Weatherford International plc (WFRD) FY 2022 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

As used in this item, “Weatherford”, “the Company,” “we,” “us” and “our” refer to Weatherford International plc, a public limited company organized under the laws of Ireland, and its subsidiaries on a consolidated basis.

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 include certain risks and uncertainties. For information about these risks and uncertainties, refer to the section entitled “Forward-Looking Statements” and the section entitled “Item 1A. Risk Factors.”

Consolidated Statements of Operations - Operating Income Summary

2022 vs 2021

Revenues totaled $4.33 billion in 2022, an increase of $686 million, or 19% compared to 2021. The year-over-year improvement was due to increased activity across all reporting segments. This activity increase was the result of increased customer demand, market share improvements, pricing improvements and operational focus. Revenues in 2022 reflect a 15% increase in service revenues and a 26% increase in product revenues. The revenue increase was led by the Drilling and Evaluation (“DRE”) and Production and Intervention (“PRI”) segments, and geographically, by improvements in Latin America, the Middle East/North Africa/Asia and the North America regions. Service and product quality excellence allowed us to benefit from a robust market with customers focusing on delivering energy supply with minimal disruption, globally. Imbalance across geographies driven by geopolitical conflicts, investment variances and supply disruptions caused a greater focus on energy security, globally. Our operational initiatives, put in place over the past couple of years, enabled us to regain share in a few product lines and geographies, as well as improve pricing through differentiation.

Cost of products and services of $3.02 billion increased $304 million, or 11%, compared to 2021, to support the increased overall activity across our segments. Our cost of products and services as a percentage of revenues was 69.7% in 2022, an improvement compared to 74.5% in 2021, reflecting improved utilization on a more efficient operating cost structure, and pricing improvements to customers to offset impacts from supply chain disruptions and inflation. Additionally, higher gains on asset sales and lower inventory charges contributed to the lower cost structure as a percentage of revenues.

Selling, general, administrative and research and development costs of $868 million increased $45 million, or 5%, to keep up with increased activity and demand across our segments. These costs as a percentage of revenues were 20.0% in 2022, an improvement compared to 22.6% in 2021, reflecting our focus on cost control initiatives.

Operating income of $412 million improved 255% in 2022 compared to 2021, due to reasons noted above.

2021 vs 2020

Revenues totaled $3.65 billion in 2021, a decline of 1% compared to 2020. We experienced significant declines in activity after the start of the pandemic in March of 2020 and although revenues are slightly lower in 2021, our revenues in 2021 reflect the ongoing recovery in business activity. Revenues in 2021 reflect a 5% increase in service revenues, which was offset by a 10% decline in product revenues. The revenue increases were related to higher demand for DRE and PRI businesses, primarily for managed pressure drilling, wireline, intervention and pressure pumping services. These improvements were partially offset by lower demand for products from our Well Construction and Completions (“WCC”), primarily for cementation products and liner hangers, and a decline in demand for the artificial lift within our PRI business.

Cost of products and services of $2.72 billion decreased $91 million, or 3%, compared to 2020, primarily due to cost improvement initiatives that were implemented during 2020 and early 2021. Our costs declined despite higher service activity and increased cost for supplies and logistics. Our cost of products and services as a percentage of revenues was 74.5% in 2021, an improvement compared to 76.2% in 2020, reflecting our cost initiative improvements and operational efficiency gains.

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Selling, general, administrative and research and development costs in 2021 of $823 million decreased $111 million, or 12%, when compared to 2020 due to cost improvement initiatives to reduce overhead and corporate costs that were implemented during 2020 and early 2021. These costs as a percentage of revenues were 22.6% in 2021, an improvement compared to 25.3% in 2020, reflecting our cost initiative improvements.

Operating income of $116 million improved $1.6 billion in 2021 compared to 2020, due to reasons noted above.

Consolidated Statements of Operations - Non-Operating Summary

Interest Expense, Net

Interest expense, net primarily represented for each year, the interest on our outstanding long-term debt (see “Note 10 – Borrowings and Other Debt Obligations” to our Consolidated Financial Statements for additional details). Interest expense, net, of $179 million in 2022, decreased $81 million, or 31%, compared to 2021 primarily due to the early repayments of principal amounts on our 11.00% Senior Notes maturing on December 1, 2024. Interest expense, net, of $260 million in 2021, increased $9 million compared to $251 million in 2020 due to a combination of the various notes we carried and the interest on their outstanding principal.

Loss on Extinguishment of Debt and Bond Redemption Premium

The loss on extinguishment of debt was related to charges on unamortized debt issuance costs and bond redemption premiums, both upon the early redemption of debt. During 2022, we repaid $175 million in principal on our Exit Notes and incurred a $5 million bond redemption premium. During 2021, we repaid in full our 2024 Senior Secured Notes, repaid $200 million of Exit Notes, and refinanced $1.6 billion of Exit Notes. As such, we recognized a $170 million loss, comprised of a $39 million loss on extinguishment of debt and a $131 million bond redemption premium. See “Note 10 – Borrowings and Other Debt Obligations” for additional details.

Loss on Termination of ABL Credit Agreement

During 2020, we recorded a $15 million charge upon the termination of our senior secured asset-based lending agreement related to unamortized deferred debt issuance costs.

Other Expense, Net

Other expense, net is primarily comprised of letter of credit fees, other financing charges and foreign exchange losses, primarily attributed to currency losses in countries with no or limited markets to hedge. Other expense, net, of $90 million in 2022 increased $61 million compared to 2021 expense of $29 million primarily attributable to currency losses in the Argentinian Peso, Russian Ruble and various other currencies. When economically advantageous, we enter into foreign currency forward contracts to mitigate the risk of future cash flows denominated in a foreign currency. Additionally, we enter into certain short-term investments which partially offset our foreign exchange losses, and certain of those amounts are recorded in “Interest Expense, Net”.

Other expense, net, in 2021 decreased $24 million compared to the 2020 expense of $53 million due to lower currency volatility, as there had been significant volatility following the start of the COVID-19 pandemic in 2020.

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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. 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 changes in total pre-tax income or loss, the jurisdictions in which our income is earned, the tax laws in those jurisdictions, the impacts of tax planning activities and the resolution of tax audits. On September 26, 2019, our parent company ceased to be a Swiss tax resident and became an Irish tax resident subject to tax under the Irish tax regime. As a result, our effective rate differs from the Irish statutory tax rate as the majority of our operations are taxed in jurisdictions with different tax rates. In addition, we are unable to recognize tax benefit on our losses.

We record deferred tax assets for net operating losses and temporary differences between the book and tax basis of assets and liabilities that are expected to produce tax deductions in future periods. The realizability of the deferred tax assets is dependent upon judgments and assumptions inherent in the determination of future taxable income, including factors such as future operation conditions (particularly as related to prevailing oil prices and market demand for our products and services). The Company concluded it was not able to realize the benefit of its deferred tax assets and has established a valuation allowance. Continued performance improvement in certain jurisdictions could result in a change in our realization of deferred tax asset assessment in the near future, which would release valuation allowance.

The income tax provision and respective effective tax rate was $87 million and 63%, $86 million and (25)%, and $85 million and (5)%, for 2022, 2021 and 2020, respectively.

Our income tax provisions in 2022 and 2021 are primarily driven by income in certain jurisdictions, deemed profit countries and withholding taxes on intercompany and third-party transactions that do not directly correlate to ordinary income or loss. Impairments and other charges recognized do not result in significant tax benefit as a result of our inability to forecast realization of the tax benefit of such losses.

We are continuously under tax examination in various jurisdictions. We cannot predict the timing or outcome regarding resolution of these tax examinations or if they will have a material impact on our consolidated financial statements. As of December 31, 2022, we anticipate that it is reasonably possible that the amount of our uncertain tax positions of $191 million may decrease by up to $4 million in the next twelve months due to expiration of statutes of limitations, settlements and/or conclusions of tax examinations.

In response to the COVID-19 pandemic, many countries have enacted tax relief measures to provide aid and economic stimulus to companies impacted by the COVID-19 pandemic. For the years ended December 31, 2021 and 2020, there were no material tax impacts to our financial statements as it relates to COVID-19 tax relief measures.

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Outlook

Growth and spending in the energy services industry is highly dependent on many external factors. These include but are not limited to; the impact from geopolitical conflicts; global response to any ongoing pandemics; our customers’ capital expenditures; environmental, social and governance (“ESG”) initiatives; world economic, political and weather conditions; the price of oil and natural gas; and, member-country quota compliance within the Organization of Petroleum Exporting Countries and the expanded alliance. Imbalance across geographies driven by geopolitical conflicts, investment variances and supply disruptions is driving a greater focus on energy security, which in turn is creating a shift towards national oil companies. We expect continued improvements in our customer activity levels and generally positive macroeconomic conditions that may offset inflationary pressures and potential recessionary concerns, all of which are expected to continue to provide a pathway to a multi-year energy demand expansion. We continue to closely monitor the recessionary concerns in the global market, ongoing supply chain disruptions, escalating costs, logistical constraints and travel restrictions.

Our customers continue to face challenges in balancing the cost of extraction activities with securing desired rates of production while achieving acceptable rates of return on investment. These challenges increase our customers’ requirements for technologies that improve productivity and efficiency and pressures us to deliver our products and services at competitive rates. Over the long-term, we expect demand for oil and natural gas exploration and production industry as well as new energy platforms to continue to require more advanced technology from the energy service industry. Weatherford delivers innovative energy services that integrate proven technologies with advanced digitalization to create sustainable offerings for maximized value and return on investment. During the COVID-19 pandemic, there was substantial negative impact on the global economy and demand in our industry in 2021 and 2021, with impacts carrying into 2022, including inflationary pressures, logistical delays and service and supply shortages. We managed to face these challenges by evolving our offerings, increasing the breadth of our digital portfolio and enhancing our applications to offer more fully integrated digital energy services solutions. We also increased our offerings of automated well construction and remote monitoring and predictive analytics related to our product offerings. As such, we believe we are well positioned to satisfy our customers’ needs, but the level of improvement in our businesses in the future will continue to depend heavily on pricing, volume of work, our ability to offer cost efficient, innovative and effective technology solutions, and our success in gaining market share in new and existing markets.

Our company performance, industry conditions and related perception, could make it more difficult to obtain our targeted cost reduction benefits and to recruit, motivate and retain employees, including key personnel. The implementation of new or escalation of existing sanctions imposed against countries in which we operate, including any further escalation of sanctions and other events around the Russia Ukraine Conflict, including increased exposure to cyber-attacks, increasing investor and government focus on ESG factors, supply chain challenges and disruptions, and the cyclicality of the energy industry may negatively impact demand for our products and services. The Russia Ukraine Conflict, or other future geopolitical conflicts, could also have the effect of heightening many other risks disclosed in our public filings, any of which could materially and adversely affect our business, financial condition, and results of operations. Such risks include, but are not limited to, adverse effects on global macroeconomic conditions; increased volatility in the price and demand of oil and natural gas, increased exposure to cyberattacks; limitations in our ability to implement and execute our business strategy; risks to employees and contractors that we have in the region; disruptions in global supply chains; exposure to foreign currency fluctuations; potential nationalizations and assets seizures in Russia or elsewhere; constraints or disruption in the capital markets and our sources of liquidity; our potential inability to service our remaining performance obligations and potential contractual breaches and litigation.

We continue to follow our long-term strategy, aimed at achieving sustainable profitability and cash flow generation in our businesses, servicing our customers and creating value for our shareholders. Our long-term success will be determined by our ability to effectively manage the cyclicality of our industry, including growth during up-cycles and potential prolonged industry downturns, our ability to respond to industry changes and demands, while managing through risks we may be exposed to, and ultimately our ability to generate consistent positive cash flow and positive returns on invested capital.

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Oil and Natural Gas Prices

The table below shows the average oil and natural gas prices for West Texas Intermediate (“WTI”) and Brent North Sea (“Brent”) crude oil and Henry Hub (“HH”) natural gas.

Commodity prices increased during 2022 due to demand outpacing supply as demand recovery built toward pre-pandemic levels with increased vaccination rates and increased global economic activity. WTI and Brent average oil prices for 2022 were approximately 39% and 43% higher than 2021, respectively, and natural gas prices increased by 64% over the same period.

Rig Count

Rig count is an indicator of the level of spending for the exploration and production of oil and natural gas reserves. The table below shows historical average rig counts based on the weekly Baker Hughes Company rig count information.

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Segment Results of Operations

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Segment Revenues

2022 vs 2021

Revenues totaled $4.3 billion in 2022, an increase of 19% compared to 2021, and the primary drivers were discussed in the above consolidated section. The breakdown by segment revenues is as follows:

DRE revenues of $1.3 billion in 2022, increased 25% compared to 2021 due to higher demand and activity across all DRE product lines, and led primarily by managed pressure drilling and drilling services. Improvement in DRE was across all regions, and led primarily by the Latin America, North America and Middle East North Africa/Asia regions.

WCC revenues of $1.5 billion in 2022, increased 12% compared to 2021 due to higher demand and activity across all WCC product lines, and led primarily by cementation products. Improvement in WCC was across all regions and led primarily by the Middle East North Africa/Asia, Latin America and North America regions.

PRI revenues of $1.4 billion in 2022, increased 24% compared to 2021 due to higher demand and activity across all PRI product lines, and led primarily by artificial lift and pressure pumping. Improvement in PRI was across all regions.

2021 vs 2020

Revenues totaled $3.65 billion in 2021, a decline of 1% compared to 2020, and the primary drivers were discussed in the above consolidated section. The breakdown by segment revenues is as follows:

DRE revenues of $1.1 billion in 2021, increased 2% compared to 2020 primarily due to higher demand for managed pressure drilling and wireline products and services, partially offset by a decline in drilling services and drilling fluids. The decline in drilling services revenue reflects the exit of certain drilling services in North America in the fourth quarter of 2020.

WCC revenues of $1.4 billion in 2021 decreased 4% compared to 2020 primarily due to lower activity for cementation products, liner hangers and tubular running services. Internationally we experienced lower well construction and completions activity in the Middle East North Africa/Asia region, which was partially offset by higher activity in the North America and Latin America regions.

PRI revenues of $1.1 billion in 2021, increased 2% compared to 2020 primarily due to higher demand for pressure pumping, intervention services and drilling tools, and digital solutions, partially offset by a decline in demand for artificial lift services.

Segment Adjusted EBITDA

2022 vs 2021

Segment adjusted EBITDA was $884 million in 2022, an increase of 40% compared to 2021, reflecting improved utilization on a more efficient operating cost structure, pricing improvements to customers to offset impacts from supply chain disruptions and inflation, and a proactive focus on higher margin offerings. This is reflected in our segments as follows:

DRE segment adjusted EBITDA of $324 million in 2022, increased 74% compared to 2021 primarily due to higher demand across all DRE product lines and contract pricing improvements, led by the Latin America and the Middle East North Africa/Asia regions, increase in services versus product mix, and a higher adoption of our technology offerings.

WCC segment adjusted EBITDA of $299 million in 2022, increased 17% compared to 2021 primarily due to higher demand for cementation products. The year-over-year segment adjusted EBITDA improvement was driven by pricing and increased activity levels in the North America and Latin America regions.

PRI segment adjusted EBITDA of $261 million in 2022, increased 37% compared to 2021 primarily due to higher demand for artificial lift and pressure pumping services. The year-over-year segment adjusted EBITDA improvement was driven by increased activity levels across all regions.

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2021 vs 2020

Segment adjusted EBITDA was $633 million in 2021, an increase of 13% compared to 2020, which is reflected in our segments as follows:

DRE segment adjusted EBITDA of $186 million in 2021, increased 41% compared to 2020 primarily due to higher demand for managed pressure drilling and wireline and lower operating costs as a result of cost improvement initiatives that were implemented during 2020 and early 2021, partially offset by a decline in drilling fluids. Positively impacting DRE segment adjusted EBITDA was the exit of certain drilling services in North America in the fourth quarter of 2020. The year-over-year segment adjusted EBITDA improvement was driven by increased activity levels, increase in services versus product mix, higher adoption of our technology offerings and greater demand for services globally.

WCC segment adjusted EBITDA of $256 million in 2021, decreased 6% compared to 2020 primarily due to lower activity for cementation products, liner hangers and tubular running services, which was partially offset by improvements in completions margins and cost efficiencies as a result of initiatives implemented during 2020 and early 2021. Internationally we experienced lower well construction and completions activity in the Middle East North Africa/Asia and Europe/Sub-Sahara Africa/Russia regions, which was partially offset by higher margin activity in North America and Latin America.

PRI segment adjusted EBITDA of $191 million in 2021, increased 24% compared to 2020 primarily due to higher demand for intervention services & drilling tools, pressure pumping and software services, and lower operating costs as a result of cost improvement initiatives that were implemented during 2020 and early 2021, partially offset by a decline in artificial lift services. The year-over-year segment adjusted EBITDA improvement was driven by increased activity levels, increase in services versus product mix, and a higher adoption of our technology offerings.

Corporate and Other

Corporate and other primarily includes corporate and other expenses (overhead support and centrally managed or shared facilities costs) and all other businesses that do not individually meet the criteria for segment reporting. Corporate and other expense of $67 million in 2022 increased slightly over the 2021 expense of $62 million, primarily due to lower profit on other businesses that did not individually meet the criteria for segment reporting (due to timing of certain projects). Corporate and other expense in 2021 improved $38 million compared to the 2020 expense of $100 million primarily due to losses incurred in other businesses that did not individually meet the criteria for segment reporting in 2020, as they were negatively impacted by COVID-19.

Depreciation and Amortization

Depreciation and amortization expense of $349 million decreased $91 million in 2022 compared to 2021 primarily from a lower asset base. Depreciation and amortization expense of $440 million decreased $63 million in 2021 compared to 2020 primarily due to the decrease in carrying value of assets after impairments taken in 2020. See “Note 2 – Segment Information”, “Note 7 – Property, Plant and Equipment, Net”, and “Note 8 – Intangible Assets, Net” for additional information.

Shared-based Compensation

We record shared-based compensation expense in “Selling, General and Administrative” on the accompanying Consolidated Statements of Operations. We recognized $25 million in each of 2022 and 2021, and an immaterial amount during 2020. The changes between years were from a combination of additional awards granted and changes in our share price. See “Note 15 – Share-Based Compensation” for additional information.

Other Adjustments

Other adjustments include goodwill and long-lived asset impairments, restructuring charges, and other charges (credits), as applicable to the periods presented. See “Note 4 – Goodwill and Long-Lived Assets Impairment”, “Note 5 – Restructuring Charges” and “Note 6 – Inventories, Net” for additional information.

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Liquidity and Capital Resources

At December 31, 2022, we had cash and cash equivalents of $910 million and $202 million in restricted cash, compared to $951 million of cash and cash equivalents and $162 million of restricted cash at December 31, 2021. The following table summarizes cash provided by (used in) each type of business activity in the periods presented:

Operating Activities

Cash provided by operating activities in 2022 was $349 million, and in 2021 was $322 million. The primary sources of cash from operating activities were from higher operating income as well as effective working capital management, partially offset by interest payments.

Cash provided by operating activities was $210 million during 2020. The primary sources of cash from operating activities were collections on our accounts receivables, partially offset by interest payments.

Investing Activities

Cash used in investing activities in 2022 was $54 million. The primary uses of cash from investing activities were capital expenditures of $132 million, partially offset by proceeds from the sale of assets of $82 million.

Cash used in investing activities in 2021 was $83 million. The primary uses of cash from investing activities were for capital expenditures of $85 million and investments in marketable securities in Argentina of $39 million. The primary source of cash from investing activities was $41 million of proceeds from asset dispositions. The amount we spend for capital expenditures varies each year and is based on the types of contracts we enter, our asset availability and our expectations with respect to activity levels.

Cash used in investing activities in 2020 was $75 million. The primary uses of cash from investing activities were for capital expenditures of $154 million. The primary sources of cash from investing activities were $22 million from asset dispositions and $50 million from the maturity of our Angolan government bonds.

Financing Activities

Cash used in financing activities in 2022 was $248 million. The primary uses of cash from financing activities were for repayments of long-term debt of $198 million, which included finance leases, a repurchase of $8 million of our 2028 Senior Secured Notes and a $175 million early redemption of our Exit Notes. Additionally, we paid dividends to noncontrolling interests of $30 million. The remaining financing cash uses were primarily for financing fees paid on the Credit Agreement.

Cash used in financing activities in 2021 was $403 million. The primary uses of cash from financing activities were repayments of long-term debt of $2.3 billion associated with the partial redemption of our Exit Notes and full redemption of our 2024 Senior Secured Notes as well as finance lease obligations. Other primary uses of cash from financing activities were $131 million in bond redemption premium payments as a result of the early redemptions and $28 million, primarily for $21 million in dividends to noncontrolling interests that were settled in cash (as certain dividends in the year were settled in other noncash methods). The primary sources of cash from financing activities were net proceeds of $2.1 billion from the issuance of our 2030 Senior Notes and 2028 Senior Secured Notes.

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Cash provided by financing activities in 2020 was $348 million, primarily sourced from borrowings of long-term debt of $453 million related to the net proceeds from the issuance of our 2024 Senior Secured Notes. The primary uses of cash from financing activities were $24 million of deferred consideration for the 2018 acquisition of our Qatari joint venture $27 million repayments of short-term debt, and $28 million for dividends to noncontrolling interests. The remaining uses were primarily for financing fees paid on the Credit Agreement at the time.

See “10 – Borrowings and Other Debt Obligations” for additional information.

Sources of Liquidity

Our sources of available liquidity include cash generated by our operations, cash and cash equivalent balances, and periodic accounts receivable factoring. From time to time, we may enter into transactions to dispose of businesses or capital assets that no longer fit our long-term strategy. We historically have accessed banks for short-term loans and the capital markets for debt and equity offerings. Based upon current and anticipated levels of operations and our recent refinancing transactions, we expect to have sufficient cash from operations and cash on hand to fund our cash requirements (discussed below) and financial obligations, both in the short-term and long-term.

Cash Requirements

Our cash requirements will continue to include payments for principal and interest on our long-term debt, capital expenditures, payments on our finance and operating leases, payments for short-term working capital needs, operating costs and restructuring payments. As business activity continues to rise, we expect to continue to utilize cash on capital assets and working capital growth. Our cash requirements also include personnel costs including awards under our employee incentive programs and other amounts to settle litigation related matters.

As of December 31, 2022, we had outstanding debt of $125 million in aggregate principal amount for our Exit Notes maturing on December 1, 2024, $482 million in aggregate principal amount for our 2028 Senior Secured Notes and $1.6 billion in aggregate principal amount for our 2030 Senior Notes. For these notes, we expect $182 million in interest payments annually in 2023 and 2024 and approximately $169 million in interest payments, annually beginning in 2025, until the maturity of these obligations. Subsequent to year-end 2022 we paid down an additional $20 million in aggregate principal amount of our Exit Notes and $11 million on our 2028 Senior Secured Notes. See “Note 10 – Borrowings and Other Debt Obligations” for additional information.

Our capital spending for 2023 is projected to be between $200 million to $230 million. Our payments on our operating and finance leases in 2023 are expected to be approximately $73 million and $247 million in the years thereafter. See “Note 9 – Leases” for additional information.

Cash and cash equivalents and restricted cash are held by subsidiaries outside of Ireland. At December 31, 2022 we had approximately $177 million of our cash and cash equivalents that cannot be immediately repatriated from various countries due to country central bank controls or other regulations. Based on the nature of our structure, other than the restrictions noted above, we foresee we will be able to redeploy cash with minimal to no incremental tax.

Ratings Services’ Credit Ratings

Our credit ratings at December 31, 2022 were maintained or improved since December 31, 2021:

•Standard and Poor’s (“S&P”) upgraded our corporate family and senior unsecured notes ratings from B- to B, and upgraded our senior secured notes and Credit Agreement ratings from B+ to BB-. The outlook was maintained at stable.

•Moody’s Investors Service (“Moody’s”) maintained our corporate family rating at B2, our senior unsecured notes rating at B3, and our senior secured notes and Credit Agreement ratings at Ba3. The outlook was upgraded from negative to stable.

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Customer Receivables

We may experience delayed customer payments and payment defaults due to, among other reasons, a weaker economic environment, reductions in our customers’ cash flow from operations, our customers’ inability to access credit markets, as well as unsettled political conditions. Allowances have been recorded for receivables believed to be uncollectible, including amounts for the resolution of potential credit and other collection issues such as disputed invoices. Adjustments to the allowance are made depending on how potential issues are resolved and the financial condition of our customers. See “Note 1 – Summary of Significant Accounting Policies” for additional information. In addition, our customers are primarily in fossil fuel-related industries and broad declines might impact the collections of our customer receivables.

Accounts Receivable Factoring and Monetization

From time to time, we participate in factoring arrangements to sell accounts receivable to third-party financial institutions for cash proceeds net of discount and hold-back. During 2022, we sold accounts receivable balances of $96 million and received cash proceeds of $93 million. During 2021, we sold accounts receivable balances of $100 million and received cash proceeds of $85 million. During 2020, we sold accounts receivable of $90 million and received cash proceeds of $79 million.

Additionally, during 2022, we entered into a short-term monetization transaction on accounts receivable balances of $77 million and received cash proceeds of $75 million.

The above factoring and monetization proceeds are included as operating cash flows in our Condensed Consolidated Statements of Cash Flows. These transactions are uncommitted and thus we cannot assure they will be available as a future source of liquidity.

Derivative Instruments

We enter into foreign currency forward contracts to mitigate the risk of future cash flows denominated in a foreign currency. The amounts will fluctuate, depending on exchange rate volatility, the volume of our foreign currency transactions, and our decisions to hedge. At December 31, 2022 and December 31, 2021, we had outstanding foreign currency forward contracts with notional amounts aggregating to $147 million and $349 million, respectively. The total estimated fair value of these contracts and amounts owed associated with closed contracts resulted in an immaterial net asset and net liability as of December 31, 2022 and December 31, 2021, respectively. See “Note 1 – Summary of Significant Accounting Policies” and “Note 12 – Derivative Instruments” for additional information.

Guarantees

Our Exit Notes and 2028 Senior Secured Notes were issued by Weatherford International Ltd., a Bermuda exempted company (“Weatherford Bermuda”), and guaranteed by the Company and Weatherford International, LLC, a Delaware limited liability company (“Weatherford Delaware”) and other subsidiary guarantors party thereto.

Our 2030 Senior Notes were originally issued by Weatherford Bermuda and guaranteed by the Company and Weatherford Delaware and other subsidiary guarantors party thereto. On December 1, 2022, the indenture related to our 2030 Senior Notes was amended and supplemented to add Weatherford Delaware as co-issuer and co-obligor, and concurrently releases the guarantee of Weatherford Delaware.

Credit Agreement, Letters of Credit and Surety Bonds

We had a senior secured letter of credit agreement dated as of December 13, 2019 (the “LC Agreement”) in an aggregate amount of $215 million maturing on May 29, 2024, which was used by the Company and certain of its subsidiaries for the issuance of bid and performance letters of credit.

On October 17, 2022, we amended our LC Agreement (as amended and restated, the “Credit Agreement”) to assign the administrative agent role to Wells Fargo Bank National Association and to provide for a $370 million revolving credit agreement, comprised of $280 million for bid and performance letters of credit, and $90 million for revolving loans and bid, performance and financial letters of credit. The current revolving loan capacity is $45 million.

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The maturity date under the Credit Agreement is October 17, 2026; provided, that if more than $50 million of our Exit Notes are outstanding on such date, the maturity date will be August 30, 2024. The Credit Agreement also has (i) a minimum liquidity covenant of $250 million, (ii) a minimum interest coverage ratio of 2.00 to 1.00 for the testing period ended September 30, 2022 and 2.50 to 1.00 for each testing period thereafter and (iii) a maximum ratio of funded debt (net of unrestricted cash in excess of $400 million) to consolidated adjusted EBITDA of 4.00 to 1.00 for each testing period ending prior to June 30, 2023 and 3.50 to 1.00 for each testing period thereafter. The obligations under the Credit Agreement, as with our prior LC Agreement, are guaranteed by the Company and certain of our subsidiaries and secured by substantially all of the personal property of the Company and these subsidiaries.

On November 22, 2022, we amended our Credit Agreement to include (i) Weatherford Canada Ltd. as a borrower, and (ii) increased the total commitment to $400 million. On January 6, 2023, we further amended the Credit Agreement to clarify certain definitions related to fees associated with certain letters of credit. The material terms of the Credit Agreement are otherwise unchanged.

At December 31, 2022, we had approximately $195 million in outstanding letters of credit under the Credit Agreement and availability of $160 million.

As of December 31, 2022, we had $395 million of letters of credit outstanding, consisting of the $195 million mentioned above under the Credit Agreement and another $200 million under various uncommitted bi-lateral facilities (of which there was $199 million in cash collateral held and recorded in “Restricted Cash” on the Consolidated Balance Sheets).

In Latin America we utilize surety bonds as part of our customary business practice. As of December 31, 2022, we had $415 million of surety bonds outstanding. Any of our outstanding letters of credit or surety bonds could be called by the beneficiaries should we breach certain contractual or performance obligations and could reduce our available liquidity if we are unable mitigate the issue.

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 consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). 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 consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. We base our estimates on historical experience and 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:

Long-Lived Assets

Long-lived assets, which include property, plant and equipment (“PP&E”), definite-lived intangibles and operating lease assets, comprise a significant amount of our assets. The carrying value of our long-lived assets at December 31, 2022 and 2021 was approximately $1.5 billion and $1.8 billion, respectively. The cost 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:

In estimating the useful lives of our PP&E, 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.

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Long-lived assets to be held and used by us are reviewed to determine whether any events or changes in circumstances, known as triggering events, indicate that we may not be able to recover the carrying amount of the asset or asset group. Triggering events include, but are not limited to, reduced or expected sustained decreases in cash flows generated by an asset or asset group, negative changes in industry conditions (such as global rig count, commodity prices, and the global economy), a significant change in the long-lived assets’ use or physical condition, the introduction of competing technologies, and legal and regulatory challenges. The Company groups individual assets at the lowest level of identifiable cash flows and, if impairment triggers are present, performs an undiscounted cash flow analysis to identify assets or asset groups that may not be recoverable. If the undiscounted cash flows do not exceed the carrying value of the long-lived asset group, the asset group is not recoverable and impairment is recognized to the extent the carrying amount exceeds the estimated fair value of the asset group. A fair value assessment is performed on assets or asset groups identified as not being recoverable using a discounted cash flow analysis or Level 3 fair value analysis, to determine if an impairment has occurred. The discounted cash flow analysis consists of estimating the future cash flows that are directly associated with, and are expected to arise from, the use and eventual disposition of the asset over its remaining useful life. These estimated discounted cash flows are inherently subjective and includes significant assumptions, specifically the forecasted revenue, forecasted operating margins, and the discount rate assumptions and require estimates based upon historical experience and future expectations. The fair value of the asset or asset group is measured using market prices, or in the absence of market prices, is based on an estimate of discounted cash flows. Cash flows are discounted at an interest rate commensurate with our weighted average cost of capital for a similar asset.

If an impairment has occurred, the Company recognizes a loss for the difference between the carrying amount and the fair value of the asset or asset group.

We generally group long-lived assets by product line. We have long-lived assets, such as facilities, utilized by multiple operating divisions that do not have identifiable cash flows and impairment testing for these long-lived assets is based on the consolidated entity. We did not recognize long-lived assets impairments during 2022 and 2021.

During 2020, the unprecedented global economic and industry conditions resulting from the decline in demand and impact from the COVID-19 pandemic were identified as impairment indicators. As a result, we performed quarterly impairment assessments of our asset groups, which include PP&E, definite-lived intangible assets, goodwill and operating lease assets. Based on our impairment tests, we determined the carrying amount of certain long-lived asset groups exceeded their respective fair values and we recognized of long-lived asset impairments as further described in “Note 4 – Goodwill and Long-Lived Assets Impairment”.

Management cannot predict the occurrence of future impairment-triggering events, so we continue to assess whether indicators of impairment to long-lived assets exist due to the current business conditions in the energy services industry.

Income Taxes

We take 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. See “Note 18 – Income Taxes” for detailed discussion of results.

We recognize the impact of an uncertain tax position taken or expected to be taken on an income tax return in the financial statements at the largest amount that is more likely than not to be sustained upon examination by the relevant taxing authority.

We operate in approximately 75 countries through hundreds of legal entities. As a result, we are subject to numerous tax laws in the jurisdictions, and tax agreements and treaties among the various taxing authorities. Our operations in these jurisdictions in which we operate are taxed on various bases: income before taxes, deemed profits (which is generally determined using a percentage of revenues rather than profits), withholding taxes based on revenue, and other alternative minimum taxes. 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 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.

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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. 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. 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 the available positive and negative evidence, including our past operating results, the existence of cumulative losses in the most recent years and our forecast of near-term future taxable income and various tax planning strategies.

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. The Company concluded it was not able to realize the benefits of all of its deferred tax assets and has established a valuation allowance. Our valuation allowance on our deferred tax assets was $1.3 billion and $1.5 billion as of December 31, 2022 and December 31, 2021, respectively.

Forward-Looking Statements

This report contains various statements relating to future financial performance and results, business strategy, plans, goals and objectives, including certain projections, business trends and other statements that are not historical facts. These statements constitute forward-looking statements. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “budget,” “strategy,” “plan,” “guidance,” “outlook,” “may,” “should,” “could,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions, although not all forward-looking statements contain these identifying words.

Forward-looking statements reflect our beliefs and expectations based on current estimates and projections. While we believe these expectations, and the estimates and projections on which they are based, are reasonable and were made in good faith, these statements are subject to numerous risks and uncertainties. Accordingly, our actual outcomes and results may differ materially from what we have expressed or forecasted in the forward-looking statements. The forward-looking statements included herein are only made as of the date of this report, or if earlier, as of the date they were made, and we undertake no obligation to correct, update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise, except to the extent required under federal securities laws. The following, together with disclosures under “Part I – Item 1A. Risk Factors”, sets forth certain risks and uncertainties relating to our forward-looking statements that may cause actual results to be materially different from our present expectations or projections:

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•global political, economic and market conditions, political disturbances, war, terrorist attacks, changes in global trade policies, weak local economic conditions and international currency fluctuations (including the Russia Ukraine Conflict);

•general global economic repercussions related to U.S. and global inflationary pressures and potential recessionary concerns;

•failure to ensure on-going compliance with current and future laws and government regulations, including but not limited to those related to the Russia Ukraine Conflict, and environmental and tax and accounting laws, rules and regulations.

•changes in, and the administration of, treaties, laws, and regulations, including in response to issues related to the Russia Ukraine Conflict and the potential for such issues to exacerbate other risks we face, including those related to the other risks and uncertainties listed or referenced;

•cybersecurity incidents, as our reliance on digital technologies increases, those digital technologies may become more vulnerable and/or experience a higher rate of cybersecurity attacks, intrusions or incidents in the current environment of remote connectivity, as well as increased geopolitical conflicts and tensions, including as a result of the Russia Ukraine Conflict;

•our ability to comply with, and respond to, climate change, environmental, social and governance and other “sustainability” initiatives and future legislative and regulatory measures both globally and in the specific geographic regions in which we and our customers operate;

•our ability to effectively and timely address the need to conduct our operations and provision of services to our customers more sustainably and with a lower carbon footprint;

•risks associated with disease outbreaks and other public health issues, including the COVID-19 pandemic, their impact on the global economy and the business of our company, customers, suppliers and other partners;

•further spread and potential for a resurgence of a pandemic in a given geographic region and related disruptions to our business, employees, customers, suppliers and other partners and additional regulatory measures or voluntary actions that may be put in place to limit the spread of the COVID-19 pandemic, including vaccination requirements and the associated availability of vaccines, restrictions on business operations or social distancing requirements, and the duration and efficacy of such restrictions;

•the price and price volatility of, and demand for, oil, natural gas and natural gas liquids;

•member-country quota compliance within the Organization of Petroleum Exporting Countries;

•our ability to realize expected revenues and profitability levels from current and future contracts;

•our ability to generate cash flow from operations to fund our operations;

•our ability to effectively and timely adapt our technology portfolio, products and services to address and participate in changes to the market demands for the transition to alternate sources of energy such as geothermal, carbon capture and responsible abandonment, including our digitalization efforts;

•increases in the prices and lack of availability of our procured products and services;

•our ability to timely collect from customers;

•our ability to realize cost savings and business enhancements from our revenue and cost improvement efforts;

•our ability to attract, motivate and retain employees, including key personnel;

•our ability to access to capital markets on terms that are commercially acceptable to the Company;

•our ability to manage our workforce, supply chain challenges and disruptions, business processes, information technology systems and technological innovation and commercialization, including the impact of our organization restructure, business enhancements, improvement efforts and the cost and support reduction plans;

•our ability to service our debt obligations;

•potential non-cash asset impairment charges for long-lived assets, intangible assets or other assets; and

•adverse weather conditions in certain regions of our operations

Many of these factors are macro-economic in nature and are, therefore, beyond our control. Should one or more of these risks or uncertainties materialize, affect us in ways or to an extent that we currently do not expect or consider to be significant, or should underlying assumptions prove incorrect, our actual results, performance or achievements may vary materially from those described in this report as anticipated, believed, estimated, expected, intended, planned or projected.

Finally, our future results will depend upon various other risks and uncertainties, including, but not limited to, those detailed in our current and past filings with the SEC under the Exchange Act and the Securities Act of 1933, as amended.

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