Exhibit 99.3
Report of the Statutory Auditor to the General Meeting of Shareholders of
Weatherford International Ltd., Zug
Report of the Statutory Auditor on the Financial Statements
As statutory auditor, we have audited the accompanying financial statements of Weatherford International Ltd., which comprise the balance sheet, statement of income and notes (pages SR-3 to SR-16) for the year ended December 31, 2013.
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 from 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 from 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, 2013 comply with Swiss law and the company’s articles of incorporation.
Other Matter
The financial statements of Weatherford International Ltd. for the year ended December 31, 2012 were audited by another auditor who expressed an unmodified opinion on those statements on March 4, 2013.
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.
KPMG AG
|
| |
| /s/ Martin Rohrbach | /s/ Doug Mullins |
Licensed Audit Expert Auditor in Charge | Partner |
Zurich, February 25, 2014
WEATHERFORD INTERNATIONAL LTD.
BALANCE SHEET
|
| | | | | |
| | | | |
| | December 31, |
| (In CHF thousands) | 2013 | | 2012 |
| ASSETS | | | |
| Cash and Cash Equivalents | 252 |
| | 318 |
|
| Due From Affiliates | 208,075 |
| | — |
|
| Other Current Assets | 50,811 |
| | 3,925 |
|
| Total Current Assets | 259,138 |
| | 4,243 |
|
| Leasehold Improvements and Other | 167 |
| | 7,815 |
|
| Intangible Assets | 1,789 |
| | 2,278 |
|
| Due From Affiliates | 11,334 |
| | 66,004 |
|
| Investment in Affiliates | 9,620,905 |
| | 9,612,348 |
|
| Other Long-Term Assets | 4,311 |
| | 5,854 |
|
| Total Long-Term Assets | 9,638,506 |
| | 9,694,299 |
|
| TOTAL ASSETS | 9,897,644 |
| | 9,698,542 |
|
| LIABILITIES AND SHAREHOLDERS’ EQUITY | | | |
| Accounts Payable | 701 |
| | 1,072 |
|
| Due to Affiliates | 211,550 |
| | 39,590 |
|
| Accrued Expenses | 279,426 |
| | 6,080 |
|
| Total Current Liabilities | 491,677 |
| | 46,742 |
|
| Due to Affiliates | 207,031 |
| | 332,027 |
|
| Other Liabilities | 9,049 |
| | — |
|
| Deferred Foreign Currency Gains | 28,644 |
| | 23,199 |
|
| Total Long-Term Liabilities | 244,724 |
| | 355,226 |
|
| Shareholders’ Equity: | | | |
| Share Capital | 973,941 |
| | 973,941 |
|
| Legal Reserves: | | | |
| General Legal Reserves from Capital Contribution | 7,336,862 |
| | 7,259,472 |
|
| Reserve for Treasury Shares from Capital Contribution | — |
| | 76,894 |
|
| Reserve for Treasury Shares | 766,727 |
| | 769,126 |
|
| Free Reserves from Capital Contribution | 475,000 |
| | 475,000 |
|
| Retained Earnings | (391,287 | ) | | (257,859 | ) |
| Total Shareholders’ Equity | 9,161,243 |
| | 9,296,574 |
|
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | 9,897,644 |
| | 9,698,542 |
|
WEATHERFORD INTERNATIONAL LTD.
STATEMENT OF INCOME
|
| | | | | |
| | Year Ended December 31, |
| (In CHF thousands) | 2013 | | 2012 |
| | | | |
| Income | — |
| | — |
|
| Cost and Expenses: | | | |
| General and Administrative Expenses | 87,664 |
| | 39,173 |
|
| Management Fee | 49,248 |
| | 27,000 |
|
| Foreign Exchange Gain | (3,971 | ) | | (3,531 | ) |
| Total Cost and Expenses | 132,941 |
| | 62,642 |
|
| | | | |
| Loss Before Income Taxes | (132,941 | ) | | (62,642 | ) |
| Income Tax | 487 |
| | 1,773 |
|
| Net Loss | (133,428 | ) | | (64,415 | ) |
Weatherford International Ltd.
Notes to Statutory Financial Statements
1. General
Weatherford International Ltd. (“Weatherford,” the “Company,” “we,” “us,” and “our”) is the ultimate parent company of the Weatherford group of affiliates (“Weatherford Group”). The statutory financial statements of the Company have been prepared in accordance with the requirements of the Swiss law for companies, the Code of Obligations (“CO”). The Company has listed its equities on the SIX Swiss Exchange (“SIX”), the New York Stock Exchange (“NYSE”) and on the NYSE Euronext Paris Exchange (“Euronext”) and is registered with the commercial register in the canton of Zug, Switzerland.
2. Summary of Significant Accounting Policies
Exchange Rate Differences
The Company keeps its accounting records in U.S. Dollars (USD) and translates them into Swiss Francs (CHF) for statutory reporting purposes. Assets and liabilities denominated in foreign currencies are translated into CHF using the year-end rates of exchange, except investments in affiliates and the Company’s equity, which (other than for current-year transactions) are translated at historical rates. Income statement transactions are translated into CHF at the average yearly rate. Exchange differences arising from business transactions are recorded in the income statement, except for net unrealized gains, which are deferred in accordance to Swiss law.
Financial Assets
Investments in affiliates are valued using a portfolio approach. Each investment is recognized at acquisition cost and adjustments for impairment are recorded at a portfolio level.
3. Investment in Affiliates
The Company’s principal investments in affiliates include:
|
| | | | |
| Name of Legal Entity | Purpose | Domicile | Equity Interest | Nominal Capital |
| Weatherford Drilling International Holdings (BVI) Ltd. | Holding | British Virgin Islands | 100% | USD 5,360 |
| Chernogornefteservice, LLC | Operating | Russia | 100% | RUB 50,000 |
| Nizhnevartovskburneft, CJSC | Operating | Russia | 100% | RUB 5,151,997,177 |
| NPRS-1, LLC | Operating | Russia | 100% | RUB 10,000 |
| Orenburgburneft, CJSC | Operating | Russia | 100% | RUB 2,892,512,962 |
| STU, LLC | Operating | Russia | 100% | RUB 49,584,467 |
| UKRS, LLC | Operating | Russia | 100% | RUB 100,952,232 |
| Weatherford Switzerland Trading and Development GmbH | Intellectual Property Management | Switzerland | 100% | CHF 20,000 |
| Weatherford Worldwide Holdings GmbH | Holding | Switzerland | 100% | CHF 21,000 |
| Petrowell Limited | Operating | U.K. | 100% | GBP 145,718 USD 15,942,000 |
4. Intangible Assets
The Company entered into an agreement with a service provider during 2009 to provide certain administrative support. In connection with this agreement, the Company was granted a license to certain intellectual property of the service provider. The Company paid CHF 8 million to the service provider for this license. During the first quarter of 2011, a portion of this contract was terminated resulting in a CHF 3 million write-down of intangibles. The remaining prepaid license will continue to be amortized over the life of the contract, which is eight years. As of December 31, 2013 and 2012, the net book value of the intangibles recognized by the Company was CHF 1.8 million and CHF 2.3 million, respectively.
5. Shareholders’ Equity
|
| | | | | | | | | | | | | | | | |
| (In CHF thousands, except share data) | Shares | Share Amount | General Legal Reserves from Capital Contribution | Reserve for Treasury Shares from Capital Contribution(2) | Reserve for Treasury Shares (2) | Free Reserve from Capital Contribution | Retained Earnings | Total Shareholders' Equity |
| Balance at December 31, 2011 | 764,773,222 |
| 887,137 |
| 7,205,125 |
| 63,910 |
| — |
| 475,000 |
| (193,444 | ) | 8,437,728 |
|
| Net Loss | — |
| — |
| — |
| — |
| — |
| — |
| (64,415 | ) | (64,415 | ) |
Treasury Shares (1) | 70,028,143 |
| 81,233 |
| — |
| — |
| 769,126 |
| — |
| — |
| 850,359 |
|
| Warrants exercised | 4,803,164 |
| 5,571 |
| 67,331 |
| — |
| — |
| — |
| — |
| 72,902 |
|
| Treasury Share Purchases | — |
| — |
| (12,984 | ) | 12,984 |
| — |
| — |
| — |
| — |
|
| Balance at December 31, 2012 | 839,604,529 |
| 973,941 |
| 7,259,472 |
| 76,894 |
| 769,126 |
| 475,000 |
| (257,859 | ) | 9,296,574 |
|
| Net Loss | — |
| — |
| — |
| — |
| — |
| — |
| (133,428 | ) | (133,428 | ) |
| Treasury Share Purchases | — |
| — |
| (9,436 | ) | 9,436 |
| — |
| — |
| — |
| — |
|
| Changes in Reserves | — |
| — |
| 87,917 |
| (86,330 | ) | (1,587 | ) | — |
| — |
| — |
|
| Other | — |
| — |
| (1,091 | ) | — |
| (812 | ) | — |
| — |
| (1,903 | ) |
| Balance at December 31, 2013 | 839,604,529 |
| 973,941 |
| 7,336,862 |
| — |
| 766,727 |
| 475,000 |
| (391,287 | ) | 9,161,243 |
|
| |
| (1) | See Note 6 and Note 14 regarding issuance of treasury share and related party transactions. |
| |
| (2) | The reserve for treasury shares represents the cost of treasury shares held indirectly by Weatherford Bermuda Holdings Limited (“WBHL”) on behalf of the company. During 2013, we purchased 805 thousand treasury shares in connection with share-based compensation valued at CHF 9 million. During 2012, we purchased 880 thousand treasury shares in connection with share-based compensation valued at CHF 13 million. See Note 6 - Treasury Shares. |
| |
| (3) | Treasury share issuances in connection with share based compensation given to the Weatherford Group. |
Authorized share capital
We acquire businesses we feel are important to our long-term growth strategy. These acquisitions are included on our balance sheet as Investment in Affiliates. With this purpose in mind, our shareholders approved authorized share capital in the amount of CHF 177 million at the annual general meeting on June 20, 2013, which authorized the issuance of a maximum of 153,000,000 fully paid-in shares with a par value of CHF 1.16 each, expiring on June 20, 2015.
Conditional share capital
At the annual general meeting on May 5, 2010, our shareholders approved conditional share capital in the amount of CHF 440 million, authorizing the issuance of a maximum of 379,223,318 fully paid-in shares with a par value of CHF 1.16 each.
At December 31, 2010, our wholly owned subsidiary Weatherford International Ltd, Bermuda had warrants outstanding granting rights to purchase up to 12.9 million of our shares. During March 2011, 4.3 million of these warrants were exercised through net share settlement resulting in the issuance of 1.7 million shares and a corresponding increase in share capital out of conditional share capital. On February 24, 2012, 4.3 million of these warrants were exercised through physical delivery and were issued out of conditional capital with a fair value of CHF 65 million. On February 28, 2012, the remaining 4.3 million of these warrants were exercised through net share settlement resulting in the issuance of 494 thousand shares out of conditional capital. The Company had 372,747,248 conditional shares outstanding at December 31, 2013 and 2012.
6. Treasury Shares
For the period from December 31, 2011 to December 31, 2013, the number of treasury shares held by our subsidiaries and their movements are as follows (in thousands):
|
| | |
| | |
| | |
| Balance as of December 31, 2011 | 12,542 |
|
| New treasury shares issued | 70,028 |
|
| Shares issued for acquisitions | (3,084 | ) |
| Equity awards granted, vested, and exercised | (3,356 | ) |
| Balance as of December 31, 2012 | 76,130 |
|
| Equity awards granted, vested, and exercised | (6,389 | ) |
| Balance as of December 31, 2013 | 69,741 |
|
In May 2012, the Company issued 70 million shares out of authorized share capital, with a fair value of CHF 850 million. These shares are reported above as treasury shares issued. See Note 14 for additional details. The treasury shares issued for acquisitions during 2012 were valued on the acquisition dates at CHF 37 million. In addition, the proceeds of the treasury share transfers in connection with exercises of options amounted to CHF 20 million and CHF 4 million for the years ended December 31, 2013 and 2012, respectively. The transfer of treasury shares under our restricted share plans was at book value.
Included in the consolidated financial statements as of December 31, 2013 and 2012 are 3.2 million shares, and 2.4 million shares, respectively, for restricted share awards outstanding which have restrictions that have not lapsed. These restricted share awards are excluded from the table above, as they are considered issued shares in accordance with Swiss law.
7. Significant Shareholders
The tables below show information for each significant shareholder known by us whose participation exceeds 5% of the Company’s shares as of December 31, 2013 and 2012, respectively.
For the year ended December 31, 2013:
|
| | | | |
| Name | Number of Shares | | Percent of Shares (1) |
ClearBridge Investments, LLC (2) | 61,913,655 |
| | 7.37% |
Dodge & Cox (3) | 67,712,743 |
| | 8.06% |
Invesco Ltd. (4) | 54,071,450 |
| | 6.44% |
ORBIS (5) | 51,151,356 |
| | 6.09% |
Weatherford Bermuda Holdings Limited (6) | 69,741,149 |
| | 8.31% |
| | | | |
| | | | |
(1) The percentage indicated is based on the Company’s 839,604,529 issued shares as of December 31, 2013.
| |
| (2) | The beneficial owner has sole voting power over 60,578,242 shares and sole dispositive power over all shares. |
| |
| (3) | The beneficial owner has sole voting power over 65,389,343 shares and sole dispositive power over all shares. |
| |
| (4) | The beneficial owner has sole voting power over 53,634,844 shares and sole dispositive power over all shares. |
| |
| (5) | ORBIS includes Orbis Investment Management (U.S.), LLC, Orbis Investment Management Limited and Orbis Asset Management Limited. The beneficial owners have sole voting power and sole dispositive power over all shares. |
| |
| (6) | WBHL is wholly owned by the Company and therefore the Company is the beneficial owner of these shares and they are deemed treasury shares. These treasury shares do not hold any voting power. |
For the year ended December 31, 2012:
|
| | | |
| Name | Number of Shares | | Percent of Shares (1) |
| | | | |
ClearBridge Investments, LLC (2) | 43,812,158 | | 5.22% |
Invesco Ltd. (3) | 70,260,824 | | 8.37% |
ORBIS (4) | 60,081,720 | | 7.16% |
Weatherford Bermuda Holdings Limited (5) | 76,130,863 | | 9.07% |
(1) The percentage indicated is based on the Company’s 839,604,529 issued shares as of December 31, 2012.
| |
| (2) | The beneficial owner has sole voting power over 43,623,474 shares and sole dispositive power over all shares. |
| |
| (3) | The beneficial owner has sole voting power over 69,257,856 shares and sole dispositive power over all shares. |
| |
| (4) | ORBIS includes Orbis Investment Management (U.S.), LLC, Orbis Investment Management Limited and Orbis Asset Management Limited. The beneficial owners have sole voting power and sole dispositive power over all shares. |
| |
| (5) | WBHL is wholly owned by the Company and therefore the Company is the beneficial owner of these shares and they are deemed treasury shares. These treasury shares do not hold any voting power. |
8. Board of Directors Compensation
The following tables set forth the compensation for each of our non-employee directors for the years ended December 31, 2013 and 2012, respectively. Mr. Duroc-Danner was an executive officer and director in 2013 and 2012, and his compensation is included in the Executive Management Compensation footnote. We do not compensate Mr. Duroc-Danner for his service on the Board.
For the year ended December 31, 2013:
|
| | | | | | | | | | | |
| Name | | Function | | Fees Earned or Paid In Cash(1) | | Share-based Compensation (2) | | Total Compensation |
| | | | | (In CHF thousands) |
Samuel W. Bodman III (3)(4)(7) | | | | 51 |
| | — |
| | 51 |
|
Nicholas F. Brady (5)(8) | | | | 89 |
| | 166 |
| | 255 |
|
David J. Butters (3) (5) | | Chairman of the Corporate Governance and Nominating Committee | | 130 |
| | 166 |
| | 296 |
|
John D. Gass (4)(6) | | | | 63 |
| | 256 |
| | 319 |
|
Francis S. Kalman (3) | | | | 72 |
| | 256 |
| | 328 |
|
William E. Macaulay (4) | | Chairman of the Compensation Committee | | 110 |
| | 166 |
| | 276 |
|
Robert K. Moses, Jr. (3)(4)(6) | | | | 126 |
| | 166 |
| | 292 |
|
Guillermo Ortiz (3)(4) | | | | 176 |
| | 166 |
| | 342 |
|
Emyr Jones Parry (5)(6) | | Chairman of the Health, Safety and Environment Committee | | 98 |
| | 166 |
| | 264 |
|
Robert A. Rayne (3) (5) | | Presiding Director and Chairman of the Audit Committee | | 152 |
| | 166 |
| | 318 |
|
| Total | | | | 1,067 |
| | 1,674 |
| | 2,741 |
|
For the year ended December 31, 2012:
|
| | | | | | | | | | | |
| Name | | Function | | Fees Paid In Cash (1) | | Share-based Compensation (2) | | Total Compensation |
| | | | | (In CHF thousands) |
Samuel W. Bodman III (3)(4) | | | | 113 |
| | 145 |
| | 258 |
|
Nicholas F. Brady (5) | | | | 81 |
| | 145 |
| | 226 |
|
David J. Butters (3) (5) | | Chairman of the Corporate Governance and Nominating Committee | | 122 |
| | 145 |
| | 267 |
|
William E. Macaulay (4) | | Chairman of the Compensation Committee | | 86 |
| | 145 |
| | 231 |
|
Robert B. Millard (9) | | | | — |
| | — |
| | — |
|
Robert K. Moses, Jr. (3)(4) | | | | 114 |
| | 145 |
| | 259 |
|
Guillermo Ortiz (3)(4) | | | | 126 |
| | 145 |
| | 271 |
|
Emyr Jones Parry (5) | | | | 79 |
| | 145 |
| | 224 |
|
Robert A. Rayne (3) (5) | | Presiding Director and Chairman of the Audit Committee | | 142 |
| | 145 |
| | 287 |
|
| Total | | | | 863 |
| | 1,160 |
| | 2,023 |
|
| |
| (1) | Fees represent payments for retainers and meeting attendance from January 1 to December 31. |
| |
| (2) | Each non-employee director was awarded 12,000 restricted share units on September 12, 2012 and September 27, 2013. In addition, on June 20, 2013, each new non-employee director (Messrs. Gass and Kalman) was awarded 7,174 restricted share units. 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) | Members of the Health, Safety and Environment Committee. |
| |
| (7) | Effective June 20, 2013, Samuel W. Bodman III did not stand for re-election and ceased being a director of the Company. |
| |
| (8) | Effective February 24, 2014, Nicholas F. Brady resigned as a director of the Company. |
| |
| (9) | Effective January 12, 2012, Robert B. Millard resigned as a director of the Company. He received no compensation for director services in 2012. |
9. Executive Management Compensation
The following table sets forth the compensation awarded to our executive management team that was in place during the years ended December 31, 2013 and 2012. Mr. Duroc-Danner was the highest paid executive management team member in 2013 and 2012 based on compensation awarded and is shown separately in the table below in addition to being included in the total. On December 17, 2013, the Board of Directors of the Company designated the Chief Executive Officer, Chief Financial Officer, Chief Operating Officer and Executive Vice President - Strategy & Development/Chief Safety Officer as the sole members of the Company's executive management team. See Note 10 for a list of executive management team members as of December 31, 2013 and 2012.
|
| | | | | | | | | | | | |
| | | For the Year Ended December 31, 2013 | | For The Year Ended December 31, 2012 |
| | | | | | | | | |
| Type of Compensation | | Total for Executive Management Team | | Total for Highest Paid Member | | Total for Executive Management Team | | Total for Highest Paid Member |
| | | | | (In CHF thousands) | | |
| | | | | | | | | |
| Salary | | 6,363 |
| | 1,760 |
| | 6,359 |
| | 1,760 |
|
Share-based Awards (1)(2) | | 28,522 |
| | 7,321 |
| | 21,421 |
| | 220 |
|
Non-equity Incentive (3) | | 5,715 |
| | 2,218 |
| | — |
| | — |
|
Severance Pay (4) | | 9,390 |
| | — |
| | 16,969 |
| | — |
|
Expatriate/Geographic Benefits (5) | | 1,762 |
| | 624 |
| | 2,197 |
| | 628 |
|
Expatriate Tax Equalization (6) | | 819 |
| | 271 |
| | 4,118 |
| | 2,104 |
|
Other (7) | | 1,171 |
| | 115 |
| | 782 |
| | 227 |
|
| Total | | 53,742 |
| | 12,309 |
| | 51,846 |
| | 4,939 |
|
| |
| (1) | Share-based awards, which include performance-based share awards, were granted to executive management on various days within the year and vest over various periods. The value above is an accumulation of the grant date fair value of each of those awards. The grant date fair value of each of the awards was based on the Company’s closing stock price on the date of grant or when applicable, a calculated fair value derived using a Monte Carlo valuation model. |
| |
| (2) | On December 18, 2012, Mr. Duroc-Danner voluntarily forfeited an award of 481,058 Performance Units granted on March 23, 2012 valued for compensation accounting purposes at approximately CHF 9.4 million. As a result of forfeiture which was approved by the Compensation Committee, the grant date fair value is not included in the full-year accumulated Share-based Awards amount shown above. |
| |
| (3) | Amounts represent potential payouts in conjunction with the Non-Equity Incentive Compensation Plan. Amounts have been accrued but not yet approved by the Compensation Committee. |
| |
| (4) | In 2013, three members and in 2012, two members of executive management left the company. The amount above represents their severance benefits in accordance with their employment agreements including the retirement benefit due to them in conjunction with the executive pension plan, if eligible. |
| |
| (5) | Expatriate/Geographic Benefits includes relocation pay, geographic differential, housing, schooling and other similar expatriate benefits. |
| |
| (6) | Expatriate Tax Equalization represents the difference between cash taxes paid on behalf of the executive and amounts withheld from the executive’s compensation. |
| |
| (7) | Other includes benefits such as benefit plan contributions, car allowance, life insurance premiums, club dues, consulting fees, employer healthcare, Medicare and social security costs. In addition in 2013, Other includes a one-time lump sum cash payment to our new Chief Financial Officer of $300,000 as an inducement to join the Company and as a make-up payment for foregone amounts from his prior employer. |
10. Share Ownership - Board of Directors and Executive Management
The following table shows the amount and nature of shares in the Company as well as conversion and option rights held by each non-employee member of the Board of Directors and any person considered close to each such member.
As of December 31, 2013:
|
| | | | | | | | | | | | | | | |
| Name and Function | | Direct (includes 401(k) Shares Held) | |
Unvested Restricted Share/Units | |
Exercisable Options and Notional Share Units | |
Deferred Compensation Plan Holdings | | Total |
| Nicholas F. Brady | | 896,622 |
| | 24,000 |
| | — |
| | 5,679 |
| | 926,301 |
|
| Member of the Board | | | | | | | | | | |
| David J. Butters | | 273,842 |
| | 24,000 |
| | 240,000 |
| | 62,831 |
| | 600,673 |
|
Committee Chairman and Member of the Board | | | | | | | | | | |
| John D. Gass | | — |
| | 19,174 |
| | — |
| | — |
| | 19,174 |
|
| Member of the Board | | | | | | | | | | |
| Francis S. Kalman | | — |
| | 19,174 |
| | — |
| | — |
| | 19,174 |
|
| Member of the Board | | | | | | | | | | |
| William E. Macaulay | | 1,033,290 |
| | 24,000 |
| | 240,000 |
| | 10,710 |
| | 1,308,000 |
|
Committee Chairman and Member of the Board | | | | | | | | | | |
| Robert K. Moses, Jr. | | 599,822 |
| | 24,000 |
| | — |
| | 11,441 |
| | 635,263 |
|
| Member of the Board | | | | | | | | | | |
| Guillermo Ortiz | | 44,556 |
| | 27,383 |
| | — |
| | — |
| | 71,939 |
|
| Member of the Board | | | | | | | | | | |
| Emyr Jones Parry | | 33,906 |
| | 27,383 |
| | — |
| | — |
| | 61,289 |
|
Committee Chairman and Member of the Board | | | | | | | | | | |
Robert A. Rayne (1) | | 274,445 |
| | 24,000 |
| | 240,000 |
| | 21,767 |
| | 560,212 |
|
Presiding Director, Committee Chairman and Member of the Board | | | | | | | | | | |
As of December 31, 2012:
|
| | | | | | | | | | | | | | | |
| Name and Function | | Direct (includes 401(k) Shares Held) | |
Unvested Restricted Share/Units | |
Exercisable Options and Notional Share Units | |
Deferred Compensation Plan Holdings | | Total |
| Samuel W. Bodman III | | 71,906 |
| | 23,383 |
| | — |
| | — |
| | 95,289 |
|
| Member of the Board | | | | | | | | | | |
| Nicholas F. Brady | | 890,222 |
| | 20,000 |
| | — |
| | 5,679 |
| | 915,901 |
|
| Member of the Board | | | | | | | | | | |
| David J. Butters | | 247,146 |
| | 20,000 |
| | 302,400 |
| | 62,831 |
| | 632,377 |
|
Committee Chairman and Member of the Board | | | | | | | | | | |
| William E. Macaulay | | 1,026,590 |
| | 20,000 |
| | 480,000 |
| | 10,710 |
| | 1,537,300 |
|
Committee Chairman and Member of the Board | | | | | | | | | | |
| Robert K. Moses, Jr. | | 593,422 |
| | 20,000 |
| | — |
| | 11,441 |
| | 624,863 |
|
| Member of the Board | | | | | | | | | | |
| Guillermo Ortiz | | 15,506 |
| | 23,383 |
| | — |
| | — |
| | 38,889 |
|
| Member of the Board | | | | | | | | | | |
| Emyr Jones Parry | | 27,506 |
| | 23,383 |
| | — |
| | — |
| | 50,889 |
|
| Member of the Board | | | | | | | | | | |
Robert A. Rayne (1) | | 191,274 |
| | 20,000 |
| | 480,000 |
| | 21,767 |
| | 713,041 |
|
Presiding Director, Committee Chairman and Member of the Board | | | | | | | | | | |
| |
| (1) | Mr. Rayne serves as a non-executive director of LMS Capital plc, which beneficially own 2,050,000 shares as of December 31, 2013 and 2012. Mr. Rayne disclaims beneficial ownership of all of the shares beneficially owned by LMS Capital plc. |
The following table shows the amount and nature of shares in the Company, as well as conversion and option rights, held by each member of Executive Management and any person considered close to each such member.
As of December 31, 2013:
|
| | | | | | | | | | | | | | | | | | |
| Name and Function | | Direct (includes 401(k) Shares Held) | |
Unvested Restricted Share/Units | |
Exercisable Options and Notional Share Units | |
Unexercisable Options and Performance Units | |
Deferred Compensation Plan Holdings | | Total |
| Bernard J. Duroc-Danner | | 1,150,943 |
| | — |
| | 5,889,211 |
| | 998,303 |
| | 151,279 |
| | 8,189,736 |
|
Chairman of the Board, President and Chief Executive Officer | | | | | | | | | | | | |
| Krishna Shivram | | 142,413 |
| | — |
| | — |
| | — |
| | — |
| | 142,413 |
|
Executive Vice President and Chief Financial Officer | | | | | | | | | | | | |
| Nicholas W. Gee | | 60,214 |
| | 207,210 |
| | — |
| | 251,002 |
| | — |
| | 518,426 |
|
| Executive Vice President - Strategy & Development and Chief Safety Officer | | | | | | | | | | | | |
| Dharmesh Mehta | | 264,128 |
| | 199,081 |
| | — |
| | 217,282 |
| | 3,370 |
| | 683,861 |
|
Executive Vice President and Chief Operating Officer | | | | | | | | | | | | |
As of December 31, 2012:
|
| | | | | | | | | | | | | | | | | | |
| Name and Function | | Direct (includes 401(k) Shares Held) | | Unvested Restricted Share/Units | |
Exercisable Options and Notional Share Units | |
Unexercisable Options and Performance Units | |
Deferred Compensation Plan Holdings | | Total |
| Bernard J. Duroc-Danner | | 2,063,752 |
| | — |
| | 6,595,861 |
| | 487,105 |
| | 151,279 |
| | 9,297,997 |
|
Chairman of the Board, President and Chief Executive Officer | | | | | | | | | | | | |
| John H. Briscoe | | 16,256 |
| | 107,631 |
| | — |
| | 138,140 |
| | — |
| | 262,027 |
|
Senior Vice President and Chief Financial Officer | | | | | | | | | | | | |
| Peter T. Fontana | | 311,595 |
| | 275,797 |
| | — |
| | 313,485 |
| | 5,478 |
| | 906,355 |
|
Senior Vice President and Chief Operating Officer | | | | | | | | | | | | |
| Nicholas W. Gee | | 20,816 |
| | 136,565 |
| | — |
| | 148,105 |
| | — |
| | 305,486 |
|
| Senior Vice President- Formation, Evaluation & Well Construction | | | | | | | | | | | | |
| Joseph C. Henry | | 112,300 |
| | 73,106 |
| | 38,000 |
| | 93,816 |
| | 15,223 |
| | 332,445 |
|
Senior Vice President, Co-General Counsel and Corporate Secretary | | | | | | | | | | | | |
| William B. Jacobson | | 76,348 |
| | 150,389 |
| | — |
| | 98,724 |
| | — |
| | 325,461 |
|
| Senior Vice President, Co-General Counsel and Chief Compliance Officer | | | | | | | | | | | | |
| Dharmesh B. Mehta | | 217,749 |
| | 114,937 |
| | — |
| | 92,604 |
| | 3,370 |
| | 428,660 |
|
Senior Vice President- Completion & Production | | | | | | | | | | | | |
| James C. Parent | | 51,000 |
| | 29,691 |
| | — |
| | 29,692 |
| | — |
| | 110,383 |
|
| Vice President - Tax | | | | | | | | | | | | |
11. Risk Assessment Disclosure
Weatherford International Ltd., as the ultimate parent company of the Weatherford Group, is fully integrated into the Group-wide internal risk assessment process.
The Group-wide internal risk assessment process consists of regular reporting to the Board of Directors on identified risks and management’s reaction to them. The procedures and actions to identify the risks, and where appropriate remediate, are performed by specific corporate functions (e.g. Treasury, Legal, Internal Audit, Engineering and Operations) as well as by the business units of the Weatherford Group.
These functions and business units have the responsibility to support and monitor the Group-wide procedures and processes to ensure their effective operation.
12. Guarantees, Commitments, Disputes and Litigation
Weatherford International Ltd., as the ultimate parent company of the Weatherford Group, guarantees the obligations of Weatherford International Ltd., a Bermuda exempt company and Weatherford International, LLC. The guaranteed debt includes certain short-term commercial paper, notes, revolving credit facilities, and debentures totaling approximately CHF 8.0 billion and CHF 7.9 billion at December 31, 2013 and 2012, respectively. Footnotes 10 and 11 in the Company’s consolidated financial statements contain more detailed information on the underlying debt guaranteed by the Company.
U.S. Government and Internal Investigations
On November 26, 2013, Weatherford International Ltd. (“Weatherford”), a Swiss company and the U.S. Department of Justice, U.S. Securities and Exchange Commission ("SEC"), and U.S. Departments of Treasury and Commerce signed agreements to resolve investigations for prior alleged violations by Weatherford of the trade sanctions laws, Weatherford’s participation in the United Nations oil-for-food program governing sales of goods into Iraq and Weatherford’s non-compliance with the Foreign Corrupt Practices Act ("FCPA"). As of December 31, 2013, we were seeking court approval for some of these agreements. On January 17, 2014, the U.S. District Court for the Southern District of Texas provided the remaining necessary approval pertaining to these matters. We have recognized a USD 250 million (CHF 224 million) liability for the approved settlement amount and an indemnification asset of USD 232 million (CHF 208 million). Since the vast majority of the conduct underlying the allegations occurred prior to the Company’s re-domestication to Switzerland, the Company entered into an Indemnity Agreement with the former parent company of the Weatherford Group, Weatherford International Ltd., a Bermuda company (“WIL Bermuda”), whereby WIL Bermuda accepted the majority of the costs and related liabilities regarding this settlement and future claims. Included in Due from Affiliates is a receivable from WIL Bermuda for USD 232 million (CHF 208 million) related to this matter.
The SEC and U.S. Department of Justice are also investigating the circumstances surrounding the material weakness in our internal controls over financial reporting for income taxes that was disclosed in a notification of late filing on Form 12b-25 filed on March 1, 2011 and in current reports on Form 8-K filed on February 21, 2012 and on July 24, 2012 and the subsequent restatements of our historical financial statements. We are cooperating fully with these investigations. We are unable to predict the outcome of these matters due to the inherent uncertainties presented by such investigations, and we are unable to predict potential outcomes or estimate the range of potential loss contingencies, if any. The government, generally, has a broad range of civil and criminal penalties available for these types of matters under applicable law and regulation, including injunctive relief, fines, penalties and modifications to business practices, some of which, if imposed on us, could be material to our business, financial condition or results of operations. In September 2013, we also received the final decision of the SIX Swiss Exchange Sanction Commission regarding its investigation for similar internal controls and restatement matters. The decision resulted in a fine of USD 270,000 (CHF 250,000) plus costs. We do not plan to appeal this decision.
Shareholder Litigation
In 2010, three shareholder derivative actions were filed, purportedly on behalf of the Company, asserting breach of duty and other claims against certain current and former officers and directors of the Company related to the United Nations oil-for-food program governing sales of goods into Iraq, FCPA and trade sanctions related to the U.S. government investigations disclosed above and in our SEC filings since 2007. Those shareholder derivative cases are pending in the Harris County, Texas, civil court and are captioned Neff v. Brady, et al., No. 201040764, Hess v. Duroc-Danner, et al., No. 201040765, and Rosner v. Brady, et al., No. 201047343.
In March 2011, a shareholder derivative action, Iron Workers Mid-South Pension Fund v. Duroc-Danner, et al., No. 201119822, was filed in Harris County, Texas, civil court purportedly on behalf of the Company against certain current and former officers and directors, alleging breaches of duty related to the material weakness and restatement announcements. In February 2012, a second shareholder derivative action, Wandel v. Duroc-Danner, et al., No. 1:12-cv-01305-LAK (SDNY), was filed in federal court in the Southern District of New York. In March 2012, a purported securities class action captioned Freedman v. Weatherford International Ltd., et al., No. 1:12-cv-02121-LAK (SDNY) was filed in the Southern District of New York against us and certain current and former officers. That case alleges violation of the federal securities laws related to the restatement of our historical financial statements announced on February 21, 2012, and later added claims related to the announcement of a subsequent restatement on July 24, 2012.
We cannot predict the outcome of these cases including the amount of any possible loss. If one or more negative outcomes were to occur relative to these cases, the aggregate impact to our financial condition could be material.
In March 2011, a shareholder class action captioned Dobina v. Weatherford International Ltd., et al., No. 1:11-cv-01646-LAK (SDNY), was filed in the U.S. District Court for the Southern District of New York, following our announcement on March 1, 2011 of a material weakness in our internal controls over financial reporting for income taxes, and restatement of our historical financial statements (the “2011 Class Action”). The associated lawsuit alleged violation of the federal securities laws by us and certain current and former officers. During the three months ended December 31, 2013, we entered into negotiations to settle the 2011 Class Action. As a result of these negotiations, settlement became probable and a settlement agreement was signed on January 29, 2014. The settlement agreement requires payments totaling approximately USD 53 million (CHF 48 million), which we expect to be entirely recoverable from insurance. The settlement arrangement must be submitted to the court for final approval. See “Notes to Consolidated Financial Statements – Note 21– Subsequent Events” for additional information regarding the settlement of the “Shareholder Litigation” matters.
Other Disputes
We are aware of various disputes and potential claims and are a party in various litigation involving claims against us, some of which are covered by insurance. For claims, disputes and pending litigation in which we believe a negative outcome is probable and a loss can be reasonably estimated, we have recorded a liability for the expected loss. These liabilities are immaterial to our financial condition and results of operations. In addition we have certain claims, disputes and pending litigation regarding which we do not believe a negative outcome is probable or for which we can only estimate a range of liability. It is possible, however, an unexpected judgment could be rendered against us, or we could decide to resolve a case or cases, that would result in liability that could be uninsured and beyond the amounts we currently have reserved and in some cases those losses could be material. If one or more negative outcomes were to occur relative to these matters, the aggregate impact to our financial condition could be material.
13. Business Combinations
In May 2012, we acquired a company that designs and produces well completion tools. As purchase consideration, we paid CHF 28 million in cash, issued three million shares valued at approximately CHF 37 million, settled a previously existing note receivable for CHF 15 million and booked a liability of CHF 9 million as of December 31, 2013. Included in the liability is an estimated CHF 7 million contingency arrangement consideration, whose final settlement is dependent on the acquired company's 2014 revenues. These liabilities will be settled at the discretion of the Company with the issuance of our shares or a note payable.
14. Related Party Transactions
A subsidiary of the Company, Weatherford U.S., L.P. (“WUSLP”), performs general and administrative functions and provides oversight management services to most Weatherford entities. WUSLP personnel duties include, but are not limited to, marketing, tax, treasury, risk management, real estate, human resources, information technology, and legal services.
The Company was charged a management fee by WUSLP in consideration for these duties during 2013 and 2012. These charges included costs incurred on the Company’s behalf for executive salaries, board of director fees, financial statement audit fees, internal audit costs and investor relations costs. In addition, the Company was allocated a percentage of various other functional expenses including legal, financial reporting, tax and treasury activities.
On January 31, 2013, the Company entered into a credit agreement for a revolving demand note with Weatherford International Ltd., a Bermuda company, the lender. The variable interest rate was 2.7% on December 31, 2013. The outstanding balance was USD 45 million (CHF 40 million) as of December 31, 2013.
On May 23, 2012, the Company issued 70,028,143 fully paid-in new registered shares out of authorized share capital with a fair value of CHF 850 million. These shares were given to Weatherford Bermuda Holdings, Ltd. as consideration for the contribution of Weatherford Drilling International Holdings (BVI) Ltd. to the Company. A legal reserve for these shares is listed separately in the Shareholders' Equity section of the financial statements.
On November 24, 2010, the Company entered into a credit agreement for a revolving demand note with Weatherford International Ltd., a Bermuda company, the lender. The variable interest rate was 2.7% on December 31, 2013. The outstanding balance was USD 81 million (CHF 73 million) as of December 31, 2013 and USD 122 million (CHF 111 million) as of December 31, 2012.
On March 15, 2010, the Company entered into a credit agreement for a revolving demand note with Weatherford U.S., L.P., the lender. The variable interest rate was 2.7% on December 31, 2013. The outstanding balance was USD 13 million (CHF 11 million) as of December 31, 2013 and USD 142 million (CHF 129 million) as of December 31, 2012.
On March 15, 2010, Weatherford International Ltd., a Bermuda company, the borrower, entered into a credit agreement for a revolving demand note with the Company, the lender. The variable interest rate was 2.7% on December 31, 2013. As of December 31, 2013 and 2012 there was no balance outstanding under this agreement.
On February 26, 2010, the Company entered into a credit agreement for a revolving demand note with Weatherford Capital Management Services LLC, a Hungary company, the lender. The variable interest rate was 2.7% on December 31, 2013. The outstanding balance was USD 103 million (CHF 92 million) as of December 31, 2013 and USD 100 million (CHF 91 million) as of December 31, 2012.
In addition to the notes listed above, as of December 31, 2013, we had additional receivables due from affiliates in the amount of USD 245 million (CHF 219 million) and current liabilities due to affiliates in the amount of USD 225 million (CHF 203 million). As of December 31, 2012, we had additional receivables due from affiliates in the amount of USD 72 million (CHF 66 million) and current liabilities due to affiliates in the amount of USD 43 million (CHF 41 million).
15. Insurance
The Weatherford Group maintains insurance policies covering the property, equipment and leasehold improvements of the Weatherford Group. The value of the coverage is at replacement cost, which is in excess of the book value of Weatherford's consolidated property, plant and equipment balance at December 31, 2013 and 2012.
16. Personnel Expenses
Consolidated personnel expenses for the Weatherford Group was approximately CHF 3.6 billion for the years ended December 31, 2013 and December 31, 2012.
17. Value Added Tax Group
The Company is part of a Group of Swiss Entities of Weatherford International Ltd. which is jointly and severally liable for the whole Swiss Value Added Tax amount due to the Swiss authorities by this group.
