Company Quick10K Filing
Weatherford
Price0.70 EPS-2
Shares1,004 P/E-0
MCap703 P/FCF-1
Net Debt-991 EBIT-2,008
TEV-288 TEV/EBIT0
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-11
10-K 2019-12-31 Filed 2020-03-16
10-Q 2019-09-30 Filed 2019-10-30
10-Q 2019-06-30 Filed 2019-08-05
10-Q 2019-03-31 Filed 2019-05-10
10-K 2018-12-31 Filed 2019-02-15
10-Q 2018-09-30 Filed 2018-11-02
10-Q 2018-06-30 Filed 2018-08-09
10-Q 2018-03-31 Filed 2018-05-02
10-K 2017-12-31 Filed 2018-02-14
10-Q 2017-09-30 Filed 2017-11-01
10-Q 2017-06-30 Filed 2017-08-01
10-Q 2017-03-31 Filed 2017-04-28
10-K 2016-12-31 Filed 2017-02-15
10-Q 2016-09-30 Filed 2016-10-28
10-Q 2016-06-30 Filed 2016-07-29
10-Q 2016-03-31 Filed 2016-05-05
10-K 2015-12-31 Filed 2016-02-16
10-Q 2015-09-30 Filed 2015-10-23
10-Q 2015-06-30 Filed 2015-07-24
10-Q 2015-03-31 Filed 2015-04-24
10-K 2014-12-31 Filed 2015-02-18
10-Q 2014-09-30 Filed 2014-10-24
10-Q 2014-06-30 Filed 2014-07-25
8-K 2020-06-12
8-K 2020-06-10
8-K 2020-06-07
8-K 2020-05-11
8-K 2020-04-20
8-K 2020-04-13
8-K 2020-03-16
8-K 2019-12-13
8-K 2019-12-05
8-K 2019-11-22
8-K 2019-11-14
8-K 2019-11-14
8-K 2019-11-11
8-K 2019-10-16
8-K 2019-10-07
8-K 2019-09-23
8-K 2019-09-20
8-K 2019-09-11
8-K 2019-09-09
8-K 2019-08-23
8-K 2019-08-20
8-K 2019-07-03
8-K 2019-07-01
8-K 2019-06-28
8-K 2019-06-25
8-K 2019-05-17
8-K 2019-05-16
8-K 2019-05-13
8-K 2019-04-30
8-K 2019-04-02
8-K 2019-03-25
8-K 2019-02-19
8-K 2019-02-12
8-K 2019-02-01
8-K 2018-12-14
8-K 2018-12-07
8-K 2018-11-27
8-K 2018-10-29
8-K 2018-10-22
8-K 2018-09-05
8-K 2018-08-16
8-K 2018-07-27
8-K 2018-07-11
8-K 2018-06-06
8-K 2018-05-22
8-K 2018-04-30
8-K 2018-04-24
8-K 2018-03-26
8-K 2018-03-12
8-K 2018-03-09
8-K 2018-03-05
8-K 2018-02-23
8-K 2018-02-21
8-K 2018-02-13
8-K 2018-02-02
8-K 2018-01-29

WFT 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II - Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits.
EX-31.1 ex311ceo302certwft0331.htm
EX-31.2 ex312cfo302certwft0331.htm
EX-32.1 ex321ceo906certwft0331.htm
EX-32.2 ex322cfo906certwft0331.htm
EX-99.1 ex991presentationmateria.htm
EX-99.2 ex992additionalpresentat.htm

Weatherford Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
3526178-1-102014201620182020
Assets, Equity
3.92.71.50.2-1.0-2.22014201620182020
Rev, G Profit, Net Income
1.00.60.1-0.3-0.8-1.22014201620182020
Ops, Inv, Fin

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UNITED STATES
 
 
SECURITIES AND EXCHANGE COMMISSION
 
 
WASHINGTON, D.C. 20549
 
(Mark One)
 
Form
10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the quarterly period ended
March 31, 2020
 
 
 
 
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 plc
(Exact Name of Registrant as Specified in Its Charter)
Ireland
 
98-0606750
(State or Other Jurisdiction of Incorporation or Organization)
 
(I.R.S. Employer Identification No.)
 
 
 
 
 
 
 
2000 St. James Place
,
Houston
,
Texas
 
77056
(Address of Principal Executive Offices)
 
(Zip Code)
Registrant’s Telephone Number, Including Area Code: 713.836.4000
 
N/A
 
 
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s) (1)
Name of each exchange on which registered
Ordinary shares, $0.001 par value per share
WFTLF
N/A

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
 
Accelerated filer
 
Non-accelerated filer
 
Smaller reporting company
 
Emerging growth company
 
 
 
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
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.   Yes þ    No  
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 30, 2020, there were 70,017,356 Weatherford ordinary shares, $0.001 par value per share, outstanding.
______________
1 On April 17, 2020, the New York Stock Exchange (the “NYSE”) filed a Form 25 (the “Form 25”) with the Securities and Exchange Commission delisting our ordinary shares from trading on the NYSE, which delisting became effective 10 days after the filing of the Form 25. In accordance with Rule 12d2-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the de-registration of our ordinary shares under Section 12(b) of the Exchange Act will become effective 90 days from the date of the Form 25 filing.



Weatherford International public limited company
Form 10-Q for the Three Months Ended March 31, 2020



1



PART I FINANCIAL INFORMATION
Item 1. Financial Statements.

WEATHERFORD INTERNATIONAL PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 
Successor
 
 
Predecessor
 
Three Months Ended
 
 
Three Months Ended
(Dollars and shares in millions, except per share amounts)
3/31/2020
 
 
3/31/2019
Revenues:
 
 
 
 
Products
$
450

 
 
$
496

Services
765

 
 
850

Total Revenues
1,215

 
 
1,346

 
 
 
 
 
Costs and Expenses:
 
 
 
 
Cost of Products
392

 
 
468

Cost of Services
521

 
 
614

Research and Development
33

 
 
36

Selling, General and Administrative
248

 
 
231

Long-lived Assets Impairment
640

 
 

Goodwill Impairment
167

 
 
229

Restructuring and Other Charges
36

 
 
69

Total Costs and Expenses
2,037

 
 
1,647

 
 
 
 
 
Operating Loss
(822
)
 
 
(301
)
 
 
 
 
 
Other Expense:
 
 
 
 
Reorganization Items
(9
)
 
 

Interest Expense, Net
(58
)
 
 
(155
)
Other Expense, Net
(25
)
 
 
(9
)
 
 
 
 
 
Loss Before Income Taxes
(914
)
 
 
(465
)
Income Tax Provision
(44
)
 
 
(12
)
Net Loss
(958
)
 
 
(477
)
Net Income Attributable to Noncontrolling Interests
8

 
 
4

Net Loss Attributable to Weatherford
$
(966
)
 
 
$
(481
)
 
 
 
 
 
Loss Per Share Attributable to Weatherford:
 
 
 
 
Basic & Diluted
$
(13.80
)
 
 
$
(0.48
)
 
 
 
 
 
Weighted Average Shares Outstanding:
 
 
 
 
Basic & Diluted
70

 
 
1,003


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)

 
Successor
 
 
Predecessor
 
Three Months Ended
 
 
Three Months Ended
(Dollars in millions)
3/31/2020
 
 
3/31/2019
Net Loss
$
(958
)
 
 
$
(477
)
Foreign Currency Translation Adjustments
(95
)
 
 
33

Comprehensive Loss
(1,053
)
 
 
(444
)
Comprehensive Income Attributable to Noncontrolling Interests
8

 
 
4

Comprehensive Loss Attributable to Weatherford
$
(1,061
)
 
 
$
(448
)

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



WEATHERFORD INTERNATIONAL PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars and shares in millions, except par value)
3/31/2020
 
12/31/2019
 
(Unaudited)
 
 
Assets:
 
 
 
Cash and Cash Equivalents
$
670

 
$
618

Restricted Cash
94

 
182

Accounts Receivable, Net of Allowance for Credit Losses of $10 at March 31, 2020 and $0 at December 31, 2019
1,204

 
1,241

Inventories, Net
1,004

 
972

Other Current Assets
402

 
440

Total Current Assets
3,374

 
3,453

 
 
 
 
Property, Plant and Equipment, Net of Accumulated Depreciation of $124 at March 31, 2020 and $25 at December 31, 2019
1,554

 
2,122

Goodwill
72

 
239

Intangible Assets, Net of Accumulated Amortization of $55 at March 31, 2020 and $9 at December 31, 2019
928

 
1,114

Other Non-Current Assets
237

 
365

Total Assets
$
6,165

 
$
7,293

 
 
 
 
Liabilities:
 
 
 
Short-term Borrowings and Current Portion of Long-term Debt
26

 
13

Accounts Payable
544

 
585

Accrued Salaries and Benefits
248

 
270

Income Taxes Payable
199

 
205

Other Current Liabilities
627

 
599

Total Current Liabilities
1,644

 
1,672

 
 
 
 
Long-term Debt
2,149

 
2,151

Other Non-Current Liabilities
509

 
554

Total Liabilities
4,302

 
4,377

 
 
 
 
Shareholders’ Equity:
 
 
 
Ordinary Shares - Par Value $0.001; Authorized 1,356 shares, Issued and Outstanding 70 shares at March 31, 2020 and December 31, 2019
$

 
$

Capital in Excess of Par Value
2,897

 
2,897

Retained Deficit
(992
)
 
(26
)
Accumulated Other Comprehensive Income (Loss)
(86
)
 
9

Weatherford Shareholders’ Equity
1,819

 
2,880

Noncontrolling Interests
44

 
36

Total Shareholders’ Equity
1,863

 
2,916

Total Liabilities and Shareholders’ Equity
$
6,165

 
$
7,293

 

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)
 
Successor
 
 
Predecessor
 
Three Months Ended
 
 
Three Months Ended
(Dollars in millions)
3/31/2020
 
 
3/31/2019
Cash Flows From Operating Activities:
 
 
 
 
Net Loss
$
(958
)
 
 
$
(477
)
Adjustments to Reconcile Net Loss to Net Cash Provided by (Used in) Operating Activities:
 
 
 
 
Depreciation and Amortization
157

 
 
123

Goodwill Impairment
167

 
 
229

Long-lived Asset Impairments and Other Charges
648

 
 
31

Loss on Sale Businesses, Net
1

 
 
36

Deferred Income Tax Provision (Benefit)
23

 
 
(6
)
Other Net Income Adjustments
5

 
 
2

Change in Operating Assets and Liabilities:
 
 
 
 
Accounts Receivable
(3
)
 
 
(18
)
Inventories
(48
)
 
 
(40
)
Accounts Payable
(32
)
 
 
11

Other, Net
70

 
 
(140
)
Net Cash Provided by (Used in) Operating Activities
30

 
 
(249
)
 
 
 
 
 
Cash Flows From Investing Activities:
 
 
 
 
Capital Expenditures for Property, Plant and Equipment
(38
)
 
 
(59
)
Payments of Deferred Consideration on the Acquisition of Equity Investment
(12
)
 
 

Acquisition of Intangible Assets
(2
)
 
 
(5
)
Proceeds from Disposition of Assets
6

 
 
26

Proceeds from Disposition of Businesses, Net
(1
)
 
 
74

Net Cash Provided by (Used in) Investing Activities
(47
)
 
 
36

 
 
 
 
 
Cash Flows From Financing Activities:
 
 
 
 
Repayments of Long-term Debt
(2
)
 
 
(15
)
Borrowings (Repayments) of Short-term Debt, Net
(3
)
 
 
228

Other Financing Activities
(3
)
 
 
(5
)
Net Cash Provided by (Used in) Financing Activities
(8
)
 
 
208

Effect of Exchange Rate Changes on Cash and Cash Equivalents
(11
)
 
 
1

 
 
 
 
 
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash
(36
)
 
 
(4
)
Cash, Cash Equivalents and Restricted Cash at Beginning of Period
800

 
 
602

Cash, Cash Equivalents and Restricted Cash at End of Period
$
764

 
 
$
598

 
 
 
 
 
Supplemental Cash Flow Information:
 
 
 
 
Interest Paid
$
2

 
 
$
157

Income Taxes Paid, Net of Refunds
$
21

 
 
$
35

Non-cash Financing Obligations
$
17

 
 
$

 

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”) are prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the SEC for interim financial information. Accordingly, certain information and disclosures normally included in our annual financial statements have been condensed or omitted. Therefore, these unaudited condensed consolidated financial statements should be read in conjunction with our audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2019 (“2019 Annual Report”).

In the opinion of management, the Condensed Consolidated Financial Statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary by management to fairly state our results of operations, financial position and cash flows of the Company and its subsidiaries for the periods presented and are not necessarily indicative of the results that may be expected for a full year. The Company’s financial statements have been prepared on a consolidated basis. Under this basis, our financial statements consolidate all wholly owned subsidiaries and controlled joint ventures. All intercompany accounts and transactions have been eliminated.

Summary of Significant Accounting Policies

Please refer to “Note 1 – Summary of Significant Accounting Policies” of our Consolidated Financial Statements from our 2019 Annual Report for the discussion on our significant accounting policies. Certain reclassifications of the financial statements and accompanying footnotes for the three months ended March 31, 2019 have been made to conform to the presentation for the three months ended March 31, 2020.

As described in “Note 1 – Summary of Significant Accounting Policies”, “Note 2 – Emergence from Bankruptcy Proceedings”, and “Note 3 – Fresh Start Accounting” of our Consolidated Financial Statements from our 2019 Annual Report, we filed voluntary petitions for bankruptcy on July 1, 2019, then emerged from bankruptcy on December 13, 2019 and adopted fresh-start accounting upon emergence. References to “Predecessor” herein relate to the Condensed Consolidated Statements of Operations for the period ended March 31, 2019 (“Predecessor Period”). References to “Successor” herein relate to the Condensed Consolidated Balance Sheets of the reorganized Company as of March 31, 2020 and December 31, 2019 and the Condensed Consolidated Statements of Operations for the three months ended March 31, 2020 (“Successor Period”) and are not comparable to the Consolidated Financial Statements of the Predecessor as indicated by the “black line” division in the financials and footnote tables, which emphasizes the lack of comparability between amounts presented. The Company’s financial results for future periods will be different from historical trends and the differences may be material.

Impact of COVID-19 and Oil Price Declines on Our Operations and Liquidity

Throughout the first quarter of 2020, multiple events have created significant uncertainty for the trajectory of the industry and the Company, lowering expectations of oil and gas related spending throughout the remainder of 2020 and beyond. On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. In response, national and local governments imposed rapidly evolving social distancing guidelines, travel restrictions and stay-at-home orders that caused a significant decrease in activity in the global economy and the demand for oil and gas which negatively impacted the price of oil and gas. By the end of March, the spread of COVID-19 eventually caused most countries to implement lock-down or shelter-in-place measures. This has caused a demand destruction for hydrocarbons, causing unprecedented dislocations throughout the industry. These measures have negatively impacted, and will continue to have near-term and long-term impacts, on our ability to operate effectively, including operational and manufacturing disruptions such as a lack of availability of key components from our suppliers, customer restrictions that prevent us access to their sites and changes to Weatherford’s policies that have restricted the way our employees work.

Compounding the collapse in global demand for oil brought about by the COVID-19 lock-downs across the world, in March 2020, members of the Organization of the Petroleum Exporting Countries and ten other oil producing countries (“OPEC+”) met to discuss how to respond to the potential market effects of the global COVID-19 pandemic. The meeting ended on March 6, 2020, as Saudi Arabia failed to convince Russia to reduce production to offset falling demand due to slowing economic activity resulting from the global COVID-19 pandemic. In response to Russia’s refusal to accept the production cut, Saudi Arabia announced an immediate reduction in its export prices and Russia announced that all previously agreed oil production cuts would expire on April 1, 2020. These actions flooded the global market with an oversupply of oil. As a result, the price of oil and gas further declined

6



and available worldwide storage was nearing capacity, which is further pressuring commodity prices and forcing producers to shut-in a significant amount of production globally. In early April 2020, in response to significantly depressed global oil prices, certain countries, led by Saudi Arabia, Russia and the United States, committed to implement reductions in world oil production. However, the price of oil and gas has not recovered to date and recovery is not expected in the near term. Worldwide economic activity is falling sharply, and oil demand destruction is leading to an unprecedented supply-demand imbalance in the range of 20-30 million barrels per day. Moreover, once the supply and demand equation re-balances, it is unclear when a stable oil market will return as record crude inventories will dampen the pace of any recovery, translating to near-term uncertainties in activity and challenges in forecasting our business.

The imbalance between supply and demand for oil created by simultaneous impacts of the COVID-19 pandemic and recent actions by certain OPEC+ nations, together with uncertainty around the extent and timing for an economic recovery, have caused extreme market volatility and resulted in a precipitous decline in commodity prices during March 2020 and April 2020 and substantial reductions to the capital spending plans of exploration and production companies. This has resulted in, and is expected to continue to result in, weakened demand for our products and services through the remainder of 2020 and, potentially, 2021. As a result, our financial results for the first quarter of 2020, and our outlook for the remainder of the year, have been materially and negatively impacted. In addition, we also anticipate substantial constraints on our ability to generate revenues, profits and cash flows and to maintain adequate liquidity. We currently expect a multi-year (2020 to 2021 and beyond) dislocation across the industry, with the quickest and deepest impacts to be felt across North America, followed by certain international markets such as Europe, Latin America and Sub Saharan Africa.

Entering 2020, we were already taking a number of actions that were yielding improvements in our cost structure. However, given current developments, we are now implementing more aggressive actions to right-size our business to address current market conditions. At March 31, 2020, we had adequate liquidity and were compliant with our financial covenants under the agreements governing our outstanding indebtedness. However, our rapidly changing operating environment has led to an inability to predict the ultimate length and depth of the adverse economic impact from the COVID-19 pandemic and uncertainty in the global oil markets on our industry and the Company, though the effects have been, and are expected to continue to be, significant. In this backdrop, given the material decline in our business as a result of the historic oversupply of hydrocarbons worldwide, we expect that a breach of our covenants under our ABL Revolving Credit Agreement is forthcoming. A breach of the financial covenants under our ABL Credit Agreement would constitute an event of default under our ABL Credit Agreement and if not cured or waived, would potentially constitute an event of default under our LC Credit Agreement and our unsecured Exit Notes. An event of default under these agreements could result in the obligations under these agreements being accelerated or cash collateralized. Either such result would constrain liquidity to the point where we would not be able to service the interest on our debt or pay other obligations and thus, raises substantial doubt on the Company’s ability to continue as a going concern within the next 12 months. As a result, our management and the Board of Directors are evaluating options to improve liquidity and address the Company’s long-term capital structure. To address this expected shortfall in liquidity and capital structure constraints, we are in discussions with holders of our unsecured senior notes with respect to potential deleveraging or restructuring transactions. The Company cannot provide any assurances if or when it will agree on the terms of or consummate any potential restructuring or deleveraging transactions.

Liquidity Concerns and Actions to Address Liquidity Needs; Going Concern

The significant uncertainty on the long-term impacts of the COVID-19 pandemic in general, the global economy, and the oil and gas industry for 2020 and beyond is having a substantial negative impact on our business. The global impacts surrounding the COVID-19 pandemic discussed above, including operational and manufacturing disruptions, logistical constraints and travel restrictions, are rapidly evolving and dynamic. We have experienced and expect to continue to experience actions that will negatively impact our ability to operate, including delays or a lack of availability of key components from our suppliers, customer restrictions that prevents access to their sites, community measures to contain the spread of the virus, and changes to Weatherford’s policies that have restricted the way our employees work. We expect most, if not all, of these disruptions and constraints to have lasting effects on how we and our customers and suppliers work in the future. The demand destruction associated with the COVID-19 pandemic and recent actions by OPEC+ have caused commodity prices to plunge precipitously and correspondingly, substantial activity declines in the industry.

Further, actions by certain members of OPEC+ and its partners significantly disrupted the supply/demand equation, resulting in unprecedented commodity price weakness, significant reductions to the capital spending plans of our customers and uncertainty of when a stable oil market returns. Global storage for crude is on the verge of reaching capacity, further pressuring commodity prices and forcing producers to shut-in a significant amount of production globally. The COVID-19 pandemic coupled with the recent customer responses to OPEC+ initiatives have resulted in immediate weakness in demand for our products and services.

7




While Weatherford’s products and services continue to be in demand globally, the overall industry weakness has a significant impact on our short-term and long-term outlook and are expected to further constrain our ability to generate revenues, profits and cash flows resulting in a sudden negative impact to our liquidity profile. Additionally, between December 31, 2019 through March 31, 2020, our bond prices declined 44% and our ordinary share price has fallen 79%. In late March and early April 2020 credit rating agencies have downgraded our credit ratings, which may limit our ability to secure additional external funding.

This significant and sudden change in the global business environment has increased the level of uncertainty in our business and has impacted various key stakeholders, including our employees, customers, suppliers and key lenders. The severity of these weak industry conditions has negatively impacted our results of operations and cash flows and we believe will continue to do so in the future.

In response, we quickly increased and accelerated our workforce reduction plan, reduced certain management and employee pay, reduced other operating costs, and initiated further consolidation of our operations. However, even with our rapid and vast response and actions, given the material decline in our business as a result of the historic oversupply of hydrocarbons worldwide, we expect that a breach of our covenants under our ABL Revolving Credit Agreement is forthcoming. A breach of the financial covenants under our ABL Credit Agreement would constitute an event of default under our ABL Credit Agreement and if not cured or waived, would potentially constitute an event of default under our LC Credit Agreement and our unsecured Exit Notes. An event of default under these agreements could result in the obligations under these agreements being accelerated or cash collateralized. Either such result would constrain liquidity to the point where we would not be able to service the interest on our debt or pay other obligations and thus, raises substantial doubt on the Company’s ability to continue as a going concern within the next 12 months.

To address this sudden shortfall in liquidity resulting in significant capital structure constraints, we began discussions with holders of our unsecured 11% senior notes due 2024 (“Exit Notes”) with respect to a potential deleveraging or restructuring transaction. The Company cannot provide any assurances on if or when it will agree on the terms of or consummate any potential restructuring or deleveraging transactions. In addition, on May 6, 2020, the Company borrowed $100 million under its ABL Revolving Credit Agreement to strengthen its cash liquidity position. The actions taken by management to preserve liquidity and capital include the borrowing under our ABL Revolving Credit Agreement, reduction of capital expenditures, consolidation of product lines to eliminate redundancy, exiting from sub-scale locations and a higher level of headcount reductions. In addition, the precipitous decline in activity will ultimately result in a significant decline in our accounts receivable balance, particularly in North America, which comprises the most significant component of our credit facility borrowing base and will further impair our ability to comply with the covenants under the ABL Revolving Credit Agreement. Despite all the actions we have taken and are taking, we expect that a breach of our covenants under the ABL Revolving Credit Agreement is forthcoming.

The combination of the unprecedented industry conditions, risks and uncertainties associated with the COVID-19 pandemic, lower activity levels and potential covenant breach, raises substantial doubt about our ability to continue as a going concern. The consolidated financial statements have been prepared in conformity with U.S. GAAP which contemplate the continuation of the Company as a going concern and do not include any adjustments that might be necessary should we be unable to continue as a going concern.

2. New Accounting Pronouncements

Accounting Changes

On January 1, 2020, we adopted Financial Accounting Standards Board Accounting Standards Update No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss impairment methodology in previous U.S. GAAP with a methodology (Current Expected Credit Losses model, or CECL) 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, and (ii) loan commitments and other off-balance sheet credit exposures. The adoption did not have a material impact on our Condensed Consolidated Financial Statements.


8



3.  Accounts Receivable Factoring

From time to time, we participate in factoring arrangements to sell accounts receivable to third-party financial institutions. Our factoring transactions in the Successor Period and Predecessor Period were recognized as sales, and the proceeds are included as operating cash flows in our Condensed Consolidated Statements of Cash Flows. The following table presents accounts receivable sold and cash proceeds from the sale of accounts receivable. The loss on sale of accounts receivable was immaterial in both the Successor and Predecessor periods.
 
 
Successor
 
 
Predecessor
 
 
Three Months Ended
 
 
Three Months Ended
(Dollars in millions)
 
3/31/2020
 
 
3/31/2019
Accounts Receivable Sold
 
$
6

 
 
$
84

Cash Proceeds from Sale of Accounts Receivable
 
$
6

 
 
$
81



4.  Inventories, Net

Inventories by category were as follows:
(Dollars in millions)
3/31/2020
 
12/31/2019
Work in Process and Raw Materials, Components and Supplies
$
143

 
$
142

Finished Goods
861

 
830

 
$
1,004

 
$
972



5.  Business Combinations and Divestitures

Acquisitions

We did not have any acquisitions of businesses in the three months ended March 31, 2020 or 2019. We paid $12 million in March 2020 and an additional $12 million in April 2020 as deferred consideration associated with our acquisition of the remaining 50% equity interest in our Qatari joint venture which took place in the first quarter of 2018.

Divestitures

We did not have any significant dispositions of businesses in the three months ended March 31, 2020. In the first quarter of 2019, we completed the final closings pursuant to the purchase and sale agreements entered into with ADES International Holding Ltd. related to agreements primarily to sell our land drilling rig operations in Algeria, Kuwait and Saudi Arabia for an aggregate purchase price of $287.5 million. We received gross proceeds of $72 million in the first quarter of 2019. The loss on the sale of land drilling rigs operations recognized in the first quarter of 2019 was $6 million and divested a carrying amount of $66 million in net assets previously included in assets held for sale as of December 31, 2018.


9



6.  Long-lived Assets Impairment and Other

As a result of the unprecedented industry conditions described in “Note 1 – General” which we identified as impairment indicators, we completed impairment assessments of our property, plant and equipment, definite-lived intangible assets, goodwill and right of use assets with the assistance of third-party valuation advisors. Based on our impairment test, we determined the carrying amount of certain long-lived assets exceeded their respective fair values. Therefore, during the three months ended March 31, 2020, we recorded total long-lived asset impairments of $640 million and $167 million of goodwill impairments. The fair value of our long-lived assets were based on discounted cash flow analysis or Level 3 fair values analysis. The unobservable inputs to the income approach included the assets’ estimated future cash flows, estimates of discount rates commensurate with the assets’ risks, revenue growth rates, profitability margins, and the remaining useful life of the primary asset.

The table below details the Successor impairment charges by asset and segment:
 
 
Three Months Ended March 31, 2020
(Dollars in millions)
 
Western Hemisphere
Eastern Hemisphere
Total
Property, Plant and Equipment
 
$
222

$
208

$
430

Intangible Assets
 
31

106

137

Right of Use Assets
 
49

24

73

Goodwill
 

167

167

Total Impairment Charges
 
$
302

$
505

$
807



See Note 7 – Goodwill and Intangible Assets and Note 9 – Leases for further information. We had $229 million of goodwill impairment and had no long-lived asset impairments in the Predecessor Period for the three months ended March 31, 2019.

7.  Goodwill and Intangible Assets

Goodwill

We determined the unprecedented industry conditions described in “Note 1 – General” are triggering events in our qualitative goodwill assessment that required us to review the recoverability of our long-lived assets as discussed in “Note 6 - Long-Lived Asset Impairments and Other” and perform an interim quantitative goodwill assessment as of March 31, 2020. Our quantitative goodwill impairment assessment is based on discounted cash flow analysis and a multiples-based market approach for comparable companies in our industry, a Level 3 fair value analysis. The analysis includes significant judgments, including estimated future cash flows, estimates of discount rates, revenue growth rates, profitability margins and capital expenditures. Goodwill impairment occurs when the carrying amount of a reporting unit exceeds the fair value. For the three months ended March 31, 2020, based on our goodwill impairment assessment, we recognized goodwill impairment of $167 million, including $127 million in our Middle East & North Africa reporting unit and $40 million in our Russia reporting unit, which are both part of our Eastern Hemisphere segment.

The changes in the carrying amount of goodwill by reporting segment at March 31, 2020, are presented in the following table.
(Dollars in millions)
Western Hemisphere
 
Eastern Hemisphere
 
Total
Balance at December 31, 2019
$

 
$
239

 
$
239

Impairment

 
(167
)
 
(167
)
Balance at March 31, 2020
$

 
$
72

 
$
72



For the first quarter ended March 31, 2019, the Predecessor goodwill impairment tests indicated that goodwill for the North America reporting unit was impaired and as a result the Predecessor 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.


10



Intangible Assets

The components of definite-lived intangible assets, net of accumulated amortization, were as follows:
(Dollars in millions)
3/31/2020
 
12/31/2019
Developed and Acquired Technology
$
545

 
$
721

Trade Names
383

 
393

Totals
$
928

 
$
1,114



As of March 31, 2020, based on our impairment test, we recognized intangible asset impairments of $137 million of our developed and acquired technology. Amortization expense was $46 million for the three months ended March 31, 2020 and $16 million for the three months ended March 31, 2019 and is reported in Selling, General and Administrative on our Condensed Consolidated Statements of Operations. At March 31, 2020, accumulated amortization was $43 million for Developed and Acquired Technology and $12 million for Trade Names.

Given the dynamic nature of COVID-19 pandemic and related market conditions, we cannot estimate the period of time that these events will persist or the full extent of the impact on our business. If market conditions continue to deteriorate, we may record further impairments related to the carrying amount of our long-lived assets, definite-lived intangibles and goodwill.

8. Restructuring, Facility Consolidation and Severance Charges

During the three months ended March 31, 2020, in response to the impact on our business from the COVID-19 pandemic and the sudden and significant decline in oil prices as discussed in “Note 1 – General”, we initiated additional immediate actions and developed plans to reduce our future cost structure. As a result, during the three months ended March 31, 2020, we recorded restructuring of $26 million. Additional charges with respect to our ongoing cost reduction actions are expected to be recorded in the second quarter of 2020 and could result in additional charges in future periods as we execute our plans.

The following table presents restructuring charges for the Successor Period and Predecessor Period.
 
 
Successor
 
 
Predecessor
 
 
Three Months Ended
 
 
Three Months Ended
(Dollars in millions)
 
3/31/2020
 
 
3/31/2019
Severance Charges
 
$
23

 
 
$
2

Facility Consolidation and Other Charges
 
3

 
 
14

Asset Related Charges (non-cash)
 

 
 
4

Total Restructuring Charges
 
$
26

 
 
$
20


The following table presents total restructuring charges by reporting segment and Corporate for the Successor Period and Predecessor Period.
(Dollars in millions)
Western Hemisphere
Eastern Hemisphere
Corporate
Total
March 31, 2020 (Successor)
$
15

$
6

$
5

$
26

March 31, 2019 (Predecessor)
5

5

10

20




11



The following table presents total restructuring accrual activity charges, payments and other changes for the Successor Period ended March 31, 2020.
(Dollars in millions)
Accrued Balance at Beginning of
Period
 
Charges
 
Cash Payments
 
Other 
 
Accrued Balance at
End of Period
March 31, 2020 (Successor)
$
66

 
$
26

 
$
(17
)
 
$
(4
)
 
$
71



9. 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. Operating right of use (“ROU”) assets and operating lease liabilities are recognized based on the present value of lease payments over the lease term at commencement date.

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 15 – Revenues” for additional details on our equipment rental revenues. Finance leases are recorded net of $3 million in accumulated amortization as of March 31, 2020.

As a result of the unprecedented industry conditions described in “Note 1 – General”, we impaired our right of use assets by $73 million to their respective fair values in the three months ended March 31, 2020, as also summarized at “Note 6 - Long-Lived Asset Impairments and Other”.
(Dollars in millions)
Classification
 
3/31/2020
 
12/31/2019
Balance Sheet Components:
 
 
 
 
Assets
 
 
 
 
 
Operating
Other Non-Current Assets
 
$
172

 
$
256

Finance
Property Plant and Equipment, Net
 
62

 
62

Total lease assets
 
 
$
234

 
$
318

 
 
 
 
 
 
Liabilities
 
 
 
 
 
Current
 
 
 
 
 
  Operating
Other Current Liabilities
 
$
79

 
$
79

  Finance
Short-term Borrowings and Current Portion of Long-term Debt
 
11

 
10

 
 
 
 
 
 
Non-Current
 
 
 
 
 
  Operating
Other Non-Current Liabilities
 
196

 
213

  Finance
Long-term Debt
 
52

 
54

Total lease liabilities
 
 
$
338

 
$
356




12



 
 
Successor
 
 
Predecessor
 
 
Three Months Ended
 
 
Three Months Ended
(Dollars in millions)
 
3/31/2020
 
 
3/31/2019
Lease Expense Components:
 
 
 
 
 
Operating lease expense
 
$
24

 
 
$
30

Short-term and variable lease expense
 
22

 
 
20

Finance lease expense: Amortization of ROU assets and interest on lease liabilities
 
4

 
 
3

Sublease income
 
(1
)
 
 
(2
)
Total lease expense
 
$
49

 
 
$
51



 
 
Operating
Finance
(Dollars in millions)
 
Leases
Leases
Maturity of Lease Liabilities as of March 31, 2020:
 
 
 
Remainder of 2020
 
$
76

$
12

2021
 
83

13

2022
 
57

11

2023
 
31

11

2024
 
23

11

After 2024
 
138

25

Total Lease Payments
 
408

83

Less: Interest
 
133

20

Present Value of Lease Liabilities
 
$
275

$
63



 
 
Successor
 
 
Predecessor
 
 
Three Months Ended
 
 
Three Months Ended
(Dollars in millions except years and percentages)
 
3/31/2020
 
 
3/31/2019
Other Supplemental Information:
 
 
 
 
 
Cash paid for amounts included in the measurement of lease liabilities:
 
 
 
 
 
  Operating cash outflows from operating leases
 
$
28

 
 
$
32

  Operating cash outflows from finance leases
 
$
1

 
 
$
1

  Financing cash outflows from finance leases
 
$
2

 
 
$
2

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

 
 
$
19

ROU assets obtained in exchange of new finance lease liabilities
 
$
2

 
 
$

Loss on sale leaseback transactions (short-term) (a)
 
$

 
 
$
36

 
 
 
 
 
 
Weighted-average remaining lease term (years)
 
 
 
 
 
  Operating leases
 
7.7

 
 
6.7

  Finance leases
 
6.4

 
 
7.9

 
 
 
 
 
 
Weighted-average discount rate (percentages)
 
 
 
 
 
  Operating leases
 
9.2
%
 
 
13.1
%
  Finance leases
 
9.1
%
 
 
5.6
%
(a) Included in “Restructuring, Asset Impairments and Other” of our Condensed Consolidated Statements of Operations and “Other Net Income Adjustments” of our Condensed Consolidated Statements of Cash Flows.


13



10.  Borrowings and Other Obligations
(Dollars in millions)
3/31/2020
 
12/31/2019
Finance Lease Current Portion
$
11

 
$
10

Other Short-term Loans
15

 
3

Short-term Borrowings
$
26

 
$
13

 
 
 
 
Long-term Debt
$
2,149

 
$
2,151



Credit Agreements

ABL Credit Agreement

On December 13, 2019, the Company entered into a senior secured asset-based revolving credit agreement in an aggregate amount of $450 million (the “ABL Credit Agreement) with the lenders party thereto and Wells Fargo Bank, N.A. as administrative agent. Among other things, proceeds of loans under the ABL Credit Agreement may be used to finance ongoing working capital and general corporate needs of the Company and certain of its subsidiaries. The facility may also be used for issuing letters of credit. The maturity date of loans made under the ABL Credit Agreement is June 13, 2024. At March 31, 2020, the Company did not have any borrowings under the ABL Credit Agreement, had approximately $235 million borrowing availability under the facility and had utilized $140 million related to letters of credit issued.

On May 6, 2020, the Company borrowed $100 million under its ABL Revolving Credit Agreement to strengthen its cash liquidity position.

The applicable terms, interest rates and fees for borrowings under the ABL Credit Agreement are the same as those presented in “Note 13 – Short-Term Borrowings and other Debt Obligations” in our 2019 Annual Report.

LC Credit Agreement

On December 13, 2019, the Company entered into a senior secured letter of credit agreement in an aggregate amount of $195 million (the “LC Credit Agreement,” together with the ABL Credit Agreement, the “Exit Credit Agreements”) with the lenders party thereto and Deutsche Bank Trust Company Americas as administrative agent. The LC Credit Agreement is used for the issuance of bid and performance letters of credit of the Company and certain of its subsidiaries. The maturity date under the LC Credit Agreement is June 13, 2024. At March 31, 2020, the Company had approximately $120 million in outstanding letters of credit under the LC Credit Agreement.
 
The applicable terms, interest rates and fees for borrowings under the LC Credit Agreement are the same as those presented in “Note 13 – Short-Term Borrowings and other Debt Obligations” in our 2019 Annual Report.

As of March 31, 2020, we were in compliance with these financial covenants as defined in the Exit Credit Agreements and in the covenants under our indentures. However, the full impact that the pandemic and the precipitous decline in oil prices will have on our results of operations, financial condition, liquidity and cash flows is uncertain. The actions taken by management to preserve liquidity and capital include the borrowing under our ABL Revolving Credit Agreement, reduction of capital expenditures, consolidation of product lines to eliminate redundancy, exiting from sub-scale locations and a higher level of headcount reductions. In addition, the precipitous decline in activity will ultimately result in a significant decline in our accounts receivable balance, particularly in North America, which comprises the most significant component of our credit facility borrowing base and will further impair our ability to comply with the covenants under the ABL Revolving Credit Agreement. Despite all the actions we have taken and are taking, we expect that a breach of our covenants under the ABL Revolving Credit Agreement is forthcoming. A breach of the financial covenants under our ABL Credit Agreement would constitute an event of default under our ABL Credit Agreement and if not cured or waived, would potentially constitute an event of default under our LC Credit Agreement and our unsecured Exit Notes. An event of default under these agreements could result in the obligations under these agreements being accelerated or cash collateralized. Either such result would constrain liquidity to the point where we would not be able to service the interest on our debt or pay other obligations and thus, raises substantial doubt on the Company’s ability to continue as a going concern within the next 12 months. See “Note1 - General” for further details.


14



Other Short-term Arrangements and Debt Activity

We have short-term borrowings with various domestic and international institutions pursuant to uncommitted credit facilities and other financing arrangements. At March 31, 2020, we had $15 million in short-term borrowings under these arrangements.

As of March 31, 2020, we had $361 million of letters of credit and performance and bid bonds outstanding, consisting of $140 million of letters of credit under the ABL Credit Agreement, $120 million of letters of credit under the LC Credit Agreement and $101 million of letters of credit under various uncommitted facilities. At March 31, 2020, we had cash collateral of $91 million, included in Restricted Cash supporting letters of credit under our various uncommitted facilities.

Long-term Debt

On December 13, 2019, we issued unsecured 11.00% senior notes due in 2024 (“Exit Notes “) in an aggregate principal amount of $2.1 billion. Interest on the Exit Notes accrues at the rate of 11.00% per annum and will be payable semiannually in arrears on June 1 and December 1, commencing on June 1, 2020. The Exit Notes mature on December 1, 2024.

The indenture governing the Exit Notes contains covenants that limit, among other things, the Company’s ability and the ability of certain of its subsidiaries, to: incur, assume or guarantee additional indebtedness; pay dividends or distributions on capital stock or redeem or repurchase capital stock; make investments; sell stock of its subsidiaries; transfer or sell assets; create liens; enter into transactions with affiliates; and enter into mergers or consolidations. At March 31, 2020, we are in compliance with our indenture covenants. However, as noted above, a breach under the ABL Revolving Credit Agreement that is not cured or waived, could trigger an event of default under our unsecured Exit Notes.

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.
(Dollars in millions)
3/31/2020
 
12/31/2019
Fair Value
$
1,260

 
$
2,252

Carrying Value
2,098

 
2,097



The total fair value of our debt decreased significantly during the first quarter of 2020, primarily due to the negative impact on our business and industry associated with the COVID-19 pandemic, OPEC+ disagreements and credit rating agency downgrades as described in “Note 1 – General”. These events have collectively increased the credit spreads for our publicly traded bonds, thus reducing the associated fair value.

11.  Fair Value of Financial Instruments
 
Our assets and liabilities measured at fair value on a recurring basis consists solely of our derivative instruments. 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. Our derivative activity is not material to our financial statements.

Our other financial instruments include cash and cash equivalents, accounts receivable, accounts payable, held-to-maturity investments, short-term borrowings and long-term debt. Except for short-term borrowings and long-term debt, the estimated fair value of these financial instruments approximates their carrying values as reflected in our Condensed Consolidated Financial Statements. The fair value of our short-term and long-term borrowings are discussed in “Note 10 – Borrowings and Other Obligations.”

As of March 31, 2020, and December 31, 2019, we have $50 million in total of held-to-maturity Angolan government bonds

15



primarily maturing in the third and fourth quarters of 2020. The carrying value of $50 million in both periods approximate their fair value as of March 31, 2020 and December 31, 2019.

12. Disputes, Litigation and Legal Contingencies

We are subject to lawsuits and claims arising out of the nature of our business. 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 a 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 cases, the aggregate impact to our financial condition could be material. Due to the COVID-19 pandemic, courts in many jurisdictions around the world have been temporarily closed for trials and hearings, which has resulted in delays in many of the Company’s litigation matters.

Accrued litigation and settlements recorded in “Other Current Liabilities” on the accompanying Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019 were $40 million and $44 million, respectively.

Shareholder Litigation

GAMCO Shareholder Litigation

On September 6, 2019, GAMCO Asset Management, Inc. (“GAMCO”), purportedly on behalf of itself and other, similarly situated shareholders, filed a lawsuit asserting violations of the federal securities laws against certain then current and former officers and directors of the Company. GAMCO alleges violations of Sections 10(b) and 20(b) of the Securities Exchange Act of 1934, and violations of Sections 11 and 15 of the Securities Act of 1933, as amended (the “Securities Act”) based on allegations that the Company and certain of its officers made false and/or misleading statements, and alleged non-disclosure of material facts, regarding the Company’s business, operations, prospects and performance. GAMCO seeks damages on behalf of purchasers of the Company’s ordinary shares from October 26, 2016 through May 10, 2019. GAMCO’s lawsuit was filed in the United States District Court for the Southern District of Texas, Houston Division, and it is captioned GAMCO Asset Management, Inc. v. McCollum, et al., Case No. 4:19-cv-03363. The District Court Judge appointed Utah Retirement Systems (“URS”) as Lead Plaintiff, and on March 16, 2020, URS filed its Amended Complaint. URS added the Company as a defendant but dropped the claims against non-officer board members and all the claims under the Securities Act. The defendants’ motion to dismiss is due on May 18, 2020. We cannot reliably predict the outcome of GAMCO’s claims, including the amount of any possible loss.

Prior Shareholder Litigation

In 2010, three shareholder derivative actions were filed, and in 2014 a fourth shareholder derivative action was 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”). 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. Although the plaintiffs appealed the jurisdictional ruling, they agreed in April 2020 to dismiss the appeal. Once the appeal is dismissed, this litigation will be concluded.

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 claimed that we and other defendants were liable for infringement of seven U.S. patents related to specific downhole completion equipment and the methods of using such equipment. These patents were assigned to Packers Plus Energy Services, Inc., a Canadian corporation (“Packers Plus”), and purportedly exclusively licensed to RC. RC sought a permanent injunction against further alleged infringement, unspecified damages for

16



infringement, supplemental and enhanced damages, and additional relief such as attorneys’ fees. The Company filed a counterclaim against Packers Plus, seeking declarations of non-infringement, invalidity, and unenforceability of the four patents that remained 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”). The PTAB issued decisions finding that all the claims of the asserted patents challenged by the Company in the IPRs were invalid. RC appealed those decisions to the Federal Circuit, which issued a decision affirming the PTAB’s decision that the patents are invalid. Apart from the Company’s potential claim for inequitable conduct against Packers Plus, the litigation in the U.S. has concluded.

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 appeal was dismissed in favor of Weatherford. Packers Plus and RC filed an Application for Leave to the Supreme Court of Canada requesting that the Supreme Court hear their appeal from the appellate court’s decision, but the Supreme Court dismissed the Application, thus concluding the litigation.

At this time, we believe it is unlikely that we will incur a loss related to these patent infringement matters, and therefore we have not accrued any loss provisions related to these matters.

13.  Shareholders’ Equity (Deficiency)

The following summarizes our shareholders’ equity (deficiency) activity for the three months ended March 31, 2020 and 2019.
(Dollars in Millions)
Par Value of Issued Shares
 
Capital in Excess of Par Value
 
Retained
Deficit
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Non-controlling Interests
 
Total Shareholders’ Equity (Deficiency)
Balance at December 31, 2019 (Successor)
$

 
$
2,897

 
$
(26
)
 
$
9

 
$
36

 
$
2,916

Net Income (Loss)

 

 
(966
)
 

 
8

 
(958
)
Other Comprehensive Loss

 

 

 
(95
)
 

 
(95
)
Balance at March 31, 2020 (Successor)
$

 
$
2,897

 
$
(992
)
 
$
(86
)
 
$
44

 
$
1,863

 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2018 (Predecessor)
$
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 (Predecessor)
1

 
6,719

 
(9,152
)
 
(1,713
)
 
39

 
(4,106
)

 
 
 
 
 
 
 
 
 
 
 
 


17



The following table presents the changes in our accumulated other comprehensive income (loss) by component for the three months ended March 31, 2020 for the Successor and three months ended March 31, 2019 for the Predecessor:
(Dollars in millions)
Currency Translation Adjustment
 
Defined Benefit Pension
 
Deferred Loss on Derivatives
 
Total
Balance at December 31, 2019 (Successor)
$
7

 
$
2

 
$

 
$
9

Other Comprehensive Loss
$
(95
)
 
$

 
$

 
$
(95
)
Balance at March 31, 2020 (Successor)
$
(88
)
 
$
2

 
$

 
$
(86
)
 
 
 
 
 
 
 
 
Balance at December 31, 2018 (Predecessor)
$
(1,724
)
 
$
(14
)
 
$
(8
)
 
$
(1,746
)
Other Comprehensive Income
33

 

 

 
33

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


14.  Loss per Share

Basic earnings (loss) per share for all periods presented equals net income (loss) divided by our weighted average shares outstanding during the period. Diluted earnings (loss) per share is computed by dividing net income (loss) by our weighted average shares outstanding during the period including potential dilutive ordinary shares.

The following table presents our basic and diluted weighted average shares outstanding and loss per share for the three months ended March 31, 2020 and 2019:
 
Successor
 
 
Predecessor
 
Three Months Ended
 
 
Three Months Ended
(Dollars and shares in millions, except per share amounts)
3/31/2020
 
 
3/31/2019
Net Loss Attributable to Weatherford
$
(966
)
 
 
$
(481
)
Basic and Diluted weighted average shares outstanding
70

 
 
1,003

Basic and Diluted Loss Per Share Attributable to Weatherford
$
(13.80
)
 
 
$
(0.48
)


Our basic and diluted weighted average shares outstanding for the Successor Period and Predecessor Period are equivalent due to the net loss attributable to shareholders. Diluted weighted average shares outstanding for the Successor Period and Predecessor Period exclude 8 million and 250 million, respectively, potential ordinary shares for restricted share units, performance units, exchangeable senior notes and warrants outstanding as we have net losses for those periods and their inclusion would be anti-dilutive.
 
 
 
 
 




18



15. 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 three months ended March 31, 2020 and 2019. Equipment rental revenues recognized under ASC 842 was $57 million in the Successor Period and $78 million in the Predecessor Period, which are included in the tables below.
 
Successor
 
Three Months Ended March 31, 2020
(Dollars in millions)
Western Hemisphere
 
Eastern Hemisphere
 
Total Revenues
Product Lines:
 
 
 
 
 
  Production
$
257

 
$
96

 
$
353

  Completions
109

 
205

 
314

  Drilling and Evaluation
113

 
168

 
281

  Well Construction