing Activities:
 
 
 
Borrowings of Long-term Debt

 
588

Repayments of Long-term Debt
(15
)
 
(440
)
Borrowings (Repayments) of Short-term Debt, Net
228

 
(54
)
Bond Tender Premium

 
(30
)
Other Financing Activities
(5
)
 
(10
)
Net Cash Provided by Financing Activities
208

 
54

Effect of Exchange Rate Changes on Cash and Cash Equivalents
1

 
(23
)
 
 
 
 
Net Decrease in Cash and Cash Equivalents
(4
)
 
(154
)
Cash and Cash Equivalents at Beginning of Period
602

 
613

Cash and Cash Equivalents at End of Period
$
598

 
$
459

 
 
 
 
Supplemental Cash Flow Information:
 
 
 
Interest Paid
$
157

 
$
174

Income Taxes Paid, Net of Refunds
$
35

 
$
47

 

The accompanying notes are an integral part of these condensed consolidated financial statements.
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Table of Contents
WEATHERFORD INTERNATIONAL PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1.  General

The accompanying unaudited Condensed Consolidated Financial Statements of Weatherford International plc (the “Company,” “Weatherford” 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, 2019 and December 31, 2018, Condensed Consolidated Statements of Operations and Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2019 and 2018 and Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018. When 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, 2018 included in our Annual Report on Form 10-K. The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the results expected for the year ending December 31, 2019.
Liquidity Concerns and Actions to Address Liquidity Needs; Going Concern

Our bond price decline and our share price decline, as well as our Company’s credit ratings, have over time increased the level of uncertainty in our business and have impacted various key stakeholders, including our employees, our customers and suppliers, and our key lenders. We have experienced losses and negative operating cash flows for multiple years, despite continued focus on our overall profitability, including managing expenses. As shown in our Condensed Consolidated Financial Statements, we incurred operating losses in the first quarter of 2019, requiring us to supplement operating activities with cash from investing and financing activities. As a result of weak energy sector conditions in the first quarter of 2019 in North America, primarily in Canada, combined with seasonal and weather-related disruptions in the United States, Europe and Russia as well as project start-up costs and an unfavorable impact from foreign exchange in Argentina, our operational results, working capital and cash flows were negatively impacted. These industry and company specific conditions led to lower demand for our products and services and significantly lower than expected benefits from our transformation, consequently resulting in lower actual results compared to our expectations for the first quarter of 2019. Finally, the market outlook for our Company and the energy sector continues to be constrained due to the uncertainty of anticipated activity particularly in North America, including lower spending by many of our customers resulting in lower than expected benefits from our transformationThese uncertainties have impacted our Company in several ways, including the retention of our key personnel, access to debt and equity credit at suitable terms, our level of working capital and our ability to execute within our targeted timing on our transformation. These combined factors contributed to our poor financial results for the first quarter of 2019 and have had a significant negative impact on our ability to negotiate acceptable terms with our lenders on new or extended credit facilities and new longer-term debt issuances. As a result, the Company believes that it will not be able to generate sufficient liquidity to service all of its debt and other obligations or comply with its debt covenants at some point within the next twelve months. These conditions raise substantial doubt about our ability to continue as a going concern. To address this projected shortfall in liquidity and capital structure constraints, we expect to reach an agreement in principle with holders of a majority of our unsecured senior notes (the “Consenting Noteholders”) on the terms of a Restructuring Support Agreement (the “RSA”). Furthermore, we are in negotiations for definitive commitments related to debtor-in-possession facilities (“DIP Facilities”), which are expected to be completed in the near term. The capital restructuring transaction is expected to be implemented through cases to be commenced by the Company and certain of its subsidiaries under Title 11 of the United States Bankruptcy Code and an examinership proceeding under the laws of Ireland. There can be no assurances that the capital restructuring transaction as described in the proposed RSA, including entry into the DIP Facilities, will be completed. See “Note 20 – Subsequent Events” for additional details regarding the proposed RSA, the DIP Facilities and the expected capital restructuring transaction.

Our unaudited Condensed Consolidated Financial Statements do not include any adjustments that might be necessary should we be unable to continue as a going concern.


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Table of Contents

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, assets and liabilities held for sale, derivative financial instruments, intangible assets and goodwill, property, plant and equipment (“PP&E”), right-of-use (“ROU”) lease assets, income taxes, accounting for long-term contracts, self-insurance, foreign currency exchange rates, lease liabilities, pension and post-retirement benefit plans, disputes, litigation, contingencies and share-based compensation. We base our estimates on historical experience, adjusted for current conditions if necessary, 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 and controlled joint ventures. All material intercompany accounts and transactions have been eliminated in consolidation.

Revenue Recognition

The majority of our revenue is derived from short term contracts. 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. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.

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. Contract drilling service revenue is contractual by nature and generally governed by day-rate based contracts. Product sales revenue is recognized 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. Revenues are recognized 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 until the products or services are delivered to the 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.

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

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The unmanned equipment that we lease to customers as operating leases consist primarily of drilling rental tools and artificial lift pumping equipment and the rental revenue is generally recognized on a straight-line basis. These equipment rental revenues are generally provided based on call-out work orders that include fixed per unit prices and are derived from short-term contracts.

Revenue Recognition – 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 are included in “Accounts Receivable, Net,” contract assets are included in “Other Current Assets” and contract liabilities are included in “Other Current Liabilities” on our Consolidated Balance Sheets.

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.

Reclassifications

Certain reclassifications of the financial statements and accompanying footnotes for the three months ended March 31, 2018 have been made to conform to the presentation for the three months ended March 31, 2019. See “Note 2 – New Accounting Pronouncements” for additional details regarding accounting changes impacting the Condensed Consolidated Financial Statements.

2. New Accounting Pronouncements

Accounting Changes

Effective January 1, 2019, we adopted Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) issued by the Financial Accounting Standards Board (“FASB”) in February 2016 and the series of related updates that followed (collectively referred to as “Topic 842”), which requires a lessee to recognize a ROU lease asset and lease liability for all qualifying leases with terms longer than twelve months on the balance sheet, including those classified as operating leases under previously 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.

Topic 842, and all the related amendments, was effective for us beginning January 1, 2019. We have elected to adopt Topic 842 using the modified retrospective approach. As such, comparative financial information for prior periods has not been restated and continues to be reported under the previous accounting guidance for those periods. We did not elect the hindsight practical expedient. See “Note 8 – Leases” for additional lease information and practical expedients elected.

The impact of Topic 842 on our consolidated balance sheet beginning January 1, 2019 was through the recognition of ROU assets and lease liabilities for operating leases, while our accounting for finance leases (previously referred to as capital leases) remained substantially unchanged. Amounts recognized at January 1, 2019 for operating leases were as follows:
(Dollars in millions)
Balance at January 1, 2019
Assets and Liabilities:
 
Other Non-Current Assets
$
288

Other Current Liabilities
92

Other Non-Current Liabilities
219



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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. We adopted this standard in the first quarter of 2019 and an election was not made to reclassify the income tax effects of the Tax Cuts and Jobs Act from Accumulated Other Comprehensive Income to retained earnings.
 
In July 2017, the FASB issued ASU 2017-11, Part I Accounting for Certain Financial Instruments with Down Round Features, which amends the accounting for certain equity-linked financial instruments and states a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. For an equity-linked financial instrument no longer accounted for as a liability at fair value, the amendments require a down round to be treated as a dividend and as a reduction of income available to common shareholders in basic earnings per share. We adopted this standard in the first quarter of 2019 on a retrospective basis. Adoption of the ASU did not have a significant impact on our Consolidated Financial Statements.

Accounting Standards Issued Not Yet Adopted

In August 2018, the FASB issued ASU 2018-14, Compensation — Retirement Benefits — Defined Benefit Plans — General (Subtopic 715-20): Disclosure Framework — Changes to the Disclosure Requirements for Defined Benefit Plans, which makes minor changes to the disclosure requirements for employers that sponsor defined benefit pension and other postretirement benefit plans. The ASU is effective for the fiscal year ending December 31, 2020, but early adoption is permitted. The ASU is required to be applied retrospectively. This new standard will not have a significant impact on our Consolidated Financial Statements.
    
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates, adds and modifies certain disclosure requirements for fair value measurements as part of its disclosure framework project. The ASU is effective beginning with the first quarter of 2020, and early adoption is permitted. The ASU is required to be applied retrospectively, except the new Level 3 disclosure requirements which are applied prospectively. We have evaluated the impact that this new standard will have on our Consolidated Financial Statements and concluded adoption of the ASU will not have a significant impact.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to determine credit loss estimates. The guidance requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The updated guidance applies to (i) loans, accounts receivable, trade receivables, and other financial assets measured at amortized cost, (ii) loan commitments and other off-balance sheet credit exposures, (iii) debt securities and other financial assets measured at fair value through other comprehensive income, and (iv) beneficial interests in securitized financial assets. The amended guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We will adopt the new standard on the effective date of January 1, 2020 and are evaluating the effect, if any, that the guidance will have on our Consolidated Financial Statements and related disclosures.

3.  Accounts Receivable Factoring

From time to time, we participate in factoring arrangements to sell accounts receivable to third-party financial institutions. In the first three months of 2019, we sold accounts receivable of $84 million and recognized a loss of $0.6 million on these sales. We received cash proceeds totaling $81 million. In the first three months of 2018, we sold accounts receivable of $96 million and recognized a loss of $0.6 million. We received cash proceeds totaling $93 million. Our factoring transactions in the first three months of 2019 and 2018 were recognized as sales, and the proceeds are included as operating cash flows in our Condensed Consolidated Statements of Cash Flows.


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Table of Contents

4.  Inventories, Net

Inventories, net of reserves, by category were as follows:
(Dollars in millions)
March 31, 2019
 
December 31, 2018
Raw materials, components and supplies
$
141

 
$
131

Work in process
57

 
47

Finished goods
852

 
847

 
$
1,050

 
$
1,025


5.  Business Combinations and Divestitures

Acquisitions

In the first quarter of 2019, we made no acquisitions of businesses.

In the first quarter of 2018, we acquired the remaining 50% equity interest in our Qatari joint venture that we previously accounted for as an equity method investment and consolidated the entity. 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, which is comprised of a cash consideration of $72 million and an estimated contingent consideration of $15 million related to services the Qatari entity will render under new contracts. Of the $72 million in cash consideration, $48 million was paid in accordance with closing terms through the joint venture, with the remaining payment of $24 million to be paid two years from closing, in 2020. As a result of this step acquisition transaction with a change in control, we remeasured our previously held equity investment to fair value and recognized a $12 million gain. The Level 3 fair value of the acquisition was determined using an income approach.

Divestitures

In the first quarter of 2019, we completed the final closings in a series of closings pursuant to the purchase and sale agreements (“Agreements”) entered into with ADES International Holding Ltd. (“ADES”). We entered into the Agreements in July of 2018 to sell our land drilling rig operations in Algeria, Kuwait and Saudi Arabia, as well as two idle land rigs in Iraq, for an aggregate purchase price of $287.5 million. We received gross proceeds of $72 million in the first quarter of 2019. The ADES sale was subject to regulatory approvals, consents and other customary closing conditions, including potential adjustments based on working capital, net cash, loss or destruction of rigs and drilling contract backlog. The $11 million ADES advance of the purchase price held in escrow as of December 31, 2018 was released in the first quarter of 2019 as a credit towards the purchase price. The loss on the sale of land drilling rigs operations recognized in the first quarter of 2019 was $6 million. The net carrying amount of assets and liabilities sold in the first quarter of 2019 totaled $66 million and primarily included PP&E.

The Agreements divest a majority of our land drilling rig operations. We continue to pursue options to sell all of our remaining rig assets.

In the first quarter of 2018, we completed the sale of our continuous sucker rod service business in Canada for a purchase price of $25 million and recognized a gain of $2 million. The carrying amounts of the major classes of assets divested total $23 million and included PP&E, allocated goodwill and inventory.

Held for Sale

At March 31, 2019, assets qualifying as held for sale totaled $170 million and consist of PP&E and other net assets of $147 million, allocated goodwill of $3 million, and inventory of $20 million. Liabilities held for sale totaled $11 million at March 31, 2019. These amounts primarily consist of our surface data logging and laboratory services business and our remaining land drilling rigs operations held for sale.

In December of 2018, we agreed to sell our surface data logging business to Excellence Logging for $50 million in total consideration, subject to customary post-closing working capital adjustments. On April 30, 2019, we completed the sale of our surface data logging business. See “Note 20 – Subsequent Events” for additional details.

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In October of 2018, we agreed to sell our Reservoir Solutions business, also known as our laboratory services business to an affiliate of CSL Capital Management, L.P., for an initial aggregate purchase price of $205 million in cash, subject to escrow release and customary post-closing working capital adjustments. On April 30, 2019, we completed the sale of our laboratory services business. See “Note 20 – Subsequent Events” for additional details.
 
At December 31, 2018, assets qualifying as held for sale totaled $265 million and liabilities held for sale totaled $17 million . These amounts primarily consist of our surface data logging and laboratory services business and our remaining land drilling rigs operations held for sale.

6.  Goodwill

For the first quarter ended March 31, 2019, our interim goodwill impairment tests indicated that goodwill for our North America reporting unit was impaired and as a result we incurred a goodwill impairment charge of $229 million. The impairment indicators during the quarter was a result of lower activity levels and lower exploration and production capital spending that resulted in a decline in drilling activity and forecasted growth in North America. Our cumulative impairment loss for goodwill was $2.9 billion at March 31, 2019. The changes in the carrying amount of goodwill by reporting segment at March 31, 2019, are presented in the following table.
(Dollars in millions)
Western Hemisphere
 
Eastern Hemisphere
 
Total
Balance at December 31, 2018
$
494

 
$
219

 
$
713

Impairment
(229
)
 

 
(229
)
  Reclassification from held for sale
4

 

 
4

  Foreign currency translation adjustments
12

 
4

 
16

Balance at March 31, 2019
$
281

 
$
223

 
$
504


7. Restructuring and Transformation Charges

Due to the highly competitive nature of our business and the continuing losses we incurred over the last few years, we continue to reduce our overall cost structure and workforce to better align our business with current activity levels. The ongoing transformation plan, which began in 2018 and is expected to extend significantly beyond the originally planned year-end 2019 target (the “Transformation Plan”), includes a workforce reduction, organization restructure, facility consolidations and other cost reduction measures and efficiency initiatives across our geographic regions.

The cost reduction plan which began in 2016 and continued throughout 2017 (the “2016-17 and 2016 Plan”), included a workforce reduction and other cost reduction measures initiated across our geographic regions due to the ongoing low levels of exploration and production spending. This plan was initiated to reduce our overall cost structure and workforce to better align with current activity levels of exploration and production.

In connection with the Transformation Plan, we recognized restructuring and transformation charges of $20 million in the first quarter of 2019, which include severance charges of $2 million, other restructuring charges of $14 million and restructuring related asset charges of $4 million. In the first quarter of 2018 we recognized restructuring charges of $25 million, which included severance charges of $11 million and other restructuring charges of $14 million. Other restructuring charges in both periods included contract termination costs, relocation and other associated costs.

The following tables present the components of restructuring charges by segment for the first quarter of 2019 and 2018.
 
Three Months Ended March 31, 2019
 
 
 
Total
(Dollars in millions)
Severance
Other
Severance and
Transformation Plan
Charges
Charges
Other Charges
Western Hemisphere
$
1

$
4

$
5

Eastern Hemisphere
1

4

5

Corporate

10

10

  Total
$
2

$
18

$
20


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Three Months Ended March 31, 2018
 
 
 
Total
(Dollars in millions)
Severance
Other
Severance and
2016-17 Plan
Charges
Charges
Other Charges
Western Hemisphere
$
4

$

$
4

Eastern Hemisphere
4

5

9

Corporate
3

9

12

  Total
$
11

$
14

$
25


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 2016 Plans that will be paid pursuant to the respective arrangements and statutory requirements.
 
At March 31, 2019
 
Transformation Plan
 
2016-17 and 2016 Plans
Total
 
 
 
 
 
 
Severance
 
Severance
Other
 
Severance
Other
and Other
(Dollars in millions)
Liability
Liability
 
Liability
Liability
Liability
Western Hemisphere
$
4

$
1

 
$
2

$
2

$
9

Eastern Hemisphere
6


 
1

2

9

Corporate

6

 
3


9

  Total
$
10

$
7

 
$
6

$
4

$
27

The following table presents the restructuring liability activity for the first three months of 2019. In the first quarter of 2019, we reclassified $12 million of restructuring cease-use liability to the initial ROU asset in accordance with the adoption of Topic 842.
 
 
 
Three Months Ended March 31, 2019
 
 
(Dollars in millions)
Accrued Balance at December 31, 2018
 
Charges
 
Cash Payments
 
Other 
 
Accrued Balance at March 31, 2019
Transformation Plan
 
 
 
 
 
 
 
 
 
Severance liability
$
18

 
$
2

 
$
(10
)
 
$

 
$
10

Other restructuring liability
16

 
$
14

 
$
(22
)
 
$
(1
)
 
$
7

 
 
 
 
 
 
 
 
 
 
2016-17 and Prior Plans
 
 
 
 
 
 
 
 
 
Severance liability
6

 

 
(1
)
 
1

 
6

Other restructuring liability
19

 

 
(1
)
 
(14
)
 
4

Total severance and other restructuring liability
$
59

 
$
16

 
$
(34
)
 
$
(14
)
 
$
27



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8. Leases

We lease certain facilities, land, vehicles, and equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet (including short-term sale leaseback transactions); we recognize lease expense for these leases on a straight-line basis over the lease term. We have one contract currently with a residual value guarantee of less than $20 million.

Beginning January 1, 2019, operating ROU assets and operating lease liabilities are recognized based on the present value of lease payments over the lease term at commencement date. Operating leases in effect prior to January 1, 2019 were recognized at the present value of the remaining payments on the remaining lease term as of January 1, 2019. We determine if an arrangement is classified as a lease at inception of the arrangement. As most of our leases do not provide an implicit rate of return, we use our incremental borrowing rate, together with the lease term information available at commencement date of the lease, in determining the present value of lease payments, which is updated on a quarterly basis. For adoption of Topic 842 we used the December 31, 2018 incremental borrowing rate, for operating leases that commenced prior to December 31, 2018. We have data center lease agreements with lease and non-lease components which are accounted for separately, while for the remainder of our agreements we have elected the practical expedient to account for lease and non-lease components as a single lease component. For certain equipment leases, such as copiers and vehicles, we account for the leases under a portfolio method. Operating lease payments include related options to extend or terminate lease terms that are reasonably certain of being exercised.

The unmanned equipment that we lease to customers as operating leases consists primarily of drilling rental tools and artificial lift pumping equipment. These equipment rental revenues are generally provided based on call-out work orders that include fixed per unit prices and are derived from short-term contracts. See “Note 16 – Revenues” for additional details on our equipment rental revenues.

Finance leases are recorded net of accumulated amortization of $46 million as of March 31, 2019.
(Dollars in millions)
Classification
 
March 31, 2019

Balance Sheet Components:
 
 
 
Assets
 
 
 
Operating
Other Non-Current Assets
 
$
281

Finance
Property Plant and Equipment, Net
 
57

Total leased assets
 
 
$
338

 
 
 
 
Liabilities
 
 
 
Current
 
 
 
  Operating
Other Current Liabilities
 
$
90

  Finance
Short-term Borrowings and Current Portion of Long-term Debt
 
7

 
 
 
 
Non-Current
 
 
 
  Operating
Other Non-Current Liabilities
 
212

  Finance
Long-term Debt
 
66

Total lease liabilities
 
 
$
375


(Dollars in millions)
 
Three Months Ended March 31, 2019
Lease Expense Components:
 
 
Operating lease expense
 
$
30

Short-term and variable lease expense
 
20

Finance lease expense: Amortization of ROU assets and interest on lease liabilities
 
3

Sublease income
 
(2
)
Total lease expense
 
$
51


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Operating
Finance
(Dollars in millions)
 
Leases
Leases
Maturity of Lease Liabilities as of March 31, 2019:
 
 
 
2019
 
$
98

$
8

2020
 
87

11

2021
 
68

11

2022
 
44

11

2023
 
27

11

After 2023
 
172

38

Total Lease Payments
 
496

90

Less: Interest
 
194

17

Present Value of Lease Liabilities
 
$
302

$
73


(Dollars in millions except years and percentages)
 
Three Months Ended March 31, 2019
Other Supplemental Information:
 
 
Cash paid for amounts included in the measurement of lease liabilities:
 
 
  Operating cash outflows from operating leases
 
$
32

  Operating cash outflows from finance leases
 
$
1

  Financing cash outflows from finance leases
 
$
2

 
 
 
ROU assets obtained in exchange of new operating lease liabilities
 
$
19

Losses on sale and leaseback transactions (short-term)
 
$
36

 
 
 
Weighted-average remaining lease term (years)
 
 
  Operating leases
 
6.7

  Finance leases
 
7.9

 
 
 
Weighted-average discount rate (percentages)
 
 
  Operating leases
 
13.1
%
  Finance leases
 
5.6
%

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9.  Short-Term Borrowings and Other Debt Obligations
(Dollars in millions)
March 31, 2019
 
December 31, 2018
364-Day Credit Agreement
$
317

 
$
317

A&R Credit Agreement
230

 

Other Short-term Loans
7

 
9

Current Portion of Long-term Debt
58

 
57

Short-term Borrowings and Current Portion of Long-term Debt
$
612

 
$
383


Revolving Credit Agreements and Term Loan Agreement

At March 31, 2019, we have two revolving credit agreements with total commitments of $846 million, comprised of an unsecured senior revolving credit agreement (the “A&R Credit Agreement”) in the amount of $529 million, and a Secured Second Lien 364-Day Revolving Credit Agreement (the “364-Day Credit Agreement” and, together with the A&R Credit Agreement, the “Revolving Credit Agreements”) in the amount of $317 million. At March 31, 2019, we have principal borrowings of $298 million under the Term Loan Agreement. We collectively refer to our Revolving Credit Agreements and Term Loan Agreement as the “Credit Agreements.” See “Note 20 – Subsequent Events” for additional details regarding the proposed RSA, the DIP Facilities and the expected capital restructuring transaction.

Under the terms of the A&R Credit Agreement, commitments of $226 million from non-extending lenders will mature on July 12, 2019 and commitments of $303 million from extending lenders will mature on July 13, 2020.

At March 31, 2019, we had total borrowing availability of $93 million available under our Credit Agreements. The following tables summarizes borrowing capacity utilization and availability of our Credit Agreements:
(Dollars in millions)
March 31, 2019
Facilities
$
1,144

Less uses of facilities:
 
364-Day Credit Agreement
317

A&R Credit Agreement
230

Letters of Credit
206

  Term Loan Agreement Principal Borrowing
298

Borrowing Availability
$
93


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 A&R Credit Agreement. For the three months ended March 31, 2019, the interest rate for the A&R Credit Agreement was LIBOR plus a margin rate of 2.68% for extending lenders and LIBOR plus a margin rate of 1.93% for non-extending lenders. For the three months ended March 31, 2019, the interest rate for borrowings under our Term Loan Agreement and 364-Day Credit Agreement were LIBOR plus a margin rate of 1.43% and LIBOR plus a margin rate of 2.18%, respectively.

Our Credit Agreements contain customary events of default, including in the event of our failure to comply with our financial covenants. We must also 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, an asset coverage ratio of at least 4.0 to 1 and a current asset coverage ratio of at least 1.5 to 1, in each case with the terms and definitions for the ratios as provided in the Credit Agreements. We must maintain a current asset coverage ratio of at least 2.1 to 1. The Term Loan Agreement and 364-Day Credit Agreement require us to pledge assets as collateral in order to borrow under the credit facility. As of March 31, 2019, we were in compliance with these financial covenants.


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Table of Contents

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 Short-term Borrowings and Debt Activity

We have short-term borrowings with various domestic and international institutions pursuant to uncommitted credit facilities. At March 31, 2019, we had $7 million in short-term borrowings under these arrangements. In addition, we had $271 million of letters of credit under various uncommitted facilities and $206 million of letters of credit under the A&R Credit Agreement. At March 31, 2019, we have cash collateralized $98 million of our letters of credit, which is included “Cash and Cash Equivalentsin the accompanying Condensed Consolidated Balance Sheets.

Fair Value of Short and Long-term Borrowings

The carrying value of our 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 exceed carrying value when the current market interest rate is lower than the interest rate at which the debt was originally issued and will 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. The discussion on fair value is continued at “Note 10 – Fair Value of Financial Instruments, Assets and Other Assets.” The fair value and carrying value of our senior notes were as follows: 
(Dollars in millions)
March 31, 2019
 
December 31, 2018
Fair Value
$
5,310

 
$
4,455

Carrying Value
7,295

 
7,285


10.  Fair Value of Financial Instruments, Assets and Other Assets
 
Financial Instruments and Other Assets 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” and held for sale assets and liabilities described in “Note 5 – Business Combinations and Divestitures,” we had no other material assets or liabilities measured and recognized at fair value on a recurring basis at March 31, 2019 and December 31, 2018.

Fair Value of Other Financial Instruments

Our other financial instruments include cash and cash equivalents, accounts receivable, accounts payable, held-to-maturity investments, short-term borrowings and long-term debt. The carrying value of our cash and cash equivalents, accounts receivable, accounts payable, and 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 short-term and long-term borrowings are discussed in “Note 9 – Short-term Borrowings and Other Debt Obligations.”


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Table of Contents

As of March 31, 2019 and December 31, 2018, we have $50 million of held-to-maturity Angolan government bonds maturing in 2020. The carrying value of $50 million in both periods approximate their fair value as of March 31, 2019 and December 31, 2018. We assess whether an other-than-temporary impairment loss on the investment has occurred due to a decline in fair value or other market conditions. If the fair value of the security is below amortized cost and it is more likely than not that we will not be able to recover its amortized cost basis before its stated maturity, we will record an other-than-temporary impairment charge in the Consolidated Statements of Operations.

Non-recurring Fair Value Measurements - Impairments

In the first quarter of 2019, our interim goodwill impairment tests indicated that our goodwill was impaired and as a result one of our reporting units was written down to its estimated fair value. The Level 3 fair values of our reporting units were determined using a combination of the income and market approach. The unobservable inputs to the income approach included each reporting unit’s estimated future cash flows and estimates of discount rates commensurate with the reporting unit’s risks. The market approach considered market multiples of comparable publicly traded companies to estimate fair value as a multiple of each reporting unit’s actual and forecasted earnings.

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 carried at fair value on the Condensed Consolidated Balance Sheets and changes in the fair value are 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 2 valuation and is estimated using the Black Scholes valuation model. Inputs to the model include Weatherford’s share price, volatility of our share price, and the risk-free interest rate. The fair value of the warrant was zero at March 31, 2019 and December 31, 2018. We recognized an insignificant amount of unrealized gain in the first quarter of 2019 and unrealized gain of $46 million for the first quarter of 2018 with changes in fair value of the warrants recorded each period in “Warrant Fair Value Adjustment” on the accompanying Condensed Consolidated Statements of Operations. The insignificant change in fair value of the warrant during the first three months of 2019 was due to the short remaining time to maturity, low stock price, and the elimination of warrant share value associated with any future equity issuance.

Foreign Currency Forward Contracts

At March 31, 2019 and December 31, 2018, we had an estimated net current liability for the fair value of our outstanding foreign currency forward contracts of $1 million and $4 million, respectively, with notional amounts aggregating to $519 million and $435 million, respectively. These foreign currency forward contracts are not designated as hedges under ASU 2014-03, Derivatives and Hedging (Topic 815), and their notional amounts 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.


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Table of Contents

The changes in fair value of the contracts are recorded each period in “Other Expense, Net” on the accompanying Condensed Consolidated Statements of Operations. For the quarter ended March 31, 2019 and March 31, 2018, we had a gain on the foreign currency forward contracts of $5 million and a gain of foreign currency forward contracts of $1 million, respectively.

Other Derivative Instruments

We may use interest rate swaps to help mitigate our exposures related to changes in the fair values of fixed-rate debt and to mitigate our exposure to variability in forecasted cash flows due to changes in interest rates. As of March 31, 2019, we did not have any fair value or cash flow hedges designated under ASU 2014-03. 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. See “Note 13 – Shareholders' (Deficiency) Equity” for additional information.

12. 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 then 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 then 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.

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. On October 16, 2018, the PTAB issued an IPR decision finding that all of the claims of the ‘501 patent are invalid. RC has appealed the decisions of the PTAB.


18


Table of Contents

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. The Company filed its responsive brief in June 2018. The hearing of the appeal took place on February 6, 2019, and on April 24, 2019, the appeal was dismissed in favor of Weatherford.

At this time, we believe it is unlikely that we will incur a loss related to the patent infringement matters, and therefore we have not accrued any loss provisions related to these matters. If one or more negative outcomes were to occur in any case, the impact to our financial position, results of operations, or cash flows could be material.

Other Disputes and Litigation

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, 2019 and December 31, 2018 were $32 million and $29 million, respectively.

Other Contingencies

We have minimum purchase commitments related to a supply contract and maintain a liability at March 31, 2019 for expected penalties to be paid of $24 million in “Other Current Liabilities” on our Condensed Consolidated Balance Sheets. Our minimum obligation for these commitments at December 31, 2018 was $46 million, of which $22 million was recorded in “Other Current Liabilities” and $24 million was recorded in “Other Non-Current Liabilities” on our Condensed Consolidated Balance Sheets.


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Table of Contents

13.  Shareholders’ (Deficiency) Equity

The following summarizes our shareholders’ equity activity for the first quarter of 2019 and 2018:
(Dollars in millions)
Par Value of Issued Shares
 
Capital in Excess of Par Value
 
Retained Deficit
 
Accumulated
Other
Comprehensive
Loss
 
Non-controlling Interests
 
Total Shareholders’ Deficiency
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
)
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2018
$
1

 
$
6,711

 
$
(8,671
)
 
$
(1,746
)
 
$
39

 
$
(3,666
)
Net Income (Loss)

 

 
(481
)
 

 
4

 
(477
)
Other Comprehensive Income

 

 

 
33

 

 
33

Dividends Paid to Noncontrolling Interests

 

 

 

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

 
8

 

 

 

 
8

Other

 

 

 

 
1

 
1

Balance at March 31, 2019
$
1

 
$
6,719

 
$
(9,152
)
 
$
(1,713
)
 
$
39

 
$
(4,106
)


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Table of Contents

The following table presents the changes in our accumulated other comprehensive loss by component for the first quarter of 2019 and 2018:
(Dollars in millions)
Currency Translation Adjustment
 
Defined Benefit Pension
 
Deferred Loss on Derivatives
 
Total
Balance at December 31, 2017
$
(1,484
)
 
$
(26
)
 
$
(9
)
 
$
(1,519
)
 
 
 
 
 
 
 
 
Other Comprehensive Income before Reclassifications
5

 

 

 
5

Net activity
5

 

 

 
5

 
 
 
 
 
 
 
 
Balance at March 31, 2018
$
(1,479
)
 
$
(26
)
 
$
(9
)
 
$
(1,514
)
 
 
 
 
 
 
 
 
Balance at December 31, 2018
$
(1,724
)
 
$
(14
)
 
$
(8
)
 
$
(1,746
)
 
 
 
 
 
 
 
 
Other Comprehensive Income before Reclassifications
33

 

 

 
33

Net activity
33

 

 

 
33

 
 
 
 
 
 
 
 
Balance at March 31, 2019
$
(1,691
)
 
$
(14
)
 
$
(8
)
 
$
(1,713
)

14. Share-Based Compensation

We recognized the following employee share-based compensation expense during the first quarter of 2019 and 2018:
 
Three Months Ended March 31,
(Dollars in millions)
2019
 
2018
Share-based compensation
$
8

 
$
13

Related tax benefit

 


During the first quarter of 2019, we granted 76 thousand restricted share units at a weighted average grant date fair value of $0.90 per share. As of March 31, 2019, there was $28 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 two years. As of March 31, 2019, there was $9 million of unrecognized compensation expense related to our performance share units. This cost is expected to be recognized over a weighted average period of less than two years.

As a result of our depressed share price we do not have sufficient shares available for issuance under our stock plans. Accordingly, we have converted our long-term incentive compensation program to a cash based program for 2019.


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15.  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 2019 and 2018:
 
Three Months Ended March 31,
(Shares in millions)
2019
 
2018
Basic and Diluted weighted average shares outstanding
1,003

 
994


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 2019 and 2018 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 2019 and 2018:
 
Three Months Ended March 31,
(Shares in millions)
2019
 
2018
Anti-dilutive potential shares due to net loss
250

 
250


16. Revenues

Revenue by Product Line and Geographic Region

The following tables disaggregate our product and service revenues from contracts with customers by major product line and geographic region for the first quarter ended March 31, 2019 and 2018:
 
Three Months Ended March 31, 2019
(Dollars in millions)
Western Hemisphere
 
Eastern Hemisphere
 
Total Revenues Excluding Rental Revenues
Product Lines:
 
 
 
 
 
  Production
$
295

 
$
96

 
$
391

  Completions
133

 
172

 
305

  Drilling and Evaluation
142

 
184

 
326

  Well Construction
99

 
147

 
246

Total
$
669

 
$
599

 
$
1,268


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Table of Contents

 
Three Months Ended March 31, 2018
(Dollars in millions)
Western Hemisphere
 
Eastern Hemisphere
 
Total Revenues Excluding Rental Revenues
Product Lines:
 
 
 
 
 
  Production
$
286

 
$
95

 
$
381

  Completions
157

 
136

 
293

  Drilling and Evaluation
156

 
194

 
350

  Well Construction
101

 
216

 
317

Total
$
700

 
$
641

 
$
1,341


 
Three Months Ended March 31,
(Dollars in millions)
2019
2018
Geographic Areas:
 
 
  United States
$
329

$
345

  Latin America
258

226

  Canada
82

129

  Western Hemisphere
669

700

 
 
 
  Middle East & North Africa
308

362

  Europe/Sub-Sahara Africa/Russia
216

214

  Asia
75

65

  Eastern Hemisphere
599

641

 
 
 
Total Product and Service Revenue before Rental Revenues
1,268

1,341

  Equipment Rental Revenues
78

82

Total Revenues
$
1,346

$
1,423


The unmanned equipment that we lease to customers as operating leases consist primarily of drilling rental tools and artificial lift pumping equipment. These equipment rental revenues are generally provided based on call-out work orders that include fixed per unit prices and are derived from short-term contracts.

Contract Balances

The following table provides information about receivables for product and services included in “Accounts Receivable, Net” at March 31, 2019 and December 31, 2018, respectively.
(Dollars in millions)
March 31, 2019
December 31, 2018
Receivables for Product and Services in Accounts Receivable, Net
$
1,067

$
1,051





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Table of Contents

Significant changes in the contract assets and liabilities balances during the period are as follows:
(Dollars in millions)
Contract Assets
Contract Liabilities
Balance at December 31, 2018
$
4

$
64

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

(83
)
Increase due to cash received, excluding amount recognized as revenue during the period

75

Increase due to revenue recognized during the period but contingent on future performance
10


Transferred to receivables from contract assets recognized at the beginning of the period
(2
)

Changes as a result of adjustments due to changes in estimates or contract modifications

3

Balance at March 31, 2019
$
12

$
59


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, 2019 primarily relate to subsea services and an artificial lift contract. All consideration from contracts with customers is included in the amounts presented in the following table.
(Dollars in millions)
2019

2020

2021

2022

Thereafter

Total

Service Revenue
$
57

$
33

$
18

$
18

$
19

$
145


17. Income Taxes

We have determined that because 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 determining the quarterly provision for income taxes. 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. In the first quarter of 2019, we had a tax expense of $12 million on a loss before income taxes of $465 million compared to the first quarter of 2018 tax expense of $32 million on a loss before income taxes of $210 million. Our results for the first quarter of 2019 include an $8 million tax benefit principally related to the $229 million goodwill impairment. The other asset write-downs and other charges, including $49 million in asset write-downs and other charges and $20 million in restructuring charges resulted in no significant tax benefit. The tax expense for the first quarter of 2019 and 2018 also includes withholding taxes, minimum taxes and deemed profit taxes that do not directly correlate to ordinary income or loss.

We are routinely 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 $16 million in the next twelve months due to expiration of statutes of limitations, settlements and/or conclusions of tax examinations.


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Table of Contents

18. 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 Annual Report on Form 10-K.
 
Three Months Ended March 31, 2019
(Dollars in millions)
Revenues
 
Income (Loss)
from
Operations
 
Depreciation
and
Amortization
Western Hemisphere
$
726

 
$
9

 
$
48

Eastern Hemisphere
620

 
20

 
72

 
1,346

 
29

 
120

Corporate General and Administrative
 
 
(32
)
 
3

Goodwill Impairment
 
 
(229
)
 
 
Restructuring and Transformation Charges
 
 
(20
)
 
 
Asset Write-Downs and Other (a)
 
 
(49
)
 
 
Total
$
1,346

 
$
(301
)
 
$
123

(a)
Includes the loss on disposition of assets and businesses, other fees and asset write-downs, partially offset by a reduction of a contingency reserve on a legacy contract.

 
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 (b)
 
 
(18
)
 
 
Total
$
1,423

 
$
(39
)
 
$
147

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



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Table of Contents

19. 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 and 9.875% senior notes due 2025 of Weatherford Delaware were guaranteed by Weatherford Bermuda at March 31, 2019 and December 31, 2018.
 
The following obligations of Weatherford Bermuda were guaranteed by Weatherford Delaware at March 31, 2019 and December 31, 2018: (1) A&R Credit Agreement, (2) Term Loan Agreement, (3) 364-Day Credit Agreement, (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 2022, (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.

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, 2019
(Unaudited)
(Dollars in millions)
Weatherford
Ireland
 
Weatherford Bermuda
 
Weatherford Delaware
 
Other
Subsidiaries
 
Eliminations
 
Consolidation
Revenues
$

 
$

 
$

 
$
1,346

 
$

 
$
1,346

Costs and Expenses
(9
)
 

 

 
(1,638
)
 

 
(1,647
)
Operating Income (Loss)
(9
)
 

 

 
(292
)
 

 
(301
)
 
 
 
 
 
 
 
 
 
 
 
 
Other Income (Expense):
 
 
 
 
 
 
 
 
 
 
 
Interest Expense, Net

 
(143
)
 
(25
)
 
7

 
6

 
(155
)
Intercompany Charges, Net

 
1

 
(4
)
 
(42
)
 
45

 

Equity in Subsidiary Income (Loss)
(472
)
 
(161
)
 
(186
)
 

 
819

 

Other, Net

 
4

 
(1
)
 
(12
)
 

 
(9
)
Income (Loss) Before Income Taxes
(481
)
 
(299
)
 
(216
)
 
(339
)
 
870

 
(465
)
(Provision) Benefit for Income Taxes

 

 

 
(12
)
 

 
(12
)
Net Income (Loss)
(481
)
 
(299
)
 
(216
)
 
(351
)
 
870

 
(477
)
Noncontrolling Interests

 

 

 
4

 

 
4

Net Income (Loss) Attributable to Weatherford
$
(481
)
 
$
(299
)
 
$
(216
)
 
$
(355
)
 
$
870

 
$
(481
)
Comprehensive Income (Loss) Attributable to Weatherford
$
(448
)
 
$
(305
)
 
$
(218
)
 
$
(322
)
 
$
845

 
$
(448
)
 

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Table of Contents

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
(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
)
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
 




27


Table of Contents

Condensed Consolidating Balance Sheet
March 31, 2019
(Unaudited)
(Dollars in millions)
Weatherford
Ireland
 
Weatherford
Bermuda
 
Weatherford
Delaware
 
Other
Subsidiaries
 
Eliminations
 
Consolidation
Current Assets:
 
 
 
 
 
 
 
 
 
 
 
Cash and Cash Equivalents
$

 
$
244

 
$

 
$
354

 
$

 
$
598

Other Current Assets
4

 

 
485

 
2,842

 
(523
)
 
2,808

Total Current Assets
4

 
244

 
485

 
3,196

 
(523
)
 
3,406

 
 
 
 
 
 
 
 
 
 
 
 
Equity Investments in Affiliates
(4,126
)
 
7,370

 
6,907

 
407

 
(10,558
)
 

Intercompany Receivables, Net

 
204

 

 
2,875

 
(3,079
)
 

Other Assets

 
11

 
135

 
2,967

 

 
3,113

Total Assets
$
(4,122
)
 
$
7,829

 
$
7,527

 
$
9,445

 
$
(14,160
)
 
$
6,519

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

 
$
599

 
$

 
$
13

 
$

 
$
612

Accounts Payable and Other Current Liabilities
13

 
140

 

 
2,262

 
(523
)
 
1,892

Total Current Liabilities
13

 
739

 

 
2,275

 
(523
)
 
2,504

 
 
 
 
 
 
 
 
 
 
 
 
Long-term Debt

 
6,634

 
782

 
128

 
62

 
7,606

Intercompany Payables, Net
10

 

 
3,069

 

 
(3,079
)
 

Other Long-term Liabilities

 
7

 

 
516

 
(8
)
 
515

Total Liabilities
23

 
7,380

 
3,851

 
2,919

 
(3,548
)
 
10,625

 
 
 
 
 
 
 
 
 
 
 
 
Weatherford Shareholders’ (Deficiency) Equity
(4,145
)
 
449