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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended December 31, 2004 |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 1-31339
Weatherford International Ltd.
(Exact name of registrant as specified in its charter)
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Bermuda
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98-0371344 |
(State or other jurisdiction of
incorporation or organization) |
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(IRS Employer
Identification No.) |
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515 Post Oak Boulevard
Suite 600
Houston, Texas |
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77027-3415 |
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(Address of principal executive offices) |
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(Zip Code) |
Registrant’s telephone number, including area code:
(713) 693-4000
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class | |
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Name of each exchange on which registered | |
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Common Shares, $1.00 Par Value | |
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New York Stock Exchange | |
Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Exchange Act
Rule 12b-2). Yes þ No o
The aggregate market value of the voting stock held by
nonaffiliates of the registrant as of June 30, 2004 was
$3,806,908,164, based upon the closing price on the New York
Stock Exchange as of such date.
Indicate the number of shares outstanding of each of the
registrant’s classes of common shares, as of the latest
practicable date:
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Title of Class | |
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Outstanding at March 7, 2005 | |
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Common Shares, $1.00 Par Value | |
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138,160,211 | |
DOCUMENTS INCORPORATED BY REFERENCE
Certain information called for by Items 10, 11, 12, 13 and
14 of Part III will be included in an amendment to this
annual report on Form 10‑K or incorporated by reference
from the registrant’s definitive proxy statement for the
annual meeting to be held on May 13, 2005.
TABLE OF CONTENTS
PART I
Weatherford International Ltd. is one of the world’s
leading providers of equipment and services used for the
drilling, completion and production of oil and natural gas
wells. Weatherford, as we know it today, was formed by the May
1998 merger of Weatherford Enterra, Inc. and EVI, Inc.
We were originally incorporated under the laws of Delaware in
1972 and as a result of our corporate reorganization in 2002,
are now incorporated in Bermuda. Many of our businesses,
including those of Weatherford Enterra, have been operated for
more than 50 years. Our principal executive offices are
located at 515 Post Oak Boulevard, Suite 600, Houston,
Texas 77027. Our telephone number is (713) 693-4000, and
our Internet address is www.weatherford.com. General information
about us, including our Corporate Governance Policies and
charters for the committees of our board of directors, can be
found on our website. We make available, free of charge, on our
website our annual reports on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K and
amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act as soon as
reasonably practicable after we electronically file or furnish
them to the SEC.
We conduct operations in approximately 100 countries and have
approximately 540 service and sales locations, which are located
in nearly all of the oil and natural gas producing regions in
the world. We are among the leaders in each of our primary
markets, and our distribution and service network is one of the
most extensive in the industry.
We conduct our operations through two principal operating
divisions:
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Drilling Services — This division provides:
(1) drilling methods, (2) well construction,
(3) drilling tools and (4) intervention services. |
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Production Systems — This division provides:
(1) completion systems, (2) artificial lift systems
and (3) production optimization. |
We historically operated a Compression Services Division. In
February 2001, we completed the merger of essentially all of our
Compression Services Division into a subsidiary of Universal
Compression Holdings, Inc. in exchange for 13.75 million
shares of Universal common stock. During 2004, we sold
7.0 million shares of the Universal common stock received,
reducing our ownership to 6.75 million shares, or
approximately 21% of Universal’s outstanding common stock.
We are now in the process of selling our non-core Gas Services
International compression fabrication business which was
retained in the disposition of our Compression Services
Division. This business has been reflected as a discontinued
operation in our financial statements. In April 2000, we
completed the spin-off to our shareholders of our Drilling
Products Division through a distribution of the stock of our
Grant Prideco, Inc. subsidiary.
The following is a summary of our business strategies and the
markets we serve. We have also included a discussion of both of
our divisions, including a description of our products and
services offered and our competitors. Divisional and geographic
financial information appears in “Item 8. Financial
Statements and Supplementary Data — Notes to
Consolidated Financial Statements — Note 23.”
References to Weatherford
When referring to Weatherford and using phrases such as
“we” and “us,” our intent is to refer to
Weatherford International Ltd. and its subsidiaries as a whole
or on a divisional basis, depending on the context in which the
statements are made.
Strategy
Our primary objective is to provide our shareholders with above
average returns on their investment through income growth and
asset appreciation.
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Principal components of our growth strategy include the
following:
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Leverage our worldwide infrastructure to provide existing
product support and to introduce new products and services. |
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Further develop and commercialize our production-enhancing
products and services, such as our underbalanced services,
production optimization systems and expandable technology. These
products and services either help increase well productivity,
lower development costs or both. They also allow us to
capitalize on important secular trends such as the maturation of
the world’s major hydrocarbon reserves and the growth of
deepwater activity. |
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Continue enhancing our existing products and service offerings
in our historical core market segments to maintain our leading
position in the markets in which we operate. |
Markets
We are a leading provider of equipment and services to the oil
and natural gas exploration and production industry. Demand for
our industry’s services and products depends upon the
number of oil and natural gas wells being drilled, the depth and
drilling conditions of wells, the number of well completions and
the level of workover activity worldwide.
During the mid-1980’s, the drilling industry contracted
sharply, correcting a condition of significant over capacity
that existed in the supply of oilfield service and equipment.
For the last 15 years, global rig count has cycled up and
down with factors such as world economic and political trends
that influence supply and demand for energy, the price of oil
and natural gas and the level of exploration and drilling for
those commodities.
The majority of worldwide drilling activity, as measured by rig
counts, has historically been concentrated in North America.
Over time, activity in North America has become increasingly
driven by natural gas consumption on the continent, particularly
in the U.S. The percentage of the U.S. rig count dedicated to
natural gas drilling has increased from approximately 50% in the
early 1990’s to more than 86% in late 2004. Canada has
experienced a similar trend, with rigs drilling for natural gas
increasing from less than 40% seven years ago to nearly 80% by
the end of 2004. A primary reason for the increasing emphasis on
natural gas drilling is that North American gas wells have very
high production decline rates, so that significant numbers of
new wells need to be drilled over time to maintain ongoing
natural gas production at desirable levels. Changes in the
balance of energy demand and the supply of natural gas affect
natural gas storage levels, commodity prices and the volatility
of North American drilling activity. In 2004, the North American
rig count reached a new recent high, averaging 1,557 for the
year, 4% above the previous high in 2001 and 91% above the
lowest annual average of the last 15 years, 816, which occurred
in 1992.
Over the last decade, drilling and completion activity has grown
faster in international markets than in North America. According
to Spears & Associates in 2004 approximately 50% of the
worldwide drilling and completion expenditures occurred in
international markets (excluding Russia and China). Drilling
activity outside North America tends to be less volatile than
the North American market. Most contracts span two to three
years due to the significant investment and complexity
surrounding international projects. Drilling decisions relating
to such projects therefore tend to be evaluated and monitored
with a longer-term perspective in regard to oil and natural gas
pricing. Additionally, the international market is dominated by
major oil companies and national oil companies, which tend to
have longer-term objectives than the typical independent
producer in North America. In the last 15 years, the
non-North American average annual rig count has cycled between a
high of 915 in 1991 and a low of 588 in 1999. In 2004, the
annual international rig count averaged 836. Since 1999, the
international market has recovered slowly; however, we believe
the geological future of the industry is in both international
markets and deepwater because of the maturity and declining
production of North American fields.
Historically, the majority of our business was concentrated in
the U.S. and Canada. Following the merger of EVI and Weatherford
Enterra in 1998, we began a concerted program to expand our
operations and shift more of our business internationally by
utilizing the strength of our Drilling Services Division’s
international
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presence to introduce new and existing products and services
into these markets. Today, we operate in approximately 100
countries in the major oil and natural gas producing areas of
North and Latin America, Europe, Africa, Russia, Commonwealth of
Independent States (“CIS”), China, Southeast Asia and
the Middle East. In 1998, our revenue split was 64% North
America and 36% international. In 2004, our revenue split was
53% North America and 47% international.
In 2004, our Drilling Services Division generated 55% of its
revenues outside North America, and our Production Systems
Division generated approximately 36% of its revenues from the
same regions. With the increasing importance of international
oil production, these divisions continue to focus on growth in
international markets.
Due to the maturity of the world’s oil and natural gas
reservoirs, the accelerating production decline rates and the
focus on complex deepwater prospects, technology has become
increasingly critical to the marketplace. Customers continue to
seek, test and prove production-enabling technologies at an
increasing rate. Technology is an important aspect of our
products and services as it helps us provide our customers with
more efficient tools to find and produce oil and natural gas. We
have invested a substantial amount of our time and resources in
building our technology offerings. We believe our new, more
efficient products and services are among the best in the
industry and enable our customers to reduce their costs of
drilling and production and/or increase production rates.
Furthermore, these offerings afford us additional opportunities
to sell our traditional core products and services to our
clients.
Drilling Services Division
Our Drilling Services Division provides products and services
used by oil and natural gas companies, drilling contractors and
other service companies to explore for, drill for and produce
oil and natural gas. We estimate approximately two-thirds of the
products and services offered by this division are used in the
initial drilling and completion of oil and natural gas wells.
The remainder of the products and services are used in
connection with the production phases of wells, including
maintenance, re-drilling, re-completion and other remediation
and well installations. The principal products and services
provided by this division are drilling methods, well
construction, drilling tools and intervention services.
Our drilling methods operations, which accounted for
approximately 12% of our consolidated revenues during 2004,
consist of a broad range of systems and products used during the
drilling and servicing of oil and natural gas wells. These
offerings include:
Underbalanced Systems (“UBS”) — Our
underbalanced systems help our clients safely improve the
productivity of their reservoirs’ assets at less lifecycle
cost by enhancing drilling and reservoir performance through a
portfolio of UBS products and services. We provide these
products and services through three disciplines:
1) Underbalanced Reservoir Drilling, 2) Performance
Drilling, and 3) Managed Pressure Drilling.
Underbalanced Reservoir Drilling is used in development,
exploration and mature field applications to minimize formation
damage and maximize productivity. Underbalanced Reservoir
Drilling is defined as drilling with bottomhole pressure that is
designed and maintained below reservoir pressure to
intentionally invite fluid influx. This permits the reservoir to
flow while the drilling takes place, thereby protecting the
formation from damage by the drilling fluids.
Traditional drilling methods, on the other hand, use weighted
drilling fluids that not only prevent the flow of hydrocarbons
during drilling but permeate the formation, sometimes causing
significant formation damage and limiting the flow of
hydrocarbons.
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One of the differentiators of our Underbalanced Reservoir
Drilling offerings is our Suitable Underbalanced Reservoir
Evaluation (“SURE”) Process. Our SURE Process utilizes
various engineering and software tools to enhance a
client’s ability to assess underbalanced drilling prospects
with accuracy. The SURE Process targets the right reservoirs by
comparing underbalanced versus overbalanced costs, production
rates, projected revenue and net present value. We also offer
simulation modeling, corrosion mitigation, on-site engineering,
data analysis and supervision.
Our Performance Drilling segment applies air, mist or foam
drilling fluid systems to drill sub-hydrostatically. Performance
Drilling is used primarily in hard rock applications to reduce
drilling costs by increasing rate of penetration. We offer a
variety of fluids, including air drilling systems, mist drilling
systems, foam drilling systems, including our patented
Trans-Foam® Recyclable Drilling Fluid System and aerated
fluid drilling systems.
Our Managed Pressure Drilling (“MPD”) segment is an
advanced form of primary well control that uses a closed,
pressurized fluid system that more precisely controls the
wellbore pressure profile than mud weight adjustments alone. The
main objective of MPD is to optimize drilling processes by
decreasing non-productive time and mitigating drilling hazards.
A full range of downhole equipment, such as high temperature
motors, wireline steering tools, drill pipe, air rotary hammer
drills, casing exit systems, downhole deployment valves and
downhole data acquisition equipment, make our product offering
unique. Another is surface equipment, such as specifically
designed self-contained mobile or skid-mounted compression and
nitrogen-membrane generation systems, rotating control heads to
control well pressure while circulating drilling mediums during
drilling, skid-mounted separators to separate oil, natural gas,
drilling media and cuttings, choke manifolds and solids recovery
systems.
Underbalanced systems are considered to be particularly
desirable for drilling in older fields and reservoirs where the
downhole pressure has declined. We believe many older fields and
reservoirs cannot be economically drilled other than through the
use of underbalanced drilling. Although currently less than 5%
of the world’s wells are drilled underbalanced, we
anticipate an increasing percentage, at least 20%, of the
world’s wells are likely to be drilled underbalanced during
the next 5 to 10 years as familiarity with underbalanced
services and their production benefit grows.
Directional Drilling Services — Directional
drilling services are used to drill a well on a pre-planned
path, vertical or non-vertical, which includes deviated and
horizontal wells. Our directional drilling business is strongly
linked to our underbalanced systems business since 75% of all
underbalanced wells are drilled directionally. Our directional
drilling services group provides drilling engineering services
and mechanical drilling systems including electromagnetic
measurement-while-drilling (“EM/ MWD”) services,
downhole drilling motors, buttonhole assemblies, orienter sub
assemblies, re-entry services and wireline guidance tools.
Reentry Services — Our reentry services include
casing exit services and advanced multilateral systems.
Conventional and advanced casing exit systems allow sidetrack
and lateral drilling solutions for customers who either cannot
proceed down the original well track or want to drill lateral
wells from the main or parent wellbore. In addition, advanced
multilateral systems, including selective reentry systems
(“SRS”tm),
allow numerous sidetracks from parent wellbores, pre-milled
windows utilizing patented “key way” technology and
advanced multilateral junction solutions.
Drilling with Casing
(“DwC”tm) —
This technique eliminates the need for drill pipe and allows
operators to simultaneously drill, case and evaluate oil and
natural gas wells. Weatherford’s DwC technique eliminates
downhole complexity and expensive rig modifications by reducing
the number of trips downhole. Consequently, well construction is
simplified, and productivity can be improved when drilling
through the reservoir. Weatherford’s DwC offerings include
drillshoe systems, XpandaBit, liner drilling systems, torque
head top drive casing, reamer tools and centralizers.
Pipeline and Specialty Services — Weatherford
provides a range of services used throughout the lifecycle of
pipelines and process facilities, onshore and offshore.
Weatherford’s pipeline group can meet all the requirements
of the pipeline, process, industrial and energy markets
worldwide. We also can provide any
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service (or package of services) carried out on permanently
installed customer equipment that involves inspecting, cleaning,
drying, testing, improving production, running or establishing
integrity from the wellhead out.
Our well construction business spans tubular running, a full
line of cementing products, liner systems and solid tubular
expandable technologies. During 2004, this business segment
generated approximately 21% of our consolidated revenues.
Tubular Running Services — These services
consist of a wide variety of tubular connection and installation
services for the drilling, completion and workover of an oil and
natural gas well. We offer an integrated package of total
tubular services management that allows our customers to receive
all of their tubular handling, preparation, inspection, cleaning
and wellsite installation needs from a single source. We are a
leader in rig mechanization technology used for the installation
of tubing and casing and offer various products and services to
improve rig floor operations by reducing staffing requirements,
increasing operational effectiveness and improving safety. We
offer computerized torque monitoring and testing services to
ensure the integrity of tubular connection makeup. We also
specialize in critical service installations where operating
conditions, such as offshore, and/or metallurgical
characteristics call for specific handling technology. Finally,
our tubular running services include high-grade completion
equipment installation services as well as cementation
engineering services.
Cementation Tools — Cementing operations are
one of the most important and expensive phases in the completion
of a well. According to Spears & Associates, we are the
world’s leading producer of specialized equipment that
allows operators to centralize the casing of the well and
control the displacement of cement and other fluids. Our
cementing engineers also analyze complex wells and provide
detailed recommendations to help optimize cementing results. Our
cementing products group also works closely with our Production
Systems Division in designing integrated completion systems. Our
cementing product line includes the following:
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Centralizer Placement Software — Software for
calculating centralizer spacing for optimum standoff. |
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Centralizers — A comprehensive range of products for
varying applications and well conditions. |
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LoDRAGtm
and
LoTORQtm
Centralizers — Mechanical friction-reduction systems
for extended reach drilling and underpressured conditions where
differential sticking risk is high. |
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Flow Enhancement Tools — Tools that improve cement
flow. |
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Float Equipment — Drillable shoes and collars with
float valves that provide higher flow rates. |
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Other Equipment — Cement baskets, guide shoes,
retainers and bridge plugs, multiple stage tools and cementing
plugs. |
Liner Systems — Liner hangers allow strings of
casing to be suspended within a wellbore without having to
extend the string to the surface and are used to isolate
production zones and formations. Most directional wells include
one or more liners because of the difficulty of designing casing
programs compatible with high tensile tubulars. We offer both
drilling and production liner hangers. Drilling liners are used
to isolate areas within the well during drilling operations.
Production liners are used in the producing area of the well to
support the wellbore and to isolate various sections of the
well. Our inflatable packer product line is used to service
liner systems and includes annulus casing packers, inflatable
production packers and inflatable straddle packer assemblies. We
also offer specialized high pressure, high temperature, high
performance inflatable thru-tubing and completion packers.
Solid Tubular Expandable Technologies —
Proprietary expandable tools are also being developed for
downhole solid tubular applications in well remediation, well
completion and well construction. Solid tubular expandable
products at Weatherford include expandable liner hangers, used
to create liners and seals, and
MetalSkintm,
used for well cladding to cut off zones, retro-fit corroded
sections of casing and strengthen
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existing casing. Solid Tubular Expandables utilize both fixed
cone and our compliant roller expansion technology. Weatherford
currently expects to commercialize additional solid expandable
applications during 2005 for well construction purposes,
including open hole
MetalSkintm
clads for controlling unwanted fluid loss or influx, and
slimbore drilling liners. Slimbore and, ultimately, monobore
liner systems are designed to allow significant cost reductions
by reducing consumables for drilling and completion of wells,
allowing smaller rigs to be used and reducing cuttings removal
needs. The benefits are derived because of expandable
technologies’ potential to significantly reduce or
eliminate the reverse-telescoping technique used historically
for well design.
We design and manufacture patented tools, including our drilling
jars, rotating control heads and other pressure control
equipment. We also offer a broad selection of third-party
manufactured equipment and tools for the drilling, completion
and workover of oil and natural gas wells. We offer these
proprietary and non-proprietary drilling tools to our customers,
primarily operators and drilling contractors, on a rental basis,
allowing the customer to utilize unique equipment without the
cost of holding that equipment in inventory. This business
segment generated approximately 14% of our consolidated revenues
during 2004.
The rental of our proprietary and non-proprietary tools permits
the equipment to be more efficiently used and allows us to
receive value-added returns on the equipment. The breadth of our
operations and locations allows us to manage and re-deploy our
equipment to locations where the equipment is most needed. Our
drilling tools include:
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Drill pipe and related drill stem tools, drill collars, heavy
weight pipe and drilling jars. |
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Fishing and downhole tools such as milling tools, casing
cutters, fishing jars, spears and overshots, stabilizers, power
swivels and bottom hole assemblies. |
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Pressure control equipment such as blow-out preventers, high
pressure valves, accumulators, adapters and choke and kill
manifolds. |
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Tubular handling equipment such as elevators, spiders, slips,
tongs and kelly spinners. |
Our intervention services, which generated approximately 10% of
our consolidated revenues in 2004, help clients repair wells
that have mechanical problems or that need work to prolong
production to retrieve remaining oil and natural gas reserves.
Our intervention products and services span the spectrum of
fishing services, thru-tubing products and services, coiled
tubing and wireline systems and production logging.
Fishing Services — Fishing services are
provided through teams of experienced fishing tool supervisors
and a comprehensive line of fishing tools. Our teams provide
conventional fishing services such as removing wellbore
obstructions, including lost equipment, tools, drill string
segments and other debris, that become caught during the
drilling and completion of new wells. Specialty fishing tools
required in these activities include fishing jars, milling
tools, casing cutters, overshots and spears. Fishing services
also provides well patches and extensive plug and abandonment
services.
Intervention Services — Intervention services
includes wireline systems and services for completion
activities, mechanical services, logging services, casing and
tubing evaluation, production logging, perforating and pipe
recovery. Intervention services also provides thru-tubing
services used in well re-entry activity that allow operators to
perform complex drilling, completion and cementing activities
from existing wellbores without removing existing production
systems. Thru-tubing services and products include drilling
motors, casing exits, fishing and milling, zonal isolation and
other well remediation services.
We provide Drilling Services Division’s products and
services worldwide, and we compete in a variety of distinct
segments with a number of competitors. Our major competitors are
Baker Hughes, Halliburton,
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Schlumberger, Smith International and BJ Services. We also
compete with Precision Drilling, Franks International and other
regional suppliers that provide a limited range of equipment and
services tailored for local markets. Competition is based on a
number of factors including performance, safety, quality,
reliability, service, price, response time and in some cases,
breadth of products. We believe we are the industry leader in
underbalanced services and tubular running services, and one of
the largest providers of drilling products and cementation
products in the world.
Production Systems Division
In 2003, we formed our Production Systems Division, which
provides completion systems, all forms of artificial lift and
production optimization.
We offer our customers a comprehensive line of completion
products as well as engineered and integrated completion systems
for oil and natural gas fields. These products and services,
which comprised approximately 14% of our 2004 consolidated
revenues, include:
Cased Hole Completion Systems — These systems
are incorporated into the tubing string used to transport
hydrocarbons from the reservoir to the surface. We offer a wide
range of devices used to enhance the safety and functionality of
the production string, including permanent and retrievable
packer systems, sub-surface safety systems, specialized downhole
isolation valves and associated servicing equipment.
Sand Screens — Sand production often results in
premature failure of artificial lift and other downhole and
surface equipment and can obstruct the flow of oil and natural
gas. Conventional sand screen products are used in the
fluid-solid separation processes and have a variety of product
applications. Our primary application of well screens is for the
control of sand in unconsolidated formations. We offer premium,
pre-pack and wire-wrap sand screens.
The Production Systems Division also operates the water well and
industrial screen business of Johnson, which we acquired in
2001. Served markets include water well, petrochemical,
polymer/extrusion, mining and general industrial applications.
Expandable Sand Screens
(“ESS”™) — Our Expandable Sand
Screen systems are proprietary step-change sand control devices
that reduce cost and improve production. The ESS consists of
three layers, including slotted base pipe, filtration screens
and an outer protective shroud. The ESS can be expanded
utilizing a fixed cone and/or our proprietary rotary expansion
system. This system enables the ESS to be compliant with the
walls of the well, which aids productivity because it stabilizes
the wellbore and prevents sand from migrating into it. The ESS
can replace complex gravel packing techniques in many sand
control situations. As of December 31, 2004, we had
completed approximately 305 jobs worldwide with the installed
length of ESS at approximately 190,000 feet, or 36 miles.
Flow Control and Tool String — Flow control
systems include completion and intervention equipment that
provide the ability to manage production throughout the life of
the well. Our flow control systems include standard flow control
products such as nipples, locks, running and pulling tools,
plugs and rolling systems. We also offer comprehensive
engineering, design and installation capabilities.
Production Services — Engineered
Chemistrytm
combines proprietary chemical solutions with internally
developed oilfield equipment technologies. Our high-performance
chemistry solutions include custom tailored chemical solutions
for production, refining, completion, water treatment and other
industrial processes, a total service package —
product selection, application and optimization, precise
formulations and multi-functional chemical formulations that
include the only formulas certified for capillary injection.
Artificial lift systems are installed in oil wells that do not
have sufficient reservoir pressure to raise the oil to the
surface or that need to supplement the natural reservoir
pressures to produce oil from the well. There
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are six principal types of artificial lift technologies used in
the industry. We are the leading producer of artificial lift
systems and the only company in the world able to provide all
forms of lift including progressing cavity pumps, reciprocating
rod systems, gas lift systems, electrical submersible pumps,
hydraulic and other lift systems. This business segment
generated approximately 23% of our consolidated 2004 revenues.
Progressing Cavity Pumps — A progressing cavity
pump (“PCP”) is a downhole pump controlled by an
above-ground electric motor system connected to the downhole
pump via sucker rods for the production of oil. These pumps are
among the most operationally efficient and are designed to work
in wells of depths up to 6,000 feet with production between 10
to 4,500 barrels of oil per day. We are also developing high
temperature progressing cavity pumps for steam assisted gravity
drilling (“SAGD”) applications. PCPs have had
particular success in heavy oil producing basins around the
world.
Reciprocating Rod Lift Systems — A
reciprocating rod lift system is an artificial lift pumping
system that uses an above-ground mechanical unit connected to a
sucker rod and a downhole pump. It uses an up and down suction
process to lift the oil from the reservoir. Reciprocating lift
is used primarily for the production of oil from wells of depths
up to 14,000 feet and production rates from 20 to 8,000 barrels
per day. Reciprocating lift systems are generally more expensive
to install than other systems but less costly to operate. We
offer a complete package of products for rod lift applications
ranging from traditional pump jacks to the state-of-the-art
RotaFlex® long stroke pumping unit, as well as all downhole
components, including the Corod® continuous sucker rod,
traditional sucker rods and tubing anchors.
Gas Lift Systems — Gas lift is a form of
artificial lift that uses natural gas to lift oil in a producing
reservoir to the surface. The process of gas lift involves the
injection of natural gas into the well through an above-ground
injection system and a series of downhole mandrels and gas lift
valves. The gas injected into the system is either produced from
and reinjected into the well, or is injected from gas produced
from nearby wells. The injected gas acts as the lifting agent
for the heavier oil. Gas lift systems are used primarily for
offshore wells and those wells that have a high component of gas
in the well or have a gas supply near the well. Gas lift systems
are designed to operate at depths up to 15,000 feet with volumes
up to 20,000 barrels of oil per day.
Electrical Submersible Pumps — An electrical
submersible pump (“ESP”) is an electric pump and motor
placed downhole near the producing reservoir that is driven by
an electric motor controller and supply system above ground.
ESPs are designed to operate at depths of 9,000 to 12,000 feet
with volumes from 800 to 20,000 barrels per day. Prior to 1999,
we did not provide ESPs to the industry. In 2002, we began
manufacturing and distributing our own proprietary line of ESPs.
Hydraulic Lift Systems — Hydraulic lift is a
form of oil pumping system that uses an above-ground surface
power unit to operate a downhole hydraulic pump (jet or piston)
to lift oil from the reservoir. These systems are designed for
wells at depths up to 20,000 feet with volumes up to 15,000
barrels per day. Hydraulic pumps are well-suited for wells with
high volumes and low solids.
Other Lift Systems — We also offer other forms
of lift such as “plunger lift.” Plunger lift is the
only artificial lift system that requires no assistance from
outside energy sources. The typical system consists of a plunger
(or piston), top and bottom bumper springs, a lubricator and a
surface controller. The plunger cycles between the top and
bottom bumper springs. As it travels to the surface, it creates
a solid interface between the lifted gas below and produced
fluid above to maximize lift energy. The travel cycle is
controlled by a surface controller. Plunger lift is a low cost,
easily maintained method of lift. It is particularly useful for
dewatering gas wells and increasing production from wells with
emulsion problems. Plunger lift also keeps wells free of
paraffin and other tubing deposit problems and can be used to
produce a well to depletion.
Fracturing Technologies — Fracturing is a
stimulation treatment routinely performed on oil and natural gas
wells in low-permeability reservoirs. Our fracturing business is
designed to provide a skill set for future use with our Drilling
Methods Services. Current operations are in Texas and western
Oklahoma. Its three differentiating features are:
1) cutting-edge equipment standardized to control
inventory, maintenance and training costs; 2) robust
chemical product portfolio with a focused research and
development approach; and 3) a premier workforce with a
shared desire to provide the most efficient and effective
operations.
8
Production optimization is the process of increasing production,
reducing production costs, or both, of oil and natural gas
fields. The ultimate goal is to assist the operator in making
better decisions that maximize profits. One of the major
benefits of production optimization is that more production can
be achieved through the existing infrastructure, deferring
capital spending on the debottlenecking processes.
We were one of the first companies to provide complete
artificial lift well optimization services and products. We now
offer proprietary software that works with artificial lift and
intelligent completion systems to remotely monitor and control
wells, as well as optimize field production, from a central
location. During 2004, this business segment generated
approximately 6% of our consolidated revenues.
Well Optimization — By providing intelligence
at the well site and intelligence at the desktop, we provide the
producer with a unique solution for optimizing each well
individually. For well site intelligence, we offer specific
controllers for each type of artificial lift. These controllers
contain computers with specific logic to control the well during
changes in the reservoir, artificial lift equipment or the well
components. The operational changes are based on the parameters
set by the well operator, either at the well site or at a
desktop computer. The desktop software provides advanced
analytical tools that allow the operator to make changes by
controlling the well directly or by changing the parameters that
the controller is using to operate the well.
Reservoir Optimization — Our Intelligent
Completion Technology (“ICT”) uses optical sensing to
allow operators to remotely monitor the downhole pressure,
temperature, flow rate, phase fraction and seismic activity of
each well and the surrounding reservoir. This advanced
monitoring capability allows the operator to monitor the
reaction of the reservoir to the production of the well.
Combining this monitoring with multiple-zone downhole flow
control allows field pressure management and shut off of
unwanted flows of water or gas.
Work Processes — We provide tools for
optimizing work flow. These software tools assist the operators
in tracking the needed operations to manage the field optimally.
Tasks such as chemical injections, well workovers and injection
allocation can easily generate unnecessary expenses by
misprioritization of tasks, poor record-keeping and lack of
analysis of the effectiveness of the total field operations. Our
experienced consultants, coupled with advanced software tools,
provide the operators with real-world answers on how to optimize
the entire field’s operations.
|
|
|
Gas Services International |
Gas Services International (“GSI”) offers total
process system solutions for all aspects of natural gas
production, including compression, processing and offshore
floating production systems. GSI is located in Singapore and
primarily services the Asia Pacific and Middle East regions. In
June 2004, management approved a plan to sell our non-core GSI
compression fabrication business. The GSI compression
fabrication business results of operations, financial position
and cash flows have been reflected in our financial statements
as a discontinued operation for all periods presented.
In our Production Systems Division, our principal competitors
include Baker Hughes, Halliburton, Schlumberger and BJ Services.
We also compete with various smaller providers of completion
equipment. In the area of intelligent wells, our main
competitors are Schlumberger, Baker Hughes and WellDynamics.
Robbins & Myers, Harbison Fischer, Lufkin,
National-Oilwell and Dover Corporation are competitors exclusive
to our artificial lift products. The principal methods of
competition are performance, quality of products and services,
reliability, price, technological innovation and industry
reputation. According to Spears & Associates, we are a
leading provider of completion equipment in the world and the
world’s largest provider of progressing cavity pumps,
reciprocating rod lift pump systems and hydraulic lift systems
and are the only fully integrated provider of all lift systems.
9
Properties
Our operations are conducted in approximately 100 countries. We
currently have 83 manufacturing facilities and approximately 540
sales, service and distribution locations throughout the world.
The following table describes the material facilities we owned
or leased as of December 31, 2004:
| |
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|
|
|
|
|
|
|
|
|
| |
|
Facility | |
|
Property | |
|
|
|
|
| |
|
Size | |
|
Size | |
|
|
|
Principal Services and Products |
| Location |
|
(Sq. Ft.) | |
|
(Acres) | |
|
Tenure | |
|
Offered or Manufactured |
| |
|
| |
|
| |
|
| |
|
|
|
Drilling Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Pearland, Texas
|
|
|
261,927 |
|
|
|
60.64 |
|
|
|
Owned |
|
|
Fishing, drilling equipment |
| |
Hassi Messaoud, Algeria
|
|
|
200,229 |
|
|
|
19.99 |
|
|
|
Leased |
|
|
Fishing, liner hangers, underbalanced services |
| |
Houma, Louisiana
|
|
|
175,000 |
|
|
|
13.00 |
|
|
|
Owned |
|
|
Cementing products |
| |
Houston,
Texas(1)
|
|
|
173,000 |
|
|
|
18.19 |
|
|
|
Owned |
|
|
Research and development |
| |
Forus,
Norway(1)
|
|
|
153,654 |
|
|
|
11.40 |
|
|
|
Leased |
|
|
Downhole services, well installation services, drilling
equipment, thru tubing, cementing, fishing, re-entry, well
intervention, completion systems |
| |
Nisku, Alberta, Canada
|
|
|
149,193 |
|
|
|
27.79 |
|
|
|
Owned |
|
|
Drilling equipment, fishing, wireline, underbalanced services |
| |
Perth,
Australia(1)
|
|
|
120,878 |
|
|
|
2.77 |
|
|
|
Leased |
|
|
Well installation services, fishing, drilling equipment,
completion systems |
| |
Neuquen,
Argentina(1)
|
|
|
107,639 |
|
|
|
3.70 |
|
|
|
Leased |
|
|
Well installation services, downhole and underbalanced services,
fishing, cementing, drilling equipment |
| |
El Yopal, Colombia
|
|
|
85,078 |
|
|
|
2.61 |
|
|
|
Owned |
|
|
Cementing, drilling equipment, fishing, tubulars |
| |
Ventura, California
|
|
|
81,355 |
|
|
|
4.53 |
|
|
|
Leased |
|
|
Power tong equipment, well service work-over equipment |
| |
Corpus Christi, Texas
|
|
|
78,262 |
|
|
|
8.20 |
|
|
|
Owned |
|
|
Fishing, drilling equipment, rotating control heads |
| |
Jakarta,
Indonesia(1)
|
|
|
73,205 |
|
|
|
1.70 |
|
|
|
Leased |
|
|
Fishing, drilling equipment, completion systems |
| |
Langenhagen,
Germany(1)
|
|
|
71,834 |
|
|
|
3.41 |
|
|
|
Leased |
|
|
Power and mechanized equipment, control systems, cementing
products, completion systems, research and development |
| |
Darwin,
Australia(1)
|
|
|
71,688 |
|
|
|
1.65 |
|
|
|
Leased |
|
|
Well installation services, fishing, drilling equipment,
completion systems |
| |
Houston, Texas
|
|
|
71,242 |
|
|
|
14.55 |
|
|
|
Owned |
|
|
Directional drilling, jar repair, MWD guidance systems |
| |
Macaé, Brazil
|
|
|
66,908 |
|
|
|
11.68 |
|
|
|
Owned |
|
|
Well installation, downhole and underbalanced services and
cementing, completion and artificial lift products |
| |
Jakarta, Indonesia
|
|
|
61,375 |
|
|
|
1.43 |
|
|
|
Leased |
|
|
Cementing |
|
Production Systems:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
New Brighton, Minnesota
|
|
|
211,600 |
|
|
|
25.75 |
|
|
|
Owned |
|
|
Water well and industrial screens |
| |
Aberdeen, Scotland
|
|
|
148,379 |
|
|
|
8.67 |
|
|
|
Leased |
|
|
Expandable slotted tubulars |
10
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Facility | |
|
Property | |
|
|
|
|
| |
|
Size | |
|
Size | |
|
|
|
Principal Services and Products |
| Location |
|
(Sq. Ft.) | |
|
(Acres) | |
|
Tenure | |
|
Offered or Manufactured |
| |
|
| |
|
| |
|
| |
|
|
| |
Houston, Texas
|
|
|
130,000 |
|
|
|
14.00 |
|
|
|
Owned |
|
|
Sand screens |
| |
Woodward, Oklahoma
|
|
|
118,000 |
|
|
|
49.58 |
|
|
|
Leased |
|
|
Reciprocating rod and hydraulic lift |
| |
Huntsville,
Texas(1)
|
|
|
112,648 |
|
|
|
20.00 |
|
|
|
Owned |
|
|
Liner hangers, packers, completion systems |
| |
Edmonton, Alberta, Canada
|
|
|
108,797 |
|
|
|
11.34 |
|
|
|
Owned |
|
|
Reciprocating rod lift, progressing cavity pumps |
| |
Greenville, Texas
|
|
|
108,300 |
|
|
|
26.43 |
|
|
|
Owned |
|
|
Reciprocating rod lift, electric submersible pumps |
| |
Nisku, Alberta, Canada
|
|
|
104,000 |
|
|
|
7.40 |
|
|
|
Owned |
|
|
Reciprocating rod lift |
| |
Sao Leopoldo, Brazil
|
|
|
103,490 |
|
|
|
9.46 |
|
|
|
Owned |
|
|
Progressing cavity pumps |
| |
Brisbane, Australia
|
|
|
98,658 |
|
|
|
4.04 |
|
|
|
Leased |
|
|
Water well and industrial screens |
| |
Colorado Springs, Colorado
|
|
|
94,000 |
|
|
|
60.62 |
|
|
|
Owned |
|
|
Reciprocating rod lift, electrical submersible pumps |
| |
Kingwood, Texas
|
|
|
83,500 |
|
|
|
10.47 |
|
|
|
Leased |
|
|
Well optimization equipment |
| |
Caxias do Sul,
Brazil(1)
|
|
|
81,590 |
|
|
|
17.49 |
|
|
|
Owned |
|
|
Packers, liner hangers |
| |
Availles-en-Chatellerault, France
|
|
|
79,793 |
|
|
|
11.58 |
|
|
|
Leased |
|
|
Screen fabrication |
| |
Scott, Louisiana
|
|
|
79,713 |
|
|
|
15.59 |
|
|
|
Owned |
|
|
Tools for flow control, cased hole, safety valves |
| |
Longview, Texas
|
|
|
79,086 |
|
|
|
17.63 |
|
|
|
Owned |
|
|
Reciprocating rod lift |
| |
Lloydminster, Alberta, Canada
|
|
|
77,700 |
|
|
|
6.81 |
|
|
|
Owned |
|
|
Progressing cavity pumps |
| |
Rio Tercero, Argentina
|
|
|
77,611 |
|
|
|
7.11 |
|
|
|
Owned |
|
|
Reciprocating rod and gas lift |
| |
Leetsdale, Pennsylvania
|
|
|
77,559 |
|
|
|
4.00 |
|
|
|
Leased |
|
|
Drilling fluids, completion chemicals |
| |
New Iberia,
Louisiana(1)
|
|
|
69,804 |
|
|
|
18.80 |
|
|
|
Owned |
|
|
Liner hangers, sand screens, completion systems |
| |
Newcastle, Australia
|
|
|
67,576 |
|
|
|
4.35 |
|
|
|
Owned |
|
|
Mining and urethane screens |
|
Corporate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Houston, Texas
|
|
|
254,438 |
|
|
|
— |
|
|
|
Leased |
|
|
Corporate offices |
|
|
| (1) |
Facility is shared by both our Drilling Services and Production
Systems Divisions. |
Other Business Data
We purchase a wide variety of raw materials as well as parts and
components made by other manufacturers and suppliers for use in
our manufacturing. Many of the products sold by us are
manufactured by other parties. We are not dependent on any
single source of supply for any of our raw materials or
purchased components; however, the loss of one or more of our
suppliers in our Production Systems Division could disrupt
production.
Our principal customers consist of major and independent oil and
natural gas producing companies. During 2004, 2003 and 2002,
none of our customers individually accounted for more than 10%
of consolidated revenues.
Our backlog consists of customer orders for which a purchase
order has been received, satisfactory credit arrangements exist
and delivery is scheduled. The respective sales backlog was
approximately $251 million as
11
of January 2005 and approximately $165 million for the
comparable period in the prior year. All backlog is expected to
be shipped during 2005.
|
|
|
Research and Development and Patents |
We maintain world-class technology and training centers in
Houston, Texas and Aberdeen, Scotland whose activities are
focused on improving existing products and services and
developing new technologies to meet customer demands for
improved drilling performance and enhanced reservoir
productivity. Our expenditures for research and development
totaled $83.6 million in 2004, $82.4 million in 2003
and $79.2 million in 2002.
As many areas of our business rely on patents and proprietary
technology, we have followed a policy of seeking patent
protection both inside and outside the U.S. for products
and methods that appear to have commercial significance. In the
U.S., we currently have 647 patents issued and over 460 pending.
We have 900 patents issued in international jurisdictions and
over 1,410 pending. We amortize patents over the years expected
to be benefited, ranging from 3 to 20 years.
Many of our patents provide us with competitive advantages in
our markets. Important patented products and technologies
include (1) our expandable slotted and solid tubular
products, many of which are sold pursuant to a license from
Shell, (2) our underbalanced drilling products and
services, including our “Virtual Riser” offshore
pressure control system, Williams high pressure rotating heads,
internal riser rotating control heads for deepwater drilling and
our chemicals and foam technology, (3) tubular running
systems, including our “PowerScope” tong positioning
system and our “StabMaster” tubular positioning
system, (4) casing exit systems, including our
“QuickCut” casing window milling system,
(5) drilling with casing equipment and services including
the “DrillShoe” and “ReamerShoe” casing
shoes, expandable drill bit, including our “XpandaBit”
and our drilling hazard mitigation services and (6) fiber
optic sensing systems for intelligent completion systems.
Although in the aggregate our patents are of considerable
importance to the manufacturing and marketing of many of our
products, we do not believe that the loss of one or more of our
patents would have a material adverse effect on our business.
Weather and natural phenomena can temporarily affect the sale
and performance of our products and services. Spring months in
Canada and winter months in the North Sea tend to negatively
affect operations. In the summer of 2004, the Gulf of Mexico
suffered an unusually high number of hurricanes that adversely
impacted our operations. The widespread geographical locations
of our operations serve to mitigate the impact of the seasonal
nature of our business.
We currently carry a variety of insurance for our operations. We
are partially self-insured for certain claims in amounts we
believe to be customary and reasonable.
Although we believe we currently maintain insurance coverage
adequate for the risks involved, there is always a risk our
insurance may not be sufficient to cover any particular loss or
that our insurance may not cover all losses. For example, while
we maintain product liability insurance, this type of insurance
is limited in coverage and it is possible an adverse claim could
arise in excess of our coverage. Finally, insurance rates have
in the past been subject to wide fluctuation. Changes in
coverage, insurance markets and our industry may result in
further increases in our cost and higher deductibles and
retentions.
|
|
|
Federal Regulation and Environmental Matters |
Our operations are subject to federal, state and local laws and
regulations relating to the energy industry in general and the
environment in particular. Environmental laws have, in recent
years, become more stringent and have generally sought to impose
greater liability on a larger number of potentially responsible
parties.
12
While we are not currently aware of any situation involving an
environmental claim that would likely have a material adverse
effect on our business, it is always possible that an
environmental claim with respect to one or more of our current
businesses or a business or property that one of our
predecessors owned or used could arise that could have a
material adverse effect.
In October 2002, we were notified by a third party that we may
be a potentially responsible party to the Force Road Oil and
Vacuum Truck Company Superfund site in Brazoria County, Texas.
This matter is in the preliminary stages, and based on the
information provided, if we are named as a party by the Texas
Commission on Environmental Quality (“TCEQ”), it
appears we will be a de minimus party.
Our 2004 expenditures to comply with environmental laws and
regulations were not material, and we currently expect the cost
of compliance with environmental laws and regulations for 2005
also will not be material.
We currently employ approximately 18,400 employees. Certain of
our operations are subject to union contracts. These contracts,
however, cover less than one percent of our employees. We
believe that our relationship with our employees is generally
satisfactory.
Forward-Looking Statements
This report, as well as other filings made by us with the
Securities and Exchange Commission (“SEC”), and our
releases issued to the public contain various statements
relating to future results, including certain projections and
business trends. We believe these statements constitute
“Forward-Looking Statements” as defined in the Private
Securities Litigation Reform Act of 1995.
From time to time, we update the various factors we consider in
making our forward-looking statements and the assumptions we use
in those statements. However, we undertake no obligation to
publicly update or revise any forward-looking events or
circumstances that may arise after the date of this report. The
following sets forth the various assumptions we use in our
forward-looking statements, as well as risks and uncertainties
relating to those statements. Certain of the risks and
uncertainties may cause actual results to be materially
different from projected results contained in forward-looking
statements in this report and in our other disclosures. These
risks and uncertainties include, but are not limited to, those
described in “Risk Factors” below and the following:
|
|
|
| |
• |
A downturn in market conditions could affect projected
results. Any material changes in oil and natural gas supply
and demand, oil and natural gas prices, rig count or other
market trends would affect our results and would likely affect
the forward-looking information we provided. The oil and natural
gas industry is extremely volatile and subject to change based
on political and economic factors outside our control. During
2003 and 2004, worldwide drilling activity increased; however,
if an extended regional and/or worldwide recession were to
occur, it would result in lower demand and lower prices for oil
and natural gas, which would adversely affect drilling and
production activity and therefore would affect our revenues and
income. We have assumed increases in worldwide demand will
continue throughout 2005. |
| |
| |
• |
Availability of a skilled workforce could affect our
projected results. The workforce and labor supply in the
oilfield service industry is aging and diminishing such that
there is an increasing shortage of available skilled labor. Our
forward-looking statements assume we will be able to recruit and
maintain a sufficient skilled workforce for activity levels. |
| |
| |
• |
Increases in the prices of our raw materials could affect our
results of operations. We use large amounts of raw materials
for manufacturing our products. The price of these raw materials
has a significant impact on our cost of producing products for
sale or producing fixed assets used in our business. We have
assumed that the prices of our raw materials will remain within
a manageable range. If we are unable to minimize the impact of
increased raw materials costs through our supply chain |
13
|
|
|
| |
|
initiatives or by passing through these increases to our
customers, our margins and results of operations could be
adversely affected. |
| |
| |
• |
Our long-term growth depends upon technological innovation
and commercialization. Our ability to deliver our long-term
growth strategy depends in part on the commercialization of new
technology. A central aspect of our growth strategy is to
innovate our products and services, to obtain technologically
advanced products through internal research and development
and/or acquisitions, to protect proprietary technology from
unauthorized use and to expand the markets for new technology
through leverage of our worldwide infrastructure. The key to our
success will be our ability to commercialize the technology that
we have acquired and demonstrate the enhanced value our
technology brings to our customers’ operations. Our major
technological advances include, but are not limited to, those
related to underbalanced systems, expandable solid tubulars,
expandable sand screens and intelligent well completion. Our
forward-looking statements have assumed successful
commercialization of, and above-average growth from, these new
products and services. |
| |
| |
• |
Nonrealization of expected benefits from our 2002 corporate
reincorporation could affect our projected results. We
expect to gain certain business, financial and strategic
advantages as a result of our reincorporation, including
improvements to our global tax position and cash flow. An
inability to realize expected benefits of the reincorporation in
the anticipated time frame, or at all, would negatively affect
the anticipated benefit of our corporate reincorporation. |
| |
| |
• |
A decline in the fair value of our investment in Universal
that is other-than-temporary would adversely affect our
projected results. In the third quarter of 2002, we recorded
a write-down in the carrying value of the investment. We can
make no assurances that there will not be an additional decline
in value of our investment in Universal. Any decline may result
in an additional write-down in the carrying value of our
investment in Universal and would adversely affect our results. |
| |
| |
• |
The cyclical nature of or a prolonged downturn in our
industry could affect the carrying value of our goodwill. As
of December 31, 2004, we had approximately
$1.7 billion of goodwill. Our estimates of the value of our
goodwill could be reduced in the future as a result of various
factors, some of which are beyond our control. Any reduction in
the value of our goodwill may result in an impairment charge and
therefore adversely affect our results. |
| |
| |
• |
Currency fluctuations could have a material adverse financial
impact on our business. A material change in currency rates
in our markets could affect our future results as well as affect
the carrying values of our assets. World currencies have been
subject to much volatility. Our forward-looking statements
assume no material impact from future changes in currencies. |
| |
| |
• |
Adverse weather conditions in certain regions could aversely
affect our operations. In the summer of 2004, the Gulf of
Mexico suffered an unusually high number of hurricanes. These
hurricanes and associated hurricane threats reduced the number
of days on which we and our customers could operate, which
resulted in lower revenues than we otherwise would have
achieved. Similarly, an unusually warm Canadian winter or
unusually rough weather in the North Sea could reduce our
operations and revenues from those areas during the relevant
period. Our forward-looking statements assume weather patterns
in our primary areas of operations will not deviate
significantly from historical patterns. |
| |
| |
• |
Political disturbances, war, or terrorist attacks and changes
in global trade policies could adversely impact our
operations. We have assumed there will be no material
political disturbances or terrorist attacks and there will be no
material changes in global trade policies. Any further military
action undertaken by the U.S. or other countries could
adversely affect our results of operations. |
14
Risk Factors
An investment in our common shares involves various risks. When
considering an investment in our company, you should consider
carefully all of the risk factors described below, as well as
other information included and incorporated by reference in this
report.
|
|
|
We have significant foreign operations that would be
adversely impacted in the event of war, political disruption,
civil disturbance, economic and legal sanctions and changes in
global trade policies. |
Like most multinational oilfield service companies, we have
operations in certain international areas, including parts of
the Middle East, North and West Africa, Latin America, the Asia
Pacific region and the CIS that are subject to risks of war,
political disruption, civil disturbance, economic and legal
sanctions (such as restrictions against countries that the
U.S. government may deem to sponsor terrorism) and changes
in global trade policies. Our operations may be restricted or
prohibited in any country in which these risks occur. In
particular, the occurrence of any of these risks could result in
the following events, which in turn, could materially and
adversely impact our results of operations:
|
|
|
| |
• |
disruption of oil and natural gas exploration and production
activities; |
| |
| |
• |
restriction of the movement and exchange of funds; |
| |
| |
• |
inhibition of our ability to collect receivables; |
| |
| |
• |
enactment of additional or stricter U.S. government or
international sanctions; and |
| |
| |
• |
limitation of our access to markets for periods of time. |
|
|
|
Our significant operations in foreign countries expose us
to currency fluctuation risks. |
Approximately 36.7% of our net assets are located outside the
U.S. and are carried on our books in local currencies. Changes
in those currencies in relation to the U.S. dollar result
in translation adjustments, which are reflected as accumulated
other comprehensive income in the shareholders’ equity
section in our Consolidated Balance Sheets. We recognize
remeasurement and transactional gains and losses on currencies
in our Consolidated Statements of Operations. Such remeasurement
and transactional losses may adversely impact our results of
operations.
In certain foreign countries, a component of our cost structure
is U.S. dollar denominated, whereas our revenues are
partially local currency based. In those cases, a devaluation of
the local currency would adversely impact our operating margins.
|
|
|
Our results of operations are impacted by Universal
Compression’s results of operations. |
We own approximately 21% of Universal Compression Holdings,
Inc.’s outstanding common stock as a result of the merger
of our Compression Services Division with a Universal subsidiary
in February 2001 and the subsequent sale of 7.0 million
shares of common stock in 2004. We account for this ownership
interest using the equity method of accounting, which requires
us to record our percentage interest in Universal’s results
of operations in our consolidated statements of operations.
Accordingly, fluctuations in Universal’s earnings will
cause fluctuations in our earnings.
|
|
|
We are a Bermuda exempted company, and it may be difficult
for you to enforce judgments against us or our directors and
executive officers. |
We are a Bermuda exempted company. As a result, the rights of
holders of our shares will be governed by Bermuda law and our
memorandum of association and bye-laws. The rights of
shareholders under Bermuda law may differ from the rights of
shareholders of companies incorporated in other jurisdictions.
One of our directors and some of the named experts referred to
in this report are not residents of the U.S., and a substantial
portion of our assets are located outside the U.S. As a
result, it may be difficult for investors to effect service of
process on those persons in the U.S. or to enforce in the
U.S. judgments obtained in
15
U.S. courts against us or those persons based on the civil
liability provisions of the U.S. securities laws.
Uncertainty exists as to whether courts in Bermuda will enforce
judgments obtained in other jurisdictions, including the U.S.,
against us or our directors or officers under the securities
laws of those jurisdictions or entertain actions in Bermuda
against us or our directors or officers under the securities
laws of other jurisdictions.
|
|
|
Our bye-laws restrict shareholders from bringing legal
action against our officers and directors. |
Our bye-laws contain a broad waiver by our shareholders of any
claim or right of action, both individually and on our behalf,
against any of our officers or directors. The waiver applies to
any action taken by an officer or director, or the failure of an
officer or director to take any action, in the performance of
his or her duties, except with respect to any matter involving
any fraud or dishonesty on the part of the officer or director.
This waiver limits the right of shareholders to assert claims
against our officers and directors unless the act or failure to
act involves fraud or dishonesty.
|
|
|
Uninsured claims and litigation could adversely impact our
results. |
In the ordinary course of business, we become the subject of
various claims and litigation. We maintain insurance to cover
many of our potential losses and we are subject to various
self-retentions and deductibles with respect to our insurance.
Although we are subject to various ongoing items of litigation,
we do not believe any of our current items of litigation will
result in any material uninsured losses to us. However, it is
possible an unexpected judgment could be rendered against us in
cases in which we could be uninsured and beyond the amounts we
currently have reserved or anticipate incurring.
We are also subject to various federal, state and local laws and
regulations relating to the energy industry in general and the
environment in particular. Environmental laws have in recent
years become more stringent and have generally sought to impose
greater liability on a larger number of potentially responsible
parties. While we are not currently aware of any situation
involving an environmental claim that would be likely to have a
material adverse effect on our business, it is always possible
that an environmental claim with respect to one or more of our
current businesses or a business or property that one of our
predecessors owned or used could arise and could involve
material expenditures.
|
|
|
Uninsured judgments or a rise in insurance premiums could
adversely impact our results. |
Although we maintain insurance to cover potential claims and
losses, we could become subject to a judgment for which we are
not adequately insured. Additionally, the terrorist attacks that
occurred in the U.S. in 2001, as well as other factors,
have generally increased the cost of insurance for companies,
including ours. Significant increases in the cost of our
insurance and more restrictive coverages may adversely impact
our results of operations.
|
|
|
Customer credit risks could result in losses. |
The concentration of our customers in the energy industry may
impact our overall exposure to credit risk as customers may be
similarly affected by prolonged changes in economic and industry
conditions. Further, laws in some jurisdictions in which we
operate could make collection difficult or time consuming. We
perform ongoing credit evaluations of our customers and do not
generally require collateral in support of our trade
receivables. While we maintain reserves for potential credit
losses, we cannot assure such reserves will be sufficient to
meet write-offs of uncollectible receivables or that our losses
from such receivables will be consistent with our expectations.
|
|
|
A terrorist attack could have a material adverse effect on
our businesses. |
The terrorist attacks that took place in the U.S. on
September 11, 2001 were unprecedented events that have
created many economic and political uncertainties, some of which
may materially impact our businesses. The potential for future
terrorist attacks, the national and international responses to
terrorist attacks, and other
16
acts of war or hostility have created many economic and
political uncertainties, which could adversely affect our
businesses.
|
|
|
Changes in tax laws could adversely impact our
results. |
On June 26, 2002, the stockholders and Board of Directors
of Weatherford International, Inc. approved our corporate
reorganization, and Weatherford International Ltd., a newly
formed Bermuda company, became the parent holding company of
Weatherford International, Inc. The realization of the tax
benefit of this reorganization could be impacted by changes in
tax laws, tax treaties or tax regulations or the interpretation
or enforcement thereof or differing interpretation or
enforcement of applicable law by the U.S. Internal Revenue
Service or other taxing jurisdictions. The inability to realize
this benefit could have a material impact on the Company’s
financial statements.
|
|
|
Low oil and natural gas prices adversely affect demand for
our products and services. |
Low oil and natural gas prices adversely affect demand
throughout the oil and natural gas industry, including the
demand for our products and services. As prices decline, we are
affected in two significant ways. First, the funds available to
our customers for the purchases of goods and services decline.
Second, exploration and drilling activity declines as marginally
profitable projects become uneconomic and are either delayed or
eliminated. Accordingly, when oil and natural gas prices are
relatively low, our revenues and income will be adversely
affected.
|
|
|
The market price of our common shares may
fluctuate. |
Historically, the market price of common shares of companies
engaged in the oil and natural gas industry has been highly
volatile. Likewise, the market price of our common shares has
varied significantly in the past. News announcements and changes
in oil and natural gas prices, changes in the demand for oil and
natural gas exploration and changes in the supply and demand for
oil and natural gas have all been factors that have affected the
price of our common shares.
See “Item 1. Business — Properties” on
page 10 of this report, which is incorporated by reference into
this item.
|
|
| Item 3. |
Legal Proceedings |
In the ordinary course of business, we become the subject of
various claims and litigation. We maintain insurance to cover
many of our potential losses, and we are subject to various
self-retention limits and deductibles with respect to our
insurance.
See “Item 1. Business — Other Business
Data — Federal Regulation and Environmental
Matters” on page 12 of this report, which is
incorporated by reference into this item.
Although we are subject to various ongoing items of litigation,
we do not believe any of the items of litigation to which we are
currently subject will result in any material uninsured losses
to us. It is possible, however, an unexpected judgment could be
rendered against us in the cases in which we are involved that
could be uninsured and beyond the amounts we currently have
reserved.
|
|
| Item 4. |
Submission of Matters to a Vote of Security Holders |
No matters were submitted to a vote of shareholders of the
Company during the fourth quarter of the year ended
December 31, 2004.
17
PART II
|
|
| Item 5. |
Market for Registrant’s Common Equity and Related
Shareholder Matters |
Our common shares are traded on the New York Stock Exchange
under the symbol “WFT.” As of March 7, 2005,
there were 2,298 shareholders of record. Additionally,
there were 654 stockholders of Weatherford International,
Inc. as of the same date who had not yet exchanged their shares.
The following table sets forth, for the periods indicated, the
range of high and low sales prices per common share as reported
on the New York Stock Exchange:
| |
|
|
|
|
|
|
|
|
|
| |
|
Price | |
| |
|
| |
| |
|
High | |
|
Low | |
| |
|
| |
|
| |
|
Year ending December 31, 2004
|
|
|
|
|
|
|
|
|
| |
First Quarter
|
|
$ |
47.10 |
|
|
$ |
35.82 |
|
| |
Second Quarter
|
|
|
45.98 |
|
|
|
39.68 |
|
| |
Third Quarter
|
|
|
51.55 |
|
|
|
42.91 |
|
| |
Fourth Quarter
|
|
|
55.24 |
|
|
|
48.65 |
|
|
Year ending December 31, 2003
|
|
|
|
|
|
|
|
|
| |
First Quarter
|
|
$ |
42.67 |
|
|
$ |
35.05 |
|
| |
Second Quarter
|
|
|
47.70 |
|
|
|
37.07 |
|
| |
Third Quarter
|
|
|
41.74 |
|
|
|
34.91 |
|
| |
Fourth Quarter
|
|
|
39.00 |
|
|
|
31.30 |
|
On March 7, 2005, the closing sales price of our common
shares as reported by the New York Stock Exchange was
$60.65 per share. We have not declared or paid cash
dividends on our common shares since 1984, and we do not
currently anticipate paying cash dividends on our common shares
at any time in the foreseeable future.
In addition to our common shares, we have outstanding
$910.0 million face amount of Zero Coupon Convertible
Senior Debentures due 2020. These debentures were issued by
Weatherford International, Inc. and have the following material
terms:
|
|
|
| |
• |
Mature on June 30, 2020. |
| |
| |
• |
Original discount of $408.4 million, providing the holders
with an annual 3.0% yield to maturity. |
| |
| |
• |
Holders may convert at any time prior to maturity at a
conversion rate of 9.9970 common shares per $1,000 principal
amount at maturity. |
| |
| |
• |
We may redeem these debentures on or after June 30, 2005 at
the accreted principal amount at the time of redemption. |
| |
| |
• |
Holders also may require us to repurchase these debentures on
June 30, 2005, June 30, 2010 and June 30, 2015 at
the issue price plus accrued original issue discount, and after
June 30, 2005 we may, at our election, repurchase the
debentures for cash, common shares or a combination thereof at
any time. |
| |
| |
• |
The debentures are unsecured obligations ranking equal in right
of payment with all other unsecured and unsubordinated
indebtedness and ranking senior to any future subordinated
indebtedness. |
On February 28, 2002, we issued a warrant to purchase up to
3.2 million of our common shares at $60.00 per share
as part of the consideration given to obtain a worldwide license
to Shell Technology Ventures Inc.’s expandable technology.
This warrant has a nine-year exercisable life beginning one year
after the issue date.
Information concerning securities authorized for issuance under
equity compensation plans is set forth in Part III of this
report under “Item 12. Security Ownership of Certain
Beneficial Owners and Management — Equity Compensation
Plan Information,” which is incorporated herein by
reference.
18
|
|
| Item 6. |
Selected Financial Data |
The following table sets forth certain selected historical
consolidated financial data and should be read in conjunction
with “Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations”
and the Consolidated Financial Statements and Notes thereto
included elsewhere herein. The following information may not be
deemed indicative of our future operating results:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004(a) | |
|
2003(b) | |
|
2002(c) | |
|
2001(d) | |
|
2000(d)(e) | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except per share amounts) | |
|
Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
3,131,774 |
|
|
$ |
2,562,034 |
|
|
$ |
2,288,424 |
|
|
$ |
2,291,732 |
|
|
$ |
1,781,548 |
|
|
Operating Income
|
|
|
415,747 |
|
|
|
286,217 |
|
|
|
63,408 |
|
|
|
406,100 |
|
|
|
119,676 |
|
|
Income (Loss) From Continuing Operations
|
|
|
337,299 |
|
|
|
147,243 |
|
|
|
(6,959 |
) |
|
|
212,008 |
|
|
|
(39,369 |
) |
|
Basic Earnings (Loss) Per Share From Continuing Operations
|
|
|
2.52 |
|
|
|
1.16 |
|
|
|
(0.06 |
) |
|
|
1.86 |
|
|
|
(0.36 |
) |
|
Diluted Earnings (Loss) Per Share From Continuing Operations
|
|
|
2.35 |
|
|
|
1.12 |
|
|
|
(0.06 |
) |
|
|
1.74 |
|
|
|
(0.36 |
) |
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$ |
5,543,482 |
|
|
$ |
4,994,324 |
(f) |
|
$ |
4,494,989 |
|
|
$ |
4,296,362 |
|
|
$ |
3,461,579 |
|
|
Long-term Debt(g)
|
|
|
1,404,431 |
|
|
|
1,379,611 |
|
|
|
1,513,907 |
|
|
|
1,499,794 |
|
|
|
1,132,676 |
|
|
Shareholders’ Equity
|
|
|
3,313,389 |
|
|
|
2,708,068 |
|
|
|
1,974,496 |
|
|
|
1,838,240 |
|
|
|
1,338,458 |
(h) |
|
Cash Dividends Per Share
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Years 2003 and prior have been restated to reflect our 2004
decision to sell our non-core Gas Services International
compression fabrication business. This business has been
reflected as a discontinued operation.
|
|
|
|
(a) |
|
In 2004, we recorded a $77.6 million gain on the sale of
Universal common stock. There was no income tax impact related
to the sale. |
| |
|
(b) |
|
In August 2003, we incurred $20.9 million,
$13.6 million net of taxes, of debt redemption expenses
related to the early extinguishment of our Convertible Preferred
Debentures. |
| |
|
(c) |
|
In 2002, we recorded a $217.1 million non-cash write-down
of our investment in Universal and a $15.4 million
restructuring and asset impairment charge related to a
rationalization of our businesses in light of industry
conditions. The net after tax impact of these charges was
$156.2 million. |
| |
|
(d) |
|
The years ended December 31, 2001 and 2000 reflect goodwill
amortization, net of taxes, of $36.9 million and
$34.3 million, respectively. Effective January 1,
2002, we adopted Statement of Financial Accounting Standards
No. 142 and ceased the amortization of goodwill. |
| |
|
(e) |
|
In connection with the merger of essentially all of our
Compression Services Division into Universal and the resulting
de-consolidation of our division, we recognized an impairment
charge of $56.3 million, $43.0 million net of taxes,
and a $76.5 million deferred tax provision. |
| |
|
(f) |
|
Certain 2003 deferred tax amounts have been reclassified to
conform with current year presentation. The reclassification of
these balances resulted in a $47.7 million reduction of the
current income tax liability and net deferred tax asset as of
December 31, 2003. |
| |
|
(g) |
|
Includes our Zero Coupon Convertible Senior Debentures. |
| |
|
(h) |
|
In April 2000, we distributed our Grant Prideco, Inc. subsidiary
to holders of our common stock. |
|
|
| Item 7. |
Management’s Discussion and Analysis of Financial
Condition and Results of Operations |
This Management’s Discussion and Analysis of Financial
Condition and Results of Operations (“MD&A”)
describes the matters we consider to be important to
understanding the results of our operations for each of the
three years in the period ended December 31, 2004, and our
capital resources and liquidity as of
19
December 31, 2004 and 2003. Our discussion begins with an
executive overview which provides a general description of our
company today, a synopsis of industry market trends, insight
into management’s perspective of the opportunities and
challenges we face and our outlook for 2005 and 2006. Next, we
analyze the results of our operations for the last three years,
including the trends in the overall business and our operating
segments, followed by a summary of our 2003 and 2002 severance,
restructuring and asset impairment charges. Then we review our
cash flows and liquidity, capital resources and contractual
commitments. We conclude with an overview of our critical
accounting judgments and estimates and a summary of recently
issued accounting pronouncements.
The following discussion should be read in conjunction with our
Consolidated Financial Statements and Notes thereto included in
“Item 8. Financial Statements and Supplementary
Data.” Our discussion includes various forward-looking
statements about our markets, the demand for our products and
services and our future results. These statements are based on
certain assumptions we consider reasonable. For information
about these assumptions, you should refer to the section
entitled “Item 1. Business — Forward-Looking
Statements.”
Overview
Weatherford provides equipment and services used for drilling,
completion and production of oil and natural gas wells
throughout the world. We conduct operations in approximately 100
countries and have service and sales locations in nearly all of
the oil and natural gas producing regions in the world. Our
offerings include drilling methods, drilling tools, well
construction, intervention services, completion systems,
production optimization and all forms of artificial lift. We
offer step-change technologies, including expandable technology,
production optimization systems, underbalanced services and
drilling with casing. We operate under two segments: Drilling
Services and Production Systems.
In June 2004, we undertook a plan to sell our Gas Services
International compression fabrication business. Results of this
business were formerly reported within our Production Systems
business segment and have been reclassified as a discontinued
operation for all periods presented.
Effective June 26, 2002, we changed our place of
incorporation to Bermuda. Weatherford International Ltd.
(“Weatherford Limited”), a Bermuda exempted company,
became the parent holding company of Weatherford International,
Inc. (“Weatherford Inc.”) following a corporate
reorganization. Each share of common stock of Weatherford Inc.
automatically converted into the right to receive a common share
of Weatherford Limited. Thus, the stockholders of Weatherford
Inc. became the shareholders of Weatherford Limited. The
reorganization has been accounted for as a reorganization of
entities under common control and accordingly, did not result in
any changes to our consolidated amounts of assets, liabilities
or shareholders’ equity.
Changes in the current price and expected future prices of oil
and natural gas influence the level of energy industry spending.
Changes in expenditures result in an increased or decreased
demand for our products and services. Rig count is an indicator
of the level of spending for the exploration for and production
of oil and natural gas reserves.
20
The following chart sets forth certain statistics that reflect
historical market conditions:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
North | |
|
|
| |
|
|
|
Henry Hub | |
|
American Rig | |
|
International Rig | |
| |
|
WTI Oil(1) | |
|
Gas(2) | |
|
Count(3) | |
|
Count(3) | |
| |
|
| |
|
| |
|
| |
|
| |
|
2004
|
|
$ |
43.45 |
|
|
$ |
6.149 |
|
|
|
1,686 |
|
|
|
869 |
|
|
2003
|
|
|
32.52 |
|
|
|
6.189 |
|
|
|
1,531 |
|
|
|
803 |
|
|
2002
|
|
|
31.20 |
|
|
|
4.789 |
|
|
|
1,204 |
|
|
|
753 |
|
|
|
| (1) |
Price per barrel as of December 31 —
Source: Applied Reasoning, Inc. |
| |
| (2) |
Price per MM/ BTU as of December 31 —
Source: Oil World |
| |
| (3) |
Average rig count for December — Source: Baker
Hughes Rig Count |
Although oil and natural gas prices have continued to fluctuate
over the last several years, the average annual price of oil and
natural gas has continued to increase. Oil prices ranged from a
high of $55.17 per barrel in October of 2004 to a low of
$17.97 per barrel in January of 2002. Natural gas prices
ranged from a high of $9.58 per MM/ BTU in February of 2003
to a low of $1.91 per MM/ BTU in January of 2002. Factors
influencing oil and natural gas prices during the three year
period include persistent low inventories, strong economic
growth in both the U.S. and China, the lack of excess capacity
within the Organization of Petroleum Exporting Countries
(“OPEC”), weather and geopolitical uncertainty,
including the uncertainty of Iraqi oil production.
Historically, the majority of worldwide drilling activity has
been concentrated in North America. From mid-1999 through
mid-2001, North American rig count improved steadily, peaking in
the first quarter of 2001 at a quarterly average of 1,636 rigs.
The level of drilling and completion spending in North America
also improved steadily for this same time period with an overall
improvement greater than 100%. During the latter part of 2001,
the rig count started to decline, and the decline continued
through mid-2002. Since mid-2002, the North American rig count
has improved to a fourth quarter 2004 rig count average of 1,674
rigs; furthermore, according to Spears & Associates,
the 2004 level of drilling and completion spending in North
America improved approximately 30% from 2001 spending levels.
Drilling and completion spending has grown faster in
international markets than in North America. According to
Spears & Associates international drilling and
completion spending has steadily increased since 1999, and the
total spending in 2004 reached record levels of over
$50 billion (excluding Russia and China). The international
market experienced an 8% improvement in the 2004 average annual
rig count as compared to the previous year and a 5% improvement
in 2003 as compared to 2002. In 2004, rig count activity
improvements of 19%, 11% and 9% in Latin America, Asia Pacific
and the Middle East, respectively, offset declines in Europe and
Africa.
|
|
|
Opportunities and Challenges |
The nature of our industry offers many opportunities and
challenges. We have created a long-term strategy aimed at
growing our business, servicing our customers, and most
importantly, creating value for our shareholders. The success of
our long-term strategy will be determined by our ability to
withstand the cyclicality of the energy industry, adjust and
adapt to industry changes, lower our cost structure, and
successfully commercialize new technologies.
The cyclicality of the energy industry impacts the demand for
our products and services. Certain of our products and services,
such as our well installation services and well completion
services, depend on the level of exploration and development
activity and the completion phase of the well life cycle. Other
products and services, such as our artificial lift systems, are
dependent on production activity. Furthermore, we are in the
midst of a major secular change in the industry. Capital
spending is leaving the U.S. oilfield as production decline
rates are accelerating in the mature North American fields.
Capital that was formerly invested in the U.S. is being
redistributed internationally, primarily in large project
developments underway in Russia, the Caspian Region and the
Middle East. Excluding China and the CIS, international
expenditures for drilling
21
and completion already represent about 50% of the industry
total. Opportunities will exist for those companies that can
capture a large share of the Eastern Hemisphere growth without
incurring undue risk. Throughout 2003 and 2004, we have expanded
the size and scope of our infrastructure to a large cross
section of the Caspian Region, Middle East and North Africa.
Leveraging our extensive footprint outside of North America and
our expansion into the Eastern Hemisphere have become
increasingly important components of our international growth
strategy, and management intends to execute these components of
our strategy either through organic means or acquisitions, or a
combination thereof.
While leveraging our international footprint, we commenced
efforts to reduce our cost structure company-wide. In 2003, we
realigned our three divisions into two. This move permanently
lowered our cost structure and generated operating efficiencies
in both our manufacturing and service infrastructures. We began
a supply chain management program, and in 2004 we were able to
reduce our manufacturing costs, improve product quality and
accelerate the delivery of our products to the market. We will
continue to commit resources to this effort in 2005 and beyond;
however, the primary barrier to this strategy is the ability to
reduce the cost structure without disrupting the normal course
of business.
The maturity of the world’s oil and natural gas reservoirs,
the accelerating production decline rates and the focus on
complex deepwater wells are causing changes throughout our
industry. Customers are demanding more efficient tools to
produce oil and natural gas. We have invested a substantial
amount of our time and capital into raising the technology
content of our products and services, and a component of our
growth strategy depends upon the successful commercialization of
these technologies.
In general, we believe the outlook for our businesses is
favorable. As decline rates are accelerating and reservoir
productivity complexities are increasing, our clients are having
difficulty securing desired rates of production growth. Assuming
the demand for hydrocarbons does not weaken, these phenomena
provide us with the following general market assumptions:
|
|
|
| |
• |
Beyond 2005, North American rig activity will flatten out and
earnings and returns will result from market share, technology
and pricing. |
| |
| |
• |
The international markets will flourish, with the Eastern
Hemisphere standing out as the strongest market. |
| |
| |
• |
The North Sea will begin a multi-year recovery phase, albeit
from a very low current activity level. |
| |
| |
• |
Technologies that improve productivity will do increasingly well
in the upcoming years. |
Looking into 2005 and 2006 on a worldwide basis, we expect
average rig activity to grow about 5% as compared to fourth
quarter 2004 levels and we expect our business to grow at a
slightly faster rate than the underlying activity.
Geographic Markets. Both Canada and the U.S. should
experience modest improvements in rig activity. Improvements in
the U.S. will result from land projects. Deepwater activity
is expected to be strong in 2005 and 2006 as a number of
projects are scheduled to start throughout the next
24 months. Any improvement in the Gulf’s shelf
activity is currently speculative and we expect a slight volume
increase in Latin America with improvements stemming from Brazil
and Venezuela. The North Sea is expected to show substantial
growth throughout 2005 and 2006 due to under-investment and
concurrent production declines, underutilization of the
available infrastructure and encouraging governmental policies.
Excluding the North Sea, we expect growth in the Eastern
Hemisphere to initially originate from the Caspian Region, the
Middle East and sections of Africa. Later, we expect the growth
to spread to sub-Sahara Africa, Russia and pockets of Asia
Pacific.
Pricing. The overall pricing outlook is uncertain. It is
possible the U.S. market has further upside, but we are
unsure of the magnitude of the increase that may be realized. We
expect improvements to be product
22
and service line specific and are seeing momentum in the
international marketplace. Pricing improvements are on a
contract-by-contract basis and not a simultaneous movement. We
expect this phenomenon to continue in the international markets
throughout 2005 and 2006.
Business Segments. Overall, we expect both our operating
segments to outpace market activity. In our Drilling Services
Division, underbalanced systems is expected to have the highest
growth rate followed by our new product lines of well
construction and proprietary drilling tools. We expect strong
growth from our underbalanced systems in Asia Pacific, Latin
America, Middle East and North Africa. Our proprietary drilling
tools are expected to gain market share offshore and in the
international markets. Furthermore, we expect our well
construction product line to gain deepwater market share in both
the U.S. and international markets. In our Production Systems
Division, we anticipate our production optimization product
lines to have the highest growth rate. The largest fields of
application for this technology should come from Latin America,
Russia and Asia.
Technology. We expect the need for new technologies to
increase, and we remain committed to increasing the technology
content of our products and services. We expect revenues from
our technology products to grow throughout 2005 as
commercialization of our new technologies occurs and market
acceptance of our current technologies increases.
Overall, the level of market improvements for our businesses in
2005 will continue to depend heavily on our ability to contain
our costs, our gains in market share outside North America,
primarily in the Eastern Hemisphere, and the acceptance of our
new technologies. The continued strength of the industry is
uncertain and will be highly dependent on many external factors,
such as world economic and political conditions, member country
quota compliance within OPEC and weather conditions. The extreme
volatility of our markets makes predictions regarding future
results difficult.
23
Results of Operations
The following charts contain selected financial data comparing
our consolidated and segment results from operations for 2004,
2003 and 2002. Prior period amounts have been restated to
reflect the impact of our discontinued operation.
|
|
|
Comparative Financial Data |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except percentages | |
| |
|
and per share data) | |
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Drilling Services
|
|
$ |
1,773,295 |
|
|
$ |
1,493,604 |
|
|
$ |
1,374,867 |
|
| |
Production Systems
|
|
|
1,358,479 |
|
|
|
1,068,430 |
|
|
|
913,557 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
3,131,774 |
|
|
|
2,562,034 |
|
|
|
2,288,424 |
|
|
Gross Profit %:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Drilling Services
|
|
|
33.9 |
% |
|
|
31.9 |
% |
|
|
31.5 |
% |
| |
Production Systems
|
|
|
27.3 |
|
|
|
26.7 |
|
|
|
28.4 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
31.1 |
|
|
|
29.8 |
|
|
|
30.3 |
|
|
Research and Development:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Drilling Services
|
|
$ |
41,090 |
|
|
$ |
41,996 |
|
|
$ |
33,461 |
|
| |
Production Systems
|
|
|
42,462 |
|
|
|
40,443 |
|
|
|
45,732 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
83,552 |
|
|
|
82,439 |
|
|
|
79,193 |
|
|
Selling, General and Administrative Attributable to Segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Drilling Services
|
|
|
231,683 |
|
|
|
200,138 |
|
|
|
177,690 |
|
| |
Production Systems
|
|
|
208,556 |
|
|
|
166,467 |
|
|
|
135,820 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
440,239 |
|
|
|
366,605 |
|
|
|
313,510 |
|
|
Corporate General and Administrative
|
|
|
55,889 |
|
|
|
42,202 |
|
|
|
43,998 |
|
|
Equity in (Earnings) Losses of Unconsolidated Affiliates, Net of
Impairment Charge
|
|
|
(22,405 |
) |
|
|
(14,947 |
) |
|
|
192,753 |
|
|
Operating Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Drilling Services
|
|
|
329,118 |
|
|
|
234,659 |
|
|
|
222,265 |
|
| |
Production Systems
|
|
|
120,113 |
|
|
|
78,813 |
|
|
|
77,894 |
|
| |
Corporate
|
|
|
(33,484 |
) |
|
|
(27,255 |
) |
|
|
(236,751 |
)(a) |
| |
|
|
|
|
|
|
|
|
|
| |
|
|
415,747 |
|
|
|
286,217 |
|
|
|
63,408 |
|
|
Gain on Sale of Universal Common Stock
|
|
|
77,642 |
|
|
|
— |
|
|
|
— |
|
|
Interest Expense
|
|
|
(63,562 |
) |
|
|
(76,447 |
) |
|
|
(85,419 |
) |
|
Debt Redemption Expense
|
|
|
— |
|
|
|
(20,911 |
) |
|
|
— |
|
|
Other, Net
|
|
|
(2,926 |
) |
|
|
8,747 |
|
|
|
7,790 |
|
|
Effective Tax Rate
|
|
|
21.5 |
% |
|
|
25.9 |
% |
|
|
44.7 |
% |
|
Income (Loss) from Continuing Operations per Diluted Share
|
|
$ |
2.35 |
|
|
$ |
1.12 |
|
|
$ |
(0.06 |
) |
|
Income (Loss) from Discontinued Operation, Net of Taxes
|
|
|
(7,153 |
) |
|
|
(3,891 |
) |
|
|
929 |
|
|
Net Income (Loss) per Diluted Share
|
|
|
2.30 |
|
|
|
1.09 |
|
|
|
(0.05 |
) |
|
Depreciation and Amortization
|
|
|
255,884 |
|
|
|
232,417 |
|
|
|
214,739 |
|
|
|
|
|
(a) |
|
Includes $217.1 million related to a write-down in our
investment in Universal and $15.4 million for a
restructuring and asset impairment charge related to a
rationalization of our businesses in light of industry
conditions. The net after tax impact of these charges was
$156.2 million. |
24
|
|
|
Consolidated Revenues by Geographic Region |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended | |
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
U.S.
|
|
|
36 |
% |
|
|
33 |
% |
|
|
33 |
% |
|
Canada
|
|
|
17 |
|
|
|
17 |
|
|
|
14 |
|
|
Latin America
|
|
|
10 |
|
|
|
10 |
|
|
|
9 |
|
|
Europe, CIS and West Africa
|
|
|
18 |
|
|
|
20 |
|
|
|
20 |
|
|
Middle East and North Africa
|
|
|
12 |
|
|
|
12 |
|
|
|
13 |
|
|
Asia Pacific
|
|
|
7 |
|
|
|
8 |
|
|
|
11 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Total
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
| |
|
|
|
|
|
|
|
|
|
Company Results
Consolidated revenues increased $569.7 million, or 22.2%,
in 2004 as compared to 2003 and were the result of growth in all
of our regions. North American revenues increased
$371.6 million, or 28.6%, and included increases of 33.4%
and 19.4% in the U.S. and Canada, respectively. This 28.6%
increase compared to an 11% increase in the average annual North
American rig count. Price increases in the U.S. market
implemented during the second quarter of 2004, strong heavy oil
activity and product specific U.S. market share gains were key
contributors to revenue growth in addition to the increase in
activity. International revenues improved by
$198.1 million, or 15.7%, as compared to the 8% increase in
average annual international rig count. All international
regions experienced revenue growth, led by increases of 24.3% in
the Middle East and North Africa, 22.3% in Latin America and
10.8% in Europe, CIS and West Africa. From a worldwide product
line perspective, our highest revenue growth was from our
production optimization, artificial lift and drilling methods
products and services.
Consolidated revenues increased $273.6 million, or 12.0%,
in 2003 as compared to 2002 primarily as a result of growth in
international business, revenue contributions from our 2002
acquisitions and technology product lines. This increase was
partially offset by weaker U.S. pricing. North American
revenues increased $202.7 million, or 18.5%, due to a 28%
increase in the average annual North American rig count and a
$33.6 million contribution from 2002 acquisitions. Our
international revenues improved $70.9 million, or 5.9%, as
compared to a 5% increase in the average annual international
rig count. Revenues from our Latin America, Europe, CIS and West
Africa and Middle East and North Africa regions increased 20.4%,
11.3% and 3.7%, respectively and were partially offset by a
13.2% decline in our Asia Pacific region.
Our gross profit as a percentage of revenues increased from
29.8% in 2003 to 31.1% in 2004. The increase is due primarily to
product mix, stronger North American pricing and benefits from
our supply chain initiatives. The 2003 gross profit percentage
includes a $5.3 million charge for severance and severance
related costs.
During 2003, our gross profit percentage declined to 29.8% as
compared to 30.3% in 2002. The decline is primarily attributable
to pricing pressures in the U.S. market and a shift in our
product mix. In the fourth quarter of 2001, the U.S. market
started to weaken, and we experienced the beginnings of lower
volume and pricing pressures that continued throughout 2002 and
2003. Our 2002 gross profit percentage was also impacted by our
restructuring and asset impairment charge recorded during the
year.
Research and development expenses increased $1.1 million,
or 1.4%, in 2004 as compared to 2003 and $3.2 million, or
4.1%, in 2003 as compared to 2002. Research and development
expenses as a percentage of
25
revenues were 2.7%, 3.2% and 3.5% in 2004, 2003 and 2002,
respectively. The increases in expenditures beginning in 2002
reflect our commitment to developing and commercializing new
products and services, including underbalanced systems,
expandable tubular technology, optical sensing systems and
production optimization systems, as well as investing in our
core product offerings.
|
|
|
Selling, General and Administrative Attributable to
Segments |
Selling, general and administrative expenses attributable to
segments as a percentage of revenues was 14.1% in 2004, 14.3% in
2003 and 13.7% in 2002. Excluding the impact of severance and
severance related costs, selling, general and administrative
expenses attributable to segments remained relatively consistent
from 2003 to 2004. The increase in 2003 from 2002 is due
primarily to $5.6 million of additional intangible asset
amortization, $4.8 million in increased insurance costs,
$2.0 million of severance and severance related costs
recorded in connection with the realignment of our segments and
$1.0 million of employee stock-based compensation expense.
|
|
|
Corporate General and Administrative |
Corporate general and administrative expenses increased
$13.7 million, or 32.4%, from 2003 to 2004 primarily as a
result of increased costs associated with our Sarbanes-Oxley
Section 404 project and benefit related expenses. Excluding
the $4.5 million of transaction related expenses incurred
in connection with our 2002 reorganization, 2003 Corporate
general and administrative expenses increased by
$2.6 million. Increased insurance costs and additional
employee benefit expenses, including the expensing of employee
stock-based compensation resulting from the adoption of
SFAS No. 123, were the primary factors for the
increase.
|
|
|
Equity in (Earnings) Losses of Unconsolidated
Affiliates |
Equity in (earnings) losses of unconsolidated affiliates
increased $7.5 million, or 49.9%, from 2003 to 2004.
Excluding $4.4 million, our portion of Universal
Compression’s debt restructuring charge incurred in 2003,
our equity in (earnings) losses of unconsolidated
affiliates increased $3.1 million during 2004, due
primarily to an increase in Universal Compression’s
earnings. Our 2002 equity in (earnings) losses of
unconsolidated affiliates includes a $217.1 million
write-down of our investment in Universal Compression, as we
determined the decline in market value was other-than-temporary.
|
|
|
Gain on Sale of Universal Common Stock |
We sold 7.0 million shares of Universal Compression common
stock during 2004. We received net proceeds of
$231.8 million and recognized a gain of $77.6 million
with no related tax impact.
Interest expense decreased $12.9 million, or 16.9%, in 2004
as compared to 2003. The benefits from the redemption of our
$402.5 million Convertible Preferred Debentures in the
third quarter of 2003, our interest rate swap transactions and
lower overall short-term debt balances were partially offset by
a full year of interest expense related to the October 2003
issuance of our $250.0 million 4.95% Senior Notes.
In 2003, our interest expense decreased $9.0 million from
2002 primarily related to the redemption of our
$402.5 million Convertible Preferred Debentures in the
third quarter of 2003, the full year benefit generated by
interest rate swaps on our
71/4% Senior
Notes and lower interest rates on our short-term borrowings.
This decrease was partially offset by additional interest
expense associated with the October 2003 issuance of our
$250.0 million 4.95% Senior Notes.
Our other, net decreased approximately $11.7 million from
2003 to 2004 primarily due to foreign currency losses as the
U.S. dollar weakened against various foreign currencies.
26
Our effective tax rates were 21.5% in 2004, 25.9% in 2003 and
44.7% in 2002. The gain on sale of Universal common stock in
2004 had no related tax effects. Excluding the sale, our 2004
effective tax rate was 26.2% and relatively flat compared to
2003. The 2002 effective tax rate was 32.2% excluding the
write-down in our investment in Universal, the restructuring and
asset impairment charge and related taxes. The decrease in the
effective tax rate from 2003 to 2002, excluding the impact of
these changes, reflects the continued benefits realized from our
June 2002 corporate reorganization.
Segment Results
Drilling Services revenues increased $279.7 million, or
18.7%, in 2004 as compared to 2003 and increased
$118.7 million, or 8.6%, in 2003 as compared to 2002. North
American revenues increased $149.0 million, or 22.9%, due
primarily to the 11% increase in North American rig count and
price increases in the U.S. market implemented during the
second quarter of 2004. International revenues increased
$130.7 million, or 15.5%, and experienced growth in all
regions led by increases of 27.9% in Latin America and 26.6% in
the Middle East and North Africa. The increase in international
revenues was nearly two times the increase in activity as
measured by the international rig count, which increased 8%.
This reflects our continued investment in the Eastern Hemisphere
and new product offerings. On a product line basis, Drilling
Services’ highest revenue growth was from its drilling
methods and drilling tools products and services which improved
23.8% and 20.4%, respectively.
North American revenues increased 16.7% in 2003, primarily as a
result of a 28% increase in the average annual North American
rig count and were offset by lower pricing in the
U.S. International revenues increased 3.1% in 2003 as
compared to a 5% increase in the average annual international
rig count. The most significant 2003 international growth was in
our Latin America and the Middle East and North Africa regions,
where revenues increased 19.1% and 8.8%, respectively. This was
offset by decreases of 3.1% and 3.0%, in Europe, CIS and West
Africa and Asia Pacific, respectively.
Our gross profit as a percentage of revenue was 33.9% in 2004,
31.9% in 2003 and 31.5% in 2002. The increase in our gross
profit percentage in 2004 was due primarily to improved pricing
in the U.S. market and product mix.
Research and development expenses were relatively flat from 2003
to 2004 and increased $8.5 million, or 25.5%, in 2003 as
compared to 2002. This increase and the current level of
research and development expenditures reflect the
division’s continued focus on developing products that
enhance its core offering and new technologies, such as
expandable solids technology.
Selling, general and administrative expenses as a percentage of
revenues were 13.1% in 2004, 13.4% in 2003 and 12.9% in 2002.
Excluding our 2003 severance costs of $0.5 million, the
decrease in 2004 is primarily attributable to a higher revenue
base and benefits from our cost reduction initiatives. The
increase in 2003 as compared to 2002 is related primarily to an
increase in costs associated with the continued expansion of our
underbalanced systems infrastructure and well interventions
group and higher intangible asset amortization.
Revenues in our Production Systems segment increased
$290.0 million, or 27.1%, in 2004 as compared to 2003. This
increase was driven primarily by higher demand for our
artificial lift product lines and our technology offerings in
our production optimization product lines, which realized
sequential improvements of 30.6% and 38.7%, respectively. From a
geographic perspective, all of our regions generated revenue
increases in 2004 as compared to 2003. Our North American
revenues increased $222.7 million, or 34.4%, and included
increases of $162.4 million, or 49.0%, and
$60.3 million, or 19.1%, in the U.S. and Canada,
respectively. Improvements in the U.S., beyond the increase in
activity, were primarily due to increases in product mix and
pricing. International revenues increased $67.3 million, or
16.0%, over 2003 and were led by revenue growth of 24.3% in
Europe, CIS and West Africa, 16.2% in Latin America and 14.6% in
Middle East and North Africa.
27
Our 2003 revenues increased $154.9 million, or 17.0%, as
compared to the preceding year due to higher technology product
sales and the incremental revenue contributions from
acquisitions integrated into this division. In the fourth
quarter of 2002, we acquired Clearwater International, which
provides key proprietary products and fluid technology for
underbalanced systems as well as the pipeline and specialty
services business. Our North American revenues increased
$109.7 million, or 20.4%, in 2003 related primarily to
higher activity levels in Canada and incremental revenue
contributions from a 2002 acquisition. International revenues
increased $45.2 million, or 12.0%, over 2002 and were led
by revenue growth of 75.3% in Europe, CIS and West Africa and
21.8% in Latin America. These increases were offset by a 22.1%
decline in revenues in our Asia Pacific region.
Gross profit as a percentage of revenues was 27.3%, 26.7% and
28.4% in 2004, 2003 and 2002, respectively. The gross profit
increase in 2004 is primarily attributable to improved pricing
in the U.S. market and changes in our product mix. Our 2003
and 2002 gross profit was negatively impacted by
$1.9 million and $10.8 million of severance and
restructuring charges, respectively. The decline in the gross
profit percentage in 2003 as compared to 2002 is due primarily
to a shift in our product mix and lower absorption in locations
where manufacturing facilities were in the process of being
closed.
Research and development expenses increased $2.0 million,
or 5.0%, in 2004 as compared to 2003 and decreased
$5.3 million, or 11.6%, in 2003 as compared to 2002. The
increase in our 2004 research and development expenditures is
due to new prototype testing and reflects our continued focus on
developing and commercializing technology-related product lines.
The decline in our research and development expenses during 2003
is due primarily to lower costs associated with our intelligent
completion and expandables technologies.
Selling, general and administrative expenses as a percentage of
revenues was 15.4% in 2004, 15.6% in 2003 and 14.9% in 2002. Our
2004 expenses as a percentage of revenues remained relatively
flat as compared to the preceding year excluding the severance
and related costs incurred in 2003. The increase as a percentage
of revenues in 2003 as compared to 2002 is primarily related to
increased insurance costs, $1.4 million of severance and
related costs recorded in the second quarter of 2003 associated
with our initiative to permanently reduce our cost structure and
higher intangible asset amortization.
Discontinued Operation
Our discontinued operation consists of our Gas Services
International compression fabrication business. We had a loss
from our discontinued operation, net of taxes, for the year
ended December 31, 2004 of $7.2 million. Included in
the loss were non-cash charges related to goodwill and asset
impairments of $3.1 million and an income tax provision of
$2.4 million to record a valuation allowance against
unrealized deferred tax assets. We incurred a loss of
$3.9 million and generated a gain of $0.9 million from
the discontinued operation, net of taxes, during 2003 and 2002,
respectively.
Severance, Restructuring and Asset Impairment Charges
During the second quarter of 2003, we recorded approximately
$7.7 million, $5.6 million net of taxes, in severance
and severance related costs in connection with the realignment
of our segments.
28
Severance and severance related costs summarized by segment and
by financial statement classification were as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Drilling | |
|
Production | |
|
|
| |
|
Services | |
|
Systems | |
|
Total | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Cost of Products
|
|
$ |
2,398 |
|
|
$ |
1,905 |
|
|
$ |
4,303 |
|
|
Cost of Services
|
|
|
973 |
|
|
|
— |
|
|
|
973 |
|
|
Research and Development
|
|
|
51 |
|
|
|
425 |
|
|
|
476 |
|
|
Selling, General and Administrative Attributable to Segments
|
|
|
548 |
|
|
|
1,410 |
|
|
|
1,958 |
|
| |
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
3,970 |
|
|
$ |
3,740 |
|
|
$ |
7,710 |
|
| |
|
|
|
|
|
|
|
|
|
In accordance with our announced plan to terminate employees
company-wide, we recorded severance costs for 515 specifically
identified employees. As of December 31, 2003, all
identified employees had been terminated, and all costs had been
incurred.
|
|
|
2002 Restructuring and Asset Impairment Charge |
During 2002, we recorded $15.4 million, $10.0 million
net of taxes, in restructuring and asset impairment charges
related to a rationalization of our business. We undertook
initiatives to rationalize our business in light of the lower
activity levels and continued economic uncertainty. The plan
approved during 2002 included a reduction in workforce,
primarily in the U.S., and the closure of two facilities.
Components of the charge include $8.6 million of severance
and related costs, $11.5 million of asset impairment
charges and a $4.7 million reversal of an unutilized prior
period charge. The severance and related costs were for 849
specifically identified employees. All identified employees were
terminated in 2003. The asset impairment charges of
$11.5 million primarily related to the write-down of
equipment and facilities as a result of the decline in market
conditions. Certain of the assets were sold and the remaining
assets are held for use and have a carrying value of
$2.8 million and $4.8 million as of December 31,
2004 and 2003, respectively, and are classified in Property,
Plant and Equipment, Net on our Consolidated Balance Sheets. In
2000, we recorded a charge of $56.3 million in connection
with the merger of our Compression Services Division with
Universal, of which $4.7 million of estimated transaction
costs were not incurred and were reversed in 2002.
During the first quarter of 2003, we modified our restructuring
plan and reversed $3.1 million of unutilized accruals
recorded by the Production Systems segment. We also expensed
$2.0 million during the first quarter 2003 for other
facility impairments within the Production Systems segment. The
amounts related to the modification were recorded in Cost of
Products in our Consolidated Statements of Operations. The
charge related to the 2002 plan is summarized by segment and by
financial statement classification in the following table:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Drilling | |
|
Production | |
|
|
|
|
| |
|
Services | |
|
Systems | |
|
Corporate | |
|
Total | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Cost of Products
|
|
$ |
2,800 |
|
|
$ |
10,751 |
|
|
$ |
— |
|
|
$ |
13,551 |
|
|
Cost of Services
|
|
|
1,985 |
|
|
|
— |
|
|
|
— |
|
|
|
1,985 |
|
|
Corporate General and Administrative
|
|
|
— |
|
|
|
— |
|
|
|
(99 |
) |
|
|
(99 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,785 |
|
|
|
10,751 |
|
|
|
(99 |
) |
|
|
15,437 |
|
| |
Utilized during 2002
|
|
|
(3,418 |
) |
|
|
(7,289 |
) |
|
|
99 |
|
|
|
(10,608 |
) |
| |
Reversal of 2002 Restructuring Charge
|
|
|
— |
|
|
|
(3,148 |
) |
|
|
— |
|
|
|
(3,148 |
) |
| |
Utilized during 2003
|
|
|
(1,367 |
) |
|
|
(314 |
) |
|
|
— |
|
|
|
(1,681 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2003
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
29
|
|
|
Impairment of Investment in Universal |
In the third quarter of 2002, we recorded a write-down of our
investment in Universal of $217.1 million, as we determined
that the decline in the market value was other-than-temporary.
In connection with the reduction in the carrying value of the
investment, we recognized a tax benefit of $70.9 million,
reducing the deferred tax liability related to the difference
between the book carrying value and the tax basis of the
investment. As of December 31, 2004, our carrying value of
our investment in Universal was $151.8 million and the
market value of our ownership interest in Universal was
$235.6 million.
Liquidity and Capital Resources
Our historical cash flows for the two years ended
December 31, 2004 were as follows:
| |
|
|
|
|
|
|
|
|
|
| |
|
Year Ended | |
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Net Cash Provided by Operating Activities
|
|
$ |
503.5 |
|
|
$ |
285.4 |
|
|
Acquisition of Businesses, Net of Cash Acquired
|
|
|
(26.5 |
) |
|
|
(61.5 |
) |
|
Acquisition of Intellectual Property
|
|
|
(20.5 |
) |
|
|
(20.1 |
) |
|
Capital Expenditures
|
|
|
(310.9 |
) |
|
|
(302.5 |
) |
|
Proceeds from Sale of Universal Common Stock
|
|
|
231.8 |
|
|
|
— |
|
|
Other Investing Activities
|
|
|
20.7 |
|
|
|
7.1 |
|
|
Redemption of Convertible Preferred
Debentures(1)
|
|
|
— |
|
|
|
(412.6 |
) |
|
Proceeds from Issuance of Common
Shares(1)
|
|
|
— |
|
|
|
400.0 |
|
|
Proceeds (Repayments) of Asset Securitization, Net
|
|
|
(75.0 |
) |
|
|
6.1 |
|
|
Borrowings (Repayments), Net
|
|
|
(192.8 |
) |
|
|
90.0 |
|
|
Proceeds from Exercise of Stock Options
|
|
|
129.5 |
|
|
|
14.0 |
|
|
Other Financing Activities
|
|
|
1.6 |
|
|
|
1.3 |
|
| |
|
|
|
|
|
|
| |
Net Increase in Cash and Cash Equivalents
|
|
$ |
261.4 |
|
|
$ |
7.2 |
|
| |
|
|
|
|
|
|
|
|
| (1) |
On July 3, 2003, we completed a public offering of ten
million of our common shares in exchange for approximately
$400.0 million in cash proceeds. The proceeds were used to
redeem our outstanding 5% Convertible Preferred Debentures
due 2027. Our Convertible Preferred Debentures were convertible
into 7.5 million of our common shares and had annual
interest payments of $20.1 million. |
Our sources of liquidity are reserves of cash, cash generated
from operations, committed availabilities under bank lines of
credit and our ability to sell registered shares of Universal
common stock. We hold 6.75 million shares of Universal
common stock, all of which have been registered through our
Registration Rights Agreement with Universal. We also
historically have accessed the capital markets with debt, equity
and convertible offerings. In June 2004, we filed a shelf
Registration Statement on Form S-3 which covers the future
issuance of various types of securities, including debt, common
shares, preferred shares, warrants and units, up to an aggregate
offering price of $750.0 million. There has been no
issuance of securities under this shelf registration statement.
Cash flow from operations plus current cash balances are
expected to be our primary sources of liquidity in 2005. We
anticipate cash flows from operations and current cash balances,
combined with our existing credit facility, will provide
sufficient capital resources to manage our operations and fund
projected capital expenditures.
30
Additional capital in the form of either debt or equity may be
required in 2005 if we experience lower than expected operating
cash flows due to a deterioration of market conditions,
unforeseen operating events or if an acquisition necessitates
additional liquidity.
The following summarizes our short-term committed financing
facilities and our usage and availability as of
December 31, 2004:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Facility | |
|
Expiration | |
|
|
|
Letters of | |
|
|
| Short-term Financing Facilities |
|
Amount | |
|
Date | |
|
Drawn | |
|
Credit | |
|
Availability | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
2003 Revolving Credit Facility
|
|
$ |
500.0 |
|
|
|
May 2006 |
|
|
$ |
— |
|
|
$ |
43.1 |
|
|
$ |
456.9 |
|
|
Canadian Facility
|
|
|
16.3 |
|
|
|
July 2005 |
|
|
|
7.1 |
|
|
|
0.3 |
|
|
|
8.9 |
|
|
Middle East Facility
|
|
|
25.0 |
|
|
|
July 2005 |
|
|
|
— |
|
|
|
15.0 |
|
|
|
10.0 |
|
|
Asia Pacific Facility
|
|
|
25.0 |
|
|
|
May 2005 |
|
|
|
— |
|
|
|
8.1 |
|
|
|
16.9 |
|
During 2004, we utilized both on balance sheet and off balance
sheet arrangements to meet operating and financing cash flow
demands. As discussed herein, as of December 2004, we elected to
discontinue our asset securitization program. Our off balance
sheet arrangements consist of leases and letters of credit.
|
|
|
On Balance Sheet Arrangements |
|
|
|
Revolving Credit Facility |
In May 2003, we entered into a three-year unsecured revolving
credit facility agreement that provides for borrowings or
issuances of letters of credit up to an aggregate of
$500.0 million. Amounts outstanding accrue interest at a
variable rate based on either the U.S. prime rate or LIBOR
and the credit rating assigned to our long-term senior debt. Our
credit facility contains customary affirmative and negative
covenants, including a maximum debt to capitalization ratio, a
minimum interest coverage ratio, a limitation on liens, a
limitation on incurrence of indebtedness and a limitation on
asset dispositions. We are in compliance with all covenants set
forth in the credit facility. The committed revolving credit
facility does not contain any provisions which make its
availability dependent upon our credit ratings; however, the
interest rates are dependent upon the credit rating of our
long-term senior debt. As of December 31, 2004, we had no
outstanding borrowings, and $456.9 million available under
this agreement.
We also have short-term borrowings with various institutions
pursuant to uncommitted facilities. At December 31, 2004,
we had $4.0 million in short-term borrowings outstanding
under these arrangements with interest rates ranging from 4.25%
to 6.25%.
On October 7, 2003, we completed an offering of
$250.0 million of 4.95% Senior Notes due 2013. The
notes are fully and unconditionally guaranteed by Weatherford
Inc. Interest on the notes is payable semi-annually in arrears
on April 15 and October 15 of each year. Net proceeds from the
offering were $247.9 million and were used to repay
short-term borrowings.
On November 16, 2001, we issued $350.0 million of
65/8% Senior
Notes due 2011. Interest on the
65/8% Senior
Notes is payable semi-annually on May 15 and November 15.
We have outstanding $200.0 million of publicly traded
71/4% Senior
Notes due 2006. Interest on the
71/4% Senior
Notes is payable semi-annually on May 15 and November 15.
From time to time, we enter into derivative transactions to
hedge existing or projected exposures to changes in interest
rates and foreign currency exchange rates. We do not enter into
derivative transactions for speculative or trading purposes.
31
In the latter half of 2003, we entered into interest rate swap
agreements on an aggregate notional amount of
$150.0 million of our
71/4% Senior
Notes and $250.0 million of our
65/8% Senior
Notes. These agreements were outstanding as of December 31,
2003. They were recorded at fair value and classified in Other
Assets with the offset to Long-term Debt on the accompanying
Consolidated Balance Sheets. The aggregate fair market value of
the swaps was an asset of $4.5 million as of
December 31, 2003. In January 2004, we terminated these
swap agreements and received $7.8 million in cash proceeds,
net of accrued interest, as settlement.
During 2004, we entered into and terminated separate interest
rate swap agreements on notional amounts of $200.0 million
and $150.0 million of our 4.95% Senior Notes and
$70.0 million and $170.0 million of our
65/8% Senior
Notes. As a result of these terminations, we received cash
proceeds, net of accrued interest, of approximately
$12.8 million. There were no interest rate swap agreements
outstanding as of December 31, 2004.
The gains associated with our interest rate swap terminations
have been deferred and are amortized over the remaining term of
the debt. Our 2004 and 2003 interest expense was reduced by
$12.3 million and $6.0 million, respectively, as a
result of our interest rate swap activity.
As of December 31, 2004, we had various other debt
outstanding of $19.6 million, primarily related to capital
leases and foreign and other bank debt.
|
|
|
Zero Coupon Convertible Senior Debentures |
On June 30, 2000, we completed the private placement of
$910.0 million face amount of Zero Coupon Convertible
Senior Debentures. These debentures were issued at
$501.6 million, providing the holders with an annual 3.0%
yield to maturity. As of December 31, 2004, the accreted
amount was $573.6 million.
Holders may convert the Zero Coupon Convertible Senior
Debentures into our common shares at any time before maturity at
a conversion rate of 9.9970 shares per $1,000 principal
amount at maturity, or an initial conversion price of
$55.1425 per common share. The effective conversion price
increases as the accreted value of the Zero Coupon Convertible
Senior Debentures increases. As of December 31, 2004, the
conversion price was $63.05 per common share. We may redeem
the Zero Coupon Convertible Senior Debentures on or after
June 30, 2005 at the accreted amount at the time of
redemption as provided for in the indenture. The holders also
may require us to repurchase the Zero Coupon Convertible Senior
Debentures on June 30, 2005, June 30, 2010 and
June 30, 2015 at the accreted amount. We may, at our
election, repurchase the debentures in common shares, cash or a
combination thereof. The accreted value will be
$582.2 million, $675.6 million and $784.1 million
as of June 30, 2005, 2010 and 2015, respectively. The Zero
Coupon Convertible Senior Debentures are unsecured, ranking
equal in right of payment with all other unsecured and
unsubordinated indebtedness and will rank senior to any future
subordinated indebtedness.
|
|
|
Off Balance Sheet Arrangements |
During 2004, we had outstanding an asset securitization
agreement which provided for the sale of participating interests
to a financial institution of up to $80.0 million in a
specific pool of our U.S. accounts receivable. In
connection with this program, certain subsidiaries continuously
sold qualifying trade accounts receivable to a wholly owned
bankruptcy-remote subsidiary, W1 Receivables, L.P.
(“W1”). W1 was formed to purchase accounts receivable
and, in turn, sell participating interests in such accounts
receivable to a financial institution. Sales of the
participating interests in our accounts receivable to the
financial institution under this program resulted in a reduction
of total accounts receivable in our Consolidated Balance Sheet.
As of December 31, 2003 the pool of receivables totaled
$148.2 million, we had received $75.0 million for
purchased interests and our subordinated interest totaled
$73.2 million. This agreement was terminated; therefore, we
had no receivables sold as of December 31, 2004.
32
As part of the June 26, 2002 reorganization, Weatherford
Limited and Weatherford Inc. each guaranteed, on a full and
unconditional basis, certain of our subsidiaries’
indebtedness. As of December 31, 2002, Weatherford Limited
guaranteed the following obligations of Weatherford Inc.:
(1) the three-year multi-currency revolving credit
facility, (2) the five-year unsecured credit agreement,
(3) the
71/4% Senior
Notes, (4) the
65/8% Senior
Notes, (5) the Zero Coupon Debentures and (6) the
Convertible Preferred Debentures.
During 2003, Weatherford Limited entered into a new revolving
credit facility and used the facility to terminate the
three-year multi-currency and five-year unsecured credit
facilities. In addition, Weatherford Limited completed a public
offering of the 4.95% Senior Notes and the Convertible
Preferred Debentures were redeemed in August 2003.
Based on these changes, the following obligations of Weatherford
Inc. were guaranteed by Weatherford Limited as of
December 31, 2004: (1) the
71/4% Senior
Notes, (2) the
65/8% Senior
Notes and (3) the Zero Coupon Debentures. The following
obligations of Weatherford Limited were guaranteed by
Weatherford Inc. as of December 31, 2004: (i) the 2003
Revolving Credit Facility and (ii) the 4.95% Senior
Notes. In addition, prior to its termination, Weatherford
Limited and Weatherford Inc. fully and unconditionally
guaranteed certain domestic subsidiaries’ performance
obligations relating to the asset securitization.
We execute letters of credit in the normal course of business.
While these obligations are not normally called, it should be
noted that these obligations could be called by the
beneficiaries at any time before the expiration date should we
breach certain contractual or payment obligations. As of
December 31, 2004, we had $15.4 million of letters of
credit and bid and performance bonds outstanding under various
uncommitted credit facilities and $66.5 million letters of
credit outstanding under our committed facilities.
We are committed under various operating lease agreements
primarily related to office space and equipment. Generally,
these leases include renewal provisions as well as provisions
which permit the adjustment of rental payments for taxes,
insurance and maintenance related to the property.
33
The following summarizes our contractual obligations and
contingent commitments by period. The obligations we pay in
future periods may vary from those reflected here due to certain
assumptions including the duration of our obligations and
anticipated actions by third parties.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Payments Due by Period | |
| |
|
| |
| |
|
|
|
Less than | |
|
1-3 | |
|
4-5 | |
|
After | |
| Obligations and Commitments |
|
Total | |
|
1 Year | |
|
Years | |
|
Years | |
|
5 Years | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Recorded Obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Short-term debt
|
|
$ |
11.1 |
|
|
$ |
11.1 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
| |
Senior notes(a)
|
|
|
800.0 |
|
|
|
— |
|
|
|
200.0 |
|
|
|
— |
|
|
|
600.0 |
|
| |
Other long-term debt
|
|
|
19.6 |
|
|
|
4.4 |
|
|
|
10.5 |
|
|
|
1.3 |
|
|
|
3.4 |
|
| |
Zero coupon convertible senior debentures(b)
|
|
|
910.0 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
910.0 |
|
|
Unrecorded Obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Noncancellable operating leases
|
|
|
263.6 |
|
|
|
36.6 |
|
|
|
53.6 |
|
|
|
41.2 |
|
|
|
132.2 |
|
| |
Letters of credit
|
|
|
81.9 |
|
|
|
68.6 |
|
|
|
11.1 |
|
|
|
0.4 |
|
|
|
1.8 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total contractual obligations
|
|
$ |
2,086.2 |
|
|
$ |
120.7 |
|
|
$ |
275.2 |
|
|
$ |
42.9 |
|
|
$ |
1,647.4 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Amounts represent the expected cash payments for our total debt
and do not include any unamortized discounts or deferred gains
on terminated interest rate swap agreements. |
| |
|
(b) |
|
The holders of our Zero Coupon Convertible Senior Debentures may
require us to repurchase the debentures on June 30, 2005,
June 30, 2010 and June 30, 2015 at the accreted
amounts of $582.2 million, $675.6 million and
$784.1 million, respectively, and we may redeem the
debentures on or after June 30, 2005 at the accreted
amount. We have classified our Zero Coupon Convertible Senior
Debentures based on their face amount and maturity date of 2020.
Furthermore, these debentures are classified as long-term in our
December 31, 2004 Consolidated Balance Sheet based upon our
ability to refinance the borrowings with other long-term
financing should they become due. |
In addition to the aforementioned, we have the following cash
commitments and contractual obligations:
On February 28, 2002, the Company issued Shell Technology
Ventures Inc. a warrant to purchase up to 3.2 million
common shares at a price of $60.00 per share. The warrant
has a nine-year exercisable life beginning one year after the
issue date. The warrant holder may exercise the warrant and
settlement may occur through physical delivery, net share
settlement, net cash settlement or a combination thereof. The
warrant also may be converted into common shares at any time
after the third anniversary of the issue date. The number of
common shares issuable upon conversion would be equal to the
value of the warrant determined by the Black-Scholes option
pricing model divided by the average of the closing price of
common shares for the 10-day period prior to the date of
conversion. Any shares received upon such conversion are
non-transferable for two years.
We have defined benefit pension plans covering certain of our
U.S. and international employees that provide various pension
benefits. During 2004, we contributed $7.2 million towards
those plans, and for 2005, we anticipate funding approximately
$8.5 million through cash flows from operating activities.
Our nonqualified supplemental executive retirement plan is
unfunded; however, we maintain life insurance policies on the
participants with the intent to use the proceeds from such
policies to meet the plan’s benefit requirements.
34
Capital expenditures for property, plant and equipment during
the year ended December 31, 2004 were $282.4 million,
net of proceeds from tools lost down hole of $28.5 million.
Our capital expenditures primarily relate to our new
technologies, drilling equipment, fishing tools, tubular service
equipment and the implementation of our enterprise wide software
system. During 2004, capital expenditures associated with the
implementation of our software system were approximately
$21.0 million. Capital expenditures for 2005 are expected
to be between $280.0 million and $300.0 million, of
which approximately $150.0 million is expected to be for
betterments and improvements, and the remainder is for growth.
Related Party Agreements
In April 2000, we completed the spin-off of our Grant Prideco,
Inc. subsidiary to our shareholders. Three of our directors
serve on both our and Grant Prideco’s Boards of Directors.
In connection with the spin-off, we entered into a preferred
customer agreement pursuant to which we agreed, for a three-year
period, to purchase at least 70% of our requirements of drill
stem products from Grant Prideco. The price for those products
was at a price not greater than that which Grant Prideco sells
to its best similarly situated customers. We were entitled to
apply against our purchases a drill stem credit of
$30.0 million, subject to a limitation of the application
of the credit to no more than 20% of any purchase. During 2003,
the initial agreement with Grant Prideco was extended for an
additional two-year period. We are entitled to apply against our
purchases a remaining drill stem credit of $10.0 million,
subject to a limitation of no more than 20% of any purchase. All
other terms and agreements are consistent with the initial
preferred customer agreement. As of December 31, 2004, we
had $3.7 million of the drill stem credit remaining. The
drill stem credit agreement will expire on March 31, 2005.
We expect to use all or substantially all of the remaining
credit before the expiration of the agreement.
See “Item 8. Financial Statements and Supplementary
Data — Notes to Consolidated Financial
Statements — Note 22” for additional
discussion of related party transactions.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and
results of operation is based upon our consolidated financial
statements. We prepare these financial statements in conformity
with U.S. generally accepted accounting principles. As such, we
are required to make certain estimates, judgments and
assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the periods
presented. We base our estimates on historical experience,
available information and various other assumptions we believe
to be reasonable under the circumstances. On an on-going basis,
we evaluate our estimates; however, actual results may differ
from these estimates under different assumptions or conditions.
The accounting policies we believe require management’s
most difficult, subjective or complex judgments and are the most
critical to our reporting of results of operations and financial
position are as follows:
Our equity investments in unconsolidated subsidiaries primarily
include our investment in Universal. We review our equity
investments for impairment and record an adjustment when we
believe the decline in fair value is other-than-temporary. The
fair value of the asset is measured using quoted market prices
or, in the absence of quoted market prices, fair value is based
on an estimate of discounted cash flows. In determining whether
the decline is other-than-temporary, we consider the cyclical
nature of the industry in which the investment operates, its
historical performance, its performance in relation to its peers
and the current economic environment. During the third quarter
of 2002, we determined the decline in fair value of Universal
was other than temporary. We recorded a write-down in our
investment of $217.1 million, $146.2 million net of
taxes. We will continue to monitor the fair value of our
investments for impairment and will record an adjustment if we
believe a decline is other-than-temporary.
35
|
|
|
Business Combinations and Goodwill and Indefinite-Lived
Intangible Assets |
Goodwill and intangible assets acquired in connection with
business combinations represent the excess of consideration over
the fair value of tangible net assets acquired. Certain
assumptions and estimates are employed in determining the fair
value of assets acquired, the fair value of liabilities assumed,
as well as in determining the allocation of goodwill to the
appropriate reporting unit.
We perform an impairment test for goodwill and indefinite-lived
intangible assets annually as of October 1, or earlier if
indicators of potential impairment exist. Our goodwill
impairment test involves a comparison of the fair value of each
of our reporting units with their carrying value. Our impairment
test for indefinite-lived intangible assets involves the
comparison of the fair value of the intangible asset and its
carrying value. The fair value is determined using discounted
cash flows and other market-related valuation models. Certain
estimates and judgments are required in the application of the
fair value models. We have determined no impairment exists;
however, if for any reason the fair value of our goodwill or
that of any of our reporting units or the fair value of our
intangible assets with indefinite lives declines below the
carrying value in the future, we may incur charges for the
impairment.
Long-lived assets, which includes property, plant and equipment
and definite-lived intangibles, comprise a significant amount of
our total assets. In accounting for long-lived assets, we must
make estimates about the expected useful lives of the assets and
the potential for impairment based on the fair value of the
assets and the cash flows they are expected to generate. The
value of the long-lived assets is then amortized over its
expected useful life. A change in the estimated useful lives of
our long-lived assets would have an impact on our results of
operations. We estimate the useful lives of our long-lived asset
groups as follows:
| |
|
|
|
|
| |
|
Useful Lives | |
| |
|
| |
|
Buildings and leasehold improvements
|
|
|
5-40 years or lease term |
|
|
Rental and service equipment
|
|
|
2-15 years |
|
|
Machinery and other
|
|
|
3-12 years |
|
|
Intangible assets
|
|
|
3-20 years |
|
In estimating the useful lives of our property, plant and
equipment, we rely primarily on our actual experience with the
same or similar assets. The useful lives of our intangible
assets are determined by the years over which we expect the
assets to generate a benefit based on legal, contractual or
regulatory terms.
Long-lived assets to be held and used by us are reviewed to
determine whether any events or changes in circumstances
indicate that we may not be able to recover the carrying amount
of the asset. Factors that might indicate a potential impairment
may include, but are not limited to, significant decreases in
the market value of the long-lived asset, a significant change
in the long-lived asset’s physical condition, a change in
industry conditions or a reduction in cash flows associated with
the use of the long-lived asset. If these or other factors exist
that indicate the carrying amount of the asset may not be
recoverable, we determine whether an impairment has occurred
through the use of an undiscounted cash flow analysis. The
undiscounted cash flow analysis consists of estimating the
future cash flows that are directly associated with and expected
to arise from the use and eventual disposition of the asset over
its remaining useful life. These cash flows are inherently
subjective and require significant estimates based upon
historical experience and future expectations such as budgets
and internal projections. If the undiscounted cash flows do not
exceed the carrying value of the long-lived asset, an impairment
has occurred, and we recognize a loss for the difference between
the carrying amount and the estimated fair value of the asset.
The fair value of the asset is measured using market prices, or
in the absence of market prices, is based on an estimate of
discounted cash flows. Cash flows are generally discounted at an
interest rate commensurate with our weighted average cost of
capital for a similar asset.
36
We are self-insured up to certain levels for general liability,
vehicle liability, group medical and for workers’
compensation claims for certain of our employees. The amounts in
excess of the self-insured levels are fully insured, up to a
limit. Liabilities associated with these risks are estimated by
considering historical claims experience, industry demographics
and other actuarial assumptions. Although we believe adequate
reserves have been provided for expected liabilities arising
from our self-insured obligations, projections of future losses
are inherently uncertain, and it is reasonably possible our
estimates of these liabilities will change over the near term as
circumstances develop. A 5.0% increase in our expected annual
loss estimates would result in an increase of approximately
$0.6 million in our 2005 insurance expense.
|
|
|
Employee Stock-Based Compensation |
Effective January 1, 2003, we adopted
SFAS No. 123, Accounting for Stock Based
Compensation, as amended. We elected the prospective method
of adoption, and under this method, the fair value of employee
stock-based compensation expense granted during 2003 is measured
at the grant date based on the fair value of the award and is
recognized as an expense over the service period, which is
usually the vesting period. The fair value of each option grant
is estimated using the Black-Scholes option pricing model. Key
assumptions in the Black-Scholes option pricing model, some of
which are based on subjective expectations, are subject to
change. A change in one or more of these assumptions would
impact the expense associated with future grants. These key
assumptions include the volatility of our common shares, the
risk-free interest rate and the expected life of the options.
We used the following weighted average assumptions in the
Black-Scholes option pricing model for determining the fair
value of our 2003 and 2004 stock option grants:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Expected |
|
Risk-Free |
|
Expected |
|
|
| |
|
Volatility |
|
Interest Rate |
|
Life |
|
Dividends |
| |
|
|
|
|
|
|
|
|
|
2003
|
|
|
56.55 |
% |
|
|
3.0 |
% |
|
|
4.5 |
|
|
|
None |
|
|
2004
|
|
|
48.17 |
% |
|
|
3.9 |
% |
|
|
5.0 |
|
|
|
None |
|
We calculated the expected volatility by measuring the
volatility of our historical stock price for a period equal to
the expected life of the option and ending at the time the
option was granted. We determined the risk-free interest rate
based upon the interest rate on a U.S. Treasury Bill with a
term equal to the expected life of the option at the time the
option was granted. In estimating the expected lives of our
stock options, we have relied primarily on our actual experience
with our previous stock option grants. The expected life is less
than the term of the option as option holders, in our
experience, exercise or forfeit the options during the term of
the option.
We are not required to recalculate the fair value of our stock
option grants estimated using the Black-Scholes option pricing
model after the initial calculation under the related option
terms as modified. However, a 100 basis point increase in
our expected volatility and risk-free interest rate at the grant
date would have had the following impact on our compensation
expense for the year ended December 31, 2004:
| |
|
|
|
|
| |
|
100 Basis Point Increase |
| |
|
|
| |
|
(In millions) |
|
Expected volatility
|
|
$ |
1.0 |
|
|
Risk-free interest rate
|
|
$ |
1.0 |
|
|
|
|
Pension and Other Postretirement Benefits |
We account for our defined benefit pension and other
postretirement benefit obligations and costs in accordance with
SFAS No. 87, Employers’ Accounting for
Pensions, SFAS No. 88, Employers’
Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits and
SFAS No. 106, Employers’ Accounting for
Postretirement Benefits Other than Pensions. These
statements require that the amounts recognized in the financial
statements be determined on an actuarial basis.
37
Two of the more critical assumptions in the actuarial
calculations are the discount rate for determining the current
value of plan benefits and the expected rate of return on plan
assets. Discount rates are based on the yields of government
bonds or high quality corporate bonds in the respective country
or economic market. The expected long-term rates of return on
plan assets are based on a combination of historical experience
and anticipated future returns in each of the asset categories.
As we have both domestic and international plans, the
assumptions, though the same in nature, are based on varying
factors specific to each particular country or economic
environment. Changes in any of the assumptions used could impact
our projected benefit obligations and benefit costs as well as
other pension and postretirement benefit calculations.
Due to the significance of the discount rates and expected
long-term rates of return, the following sensitivity analysis
demonstrates the effect that a 50 basis point change in
those assumptions will have on annual pension expense:
| |
|
|
|
|
|
|
|
|
| |
|
Increase (Decrease) of Annual |
| |
|
Pension Expense |
| |
|
|
| |
|
50 Basis Point |
|
50 Basis Point |
| |
|
Increase |
|
Decrease |
| |
|
|
|
|
| |
|
(In millions) |
|
Discount rate
|
|
$ |
(0.3 |
) |
|
$ |
0.9 |
|
|
Expected long-term rate of return
|
|
$ |
(0.3 |
) |
|
$ |
0.3 |
|
We provide for income taxes in accordance with
SFAS No. 109, Accounting for Income Taxes. This
standard takes into account the differences between the
financial statement treatment and tax treatment of certain
transactions. Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
The effect of a change in tax rates is recognized as income or
expense in the period that includes the enactment date. Our
effective tax rates for 2004, 2003 and 2002 were 21.5%, 25.9%
and 44.7%, respectively.
We operate in approximately 100 countries through various legal
entities. As a result, we are subject to numerous domestic and
foreign tax jurisdictions and tax agreements and treaties among
the various taxing authorities. Our operations in these
jurisdictions are taxed on various bases: income before taxes,
deemed profits (which is generally determined using a percentage
of revenues rather than profits) and withholding taxes based on
revenue. The calculation of our tax liabilities involves
consideration of uncertainties in the application and
interpretation of complex tax regulations in a multitude of
jurisdictions across our global operations. We recognize
potential liabilities and record tax liabilities for anticipated
tax audit issues in the U.S. and other tax jurisdictions based
on our estimate of whether, and the extent to which, additional
taxes will be due. The tax liabilities are reflected net of
realized tax loss carryforwards. We adjust these reserves upon
specific events; however, due to the complexity of some of these
uncertainties, the ultimate resolution may result in a payment
that is different from our current estimate of the tax
liabilities. If our estimate of tax liabilities proves to be
less than the ultimate assessment, an additional charge to
expense would result. If payment of these amounts ultimately
proves to be less than the recorded amounts, the reversal of the
liabilities would result in tax benefits being recognized in the
period when the contingency has been resolved and the
liabilities are no longer necessary. If the tax liabilities
relate to tax uncertainties existing at the date of the
acquisition of a business, the adjustment of such tax
liabilities will result in an adjustment to the goodwill
recorded at the date of acquisition. Changes in tax laws,
regulations, agreements and treaties, foreign currency exchange
restrictions or our level of operations or profitability in each
taxing jurisdiction could have an impact upon the amount of
income taxes that we provide during any given year.
|
|
|
Valuation Allowance for Deferred Tax Assets |
We record a valuation allowance to reduce the carrying value of
our deferred tax assets when it is more likely than not that a
portion or all of the deferred tax assets will expire before
realization of the benefit or that
38
future deductibility is not probable. The ultimate realization
of the deferred tax assets depends on the ability to generate
sufficient taxable income of the appropriate character and in
the related jurisdiction in the future. In evaluating our
ability to recover our deferred tax assets, we consider all
reasonably available positive and negative evidence, including
our past operating results, the existence of cumulative losses
in the most recent years and our forecast of future taxable
income. In estimating future taxable income, we develop
assumptions, including the amount of future state, federal and
international pretax operating income, the reversal of temporary
differences and the implementation of feasible and prudent tax
planning strategies. These assumptions require significant
judgment.
We have identified various domestic and international tax
planning strategies that we would implement, if necessary, to
enable the realization of our deferred tax assets; however, when
the likelihood of the realization of existing deferred tax
assets changes, adjustments to the valuation allowance are
charged to our income tax provision in the period in which the
determination is made.
As of December 31, 2004, our net deferred tax assets were
$127.4 million excluding a related valuation allowance of
$27.8 million. As of December 31, 2003, our net
deferred tax assets were $79.0 million excluding a related
valuation allowance of $29.8 million.
For a more comprehensive list of our accounting policies, see
“Item 8. Financial Statements and Supplementary
Data — Notes to Consolidated Financial
Statements — Note 1.”
New Accounting Pronouncements
In March 2004, the Emerging Issues Task Force (“EITF”)
reached a final consensus on EITF Issue No. 03-1, The
Meaning of Other-Than-Temporary Impairment and Its Application
to Certain Investments (“EITF No. 03-1”).
EITF No. 03-1 provides guidance used to determine when an
investment is considered impaired, whether that impairment is
other-than-temporary, and the measurement of an impairment loss.
The guidance includes accounting considerations subsequent to
the recognition of an other-than-temporary impairment and
requires certain disclosures about unrealized losses that have
not been recognized as other-than-temporary impairments. The
adoption of EITF No. 03-1 did not have an impact on our
financial statements. Furthermore, our equity investments
continue to be subject to the guidance provided in APB
No. 18.
In November 2004, the Financial Accounting Standards Board
(“FASB”) issued SFAS No. 151, Inventory
Costs — an amendment of ARB 43, Chapter 4
(“SFAS No. 151”). SFAS No. 151
clarifies the accounting for abnormal amounts of idle facility
expense, freight, handling costs and wasted material. This
statement requires that abnormal amounts be recognized as
current period charges in all circumstances. In addition,
SFAS No. 151 requires that the allocation of fixed
production overheads to the costs of conversion be based on the
normal capacity of the production facilities.
SFAS No. 151 is effective for fiscal years beginning
after June 15, 2005. We do not believe the implementation
of SFAS No. 151 will have a material impact on our
financial statements.
In December 2004, the FASB issued SFAS No. 123-Revised
2004, Share-Based Payment
(“SFAS No. 123R”). This is a revision of
SFAS No. 123, Accounting for Stock-Based
Compensation, and supersedes APB No. 25, Accounting
for Stock Issued to Employees. SFAS No. 123R
requires all share-based payments to employees, including grants
of employee stock options, to be recognized in the financial
statements based on their fair values. SFAS No. 123R
is effective the first interim period beginning after
June 15, 2005. As discussed previously, in 2003 we began
expensing the fair value of employee stock-based compensation
over the service period; therefore, the new guidance will only
affect unvested options granted prior to 2003. We are currently
evaluating the impact SFAS No. 123R will have on our
2005 third quarter results. There will be no material impact to
our results after the third quarter of 2005 as essentially all
grants either vest in the third quarter or are already reflected
in our results.
In December 2004, the FASB issued FASB Staff Position
No. FAS 109-1, Application of FASB Statement
No. 109, Accounting for Income Taxes, to the Tax Deduction
on Qualified Production Activities Provided by the American Jobs
Creation Act of 2004 (“FSP 109-1”) and FASB
Staff Position
39
No. FAS 109-2, Accounting and Disclosure Guidance
for the Foreign Earnings Repatriation Provision within the
American Jobs Creation Act of 2004
(“FSP 109-2”). FSP 109-1 clarifies the
guidance in SFAS No. 109 and provides that the new
deduction for qualified domestic production activities under the
American Jobs Creation Act of 2004 (the “Act”) should
be accounted for as a special deduction under
Statement 109, not as a tax-rate reduction, because the
deduction is contingent on performing activities identified in
the Act. FSP 109-2 addresses the effect of the Act’s
one-time deduction for qualifying repatriations of foreign
earnings. FSP 109-2 allows additional time for companies to
determine whether any foreign earnings will be repatriated under
the Act’s one-time deduction for repatriated earnings and
how the Act affects whether undistributed earnings continue to
qualify for Statement 109’s exception from recognizing
deferred tax liabilities. FSP 109-1 and FSP 109-2 were both
effective upon issuance. We are currently evaluating the impact
the adoption of FSP 109-1 and FSP 109-2 will have on our
financial position, results of operations or cash flows.
Other new accounting pronouncements effective during 2004 did
not have a material effect on our consolidated financial
statements. For a more comprehensive discussion of new
accounting pronouncements see “Item 8. Financial
Statements and Supplementary Data — Notes to
Consolidated Financial Statements — Note 1.”
|
|
| Item 7A. |
Quantitative and Qualitative Disclosure About Market
Risk |
We are currently exposed to market risk from changes in foreign
currency and changes in interest rates. From time to time, we
may enter into derivative financial instrument transactions to
manage or reduce our market risk, but we do not enter into
derivative transactions for speculative purposes. A discussion
of our market risk exposure in financial instruments follows.
Foreign Currency Exchange Rates
We operate in virtually every oil and natural gas exploration
and production region in the world. In some parts of the world,
such as the Middle East and Southeast Asia, the currency of our
primary economic environment is the U.S. dollar. We use
this as our functional currency. In other parts of the world, we
conduct our business in currencies other than the
U.S. dollar and the functional currency is the applicable
local currency. In those countries in which we operate in the
local currency, the effects of foreign currency fluctuations are
largely mitigated because local expenses of such foreign
operations are also generally denominated in the same currency.
Assets and liabilities of which the functional currency is the
local currency are translated using the exchange rates in effect
at the balance sheet date, resulting in translation adjustments
that are reflected as Accumulated Other Comprehensive Income in
the shareholders’ equity section on our Consolidated
Balance Sheets. Approximately 36.7% of our net assets are
impacted by changes in foreign currencies in relation to the
U.S. dollar. We recorded a $109.8 million increase to
our equity account for the year ended December 31, 2004 to
reflect the net impact of the strengthening in various foreign
currencies against the U.S. dollar.
As of December 2004, we have entered into several foreign
currency forward contracts with notional amounts aggregating to
$47.1 million to hedge exposure to currency fluctuations in
various foreign currencies, including the Australian Dollar, the
British Pound Sterling, the Singapore Dollar and the Brazilian
Real. Gains and losses on these contracts are recognized
currently in earnings, offsetting the impact of the change in
the fair value of the asset or liability being hedged. There
were no currency forward contracts outstanding as of
December 31, 2003.
Interest Rates
We are subject to interest rate risk on our long-term fixed
interest rate debt and, to a lesser extent, variable-interest
rate borrowings. Variable rate debt, where the interest rate
fluctuates periodically, exposes us to short-term changes in
market interest rates. Fixed rate debt, where the interest rate
is fixed over the life of the instrument, exposes us to changes
in market interest rates reflected in the fair value of the debt
and to the risk that we may need to refinance maturing debt with
new debt at a higher rate. All other things being equal, the
fair value of our fixed rate debt will increase or decrease as
interest rates change.
40
The Company’s long-term borrowings subject to interest rate
risk consist of the following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
Carrying | |
|
Fair | |
|
Carrying | |
|
Fair | |
| |
|
Amount | |
|
Value | |
|
Amount | |
|
Value | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
65/8% Senior
Notes due 2011
|
|
$ |
359.2 |
|
|
$ |
386.4 |
|
|
$ |
350.9 |
|
|
$ |
384.8 |
|
|
71/4% Senior
Notes due 2006
|
|
|
206.6 |
|
|
|
209.7 |
|
|
|
211.0 |
|
|
|
220.0 |
|
|
4.95% Senior Notes due 2013
|
|
|
256.7 |
|
|
|
249.4 |
|
|
|
249.5 |
|
|
|
243.4 |
|
|
$910.0 Million Zero Coupon Senior Convertible Debentures
|
|
|
573.6 |
|
|
|
583.5 |
|
|
|
556.7 |
|
|
|
565.3 |
|
The fair value of our Senior Notes is principally dependent on
changes in prevailing interest rates. The fair value of the Zero
Coupon Debentures is principally dependent on both prevailing
interest rates and our current share price as it relates to the
initial conversion price, which was approximately
$63.05 per common share at December 31, 2004 and
$61.20 per common share at December 31, 2003.
We have various other long-term debt instruments of
$14.7 million, but believe the impact of changes in
interest rates in the near term will not be material to these
instruments. Short-term borrowings of $11.1 million at
December 31, 2004 and $194.6 million at
December 31, 2003 approximate fair value.
As it relates to our variable rate debt, if market interest
rates average 1.0% more in 2005 than the rates as of
December 31, 2004, interest expense for 2005 would increase
by $0.1 million. This amount was determined by calculating
the effect of the hypothetical interest rate on our variable
rate debt. This sensitivity analysis assumes there are no
changes in the Company’s financial structure.
Interest Rate Swaps
We manage our debt portfolio to achieve an overall desired
position of fixed and floating rates and may employ interest
rate swaps as a tool to achieve that goal. The major risks from
interest rate derivatives include changes in the interest rates
affecting the fair value of such instruments, potential
increases in interest expense due to market increases in
floating interest rates and the creditworthiness of the
counterparties in such transactions. The counterparties to our
interest rate swaps are creditworthy multinational commercial
banks. We believe that the risk of counterparty nonperformance
is immaterial.
At different times during 2004, we entered into and terminated
separate interest rate swap agreements on notional amounts of
$200.0 million and $150.0 million of our
4.95% Senior Notes. We also, at different times, entered
into and terminated separate interest rate swap agreements on
notional amounts and $70.0 million and $170.0 million
of our
65/8% Senior
Notes. Each of the agreements were terminated prior to entering
into a new agreement. As a result of these terminations, we
received cash proceeds, net of accrued interest, of
approximately $12.8 million. The deferred gain is being
amortized as a reduction of interest expense over the remaining
life of the underlying debt securities. There were no interest
rate swap agreements outstanding as of December 31, 2004.
In the third and fourth quarter of 2003, we entered into
interest rate swap agreements on an aggregate notional amount of
$150.0 million of our
71/4% Senior
Notes and $250.0 million of our
65/8% Senior
Notes. These agreements were outstanding as of December 31,
2003. The aggregate fair value of the swaps was an asset of
$4.5 million as of December 31, 2003 and was based on
quoted market prices for contracts with similar terms and
maturity dates. In January 2004, we terminated these swap
agreements and received $7.8 million in cash proceeds, net
of accrued interest, as settlement. The deferred gain is being
amortized as a reduction of interest expense over the remaining
life of the underlying debt securities.
During 2002, the Company had in effect two interest rate swap
agreements entered into against its
71/4% Senior
Notes. In October 2002, both swap agreements were terminated,
and the Company received cash proceeds, net of accrued interest,
of $11.0 million. The deferred gains are being amortized as
a reduction of interest expense over the remaining life of the
underlying debt security, which matures in May 2006.
41
|
|
| Item 8. |
Financial Statements and Supplementary Data |
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULE
| |
|
|
|
|
|
| |
|
Page | |
| |
|
| |
|
Management’s Report on Internal Control Over Financial
Reporting
|
|
|
43 |
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
44 |
|
|
Report of Independent Registered Public Accounting Firm on
Internal Control over Financial Reporting
|
|
|
45 |
|
|
Consolidated Balance Sheets as of December 31, 2004 and 2003
|
|
|
46 |
|
|
Consolidated Statements of Operations for each of the three
years in the period ended December 31, 2004
|
|
|
47 |
|
|
Consolidated Statements of Shareholders’ Equity for each of
the three years in the period ended December 31, 2004
|
|
|
48 |
|
|
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 2004
|
|
|
49 |
|
|
Notes to Consolidated Financial Statements
|
|
|
50 |
|
|
Financial Statement Schedule II:
|
|
|
|
|
| |
Valuation and Qualifying Accounts and Allowances
|
|
|
98 |
|
42
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING
Management of the Company is responsible for establishing and
maintaining adequate internal control over financial reporting
as such term is defined in the Securities Exchange Act of 1934
Rule 13a-15(f). The Company’s internal controls were
designed to provide reasonable assurance as to the reliability
of our financial reporting and the preparation of financial
statements for external purposes in accordance with U.S.
generally accepted accounting principles.
Under the supervision and with the participation of the
Company’s Chief Executive Officer and Chief Financial
Officer, Management has evaluated the effectiveness of the
Company’s internal control over financial reporting as of
December 31, 2004 as required by the Securities Exchange
Act of 1934 Rule 13a-15(c). In making its assessment,
management has utilized the criteria set forth by the Committee
of Sponsoring Organizations of the Treadway Commission in
Internal Control-Integrated Framework. Management
concluded that based on its evaluation, the company’s
internal control over financial reporting was effective as of
December 31, 2004.
The Company’s independent registered public accounting
firm, Ernst & Young LLP, has issued an attestation
report on Management’s assessment of the effectiveness of
the Company’s internal control over financial reporting as
of December 31, 2004. The attestation report is included
herein.
43
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
Weatherford International Ltd.
We have audited the accompanying consolidated balance sheets of
Weatherford International Ltd., and Subsidiaries as of
December 31, 2004 and 2003, and the related consolidated
statements of operations, shareholders’ equity, and cash
flows for each of the three years in the period ended
December 31, 2004. Our audits also included the
accompanying financial statement schedule listed in the Index at
Item 8. These financial statements are the responsibility
of the Company’s management. Our responsibility is to
express an opinion on these financial statements and schedule
based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (U.S.). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Weatherford International Ltd. and
Subsidiaries at December 31, 2004 and 2003, and the
consolidated results of their operations and their cash flows
for each of the three years in the period ended
December 31, 2004, in conformity with U.S. generally
accepted accounting principles. Also, in our opinion, the
related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set
forth therein.
As discussed in Note 1 to the consolidated financial
statements, in 2003 the Company adopted Statement of Financial
Accounting Standards No. 123, “Accounting for
Stock-Based Compensation.”
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (U.S.), the
effectiveness of Weatherford International Ltd.’s internal
control over financial reporting as of December 31, 2004,
based on criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission and our report dated March 10, 2005
expressed an unqualified opinion thereon.
Houston, Texas
March 10, 2005
44
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The Board of Directors and Shareholders
Weatherford International Ltd.
We have audited management’s assessment, included in the
accompanying Management’s Report on Internal Control over
Financial Reporting, that Weatherford International Ltd.
maintained effective internal control over financial reporting
as of December 31, 2004, based on criteria established in
Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(the COSO criteria). Weatherford International Ltd.’s
management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our
responsibility is to express an opinion on management’s
assessment and an opinion on the effectiveness of the
company’s internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (U.S.). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating
management’s assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing
such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, management’s assessment that Weatherford
International Ltd. maintained effective internal control over
financial reporting as of December 31, 2004, is fairly
stated, in all material respects, based on the COSO criteria.
Also, in our opinion, Weatherford International Ltd. maintained,
in all material respects, effective internal control over
financial reporting as of December 31, 2004, based on the
COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (U.S.), the
consolidated balance sheets of Weatherford International and
Subsidiaries as of December 31, 2004 and 2003 and the
related consolidated statements of operations,
shareholders’ equity, and cash flows for each of the three
years in the period ended December 31, 2004 of Weatherford
International Ltd. and Subsidiaries and our report dated
March 10, 2005 expressed an unqualified opinion thereon.
Houston, Texas
March 10, 2005
45
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| |
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(In thousands, | |
| |
|
except par value) | |
|
ASSETS |
|
Current Assets:
|
|
|
|
|
|
|
|
|
| |
Cash and Cash Equivalents
|
|
$ |
317,439 |
|
|
$ |
56,082 |
|
| |
Accounts Receivable, Net of Allowance for Uncollectible Accounts
of $15,910 in 2004 and $16,728 in 2003
|
|
|
742,291 |
|
|
|
556,306 |
|
| |
Inventories
|
|
|
679,607 |
|
|
|
616,748 |
|
| |
Current Deferred Tax Assets
|
|
|
96,482 |
|
|
|
75,754 |
|
| |
Other Current Assets
|
|
|
94,909 |
|
|
|
89,479 |
|
| |
Current Assets from Discontinued Operation
|
|
|
12,450 |
|
|
|
30,804 |
|
| |
|
|
|
|
|
|
| |
|
|
1,943,178 |
|
|
|
1,425,173 |
|
| |
|
|
|
|
|
|
|
Property, Plant and Equipment, at Cost:
|
|
|
|
|
|
|
|
|
| |
Land, Buildings and Leasehold Improvements
|
|
|
285,097 |
|
|
|
264,755 |
|
| |
Rental and Service Equipment
|
|
|
1,743,906 |
|
|
|
1,630,949 |
|
| |
Machinery and Other
|
|
|
812,151 |
|
|
|
707,668 |
|
| |
|
|
|
|
|
|
| |
|
|
2,841,154 |
|
|
|
2,603,372 |
|
| |
Less: Accumulated Depreciation
|
|
|
1,463,972 |
|
|
|
1,319,390 |
|
| |
|
|
|
|
|
|
| |
|
|
1,377,182 |
|
|
|
1,283,982 |
|
| |
|
|
|
|
|
|
|
Goodwill, Net
|
|
|
1,669,637 |
|
|
|
1,601,211 |
|
|
Equity Investments in Unconsolidated Affiliates
|
|
|
170,202 |
|
|
|
303,654 |
|
|
Other Intangible Assets, Net
|
|
|
294,593 |
|
|
|
291,387 |
|
|
Other Assets
|
|
|
88,384 |
|
|
|
86,632 |
|
|
Long-term Assets from Discontinued Operation
|
|
|
306 |
|
|
|
2,285 |
|
| |
|
|
|
|
|
|
| |
|
$ |
5,543,482 |
|
|
$ |
4,994,324 |
|
| |
|
|
|
|
|
|
| |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
| |
Short-term Borrowings and Current Portion of Long-term Debt
|
|
$ |
22,235 |
|
|
$ |
207,342 |
|
| |
Accounts Payable
|
|
|
279,763 |
|
|
|
234,599 |
|
| |
Accrued Salaries and Benefits
|
|
|
137,496 |
|
|
|
83,153 |
|
| |
Foreign Income Taxes Payable
|
|
|
50,693 |
|
|
|
31,728 |
|
| |
Other Current Liabilities
|
|
|
158,131 |
|
|
|
157,507 |
|
| |
Current Liabilities from Discontinued Operation
|
|
|
11,688 |
|
|
|
20,343 |
|
| |
|
|
|
|
|
|
| |
|
|
660,006 |
|
|
|
734,672 |
|
| |
|
|
|
|
|
|
|
Long-term Debt
|
|
|
830,853 |
|
|
|
822,861 |
|
|
Zero Coupon Convertible Senior Debentures
|
|
|
573,578 |
|
|
|
556,750 |
|
|
Deferred Tax Liabilities
|
|
|
30,580 |
|
|
|
58,798 |
|
|
Other Liabilities
|
|
|
135,076 |
|
|
|
113,175 |
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
Shareholders’ Equity:
|
|
|
|
|
|
|
|
|
| |
Common Shares, $1 Par Value, Authorized
500,000 Shares, Issued 145,279 and 141,422 Shares,
Respectively
|
|
|
145,279 |
|
|
|
141,422 |
|
| |
Capital in Excess of Par Value
|
|
|
2,531,365 |
|
|
|
2,395,466 |
|
| |
Treasury Shares, Net
|
|
|
(228,064 |
) |
|
|
(254,926 |
) |
| |
Retained Earnings
|
|
|
735,518 |
|
|
|
405,372 |
|
| |
Accumulated Other Comprehensive Income
|
|
|
129,291 |
|
|
|
20,734 |
|
| |
|
|
|
|
|
|
| |
|
|
3,313,389 |
|
|
|
2,708,068 |
|
| |
|
|
|
|
|
|
| |
|
$ |
5,543,482 |
|
|
$ |
4,994,324 |
|
| |
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
46
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except per share amounts) | |
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Products
|
|
$ |
1,531,391 |
|
|
$ |
1,253,329 |
|
|
$ |
1,079,548 |
|
| |
Services
|
|
|
1,600,383 |
|
|
|
1,308,705 |
|
|
|
1,208,876 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
3,131,774 |
|
|
|
2,562,034 |
|
|
|
2,288,424 |
|
|
Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cost of Products
|
|
|
1,111,100 |
|
|
|
887,948 |
|
|
|
747,019 |
|
| |
Cost of Services
|
|
|
1,047,652 |
|
|
|
911,570 |
|
|
|
848,543 |
|
| |
Research and Development
|
|
|
83,552 |
|
|
|
82,439 |
|
|
|
79,193 |
|
| |
Selling, General and Administrative Attributable to Segments
|
|
|
440,239 |
|
|
|
366,605 |
|
|
|
313,510 |
|
| |
Corporate General and Administrative
|
|
|
55,889 |
|
|
|
42,202 |
|
|
|
43,998 |
|
| |
Equity in (Earnings) Losses of Unconsolidated Affiliates, Net of
Impairment Charge
|
|
|
(22,405 |
) |
|
|
(14,947 |
) |
|
|
192,753 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
2,716,027 |
|
|
|
2,275,817 |
|
|
|
2,225,016 |
|
| |
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
|
415,747 |
|
|
|
286,217 |
|
|
|
63,408 |
|
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Gain on Sale of Universal Common Stock
|
|
|
77,642 |
|
|
|
— |
|
|
|
— |
|
| |
Interest Income
|
|
|
3,846 |
|
|
|
1,909 |
|
|
|
2,640 |
|
| |
Interest Expense
|
|
|
(63,562 |
) |
|
|
(76,447 |
) |
|
|
(85,419 |
) |
| |
Debt Redemption Expense
|
|
|
— |
|
|
|
(20,911 |
) |
|
|
— |
|
| |
Other, Net
|
|
|
(2,926 |
) |
|
|
8,747 |
|
|
|
7,790 |
|
| |
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Continuing Operations Before Income Taxes and
Minority Interest
|
|
|
430,747 |
|
|
|
199,515 |
|
|
|
(11,581 |
) |
|
Benefit (Provision) for Income Taxes
|
|
|
(92,672 |
) |
|
|
(51,608 |
) |
|
|
5,173 |
|
| |
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Continuing Operations Before Minority Interest
|
|
|
338,075 |
|
|
|
147,907 |
|
|
|
(6,408 |
) |
|
Minority Interest, Net of Taxes
|
|
|
(776 |
) |
|
|
(664 |
) |
|
|
(551 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Continuing Operations
|
|
|
337,299 |
|
|
|
147,243 |
|
|
|
(6,959 |
) |
|
Income (Loss) from Discontinued Operation, Net of Taxes
|
|
|
(7,153 |
) |
|
|
(3,891 |
) |
|
|
929 |
|
| |
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$ |
330,146 |
|
|
$ |
143,352 |
|
|
$ |
(6,030 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Basic Earnings (Loss) Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Income (Loss) from Continuing Operations
|
|
$ |
2.52 |
|
|
$ |
1.16 |
|
|
$ |
(0.06 |
) |
| |
Income (Loss) from Discontinued Operation
|
|
|
(0.06 |
) |
|
|
(0.03 |
) |
|
|
0.01 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Net Income (Loss)
|
|
$ |
2.46 |
|
|
$ |
1.13 |
|
|
$ |
(0.05 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Diluted Earnings (Loss) Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Income (Loss) from Continuing Operations
|
|
$ |
2.35 |
|
|
$ |
1.12 |
|
|
$ |
(0.06 |
) |
| |
Income (Loss) from Discontinued Operation
|
|
|
(0.05 |
) |
|
|
(0.03 |
) |
|
|
0.01 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Net Income (Loss)
|
|
$ |
2.30 |
|
|
$ |
1.09 |
|
|
$ |
(0.05 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic
|
|
|
134,000 |
|
|
|
126,524 |
|
|
|
120,058 |
|
| |
Diluted
|
|
|
148,684 |
|
|
|
131,761 |
|
|
|
120,058 |
|
The accompanying notes are an integral part of these
consolidated financial statements.
47
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Accumulated | |
|
|
|
|
| |
|
|
|
|
|
|
|
Other | |
|
Treasury Shares | |
|
|
| |
|
Common | |
|
Capital in | |
|
|
|
Comprehensive | |
|
| |
|
Total | |
| |
|
Shares | |
|
Excess of | |
|
Retained | |
|
Income | |
|
|
|
Share | |
|
Deferred | |
|
Shareholders’ | |
| |
|
$1 Par | |
|
Par Value | |
|
Earnings | |
|
(Loss) | |
|
Shares | |
|
Value | |
|
Compensation | |
|
Equity | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except par value) | |
|
Balance at December 31, 2001
|
|
$ |
129,852 |
|
|
$ |
1,912,528 |
|
|
$ |
268,050 |
|
|
$ |
(177,204 |
) |
|
|
(11,527 |
) |
|
$ |
(304,346 |
) |
|
$ |
9,360 |
|
|
$ |
1,838,240 |
|
|
Comprehensive Income (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net Loss
|
|
|
— |
|
|
|
— |
|
|
|
(6,030 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(6,030 |
) |
| |
Foreign Currency Translation Adjustment
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
34,609 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
34,609 |
|
| |
Pension Liability Adjustment
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(5,305 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(5,305 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income (Loss)
|
|
|
— |
|
|
|
— |
|
|
|
(6,030 |
) |
|
|
29,304 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
23,274 |
|
|
Shares Issued in Acquisitions
|
|
|
370 |
|
|
|
15,253 |
|
|
|
— |
|
|
|
— |
|
|
|
(187 |
) |
|
|
(8,620 |
) |
|
|
— |
|
|
|
7,003 |
|
|
Stock Options Exercised
|
|
|
1,775 |
|
|
|
22,206 |
|
|
|
— |
|
|
|
— |
|
|
|
366 |
|
|
|
9,159 |
|
|
|
— |
|
|
|
33,140 |
|
|
Tax Benefit of Options Exercised
|
|
|
— |
|
|
|
15,694 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
15,694 |
|
|
Purchase of Treasury Shares for Executive Deferred Compensation
Plan, Net of Distributions and Forfeitures
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(20 |
) |
|
|
(2,703 |
) |
|
|
2,848 |
|
|
|
145 |
|
|
Issuance of Warrant
|
|
|
— |
|
|
|
57,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
57,000 |
|
|
Retirement of Treasury Shares
|
|
|
(1,198 |
) |
|
|
(34,979 |
) |
|
|
— |
|
|
|
— |
|
|
|
1,198 |
|
|
|
36,177 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2002
|
|
|
130,799 |
|
|
|
1,987,702 |
|
|
|
262,020 |
|
|
|
(147,900 |
) |
|
|
(10,170 |
) |
|
|
(270,333 |
) |
|
|
12,208 |
|
|
|
1,974,496 |
|
|
Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net Income
|
|
|
— |
|
|
|
— |
|
|
|
143,352 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
143,352 |
|
| |
Foreign Currency Translation Adjustment
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
170,987 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
170,987 |
|
| |
Pension Liability Adjustment
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
898 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
898 |
|
| |
Unrealized Loss on Derivative Instrument
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,251 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,251 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income
|
|
|
— |
|
|
|
— |
|
|
|
143,352 |
|
|
|
168,634 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
311,986 |
|
|
Shares Issued in Offering
|
|
|
10,000 |
|
|
|
390,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
400,000 |
|
|
Stock Options Granted and Exercised
|
|
|
623 |
|
|
|
13,362 |
|
|
|
— |
|
|
|
— |
|
|
|
110 |
|
|
|
2,978 |
|
|
|
— |
|
|
|
16,963 |
|
|
Tax Benefit of Options Exercised
|
|
|
— |
|
|
|
4,402 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4,402 |
|
|
Purchase of Treasury Shares for Executive Deferred Compensation
Plan, Net of Distributions and Forfeitures
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(48 |
) |
|
|
(2,619 |
) |
|
|
2,840 |
|
|
|
221 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2003
|
|
|
141,422 |
|
|
|
2,395,466 |
|
|
|
405,372 |
|
|
|
20,734 |
|
|
|
(10,108 |
) |
|
|
(269,974 |
) |
|
|
15,048 |
|
|
|
2,708,068 |
|
|
Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net Income
|
|
|
— |
|
|
|
— |
|
|
|
330,146 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
330,146 |
|
| |
Foreign Currency Translation Adjustment
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
109,750 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
109,750 |
|
| |
Pension Liability Adjustment
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,457 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,457 |
) |
| |
Realized Loss on Derivative Instruments
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
264 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
264 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income
|
|
|
— |
|
|
|
— |
|
|
|
330,146 |
|
|
|
108,557 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
438,703 |
|
|
Stock Options Granted and Exercised
|
|
|
3,857 |
|
|
|
107,915 |
|
|
|
— |
|
|
|
— |
|
|
|
1,080 |
|
|
|
26,677 |
|
|
|
— |
|
|
|
138,449 |
|
|
Tax Benefit of Options Exercised
|
|
|
— |
|
|
|
27,984 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
27,984 |
|
|
Purchase of Treasury Shares for Executive Deferred Compensation
Plan, Net of Distributions and Forfeitures
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(16 |
) |
|
|
(1,236 |
) |
|
|
1,421 |
|
|
|
185 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
$ |
145,279 |
|
|
$ |
2,531,365 |
|
|
$ |
735,518 |
|
|
$ |
129,291 |
|
|
|
(9,044 |
) |
|
$ |
(244,533 |
) |
|
$ |
16,469 |
|
|
$ |
3,313,389 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
48
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Cash Flows From Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net Income (Loss)
|
|
$ |
330,146 |
|
|
$ |
143,352 |
|
|
$ |
(6,030 |
) |
| |
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided
by Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Depreciation and Amortization
|
|
|
255,884 |
|
|
|
232,417 |
|
|
|
214,739 |
|
| |
|
Gain on Sale of Universal Common Stock
|
|
|
(77,642 |
) |
|
|
— |
|
|
|
— |
|
| |
|
(Gain) Loss on Sale of Assets, Net
|
|
|
4,816 |
|
|
|
(4,704 |
) |
|
|
(11,906 |
) |
| |
|
(Income) Loss from Discontinued Operation
|
|
|
7,153 |
|
|
|
3,891 |
|
|
|
(929 |
) |
| |
|
Employee Stock-Based Compensation Expense
|
|
|
9,061 |
|
|
|
3,195 |
|
|
|
— |
|
| |
|
Provision for Uncollectible Accounts Receivable
|
|
|
3,138 |
|
|
|
3,689 |
|
|
|
1,784 |
|
| |
|
Equity in (Earnings) Losses of Unconsolidated Affiliates, Net of
Impairment Charge
|
|
|
(22,405 |
) |
|
|
(14,947 |
) |
|
|
192,753 |
|
| |
|
Non-cash Portion of Restructuring and Asset Impairment Charges
|
|
|
— |
|
|
|
— |
|
|
|
11,689 |
|
| |
|
Amortization of Original Issue Discount
|
|
|
16,828 |
|
|
|
16,334 |
|
|
|
15,855 |
|
| |
|
Debt Redemption Expense
|
|
|
— |
|
|
|
20,911 |
|
|
|
— |
|
| |
|
Deferred Income Tax Benefit
|
|
|
(15,726 |
) |
|
|
30,615 |
|
|
|
(94,056 |
) |
| |
|
Other, Net
|
|
|
3,043 |
|
|
|
(1,157 |
) |
|
|
2,263 |
|
| |
|
Change in Operating Assets and Liabilities, Net of Effect of
Businesses Acquired:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Accounts Receivable
|
|
|
(109,248 |
) |
|
|
(89,199 |
) |
|
|
55,286 |
|
| |
|
|
Inventories
|
|
|
(70,712 |
) |
|
|
(54,256 |
) |
|
|
(34,095 |
) |
| |
|
|
Other Current Assets
|
|
|
2,616 |
|
|
|
(10,505 |
) |
|
|
52,258 |
|
| |
|
|
Accounts Payable
|
|
|
42,927 |
|
|
|
53,042 |
|
|
|
(44,434 |
) |
| |
|
|
Accrued Current Liabilities
|
|
|
130,339 |
|
|
|
(23,131 |
) |
|
|
(64,119 |
) |
| |
|
|
Other, Net
|
|
|
(14,077 |
) |
|
|
(12,295 |
) |
|
|
6,777 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
Net Cash Provided by Continuing Operations
|
|
|
496,141 |
|
|
|
297,252 |
|
|
|
297,835 |
|
| |
|
|
|
Net Cash Provided (Used) by Discontinued Operation
|
|
|
7,338 |
|
|
|
(11,850 |
) |
|
|
9,060 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
Net Cash Provided by Operating Activities
|
|
|
503,479 |
|
|
|
285,402 |
|
|
|
306,895 |
|
| |
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Acquisitions of Businesses, Net of Cash Acquired
|
|
|
(26,464 |
) |
|
|
(61,527 |
) |
|
|
(111,754 |
) |
| |
Capital Expenditures for Property, Plant and Equipment
|
|
|
(310,868 |
) |
|
|
(302,502 |
) |
|
|
(268,687 |
) |
| |
Acquisition of Intellectual Property
|
|
|
(20,494 |
) |
|
|
(20,072 |
) |
|
|
(81,103 |
) |
| |
Purchase of Equity Investment in Unconsolidated Affiliate
|
|
|
(2,856 |
) |
|
|
(6,144 |
) |
|
|
— |
|
| |
Proceeds from Sale of Universal Common Stock
|
|
|
231,798 |
|
|
|
— |
|
|
|
— |
|
| |
Proceeds from Sale of Businesses
|
|
|
3,575 |
|
|
|
50 |
|
|
|
13,234 |
|
| |
Proceeds from Sale of Property, Plant and Equipment
|
|
|
20,020 |
|
|
|
13,180 |
|
|
|
6,445 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Net Cash Used by Investing Activities
|
|
|
(105,289 |
) |
|
|
(377,015 |
) |
|
|
(441,865 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Proceeds from (Repayments on) Asset Securitization, Net
|
|
|
(75,000 |
) |
|
|
6,051 |
|
|
|
(71,846 |
) |
| |
Borrowings of (Repayments on) Short-term Debt, Net
|
|
|
(183,775 |
) |
|
|
(156,054 |
) |
|
|
165,104 |
|
| |
Borrowings of Long-term Debt
|
|
|
202 |
|
|
|
258,351 |
|
|
|
— |
|
| |
Repayments on Long-term Debt
|
|
|
(9,186 |
) |
|
|
(12,296 |
) |
|
|
(29,738 |
) |
| |
Redemption of Convertible Preferred Debentures
|
|
|
— |
|
|
|
(412,563 |
) |
|
|
— |
|
| |
Proceeds from Issuance of Common Shares
|
|
|
— |
|
|
|
400,000 |
|
|
|
— |
|
| |
Purchases of Treasury Shares, Net
|
|
|
(1,236 |
) |
|
|
(2,619 |
) |
|
|
(2,703 |
) |
| |
Proceeds from Exercise of Stock Options
|
|
|
129,549 |
|
|
|
13,972 |
|
|
|
34,410 |
|
| |
Other Financing Activities, Net
|
|
|
(163 |
) |
|
|
(204 |
) |
|
|
(1,271 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
Net Cash Provided (Used) by Financing Activities
|
|
|
(139,609 |
) |
|
|
94,638 |
|
|
|
93,956 |
|
| |
|
|
|
|
|
|
|
|
|
|
Effect of Exchange Rate Changes on Cash and Cash Equivalents
|
|
|
2,776 |
|
|
|
4,220 |
|
|
|
1,019 |
|
|
Net Increase (Decrease) in Cash and Cash Equivalents
|
|
|
261,357 |
|
|
|
7,245 |
|
|
|
(39,995 |
) |
|
Cash and Cash Equivalents at Beginning of Year
|
|
|
56,082 |
|
|
|
48,837 |
|
|
|
88,832 |
|
| |
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of Year
|
|
$ |
317,439 |
|
|
$ |
56,082 |
|
|
$ |
48,837 |
|
| |
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
49
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
| 1. |
Summary of Significant Accounting Policies |
|
|
|
Principles of Consolidation |
The consolidated financial statements include the accounts of
Weatherford International Ltd. (a Bermuda exempted company)
(“Weatherford Limited”) and all majority-owned
subsidiaries (“the Company”). All material
intercompany accounts and transactions have been eliminated in
consolidation. The Company accounts for its 20% to 50% owned
affiliates using the equity method of accounting, as the Company
does not have voting or operational control of these affiliates.
The Company is one of the largest global providers of innovative
mechanical solutions, technology and services for the drilling
and production sectors of the oil and natural gas industry.
Effective June 26, 2002, Weatherford Limited became the
parent holding company of Weatherford International, Inc.
(“Weatherford Inc.”) following a corporate
reorganization. Upon consummation of the reorganization, the
shares of Weatherford Inc. common stock automatically converted
into the right to receive Weatherford Limited common shares,
$1.00 par value (“Common Shares”). In the
reorganization, Common Shares were issued to holders of
Weatherford Inc. common stock. In the consolidated financial
statements for all periods presented, the stockholders of
Weatherford Inc. are referred to as shareholders of the Company,
and as such, Weatherford Inc.’s common stock,
$1.00 par value, is referred to as Common Shares.
In June 2004, the Company’s management approved a plan to
sell its non-core Gas Services International (“GSI”)
compression fabrication business. This business was historically
included in the Company’s Production Systems segment. In
accordance with Statement of Financial Accounting Standard
(“SFAS”) No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets
(“SFAS No. 144”), the GSI compression
fabrication business results of operations, financial position
and cash flows have been reflected in the consolidated financial
statements and notes as a discontinued operation for all periods
presented.
In April 2003, the Company realigned its operating segments as
part of an ongoing productivity initiative. This realignment was
undertaken to improve the Company’s ability to serve its
customers’ interests, better coordinate its business
efforts across segments, accelerate the delivery of strategic
technologies to the marketplace and generate operating
efficiencies. The three historical segments of Drilling and
Intervention Services, Completion Systems and Artificial Lift
Systems now operate under two reporting segments: Drilling
Services and Production Systems. Accordingly, all historical
segment information reflects this operating structure.
The preparation of financial statements in conformity with U.S.
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period and disclosure of contingent
liabilities. On an ongoing basis, the Company evaluates its
estimates, including those related to uncollectible accounts
receivable, inventories, investments, intangible assets and
goodwill, property, plant and equipment, income taxes,
self-insurance, pension and postretirement benefit plans and
contingent liabilities. The Company bases its estimates on
historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying
values of assets and liabilities not readily apparent from other
sources. Actual results could differ from those estimates.
50
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
Certain 2003 deferred tax amounts have been reclassified to
conform with the current year presentation. The reclassification
of these balances results in a $47.7 million reduction of
the current income tax liability and net deferred tax asset as
of December 31, 2003.
In connection with the change in the segment structure during
2003, the detailed components of costs and expenses were
reviewed for classification. In order to conform to the new
reporting structure, select distribution costs were reclassified
to Cost of Products and Cost of Services, and certain field and
administration costs were reclassified to Selling, General and
Administrative Attributable to Segments. The following table
summarizes the net increase/(decrease) to Cost of Products, Cost
of Services and Selling, General and Administrative Attributable
to Segments in the accompanying Consolidated Statements of
Operations for the year ended December 31, 2002 (in
thousands):
| |
|
|
|
|
|
Cost of Products
|
|
$ |
50,851 |
|
|
Cost of Services
|
|
|
(17,344 |
) |
|
Selling, General and Administrative Attributable to Segments
|
|
|
(33,507 |
) |
Reclassifications were made in the 2002 and 2003 Consolidated
Statements of Cash Flows to conform to the current presentation.
|
|
|
Accounts Receivable and Allowance for Uncollectible
Accounts |
Accounts receivable are stated at the historical carrying amount
net of allowances for uncollectible accounts. The Company
establishes an allowance for uncollectible accounts based on
historical experience and any specific customer collection
issues the Company has identified. Uncollectible accounts
receivable are written off when a settlement is reached for an
amount less than the outstanding historical balance or when the
Company has determined the balance will not be collected.
During 2003 and 2004, the Company participated in an accounts
receivable securitization program. As of December 31, 2003,
$73.2 million of accounts receivable included in the
Company’s Consolidated Balance Sheet were owned by W1
Receivables, L.P. (“W1”), a wholly-owned subsidiary,
and were subject to a security interest in favor of third-party
lenders under an accounts receivable securitization. As of
December 31, 2004, there were no accounts receivable
included on the books of W1, as the Company’s accounts
receivable securitization was terminated in December 2004 (See
Note 9).
Inventories are stated at the lower of cost or market. Cost
represents third-party invoice or production cost. Production
cost includes material, labor and manufacturing overhead. The
Company values inventories at lower of cost or market using
either the first-in, first-out (“FIFO”) or average
cost methods.
|
|
|
Property, Plant and Equipment |
Property, plant and equipment, both owned and under capital
lease, is carried at cost. Maintenance and repairs are expensed
as incurred. The cost of renewals, replacements and betterments
is capitalized. Depreciation on fixed assets, including those
under capital leases, is computed using the straight-line method
over the estimated useful lives. Depreciation expense for the
years ended December 31, 2004, 2003 and 2002
51
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
was $232.6 million, $210.7 million and
$198.7 million, respectively. The estimated useful lives of
the major classes of property, plant and equipment are as
follows:
| |
|
|
|
|
| |
|
Estimated | |
| |
|
Useful Lives | |
| |
|
| |
|
Buildings and leasehold improvements
|
|
|
5 - 40 years or lease term |
|
|
Rental and service equipment
|
|
|
2 - 15 years |
|
|
Machinery and other
|
|
|
3 - 12 years |
|
In accordance with SFAS No. 144, long-lived assets,
excluding goodwill and indefinite-lived intangibles, to be held
and used by the Company are reviewed to determine whether any
events or changes in circumstances indicate the carrying amount
of the asset may not be recoverable. Factors that might indicate
a potential impairment may include, but are not limited to,
significant decreases in the market value of the long-lived
asset, a significant change in the long-lived asset’s
physical condition, a change in industry conditions or a
reduction in cash flows associated with the use of the
long-lived asset. If these or other factors indicate the
carrying amount of the asset may not be recoverable, the Company
determines whether an impairment has occurred through the use of
an undiscounted cash flow analysis of the asset at the lowest
level for which identifiable cash flows exist. If an impairment
has occurred, the Company recognizes a loss for the difference
between the carrying amount and the fair value of the asset. The
fair value of the asset is measured using market prices or, in
the absence of market prices, is based on an estimate of
discounted cash flows. Cash flows are generally discounted at an
interest rate commensurate with our weighted average cost of
capital for a similar asset. Assets are classified as held for
sale when the Company has a plan for disposal of certain assets
and those assets meet the held for sale criteria of
SFAS No. 144.
In June 2004, the Company’s management approved a plan to
sell its non-core GSI compression fabrication business. The GSI
compression fabrication business results of operations,
financial position and cash flows have been reflected in the
consolidated financial statements and notes as a discontinued
operation for all periods presented. During 2004, in reviewing
the GSI compression fabrication business, it was determined its
long-lived assets were impaired and a non-cash charge of
$5.5 million was recorded (See Note 2). During 2004,
2003 and 2002, certain other assets and businesses were sold by
the Company. However, the Company determined the discontinued
operations provisions of SFAS No. 144 did not apply to
these transactions as the disposals either did not meet the
SFAS No. 144 guidelines for discontinued operations or
neither the proceeds from the sale nor the businesses’
financial position or results of operations were material to the
Company.
|
|
|
Goodwill and Indefinite-Lived Intangible Assets |
In accordance with SFAS No. 142, Goodwill and Other
Intangible Assets (“SFAS No. 142”), the
Company tests for the impairment of goodwill and other
intangible assets with indefinite lives on at least an annual
basis. The Company’s goodwill impairment test involves a
comparison of the fair value of each of the Company’s
reporting units, as defined under SFAS No. 142, with
its carrying amount. The Company’s indefinite-lived asset
impairment test involves a comparison of the fair value of the
intangible asset and its carrying value. Fair value is estimated
using discounted cash flows and other market-related valuation
models, including earnings multiples and comparable asset market
values. If the fair value is less than the carrying value, the
asset is considered impaired. The amount of the impairment, if
any, is then determined based on an allocation of the reporting
unit fair values.
52
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
The Company’s intangible assets, excluding goodwill and
certain unrecognized prior service costs related to its pension
plan, are patents, technology licenses, trademarks and other
identifiable intangible assets. Intangible assets are amortized
on a straight-line basis over their estimated economic lives
ranging from 3 to 20 years except for intangible assets
with indefinite lives. As many areas of the Company’s
business rely on patents and proprietary technology, it has
followed a policy of seeking patent protection both inside and
outside the U.S. for products and methods that appear to
have commercial significance. The Company capitalizes patent
defense costs when it determines that a successful defense is
probable.
|
|
|
Pension and Postretirement Benefit Plans |
The Company has defined benefit pension and other postretirement
benefit plans covering certain of its employees. Costs of the
plan are charged to income and consist of several components,
known collectively as net periodic pension cost, which are based
on various actuarial assumptions regarding future experience of
the plans. Amounts recorded for these defined benefit plans
reflect estimates related to future interest rates, investment
rates of return, employee turnover and wage increases. The
Company reviews all assumptions and estimates on an ongoing
basis. The Company records an additional minimum pension
liability beyond accrued or prepaid pension costs, when
necessary, for the amount of accumulated pension obligations in
excess of the fair value of plan assets.
|
|
|
Environmental Expenditures |
Environmental expenditures that relate to the remediation of an
existing condition caused by past operation and that do not
contribute to future revenues are expensed. Liabilities for
these expenditures are recorded when it is probable that
obligations have been incurred and costs can be reasonably
estimated. Estimates are based on available facts and
technology, enacted laws and regulations and the Company’s
prior experience in remediation of contaminated sites. Accrued
undiscounted environmental liabilities were $5.9 million
and $6.4 million at December 31, 2004 and 2003,
respectively.
|
|
|
Derivative Financial Instruments |
The Company accounts for all derivative instruments under
SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities, as amended
(“SFAS No. 133”). This standard requires
that every derivative instrument be recorded at fair value in
the balance sheet as either an asset or a liability. Changes in
the fair value of derivatives are recorded each period in
current earnings or other comprehensive income, depending on
whether the derivative is designated as part of a hedge
relationship, and if so, the type of hedge transaction. Any gain
or loss associated with the termination of a swap is deferred
and amortized over the remaining debt term.
The functional currency for most of the Company’s
international operations is the applicable local currency.
Results of operations for foreign subsidiaries with functional
currencies other than the U.S. dollar are translated using
average exchange rates during the period. Assets and liabilities
of these foreign subsidiaries are translated using the exchange
rates in effect at the balance sheet dates, and the resulting
translation adjustments are included as Accumulated Other
Comprehensive Income, a component of shareholders’ equity.
In cases where the functional currency is the U.S. dollar
remeasurement gains and losses are reflected in the
Company’s results of operations during the period incurred.
The gain or loss related to individual foreign currency
transactions are reflected in results of operations when
incurred.
53
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
Effective January 1, 2003, the Company adopted
SFAS No. 123, Accounting for Stock-Based
Compensation (“SFAS No. 123”), to
expense the fair value of employee stock-based compensation. The
Company selected the prospective method of adoption, and under
this method, the fair value of employee stock-based compensation
granted during 2003 and 2004 is measured at the grant date based
on the fair value of the award and is recognized as an expense
over the service period, which is usually the vesting period.
The Company accounts for employee stock-based compensation
granted, modified or settled prior to January 1, 2003 using
the intrinsic method of accounting as prescribed by Accounting
Principles Board Opinion (“APB”) No. 25,
Accounting for Stock Issued to Employees. Under the
intrinsic method, no compensation expense is recognized when the
exercise price of an employee stock option is equal to the
Common Share market price on the grant date and all other
factors of the grant are fixed. The following illustrates the
pro forma effect on net income (loss) and earnings (loss) per
share if the Company had applied the fair value recognition
provisions of SFAS No. 123 to all outstanding and
unvested awards in each period:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except per share amounts) | |
|
Net Income (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
As reported
|
|
$ |
330,146 |
|
|
$ |
143,352 |
|
|
$ |
(6,030 |
) |
| |
Employee stock-based compensation expense included in reported
net income, net of income tax benefit
|
|
|
5,890 |
|
|
|
2,342 |
|
|
|
— |
|
| |
Pro forma compensation expense, determined under fair value
methods for all awards, net of income tax benefit
|
|
|
(26,911 |
) |
|
|
(34,073 |
) |
|
|
(42,491 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
Pro forma
|
|
$ |
309,125 |
|
|
$ |
111,621 |
|
|
$ |
(48,521 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
As reported
|
|
$ |
2.46 |
|
|
$ |
1.13 |
|
|
$ |
(0.05 |
) |
| |
Pro forma
|
|
|
2.31 |
|
|
|
0.88 |
|
|
|
(0.40 |
) |
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
As reported
|
|
$ |
2.30 |
|
|
$ |
1.09 |
|
|
$ |
(0.05 |
) |
| |
Pro forma
|
|
|
2.16 |
|
|
|
0.85 |
|
|
|
(0.40 |
) |
For purposes of determining the 2004 and 2003 employee
stock-based compensation expense and the 2004, 2003 and 2002 pro
forma disclosures, the fair value of each option grant is
estimated on the date of grant using the Black-Scholes option
pricing model. The estimated fair value of the options is
amortized over the options’ vesting period. The following
assumptions for 2004, 2003 and 2002, respectively, were computed
on a weighted average basis: expected volatility of 48.17%,
56.55% and 60.93%, risk-free interest rate of 3.9%, 3.0% and
3.3%, expected life of 5.0, 4.5 and 5.2 years and no
expected dividends. The weighted average fair value of the
options granted in 2004, 2003 and 2002 was $19.61, $17.36 and
$21.20, respectively.
|
|
|
Accounting for Income Taxes |
Under SFAS No. 109, Accounting for Income Taxes
(“SFAS No. 109”), income taxes have been
provided based upon the tax laws and rates in the countries in
which operations are conducted and income is earned. Deferred
tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities
and their respective tax bases. A valuation allowance for
deferred tax assets is recorded when it is more likely than not
that some or all of the benefit from the deferred tax asset will
not be realized.
54
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
Revenue is recognized when all of the following criteria have
been met: a) evidence of an agreement exists, b) delivery
to and acceptance by the customer has occurred, c) the
price to the customer is fixed and determinable and
d) collectibility is reasonably assured.
In accordance with Emerging Issues Task Force (“EITF”)
Issue No. 00-10, Accounting for Shipping and Handling
Fees and Costs, the Company recognizes the revenue
associated with rebillable shipping and handling costs as
Revenues of Products and Revenues of Services and all costs for
shipping and handling costs as Cost of Products and Cost of
Services in the accompanying Consolidated Statements of
Operations.
|
|
|
Earnings (Loss) Per Share |
Basic earnings (loss) per share for all periods presented equals
net income (loss) divided by the weighted average number of
Common Shares outstanding during the period. Diluted earnings
per share is computed by dividing net income, as adjusted for
the assumed conversion of dilutive debentures, by the weighted
average number of Common Shares outstanding during the period as
adjusted for the dilutive effect of the Company’s stock
option and restricted share plans, warrants and the incremental
shares for the assumed conversion of dilutive debentures. The
effect of stock option and restricted share plans, warrants and
the assumed conversion of dilutive debentures is not included in
the computation for periods in which a net loss occurs, because
to do so would be anti-dilutive.
The diluted earnings per share calculation excludes
0.2 million, 2.3 million and 20.5 million stock
options that were anti-dilutive for the years ended
December 31, 2004, 2003 and 2002, respectively. Net income
for the diluted earnings per share calculation for the year
ended 2004 is adjusted to add back the amortization of original
issue discount, net of taxes, relating to the Company’s
Zero Coupon Convertible Senior Debentures due 2020 (the
“Zero Coupon Debentures”) totaling $11.6 million.
The following reconciles basic and diluted weighted average
number of shares outstanding:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Basic weighted average shares outstanding
|
|
|
134,000 |
|
|
|
126,524 |
|
|
|
120,058 |
|
|
Dilutive effect of:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Warrant
|
|
|
975 |
|
|
|
1,090 |
|
|
|
— |
|
| |
Stock option and restricted share plans
|
|
|
4,612 |
|
|
|
4,147 |
|
|
|
— |
|
| |
Convertible debentures
|
|
|
9,097 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding
|
|
|
148,684 |
|
|
|
131,761 |
|
|
|
120,058 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
New Accounting Pronouncements |
In January 2003, the Financial Accounting Standards Board
(“FASB”) Interpretation No. 46, Consolidation
of Variable Interest Entities, (“FIN No. 46”)
was issued. FIN No. 46 requires a company to
consolidate a variable interest entity if it is the primary
beneficiary of that entity. A variable interest entity is
generally defined as an entity whose equity is insufficient to
absorb the expected losses or whose owners lack the risks and
rewards of ownership. FIN No. 46 is effective for all
variable interest entities created or modified after
January 31, 2003 and became effective for all other
variable interest entities during the interim period ending
March 31, 2004. The Interpretation requires certain
disclosures for all variable interest entities. In connection
with the adoption of FIN No. 46, the Company
determined its asset securitization facility was a variable
interest entity (See Note 9). The Company’s asset
securitization was part of a larger facility held by a
55
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
third-party financial institution. The financial institution
determined it was the primary beneficiary and consolidated the
facility in its financial statements. This facility was
terminated in December 2004.
In March 2004, the EITF reached a final consensus on EITF Issue
No. 03-1, The Meaning of Other-Than-Temporary Impairment
and Its Application to Certain Investments (“EITF
No. 03-1”). EITF No. 03-1 provides guidance used
to determine when an investment is considered impaired, whether
that impairment is other-than-temporary, and the measurement of
an impairment loss. The guidance includes accounting
considerations subsequent to the recognition of an
other-than-temporary impairment and requires certain disclosures
about unrealized losses that have not been recognized as
other-than-temporary impairments. The adoption of EITF
No. 03-1 did not have an impact on the Company’s
financial statements.
In November 2004, the FASB issued SFAS No. 151,
Inventory Costs — an amendment of ARB 43,
Chapter 4 (“SFAS No. 151”).
SFAS No. 151 clarifies the accounting for abnormal
amounts of idle facility expense, freight, handling costs and
wasted material. This statement requires abnormal amounts be
recognized as current period charges in all circumstances. In
addition, SFAS No. 151 requires the allocation of
fixed production overheads to the costs of conversion be based
on the normal capacity of the production facilities.
SFAS No. 151 is effective for fiscal years beginning
after June 15, 2005. The Company does not believe the
implementation of SFAS No. 151 will have a material
impact on its financial position, results of operations or cash
flows.
In December 2004, the FASB issued SFAS No. 123-Revised
2004, Share-Based Payment
(“SFAS No. 123R”)which revises
SFAS No. 123, Accounting for Stock-Based
Compensation, and supersedes APB No. 25, Accounting
for Stock Issued to Employees. SFAS No. 123R
requires all share-based payments to employees, including grants
of employee stock options, to be recognized in the financial
statements based on their fair values. SFAS No. 123R
is effective the first interim period beginning after
June 15, 2005. As discussed previously, in 2003 the Company
began expensing the fair value of employee stock-based
compensation over the service period; therefore, the new
guidance will only affect unvested options granted prior to
2003. The Company is currently evaluating the impact
SFAS No. 123R will have on its 2005 third quarter
results. There will be no material impact to its results after
the third quarter of 2005 as essentially all grants either vest
in the third quarter or are already reflected in the
Company’s results.
In December 2004, the FASB issued FASB Staff Position
No. 109-1, Application of FASB Statement No. 109,
Accounting for Income Taxes, to the Tax Deduction on Qualified
Production Activities Provided by the American Jobs Creation Act
of 2004 (“FSP 109-1”) and FASB Staff Position
No. 109-2, Accounting and Disclosure Guidance for the
Foreign Earnings Repatriation Provision within the American Jobs
Creation Act of 2004 (“FSP 109-2”).
FSP 109-1 clarifies the guidance in SFAS No. 109
and provides that the new deduction for qualified domestic
production activities under the American Jobs Creation Act of
2004 (the “Act”) should be accounted for as a special
deduction under SFAS 109, not as a tax-rate reduction,
because the deduction is contingent on performing activities
identified in the Act. FSP 109-2 addresses the effect of
the Act’s one-time deduction for qualifying repatriations
of foreign earnings. FSP 109-2 allows additional time for
companies to determine whether any foreign earnings will be
repatriated under the Act’s one-time deduction for
repatriated earnings and how the Act affects whether
undistributed earnings continue to qualify for
SFAS 109’s exception from recognizing deferred tax
liabilities. FSP 109-1 and FSP 109-2 were both effective upon
issuance. The Company is currently evaluating the impact the
adoption of FSP 109-1 and FSP 109-2 will have on its financial
position, results of operations or cash flows.
|
|
| 2. |
Discontinued Operation |
In June 2004, the Company’s management approved a plan to
sell its non-core GSI compression fabrication business. This
business was historically included in the Company’s
Production Systems segment. In accordance with
SFAS No. 144, the GSI compression fabrication business
results of operations, financial position and cash flows have
been reflected in the consolidated financial statements and
notes as a
56
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
discontinued operation for all periods presented. The Company
has contacted interested buyers, is actively marketing the
business and believes it will be sold by June 2005.
The loss of $7.2 million, net of taxes, from the
discontinued operation for the year ended December 31, 2004
includes non-cash charges of $5.5 million. The non-cash
charges consist of a $3.1 million goodwill and asset
impairment charge and an income tax provision of
$2.4 million to record a valuation allowance against
deferred tax assets from net operating losses that the Company
will not be able to utilize.
Interest charges have been allocated to the discontinued
operation in accordance with EITF Issue No. 87-24,
Allocation of Interest to Discontinued Operations. The
interest was allocated based on a pro rata calculation of the
net assets of the discontinued business to the Company’s
consolidated net assets.
Operating results of the discontinued operation were as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Revenues
|
|
$ |
39,356 |
|
|
$ |
29,374 |
|
|
$ |
40,506 |
|
| |
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes
|
|
$ |
(4,741 |
) |
|
$ |
(4,898 |
) |
|
$ |
1,746 |
|
|
(Provision) Benefit for Income Taxes
|
|
|
(2,412 |
) |
|
|
1,007 |
|
|
|
(817 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) from Discontinued Operation, Net of Taxes
|
|
$ |
(7,153 |
) |
|
$ |
(3,891 |
) |
|
$ |
929 |
|
| |
|
|
|
|
|
|
|
|
|
Balance sheet information for the discontinued operation within
the Production Systems segment was as follows:
| |
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
|
December 31, | |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Accounts Receivable, Net of Allowance for Uncollectible Accounts
|
|
$ |
1,759 |
|
|
$ |
5,050 |
|
|
Inventories
|
|
|
9,533 |
|
|
|
25,366 |
|
|
Other Current Assets
|
|
|
1,158 |
|
|
|
388 |
|
| |
|
|
|
|
|
|
| |
Current Assets from Discontinued Operation
|
|
|
12,450 |
|
|
|
30,804 |
|
| |
|
|
|
|
|
|
|
Property, Plant and Equipment, Net
|
|
|
175 |
|
|
|
276 |
|
|
Other Assets
|
|
|
131 |
|
|
|
2,009 |
|
| |
|
|
|
|
|
|
| |
Long-term Assets from Discontinued Operation
|
|
|
306 |
|
|
|
2,285 |
|
| |
|
|
|
|
|
|
| |
|
$ |
12,756 |
|
|
$ |
33,089 |
|
| |
|
|
|
|
|
|
|
Accounts Payable
|
|
$ |
7,567 |
|
|
$ |
17,514 |
|
|
Other Current Liabilities
|
|
|
4,121 |
|
|
|
2,829 |
|
| |
|
|
|
|
|
|
| |
Current Liabilities from Discontinued Operation
|
|
$ |
11,688 |
|
|
$ |
20,343 |
|
| |
|
|
|
|
|
|
|
|
| 3. |
Corporate Reorganization |
Effective June 26, 2002, Weatherford Limited became the
parent holding company of Weatherford Inc. following a corporate
reorganization. Weatherford Inc. continues to exist as an
indirect, wholly owned subsidiary of Weatherford Limited.
Weatherford Limited and its subsidiaries continue to conduct the
business previously conducted by Weatherford Inc. and its
subsidiaries. The reorganization has been accounted for as a
reorganization of entities under common control, and
accordingly, did not result in any changes to the consolidated
amounts of assets, liabilities or shareholders’ equity.
57
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
In connection with the reorganization, the Company incurred
$4.5 million, $3.0 million after taxes, in
transaction-related expenses. The transaction expenses relate to
professional services and are reflected in Corporate General and
Administrative in the accompanying Consolidated Statements of
Operations for the year ended December 31, 2002.
Weatherford Limited and Weatherford Inc. guarantee, on a full
and unconditional basis, certain obligations of the Company (See
Note 24).
|
|
| 4. |
Severance, Restructuring and Asset Impairment Charges |
During the second quarter of 2003, the Company recorded
approximately $7.7 million, $5.6 million net of taxes,
in severance and severance related costs in connection with the
realignment of its segments. Severance and severance related
costs summarized by segment and by financial statement
classification were as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Drilling Services | |
|
Production Systems | |
|
Total | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Cost of Products
|
|
$ |
2,398 |
|
|
$ |
1,905 |
|
|
$ |
4,303 |
|
|
Cost of Services
|
|
|
973 |
|
|
|
— |
|
|
|
973 |
|
|
Research and Development
|
|
|
51 |
|
|
|
425 |
|
|
|
476 |
|
|
Selling, General and Administrative Attributable to Segments
|
|
|
548 |
|
|
|
1,410 |
|
|
|
1,958 |
|
| |
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
3,970 |
|
|
$ |
3,740 |
|
|
$ |
7,710 |
|
| |
|
|
|
|
|
|
|
|
|
In accordance with the Company’s announced plan to
terminate employees company-wide, it recorded severance costs
for 515 specifically identified employees. All identified
employees had been terminated and all costs had been incurred as
of December 31, 2003.
|
|
|
2002 Restructuring and Asset Impairment Charge |
During 2002, the Company recorded $15.4 million,
$10.0 million net of taxes, in restructuring and asset
impairment charges relating to a rationalization of its
business. The Company undertook initiatives to rationalize its
business in light of the lower activity levels and the continued
economic uncertainty. The plan approved during 2002 included a
reduction in workforce, primarily in the U.S., and closure of
two facilities.
Components of the charge included $8.6 million of severance
and related costs and $11.5 million of asset impairment
charges offset by a $4.7 million reversal of an unutilized
prior period charge. The severance and related costs were for
849 specifically identified employees. All identified employees
were terminated in 2003. The asset impairment charges of
$11.5 million primarily relate to the write-down of
equipment and facilities as a result of the decline in market
conditions. Certain assets were sold, and the remaining assets
have a carrying amount of $2.8 million and
$4.8 million as of December 31, 2004 and 2003,
respectively, and are classified in Property, Plant and
Equipment on the accompanying Consolidated Balance Sheets. In
2000, the Company recorded a charge of $56.3 million in
connection with the merger of its former Compression Services
Division (See Note 5) with Universal Compression Holdings,
Inc. (“Universal”) of which $4.7 million of
estimated transaction costs were not incurred and were reversed
in 2002.
During the first quarter of 2003, the Company modified its plan
and reversed $3.1 million of unutilized severance accruals
recorded by the Production Systems segment. The Company expensed
an additional $2.0 million during the first quarter of 2003
for other facility impairments within the Production Systems
segment. The amounts related to the modification were recorded
in Cost of Products in the accompanying
58
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
Consolidated Statements of Operations. The charge related to the
2002 plan is summarized by segment and by financial statement
classification in the following table:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Drilling Services | |
|
Production Systems | |
|
Corporate | |
|
Total | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Cost of Products
|
|
$ |
2,800 |
|
|
$ |
10,751 |
|
|
$ |
— |
|
|
$ |
13,551 |
|
|
Cost of Services
|
|
|
1,985 |
|
|
|
— |
|
|
|
— |
|
|
|
1,985 |
|
|
Corporate General and Administrative
|
|
|
— |
|
|
|
— |
|
|
|
(99 |
) |
|
|
(99 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,785 |
|
|
|
10,751 |
|
|
|
(99 |
) |
|
|
15,437 |
|
| |
Utilized during 2002
|
|
|
(3,418 |
) |
|
|
(7,289 |
) |
|
|
99 |
|
|
|
(10,608 |
) |
| |
Reversal of 2002 restructuring charge
|
|
|
— |
|
|
|
(3,148 |
) |
|
|
— |
|
|
|
(3,148 |
) |
| |
Utilized during 2003
|
|
|
(1,367 |
) |
|
|
(314 |
) |
|
|
— |
|
|
|
(1,681 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2003
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
On February 9, 2001, the Company completed the merger of
essentially all of its Compression Services Division with and
into a subsidiary of Universal in exchange for
13.75 million shares of Universal common stock. In 2004,
the Company sold 7.0 million shares of Universal common
stock for net proceeds of $231.8 million. This sale, which
had no related tax effects, generated a gain of
$77.6 million and reduced the Company’s ownership to
6.75 million shares, or approximately 21%, of
Universal’s outstanding common stock.
In connection with the merger, the Company and Universal entered
into a Registration Rights Agreement, pursuant to which the
Company was granted certain demand and piggyback registration
rights for its shares of Universal common stock. Pursuant to the
terms of the merger agreement, the Company also appointed three
members to Universal’s eight member Board of Directors,
including both the Company’s Chairman, President and Chief
Executive Officer and the Company’s Chief Financial
Officer. As long as the Company owns at least 20% of
Universal’s outstanding common stock, the Company has the
right to designate three board members. If its ownership
interest falls below 20%, it may designate only two directors,
and if its ownership falls below 10% the Company will no longer
be entitled to designate directors to serve on Universal’s
Board of Directors.
The Company records its investment in Universal as Equity
Investments in Unconsolidated Affiliates on the accompanying
Consolidated Balance Sheets. The Company records its equity
interest in Universal’s results of operations, based on
estimates provided by Universal, as Equity in (Earnings) Losses
of Unconsolidated Affiliates, Net of Impairment Charge on the
accompanying Consolidated Statements of Operations. The Company
has not received distributions from Universal related to its
investment.
The Company reviews its investment in Universal for impairment
in accordance with APB No. 18, The Equity Method of
Accounting for Investments in Common Stock (“APB
No. 18”). APB No. 18 requires recognition of a
loss when the decline in an investment is other-than-temporary.
In determining whether the decline is other-than-temporary, the
Company considers the cyclical nature of the industry in which
Universal operates, their historical performance, their
performance in relation to their peers and the current economic
environment. In the third quarter of 2002, the Company recorded
a write-down of its investment in Universal by
$217.1 million as it determined the decline in the market
value was other-than-temporary. In connection with the reduction
in the carrying value of this investment, the Company recognized
a tax benefit of $70.9 million, reducing the deferred tax
liability related to the difference between the book carrying
value and the tax basis of the investment. As of
December 31, 2004, the Company’s carrying value of its
investment in Universal was $151.8 million and the market
value of the Company’s ownership interest in Universal was
$235.6 million.
59
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
Summarized financial information for Universal is presented
below:
| |
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Current assets
|
|
$ |
254,124 |
|
|
$ |
318,277 |
|
|
Long-term assets
|
|
|
1,749,060 |
|
|
|
1,672,158 |
|
|
Current liabilities
|
|
|
135,125 |
|
|
|
165,338 |
|
|
Long-term liabilities
|
|
|
1,011,725 |
|
|
|
1,045,297 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Revenues
|
|
$ |
760,142 |
|
|
$ |
652,666 |
|
|
$ |
658,571 |
|
|
Gross profit
|
|
|
307,889 |
|
|
|
281,375 |
|
|
|
268,728 |
|
|
Net income
|
|
|
49,824 |
|
|
|
25,988 |
|
|
|
38,912 |
|
The financial statements of Universal for its year ended
March 31, 2004 are required by Rule 3-09 of
Regulation S-X and are filed as part of this Form 10-K
as Exhibit 99.3 hereto. In addition, the financial
statements of Universal for the year ended March 31, 2005
will be filed as an amendment to this Form 10-K upon the
filing by Universal of their Form 10-K. Universal is
required to file their Form 10-K by June 14, 2005.
During 2004, 2003 and 2002, the Company acquired various
entities for total consideration of approximately
$22.3 million, $56.4 million and $130.9 million,
respectively.
The Company’s 2003 acquisitions included certain assets of
the North American wellhead business of Kvaerner Oilfield
Products, Inc. (“Kvaerner”), a subsidiary of Aker
Kvaerner ASA, for approximately $22.0 million in cash. The
acquired business is based in Houston, Texas and is a designer,
manufacturer and distributor of non-subsea wellhead products.
This acquisition was integrated into the Company’s
Production Systems Division and increased the Company’s
offerings of products in the U.S. and Canada.
The Company’s 2002 acquisitions included certain assets of
Clearwater International (“Clearwater”) for
approximately $33.6 million, consisting of 0.4 million
Common Shares and cash of $18.0 million. Clearwater is
based in Coraopolis, Pennsylvania and is a producer and
distributor of oilfield production and completion chemicals.
This acquisition was integrated into the Company’s
Production Systems Division and provided key proprietary
products and fluid technology to the Company’s
underbalanced drilling services product line.
The acquisitions discussed above were accounted for using the
purchase method of accounting. Results of operations for
acquisitions are included in the accompanying consolidated
financial statements since the date of acquisition. The purchase
price was allocated to the net assets acquired based upon their
estimated fair values at the date of acquisition. The balances
included in the Consolidated Balance Sheets related to the
current year acquisitions are based upon preliminary information
and are subject to change when final asset and liability
valuations are obtained. Final valuations of assets and
liabilities are obtained and recorded within one year from the
date of the acquisition. Material changes in the preliminary
allocations are not anticipated by management. The 2004, 2003
and 2002 acquisitions are not material individually or in the
aggregate therefore pro forma information is not presented.
The Company considers all highly liquid investments with
original maturities of three months or less to be cash
equivalents. Other Current Assets at December 31, 2004 and
2003 included cash of approximately
60
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
$2.0 million and $6.1 million, respectively, which was
restricted as a result of bond requirements in certain foreign
countries.
During the years ended December 31, 2004, 2003 and 2002,
there were non-cash operating activities of $28.0 million,
$4.4 million and $15.7 million, respectively, relating
to tax benefits received from the exercise of nonqualified stock
options. These benefits were recorded as a reduction of income
taxes payable and an increase to Capital in Excess of Par Value
on the accompanying Consolidated Balance Sheets.
During the years ended December 31, 2004, 2003 and 2002,
there were non-cash investing activities of $0.2 million,
$1.7 million and $0.3 million, respectively, relating
to capital leases. In addition, during the years ended
December 31, 2004, 2003 and 2002, there were non-cash
investing activities of $4.5 million, $3.2 million and
$9.9 million, respectively, related to the notes receivable
received in exchange for the Company’s business and asset
sales.
During the years ended December 31, 2004, 2003 and 2002,
there were non-cash financing activities related to our interest
rate swaps of $16.1 million, $4.5 million and
$14.1 million, respectively (See Note 14).
Cash paid for interest and income taxes, net of refunds, was as
follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Interest paid
|
|
$ |
69,296 |
|
|
$ |
68,062 |
|
|
$ |
78,018 |
|
|
Income taxes paid, net of refunds
|
|
|
91,059 |
|
|
|
58,258 |
|
|
|
40,127 |
|
The following summarizes investing activities relating to
acquisitions integrated into the Company’s operations:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Fair value of assets, net of cash acquired
|
|
$ |
17,293 |
|
|
$ |
49,956 |
|
|
$ |
84,535 |
|
|
Goodwill
|
|
|
20,833 |
|
|
|
21,670 |
|
|
|
80,578 |
|
|
Consideration paid (received) related to prior year
acquisitions
|
|
|
4,142 |
|
|
|
5,117 |
|
|
|
(3,552 |
) |
|
Total liabilities
|
|
|
(15,804 |
) |
|
|
(15,216 |
) |
|
|
(34,184 |
) |
|
Common Shares issued
|
|
|
— |
|
|
|
— |
|
|
|
(15,623 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Cash consideration, net of cash acquired
|
|
$ |
26,464 |
|
|
$ |
61,527 |
|
|
$ |
111,754 |
|
| |
|
|
|
|
|
|
|
|
|
Inventories by category are as follows:
| |
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Raw materials, components and supplies
|
|
$ |
167,569 |
|
|
$ |
158,328 |
|
|
Work in process
|
|
|
49,701 |
|
|
|
34,193 |
|
|
Finished goods
|
|
|
462,337 |
|
|
|
424,227 |
|
| |
|
|
|
|
|
|
| |
|
$ |
679,607 |
|
|
$ |
616,748 |
|
| |
|
|
|
|
|
|
Work in process and finished goods inventories include the cost
of materials, labor and plant overhead.
61
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
In December 2004, the Company terminated its agreement with a
financial institution to sell, on a continuous basis, an
undivided interest in a specific pool of U.S. accounts
receivable of certain subsidiaries of the Company. Pursuant to
this agreement, these subsidiaries continuously sold certain
trade accounts receivable to a wholly-owned bankruptcy-remote
subsidiary of the Company, W1. W1 was formed to purchase
accounts receivable and, in turn, sell participating interests
in such accounts receivable to a financial institution. The sale
of participating interests was limited to a percentage of
receivables sold to W1. Receivables were sold at a discount
approximating the financial institution’s financing costs
of issuing commercial paper backed by the accounts receivable.
In accordance with SFAS No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities, at the time a participating interest was
sold, the related receivables were removed from the Consolidated
Balance Sheet. In this transaction, the Company retained
servicing responsibilities and a subordinated interest in the
pool of receivables. There was no recourse against the Company
for failure of debtors to pay when due on account of
debtors’ bankruptcy or inability to pay.
The Company was permitted to sell up to $80.0 million of
participating interests in trade accounts receivable under this
agreement. In connection with the reorganization, the Company
fully and unconditionally guaranteed certain domestic
subsidiaries’ performance obligations relating to the asset
securitization. Charges incurred, in connection with the sale of
receivables under the asset securitization, were
$1.0 million for the years ended December 31, 2004 and
2003 and $2.2 million for the year ended December 31,
2002, respectively, and are included in Other Income (Expense)
on the accompanying Consolidated Statements of Operations. As of
December 31, 2004, the Company had no receivables sold
under the agreement. At December 31, 2003, the pool of
receivables totaled $148.2 million, the Company had
received $75.0 million for purchased interests and the
Company’s subordinated interest totaled $73.2 million.
SFAS No. 142 provides for the non-amortization of
goodwill and other intangible assets with indefinite lives and
requires such assets be tested for impairment on an annual basis
or when events occur or circumstances change between annual
tests that would more likely than not reduce the fair value of a
reporting unit below its carrying amount. The Company performs
its annual goodwill impairment test as of October 1. The
Company’s goodwill impairment test involves a comparison of
the fair value of each of the Company’s reporting units, as
defined under SFAS No. 142, with its carrying amount.
The fair value is determined using discounted cash flows and
other market-related valuation models. The Company’s 2004,
2003 and 2002 impairment tests indicated goodwill was not
impaired. The Company will continue to test its goodwill
annually as of October 1 unless events occur or
circumstances change between annual tests that would more likely
than not reduce the fair value of a reporting unit below its
carrying amount.
In connection with the June 2004 approval of the plan to sell
the GSI compression fabrication business (See Note 2),
$2.8 million of goodwill from the Production Systems
reporting unit was allocated to the discontinued business based
on a relative fair value approach. The allocated goodwill was
tested separately for impairment by comparing the fair value of
the disposal group to its carrying amount. The calculation
indicated the goodwill was impaired, and an impairment charge of
$2.8 million was recorded which is included in the loss
from discontinued operation. Following the allocation, the
remaining goodwill of the Production Systems reporting unit was
tested for impairment. The fair value of the Production Systems
reporting unit exceeded its carrying amount, thereby indicating
the remaining goodwill was not impaired.
During 2003, in connection with the operating segment
realignment, the Company re-evaluated its reporting units as
defined by SFAS No. 142 and determined based upon the
statement’s aggregation principles, the Company’s new
reporting units correspond to the Company’s Drilling
Services and Production
62
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
Systems operating segments. The Company reassigned its goodwill
to the new reporting units based on a relative fair value
approach.
The changes in the carrying amount of goodwill for the two years
ended December 31, 2004 are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Drilling | |
|
Production | |
|
|
| |
|
Services | |
|
Systems | |
|
Total | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
As of December 31, 2002
|
|
$ |
808,729 |
|
|
$ |
688,573 |
|
|
$ |
1,497,302 |
|
| |
Goodwill acquired during period
|
|
|
14,224 |
|
|
|
7,446 |
|
|
|
21,670 |
|
| |
Disposals
|
|
|
— |
|
|
|
(1,057 |
) |
|
|
(1,057 |
) |
| |
Purchase price and other adjustments
|
|
|
684 |
|
|
|
1,901 |
|
|
|
2,585 |
|
| |
Impact of foreign currency translation
|
|
|
26,580 |
|
|
|
54,131 |
|
|
|
80,711 |
|
| |
|
|
|
|
|
|
|
|
|
|
As of December 31, 2003
|
|
|
850,217 |
|
|
|
750,994 |
|
|
|
1,601,211 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Goodwill acquired during period
|
|
|
7,973 |
|
|
|
12,860 |
|
|
|
20,833 |
|
| |
Impairment charge
|
|
|
— |
|
|
|
(2,775 |
) |
|
|
(2,775 |
) |
| |
Disposals
|
|
|
(2,200 |
) |
|
|
— |
|
|
|
(2,200 |
) |
| |
Purchase price and other adjustments
|
|
|
(4,231 |
) |
|
|
(4,023 |
) |
|
|
(8,254 |
) |
| |
Impact of foreign currency translation
|
|
|
20,165 |
|
|
|
40,657 |
|
|
|
60,822 |
|
| |
|
|
|
|
|
|
|
|
|
|
As of December 31, 2004
|
|
$ |
871,924 |
|
|
$ |
797,713 |
|
|
$ |
1,669,637 |
|
| |
|
|
|
|
|
|
|
|
|
11. Other Intangible Assets,
Net
The components of definite-lived intangible assets are as
follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, 2004 | |
|
December 31, 2003 | |
| |
|
| |
|
| |
| |
|
Gross | |
|
|
|
Gross | |
|
|
| |
|
Carrying | |
|
Accumulated | |
|
|
|
Carrying | |
|
Accumulated | |
|
|
| |
|
Amount | |
|
Amortization | |
|
Net | |
|
Amount | |
|
Amortization | |
|
Net | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Licenses
|
|
$ |
203,728 |
|
|
$ |
(36,549 |
) |
|
$ |
167,179 |
|
|
$ |
196,771 |
|
|
$ |
(24,446 |
) |
|
$ |
172,325 |
|
|
Patents
|
|
|
107,630 |
|
|
|
(26,609 |
) |
|
|
81,021 |
|
|
|
94,458 |
|
|
|
(20,208 |
) |
|
|
74,250 |
|
|
Covenants not to compete
|
|
|
21,986 |
|
|
|
(17,625 |
) |
|
|
4,361 |
|
|
|
20,962 |
|
|
|
(13,987 |
) |
|
|
6,975 |
|
|
Other
|
|
|
12,923 |
|
|
|
(4,392 |
) |
|
|
8,531 |
|
|
|
11,589 |
|
|
|
(2,829 |
) |
|
|
8,760 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
346,267 |
|
|
$ |
(85,175 |
) |
|
$ |
261,092 |
|
|
$ |
323,780 |
|
|
$ |
(61,470 |
) |
|
$ |
262,310 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense was $23.3 million, $21.7 million
and $16.0 million for the years ended December 31,
2004, 2003 and 2002, respectively. Estimated amortization
expense for the carrying amount of intangible assets as of
December 31, 2004 is expected to be $22.5 million for
2005, $21.3 million for 2006, $19.2 million for 2007,
$17.6 million for 2008 and $17.1 million for 2009.
The Company has trademarks associated with its 2001 acquisition
of the Johnson Screens division from Vivendi Environnement,
which are considered to have indefinite lives as the Company has
the ability and intent to renew indefinitely. These trademarks
are classified in Other Intangible Assets, Net on the
accompanying Consolidated Balance Sheets and had a carrying
value of $8.0 million at December 31, 2004 and 2003,
respectively. The estimated fair value of intangible assets
obtained through acquisitions
63
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
consummated in the preceding twelve months are based on
preliminary information which is subject to change when final
valuations are obtained.
The Company has intangible assets recorded for unrecognized
prior service costs related to its Supplemental Executive
Retirement Plan (“SERP”) and several of its
international pension plans (See Note 18). These
unrecognized costs are classified in Other Intangible Assets,
Net on the accompanying Consolidated Balance Sheets and were
$25.5 million and $21.1 million as of
December 31, 2004 and 2003, respectively.
| |
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
2003 Revolving credit facility with an effective interest rate
of 1.64% at December 31, 2004 and 1.69% at
December 31, 2003
|
|
$ |
— |
|
|
$ |
144,000 |
|
|
Short-term bank loans with effective interest rates between
4.25% and 6.25% at December 31, 2004 and between 0.93% and
6.25% at December 31, 2003
|
|
|
11,072 |
|
|
|
50,575 |
|
| |
|
|
|
|
|
|
| |
|
$ |
11,072 |
|
|
$ |
194,575 |
|
| |
|
|
|
|
|
|
|
Weighted average interest rate on short-term borrowings
outstanding during the year
|
|
|
2.79 |
% |
|
|
2.23 |
% |
In May 2003, the Company entered into a three-year unsecured
revolving credit facility agreement that provides for borrowings
or issuances of letters of credit of up to an aggregate of
$500.0 million. Amounts outstanding accrue interest at a
variable rate based on either the U.S. prime rate or London
Interbank Offered Rate (“LIBOR”) and the credit rating
assigned to the Company’s long-term senior debt. The
facility contains customary affirmative and negative covenants,
including a maximum debt to capitalization ratio, a minimum
interest coverage ratio, a limitation on liens, a limitation on
incurrence of indebtedness and a limitation on asset
dispositions. The Company was in compliance with these covenants
at December 31, 2004. As of December 31, 2004, the
Company had $456.9 million available under this agreement
due to $43.1 million being used to secure outstanding
letters of credit.
During 2004, the Company entered into three short-term committed
credit facilities to support its operations at the regional
level. The Canadian facility provides that borrowings or letters
of credit may be issued under the facility up to an aggregate of
$16.3 million, 20 million Canadian dollars. The Middle
East and Asia Pacific facilities provide that borrowings or
letters of credit may be issued under the facilities up to an
aggregate of $25.0 million per facility. As of
December 31, 2004, there were outstanding borrowings of
$7.1 million and $23.4 million of letters of credit
outstanding under the three facilities combined.
The Company has unsecured short-term borrowings with various
institutions pursuant to uncommitted facilities. At
December 31, 2004 and 2003, the Company had
$4.0 million and $50.6 million, respectively, in
unsecured short-term borrowings outstanding under these
arrangements. The weighted average interest rate was 4.83% and
4.29% for 2004 and 2003, respectively.
The Company also has various credit facilities available for
stand-by letters of credit and bid and performance bonds. The
Company had $15.4 million of such letters of credit and bid
and performance bonds outstanding at December 31, 2004.
64
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
| |
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
4.95% Senior Notes due 2013
|
|
$ |
256,659 |
|
|
$ |
249,537 |
|
|
65/8% Senior
Notes due 2011
|
|
|
359,171 |
|
|
|
350,884 |
|
|
71/4% Senior
Notes due 2006
|
|
|
206,629 |
|
|
|
211,034 |
|
|
Foreign bank and other debt denominated in foreign currencies
|
|
|
9,771 |
|
|
|
13,196 |
|
|
Capital lease obligations
|
|
|
4,861 |
|
|
|
7,959 |
|
|
Other
|
|
|
4,925 |
|
|
|
3,018 |
|
| |
|
|
|
|
|
|
| |
|
|
842,016 |
|
|
|
835,628 |
|
|
Less amounts due in one year
|
|
|
11,163 |
|
|
|
12,767 |
|
| |
|
|
|
|
|
|
|
Long-term debt
|
|
$ |
830,853 |
|
|
$ |
822,861 |
|
| |
|
|
|
|
|
|
The following is a summary of scheduled long-term debt
maturities by year (in thousands):
| |
|
|
|
|
|
2005
|
|
$ |
11,163 |
|
|
2006
|
|
|
208,230 |
|
|
2007
|
|
|
8,639 |
|
|
2008
|
|
|
3,318 |
|
|
2009
|
|
|
421 |
|
|
Thereafter
|
|
|
610,245 |
|
| |
|
|
|
| |
|
$ |
842,016 |
|
| |
|
|
|
On October 7, 2003, the Company completed a public offering
of $250.0 million of 4.95% Senior Notes due 2013
(“4.95% Senior Notes”). The notes are fully and
unconditionally guaranteed by Weatherford Inc. The interest on
the notes is payable semi-annually in arrears on April 15 and
October 15 of each year. Net proceeds from the offering were
$247.9 million and were used to repay short-term
borrowings. As evidenced by market transactions, the estimated
fair value of the 4.95% Senior Notes was
$249.4 million and $243.4 million as of
December 31, 2004 and 2003, respectively.
On November 16, 2001, the Company completed a private
placement of $350.0 million of
65/8% Senior
Notes due 2011
(“65/8%
Senior Notes”) which are unsecured obligations of the
Company. The interest on the notes is payable semi-annually in
arrears on May 15 and November 15 of each year. As evidenced by
market transactions, the estimated fair value of the
65/8% Senior
Notes was $386.4 million and $384.8 million as of
December 31, 2004 and 2003, respectively.
The Company has outstanding $200.0 million of
71/4% Senior
Notes due 2006
(“71/4%
Senior Notes”) which are unsecured obligations of the
Company. Interest is payable semi-annually on May 15 and
November 15. Based on the borrowing rates available to the
Company, the fair value of the
71/4% Senior
Notes was $209.7 million and $220.0 million at
December 31, 2004 and 2003, respectively.
65
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
The effective rate for the 4.95% Senior Notes,
65/8% Senior
Notes and
71/4% Senior
Notes was 3.68%, 5.70% and 4.46%, respectively, for the year
ended December 31, 2004 and 5.07%, 6.29% and 4.82%,
respectively, for the year ended December 31, 2003 after
giving consideration to all derivative activity (See
Note 14).
|
|
| 14. |
Derivative Instruments |
The Company uses interest rate swap agreements to take advantage
of short-term interest rates available in the economic
environment. The swap agreements are fair value hedges and the
terms of the agreements are such that the hedges are considered
perfectly effective against changes in the fair value of the
debt due to changes in the benchmark interest rates over their
term. The shortcut method prescribed by SFAS No. 133
applies, and there is no need to periodically reassess the
effectiveness of the hedge during the term of the swaps. Amounts
received upon termination of the swap agreements represent the
fair value of the agreements at the time of termination and are
recorded as an adjustment to the carrying value of the related
debt. These amounts are amortized as a reduction of interest
expense over the remaining term of the debt.
During 2002, the Company had in effect two interest rate swap
agreements entered into against its
71/4% Senior
Notes. In October 2002, both swap agreements were terminated,
and the Company received cash proceeds, net of accrued interest,
of $11.0 million.
In the third and fourth quarter of 2003, the Company entered
into interest rate swap agreements on an aggregate notional
amount of $150.0 million of its
71/4% Senior
Notes and $250.0 million of its
65/8% Senior
Notes. These agreements were outstanding as of December 31,
2003. They were recorded at fair value and classified in Other
Assets with the offset to Long-term Debt on the accompanying
Consolidated Balance Sheets. The aggregate fair market value of
the swaps was an asset of $4.5 million as of
December 31, 2003. In January 2004, the Company terminated
these swap agreements and received $7.8 million in cash
proceeds, net of accrued interest, as settlement.
During 2004, the Company entered into and terminated separate
interest rate swap agreements on notional amounts of
$200.0 million and $150.0 million of its
4.95% Senior Notes and $70.0 million and
$170.0 million of its
65/8% Senior
Notes. As a result of these terminations, the Company received
cash proceeds, net of accrued interest, of approximately
$12.8 million. There were no interest rate swap agreements
outstanding as of December 31, 2004.
The gains associated with the Company’s interest rate swap
terminations have been deferred and are amortized over the
remaining term of the debt. The Company’s annual interest
expense was reduced by $12.3 million, $6.0 million and
$6.4 million for 2004, 2003 and 2002, respectively, as a
result of its interest rate swap activity.
During September 2003, we entered into cash flow hedges to
secure the underlying interest rate in anticipation of the 4.95%
Senior Notes issuance. In connection with the October issuance,
these cash flow hedges were settled with a $3.3 million
payment to the counterparties. The hedging agreement resulted in
a deferred loss, which was recorded in Accumulated Other
Comprehensive Income and is being amortized into interest
expense over the life of the debt.
|
|
|
Other Derivative Instruments |
As of December 2004, the Company has entered into several
foreign currency forward contracts with notional amounts
aggregating to $47.1 million to hedge exposure to currency
fluctuations in various foreign
66
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
currencies, including the Australian Dollar, the British Pound
Sterling, the Singapore Dollar and the Brazilian Real. These
derivative instruments were not designated as hedges and the
changes in fair value of the contracts are recorded each period
in current earnings.
|
|
| 15. |
Zero Coupon Convertible Senior Debentures |
On June 30, 2000, the Company completed a private placement
of $910.0 million face amount of Zero Coupon Convertible
Senior Debentures due 2020 (“Zero Coupon Debentures”).
The Zero Coupon Debentures were issued at a discount with an
imputed 3.0% per annum interest rate. During 2004 and 2003,
the Company amortized $16.8 million and $16.3 million,
respectively, of the original issue discount. As of
December 31, 2004 and 2003, the unamortized discount on the
Zero Coupon Debentures was $336.4 million and
$353.3 million, respectively.
Holders may convert the Zero Coupon Debentures into Common
Shares at any time before maturity at a conversion rate of
9.9970 Common Shares per $1,000 principal amount. The effective
conversion price increases as the accreted value of the Zero
Coupon Debentures increases. As of December 31, 2004, the
conversion price was $63.05 per Common Share. The Company
may redeem any of the Zero Coupon Debentures on or after
June 30, 2005 at the accreted amount at the time of
redemption. Holders may require the Company to repurchase the
Zero Coupon Debentures on June 30, 2005, June 30, 2010
and June 30, 2015 at the accreted amount. The Company may
elect to repurchase the Zero Coupon Debentures for cash, Common
Shares or a combination thereof. The Zero Coupon Debentures are
unsecured ranking equal in right of payment with all other
unsecured and unsubordinated indebtedness and will rank senior
to any future subordinated indebtedness. As evidenced by market
transactions, the estimated fair value of the Zero Coupon
Debentures was $583.5 million and $565.3 million at
December 31, 2004 and 2003, respectively.
|
|
| 16. |
5% Convertible Subordinated Preferred Equivalent
Debentures |
In November 1997, the Company completed a private placement of
$402.5 million principal amount of 5% Convertible
Subordinated Preferred Equivalent Debentures (“Convertible
Preferred Debentures”). On August 3, 2003, the Company
redeemed all of its outstanding Convertible Preferred Debentures
for $412.6 million, or 102.5% of the principal amount. The
Convertible Preferred Debentures plus accrued interest were
repaid with the proceeds of the sale of Common Shares (See
Note 17) and cash on hand. In connection with the
redemption, the Company expensed $10.1 million related to
the call premium and $10.8 million related to the remaining
unamortized debt issuance costs. These expenses have been
classified as Debt Redemption Expense on the accompanying
Consolidated Statements of Operations.
The Company is authorized to issue 500,000,000 Common Shares and
10,000,000 undesignated preference shares, $1.00 par value.
During the three years ended December 31, 2004, no
preferred shares were issued.
On February 28, 2002, the Company issued Shell Technology
Ventures Inc. a warrant to purchase up to 3.2 million
Common Shares at a price of $60.00 per share. The warrant
has a nine-year exercisable life beginning one year after the
issue date. The warrant holder may exercise the warrant and
settlement may occur through physical delivery, net share
settlement, net cash settlement or a combination thereof. The
warrant also may be converted into Common Shares at any time
after the third anniversary of the issue date. The number of
Common Shares issuable upon conversion would be equal to the
value of the warrant
67
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
determined by the Black-Scholes option pricing model divided by
the average of the closing price of Common Shares for the 10-day
period prior to the date of conversion. Any shares received upon
such conversion are non-transferable for two years.
On July 3, 2003, the Company completed a public offering of
ten million Common Shares in exchange for $400.0 million in
cash proceeds.
The Company has a number of stock option plans pursuant to which
directors, officers and key employees may be granted options to
purchase Common Shares at the fair market value on the date of
grant.
The Company has in effect a 1991 Employee Stock Option Plan
(“1991 ESO Plan”), a 1992 Employee Stock Option Plan
(“1992 ESO Plan”) and a 1998 Employee Stock Option
Plan (“1998 ESO Plan”). Under these plans, options to
purchase up to an aggregate of 25.2 million Common Shares
may be granted to officers and key employees of the Company
(including directors who are also key employees). At
December 31, 2004, approximately 1.1 million shares
were available for grant under such plans.
Stock options generally vest after one to four years following
the date of grant and expire after ten to fourteen years from
the date of grant. Information about the stock option plans and
predecessor plans for the three years ended December 31,
2004, is set forth below:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Weighted | |
| |
|
|
|
|
|
Average | |
| |
|
|
|
|
|
Exercise | |
| |
|
Number of | |
|
Range of Exercise | |
|
Price Per | |
| |
|
Shares | |
|
Prices | |
|
Share | |
| |
|
| |
|
| |
|
| |
|
Options outstanding, December 31, 2001
|
|
|
22,088,000 |
|
|
|
$ 4.41 - $53.67 |
|
|
$ |
24.64 |
|
| |
Granted
|
|
|
711,500 |
|
|
|
32.72 - 46.49 |
|
|
|
38.38 |
|
| |
Exercised
|
|
|
(2,148,564 |
) |
|
|
10.89 - 36.75 |
|
|
|
16.01 |
|
| |
Terminated
|
|
|
(477,494 |
) |
|
|
23.77 - 46.18 |
|
|
|
31.01 |
|
| |
|
|
|
|
|
|
|
|
|
|
Options outstanding, December 31, 2002
|
|
|
20,173,442 |
|
|
|
4.41 - 53.67 |
|
|
|
25.86 |
|
| |
Granted
|
|
|
730,000 |
|
|
|
31.75 - 43.15 |
|
|
|
36.91 |
|
| |
Exercised
|
|
|
(732,926 |
) |
|
|
8.12 - 36.75 |
|
|
|
19.06 |
|
| |
Terminated
|
|
|
(603,875 |
) |
|
|
23.77 - 47.49 |
|
|
|
28.57 |
|
| |
|
|
|
|
|
|
|
|
|
|
Options outstanding, December 31, 2003
|
|
|
19,566,641 |
|
|
|
4.41 - 53.67 |
|
|
|
26.44 |
|
| |
Granted
|
|
|
145,600 |
|
|
|
39.93 - 47.55 |
|
|
|
41.89 |
|
| |
Exercised
|
|
|
(4,937,160 |
) |
|
|
4.41 - 49.35 |
|
|
|
25.83 |
|
| |
Terminated
|
|
|
(540,750 |
) |
|
|
23.77 - 47.55 |
|
|
|
28.46 |
|
| |
|
|
|
|
|
|
|
|
|
|
Options outstanding, December 31, 2004
|
|
|
14,234,331 |
|
|
|
5.37 - 53.67 |
|
|
|
26.59 |
|
| |
|
|
|
|
|
|
|
|
|
68
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
As of December 31, 2004 the options outstanding and
exercisable were:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Options Outstanding | |
|
Options Exercisable | |
| |
|
| |
|
| |
| |
|
|
|
Weighted | |
|
Weighted | |
|
|
|
Weighted | |
|
Weighted | |
| |
|
|
|
Average | |
|
Average | |
|
|
|
Average | |
|
Average | |
| |
|
|
|
Remaining | |
|
Exercise | |
|
|
|
Remaining | |
|
Exercise | |
| |
|
|
|
Contractual | |
|
Price Per | |
|
|
|
Contractual | |
|
Price Per | |
| Range of Exercise Prices |
|
Outstanding | |
|
Life | |
|
Share | |
|
Exercisable | |
|
Life | |
|
Share | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
$5.37-$11.62
|
|
|
2,251,794 |
|
|
|
5.45 |
|
|
$ |
10.86 |
|
|
|
2,251,794 |
|
|
|
5.45 |
|
|
$ |
10.86 |
|
|
14.82-22.91
|
|
|
509,324 |
|
|
|
6.86 |
|
|
|
19.30 |
|
|
|
509,324 |
|
|
|
6.86 |
|
|
|
19.30 |
|
|
23.11-34.12
|
|
|
6,643,737 |
|
|
|
10.49 |
|
|
|
24.43 |
|
|
|
685,904 |
|
|
|
8.44 |
|
|
|
27.81 |
|
|
35.15-53.67
|
|
|
4,829,476 |
|
|
|
9.25 |
|
|
|
37.66 |
|
|
|
3,628,876 |
|
|
|
8.59 |
|
|
|
37.45 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.37-53.67
|
|
|
14,234,331 |
|
|
|
9.14 |
|
|
|
26.59 |
|
|
|
7,075,898 |
|
|
|
7.45 |
|
|
|
26.75 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The options exercisable as of December 31, 2003 were
10.6 million.
During 2003, the Board of Directors approved a restricted share
plan (the “Restricted Share Plan”) pursuant to which
up to 3.8 million Common Shares were authorized for
issuance. The Restricted Share Plan provides for the award of
Common Shares, the vesting of which is subject to conditions and
limitations established at the time of the grant. Upon the award
of Common Shares, the participant has the rights of a
shareholder, including but not limited to the right to vote such
shares and the right to receive any dividends paid on such
shares. Key employees, directors and persons providing material
services to the Company may be eligible for participation in the
Restricted Share Plan.
During 2004, the Company issued approximately 427,000 restricted
shares, net of forfeitures during the year, to certain key
employees and directors. The restricted shares vest based on
continued employment, and vesting generally occurs over a two or
three-year period, with an equal amount of the restricted shares
vesting on each anniversary of the grant date. The Company
recognized $5.8 million in employee stock-based
compensation expense related to the issuance of restricted
shares during the year ended December 31, 2004. As of
December 31, 2004, approximately $6.7 million of
employee stock-based compensation expense remains to be
recognized over the vesting period of these restricted shares.
|
|
|
Executive Deferred Compensation Plan |
In May 1992, the Company’s shareholders approved the
Executive Deferred Compensation Stock Ownership Plan (the
“EDC Plan”). Under the EDC Plan, a portion of the
compensation for certain key employees of the Company, including
officers and employee directors, can be deferred for payment
after retirement or termination of employment.
The Company has established a grantor trust to fund the benefits
under the EDC Plan. The funds provided to such trust are
invested by a trustee independent of the Company in Common
Shares, which are purchased by the trustee on the open market.
The assets of the trust are available to satisfy the claims of
all general creditors of the Company in the event of bankruptcy
or insolvency. Accordingly, the Common Shares held by the trust
and the liability of the Company under the EDC Plan are included
in the accompanying Consolidated Balance Sheets as Treasury
Shares, Net.
|
|
|
Retirement and Employee Benefit Plans |
The Company has defined contribution plans covering certain of
its employees. Contribution expenses related to these plans
totaled $9.3 million, $12.0 million and
$10.4 million in 2004, 2003 and 2002, respectively.
69
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
The Company has defined benefit pension and other
post-retirement benefit plans covering certain U.S. and
international employees. Plan benefits are generally based on
factors such as age, compensation levels and years of service.
Effective August 2003, the Company adopted a SERP to provide
pension benefits to certain executives upon retirement. This
plan is a nonqualified, unfunded retirement plan and in order to
meet its obligations under the SERP, the Company maintains life
insurance policies on the lives of the participants. These
policies are not included as plan assets nor in the funded
status amounts in the table below. The Company is the sole owner
and beneficiary of such policies.
Plan information including the funded status of the plans is
presented below. Plan information includes the SERP obligations
but excludes the life insurance policies from plan assets. The
Company uses a measurement date of December 31 for the
majority of its plans.
The change in benefit obligations were as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
United States | |
|
International | |
|
United States | |
|
International | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Benefit obligation at beginning of year
|
|
$ |
42,673 |
|
|
$ |
60,177 |
|
|
$ |
12,799 |
|
|
$ |
44,908 |
|
|
Addition of new plan
|
|
|
— |
|
|
|
— |
|
|
|
28,715 |
|
|
|
— |
|
|
Service cost
|
|
|
1,763 |
|
|
|
6,698 |
|
|
|
576 |
|
|
|
5,242 |
|
|
Interest cost
|
|
|
2,568 |
|
|
|
3,685 |
|
|
|
1,392 |
|
|
|
2,489 |
|
|
Plan participants’ contributions
|
|
|
— |
|
|
|
2,137 |
|
|
|
— |
|
|
|
2,165 |
|
|
Amendments
|
|
|
— |
|
|
|
5,882 |
|
|
|
— |
|
|
|
— |
|
|
Settlements
|
|
|
— |
|
|
|
— |
|
|
|
(694 |
) |
|
|
— |
|
|
Actuarial loss
|
|
|
17,294 |
|
|
|
1,800 |
|
|
|
914 |
|
|
|
2,522 |
|
|
Currency fluctuations
|
|
|
— |
|
|
|
7,288 |
|
|
|
— |
|
|
|
5,124 |
|
|
Benefits paid
|
|
|
(1,279 |
) |
|
|
(3,428 |
) |
|
|
(1,029 |
) |
|
|
(2,273 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
$ |
63,019 |
|
|
$ |
84,239 |
|
|
$ |
42,673 |
|
|
$ |
60,177 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
The actuarial loss in the U.S. plans was primarily attributable
to an increase in the compensation level of plan participants.
70
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
The change in plan assets were as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
United States | |
|
International | |
|
United States | |
|
International | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Fair value of plan assets at beginning of year
|
|
$ |
10,404 |
|
|
$ |
41,133 |
|
|
$ |
9,889 |
|
|
$ |
27,858 |
|
|
Actual return on plan assets
|
|
|
869 |
|
|
|
4,490 |
|
|
|
2,061 |
|
|
|
4,892 |
|
|
Employer contribution
|
|
|
81 |
|
|
|
7,069 |
|
|
|
177 |
|
|
|
4,621 |
|
|
Plan participants’ contributions
|
|
|
— |
|
|
|
2,137 |
|
|
|
— |
|
|
|
2,165 |
|
|
Settlements
|
|
|
— |
|
|
|
— |
|
|
|
(694 |
) |
|
|
— |
|
|
Currency fluctuations
|
|
|
— |
|
|
|
4,573 |
|
|
|
— |
|
|
|
3,420 |
|
|
Benefits paid
|
|
|
(1,279 |
) |
|
|
(2,848 |
) |
|
|
(1,029 |
) |
|
|
(1,823 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
|
10,075 |
|
|
|
56,554 |
|
|
|
10,404 |
|
|
|
41,133 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Funded status
|
|
|
(52,944 |
) |
|
|
(27,685 |
) |
|
|
(32,269 |
) |
|
|
(19,044 |
) |
|
Unrecognized net loss
|
|
|
21,610 |
|
|
|
7,379 |
|
|
|
4,452 |
|
|
|
7,684 |
|
|
Unrecognized prior service cost
|
|
|
25,210 |
|
|
|
5,030 |
|
|
|
27,839 |
|
|
|
94 |
|
|
Unrecognized transition asset
|
|
|
— |
|
|
|
(35 |
) |
|
|
— |
|
|
|
(36 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$ |
(6,124 |
) |
|
$ |
(15,311 |
) |
|
$ |
22 |
|
|
$ |
(11,302 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
The amounts recognized in the Consolidated Balance Sheets are as
follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
United States | |
|
International | |
|
United States | |
|
International | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Prepaid benefit cost
|
|
$ |
— |
|
|
$ |
308 |
|
|
$ |
— |
|
|
$ |
92 |
|
|
Accrued benefit cost
|
|
|
(32,661 |
) |
|
|
(24,535 |
) |
|
|
(25,507 |
) |
|
|
(14,417 |
) |
|
Intangible asset
|
|
|
20,518 |
|
|
|
4,983 |
|
|
|
21,077 |
|
|
|
12 |
|
|
Accumulated other comprehensive income
|
|
|
6,019 |
|
|
|
3,933 |
|
|
|
4,452 |
|
|
|
3,011 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$ |
(6,124 |
) |
|
$ |
(15,311 |
) |
|
$ |
22 |
|
|
$ |
(11,302 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
The increase or decrease in the additional minimum liability
included in other comprehensive income was $1.6 million and
$(0.2) million for 2004 and 2003, respectively, for the
U.S. plans and $0.6 million and $(1.3) million
for 2004 and 2003, respectively, for the international plans.
The accumulated benefit obligation for defined benefit pension
plans was $42.6 million and $35.9 million at
December 31, 2004 and 2003, respectively, for the
U.S. plans and $76.0 million and $53.7 million at
December 31, 2004 and 2003, respectively, for the
international plans.
71
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
The projected benefit obligation, accumulated benefit
obligation, and fair value of plan assets for the pension plans
with projected benefit obligations in excess of plan assets or
accumulated benefit obligations in excess of plan assets as of
December 31, 2004 and 2003 are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
United States | |
|
International | |
|
United States | |
|
International | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Plans with projected benefit obligation in excess of plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Projected benefit obligation
|
|
$ |
63,019 |
|
|
$ |
83,169 |
|
|
$ |
42,244 |
|
|
$ |
58,176 |
|
| |
Fair value of plan assets
|
|
|
10,075 |
|
|
|
55,461 |
|
|
|
10,404 |
|
|
|
39,024 |
|
|
Plans with accumulated benefit obligation in excess of plan
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Accumulated benefit obligation
|
|
|
42,586 |
|
|
|
62,906 |
|
|
|
35,873 |
|
|
|
51,494 |
|
| |
Fair value of plan assets
|
|
|
10,075 |
|
|
|
40,873 |
|
|
|
10,404 |
|
|
|
38,200 |
|
The components of net periodic benefit cost as of
December 31, 2004, 2003 and 2002 are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
United States | |
|
International | |
|
United States | |
|
International | |
|
United States | |
|
International | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Service cost
|
|
$ |
1,763 |
|
|
$ |
6,698 |
|
|
$ |
576 |
|
|
$ |
5,242 |
|
|
$ |
— |
|
|
$ |
6,029 |
|
|
Interest cost
|
|
|
2,568 |
|
|
|
3,685 |
|
|
|
1,392 |
|
|
|
2,489 |
|
|
|
908 |
|
|
|
1,819 |
|
|
Expected return on plan assets
|
|
|
(899 |
) |
|
|
(2,996 |
) |
|
|
(1,032 |
) |
|
|
(1,944 |
) |
|
|
(1,156 |
) |
|
|
(1,600 |
) |
|
Amortization of transition obligation (asset)
|
|
|
— |
|
|
|
(4 |
) |
|
|
— |
|
|
|
25 |
|
|
|
— |
|
|
|
24 |
|
|
Amortization of prior service cost
|
|
|
2,629 |
|
|
|
13 |
|
|
|
876 |
|
|
|
13 |
|
|
|
— |
|
|
|
11 |
|
|
Settlements
|
|
|
— |
|
|
|
— |
|
|
|
25 |
|
|
|
— |
|
|
|
343 |
|
|
|
(2 |
) |
|
Amortization of loss
|
|
|
166 |
|
|
|
589 |
|
|
|
21 |
|
|
|
1,035 |
|
|
|
17 |
|
|
|
583 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$ |
6,227 |
|
|
$ |
7,985 |
|
|
$ |
1,858 |
|
|
$ |
6,860 |
|
|
$ |
112 |
|
|
$ |
6,864 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service costs are amortized using an alternative
straight-line method over the average remaining service period
of employees expected to receive plan benefits.
Assumed long-term rates of return on plan assets, discount rates
and rates of compensation increases vary for the different plans
according to the local economic conditions.
72
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
The weighted average assumption rates used for benefit
obligations are as follows:
| |
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Discount rate:
|
|
|
|
|
|
|
|
|
| |
United States plans
|
|
|
5.25 - 5.75 |
% |
|
|
6.00% |
|
| |
International plans
|
|
|
1.80 - 7.00 |
|
|
|
4.75 - 7.00 |
|
|
Rate of compensation increase:
|
|
|
|
|
|
|
|
|
| |
United States plans
|
|
|
4.00 |
|
|
|
3.00 |
|
| |
International plans
|
|
|
2.50 - 6.85 |
|
|
|
2.75 - 7.50 |
|
The weighted average assumption rates used for net periodic
benefit costs are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Discount rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
United States plans
|
|
|
6.00% |
|
|
|
6.00 - 6.75 |
% |
|
|
7.25% |
|
| |
International plans
|
|
|
1.80 - 7.00 |
|
|
|
4.80 - 7.00 |
|
|
|
4.70 - 7.00 |
|
|
Expected return on plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
United States plans
|
|
|
8.00 |
|
|
|
8.00 |
|
|
|
8.00 |
|
| |
International plans
|
|
|
4.00 - 8.00 |
|
|
|
6.27 - 8.00 |
|
|
|
6.60 - 8.00 |
|
|
Rate of compensation increase:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
United States plans
|
|
|
3.00 |
|
|
|
3.00 |
|
|
|
— |
|
| |
International plans
|
|
|
2.75 - 7.50 |
|
|
|
3.25 - 8.28 |
|
|
|
3.25 - 10.24 |
|
In determining the overall expected long-term rate of return for
plan assets, the Company takes into consideration the historical
experience as well as future expectations of the asset mix
involved. As different investments yield different returns, each
asset category must be reviewed individually and then weighted
for significance in relation to the total portfolio.
The weighted average asset allocations at December 31, 2004
and 2003, by asset category are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
United States | |
|
International | |
|
United States | |
|
International | |
| |
|
| |
|
| |
|
| |
|
| |
|
Equity
|
|
|
61 |
% |
|
|
90 |
% |
|
|
61 |
% |
|
|
91 |
% |
|
Debt securities
|
|
|
38 |
|
|
|
7 |
|
|
|
38 |
|
|
|
6 |
|
|
Other
|
|
|
1 |
|
|
|
3 |
|
|
|
1 |
|
|
|
3 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
In the U.S., the Company’s investment strategy includes a
balanced approach with target allocation percentages of 60%
equity investments and 40% fixed income investments. For the
international plans, the assets are invested primarily in equity
investments as they are expected to provide a higher long-term
rate of return. The Company’s pension investment strategy
worldwide prohibits a direct investment in its own stock.
In 2005, the Company expects to contribute $0.1 million in
the U.S. and $8.4 million internationally to its pension
and other postretirement benefit plans.
73
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
In addition, the following benefit payments, which reflect
expected future service, as appropriate, are expected to be paid
(in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
United States | |
|
International | |
| |
|
| |
|
| |
|
2005
|
|
$ |
1,235 |
|
|
$ |
1,548 |
|
|
2006
|
|
|
1,357 |
|
|
|
1,261 |
|
|
2007
|
|
|
1,263 |
|
|
|
1,639 |
|
|
2008
|
|
|
1,755 |
|
|
|
2,224 |
|
|
2009
|
|
|
2,299 |
|
|
|
1,078 |
|
|
2010 - 2014
|
|
|
13,964 |
|
|
|
21,907 |
|
The components of Income (Loss) from Continuing Operations
before Income Taxes and Minority Interest were as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Domestic
|
|
$ |
50,141 |
|
|
$ |
24,348 |
|
|
$ |
(154,828 |
) |
|
Foreign
|
|
|
380,606 |
|
|
|
175,167 |
|
|
|
143,247 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
430,747 |
|
|
$ |
199,515 |
|
|
$ |
(11,581 |
) |
| |
|
|
|
|
|
|
|
|
|
The Company’s income tax benefit (provision) consisted
of the following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
U.S. federal and state income taxes
|
|
$ |
388 |
|
|
$ |
(159 |
) |
|
$ |
(29,468 |
) |
| |
Foreign
|
|
|
(108,786 |
) |
|
|
(20,834 |
) |
|
|
(59,415 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
Total Current
|
|
|
(108,398 |
) |
|
|
(20,993 |
) |
|
|
(88,883 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
U.S. federal
|
|
|
(1,458 |
) |
|
|
15,992 |
|
|
|
84,904 |
|
| |
Foreign
|
|
|
17,184 |
|
|
|
(46,607 |
) |
|
|
9,152 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total Deferred
|
|
|
15,726 |
|
|
|
(30,615 |
) |
|
|
94,056 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
(92,672 |
) |
|
$ |
(51,608 |
) |
|
$ |
5,173 |
|
| |
|
|
|
|
|
|
|
|
|
74
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
The difference between the tax (provision) benefit at the
statutory federal income tax rate and the tax (provision)
benefit attributable to Income (Loss) from Continuing Operations
Before Income Taxes and Minority Interest for the three years
ended December 31, 2004 is analyzed below:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Statutory federal income tax rate
|
|
$ |
(150,762 |
) |
|
$ |
(69,830 |
) |
|
$ |
4,053 |
|
|
Effect of state income tax, net and alternative minimum tax
|
|
|
252 |
|
|
|
319 |
|
|
|
101 |
|
|
Effect of domestic non-deductible expenses
|
|
|
(2,076 |
) |
|
|
(380 |
) |
|
|
69 |
|
|
Change in valuation allowance
|
|
|
1,161 |
|
|
|
(6,873 |
) |
|
|
(12,859 |
) |
|
Effect of foreign income tax, net
|
|
|
60,933 |
|
|
|
19,911 |
|
|
|
(741 |
) |
|
Effect of prior year audit resolutions
|
|
|
— |
|
|
|
— |
|
|
|
9,352 |
|
|
Other
|
|
|
(2,180 |
) |
|
|
5,245 |
|
|
|
5,198 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
(92,672 |
) |
|
$ |
(51,608 |
) |
|
$ |
5,173 |
|
| |
|
|
|
|
|
|
|
|
|
Deferred tax assets and liabilities are classified as current or
non-current according to the classification of the related asset
or liability for financial reporting. The components of the net
deferred tax asset were as follows:
| |
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
| |
Domestic and foreign operating losses
|
|
$ |
52,296 |
|
|
$ |
44,434 |
|
| |
Accrued liabilities and reserves
|
|
|
82,180 |
|
|
|
58,580 |
|
| |
Tax credits
|
|
|
54,055 |
|
|
|
19,771 |
|
| |
Unremitted foreign earnings
|
|
|
7,898 |
|
|
|
6,391 |
|
| |
Other differences between financial and tax basis
|
|
|
1,238 |
|
|
|
2,151 |
|
| |
Differences between financial and tax basis inventory
|
|
|
14,853 |
|
|
|
14,779 |
|
| |
Valuation allowance
|
|
|
(27,823 |
) |
|
|
(29,843 |
) |
| |
|
|
|
|
|
|
| |
|
Total deferred tax assets
|
|
|
184,697 |
|
|
|
116,263 |
|
| |
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
| |
Property, plant and equipment
|
|
|
(65,385 |
) |
|
|
(58,352 |
) |
| |
Goodwill and other intangibles
|
|
|
(18,545 |
) |
|
|
(5,490 |
) |
| |
Other differences between financial and tax basis
|
|
|
(1,175 |
) |
|
|
(3,281 |
) |
| |
|
|
|
|
|
|
| |
|
Total deferred tax liabilities
|
|
|
(85,105 |
) |
|
|
(67,123 |
) |
| |
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$ |
99,592 |
|
|
$ |
49,140 |
|
| |
|
|
|
|
|
|
The change in the valuation allowance in 2004 is primarily due
to the expiration of tax credits the Company had established a
valuation allowance against in previous years, partially offset
by the establishment of a valuation allowance against tax
credits generated in 2004. The Company believes the character
and nature of future taxable income may not allow it to realize
the tax benefits of tax credits generated in 2004 within the
allowable carryforward period. Therefore, an appropriate
valuation allowance has been provided.
75
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
The Company has provided additional taxes for the anticipated
repatriation of earnings of its foreign subsidiaries where it
has determined that the foreign subsidiaries earnings are not
indefinitely reinvested. For foreign subsidiaries whose earnings
are indefinitely reinvested, no provision for U.S. federal
and state income taxes has been provided. If the earnings were
not indefinitely reinvested, the estimated tax liability would
be approximately $23.9 million before application of
available foreign tax credits.
The Company is evaluating the impact of the special one time
deduction for 85% of certain repatriated foreign earnings
provided for under the American Jobs Creation Act of 2004. At
this time, it has not been determined what, if any, income tax
(provision) benefit will be recognized if earnings are
repatriated under the act.
At December 31, 2004, the Company had approximately
$173.2 million of net operating losses (“NOLs”),
$3.6 million of which were generated by certain domestic
subsidiaries prior to their acquisition by the Company. The use
of these acquired domestic NOLs is subject to limitations
imposed by the Internal Revenue Code and is also restricted to
the taxable income of the subsidiaries generating these losses.
Loss carryforwards, if not utilized, will expire at various
dates from 2005 through 2025.
At December 31, 2004, the Company had approximately
$51.0 million of foreign tax credits available to offset
future payments of federal income taxes. The foreign tax credits
expire in varying amounts through 2014.
On June 26, 2002, the stockholders and Board of Directors
of Weatherford International, Inc. approved the Company’s
corporate reorganization, and Weatherford International Ltd., a
newly formed Bermuda company, became the parent holding company
of Weatherford International, Inc. The realization of the tax
benefit of this reorganization could be impacted by changes in
tax laws, tax treaties or tax regulations or the interpretation
or enforcement thereof or differing interpretation or
enforcement of applicable law by the U.S. Internal Revenue
Service or other taxing jurisdictions. The inability to realize
this benefit could have a material impact on the Company’s
financial statements.
|
|
| 20. |
Disputes, Litigation and Contingencies |
|
|
|
Litigation and Other Disputes |
The Company is aware of various disputes and potential claims
and is a party in various litigation involving claims against
the Company, some of which are covered by insurance. Based on
facts currently known, the Company believes that the ultimate
liability, if any, which may result from known claims, disputes
and pending litigation, would not have a material adverse effect
on the Company’s consolidated financial position, results
of operations or cash flows.
The Company is self-insured up to certain retention limits for
general liability, vehicle liability, group medical and for
workers’ compensation claims for certain of its employees.
The amounts in excess of the self-insured levels are fully
insured, up to a limit. Self-insurance accruals are based on
claims filed and an estimate for significant claims incurred but
not reported. Although the Company believes adequate reserves
have provided for expected liabilities arising from its
self-insured obligations, it is reasonably possible that
management’s estimates of these liabilities will change
over the near term as circumstances develop.
The Company is committed under various operating lease
agreements primarily related to office space and equipment.
Generally, these leases include renewal provisions and rental
payments, which may be
76
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
adjusted for taxes, insurance and maintenance related to the
property. Future minimum rental commitments under noncancelable
operating leases are as follows (in thousands):
| |
|
|
|
|
|
2005
|
|
$ |
36,597 |
|
|
2006
|
|
|
28,647 |
|
|
2007
|
|
|
24,912 |
|
|
2008
|
|
|
21,408 |
|
|
2009
|
|
|
19,810 |
|
|
Thereafter
|
|
|
132,246 |
|
| |
|
|
|
| |
|
$ |
263,620 |
|
| |
|
|
|
Total rent expense incurred under operating leases was
approximately $42.0 million, $40.7 million and
$41.3 million for the years ended December 31, 2004,
2003 and 2002, respectively.
|
|
| 22. |
Related Party Transaction |
A member of the Company’s Board of Directors is the Chief
Executive Director of London Merchant Securities plc. The
Company began leasing office space from London Merchant
Securities during 2004. The annual rent is $0.3 million
plus the Company’s proportional share of building expenses.
The terms of the lease are standard market terms.
In 2003 and 2004, the Company entered into interest rate swap
agreements for its
65/8% Senior
Notes (See Note 14) with Lehman Brothers, Inc.
(“Lehman”), an investment banking firm in which two
directors of the Company are managing directors. During 2003,
the Company completed a public offering of ten million Common
Shares that were sold through Lehman (See Note 17). The
arrangements associated with these transactions were on
customary terms in the industry.
During 2003, the Company sold one of its businesses to two
former employees for $0.1 million in cash and a note
receivable of $3.2 million. The balance of the note
receivable was $3.2 million at December 31, 2004 and
2003.
A member of the Company’s Board of Directors is the Chief
Executive Officer of First Reserve Corporation. First Reserve
Corporation beneficially owns certain convertible preferred
securities of CiDRA Corporation (“CiDRA”), which are
convertible into less than 10% of CiDRA common stock on a fully
diluted and convertible basis. During 2002, the Company
purchased a related business from CiDRA for $4.8 million.
In 2004, the Company sold and licensed certain technology and
rights to CiDRA. The Company received $2.0 million in cash,
a $7.0 million promissory note payable over four years and
will receive royalty payments equal to 5% of CiDRA’s sales.
The member of the Company’s Board of Directors did not
participate in the Company’s consideration or approval of
these transactions.
During 2002, the Company sold certain assets to a former
employee for a note receivable. The balance of the note
receivable was $9.5 million and $10.9 million at
December 31, 2004 and 2003, respectively.
In April 2000, we completed the spin-off of our Grant Prideco,
Inc. subsidiary to our shareholders. Three of our directors
served on both our and Grant Prideco’s Boards of Directors.
In connection with the spin-off, we entered into a preferred
customer agreement pursuant to which we agreed, for a three-year
period, to purchase at least 70% of our requirements of drill
stem products from Grant Prideco. The price for those products
will be at a price not greater than that which Grant Prideco
sells to its best similarly situated customers. We were entitled
to apply against our purchases a drill stem credit of
$30.0 million, subject to a limitation of the application
of the credit to no more than 20% of any purchase. During 2003,
the initial agreement with Grant Prideco was extended for an
additional two-year period. The Company received a
77
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
remaining drill stem credit of $10.0 million, subject to a
limitation of no more than 20% of any purchase. All other terms
and agreements are consistent with the initial preferred
customer agreement. As of December 31, 2004, the Company
had $3.7 million remaining of the drill stem credit. The
agreement expires on March 31, 2005, and the Company
expects to use all or substantially all of the remaining credit
prior to the expiration.
Financial information by geographic segment, as provided to the
chief operating decision maker, for each of the three years
ended December 31, 2004, is summarized below. Revenues are
attributable to countries based on the ultimate destination of
the sale of products and performance of services. Long-lived
assets are long-term assets excluding deferred tax assets of
$37.8 million, $34.6 million and $18.3 million at
December 31, 2004, 2003 and 2002, respectively.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Revenues from Unaffiliated Customers | |
|
Long-lived Assets | |
| |
|
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
United States
|
|
$ |
1,140,974 |
|
|
$ |
855,321 |
|
|
$ |
774,345 |
|
|
$ |
1,761,501 |
|
|
$ |
1,832,172 |
|
|
$ |
1,897,910 |
|
|
Canada
|
|
|
528,581 |
|
|
|
442,562 |
|
|
|
320,851 |
|
|
|
534,286 |
|
|
|
488,991 |
|
|
|
404,640 |
|
|
Latin America
|
|
|
301,392 |
|
|
|
246,402 |
|
|
|
204,646 |
|
|
|
171,570 |
|
|
|
170,643 |
|
|
|
152,895 |
|
|
Europe, CIS and West Africa
|
|
|
556,112 |
|
|
|
501,825 |
|
|
|
450,978 |
|
|
|
730,944 |
|
|
|
716,251 |
|
|
|
526,804 |
|
|
Middle East and North Africa
|
|
|
376,054 |
|
|
|
302,430 |
|
|
|
291,771 |
|
|
|
234,840 |
|
|
|
191,232 |
|
|
|
139,479 |
|
|
Asia Pacific
|
|
|
228,661 |
|
|
|
213,494 |
|
|
|
245,833 |
|
|
|
129,377 |
|
|
|
135,282 |
|
|
|
95,734 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
3,131,774 |
|
|
$ |
2,562,034 |
|
|
$ |
2,288,424 |
|
|
$ |
3,562,518 |
|
|
$ |
3,534,571 |
|
|
$ |
3,217,462 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company is a diversified international energy service and
manufacturing company that provides a variety of services and
equipment to the exploration, production and transmission
sectors of the oil and natural gas industry. The Company
operates in virtually every oil and natural gas exploration and
production region in the world. The Company divides its business
into two separate segments as defined by the chief operating
decision maker: Drilling Services and Production Systems.
The Company’s Drilling Services segment provides a wide
range of oilfield products and services, including drilling
services and equipment, well installation services and cementing
products and equipment, underbalanced systems, fishing and
intervention services, pipeline and specialty services, liner
systems and expandable solid tubular systems.
The Company’s Production Systems segment designs,
manufactures, sells and services a complete line of artificial
lift equipment, including progressing cavity pumps,
reciprocating rod lift systems, gas lift systems, electrical
submersible pumps, product optimization services and automation
and monitoring of wellhead production. This segment also
provides certain completion products and systems including cased
hole systems, flow control systems, sand screens, expandable
sand screen systems and intelligent completion technologies.
Production Systems also provides screens for industrial
applications and total process system solutions for all aspects
of natural gas production.
Financial information by industry segment for each of the three
years ended December 31, 2004 is summarized below. The
total assets and capital expenditures do not include the assets
and activity of the
78
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
Company’s discontinued operation. The accounting policies
of the segments are the same as those described in the summary
of significant accounting policies. Inter-segment sales are not
material.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Production | |
|
|
|
|
| |
|
Drilling Services | |
|
Systems | |
|
Corporate(a) | |
|
Total | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Revenues from unaffiliated customers
|
|
$ |
1,773,295 |
|
|
$ |
1,358,479 |
|
|
$ |
— |
|
|
$ |
3,131,774 |
|
| |
Depreciation and amortization
|
|
|
184,794 |
|
|
|
68,621 |
|
|
|
2,469 |
|
|
|
255,884 |
|
| |
Operating income (loss)
|
|
|
329,118 |
|
|
|
120,113 |
|
|
|
(33,484 |
) |
|
|
415,747 |
|
| |
Total assets
|
|
|
2,746,266 |
|
|
|
2,055,148 |
|
|
|
729,312 |
|
|
|
5,530,726 |
|
| |
Capital expenditures for property, plant and equipment
|
|
|
199,517 |
|
|
|
87,395 |
|
|
|
23,918 |
|
|
|
310,830 |
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Revenues from unaffiliated customers
|
|
$ |
1,493,604 |
|
|
$ |
1,068,430 |
|
|
$ |
— |
|
|
$ |
2,562,034 |
|
| |
Depreciation and amortization
|
|
|
174,081 |
|
|
|
55,817 |
|
|
|
2,519 |
|
|
|
232,417 |
|
| |
Operating income (loss)
|
|
|
234,659 |
|
|
|
78,813 |
|
|
|
(27,255 |
) |
|
|
286,217 |
|
| |
Total assets
|
|
|
2,564,817 |
|
|
|
1,878,750 |
|
|
|
517,668 |
|
|
|
4,961,235 |
|
| |
Capital expenditures for property, plant and equipment
|
|
|
163,611 |
|
|
|
94,064 |
|
|
|
44,712 |
|
|
|
302,387 |
|
|
2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Revenues from affiliated customers
|
|
$ |
1,374,867 |
|
|
$ |
913,557 |
|
|
$ |
— |
|
|
$ |
2,288,424 |
|
| |
Depreciation and amortization
|
|
|
167,798 |
|
|
|
44,017 |
|
|
|
2,924 |
|
|
|
214,739 |
|
| |
Operating income (loss)
|
|
|
222,265 |
|
|
|
77,894 |
|
|
|
(236,751 |
) |
|
|
63,408 |
|
| |
Total assets
|
|
|
2,441,991 |
|
|
|
1,608,276 |
|
|
|
430,953 |
|
|
|
4,481,220 |
|
| |
Capital expenditures for property, plant and equipment
|
|
|
157,239 |
|
|
|
69,578 |
|
|
|
41,633 |
|
|
|
268,450 |
|
| |
Non-cash portion of restructuring and asset impairment charge
|
|
|
3,078 |
|
|
|
8,758 |
|
|
|
(147 |
) |
|
|
11,689 |
|
|
|
|
|
(a) |
|
Includes Equity in (Earnings) Losses of Unconsolidated
Affiliates, Net of Impairment Charge. During 2002, the Company
recorded an impairment charge of $217.1 million,
$146.2 million, net of taxes, for its investment in
Universal. |
|
|
|
Major Customers and Credit Risk |
Substantially all of the Company’s customers are engaged in
the energy industry. This concentration of customers may impact
the Company’s overall exposure to credit risk, either
positively or negatively, in that customers may be similarly
affected by changes in economic and industry conditions. The
Company performs ongoing credit evaluations of its customers and
does not generally require collateral in support of its trade
receivables. The Company maintains reserves for potential credit
losses, and actual losses have historically been within the
Company’s expectations. Foreign sales also present various
risks, including risks of war, civil disturbances and
governmental activities that may limit or disrupt markets,
restrict the movement of funds, result in the deprivation of
contract rights or the taking of property without fair
consideration. Most of the Company’s foreign sales,
however, are to large international or national companies or are
secured by letters of credit or similar arrangements.
In 2004, 2003 and 2002, there was no individual customer who
accounted for 10% or greater of consolidated revenues.
79
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
|
|
| 24. |
Consolidating Financial Statements |
As part of the June 26, 2002 reorganization, Weatherford
Limited (“Parent”) and Weatherford Inc.
(“Issuer”) each guaranteed, on a full and
unconditional basis, certain indebtedness of the Company. As of
December 31, 2002, Parent guaranteed the following
obligations of Issuer: (1) the three-year multi-currency
revolving credit facility, (2) the five-year unsecured
credit agreement, (3) the
71/4% Senior
Notes, (4) the
65/8% Senior
Notes, (5) the Zero Coupon Debentures and (6) the
Convertible Preferred Debentures.
During 2003, Parent entered into a new revolving credit facility
(“2003 Revolving Credit Facility”) and used the
facility to terminate the three-year multi-currency and
five-year unsecured credit facilities (See Note 12). In
addition, Parent completed a public offering of the
4.95% Senior Notes and the Convertible Preferred Debentures
were redeemed in August 2003 (See Notes 13 and 16,
respectively).
Based on these changes, the following obligations were
guaranteed by Parent as of December 31, 2003 and 2004:
(1) the
71/4% Senior
Notes, (2) the
65/8% Senior
Notes and (3) the Zero Coupon Debentures. The following
obligations were guaranteed by Issuer as of December 31,
2003 and 2004: (i) the 2003 Revolving Credit Facility and
(ii) the 4.95% Senior Notes.
As a result of these guarantee arrangements, the Company is
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 the
Company’s 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. Certain prior
year amounts have been reclassified, including investments in
consolidated subsidiaries, to conform with the 2004 presentation.
80
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
Condensed Consolidating Balance Sheet
December 31, 2004
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Other | |
|
|
|
|
| |
|
Parent | |
|
Issuer | |
|
Subsidiaries | |
|
Eliminations | |
|
Consolidation | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
ASSETS |
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cash and Cash Equivalents
|
|
$ |
138,979 |
|
|
$ |
74,053 |
|
|
$ |
104,407 |
|
|
$ |
— |
|
|
$ |
317,439 |
|
| |
Other Current Assets
|
|
|
1,149 |
|
|
|
52,900 |
|
|
|
1,571,690 |
|
|
|
— |
|
|
|
1,625,739 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
140,128 |
|
|
|
126,953 |
|
|
|
1,676,097 |
|
|
|
— |
|
|
|
1,943,178 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Investments in Unconsolidated Affiliates
|
|
|
151,798 |
|
|
|
— |
|
|
|
18,404 |
|
|
|
— |
|
|
|
170,202 |
|
|
Equity Investments in Affiliates
|
|
|
3,987,900 |
|
|
|
1,897,325 |
|
|
|
6,925,407 |
|
|
|
(12,810,632 |
) |
|
|
— |
|
|
Shares Held in Parent
|
|
|
— |
|
|
|
228,064 |
|
|
|
— |
|
|
|
(228,064 |
) |
|
|
— |
|
|
Intercompany Receivables, Net
|
|
|
— |
|
|
|
2,366,608 |
|
|
|
— |
|
|
|
(2,366,608 |
) |
|
|
— |
|
|
Other Assets
|
|
|
34,026 |
|
|
|
7,379 |
|
|
|
3,388,697 |
|
|
|
— |
|
|
|
3,430,102 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
4,313,852 |
|
|
$ |
4,626,329 |
|
|
$ |
12,008,605 |
|
|
$ |
(15,405,304 |
) |
|
$ |
5,543,482 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Short-term Borrowings and Current Portion of Long-term Debt
|
|
$ |
669 |
|
|
$ |
6,115 |
|
|
$ |
15,451 |
|
|
$ |
— |
|
|
$ |
22,235 |
|
| |
Accounts Payable and Other Current Liabilities
|
|
|
4,645 |
|
|
|
7,578 |
|
|
|
625,548 |
|
|
|
— |
|
|
|
637,771 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
5,314 |
|
|
|
13,693 |
|
|
|
640,999 |
|
|
|
— |
|
|
|
660,006 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term Debt
|
|
|
255,989 |
|
|
|
1,133,263 |
|
|
|
15,179 |
|
|
|
— |
|
|
|
1,404,431 |
|
|
Intercompany Payables, Net
|
|
|
50,978 |
|
|
|
— |
|
|
|
2,315,630 |
|
|
|
(2,366,608 |
) |
|
|
— |
|
|
Other Long-term Liabilities
|
|
|
28,727 |
|
|
|
68,998 |
|
|
|
67,931 |
|
|
|
— |
|
|
|
165,656 |
|
|
Shareholders’ Equity
|
|
|
3,972,844 |
|
|
|
3,410,375 |
|
|
|
8,968,866 |
|
|
|
(13,038,696 |
) |
|
|
3,313,389 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
4,313,852 |
|
|
$ |
4,626,329 |
|
|
$ |
12,008,605 |
|
|
$ |
(15,405,304 |
) |
|
$ |
5,543,482 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
Condensed Consolidating Balance Sheet
December 31, 2003
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Other | |
|
|
|
|
| |
|
Parent | |
|
Issuer | |
|
Subsidiaries | |
|
Eliminations | |
|
Consolidation | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
ASSETS |
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cash and Cash Equivalents
|
|
$ |
1,582 |
|
|
$ |
2,959 |
|
|
$ |
51,541 |
|
|
$ |
— |
|
|
$ |
56,082 |
|
| |
Other Current Assets
|
|
|
3,587 |
|
|
|
72,212 |
|
|
|
1,293,292 |
|
|
|
— |
|
|
|
1,369,091 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
5,169 |
|
|
|
75,171 |
|
|
|
1,344,833 |
|
|
|
— |
|
|
|
1,425,173 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Investments in Unconsolidated Affiliates
|
|
|
287,539 |
|
|
|
— |
|
|
|
16,115 |
|
|
|
— |
|
|
|
303,654 |
|
|
Equity Investments in Affiliates
|
|
|
3,299,875 |
|
|
|
1,424,151 |
|
|
|
4,400,488 |
|
|
|
(9,124,514 |
) |
|
|
— |
|
|
Shares Held in Parent
|
|
|
— |
|
|
|
254,926 |
|
|
|
— |
|
|
|
(254,926 |
) |
|
|
— |
|
|
Intercompany Receivables, Net
|
|
|
— |
|
|
|
2,457,175 |
|
|
|
— |
|
|
|
(2,457,175 |
) |
|
|
— |
|
|
Other Assets
|
|
|
2,674 |
|
|
|
14,995 |
|
|
|
3,247,828 |
|
|
|
— |
|
|
|
3,265,497 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
3,595,257 |
|
|
$ |
4,226,418 |
|
|
$ |
9,009,264 |
|
|
$ |
(11,836,615 |
) |
|
$ |
4,994,324 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Short-term Borrowings and Current Portion of Long-term Debt
|
|
$ |
144,000 |
|
|
$ |
5,108 |
|
|
$ |
58,234 |
|
|
$ |
— |
|
|
$ |
207,342 |
|
| |
Accounts Payable and Other Current Liabilities
|
|
|
5,708 |
|
|
|
7,587 |
|
|
|
514,035 |
|
|
|
— |
|
|
|
527,330 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
149,708 |
|
|
|
12,695 |
|
|
|
572,269 |
|
|
|
— |
|
|
|
734,672 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term Debt
|
|
|
249,537 |
|
|
|
1,114,678 |
|
|
|
15,396 |
|
|
|
— |
|
|
|
1,379,611 |
|
|
Intercompany Payables, Net
|
|
|
139,157 |
|
|
|
— |
|
|
|
2,318,018 |
|
|
|
(2,457,175 |
) |
|
|
— |
|
|
Other Long-term Liabilities
|
|
|
— |
|
|
|
68,866 |
|
|
|
103,107 |
|
|
|
— |
|
|
|
171,973 |
|
|
Shareholders’ Equity
|
|
|
3,056,855 |
|
|
|
3,030,179 |
|
|
|
6,000,474 |
|
|
|
(9,379,440 |
) |
|
|
2,708,068 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
3,595,257 |
|
|
$ |
4,226,418 |
|
|
$ |
9,009,264 |
|
|
$ |
(11,836,615 |
) |
|
$ |
4,994,324 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
Condensed Consolidating Statement of Operations
Year Ended December 31, 2004
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Other | |
|
|
|
|
| |
|
Parent | |
|
Issuer | |
|
Subsidiaries | |
|
Eliminations | |
|
Consolidation | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Revenues
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
3,131,774 |
|
|
$ |
— |
|
|
$ |
3,131,774 |
|
|
Costs and Expenses
|
|
|
(3,662 |
) |
|
|
(1,490 |
) |
|
|
(2,733,280 |
) |
|
|
— |
|
|
|
(2,738,432 |
) |
|
Equity in Earnings of Unconsolidated Affiliates
|
|
|
18,567 |
|
|
|
— |
|
|
|
3,838 |
|
|
|
— |
|
|
|
22,405 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss)
|
|
|
14,905 |
|
|
|
(1,490 |
) |
|
|
402,332 |
|
|
|
— |
|
|
|
415,747 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Gain on Sale of Universal Common Stock
|
|
|
77,642 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
77,642 |
|
| |
Interest Expense, Net
|
|
|
(11,839 |
) |
|
|
(43,720 |
) |
|
|
(4,157 |
) |
|
|
— |
|
|
|
(59,716 |
) |
| |
Intercompany Charges, Net
|
|
|
118,996 |
|
|
|
142,590 |
|
|
|
130,297 |
|
|
|
(391,883 |
) |
|
|
— |
|
| |
Equity in Earnings of Affiliates
|
|
|
522,871 |
|
|
|
472,867 |
|
|
|
— |
|
|
|
(995,738 |
) |
|
|
— |
|
| |
Other, Net
|
|
|
(720 |
) |
|
|
340 |
|
|
|
(2,546 |
) |
|
|
— |
|
|
|
(2,926 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Continuing Operations Before Income Taxes and
Minority Interest
|
|
|
721,855 |
|
|
|
570,587 |
|
|
|
525,926 |
|
|
|
(1,387,621 |
) |
|
|
430,747 |
|
|
(Provision) Benefit for Income Taxes
|
|
|
174 |
|
|
|
(47,716 |
) |
|
|
(45,130 |
) |
|
|
— |
|
|
|
(92,672 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Continuing Operations Before Minority Interest
|
|
|
722,029 |
|
|
|
522,871 |
|
|
|
480,796 |
|
|
|
(1,387,621 |
) |
|
|
338,075 |
|
|
Minority Interest, Net
|
|
|
— |
|
|
|
— |
|
|
|
(776 |
) |
|
|
— |
|
|
|
(776 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Continuing Operations
|
|
|
722,029 |
|
|
|
522,871 |
|
|
|
480,020 |
|
|
|
(1,387,621 |
) |
|
|
337,299 |
|
|
Loss from Discontinued Operation, Net of Taxes
|
|
|
— |
|
|
|
— |
|
|
|
(7,153 |
) |
|
|
— |
|
|
|
(7,153 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$ |
722,029 |
|
|
$ |
522,871 |
|
|
$ |
472,867 |
|
|
$ |
(1,387,621 |
) |
|
$ |
330,146 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
Condensed Consolidating Statement of Operations
Year Ended December 31, 2003
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Other | |
|
|
|
|
| |
|
Parent | |
|
Issuer | |
|
Subsidiaries | |
|
Eliminations | |
|
Consolidation | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Revenues
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
2,562,034 |
|
|
$ |
— |
|
|
$ |
2,562,034 |
|
|
Costs and Expenses
|
|
|
— |
|
|
|
(670 |
) |
|
|
(2,290,094 |
) |
|
|
— |
|
|
|
(2,290,764 |
) |
|
Equity in Earnings of Unconsolidated Affiliates
|
|
|
11,556 |
|
|
|
— |
|
|
|
3,391 |
|
|
|
— |
|
|
|
14,947 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss)
|
|
|
11,556 |
|
|
|
(670 |
) |
|
|
275,331 |
|
|
|
— |
|
|
|
286,217 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Interest Expense, Net
|
|
|
(7,232 |
) |
|
|
(61,068 |
) |
|
|
(6,238 |
) |
|
|
— |
|
|
|
(74,538 |
) |
| |
Intercompany Charges, Net
|
|
|
90,100 |
|
|
|
221,385 |
|
|
|
(246,186 |
) |
|
|
(65,299 |
) |
|
|
— |
|
| |
Debt Redemption Expense
|
|
|
— |
|
|
|
(20,911 |
) |
|
|
— |
|
|
|
— |
|
|
|
(20,911 |
) |
| |
Equity in Earnings of Affiliates
|
|
|
117,477 |
|
|
|
12,983 |
|
|
|
— |
|
|
|
(130,460 |
) |
|
|
— |
|
| |
Other, Net
|
|
|
1,574 |
|
|
|
1,030 |
|
|
|
6,143 |
|
|
|
— |
|
|
|
8,747 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Continuing Operations Before Income Taxes and
Minority Interest
|
|
|
213,475 |
|
|
|
152,749 |
|
|
|
29,050 |
|
|
|
(195,759 |
) |
|
|
199,515 |
|
|
Provision for Income Taxes
|
|
|
(4,824 |
) |
|
|
(35,272 |
) |
|
|
(11,512 |
) |
|
|
— |
|
|
|
(51,608 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Continuing Operations Before Minority Interest
|
|
|
208,651 |
|
|
|
117,477 |
|
|
|
17,538 |
|
|
|
(195,759 |
) |
|
|
147,907 |
|
|
Minority Interest, Net
|
|
|
— |
|
|
|
— |
|
|
|
(664 |
) |
|
|
— |
|
|
|
(664 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Continuing Operations
|
|
|
208,651 |
|
|
|
117,477 |
|
|
|
16,874 |
|
|
|
(195,759 |
) |
|
|
147,243 |
|
|
Loss from Discontinued Operation, Net of Taxes
|
|
|
— |
|
|
|
— |
|
|
|
(3,891 |
) |
|
|
— |
|
|
|
(3,891 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$ |
208,651 |
|
|
$ |
117,477 |
|
|
$ |
12,983 |
|
|
$ |
(195,759 |
) |
|
$ |
143,352 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
Condensed Consolidating Statement of Operations
Year Ended December 31, 2002
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Other | |
|
|
|
|
| |
|
Parent | |
|
Issuer | |
|
Subsidiaries | |
|
Eliminations | |
|
Consolidation | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Revenues
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
2,288,424 |
|
|
$ |
— |
|
|
$ |
2,288,424 |
|
|
Costs and Expenses
|
|
|
— |
|
|
|
(609 |
) |
|
|
(2,031,654 |
) |
|
|
— |
|
|
|
(2,032,263 |
) |
|
Equity in Earnings (Losses) of Unconsolidated Affiliates, Net of
Impairment Charge
|
|
|
(23,080 |
) |
|
|
— |
|
|
|
16,787 |
|
|
|
(186,460 |
) |
|
|
(192,753 |
) |
|
Loss on Sale to Parent
|
|
|
— |
|
|
|
— |
|
|
|
(186,460 |
) |
|
|
186,460 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss)
|
|
|
(23,080 |
) |
|
|
(609 |
) |
|
|
87,097 |
|
|
|
— |
|
|
|
63,408 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Interest Expense, Net
|
|
|
— |
|
|
|
(71,118 |
) |
|
|
(11,661 |
) |
|
|
— |
|
|
|
(82,779 |
) |
| |
Intercompany Charges, Net
|
|
|
47,993 |
|
|
|
120,293 |
|
|
|
(168,286 |
) |
|
|
— |
|
|
|
— |
|
| |
Equity in Earnings (Loss) of Affiliates
|
|
|
(27,193 |
) |
|
|
1,858 |
|
|
|
— |
|
|
|
25,335 |
|
|
|
— |
|
| |
Other, Net
|
|
|
— |
|
|
|
(28 |
) |
|
|
7,818 |
|
|
|
— |
|
|
|
7,790 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Continuing Operations Before Income Taxes and
Minority Interest
|
|
|
(2,280 |
) |
|
|
50,396 |
|
|
|
(85,032 |
) |
|
|
25,335 |
|
|
|
(11,581 |
) |
|
(Provision) Benefit for Income Taxes
|
|
|
(3,750 |
) |
|
|
(77,589 |
) |
|
|
86,512 |
|
|
|
— |
|
|
|
5,173 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Continuing Operations Before Minority Interest
|
|
|
(6,030 |
) |
|
|
(27,193 |
) |
|
|
1,480 |
|
|
|
25,335 |
|
|
|
(6,408 |
) |
|
Minority Interest, Net
|
|
|
— |
|
|
|
— |
|
|
|
(551 |
) |
|
|
— |
|
|
|
(551 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Continuing Operations
|
|
|
(6,030 |
) |
|
|
(27,193 |
) |
|
|
929 |
|
|
|
25,335 |
|
|
|
(6,959 |
) |
|
Income from Discontinued Operation, Net of Taxes
|
|
|
— |
|
|
|
— |
|
|
|
929 |
|
|
|
— |
|
|
|
929 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$ |
(6,030 |
) |
|
$ |
(27,193 |
) |
|
$ |
1,858 |
|
|
$ |
25,335 |
|
|
$ |
(6,030 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
Condensed Consolidating Statement of Cash Flows
Year Ended December 31, 2004
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Other | |
|
|
|
|
| |
|
Parent | |
|
Issuer | |
|
Subsidiaries | |
|
Eliminations | |
|
Consolidation | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net Income (Loss)
|
|
$ |
722,029 |
|
|
$ |
522,871 |
|
|
$ |
472,867 |
|
|
$ |
(1,387,621 |
) |
|
$ |
330,146 |
|
| |
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided
(Used) by Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Equity in Earnings of Unconsolidated Affiliates
|
|
|
(18,567 |
) |
|
|
— |
|
|
|
(3,838 |
) |
|
|
— |
|
|
|
(22,405 |
) |
| |
|
Gain on Sale of Universal Common Stock
|
|
|
(77,642 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(77,642 |
) |
| |
|
Charges from Parent or Subsidiary
|
|
|
(118,996 |
) |
|
|
(142,590 |
) |
|
|
(130,297 |
) |
|
|
391,883 |
|
|
|
— |
|
| |
|
Equity in Earnings of Affiliates
|
|
|
(522,871 |
) |
|
|
(472,867 |
) |
|
|
— |
|
|
|
995,738 |
|
|
|
— |
|
| |
|
Deferred Income Tax Provision (Benefit)
|
|
|
(686 |
) |
|
|
15,786 |
|
|
|
(30,826 |
) |
|
|
— |
|
|
|
(15,726 |
) |
| |
|
Other, Net
|
|
|
147,389 |
|
|
|
(15,579 |
) |
|
|
149,958 |
|
|
|
— |
|
|
|
281,768 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Net Cash Provided (Used) by Continuing Operations
|
|
|
130,656 |
|
|
|
(92,379 |
) |
|
|
457,864 |
|
|
|
— |
|
|
|
496,141 |
|
| |
|
|
Net Cash Provided by Discontinued Operation
|
|
|
— |
|
|
|
— |
|
|
|
7,338 |
|
|
|
— |
|
|
|
7,338 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Net Cash Provided (Used) by Operating Activities
|
|
|
130,656 |
|
|
|
(92,379 |
) |
|
|
465,202 |
|
|
|
— |
|
|
|
503,479 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Acquisition of Businesses, Net of Cash Acquired
|
|
|
— |
|
|
|
— |
|
|
|
(26,464 |
) |
|
|
— |
|
|
|
(26,464 |
) |
| |
Capital Expenditures for Property, Plant and Equipment
|
|
|
— |
|
|
|
— |
|
|
|
(310,868 |
) |
|
|
— |
|
|
|
(310,868 |
) |
| |
Acquisition of Intellectual Property
|
|
|
— |
|
|
|
— |
|
|
|
(20,494 |
) |
|
|
— |
|
|
|
(20,494 |
) |
| |
Proceeds from Sales of Assets
|
|
|
— |
|
|
|
— |
|
|
|
23,595 |
|
|
|
— |
|
|
|
23,595 |
|
| |
Proceeds from Sale of Universal Common Stock
|
|
|
231,798 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
231,798 |
|
| |
Other Investing Activities, Net
|
|
|
— |
|
|
|
— |
|
|
|
(2,856 |
) |
|
|
— |
|
|
|
(2,856 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Net Cash Provided (Used) by Investing Activities
|
|
|
231,798 |
|
|
|
— |
|
|
|
(337,087 |
) |
|
|
— |
|
|
|
(105,289 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Repayments on Asset Securitization, Net
|
|
|
— |
|
|
|
(75,000 |
) |
|
|
— |
|
|
|
— |
|
|
|
(75,000 |
) |
| |
Borrowings (Repayments) of Short-term Debt, Net
|
|
|
(143,331 |
) |
|
|
1,007 |
|
|
|
(41,451 |
) |
|
|
— |
|
|
|
(183,775 |
) |
| |
Borrowings (Repayments) on Long-term Debt, Net
|
|
|
6,452 |
|
|
|
18,585 |
|
|
|
(34,021 |
) |
|
|
— |
|
|
|
(8,984 |
) |
| |
Purchase of Treasury Shares, Net
|
|
|
— |
|
|
|
(1,236 |
) |
|
|
— |
|
|
|
— |
|
|
|
(1,236 |
) |
| |
Proceeds from Exercise of Stock Options
|
|
|
— |
|
|
|
129,549 |
|
|
|
— |
|
|
|
— |
|
|
|
129,549 |
|
| |
Borrowings (Repayments) between Subsidiaries, Net
|
|
|
(88,178 |
) |
|
|
90,568 |
|
|
|
(2,390 |
) |
|
|
— |
|
|
|
— |
|
|
Other Financing Activities, Net
|
|
|
— |
|
|
|
— |
|
|
|
(163 |
) |
|
|
— |
|
|
|
(163 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Net Cash Provided (Used) by Financing Activities
|
|
|
(225,057 |
) |
|
|
163,473 |
|
|
|
(78,025 |
) |
|
|
— |
|
|
|
(139,609 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Exchange Rate Changes on Cash and Cash Equivalents
|
|
|
— |
|
|
|
— |
|
|
|
2,776 |
|
|
|
— |
|
|
|
2,776 |
|
|
Net Increase in Cash and Cash Equivalents
|
|
|
137,397 |
|
|
|
71,094 |
|
|
|
52,866 |
|
|
|
— |
|
|
|
261,357 |
|
|
Cash and Cash Equivalents at Beginning of Year
|
|
|
1,582 |
|
|
|
2,959 |
|
|
|
51,541 |
|
|
|
— |
|
|
|
56,082 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of Year
|
|
$ |
138,979 |
|
|
$ |
74,053 |
|
|
$ |
104,407 |
|
|
$ |
— |
|
|
$ |
317,439 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
Condensed Consolidating Statement of Cash Flows
Year Ended December 31, 2003
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Other | |
|
|
|
|
| |
|
Parent | |
|
Issuer | |
|
Subsidiaries | |
|
Eliminations | |
|
Consolidation | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net Income (Loss)
|
|
$ |
208,651 |
|
|
$ |
117,477 |
|
|
$ |
12,983 |
|
|
$ |
(195,759 |
) |
|
$ |
143,352 |
|
| |
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided
(Used) by Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Equity in Earnings of Unconsolidated Affiliates
|
|
|
(11,556 |
) |
|
|
(3,391 |
) |
|
|
— |
|
|
|
— |
|
|
|
(14,947 |
) |
| |
|
Equity in Earnings of Affiliates
|
|
|
(117,477 |
) |
|
|
(12,983 |
) |
|
|
— |
|
|
|
130,460 |
|
|
|
— |
|
| |
|
Charges from Parent or Subsidiary
|
|
|
(90,100 |
) |
|
|
— |
|
|
|
24,801 |
|
|
|
65,299 |
|
|
|
— |
|
| |
|
Debt Redemption
|
|
|
— |
|
|
|
20,911 |
|
|
|
— |
|
|
|
— |
|
|
|
20,911 |
|
| |
|
Deferred Income Tax Provision (Benefit)
|
|
|
206 |
|
|
|
15,425 |
|
|
|
14,984 |
|
|
|
— |
|
|
|
30,615 |
|
| |
|
Other, Net
|
|
|
7,410 |
|
|
|
108,025 |
|
|
|
1,886 |
|
|
|
— |
|
|
|
117,321 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Net Cash Provided (Used) by Continuing Operations
|
|
|
(2,866 |
) |
|
|
245,464 |
|
|
|
54,654 |
|
|
|
— |
|
|
|
297,252 |
|
| |
|
|
Net Cash Used by Discontinued Operation
|
|
|
— |
|
|
|
— |
|
|
|
(11,850 |
) |
|
|
— |
|
|
|
(11,850 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Net Cash Provided (Used) by Operating Activities
|
|
|
(2,866 |
) |
|
|
245,464 |
|
|
|
42,804 |
|
|
|
— |
|
|
|
285,402 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Acquisition of Businesses, Net of Cash Acquired
|
|
|
— |
|
|
|
— |
|
|
|
(61,527 |
) |
|
|
— |
|
|
|
(61,527 |
) |
| |
Capital Expenditures for Property, Plant and Equipment
|
|
|
— |
|
|
|
— |
|
|
|
(302,502 |
) |
|
|
— |
|
|
|
(302,502 |
) |
| |
Acquisition of Intellectual Property
|
|
|
— |
|
|
|
— |
|
|
|
(20,072 |
) |
|
|
— |
|
|
|
(20,072 |
) |
| |
Proceeds from Sales of Assets
|
|
|
— |
|
|
|
— |
|
|
|
13,230 |
|
|
|
— |
|
|
|
13,230 |
|
| |
Capital Contribution to Subsidiary
|
|
|
(412,730 |
) |
|
|
— |
|
|
|
— |
|
|
|
412,730 |
|
|
|
— |
|
| |
Other Investing Activities, Net
|
|
|
— |
|
|
|
— |
|
|
|
(6,144 |
) |
|
|
— |
|
|
|
(6,144 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Net Cash Used by Investing Activities
|
|
|
(412,730 |
) |
|
|
— |
|
|
|
(377,015 |
) |
|
|
412,730 |
|
|
|
(377,015 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Proceeds From Asset Securitization, Net
|
|
|
— |
|
|
|
6,051 |
|
|
|
— |
|
|
|
— |
|
|
|
6,051 |
|
| |
Borrowings (Repayments) of Short-term Debt, Net
|
|
|
144,000 |
|
|
|
(221,038 |
) |
|
|
(79,016 |
) |
|
|
— |
|
|
|
(156,054 |
) |
| |
Borrowings (Repayments) on Long-term Debt, Net
|
|
|
247,902 |
|
|
|
— |
|
|
|
(1,847 |
) |
|
|
— |
|
|
|
246,055 |
|
| |
Redemption of Convertible Preferred Debentures
|
|
|
— |
|
|
|
(412,563 |
) |
|
|
— |
|
|
|
— |
|
|
|
(412,563 |
) |
| |
Proceeds from Issuance of Common Shares
|
|
|
400,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
400,000 |
|
| |
Purchases of Treasury Shares, Net
|
|
|
— |
|
|
|
(2,619 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2,619 |
) |
| |
Proceeds from Exercise of Stock Options
|
|
|
— |
|
|
|
13,972 |
|
|
|
— |
|
|
|
— |
|
|
|
13,972 |
|
| |
Borrowings (Repayments) between Subsidiaries, Net
|
|
|
(370,466 |
) |
|
|
370,478 |
|
|
|
(12 |
) |
|
|
— |
|
|
|
— |
|
| |
Proceeds from Capital Contribution
|
|
|
— |
|
|
|
— |
|
|
|
412,730 |
|
|
|
(412,730 |
) |
|
|
— |
|
| |
Other Financing Activities, Net
|
|
|
(4,258 |
) |
|
|
— |
|
|
|
4,054 |
|
|
|
— |
|
|
|
(204 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Net Cash Provided (Used) by Financing Activities
|
|
|
417,178 |
|
|
|
(245,719 |
) |
|
|
335,909 |
|
|
|
(412,730 |
) |
|
|
94,638 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Exchange Rate Changes on Cash and Cash Equivalents
|
|
|
— |
|
|
|
— |
|
|
|
4,220 |
|
|
|
— |
|
|
|
4,220 |
|
|
Net Increase (Decrease) in Cash and Cash Equivalents
|
|
|
1,582 |
|
|
|
(255 |
) |
|
|
5,918 |
|
|
|
— |
|
|
|
7,245 |
|
|
Cash and Cash Equivalents at Beginning of Year
|
|
|
— |
|
|
|
3,214 |
|
|
|
45,623 |
|
|
|
— |
|
|
|
48,837 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of Year
|
|
$ |
1,582 |
|
|
$ |
2,959 |
|
|
$ |
51,541 |
|
|
$ |
— |
|
|
$ |
56,082 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
Condensed Consolidating Statement of Cash Flows
Year Ended December 31, 2002
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Other | |
|
|
|
|
| |
|
Parent | |
|
Issuer | |
|
Subsidiaries | |
|
Eliminations | |
|
Consolidation | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net Income (Loss)
|
|
$ |
(6,030 |
) |
|
$ |
(27,193 |
) |
|
$ |
1,858 |
|
|
$ |
25,335 |
|
|
$ |
(6,030 |
) |
| |
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided
(Used) by Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Equity in (Earnings) Losses of Unconsolidated Affiliates, Net of
Impairment Charge
|
|
|
23,080 |
|
|
|
— |
|
|
|
(16,787 |
) |
|
|
186,460 |
|
|
|
192,753 |
|
| |
|
Non-cash Portion of Restructuring and Asset Impairment Charges
|
|
|
— |
|
|
|
— |
|
|
|
11,689 |
|
|
|
— |
|
|
|
11,689 |
|
| |
|
Loss on Sale to Parent
|
|
|
— |
|
|
|
186,460 |
|
|
|
— |
|
|
|
(186,460 |
) |
|
|
— |
|
| |
|
Charges from Parent or Subsidiary
|
|
|
(47,993 |
) |
|
|
(17,446 |
) |
|
|
65,439 |
|
|
|
— |
|
|
|
— |
|
| |
|
Equity in (Earnings) Loss of Affiliates
|
|
|
27,193 |
|
|
|
(1,858 |
) |
|
|
— |
|
|
|
(25,335 |
) |
|
|
— |
|
| |
|
Deferred Income Tax Provision (Benefit)
|
|
|
480 |
|
|
|
(25,014 |
) |
|
|
(69,522 |
) |
|
|
— |
|
|
|
(94,056 |
) |
| |
|
Other Adjustments
|
|
|
(203,180 |
) |
|
|
110,102 |
|
|
|
286,557 |
|
|
|
— |
|
|
|
193,479 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Net Cash Provided (Used) by Continuing Operations
|
|
|
(206,450 |
) |
|
|
225,051 |
|
|
|
279,234 |
|
|
|
— |
|
|
|
297,835 |
|
| |
|
|
Net Cash Provided by Discontinued Operation
|
|
|
— |
|
|
|
— |
|
|
|
9,060 |
|
|
|
— |
|
|
|
9,060 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Net Cash Provided (Used) by Operating Activities
|
|
|
(206,450 |
) |
|
|
225,051 |
|
|
|
288,294 |
|
|
|
— |
|
|
|
306,895 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Acquisition of Businesses, Net of Cash Acquired
|
|
|
— |
|
|
|
— |
|
|
|
(111,754 |
) |
|
|
— |
|
|
|
(111,754 |
) |
| |
Capital Expenditures for Property, Plant and Equipment
|
|
|
— |
|
|
|
— |
|
|
|
(268,687 |
) |
|
|
— |
|
|
|
(268,687 |
) |
| |
Acquisition of Intangible Assets
|
|
|
— |
|
|
|
— |
|
|
|
(81,103 |
) |
|
|
— |
|
|
|
(81,103 |
) |
| |
Proceeds from Sales of Assets
|
|
|
— |
|
|
|
— |
|
|
|
19,679 |
|
|
|
— |
|
|
|
19,679 |
|
| |
Capital Contribution to Subsidiary
|
|
|
(12 |
) |
|
|
(12 |
) |
|
|
— |
|
|
|
24 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Net Cash Used by Investing Activities
|
|
|
(12 |
) |
|
|
(12 |
) |
|
|
(441,865 |
) |
|
|
24 |
|
|
|
(441,865 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Repayments on Asset Securitization, Net
|
|
|
— |
|
|
|
(71,846 |
) |
|
|
— |
|
|
|
— |
|
|
|
(71,846 |
) |
| |
Borrowings (Repayments) of Short-term Debt, Net
|
|
|
— |
|
|
|
175,387 |
|
|
|
(10,283 |
) |
|
|
— |
|
|
|
165,104 |
|
| |
Borrowings (Repayments) on Long-term Debt, Net
|
|
|
— |
|
|
|
25,021 |
|
|
|
(54,759 |
) |
|
|
— |
|
|
|
(29,738 |
) |
| |
Purchase of Treasury Shares, Net
|
|
|
— |
|
|
|
(2,703 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2,703 |
) |
| |
Proceeds from Exercise of Stock Options
|
|
|
— |
|
|
|
34,410 |
|
|
|
— |
|
|
|
— |
|
|
|
34,410 |
|
| |
Proceeds from Capital Contribution
|
|
|
12 |
|
|
|
— |
|
|
|
12 |
|
|
|
(24 |
) |
|
|
— |
|
| |
Borrowings (Repayments) between Subsidiaries
|
|
|
206,450 |
|
|
|
(403,737 |
) |
|
|
197,287 |
|
|
|
— |
|
|
|
— |
|
| |
Other, Net
|
|
|
— |
|
|
|
(1,271 |
) |
|
|
— |
|
|
|
— |
|
|
|
(1,271 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Net Cash Provided (Used) by Financing Activities
|
|
|
206,462 |
|
|
|
(244,739 |
) |
|
|
132,257 |
|
|
|
(24 |
) |
|
|
93,956 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Exchange Rate Changes on Cash and Cash Equivalents
|
|
|
— |
|
|
|
— |
|
|
|
1,019 |
|
|
|
— |
|
|
|
1,019 |
|
|
Net Decrease in Cash and Cash Equivalents
|
|
|
— |
|
|
|
(19,700 |
) |
|
|
(20,295 |
) |
|
|
— |
|
|
|
(39,995 |
) |
|
Cash and Cash Equivalents at Beginning of Year
|
|
|
— |
|
|
|
22,914 |
|
|
|
65,918 |
|
|
|
— |
|
|
|
88,832 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of Year
|
|
$ |
— |
|
|
$ |
3,214 |
|
|
$ |
45,623 |
|
|
$ |
— |
|
|
$ |
48,837 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
|
|
| 25. |
Quarterly Financial Data (Unaudited) |
The following tabulation sets forth unaudited quarterly
financial data for 2004 and 2003:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
1st Qtr. | |
|
2nd Qtr. | |
|
3rd Qtr. | |
|
4th Qtr. | |
|
Total | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except per share amounts) | |
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Revenues
|
|
$ |
712,640 |
|
|
$ |
742,188 |
|
|
$ |
794,341 |
|
|
$ |
882,605 |
|
|
$ |
3,131,774 |
|
| |
Gross Profit
|
|
|
215,150 |
|
|
|
224,759 |
|
|
|
255,062 |
|
|
|
278,051 |
|
|
|
973,022 |
|
| |
Income from Continuing Operations
|
|
|
53,500 |
|
|
|
81,032 |
|
|
|
69,838 |
|
|
|
132,929 |
|
|
|
337,299 |
|
| |
Income (Loss) from Discontinued Operation
|
|
|
(895 |
) |
|
|
(7,143 |
) |
|
|
259 |
|
|
|
626 |
|
|
|
(7,153 |
) |
| |
Net Income
|
|
|
52,605 |
|
|
|
73,889 |
|
|
|
70,097 |
|
|
|
133,555 |
|
|
|
330,146 |
|
| |
Basic Earnings (Loss) Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Continuing Operations
|
|
$ |
0.40 |
|
|
$ |
0.61 |
|
|
$ |
0.52 |
|
|
$ |
0.97 |
|
|
$ |
2.52 |
|
| |
|
Discontinued Operation
|
|
|
(0.00 |
) |
|
|
(0.05 |
) |
|
|
— |
|
|
|
0.01 |
|
|
|
(0.06 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net Income
|
|
$ |
0.40 |
|
|
$ |
0.56 |
|
|
$ |
0.52 |
|
|
$ |
0.98 |
|
|
$ |
2.46 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Diluted Earnings (Loss) Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Continuing Operations
|
|
$ |
0.38 |
|
|
$ |
0.57 |
|
|
$ |
0.49 |
|
|
$ |
0.90 |
|
|
$ |
2.35 |
|
| |
|
Discontinued Operation
|
|
|
(0.00 |
) |
|
|
(0.05 |
) |
|
|
— |
|
|
|
— |
|
|
|
(0.05 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net Income
|
|
$ |
0.38 |
|
|
$ |
0.52 |
|
|
$ |
0.49 |
|
|
$ |
0.90 |
|
|
$ |
2.30 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Revenues
|
|
$ |
587,777 |
|
|
$ |
616,194 |
|
|
$ |
647,648 |
|
|
$ |
710,415 |
|
|
$ |
2,562,034 |
|
| |
Gross Profit
|
|
|
179,847 |
|
|
|
180,460 |
|
|
|
193,033 |
|
|
|
209,176 |
|
|
|
762,516 |
|
| |
Income from Continuing Operations
|
|
|
34,733 |
|
|
|
30,396 |
|
|
|
32,742 |
|
|
|
49,372 |
|
|
|
147,243 |
|
| |
Loss from Discontinued Operation
|
|
|
(1,203 |
) |
|
|
(1,823 |
) |
|
|
(330 |
) |
|
|
(535 |
) |
|
|
(3,891 |
) |
| |
Net Income
|
|
|
33,530 |
|
|
|
28,573 |
|
|
|
32,412 |
|
|
|
48,837 |
|
|
|
143,352 |
|
| |
Basic Earnings (Loss) Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Continuing Operations
|
|
$ |
0.29 |
|
|
$ |
0.25 |
|
|
$ |
0.25 |
|
|
$ |
0.37 |
|
|
$ |
1.16 |
|
| |
|
Discontinued Operation
|
|
|
(0.01 |
) |
|
|
(0.01 |
) |
|
|
(0.00 |
) |
|
|
(0.00 |
) |
|
|
(0.03 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net Income
|
|
$ |
0.28 |
|
|
$ |
0.24 |
|
|
$ |
0.25 |
|
|
$ |
0.37 |
|
|
$ |
1.13 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Diluted Earnings (Loss) Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Continuing Operations
|
|
$ |
0.27 |
|
|
$ |
0.24 |
|
|
$ |
0.24 |
|
|
$ |
0.36 |
|
|
$ |
1.12 |
|
| |
|
Discontinued Operation
|
|
|
(0.00 |
) |
|
|
(0.02 |
) |
|
|
(0.00 |
) |
|
|
(0.00 |
) |
|
|
(0.03 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net Income
|
|
$ |
0.27 |
|
|
$ |
0.22 |
|
|
$ |
0.24 |
|
|
$ |
0.36 |
|
|
$ |
1.09 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The Company’s previously reported 2003 quarterly results
have been restated to reflect the discontinued operation impact
of GSI and the effect of adopting SFAS No. 123 (See
Note 1). |
During January 2005, the Company issued approximately
1.1 million restricted shares at an average stock price of
$49.07 to certain key employees. The restricted shares vest
based on continued employment, and vesting occurs over a
four-year period, with an equal amount of the restricted shares
vesting on each anniversary of the grant date.
89
|
|
| Item 9. |
Changes in and Disagreement with Accountants on Accounting
and Financial Disclosure |
None.
|
|
| Item 9A. |
Controls and Procedures |
Evaluation of disclosure controls and procedures.
At the end of the period covered by this Annual Report on
Form 10-K, the Company carried out an evaluation, under the
supervision and with the participation of management, including
the Chief Executive Officer and the Chief Financial Officer, of
the effectiveness of the Company’s disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Exchange Act). Based upon that evaluation, the
Company’s Chief Executive Officer and Chief Financial
Officer have concluded the Company’s disclosure controls
and procedures are effective as of the end of the period covered
by this report to timely alert them to material information
relating to the Company (including its consolidated
subsidiaries) required to be included in the Company’s
Exchange Act filings.
Changes in internal controls.
There has been no change in our internal controls over financial
reporting that occurred during the three-month period ended
December 31, 2004 that has materially affected, or is
reasonably likely to materially affect, our internal controls
over financial reporting.
Internal controls over financial reporting.
Management’s report on our internal controls over financial
reporting can be found in Item 8 of this report. The
Independent Registered Public Accounting Firm’s attestation
report on management’s assessment of the effectiveness of
our internal control over financial reporting can also be found
in Item 8 of this report.
PART III
|
|
| Item 10. |
Directors and Executive Officers of the Registrant |
Pursuant to General Instructions G(3), information on
directors and executive officers of the Registrant will be filed
in an amendment to this Annual Report on Form 10-K or
incorporated by reference from the Company’s Definitive
Proxy Statement for the annual meeting to be held on
May 13, 2005.
Our board of directors has adopted a code of ethics entitled
“Code of Conduct,” which applies to all our employees,
officers and directors and has also adopted a separate
“Supplemental Code of Business Conduct” for our senior
officers. Copies of these codes can also be found at
www.weatherford.com.
|
|
| Item 11. |
Executive Compensation |
Pursuant to General Instructions G(3), information on
executive compensation will be filed in an amendment to this
Annual Report on Form 10-K or incorporated by reference
from the Company’s Definitive Proxy Statement for the
annual meeting to be held on May 13, 2005.
|
|
| Item 12. |
Security Ownership of Certain Beneficial Owners and
Management |
Pursuant to General Instruction G(3), information on
security ownership of certain beneficial owners and management
will be filed in an amendment to this Annual Report on
Form 10-K or incorporated by reference from the
Company’s Definitive Proxy Statement for the annual meeting
to be held on May 13, 2005.
Equity Compensation Plan Information
The following table provides information as of December 31,
2004 about the number of shares to be issued upon vesting or
exercise of equity awards including options, restricted shares,
warrants and deferred
90
|
|
|
|
|
|
stock units as well as the number of shares remaining available
for issuance under our equity compensation plans. |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Number of Shares | |
| |
|
|
|
Weighted | |
|
Remaining Available | |
| |
|
Number of Shares to | |
|
Average Exercise | |
|
for Future Issuance | |
| |
|
be Issued Upon | |
|
Price of | |
|
Under Equity | |
| |
|
Exercise of | |
|
Outstanding | |
|
Compensation Plans | |
| |
|
Outstanding | |
|
Options, | |
|
(Excluding Shares | |
| |
|
Options, Warrants | |
|
Warrants and | |
|
Reflected in the | |
| |
|
and Rights | |
|
Rights | |
|
First Column) | |
| |
|
| |
|
| |
|
| |
|
Plan Category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans approved by shareholders
|
|
|
614,766 |
|
|
$ |
10.10 |
|
|
|
— |
|
|
Equity compensation plans not approved by shareholders(a)
|
|
|
17,517,769 |
|
|
$ |
33.72 |
|
|
|
4,553,047 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Total
|
|
|
18,132,535 |
|
|
$ |
32.92 |
|
|
|
4,553,047 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The Weatherford International, Inc. 1998 Employee Stock Option
Plan, as amended (the “Plan”), is administered by the
Compensation Committee of the Board of Directors, and all
employees are eligible to receive options under the Plan. The
Plan provides for the grant of nonqualified options to purchase
Common Shares of Weatherford International Ltd. The price at
which shares may be purchased is based on the market price of
the shares and cannot be less than the aggregate par value of
the shares on the date the option was granted. Unless otherwise
provided in an option agreement, no option may be exercised
after one day less than 10 years from the date of vesting.
Options generally become fully exercisable after three to four
years from the date of grant, subject to earlier vesting in the
event of the death, disability or retirement of the employee or
in the event of a change of control of the Company. The Plan
provides for the grant of options to purchase up to
22,000,000 shares. As of December 31, 2004, there were
options to purchase an aggregate of 12,491,405 Common
Shares outstanding under this Plan, of which options to purchase
an aggregate of 5,539,340 Common Shares were vested. |
|
|
| |
On September 8, 1998, July 5, 2000, and
September 26, 2001, the Company granted to each of its
directors other than Mr. Duroc-Danner an option or warrant
to purchase 93,632, 60,000 and 60,000 Common Shares,
respectively, at a purchase price per share equal to $11.615,
$36.75 and $23.77, respectively, which was the fair market value
of our Common Shares as of the day we granted the options or
warrant. The options and warrants were issued under agreements
between us and the directors. Each option or warrant is
exercisable for a period of ten years from the date which it
becomes fully exercisable. The options and warrant granted on
September 8, 1998 and July 5, 2000 become fully
exercisable three years from the date of grant, and the options
and warrant granted on September 26, 2001 become fully
exercisable four years from the date of grant, in each case
subject to earlier vesting in the event of the death, disability
or retirement of the optionee or warrantholder or a change of
control of the Company. Under these agreements there were
options and warrants to purchase an aggregate of
1,281,792 Common Shares outstanding as of December 31,
2004, of which options and warrants to purchase an aggregate of
921,792 Common Shares were vested. |
| |
| |
Under our Non-Employee Director Deferred Compensation Plan, each
non-employee director may elect to defer up to 7.5% of any fees
paid by the Company. The deferred fees are converted into
non-monetary units representing Common Shares that could have
been purchased with the deferred fees based on the average of
the high and low market price of the Common Shares on the last
day of the month in which fees were deferred. If a non-employee
director elects to defer at least 5% of his fees, the Company
will make an additional contribution to the director’s
account equal to the sum of (1) 7.5% of the director’s
fees plus (2) the amount of fees deferred by the director.
The non-employee directors are fully vested at all times. The
Company’s directors may generally determine when
distributions will be made from the plan. The amount of the
distribution will be a number of Common Shares equal to the
number of units at |
91
|
|
| |
the time of distribution. Distributions are made in Common
Shares. As of December 31, 2004, there were 25,940 deferred
units outstanding under this plan. |
| |
| |
The Company established its Foreign Executive Deferred
Compensation Stock Ownership Plan for key foreign employees.
Under the Company’s Foreign Executive Deferred Compensation
Stock Ownership Plan, the Company contributes 15% of each
participant’s total salary, bonus and commission
compensation each year. The Company’s contributions vest
over a five-year period on the basis of 20% per year for
each year of service. Under the Foreign Executive Deferred
Compensation Stock Ownership Plan, the Company’s
contributions are converted into non-monetary units equal to the
number of Common Shares that could have been purchased with the
amounts contributed based on the average closing price of the
Common Shares for each day of the month in which contributions
are made. Distributions are made under the Foreign Executive
Deferred Compensation Stock Ownership Plan after a participant
retires, becomes disabled or dies or after his employment is
terminated. Distributions under the Foreign Executive Deferred
Compensation Stock Ownership Plan are made in a number of Common
Shares equal to the number of units allocated to the
participant’s account at the time of distribution. As of
December 31, 2004, there were 60,024 deferred units
outstanding under this plan. |
| |
| |
On February 28, 2002, the Company issued Shell Technology
Ventures Inc. a warrant to purchase up to 3,232,214 Common
Shares at a price of $60.00 per share. The warrant has a
nine-year exercisable life beginning one year after the issue
date. The warrant holder may exercise the warrant and settlement
may occur through physical delivery, net share settlement, net
cash settlement or a combination thereof. The warrant also may
be converted into Common Shares at any time after the third
anniversary of the issue date. The number of Common Shares
issuable upon conversion would be equal to the value of the
warrant determined by the Black-Scholes option pricing model
divided by the average of the closing price of Common Shares for
the 10-day period prior to the date of conversion. Any shares
received upon such conversion are non-transferable for two years. |
| |
| |
In 2003, the Company’s Board of Directors approved a
restricted share plan that allows for the grant of up to
3,835,000 of our Common Shares to key employees and directors of
the Company. Restricted shares are subject to forfeiture
restrictions that generally lapse after a specified period from
the date of grant and are subject to earlier vesting in the
event of death, retirement or a change in control. As of
December 31, 2004 there were 426,394 shares granted
under this plan. |
|
|
| Item 13. |
Certain Relationships and Related Transactions |
Pursuant to General Instruction G(3), information on
certain relationships and related transactions will be filed in
an amendment to this Annual Report on Form 10-K or
incorporated by reference from the Company’s Definitive
Proxy Statement for the annual meeting to be held on
May 13, 2005.
|
|
| Item 14. |
Principal Accountant Fees and Services |
Pursuant to General Instruction G(3), information on
principal accountant fees and services will be filed in an
amendment to this Annual Report on Form 10-K or
incorporated by reference from the Company’s Definitive
Proxy Statement for the annual meeting to be held on
May 13, 2005.
PART IV
|
|
| Item 15. |
Exhibits, Financial Statement Schedules, and Reports on
Form 8-K |
(a) The following documents are filed as part of this
report or incorporated herein by reference:
1. The consolidated financial statements of the Company
listed on page 42 of this report.
2. The financial statement schedule on page 98 of this
report.
3. The exhibits of the Company listed below under
Item 15(c).
92
(b) Reports on Form 8-K:
1. Current Report on Form 8-K dated October 20,
2004 announcing earnings for the quarter ended
September 30, 2004.
2. Current Report on Form 8-K dated November 30,
2004 announcing the sale of 4,000,000 shares of common
stock of Universal Compression Holdings, Inc. on
November 30, 2004.
(c) Exhibits:
| |
|
|
|
|
| Exhibit |
|
|
| Number |
|
Description |
| |
|
|
| |
2 |
.1 |
|
Agreement and Plan of Merger dated May 8, 2002, among
Weatherford International, Inc., Weatherford Merger, Inc.,
Weatherford International Ltd. and Weatherford
U.S. Holdings LLC (incorporated by reference to
Exhibit 2.1 to Amendment No. 1 to the Registration
Statement on Form S-4 (Reg. No. 333-85644) filed on
May 22, 2002). |
| |
2 |
.2 |
|
Agreement and Plan of Merger dated October 23, 2000, by and
among Weatherford International, Inc., WEUS Holding, Inc.,
Enterra Compression Company, Universal Compression Holdings,
Inc. and Universal Compression, Inc. (incorporated by reference
to Exhibit 10.1 to the Current Report on Form 8-K of
Universal Compression Holdings, Inc. (File No. 1-15843) and
Universal Compression, Inc. (File No. 333-48279) filed
October 26, 2000). |
| |
2 |
.3 |
|
Purchase Agreement dated as of October 23, 2000, by and
among Weatherford International, Inc., WEUS Holding, Inc.,
Enterra Compression Company, Global Compression Services, Inc.
and General Electric Capital Corporation (incorporated by
reference to Exhibit F to the Schedule 13D, with respect to
the common stock of Universal Compression Holdings, Inc., filed
by Weatherford International, Inc. and WEUS Holding, Inc. on
November 2, 2000). |
| |
2 |
.4 |
|
Distribution Agreement dated as of April 14, 2000, between
Weatherford International, Inc. and Grant Prideco, Inc.
(incorporated by reference to Exhibit 2.1 to the
Registration Statement on Form S-3 of Grant Prideco, Inc.
(Reg. No. 333-35272) filed April 20, 2000). |
| |
2 |
.5 |
|
Agreement and Plan of Merger dated as of March 4, 1998, by
and between EVI, Inc. and Weatherford Enterra, Inc.
(incorporated by reference to Exhibit 2.1 to Amendment
No. 1 to the Registrant’s Current Report on
Form 8-K on Form 8-K/A (File No. 1-13086) filed
March 9, 1998). |
| |
2 |
.6 |
|
Amendment No. 1 dated as of April 17, 1998, to the
Agreement and Plan of Merger dated as of March 4, 1998, by
and between EVI, Inc. and Weatherford Enterra, Inc.
(incorporated by reference to Exhibit 2.2 to the
Registrant’s Current Report on Form 8-K (File
No. 1-13086) filed April 21, 1998). |
| |
2 |
.7 |
|
Amendment No. 2 dated as of April 22, 1998, to the
Agreement and Plan of Merger dated as of March 4, 1998, as
amended by and between EVI, Inc. and Weatherford Enterra, Inc.
(incorporated by reference to Exhibit 2.3 to the
Registrant’s Current Report on Form 8-K (File
No. 1-13086) filed April 23, 1998). |
| |
3 |
.1 |
|
Memorandum of Association of Weatherford International Ltd.
(incorporated by reference to Annex II to the proxy
statement/ prospectus included in Amendment No. 1 to the
Registration Statement on Form S-4 (Reg.
No. 333-85644) filed on May 22, 2002). |
| |
3 |
.2 |
|
Memorandum of Increase of Share Capital of Weatherford
International Ltd. (incorporated by reference to Annex II
to the proxy statement/ prospectus included in Amendment
No. 1 to the Registration Statement on Form S-4 (Reg.
No. 333-85644) filed on May 22, 2002). |
| |
3 |
.3 |
|
Bye-laws of Weatherford International Ltd. (incorporated by
reference to Annex III to the proxy statement/ prospectus
included in Amendment No. 1 to the Registration Statement
on Form S-4 (Reg. No. 333-85644) filed on May 22,
2002). |
| |
4 |
.1 |
|
See Exhibits 3.1, 3.2 and 3.3 for provisions of the
Memorandum of Association and Bye-laws of Weatherford
International Ltd. defining the rights of holders of common
shares. |
93
| |
|
|
|
|
| Exhibit |
|
|
| Number |
|
Description |
| |
|
|
| |
4 |
.2 |
|
Credit Agreement dated May 14, 2003, among Weatherford
International Ltd., Weatherford International, Inc., JPMorgan
Chase Bank, as Administrative Agent, BankOne, NA and Wells Fargo
Bank, Texas, N.A., as Co-Syndication Agents, ABN-AMRO Bank,
N.V., and The Bank of Nova Scotia, as Co- Documentation agents,
and Wachovia Bank, National Association, Suntrust Bank, Royal
Bank of Canada and Deutsche Bank AG New York Branch, as
co-Managing Agents (incorporated by reference to
Exhibit 4.1 to the Registrant’s Current Report on
Form 8-K (File No. 1-31339) filed July 1, 2003). |
| |
4 |
.3 |
|
Amended and Restated Credit Agreement dated as of
January 14, 2005, among Weatherford International Ltd.,
Weatherford International, Inc., Weatherford Liquidity
Management Hungary Limited Liability Company, JPMorgan Chase
Bank as Administrative Agent, and the other Lenders party
thereto (incorporated by reference to Exhibit 4.1 to the
Registrant’s Current Report on Form 8-K (File
No. 1-31339) filed January 20, 2005). |
| |
4 |
.4 |
|
Indenture, dated October 1, 2003, among Weatherford
International Ltd., Weatherford International, Inc., and
Deutsche Bank Trust Company Americas (incorporated by reference
to Exhibit 4.1 to the Registrant’s Current Report on
Form 8-K (File No. 1-31339) filed October 2,
2003). |
| |
4 |
.5 |
|
Officers’ Certificate dated as of October 7, 2003
(incorporated by reference to Exhibit 4.2 to the
Registrant’s Current Report on Form 8-K (File
No. 1-31339) filed October 7, 2003). |
| |
4 |
.6 |
|
Indenture dated May 17, 1996, between Weatherford Enterra,
Inc. and Bank of Montreal Trust Company, as Trustee
(incorporated by reference to Exhibit 4.1 to Weatherford
Enterra, Inc.’s Current Report on Form 8-K (File
No. 1-7867) filed May 31, 1996). |
| |
4 |
.7 |
|
First Supplemental Indenture dated and effective as of
May 27, 1998, by and among EVI Weatherford, Inc., the
successor by merger to Weatherford Enterra, Inc., and Bank of
Montreal Trust Company, as Trustee (incorporated by reference to
Exhibit No. 4.1 to the Registrant’s Current Report on
Form 8-K (File No. 1-13086) filed June 2, 1998). |
| |
4 |
.8 |
|
Second Supplemental Indenture dated June 30, 2000, between
Weatherford International, Inc. and The Bank of New York, as
successor trustee to Bank of Montreal Trust (including form of
Debenture) (incorporated by reference to Exhibit 4.1 to the
Registrant’s Current Report on Form 8-K (File
No. 1-13086) filed July 10, 2000). |
| |
4 |
.9 |
|
Third Supplemental Indenture dated November 16, 2001,
between Weatherford International, Inc. and The Bank of New
York, as Trustee (incorporated by reference to Exhibit 4.11
to the Registration Statement on Form S-3 (Reg.
No. 333-73770) filed November 20, 2001). |
| |
4 |
.10 |
|
Fourth Supplemental Indenture dated June 26, 2002, among
Weatherford International, Inc., Weatherford International Ltd.
and The Bank of New York (as successor in interest to Bank of
Montreal Trust Company) (incorporated by reference to
Exhibit 4.7 to the Registrant’s Quarterly Report on
Form 10-Q for the quarter ended June 30, 2002 (File
No. 1-13086) filed August 14, 2002). |
| |
4 |
.11 |
|
Convertible Debenture Guarantee Agreement dated June 26,
2002, between Weatherford International Ltd. and JP Morgan Chase
Bank (incorporated by reference to Exhibit 4.8 to the
Registrant’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2002 (File No. 1-13086) filed
August 14, 2002). |
| |
4 |
.12 |
|
Form of global note for 4.95% Senior Notes due 2013
(incorporated by reference to Exhibit 4.1 to the
Registrant’s Current Report on Form 8-K (File
No. 1-31339) filed October 7, 2003). |
| |
4 |
.13 |
|
Form of Weatherford Enterra, Inc.’s
71/4% Senior
Notes due May 15, 2006 (incorporated by reference to
Exhibit 4.2 to Weatherford Enterra, Inc.’s Current
Report on Form 8-K (File No. 1-7867) filed
May 31, 1996). |
| |
10 |
.1 |
|
Voting Agreement, dated as of February 9, 2001, among
Weatherford International, Inc., WEUS Holding, Inc. and
Universal Compression Holdings, Inc. (incorporated by reference
to Exhibit 4.1 to the Registrant’s Quarterly Report on
Form 10-Q of Universal Compression Holdings, Inc. (File
No. 1-15843) filed February 14, 2001). |
94
| |
|
|
|
|
| Exhibit |
|
|
| Number |
|
Description |
| |
|
|
| |
10 |
.2 |
|
Amended and Restated Registration Rights Agreement, dated as of
March 23, 2004, between Weatherford International Ltd. and
Universal Compression Holdings, Inc. (incorporated by reference
to Exhibit 10.1 to the Registration Statement on
Form S-3 of Universal Compression Holdings, Inc. (Reg.
No. 333-114145) filed April 2, 2004). |
| |
10 |
.3 |
|
Preferred Supplier Agreement dated as of March 22, 2000,
between Weatherford International, Inc. and Grant Prideco, Inc.
(incorporated by reference to Exhibit 10.13 to the
Registrant’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2000 (File No. 1-13086) filed
May 15, 2000). |
| |
10 |
.4 |
|
Amendment to Preferred Supplier Agreement dated April 14,
2003 (incorporated by reference to Exhibit 10.1 to the
Grant Prideco Quarterly Report on Form 10-Q for the quarter
ended March 31, 2003 (File No. 1-15423), filed
May 15, 2003). |
| |
*10 |
.5 |
|
Weatherford Enterra, Inc. 1991 Stock Option Plan, as amended and
restated (incorporated by reference to Exhibit 10.4 to
Weatherford Enterra, Inc.’s Annual Report on Form 10-K
for the year ended December 31, 1996 (File 1-7867) filed
March 23, 1997). |
| |
*10 |
.6 |
|
2004 Weatherford Variable Compensation Plan, Including Form of
Award Letter (incorporated by reference to Exhibit 10.1 to
the Registrant’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2004 (File No. 1-31339)
filed November 9, 2004). |
| |
*10 |
.7 |
|
Weatherford Variable Compensation Plan (incorporated by
reference to Exhibit 10.1 to the Registrant’s Current
Report on Form 8-K (File No. 1-31339) filed
January 25, 2005). |
| |
*10 |
.8 |
|
Weatherford International Ltd. Restricted Share Plan, including
form of agreement for officers and non-officers (incorporated by
reference to Exhibit 10.2 to Amendment No. 1 to the
Registrant’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2004 on Form 10-Q/A (File
No. 1-31339) filed September 15, 2004). |
| |
*10 |
.9 |
|
Weatherford International, Inc. Executive Deferred Compensation
Stock Ownership Plan and Related Trust Agreement (incorporated
by reference to Exhibit 10.5 to the Registrant’s
Quarterly Report on Form 10-Q for the quarter ended
June 30, 2003 (File No. 1-31339) filed August 14,
2003). |
| |
*10 |
.10 |
|
Weatherford International Ltd. Nonqualified Executive Retirement
Plan (incorporated by reference to Exhibit 10.3 to the
Registrant’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2003 (File No. 1-31339) filed
August 14, 2003). |
| |
*10 |
.11 |
|
Weatherford International, Inc. Foreign Executive Deferred
Compensation Stock Plan (incorporated by reference to
Exhibit 10.4 to the Registrant’s Quarterly Report on
Form 10-Q for the quarter ended June 30, 2003 (File
No. 1-31339) filed August 14, 2003). |
| |
†*10 |
.12 |
|
Weatherford International Incorporated Non-Employee Director
Retirement Plan. |
| |
*10 |
.13 |
|
Weatherford International, Inc. Non-Employee Director Deferred
Compensation Plan (incorporated by reference to
Exhibit 10.5 to the Registrant’s Quarterly Report on
Form 10-Q for the quarter ended March 31, 2000 (File
No. 1-13086) filed May 15, 2000). |
| |
*10 |
.14 |
|
Trust under Weatherford International Ltd. Nonqualified
Executive Retirement Plan dated March 23, 2004
(incorporated by reference to Exhibit 10.1 to the
Registrant’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2004 (File No. 1-31339) filed
May 6, 2004). |
| |
*10 |
.15 |
|
Energy Ventures, Inc. 1991 Non-Employee Director Stock Option
Plan and Form of Agreement (incorporated by reference to the
Registrant’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 1991 (File No. 1-13086) filed
August 8, 1991). |
| |
*10 |
.16 |
|
Energy Ventures, Inc. 1992 Employee Stock Option Plan, as
amended (incorporated by reference to Exhibit 4.7 to the
Registration Statement on Form S-8 (Reg.
No. 333-13531) filed October 4, 1997). |
| |
*10 |
.17 |
|
Amended and Restated Non-Employee Director Stock Option Plan
(incorporated by reference to Exhibit 10.1 to the
Registrant’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995 (File No. 1-13086) filed
August 12, 1995). |
95
| |
|
|
|
|
| Exhibit |
|
|
| Number |
|
Description |
| |
|
|
| |
*10 |
.18 |
|
General Amendment of Employee Stock Option Programs of
Weatherford International, Inc. dated May 9, 2003
(incorporated by reference to Exhibit 10.1 to the
Registrant’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2003 (File No. 1-31339) filed
August 14, 2003). |
| |
*10 |
.19 |
|
General Amendment of Director’s Stock Option Plans and
Agreements dated May 9, 2003 (incorporated by reference to
Exhibit 10.2 to the Registrant’s Quarterly Report on
Form 10-Q for the quarter ended June 30, 2003 (File
No. 1-31339) filed August 14, 2003). |
| |
*10 |
.20 |
|
Weatherford International, Inc. 1998 Employee Stock Option Plan,
as amended, including form of agreement for officers. |
| |
*10 |
.21 |
|
Amendment to Stock Option Programs (incorporated by reference to
Exhibit 4.19 to the Registrant’s Registration
Statement on Form S-8 (Reg. No. 333-36598) filed
May 19, 2000). |
| |
*10 |
.22 |
|
Employment Agreements dated August 1, 2003, between
Weatherford International Ltd. and each of M. David Colley, E.
Lee Colley III, Bernard J. Duroc-Danner, Stuart E.
Ferguson, Burt M. Martin, Keith R. Morley, Jon R. Nicholson,
James N. Parmigiano, Lisa W. Rodriguez and Gary L. Warren
(incorporated by reference to Exhibit 10.2 to the
Registrant’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2003 (File No. 1-31339)
filed November 6, 2003). |
| |
*10 |
.23 |
|
Employment Agreement dated as of June 15, 1998, between EVI
Weatherford, Inc. and Philip Burguieres (incorporated by
reference to Exhibit No. 10.9 to the Registrant’s
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998 (File No. 1-13086) filed August 14,
1998). |
| |
*10 |
.24 |
|
Amendment to Employment Agreement dated October 16, 2000,
between Philip Burguieres and Weatherford International, Inc.
(incorporated by reference to Exhibit 10.41 to Annual
Report on Form 10-K for the year ended December 31,
2000 (File No. 1-13086) filed March 23, 2001). |
| |
*10 |
.25 |
|
Indemnification Agreements with Robert K. Moses, Jr.
(incorporated by reference to Exhibit 10.10 to Weatherford
Enterra, Inc.’s Annual Report on Form 10-K for the
year ended December 31, 1987 (File No. 1-7867));
Philip Burguieres (incorporated by reference to
Exhibit 10.4 to Weatherford Enterra, Inc.’s Quarterly
Report on Form 10-Q for the quarter ended June 30,
1991 (File No. 1-7867)); William E. Macaulay (incorporated
by reference to Exhibit 10.2 to Weatherford Enterra,
Inc.’s Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995 (File No. 1-7867)); and Jon
Nicholson (incorporated by reference to Exhibit 10.2 to
Weatherford Enterra, Inc.’s Annual Report on Form 10-K
for the year ended December 31, 1996 (File No. 1-7867)
filed March 24, 1997). |
| |
*10 |
.26 |
|
Indemnification Agreements with each of Bernard J. Duroc-Danner,
Gary L. Warren, Burt M. Martin, Lisa W. Rodriguez, E. Lee
Colley III, Donald R. Galletly, Jon R. Nicholson, James N.
Parmigiano, Stuart E. Ferguson, David J. Butters, Robert A.
Rayne, Robert K. Moses, Jr., Philip Burguieres, Robert B.
Millard, William E. Macaulay and Sheldon B. Lubar (incorporated
by reference to Exhibit 10.1 to the Registrant’s
Quarterly Report on Form 10-Q for the quarter ended
September 30, 2002 (File No. 1-13086) filed
November 13, 2002). |
| |
*10 |
.27 |
|
Form of Stock Option Agreement for Non-Employee Directors dated
September 8, 1998 (incorporated by reference to
Exhibit 10.23 to the Registrant’s Annual Report on
Form 10-K for the year ended December 31, 1998 (File
No. 1-13086) filed March 31, 1999). |
| |
*10 |
.28 |
|
Form of Amendment to Stock Option Agreements dated
September 8, 1998 for Non-Employee Directors (incorporated
by reference to Exhibit 4.17 to the Registration Statement
on Form S-8 (Reg. No. 333-36598) filed May 9,
2000). |
| |
*10 |
.29 |
|
Form of Stock Option Agreement for Non-employee Directors dated
July 5, 2000 (incorporated by reference to
Exhibit 4.16 to the Registration Statement on Form S-8
(Reg. No. 333-48322) filed October 20, 2000). |
| |
*10 |
.30 |
|
Form of Stock Option Agreement for Non-employee Directors dated
September 26, 2001 (incorporated by reference to
Exhibit 4.19 to the Registration Statement on Form S-8
(Reg. No. 333-81678) filed January 30, 2002). |
96
| |
|
|
|
|
| Exhibit |
|
|
| Number |
|
Description |
| |
|
|
| |
*10 |
.31 |
|
Assumption and General Amendment of Directors’ Stock Option
and Benefit Programs and General Amendment of Employee Stock
Option and Benefit Programs of Weatherford International, Inc.
dated June 26, 2002 (incorporated by reference to
Exhibit 10.1 to the Registrant’s Quarterly Report on
Form 10-Q for the quarter ended June 30, 2002 (File
No. 1-13086) filed August 14, 2002). |
| |
*10 |
.32 |
|
Form of Warrant Agreement with Robert K. Moses, Jr. dated
September 8, 1998 (incorporated by reference to
Exhibit 10.24 to the Registrant’s Annual Report on
Form 10-K for the year ended December 31, 1998 (File
No. 1-13086) filed March 31, 1999). |
| |
*10 |
.33 |
|
Form of Amendment to Warrant Agreement with Robert K.
Moses, Jr. dated September 8, 1998 (incorporated by
reference to Exhibit 4.18 to the Registration Statement on
Form S-8 (Reg. No. 333-36598) filed May 9, 2000). |
| |
10 |
.34 |
|
Form of Warrant Agreement with Robert K. Moses, Jr. dated
July 5, 2000 (incorporated by reference to
Exhibit 4.17 to the Registration Statement on Form S-8
(Reg. No. 333-48322) filed October 20, 2000). |
| |
*10 |
.35 |
|
Form of Warrant Agreement with Robert K. Moses dated
September 26, 2001 (incorporated by reference to
Exhibit 4.20 to the Registration Statement on Form S-8
(Reg. No. 333-81676) filed January 30, 2002). |
| |
10 |
.36 |
|
License Agreement among Shell Technology Ventures Inc.,
Weatherford/Lamb, Inc. and Weatherford International, Inc. dated
March 1, 2002, as amended on April 29, 2002
(incorporated by reference to Exhibit 10.1 to the
Registrant’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2002 (File No. 1-13086) filed
May 15, 2002). |
| |
10 |
.37 |
|
Framework Agreement between Shell Technology Ventures Limited
and Weatherford International, Inc. dated March 1, 2002, as
amended on April 19, 2002 (incorporated by reference to
Exhibit 10.2 to the Registrant’s Quarterly Report on
Form 10-Q for the quarter ended March 31, 2002 (File
No. 1-13086) filed May 15, 2002). |
| |
10 |
.38 |
|
Promissory Note to Shell Technology Ventures Inc. dated
February 28, 2002 (incorporated by reference to
Exhibit 10.3 to the Registrant’s Quarterly Report on
Form 10-Q for the quarter ended March 31, 2002 (File
No. 1-13086) filed May 15, 2002). |
| |
10 |
.39 |
|
Warrant Agreement between Shell Technology Ventures Inc. and
Weatherford International, Inc. dated February 28, 2002
(incorporated by reference to Exhibit 10.4 to the
Registrant’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2002 (File No. 1-13086) filed
May 15, 2002). |
| |
†21 |
.1 |
|
Subsidiaries of Weatherford International Ltd. |
| |
†23 |
.1 |
|
Consent of Ernst & Young LLP. |
| |
†23 |
.2 |
|
Consent of Deloitte and Touche LLP. |
| |
†31 |
.1 |
|
Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. |
| |
†31 |
.2 |
|
Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. |
| |
†32 |
.1 |
|
Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |
| |
†32 |
.2 |
|
Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |
| |
99 |
.3 |
|
Consolidated Financial Statements of Universal Compression
Holdings, Inc. for the fiscal year ended March 31, 2004
(incorporated by reference to Part II, Item 8 of the
Annual Report on Form 10-K for the fiscal year ended
March 31, 2004, filed by Universal Compression Holdings,
Inc. (SEC File No. 001-15843) on June 10, 2004). |
|
|
| * |
Management contract or compensatory plan or arrangement. |
As permitted by Item 601(b)(4)(iii)(A) of
Regulation S-K, the Company has not filed with this Annual
Report on Form 10-K certain instruments defining the rights
of holders of long-term debt of the Company and its subsidiaries
because the total amount of securities authorized under any of
such instruments does not exceed 10% of the total assets of the
Company and its subsidiaries on a consolidated basis. The
97
Company agrees to furnish a copy of any of such instruments to
the Securities and Exchange Commission upon request.
We agree to furnish to any requesting stockholder a copy of any
of the above named exhibits upon the payment of our reasonable
expenses of obtaining, duplicating and mailing the requested
exhibits. All requests for copies of exhibits should be made in
writing to our Investor Relations Department at 515 Post Oak
Blvd., Suite 600, Houston, TX 77027.
(d) Financial Statement Schedules
1. Valuation and qualifying accounts and allowances.
SCHEDULE II
WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND ALLOWANCES
FOR THE THREE YEARS ENDED DECEMBER 31, 2004
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Additions | |
|
|
|
|
| |
|
|
|
| |
|
|
|
|
| |
|
Balance at | |
|
Charged to | |
|
|
|
|
|
Balance at | |
| |
|
Beginning | |
|
Costs and | |
|
|
|
|
|
End of | |
| Description |
|
of Period | |
|
Expenses | |
|
Collections | |
|
Deductions | |
|
Period | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Year Ended December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Allowance for uncollectible accounts receivable
|
|
$ |
16,728 |
|
|
$ |
3,138 |
|
|
$ |
2,491 |
|
|
$ |
(6,447 |
) |
|
$ |
15,910 |
|
|
Year Ended December 31, 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Allowance for uncollectible accounts receivable
|
|
$ |
18,088 |
|
|
$ |
3,689 |
|
|
$ |
1,753 |
|
|
$ |
(6,802 |
) |
|
$ |
16,728 |
|
|
Year Ended December 31, 2002:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Allowance for uncollectible accounts receivable
|
|
$ |
17,860 |
|
|
$ |
1,784 |
|
|
$ |
1,775 |
|
|
$ |
(3,331 |
) |
|
$ |
18,088 |
|
Amounts have been restated to reflect the impact of the
discontinued operation related to Gas Services International.
All other schedules are omitted because they are not required or
because the information is included in the financial statements
or notes thereto.
|
|
|
| |
2. |
The Consolidated Financial Statements of Universal Compression
Holdings, Inc. for the three years ended March 31, 2005,
required to be included in this report pursuant to
Rule 3-09 of Regulation S-X, are filed as
Exhibit 99.3. |
98
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this Report to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Houston, State of
Texas, on March 11, 2005.
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WEATHERFORD INTERNATIONAL LTD. |
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| By: |
/s/ Bernard J. Duroc-Danner
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Bernard J. Duroc-Danner |
| |
President, Chief Executive Officer, |
| |
Chairman of the Board and Director |
| |
(Principal Executive Officer) |
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated.
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| Signatures |
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Title |
|
|
Date |
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| |
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/s/ Bernard J.
Duroc-Danner
Bernard
J. Duroc-Danner |
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President, Chief Executive Officer, Chairman of the Board and
Director (Principal Executive Officer) |
|
March 11, 2005 |
| |
|
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/s/ Lisa W. Rodriguez
Lisa
W. Rodriguez |
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Senior Vice President and Chief Financial Officer (Principal
Financial and Accounting Officer) |
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March 11, 2005 |
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/s/ Nicholas F. Brady
Nicholas
F. Brady |
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Director |
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March 11, 2005 |
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/s/ Philip Burguieres
Philip
Burguieres |
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Director |
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March 11, 2005 |
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/s/ David J. Butters
David
J. Butters |
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Director |
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March 11, 2005 |
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/s/ Sheldon B. Lubar
Sheldon
B. Lubar |
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Director |
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March 11, 2005 |
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/s/ William E. Macaulay
William
E. Macaulay |
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Director |
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March 11, 2005 |
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/s/ Robert B. Millard
Robert
B. Millard |
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Director |
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March 11, 2005 |
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/s/ Robert K. Moses,
Jr.
Robert
K. Moses, Jr. |
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Director |
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March 11, 2005 |
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/s/ Robert A. Rayne
Robert
A. Rayne |
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Director |
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March 11, 2005 |
99
INDEX TO EXHIBITS
| |
|
|
|
|
| Exhibit |
|
|
| Number |
|
Description |
| |
|
|
| |
2 |
.1 |
|
Agreement and Plan of Merger dated May 8, 2002, among
Weatherford International, Inc., Weatherford Merger, Inc.,
Weatherford International Ltd. and Weatherford
U.S. Holdings LLC (incorporated by reference to
Exhibit 2.1 to Amendment No. 1 to the Registration
Statement on Form S-4 (Reg. No. 333-85644) filed on
May 22, 2002). |
| |
2 |
.2 |
|
Agreement and Plan of Merger dated October 23, 2000, by and
among Weatherford International, Inc., WEUS Holding, Inc.,
Enterra Compression Company, Universal Compression Holdings,
Inc. and Universal Compression, Inc. (incorporated by reference
to Exhibit 10.1 to the Current Report on Form 8-K of
Universal Compression Holdings, Inc. (File No. 1-15843) and
Universal Compression, Inc. (File No. 333-48279) filed
October 26, 2000). |
| |
2 |
.3 |
|
Purchase Agreement dated as of October 23, 2000, by and
among Weatherford International, Inc., WEUS Holding, Inc.,
Enterra Compression Company, Global Compression Services, Inc.
and General Electric Capital Corporation (incorporated by
reference to Exhibit F to the Schedule 13D, with respect to
the common stock of Universal Compression Holdings, Inc., filed
by Weatherford International, Inc. and WEUS Holding, Inc. on
November 2, 2000). |
| |
2 |
.4 |
|
Distribution Agreement dated as of April 14, 2000, between
Weatherford International, Inc. and Grant Prideco, Inc.
(incorporated by reference to Exhibit 2.1 to the
Registration Statement on Form S-3 of Grant Prideco, Inc.
(Reg. No. 333-35272) filed April 20, 2000). |
| |
2 |
.5 |
|
Agreement and Plan of Merger dated as of March 4, 1998, by
and between EVI, Inc. and Weatherford Enterra, Inc.
(incorporated by reference to Exhibit 2.1 to Amendment
No. 1 to the Registrant’s Current Report on
Form 8-K on Form 8-K/A (File No. 1-13086) filed
March 9, 1998). |
| |
2 |
.6 |
|
Amendment No. 1 dated as of April 17, 1998, to the
Agreement and Plan of Merger dated as of March 4, 1998, by
and between EVI, Inc. and Weatherford Enterra, Inc.
(incorporated by reference to Exhibit 2.2 to the
Registrant’s Current Report on Form 8-K (File
No. 1-13086) filed April 21, 1998). |
| |
2 |
.7 |
|
Amendment No. 2 dated as of April 22, 1998, to the
Agreement and Plan of Merger dated as of March 4, 1998, as
amended by and between EVI, Inc. and Weatherford Enterra, Inc.
(incorporated by reference to Exhibit 2.3 to the
Registrant’s Current Report on Form 8-K (File
No. 1-13086) filed April 23, 1998). |
| |
3 |
.1 |
|
Memorandum of Association of Weatherford International Ltd.
(incorporated by reference to Annex II to the proxy
statement/ prospectus included in Amendment No. 1 to the
Registration Statement on Form S-4 (Reg.
No. 333-85644) filed on May 22, 2002). |
| |
3 |
.2 |
|
Memorandum of Increase of Share Capital of Weatherford
International Ltd. (incorporated by reference to Annex II
to the proxy statement/ prospectus included in Amendment
No. 1 to the Registration Statement on Form S-4 (Reg.
No. 333-85644) filed on May 22, 2002). |
| |
3 |
.3 |
|
Bye-laws of Weatherford International Ltd. (incorporated by
reference to Annex III to the proxy statement/ prospectus
included in Amendment No. 1 to the Registration Statement
on Form S-4 (Reg. No. 333-85644) filed on May 22,
2002). |
| |
4 |
.1 |
|
See Exhibits 3.1, 3.2 and 3.3 for provisions of the
Memorandum of Association and Bye-laws of Weatherford
International Ltd. defining the rights of holders of common
shares. |
| |
4 |
.2 |
|
Credit Agreement dated May 14, 2003, among Weatherford
International Ltd., Weatherford International, Inc., JPMorgan
Chase Bank, as Administrative Agent, BankOne, NA and Wells Fargo
Bank, Texas, N.A., as Co-Syndication Agents, ABN-AMRO Bank,
N.V., and The Bank of Nova Scotia, as Co- Documentation agents,
and Wachovia Bank, National Association, Suntrust Bank, Royal
Bank of Canada and Deutsche Bank AG New York Branch, as
co-Managing Agents (incorporated by reference to
Exhibit 4.1 to the Registrant’s Current Report on
Form 8-K (File No. 1-31339) filed July 1, 2003). |
| |
4 |
.3 |
|
Amended and Restated Credit Agreement dated as of
January 14, 2005, among Weatherford International Ltd.,
Weatherford International, Inc., Weatherford Liquidity
Management Hungary Limited Liability Company, JPMorgan Chase
Bank as Administrative Agent, and the other Lenders party
thereto (incorporated by reference to Exhibit 4.1 to the
Registrant’s Current Report on Form 8-K (File
No. 1-31339) filed January 20, 2005). |
| |
|
|
|
|
| Exhibit |
|
|
| Number |
|
Description |
| |
|
|
| |
4 |
.4 |
|
Indenture, dated October 1, 2003, among Weatherford
International Ltd., Weatherford International, Inc., and
Deutsche Bank Trust Company Americas (incorporated by reference
to Exhibit 4.1 to the Registrant’s Current Report on
Form 8-K (File No. 1-31339) filed October 2,
2003). |
| |
4 |
.5 |
|
Officers’ Certificate dated as of October 7, 2003
(incorporated by reference to Exhibit 4.2 to the
Registrant’s Current Report on Form 8-K (File
No. 1-31339) filed October 7, 2003). |
| |
4 |
.6 |
|
Indenture dated May 17, 1996, between Weatherford Enterra,
Inc. and Bank of Montreal Trust Company, as Trustee
(incorporated by reference to Exhibit 4.1 to Weatherford
Enterra, Inc.’s Current Report on Form 8-K (File
No. 1-7867) filed May 31, 1996). |
| |
4 |
.7 |
|
First Supplemental Indenture dated and effective as of
May 27, 1998, by and among EVI Weatherford, Inc., the
successor by merger to Weatherford Enterra, Inc., and Bank of
Montreal Trust Company, as Trustee (incorporated by reference to
Exhibit No. 4.1 to the Registrant’s Current Report on
Form 8-K (File No. 1-13086) filed June 2, 1998). |
| |
4 |
.8 |
|
Second Supplemental Indenture dated June 30, 2000, between
Weatherford International, Inc. and The Bank of New York, as
successor trustee to Bank of Montreal Trust (including form of
Debenture) (incorporated by reference to Exhibit 4.1 to the
Registrant’s Current Report on Form 8-K (File
No. 1-13086) filed July 10, 2000). |
| |
4 |
.9 |
|
Third Supplemental Indenture dated November 16, 2001,
between Weatherford International, Inc. and The Bank of New
York, as Trustee (incorporated by reference to Exhibit 4.11
to the Registration Statement on Form S-3 (Reg.
No. 333-73770) filed November 20, 2001). |
| |
4 |
.10 |
|
Fourth Supplemental Indenture dated June 26, 2002, among
Weatherford International, Inc., Weatherford International Ltd.
and The Bank of New York (as successor in interest to Bank of
Montreal Trust Company) (incorporated by reference to
Exhibit 4.7 to the Registrant’s Quarterly Report on
Form 10-Q for the quarter ended June 30, 2002 (File
No. 1-13086) filed August 14, 2002). |
| |
4 |
.11 |
|
Convertible Debenture Guarantee Agreement dated June 26,
2002, between Weatherford International Ltd. and JP Morgan Chase
Bank (incorporated by reference to Exhibit 4.8 to the
Registrant’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2002 (File No. 1-13086) filed
August 14, 2002). |
| |
4 |
.12 |
|
Form of global note for 4.95% Senior Notes due 2013
(incorporated by reference to Exhibit 4.1 to the
Registrant’s Current Report on Form 8-K (File
No. 1-31339) filed October 7, 2003). |
| |
4 |
.13 |
|
Form of Weatherford Enterra, Inc.’s
71/4% Senior
Notes due May 15, 2006 (incorporated by reference to
Exhibit 4.2 to Weatherford Enterra, Inc.’s Current
Report on Form 8-K (File No. 1-7867) filed
May 31, 1996). |
| |
10 |
.1 |
|
Voting Agreement, dated as of February 9, 2001, among
Weatherford International, Inc., WEUS Holding, Inc. and
Universal Compression Holdings, Inc. (incorporated by reference
to Exhibit 4.1 to the Registrant’s Quarterly Report on
Form 10-Q of Universal Compression Holdings, Inc. (File
No. 1-15843) filed February 14, 2001). |
| |
10 |
.2 |
|
Amended and Restated Registration Rights Agreement, dated as of
March 23, 2004, between Weatherford International Ltd. and
Universal Compression Holdings, Inc. (incorporated by reference
to Exhibit 10.1 to the Registration Statement on
Form S-3 of Universal Compression Holdings, Inc. (Reg.
No. 333-114145) filed April 2, 2004). |
| |
10 |
.3 |
|
Preferred Supplier Agreement dated as of March 22, 2000,
between Weatherford International, Inc. and Grant Prideco, Inc.
(incorporated by reference to Exhibit 10.13 to the
Registrant’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2000 (File No. 1-13086) filed
May 15, 2000). |
| |
10 |
.4 |
|
Amendment to Preferred Supplier Agreement dated April 14,
2003 (incorporated by reference to Exhibit 10.1 to the
Grant Prideco Quarterly Report on Form 10-Q for the quarter
ended March 31, 2003 (File No. 1-15423), filed
May 15, 2003). |
| |
*10 |
.5 |
|
Weatherford Enterra, Inc. 1991 Stock Option Plan, as amended and
restated (incorporated by reference to Exhibit 10.4 to
Weatherford Enterra, Inc.’s Annual Report on Form 10-K
for the year ended December 31, 1996 (File 1-7867) filed
March 23, 1997). |
| |
|
|
|
|
| Exhibit |
|
|
| Number |
|
Description |
| |
|
|
| |
*10 |
.6 |
|
2004 Weatherford Variable Compensation Plan, Including Form of
Award Letter (incorporated by reference to Exhibit 10.1 to
the Registrant’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2004 (File No. 1-31339)
filed November 9, 2004). |
| |
*10 |
.7 |
|
Weatherford Variable Compensation Plan (incorporated by
reference to Exhibit 10.1 to the Registrant’s Current
Report on Form 8-K (File No. 1-31339) filed
January 25, 2005). |
| |
*10 |
.8 |
|
Weatherford International Ltd. Restricted Share Plan, including
form of agreement for officers and non-officers (incorporated by
reference to Exhibit 10.2 to Amendment No. 1 to the
Registrant’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2004 on Form 10-Q/A (File
No. 1-31339) filed September 15, 2004). |
| |
*10 |
.9 |
|
Weatherford International, Inc. Executive Deferred Compensation
Stock Ownership Plan and Related Trust Agreement (incorporated
by reference to Exhibit 10.5 to the Registrant’s
Quarterly Report on Form 10-Q for the quarter ended
June 30, 2003 (File No. 1-31339) filed August 14,
2003). |
| |
*10 |
.10 |
|
Weatherford International Ltd. Nonqualified Executive Retirement
Plan (incorporated by reference to Exhibit 10.3 to the
Registrant’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2003 (File No. 1-31339) filed
August 14, 2003). |
| |
*10 |
.11 |
|
Weatherford International, Inc. Foreign Executive Deferred
Compensation Stock Plan (incorporated by reference to
Exhibit 10.4 to the Registrant’s Quarterly Report on
Form 10-Q for the quarter ended June 30, 2003 (File
No. 1-31339) filed August 14, 2003). |
| |
†*10 |
.12 |
|
Weatherford International Incorporated Non-Employee Director
Retirement Plan. |
| |
*10 |
.13 |
|
Weatherford International, Inc. Non-Employee Director Deferred
Compensation Plan (incorporated by reference to
Exhibit 10.5 to the Registrant’s Quarterly Report on
Form 10-Q for the quarter ended March 31, 2000 (File
No. 1-13086) filed May 15, 2000). |
| |
*10 |
.14 |
|
Trust under Weatherford International Ltd. Nonqualified
Executive Retirement Plan dated March 23, 2004
(incorporated by reference to Exhibit 10.1 to the
Registrant’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2004 (File No. 1-31339) filed
May 6, 2004). |
| |
*10 |
.15 |
|
Energy Ventures, Inc. 1991 Non-Employee Director Stock Option
Plan and Form of Agreement (incorporated by reference to the
Registrant’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 1991 (File No. 1-13086) filed
August 8, 1991). |
| |
*10 |
.16 |
|
Energy Ventures, Inc. 1992 Employee Stock Option Plan, as
amended (incorporated by reference to Exhibit 4.7 to the
Registration Statement on Form S-8 (Reg.
No. 333-13531) filed October 4, 1997). |
| |
*10 |
.17 |
|
Amended and Restated Non-Employee Director Stock Option Plan
(incorporated by reference to Exhibit 10.1 to the
Registrant’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995 (File No. 1-13086) filed
August 12, 1995). |
| |
*10 |
.18 |
|
General Amendment of Employee Stock Option Programs of
Weatherford International, Inc. dated May 9, 2003
(incorporated by reference to Exhibit 10.1 to the
Registrant’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2003 (File No. 1-31339) filed
August 14, 2003). |
| |
*10 |
.19 |
|
General Amendment of Director’s Stock Option Plans and
Agreements dated May 9, 2003 (incorporated by reference to
Exhibit 10.2 to the Registrant’s Quarterly Report on
Form 10-Q for the quarter ended June 30, 2003 (File
No. 1-31339) filed August 14, 2003). |
| |
*10 |
.20 |
|
Weatherford International, Inc. 1998 Employee Stock Option Plan,
as amended, including form of agreement for officers. |
| |
*10 |
.21 |
|
Amendment to Stock Option Programs (incorporated by reference to
Exhibit 4.19 to the Registrant’s Registration
Statement on Form S-8 (Reg. No. 333-36598) filed
May 19, 2000). |
| |
*10 |
.22 |
|
Employment Agreements dated August 1, 2003, between
Weatherford International Ltd. and each of M. David Colley, E.
Lee Colley III, Bernard J. Duroc-Danner, Stuart E.
Ferguson, Burt M. Martin, Keith R. Morley, Jon R. Nicholson,
James N. Parmigiano, Lisa W. Rodriguez and Gary L. Warren
(incorporated by reference to Exhibit 10.2 to the
Registrant’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2003 (File No. 1-31339)
filed November 6, 2003). |
| |
*10 |
.23 |
|
Employment Agreement dated as of June 15, 1998, between EVI
Weatherford, Inc. and Philip Burguieres (incorporated by
reference to Exhibit No. 10.9 to the Registrant’s
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998 (File No. 1-13086) filed August 14,
1998). |
| |
|
|
|
|
| Exhibit |
|
|
| Number |
|
Description |
| |
|
|
| |
*10 |
.24 |
|
Amendment to Employment Agreement dated October 16, 2000,
between Philip Burguieres and Weatherford International, Inc.
(incorporated by reference to Exhibit 10.41 to Annual
Report on Form 10-K for the year ended December 31,
2000 (File No. 1-13086) filed March 23, 2001). |
| |
*10 |
.25 |
|
Indemnification Agreements with Robert K. Moses, Jr.
(incorporated by reference to Exhibit 10.10 to Weatherford
Enterra, Inc.’s Annual Report on Form 10-K for the
year ended December 31, 1987 (File No. 1-7867));
Philip Burguieres (incorporated by reference to
Exhibit 10.4 to Weatherford Enterra, Inc.’s Quarterly
Report on Form 10-Q for the quarter ended June 30,
1991 (File No. 1-7867)); William E. Macaulay (incorporated
by reference to Exhibit 10.2 to Weatherford Enterra,
Inc.’s Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995 (File No. 1-7867)); and Jon
Nicholson (incorporated by reference to Exhibit 10.2 to
Weatherford Enterra, Inc.’s Annual Report on Form 10-K
for the year ended December 31, 1996 (File No. 1-7867)
filed March 24, 1997). |
| |
*10 |
.26 |
|
Indemnification Agreements with each of Bernard J. Duroc-Danner,
Gary L. Warren, Burt M. Martin, Lisa W. Rodriguez, E. Lee
Colley III, Donald R. Galletly, Jon R. Nicholson, James N.
Parmigiano, Stuart E. Ferguson, David J. Butters, Robert A.
Rayne, Robert K. Moses, Jr., Philip Burguieres, Robert B.
Millard, William E. Macaulay and Sheldon B. Lubar (incorporated
by reference to Exhibit 10.1 to the Registrant’s
Quarterly Report on Form 10-Q for the quarter ended
September 30, 2002 (File No. 1-13086) filed
November 13, 2002). |
| |
*10 |
.27 |
|
Form of Stock Option Agreement for Non-Employee Directors dated
September 8, 1998 (incorporated by reference to
Exhibit 10.23 to the Registrant’s Annual Report on
Form 10-K for the year ended December 31, 1998 (File
No. 1-13086) filed March 31, 1999). |
| |
*10 |
.28 |
|
Form of Amendment to Stock Option Agreements dated
September 8, 1998 for Non-Employee Directors (incorporated
by reference to Exhibit 4.17 to the Registration Statement
on Form S-8 (Reg. No. 333-36598) filed May 9,
2000). |
| |
*10 |
.29 |
|
Form of Stock Option Agreement for Non-employee Directors dated
July 5, 2000 (incorporated by reference to
Exhibit 4.16 to the Registration Statement on Form S-8
(Reg. No. 333-48322) filed October 20, 2000). |
| |
*10 |
.30 |
|
Form of Stock Option Agreement for Non-employee Directors dated
September 26, 2001 (incorporated by reference to
Exhibit 4.19 to the Registration Statement on Form S-8
(Reg. No. 333-81678) filed January 30, 2002). |
| |
*10 |
.31 |
|
Assumption and General Amendment of Directors’ Stock Option
and Benefit Programs and General Amendment of Employee Stock
Option and Benefit Programs of Weatherford International, Inc.
dated June 26, 2002 (incorporated by reference to
Exhibit 10.1 to the Registrant’s Quarterly Report on
Form 10-Q for the quarter ended June 30, 2002 (File
No. 1-13086) filed August 14, 2002). |
| |
*10 |
.32 |
|
Form of Warrant Agreement with Robert K. Moses, Jr. dated
September 8, 1998 (incorporated by reference to
Exhibit 10.24 to the Registrant’s Annual Report on
Form 10-K for the year ended December 31, 1998 (File
No. 1-13086) filed March 31, 1999). |
| |
*10 |
.33 |
|
Form of Amendment to Warrant Agreement with Robert K.
Moses, Jr. dated September 8, 1998 (incorporated by
reference to Exhibit 4.18 to the Registration Statement on
Form S-8 (Reg. No. 333-36598) filed May 9, 2000). |
| |
10 |
.34 |
|
Form of Warrant Agreement with Robert K. Moses, Jr. dated
July 5, 2000 (incorporated by reference to
Exhibit 4.17 to the Registration Statement on Form S-8
(Reg. No. 333-48322) filed October 20, 2000). |
| |
*10 |
.35 |
|
Form of Warrant Agreement with Robert K. Moses dated
September 26, 2001 (incorporated by reference to
Exhibit 4.20 to the Registration Statement on Form S-8
(Reg. No. 333-81676) filed January 30, 2002). |
| |
10 |
.36 |
|
License Agreement among Shell Technology Ventures Inc.,
Weatherford/Lamb, Inc. and Weatherford International, Inc. dated
March 1, 2002, as amended on April 29, 2002
(incorporated by reference to Exhibit 10.1 to the
Registrant’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2002 (File No. 1-13086) filed
May 15, 2002). |
| |
|
|
|
|
| Exhibit |
|
|
| Number |
|
Description |
| |
|
|
| |
10 |
.37 |
|
Framework Agreement between Shell Technology Ventures Limited
and Weatherford International, Inc. dated March 1, 2002, as
amended on April 19, 2002 (incorporated by reference to
Exhibit 10.2 to the Registrant’s Quarterly Report on
Form 10-Q for the quarter ended March 31, 2002 (File
No. 1-13086) filed May 15, 2002). |
| |
10 |
.38 |
|
Promissory Note to Shell Technology Ventures Inc. dated
February 28, 2002 (incorporated by reference to
Exhibit 10.3 to the Registrant’s Quarterly Report on
Form 10-Q for the quarter ended March 31, 2002 (File
No. 1-13086) filed May 15, 2002). |
| |
10 |
.39 |
|
Warrant Agreement between Shell Technology Ventures Inc. and
Weatherford International, Inc. dated February 28, 2002
(incorporated by reference to Exhibit 10.4 to the
Registrant’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2002 (File No. 1-13086) filed
May 15, 2002). |
| |
†21 |
.1 |
|
Subsidiaries of Weatherford International Ltd. |
| |
†23 |
.1 |
|
Consent of Ernst & Young LLP. |
| |
†23 |
.2 |
|
Consent of Deloitte and Touche LLP. |
| |
†31 |
.1 |
|
Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. |
| |
†31 |
.2 |
|
Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. |
| |
†32 |
.1 |
|
Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |
| |
†32 |
.2 |
|
Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |
| |
99 |
.3 |
|
Consolidated Financial Statements of Universal Compression
Holdings, Inc. for the fiscal year ended March 31, 2004
(incorporated by reference to Part II, Item 8 of the
Annual Report on Form 10-K for the fiscal year ended
March 31, 2004, filed by Universal Compression Holdings,
Inc. (SEC File No. 001-15843) on June 10, 2004). |
|
|
| * |
Management contract or compensatory plan or arrangement. |