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WEATHERFORD INTERNATIONAL, LTD. (SWITZERLAND) Reports Operating Results (10-K/A)

December 17, 2012 | About:

10qk

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WEATHERFORD INTERNATIONAL, LTD. (SWITZERLAND) (WFT) filed Amended Annual Report for the period ended 2011-12-31.

Weatherford International Ltd has a market cap of $8.35 billion; its shares were traded at around $10.68 with a P/E ratio of 20.35 and P/S ratio of 0.64. Weatherford International Ltd had an annual average earning growth of 13% over the past 10 years.

Highlight of Business Operations:

Consolidated operating income increased $87 million, or 13%, in 2010 as compared to 2009. Our operating segments contributed $112 million of incremental operating income during 2010 as compared to the prior year. This incremental income was partially offset a $20 million increase in research and development expenditures of over 2009. Research and development expenditures represented a consistent 2% of revenues in both years. The revaluation of contingent consideration associated with the OFS acquisition offset $11 million of the incremental operating income contributed by our operating segments, as we recognized a gain of $13 million in 2010 compared to a gain of $24 million in 2009. We incurred $96 million of other items during 2011, which included income tax restatement and material weakness remediation expenses of $21 million, $10 million of costs incurred in connection with on-going investigations by the U.S. government, $9 million associated with the termination of a corporate consulting contract and severance, exit and other charges totaling $56 million.

Income Taxes We provide for income taxes based on the laws and rates in effect in the countries in which operations are conducted, or in which we or our subsidiaries are considered resident for income tax purposes. We are exempt from Swiss cantonal and communal tax on income derived outside Switzerland, and are also granted participation relief from Swiss federal tax for qualifying dividend income and capital gains related to the sale of qualifying investments in subsidiaries. We expect that the participation relief will result in a full exemption of participation income from Swiss federal income tax. Our provision for income taxes was $542 million in 2011, $396 million in 2010 and $163 million in 2009, which resulted in an effective tax rate of 73%, 201% and 59%, respectively. Our provision for income taxes was significantly impacted by discrete tax expense items in each of these years. In 2011, we recognized $20 million of withholding tax on the redemption of equity in one of our U.S. subsidiaries; in 2010, we recognized $124 million of tax expense related to the reorganization of our operations in Latin America; and, in 2009, we recognized a benefit of $34 million related to the reorganization of our international operations. Our provision for income taxes was impacted by increases in our reserves for uncertain tax positions of $77 million in 2011, $79 million in 2010 and $62 million in 2009 and valuation allowances of $29 million recognized in 2011, $55 million recognized in 2010 and $38 million recognized in 2009. Excluding these items, our effective tax rate was 56% in 2011, 70% in 2010 and 35% in 2009. The relationship between our pre-tax income or loss from continuing operations and our income tax benefit or provision varies from period to period as a result of various factors which include, in addition to the discrete items discussed above, changes in total pre-tax income or loss, the jurisdictions in which our income is earned, the tax laws in those jurisdictions and in our operating structure. Our income derived in Switzerland is taxed at a rate of 7.83%; however, our effective rate, even after excluding the transactional and discrete items discussed above, is substantially above the Swiss statutory tax rate as the majority of our operations are taxed in jurisdictions with much higher tax rates. Our effective tax rate for these periods was further negatively impacted by the taxing regimes in certain countries and our operating structure. Several of the countries in which we operate, primarily in our MENA/Asia Pacific segment, tax us based on "deemed", rather than actual, profits. We are not currently profitable in certain of those countries, which results in us accruing and paying taxes based on a "deemed profit" instead of recognizing no tax expense or potentially recognizing a tax benefit. Our operating structure results in us paying withholding taxes on intercompany charges for items such as rentals, management fees, royalties, and interest as well as on applicable third party transactions. Such withholding taxes were $94 million in 2011, $76 million in 2010 and $70 million in 2009. We also incur pre-tax losses in certain jurisdictions that do not have a corporate income tax and thus we are not able to recognize an income tax benefit on those losses. In addition to the transaction and structural causes discussed above, our effective tax rate decreased from 2010 to 2011 due to higher pre-tax income and changes in our geographic earnings mix. Our effective tax rate will generally be lower in periods of higher pre-tax earnings as the rate impact of certain of the items discussed above is mitigated by the higher earnings. Our effective tax rate increased from 2009 to 2010 due primarily to lower pre-tax income and changes in our geographic earnings mix.

We provide for income taxes based on the laws and rates in effect in the countries in which operations are conducted, or in which we or our subsidiaries are considered resident for income tax purposes. We are exempt from Swiss cantonal and communal tax on income derived outside Switzerland, and are also granted participation relief from Swiss federal tax for qualifying dividend income and capital gains related to the sale of qualifying investments in subsidiaries. We expect that the participation relief will result in a full exemption of participation income from Swiss federal income tax. Our provision for income taxes was $542 million in 2011, $396 million in 2010 and $163 million in 2009, which resulted in an effective tax rate of 73%, 201% and 59%, respectively. Our provision for income taxes was significantly impacted by discrete tax expense items in each of these years. In 2011, we recognized $20 million of withholding tax on the redemption of equity in one of our U.S. subsidiaries; in 2010, we recognized $124 million of tax expense related to the reorganization of our operations in Latin America; and, in 2009, we recognized a benefit of $34 million related to the reorganization of our international operations. Our provision for income taxes was impacted by increases in our reserves for uncertain tax positions of $77 million in 2011, $79 million in 2010 and $62 million in 2009 and valuation allowances of $29 million recognized in 2011, $55 million recognized in 2010 and $38 million recognized in 2009. Excluding these items, our effective tax rate was 56% in 2011, 70% in 2010 and 35% in 2009. The relationship between our pre-tax income or loss from continuing operations and our income tax benefit or provision varies from period to period as a result of various factors which include, in addition to the discrete items discussed above, changes in total pre-tax income or loss, the jurisdictions in which our income is earned, the tax laws in those jurisdictions and in our operating structure. Our income derived in Switzerland is taxed at a rate of 7.83%; however, our effective rate, even after excluding the transactional and discrete items discussed above, is substantially above the Swiss statutory tax rate as the majority of our operations are taxed in jurisdictions with much higher tax rates. Our effective tax rate for these periods was further negatively impacted by the taxing regimes in certain countries and our operating structure. Several of the countries in which we operate, primarily in our MENA/Asia Pacific segment, tax us based on "deemed", rather than actual, profits. We are not currently profitable in certain of those countries, which results in us accruing and paying taxes based on a "deemed profit" instead of recognizing no tax expense or potentially recognizing a tax benefit. Our operating structure results in us paying withholding taxes on intercompany charges for items such as rentals, management fees, royalties, and interest as well as on applicable third party transactions. Such withholding taxes were $94 million in 2011, $76 million in 2010 and $70 million in 2009. We also incur pre-tax losses in certain jurisdictions that do not have a corporate income tax and thus we are not able to recognize an income tax benefit on those losses. In addition to the transaction and structural causes discussed above, our effective tax rate decreased from 2010 to 2011 due to higher pre-tax income and changes in our geographic earnings mix. Our effective tax rate will generally be lower in periods of higher pre-tax earnings as the rate impact of certain of the items discussed above is mitigated by the higher earnings. Our effective tax rate increased from 2009 to 2010 due primarily to lower pre-tax income and changes in our geographic earnings mix.

For the three months ended March 31, 2011, we had a tax provision of $46 million on income before taxes of $78 million. Our tax provision for the three months ended March 31, 2011 includes discrete tax benefits of $6 million. For the three months ended March 31, 2010, we had a tax provision of $16 million on a pretax loss of $62 million that includes curtailment expense for our SERP for which no related tax benefit was recorded. Our tax provision for the three months ended March 31, 2010 includes the tax impact of changes in our geographic earnings mix, which is partially offset by a tax benefit related to the devaluation of the Venezuelan bolivar. For the three and six months ended June 30, 2011, we had a tax provision of $100 million and $146 million on income before taxes of $156 million and $234 million, respectively. Our tax provision for the three and six months ended June 30, 2011 includes discrete tax benefits of $12 million and $18 million, respectively. For the three months ended June 30, 2010, we had a tax provision of $63 million on a pretax loss of $6 million that includes an $82 million loss on the fair value adjustment to the put option issued in connection with the OFS acquisition for which no tax benefit has been recorded. For the six months ended June 30, 2010, we had a tax provision of $79 million on a pretax loss of $68 million that includes the loss related to the put option issued in connection with the OFS acquisition and curtailment expense on our SERP for which no related tax benefit was recorded. Our tax provision for the six months ended June 30, 2010 also includes the tax impact of changes in our geographic earnings mix, partially offset by a tax benefit related to the devaluation of the Venezuelan bolivar.

Operating income increased $502 million, or 263% in 2010 as compared to the prior year. Operating margins were 17% in 2010 compared to 7% in 2009. The increase in operating income and margins is attributable to increased onshore activity in the U.S., the realization of prior cost reduction efforts, a more favorable sales mix and improved pricing. MENA/Asia Pacific MENA/Asia Pacific revenues decreased $10 million, or less than 1%, during 2011 compared to 2010. Rig count for the region was essentially flat for the period. The decline in revenues is in part attributable to the political turmoil in the Middle East and North Africa and the deconsolidation of three joint ventures. Our artificial lift systems and integrated drilling product lines were the strongest contributors in the region and served to mitigate the decline. MENA/Asia Pacific revenues increased $78 million, or 3%, in 2010 as compared to 2009 with a 7% increase in rig count over the comparable period. Within the region our integrated drilling product line continued as the strongest performer from a service line perspective. Operating income decreased $239 million, or 91%, during 2011 as compared to 2010. Operating margins were 1% in 2011, compared to 11% in 2010. The results for the year ended December 31, 2011, were negatively impacted by the conflict in Libya and the political disturbances in other parts of the Middle East and North Africa. Following an assessment of our assets in Libya we recognized an expense of $67 million primarily to establish a reserve against accounts receivable, inventory and machinery and equipment. Operating income decreased $181 million, or 41%, during 2010 compared to the prior year. Operating margins decreased from 19% in 2009 to 11% in 2010. The decline in operating income and margins was primarily the result of higher mobilization costs and operating delays related to operations in certain countries as well as a full year's impact of lower pricing and a less favorable sales mix.

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