To the Annual General Meeting of
Weatherford International Ltd., Zug
Zurich, March 4, 2013
Report of the statutory auditor on the financial statements

As statutory auditor, we have audited the financial statements of Weatherford International Ltd., which comprise the balance sheet, statement of income and notes (pages SR-2 to SR-18), for the year ended December 31, 2012.

Board of Directors' responsibility

The Board of Directors is responsible for the preparation of the financial statements in accordance with the requirements of Swiss law and the company's articles of incorporation. This responsibility includes designing, implementing and maintaining an internal control system relevant to the preparation of financial statements that are free of material misstatement, whether due to fraud or error. The Board of Directors is further responsible for selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances.

Auditor's responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Swiss law and Swiss Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free of material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to the entity's preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control system. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

Opinion

In our opinion, the financial statements for the year ended December 31, 2012 comply with Swiss law and the company's articles of incorporation.

Report on other legal requirements

We confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA) and independence (article 728 CO and article 11 AOA) and that there are no circumstances incompatible with our independence.

In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists, which has been designed for the preparation of financial statements according to the instructions of the Board of Directors.

We recommend that the financial statements submitted to you be approved.

 

Ernst & Young Ltd
/s/ Robin Errico		/s/ Jolanda Dolente
Licensed audit expert (Auditor in charge)		Licensed audit expert

 

SR-1

SR-2

SR-3

SR-4

SR-5

SR-6

SR-7

SR-8

SR-9

(2)	Each non-employee director was awarded 12,000 restricted share units on September 14, 2011 and September 12, 2012.  The value above represents the fair value of each award valued on the date of grant based on the Company's closing share price on that day.

(3)	Members of the Audit Committee.

(4)	Members of the Compensation Committee.

(5)	Members of the Corporate Governance and Nominating Committee.

(6)	Effective January 12, 2012, Robert B. Millard resigned as a director of the Company. He received no compensation for director services in 2012.

The following table sets forth the compensation awarded to our executive management team for the years ended December 31, 2012 and 2011.  Mr. Duroc-Danner was the highest paid executive management team member in 2012 and 2011 based on compensation awarded and is shown separately in the table below in addition to being included in the total.  See Note 10 for a list of executive management team members in 2012 and 2011.

SR-10

SR-11

SR-12

SR-13

SR-14

The U.S. Department of Commerce, Bureau of Industry & Security, Office of Foreign Assets Control ("OFAC"), U.S. Department of Justice ("DOJ") and U.S. Securities and Exchange Commission ("SEC") have previously undertaken investigations of allegations of improper sales of products and services by the Company's subsidiaries in certain sanctioned countries. The Weatherford Group has cooperated fully with these investigations, since their inception in 2007, and we have retained legal counsel, reporting directly to our Audit Committee, to investigate these matters.

In light of these investigations, the U.S. and foreign policy environment and the inherent uncertainties surrounding these countries, in September 2007 our foreign subsidiaries decided to discontinue doing business in countries that are subject to comprehensive U.S. economic and trade sanctions, specifically Cuba, Iran, and Sudan, as well as Syria. Effective September 2007, our subsidiaries ceased entering into any new contracts in these countries and began an orderly discontinuation and winding down of their existing business in these sanctioned countries. Effective March 31, 2008, our subsidiaries substantially completed their winding down of business in these countries and have conducted further withdrawal activities, pursuant to the licenses issued by OFAC, which have now ceased.

The Weatherford Group has been in negotiations with the U.S. government agencies to resolve the investigation into alleged violations of the trade sanctions laws for more than a year, and these negotiations have advanced significantly. While we expect any liability will ultimately be the responsibility of our subsidiaries, there is a potential exposure for the Company as the ultimate parent.    Further uncertainties remain , pending the ultimate resolution of the investigation, and we or our subsidiaries may not ultimately reach a final settlement with the U.S. government.  As with any potential resolution, the U.S. government may seek to impose modifications to business practices that decrease our business and modifications to the Company's compliance programs, which may increase compliance costs.

SR-15

Until 2003, the Company's subsidiaries participated in the United Nations oil-for-food program governing sales of goods and services into Iraq. The DOJ and SEC have undertaken investigations of their participation in the oil-for-food program and have subpoenaed certain documents in connection with these investigations.  The Weatherford Group has cooperated fully with these investigations. We have retained legal counsel, reporting to our Audit Committee, to investigate this matter. The Weatherford Group is in negotiations with the government agencies to resolve these matters, and although these negotiations have advanced significantly and we expect any liability will ultimately be the responsibility of our subsidiaries, there is a potential exposure to the Company as the ultimate parent in these matters.  Further, uncertainties remain pending the ultimate resolution of the investigation, and we or our subsidiaries may not ultimately reach a settlement with the U.S. government.  We cannot yet anticipate the timing, outcome or possible impact of the ultimate resolution of the investigations, financial or otherwise.

The DOJ and SEC are also investigating the Weatherford Group compliance with the U.S. Foreign Corrupt Practices Act ("FCPA") and other laws worldwide. We have retained legal counsel, reporting to our Audit Committee, to investigate these matters, and the Weatherford Group is cooperating fully with the DOJ and SEC.  As part of the internal investigations, potential violations of U.S. law in connection with activities in several jurisdictions have been uncovered.  The Weatherford Group has been in negotiations with the government agencies to resolve these matters for more than a year.  Although we believe that these negotiations have advanced significantly, we cannot yet anticipate the timing, outcome or possible impact of the ultimate resolution of the investigations, financial or otherwise.  Further, uncertainties remain pending the ultimate resolution of the investigation, and we or our subsidiaries may not ultimately reach a final settlement with the U.S. government.

       The DOJ, SEC and other U.S. government agencies and authorities have a broad range of civil and criminal penalties they may seek to impose against corporations and individuals for violations of trade sanctions laws, the FCPA and other federal statutes including, but not limited to, injunctive relief, disgorgement, fines, penalties and modifications to business practices and compliance programs. In recent years, these agencies and authorities have entered into agreements with, and obtained a range of penalties against, several corporations and individuals in similar investigations, under which civil and criminal penalties were imposed, including in some cases fines and other penalties and sanctions in the tens and hundreds of millions of dollars. Any injunctive relief, disgorgement, fines, penalties, sanctions or imposed modifications to business practices resulting from these investigations could adversely affect our results of operations, and the cost of our investigations have been significant.

       To the extent the Weatherford Group violated trade sanctions laws, the FCPA, or other laws or regulations, fines and other penalties may be imposed.  Because these matters are now pending before the indicated agencies, there is some uncertainty as to the ultimate amount of any penalties we may pay as the ultimate parent or that may be paid by our subsidiaries. As we cannot yet anticipate the timing, outcome or possible impact to us as the ultimate parent company related to the final resolution of the investigations, financial or otherwise, we have not yet recognized a loss contingency related to these matters.

 

The SEC and the DOJ are investigating the circumstances surrounding the material weakness in the Company's internal controls over financial reporting for income taxes that was disclosed on Forms 12b-25 and 8-K on March 1, 2011 and February 21, 2012, respectively, and the related restatements of our historical financial statements. The SIX Exchange Regulation, one of the regulatory bodies of the SIX Swiss Exchange, opened an investigation for similar matters. We are cooperating with the investigations.

  

Shareholder Litigation

In 2010, shareholders filed suit in the Company's name, nominally against the Company and against those directors in place before June 2010 and certain current and former members of management relating to the U.S. government and internal investigations disclosed in our public filings since 2007. Separately, in 2011 and 2012, shareholders filed suit relating to the material weakness in the Company's internal controls over financial reporting for income taxes that was disclosed on the Forms 12b-25 and 8-K filed on March 1, 2011 and February 21, 2012, and the related restatement of historical financial statements. These suits name the Company as well as current and former members of management and our directors. We cannot predict the ultimate outcome of these claims.

SR-16

SR-17