Weatherford International(WFRD) - 2021 Q4 - Annual Report

PART I Business Weatherford International plc provides global energy services for drilling, well construction, and production across approximately 75 countries with three product line segments - The company is a multinational energy services firm operating in approximately 75 countries with 350 operating locations[12][13] - Emerged from Chapter 11 bankruptcy on December 13, 2019, resulting in the cancellation of $7.6 billion in senior notes and adoption of Fresh Start Accounting[16][17] - In Q4 2021, the company realigned its reportable segments from a geographic basis to three product line segments: Drilling and Evaluation, Well Construction and Completions, and Production and Intervention[25] Strategy and Markets The company's strategy focuses on sustainable profitability and free cash flow generation, aligning technology with customer objectives across key market areas - Primary strategic objective is to build value through sustainable profitability and free cash flow generation[20] - Key strategic focus areas include Mature Fields, Unconventionals, Offshore, and Digitalization and Automation[21][26] Products and Services The company's offerings are organized into three segments: Drilling and Evaluation, Well Construction and Completions, and Production and Intervention, covering various well lifecycle services - Drilling and Evaluation (DRE) offers services including managed pressure drilling, directional drilling, wireline logging, and drilling fluids[28] - Well Construction and Completions (WCC) provides products and services for well integrity, such as tubular running services, cementation products, and completions tools[32] - Production and Intervention (PRI) focuses on production optimization with offerings like intervention services, artificial lift systems, and production automation software[37] Competition, Customers, and Operations The company competes globally with major and regional players, serves diverse oil and gas customers with no single dominant client, and maintains widespread international operations - Principal competitors include Schlumberger, Halliburton, Baker Hughes, and other major and regional energy service providers[42] - No individual customer accounted for more than 10% of consolidated revenues in 2021, 2020, or 2019[44] - As of December 31, 2021, customer receivables in Mexico and the U.S. represented 22% and 15% of total net outstanding accounts receivable, respectively[44] Human Capital Management The company employed approximately 17,000 people globally in 2021, focusing its human capital strategy on talent development, safety, compensation, and DE&I - As of December 31, 2021, Weatherford had approximately 17,000 employees globally, with approximately 19% covered by union contracts[59] - The company's Operational Excellence and Performance System (OEPS) supports employee safety and service quality, meeting national and international management system standards[54] Risk Factors The company faces significant risks from volatile energy markets, operational challenges including substantial debt and international exposure, and complex legal, tax, and regulatory environments Energy Services Industry Risks The company's business is highly dependent on volatile customer capital spending tied to commodity prices, and faces risks from climate change and ESG initiatives - Demand for services is directly tied to volatile oil and gas exploration and production activity, highly sensitive to commodity prices[65] - Climate change, ESG initiatives, and sustainability movements may lead to significant operational changes, increased expenditures, and reduced demand for products and services[67][71] Business and Operational Risks Significant operational risks include the COVID-19 pandemic's impact, substantial indebtedness, reliance on external suppliers, potential uninsured liabilities, and extensive international operational exposure - The COVID-19 pandemic has significantly weakened demand, disrupted operations, and may continue to detrimentally affect financial results[77][79] - As of December 31, 2021, the company had $2.4 billion of long-term debt, with expected interest payments of $215 million in 2022, potentially limiting operational flexibility[88] - Non-United States operations accounted for approximately 80% of consolidated revenue in 2021, exposing the company to political, economic, and currency risks across 75 countries[93] - Certain funds associated with the six largest shareholders own over 68% of outstanding Ordinary Shares, potentially leading to conflicts of interest with other shareholders[94] Legal, Tax and Regulatory Risks The company faces legal, tax, and regulatory risks from extensive environmental laws, potential adverse changes in U.S. and international tax laws, and differences in Irish shareholder rights - Operations are subject to extensive environmental laws that could expose the company to significant liabilities and compliance costs[100] - Potential changes in U.S. tax laws targeting foreign-domiciled companies could significantly increase the company's tax expense[103][104] - The OECD's "two pillar plan" for a global minimum tax rate of at least 15% could materially increase taxes owed if enacted in operating jurisdictions[105] Properties Weatherford operates globally across 75 countries with numerous owned and leased facilities, including major manufacturing and service centers, with all material U.S. properties mortgaged - The company operates facilities in approximately 75 countries, with major manufacturing centers in China, UAE, U.S., and Germany, and major service centers in Mexico, Colombia, Saudi Arabia, Iraq, and Kuwait[117] - All material U.S. properties are mortgaged to lenders under the 2028 Senior Secured Notes and LC Credit Agreement[118] Legal Proceedings The company is subject to various ordinary course legal claims and litigation, but does not anticipate any current cases will result in a material uninsured loss - The company does not believe it is probable that any current litigation will result in a material uninsured loss[119] PART II Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities Weatherford's ordinary shares began trading on Nasdaq in June 2021, with the company not expecting to pay cash dividends soon, while outperforming relevant market indices since listing - Ordinary shares began trading on The Nasdaq Global Select Market on June 2, 2021, under the ticker symbol "WFRD"[123] - The company does not expect to pay cash dividends in the near future[124] Total Shareholder Return Comparison | | 06/02/21 | 12/31/21 | | :--- | :--- | :--- | | Weatherford International plc | $100 | $216 | | Dow Jones U.S. Oil Equipment and Services Index | $100 | $95 | | Dow Jones U.S. Index | $100 | $105 | Management's Discussion and Analysis of Financial Condition and Results of Operations The company's 2021 financial results showed improved operating income despite flat revenues, driven by cost reductions and recovery, with significant debt refinancing activities enhancing liquidity Financial Results Overview In 2021, revenues were $3.65 billion, a 1% decrease, while operating income significantly improved to $116 million from a $1.5 billion loss in 2020 due to cost reductions and no impairment charges Consolidated Financial Highlights | Metric | 2021 (in $B) | 2020 (in $B) | Change (in $B) | Change % | | :--- | :--- | :--- | :--- | :--- | | Revenues | $3.65 | $3.69 | -$0.04 | -1% | | Cost of Services & Products | $2.72 | $2.81 | -$0.09 | -3% | | SG&A and R&D | $0.82 | $0.93 | -$0.11 | -12% | | Operating Income | $0.12 | -$1.49 | +$1.61 | N/A | - The $1.6 billion improvement in operating income in 2021 was primarily due to the absence of impairment and restructuring charges, alongside cost reductions and increased service activity[133] - 2020 revenues of $3.7 billion represented a 29% decline from 2019, driven by the negative impact of the COVID-19 pandemic on global energy demand and customer spending[134] Business Outlook and Industry Trends The company anticipates continued recovery and high single to low double-digit revenue growth in 2022, supported by improving commodity prices, despite ongoing inflationary and supply chain challenges - The company anticipates 2022 consolidated revenues to increase by high single to low double digits compared to 2021, driven by recovering industry activity[136] - Ongoing challenges include inflationary pressures, supply chain delays, and logistical constraints related to the COVID-19 pandemic[138] Average Commodity Prices | Commodity | 2021 Avg. Price ($) | 2020 Avg. Price ($) | Change % | | :--- | :--- | :--- | :--- | | WTI Crude Oil ($/bbl) | $67.99 | $39.23 | +73% | | Brent Crude Oil ($/bbl) | $70.68 | $41.76 | +69% | | Henry Hub Natural Gas ($/MMBtu) | $3.91 | $2.04 | +92% | Significant Financing Transactions In 2021, the company executed major refinancing transactions, issuing $1.6 billion in 2030 Senior Notes and $500 million in 2028 Senior Secured Notes to extend maturities and reduce interest costs - In October 2021, the company issued $1.6 billion of 8.625% Senior Notes due 2030 and redeemed $1.8 billion of its 11.0% Exit Notes, incurring a $109 million bond redemption premium[149][150] - In September 2021, the company issued $500 million of 6.5% Senior Secured Notes due 2028 to repay its 8.75% Senior Secured Notes due 2024, incurring a $22 million bond redemption premium and a $37 million noncash loss on extinguishment of debt[152] Segment Results of Operations In 2021, total segment revenues were flat at $3.55 billion, with DRE and PRI revenues growing 2% while WCC decreased 4%, and total segment adjusted EBITDA increased 13% to $633 million Segment Revenues | Segment | 2021 (in millions) | 2020 (in millions) | Change % | | :--- | :--- | :--- | :--- | | Drilling and Evaluation | $1,066 | $1,044 | +2% | | Well Construction and Completions | $1,353 | $1,414 | -4% | | Production and Intervention | $1,127 | $1,106 | +2% | | Total Segment Revenues | $3,546 | $3,564 | -1% | Segment Adjusted EBITDA | Segment | 2021 (in millions) | 2020 (in millions) | Change % | | :--- | :--- | :--- | :--- | | Drilling and Evaluation | $186 | $132 | +41% | | Well Construction and Completions | $256 | $273 | -6% | | Production and Intervention | $191 | $154 | +24% | | Total Segment Adjusted EBITDA | $633 | $559 | +13% | Liquidity and Capital Resources As of December 31, 2021, the company maintained $1.1 billion in cash, with operating cash flow of $322 million, and projected 2022 capital spending between $175 million and $225 million Cash Flow Summary | Activity | 2021 (in millions) | 2020 (in millions) | | :--- | :--- | :--- | | Net Cash from Operating Activities | $322 | $210 | | Net Cash from Investing Activities | ($83) | ($75) | | Net Cash from Financing Activities | ($403) | $348 | - Total cash and cash equivalents plus restricted cash was $1.1 billion at December 31, 2021, compared to $1.3 billion at December 31, 2020[193] - Projected capital spending for 2022 is between $175 million and $225 million, with expected interest payments of $215 million[213] - As of December 31, 2021, the company had $342 million of letters of credit and $293 million of surety bonds outstanding[220][221] Critical Accounting Policies and Estimates Critical accounting policies requiring significant judgment include long-lived asset impairment assessments, complex income tax accounting across 75 countries, and determining inventory reserves for excess and obsolete items - Long-Lived Assets: Carrying value was $1.8 billion at year-end 2021, with impairment reviews based on undiscounted and discounted cash flow analyses requiring significant assumptions[223][224] - Income Taxes: Operations in approximately 75 countries make tax calculations complex, with a valuation allowance of $1.4 billion against deferred tax assets at December 31, 2021[234][238] - Inventory Reserves: Reserves for excess and obsolete inventory were $159 million (19% of gross inventory) at December 31, 2021, maintained to state inventory at the lower of cost or net realizable value[239] Quantitative and Qualitative Disclosures About Market Risk The company is primarily exposed to market risks from foreign currency exchange rates and interest rates, managing currency risk with $349 million in forward contracts and facing interest rate risk on its fixed-rate debt - The company is exposed to foreign currency risk from operations in 75 countries and uses foreign currency forward contracts with a $349 million notional amount at year-end 2021 to hedge net monetary exposure[246][249] - The company is subject to interest rate risk on its fixed-rate debt, with a fair value of $2.50 billion compared to a carrying value of $2.37 billion at December 31, 2021[250][252] Financial Statements and Supplementary Data This section presents the audited consolidated financial statements for the fiscal year ended December 31, 2021, distinguishing between Successor and Predecessor entities due to Fresh Start Accounting post-bankruptcy Consolidated Statement of Operations Highlights | Metric | Amount (in millions) | | :--- | :--- | | Total Revenues | $3,645 | | Operating Income | $116 | | Net Loss | ($429) | | Net Loss Attributable to Weatherford | ($450) | | Diluted Loss Per Share | ($6.43) | Consolidated Balance Sheet Highlights | Metric | Amount (in millions) | | :--- | :--- | | Total Current Assets | $2,911 | | Total Assets | $4,774 | | Total Current Liabilities | $1,332 | | Long-term Debt | $2,416 | | Total Liabilities | $4,278 | | Total Shareholders' Equity | $496 | Note 4. Segment Information In Q4 2021, the company realigned its reportable segments to DRE, WCC, and PRI, with WCC being the largest by revenue at $1.35 billion and the Middle East/North Africa/Asia region holding the largest long-lived assets - The company realigned its reportable segments in Q4 2021 to Drilling and Evaluation (DRE), Well Construction and Completions (WCC), and Production and Intervention (PRI), based on the well life cycle[353] 2021 Segment Data | Segment | Revenues (in millions) | Adjusted EBITDA (in millions) | Capital Expenditures (in millions) | Total Assets (in millions) | | :--- | :--- | :--- | :--- | :--- | | Drilling and Evaluation | $1,066 | $186 | $18 | $783 | | Well Construction and Completions | $1,353 | $256 | $18 | $974 | | Production and Intervention | $1,127 | $191 | $36 | $686 | Note 7. Long-Lived Assets Impairment No long-lived asset impairments were recognized in 2021, but $814 million in impairments were recorded in 2020 due to the COVID-19 pandemic, primarily affecting Property, Plant & Equipment - No long-lived asset impairments were recognized in the 2021 Successor Period[378] 2020 Long-Lived Asset Impairments | Asset Class | Impairment Charge (in millions) | | :--- | :--- | | Property, Plant and Equipment | $571 | | Intangible Assets | $155 | | Right of Use Assets | $88 | | Total | $814 | Note 13. Borrowings and Other Debt Obligations As of December 31, 2021, total debt carrying value was $2.428 billion, significantly altered by 2021 refinancing activities that extended maturities and reduced interest Long-Term Debt Carrying Value | Debt Instrument | Dec 31, 2021 (in millions) | Dec 31, 2020 (in millions) | | :--- | :--- | :--- | | 11.00% Exit Notes due 2024 | $300 | $2,098 | | 8.75% Senior Secured Notes due 2024 | — | $455 | | 6.5% Senior Secured Notes due 2028 | $488 | — | | 8.625% Senior Notes due 2030 | $1,584 | — | | Total Long-term Debt | $2,416 | $2,601 | - In 2021, the company redeemed $1.8 billion of its 11.0% Exit Notes and repaid its $500 million 8.75% Senior Secured Notes[403][405] - The company has a $215 million senior secured letter of credit agreement maturing in May 2024, with $181 million outstanding at year-end 2021[408][409] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2021, with an unqualified opinion from KPMG LLP - Based on an evaluation as of December 31, 2021, the CEO and CFO concluded that the company's disclosure controls and procedures were effective[474] - Management concluded that as of December 31, 2021, the company's internal control over financial reporting was effective based on the COSO framework[477] - No material changes in internal control over financial reporting occurred during the fourth quarter of 2021[479] PART III Directors, Executive Officers, Corporate Governance, Compensation, and Principal Accountant Fees Information regarding directors, executive officers, corporate governance, compensation, and principal accountant fees is incorporated by reference from the company's 2022 Proxy Statement - Information regarding directors, executive officers, corporate governance, executive compensation, security ownership, and principal accounting fees is incorporated by reference from the company's 2022 Proxy Statement[484][486][487][492][493] PART IV Exhibits, Financial Statement Schedules This section lists the financial statements, schedules, and exhibits filed with the Form 10-K, including debt indentures, credit agreements, and required CEO and CFO certifications - This section contains a list of all exhibits filed with the Form 10-K, including debt indentures, credit agreements, and executive compensation plans[495][496]