What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-02 compared with 2021-07-29 · 144 added, 110 removed, 160 unchanged (61% of the section changed)

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Financial Results and Overview

Revenues totaled $903 million and $1.7 billion in the second quarter and first six months of 2021, respectively, an improvement of $82 million, or 10%, and a decline of $301 million, or 15%, compared to the second quarter and first six months of 2020, respectively.

The second quarter of 2021 year-over-year improvement reflects a 15% increase in service revenues driven by higher demand in certain C&P and DEI sub-product lines, primarily in the United States and Mexico, which also spurred the 37% growth in the Western Hemisphere, partially offset by a 6% decline in the Eastern Hemisphere.

The decline in the first six months of 2021 was primarily due to the negative impacts of the COVID-19 pandemic, which began in the second quarter of 2020, following results from a pre-pandemic first quarter of 2020.

The pandemic had an immediate negative impact in the Western Hemisphere while taking longer to impact the Eastern Hemisphere, however, faster vaccine rollouts have resulted in a swifter recovery in parts of the Western Hemisphere.

Total operating income improved $522 million and $1.3 billion in the second quarter of 2021 and first six months of 2021 compared to the second quarter and first six months of 2020, respectively, primarily from lower impairment and restructuring charges.

Selling, general and administrative, corporate, and research and development expense declined in the second quarter and first six months of 2021, reflecting the benefits of the cost improvement initiatives that were implemented during 2020 and earlier in 2021.

Segment operating income was $34 million and $39 million in the second quarter and first six months of 2021, respectively, an increase of $42 million and was flat, respectively, compared to the second quarter and first six months of 2020.

The second quarter of 2021 year-over-year improvement was driven by the increased activity levels and demand for services across both our C&P and DEI product lines, including integrated service project (“ISP”) sales in Mexico.

Revenues totaled $945 million and $2.7 billion in the third quarter and first nine months of 2021, respectively, an improvement of $138 million, or 17%, and a decline of $163 million, or 6%, compared to the third quarter and first nine months of 2020, respectively.

The third quarter of 2021 year-over-year improvement reflects a 28% increase in service revenues driven by higher demand in certain C&P and DEI sub-product lines, primarily in North America and South America, which spurred the 40% growth in the Western Hemisphere and a 3% increase in the Eastern Hemisphere.

Western Hemisphere growth was primarily driven by higher business activity levels for C&P services and products primarily in Canada, Argentina and the United States.

The 6% revenue decline in the first nine months of 2021 compared to 2020 was primarily due to the lower business activity experienced during the first quarter of 2021 compared to the pre-COVID-19 first quarter of 2020.

The pandemic had an immediate negative impact beginning in the second quarter of 2020 in the Western Hemisphere while taking longer to significantly impact the Eastern Hemisphere.

Total operating income improved $131 million and $1.5 billion in the third quarter of 2021 and first nine months of 2021 compared to the third quarter and first nine months of 2020, respectively, primarily from the absence of impairment and restructuring charges in 2021.

In addition, selling, general and administrative, corporate, and research and development expense declined in the first nine months of 2021, reflecting the benefits of the cost improvement initiatives that were implemented during 2020 and earlier in 2021.

Segment operating income was $79 million and $118 million in the third quarter and first nine months of 2021, respectively, an increase of $76 million for both the third quarter and first nine months of 2021, compared to the third quarter

and first nine months of 2020.

The third quarter of 2021 year-over-year improvement was driven by the increased activity levels and demand for both C&P and DEI services primarily in North America, South America and Middle East & North Africa and Asia (“MENA/Asia”).

The first nine months of 2021 year-over-year improvement was driven by the increased activity levels and demand for C&P and DEI services primarily in the Western Hemisphere with improvements in North and South America.

Impairments and Other Charges (Credits), Net

Please see summary of details at “Note 2 – Impairments and Other Charges (Credits), Net” to our Condensed Consolidated Financial Statements.

Exchange Listing

On June 1, 2021, The Nasdaq Stock Market LLC stock exchange (“NASDAQ”) approved our application for the listing of our ordinary shares.

In connection with the listing, we became subject to the reporting requirements of the Exchange Act.

Our ordinary shares began trading on The Nasdaq Global Select Market on June 2, 2021 under the ticker symbol “WFRD”.

Industry Trends

The level of spending in the energy industry is heavily influenced by the current and expected future prices of oil and natural gas.

Changes in expenditures result in an increase or decrease in demand for our products and services.

Rig count is an indicator of the level of spending for the exploration for and production of oil and natural gas reserves.

The level of spending in the energy industry is heavily influenced by the current and expected future prices of oil and natural gas, but is also impacted by environmental, social and governance (“ESG”) initiatives, ongoing supply chain shortages, and customer capital spending plans.

These factors result in an increase or decrease in demand for our products and services.

Rig count is an indicator of the level of spending for the exploration and production of oil and natural gas reserves.

The following charts set forth certain statistics that reflect historical market conditions.

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The average rig counts based on the weekly Baker Hughes Company rig count information were as follows:

Three Months Ended Six Months Ended

Three Months Ended Nine Months Ended

9/30/2021 9/30/2020 9/30/2021 9/30/2020

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Business Outlook

There are improving indications that the global economic and demand recovery from the COVID-19 pandemic is continuing to build towards pre-pandemic levels as both COVID-19 vaccination rates and global economic activity increase.

However, with the recent resurgence of infection rates particularly among the unvaccinated and a number of international governments pushing for a return to social distancing practices we continue to be cautious about a broad-based recovery in the oil and gas industry.

There are indications that the global economic and demand recovery from the COVID-19 pandemic is continuing to build towards pre-pandemic levels as both COVID-19 vaccination rates and global economic activity increase.

Oil prices have risen during the year, buoyed by supply policies led by the Organization of Petroleum Exporting Countries and the expanded alliance (“OPEC+”) and other high oil exporting non-OPEC+ nations.

Average oil prices for the second quarter of 2021 are more than double the average oil prices for the second quarter of 2020 and natural gas prices have increased 72%.

WTI oil spot prices have recovered to pre-pandemic levels, averaging approximately $66 per barrel during the second quarter of 2021.

Average oil prices for the third quarter of 2021 are approximately 70% higher than the average oil prices for the third quarter of 2020 and natural gas prices have increased 118% over the same period.

WTI oil spot prices have recovered to pre-pandemic levels, averaging approximately $71 per barrel during the third quarter of 2021.

However, the North America and International average rig count continues to be well below pre-pandemic levels.

We expect continued improvements in our customer activity levels with the ongoing COVID-19 vaccine rollout globally and multinational economic stimulus actions which are expected to provide a measured pathway to oil and natural gas demand recovery throughout 2021.

We believe that industry activity will likely continue to recover in the second half of 2021 and our consolidated revenues are expected to increase by mid- to high-single digits over the first half of 2021, which with our continued focus on managing our costs should lead to further margin expansion in the second half of 2021.

We expect both our Western and Eastern Hemisphere segments to grow revenues in the second half of 2021.

We believe that industry activity will likely continue to recover and our fourth quarter 2021 consolidated revenues are expected to increase by low -single digits above the third quarter of 2021.

We continue to closely monitor the ongoing global impacts surrounding the COVID-19 pandemic, including operational and manufacturing disruptions, logistical constraints and travel restrictions.

The oilfield services industry growth is highly dependent on many external factors, such as the global response to the COVID-19 pandemic, our customers’ capital expenditures, world economic and political conditions, the price of oil and natural gas, member-country quota compliance within the OPEC+, weather conditions and other factors.

The oilfield services industry growth is highly dependent on many external factors, such as the global response to the COVID-19 pandemic, our customers’ capital expenditures, ESG driven business changes, world economic and political conditions, the price of oil and natural gas, member-country quota compliance within the OPEC+, weather conditions and other factors.

COVID-19 Pandemic Impacts

We have experienced and expect to continue to experience delays and a lack of availability of key components as our supplier base returns to work, manages component shortages and generally higher demand for supplies.

Shipping and other logistics activities are experiencing tight availability for carriers, containers and shipping materials.

This has exacerbated specific shortages and delays with supplied materials.

We have experienced and expect to continue to experience inflationary pressures when sourcing raw material and services, delays and supply shortages as our supplier base continues to return to work and reopening challenges.

Shipping and other logistics activities are experiencing tight availability for carriers, containers and shipping materials, exacerbating the delays and lack of availability of key components.

In addition, we continue to experience certain customer restrictions that prevent access to their sites, community measures to contain the spread of the COVID-19 virus, and changes to our policies that have both restricted and changed the way our employees work.

We continuously improve crew rotations and management practices to minimize our employees’ exposure to the COVID-19 virus while at client facilities.

We constantly refine and update our identification and management of COVID-19 cases consistent with the latest guidance, from the Centers of Disease Control and Prevention and the World Health Organization through the development of updated protocols, advanced testing and response procedures.

We continuously improve crew rotations and management practices to minimize our employees’ risk of exposure to the COVID-19 virus while at client facilities.

We constantly refine and update our identification and management of COVID-19 cases through the development of updated protocols, advanced testing and response procedures consistent with the latest guidance, from the Centers of Disease Control and Prevention and the World Health Organization.

Faced with these challenges, we evolved our digital portfolio and enhanced our applications to offer fully integrated digital oilfield solutions.

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As production decline rates persist and reservoir productivity complexities increase, 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, which in turn puts pressure on us to deliver our products and services at competitive rates.

These challenges increase our customers’ requirements for technologies that improve productivity and efficiency and puts pressure on us to deliver our products and services at competitive rates.

In addition, as consolidation of the oil and gas services industry continues due to market conditions, there has been an increased demand for companies with specialized products, services and technologies.

We believe we are well positioned to satisfy our customers’ needs, but the level of improvement in our businesses in the future will depend heavily on pricing, volume of work, our ability to offer solutions to more efficiently extract oil and gas while controlling costs, and our success in penetrating new and existing markets with our newly developed technologies.

Over the long-term, we expect the world’s demand for energy will rise from current levels requiring increased oil field services and more advanced technology from the oilfield service industry.

Over the long-term, we expect the world’s demand for energy to continue rising, requiring increased oil field services and more advanced technology from the oilfield service industry.

We remain focused on delivering innovative and cost-efficient solutions for customers to assist them in achieving their operational, safety and environmental objectives.

Our challenges also include adverse market conditions that could make it more difficult to obtain our targeted cost reduction benefits and to recruit, motivate and retain employees, including key personnel.

Our challenges also include market conditions that could make it more difficult to obtain our targeted cost reduction benefits and to recruit, motivate and retain employees, including key personnel.

Increasing investor and government focus on environmental and social governance factors, the cyclicality of the energy industry and the ongoing COVID-19 pandemic may negatively impact demand for our products and services.

We are following our long-term strategy aimed at achieving sustainable profitability in our businesses, servicing our customers and creating value for our shareholders.

Our long-term success will be determined by our ability to manage effectively the cyclicality of our industry, including potential prolonged industry downturns, our ability to respond to industry demands and periods of over-supply or uncertain oil prices, and ultimately to generate consistent positive cash flow and positive returns on the invested capital.

Our long-term success will be determined by our ability to manage effectively the cyclicality of our industry, including potential prolonged industry downturns, our ability to respond to industry demands in periods of over-supply or uncertain oil prices, and ultimately to generate consistent positive cash flow and positive returns on the invested capital.

Results of Operations

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Three Months Ended (Unfavorable)

(Dollars and shares in millions, except per share data) 06/30/21 06/30/20 % Change

(Dollars and shares in millions, except per share data) 09/30/21 09/30/20 $ Change % Change

Western Hemisphere $ 441 $ 316 $ 125 40 %

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Eastern Hemisphere 34 5 29 580 %

Total Segment Operating Income (Loss) 34 (8) 525 %

Total Segment Operating Income 79 3 76 2,533 %

Corporate (16) (28) 12 43 %

Total Operating Income (Loss) Before Impairments and Other (Charges) Credits and Restructuring Charges 17 (34) 150 %

Impairments and Other (Charges) Credits, Net 8 (406) 102 %

Total Operating Income (Loss) Before Other Operating Expenses 63 (25) 88 352 %

Restructuring Charges — (31) 31 100 %

Other (Charges) Credits, Net 8 (4) 12 300 %

Total Operating Income (Loss) 71 (60) 131 218 %

Interest Expense, Net (69) (64) (5) (8) %

Loss on Extinguishment of Debt and Bond Redemption Premium (59) — (59) — %

Loss on Termination of ABL Credit Agreement — (15) 15 100 %

Other Expense, Net (4) (20) 16 80 %

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Net Loss per Diluted Share $ (1.36) $ (2.48) $ 1.12 45 %

Weighted Average Diluted Shares Outstanding 70 70 N/A

Weighted Average Diluted Shares Outstanding 70 70 N/A N/A

Depreciation and Amortization $ 112 $ 117 $ 5 4 %

Six Months Ended (Unfavorable)

(Dollars and shares in millions, except per share data) 6/30/2021 6/30/2020 % Change

Nine Months Ended (Unfavorable)

(Dollars and shares in millions, except per share data) 9/30/2021 9/30/2020 $ Change % Change

Western Hemisphere $ 1,256 $ 1,214 $ 42 3 %

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Corporate (51) (80) 29 36 %

Total Operating Income (Loss) Before Impairments and Other (Charges) Credits and Restructuring Charges 4 (13) 131 %

Impairments and Other (Charges) Credits, Net 8 (1,223) 101 %

Total Operating Income (Loss) Before Other Operating Expenses 67 (38) 105 276 %

Goodwill and Long-Lived Asset Impairments — (1,057) 1,057 100 %

Restructuring Charges — (114) 114 100 %

Other (Charges) Credits, Net 16 (170) 186 109 %

Total Operating Income (Loss) 83 (1,379) 1,462 106 %

Interest Expense, Net (211) (181) (30) (17) %

Reorganization Items — (9) 100 %

Loss on Extinguishment of Debt and Bond Redemption Premium (59) — (59) — %

Loss on Termination of ABL Credit Agreement — (15) 15 100 %

Other Expense, Net (19) (65) 46 71 %

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Net Loss per Diluted Share $ (4.13) $ (24.58) $ 20.45 83 %

Weighted Average Diluted Shares Outstanding 70 70 N/A

Weighted Average Diluted Shares Outstanding 70 70 N/A N/A

Depreciation and Amortization $ 337 $ 387 $ 50 13 %

Segment Revenues

Western Hemisphere revenues increased $115 million, or 37%, in the second quarter of 2021 and decreased $83 million, or 9%, in the first six months of 2021 compared to the second quarter and first six months of 2020.

The second quarter of 2021 year-over-year growth in the Western Hemisphere was due to increased demand for service and products across both our C&P and DEI product lines in the U.S.

and increased ISP sales in Mexico.

The Western Hemisphere revenues decline of 9% in the first six months of 2021 was driven by lower activity levels for services and products across both our C&P and DEI product lines related to the global health and economic crisis due to the COVID-19 pandemic, which began negatively impacting our business and industry during the second quarter 2020.

Eastern Hemisphere revenues decreased $33 million, or 6%, in the second quarter of 2021 and $218 million, or 19%, in the first six months of 2021 compared to the second quarter and first six months of 2020 due to a decline in activity resulting in lower service and product sales in both our C&P and DEI product lines since the COVID-19 pandemic impact in the second quarter of 2020.

Western Hemisphere revenues increased $125 million, or 40%, in the third quarter of 2021 and $42 million, or 3%, in the first nine months of 2021 compared to the third quarter and first nine months of 2020.

The third quarter of 2021 year-over-year growth in the Western Hemisphere was due to increased demand for service and products across both C&P and DEI in North America and South America.

Western Hemisphere growth was primarily driven by higher business activity levels for C&P services and products primarily in Canada, Argentina and the United States.

The Western Hemisphere revenue improvement in the first nine months of 2021 compared to 2020 was due to higher business activity levels for C&P services and products.

Eastern Hemisphere revenues increased $13 million, or 3%, in the third quarter of 2021 and decreased $205 million, or 13%, in the first nine months of 2021 compared to the third quarter and first nine months of 2020.

The third quarter of 2021 year-over-year increase was due to increased demand for the DEI services in MENA/Asia.

The nine months of 2021 year-over-year decrease was due to a decline in international activity resulting in lower C&P and DEI service and product sales since the COVID-19 pandemic.

Segment Operating Results

Western Hemisphere segment operating income of $28 million and $52 million in the second quarter and first six months 2021, respectively, increased $51 million and $46 million compared to the second quarter and first six months of 2020, respectively.

The year-over-year improvements were driven by the increased demand for services across both our C&P and DEI product lines, as well as lower operational and employee costs.

Eastern Hemisphere segment operating income of $6 million in the second quarter of 2021 and segment operating loss of $13 million in the first six months of 2021, decreased $9 million and $46 million, respectively, compared to the second quarter and first six months of 2020.

The deterioration was driven by lower activity levels across both our C&P and DEI product lines related to the global health and economic crisis, partially offset by lower operational and employee costs.

Western Hemisphere segment operating income of $45 million and $97 million in the third quarter and first nine months 2021, respectively, increased $47 million and $93 million, respectively, compared to the third quarter and first nine months of 2020.

The third quarter year-over-year improvements were driven by the increased demand for services across both C&P and DEI businesses in North and South America, as well as lower operational and employee costs.

The nine months year-over-year improvements were driven by the increased demand for C&P services in North and South America, as well as lower operational and employee costs.

Eastern Hemisphere segment operating income of $34 million and $21 million in the third quarter and first nine months of 2021, respectively, increased $29 million and decreased $17 million, respectively, compared to the third quarter and first nine months of 2020.

The third quarter year-over-year improvement was driven by the improved services mix across both the C&P and DEI businesses in MENA/Asia.

The year-over-year decline in the nine months was driven by lower activity levels across for C&P and DEI services related to the COVID-19 pandemic, partially offset by lower operational and employee costs.

Interest Expense, Net

Net interest expense was $72 million and $142 million in the second quarter and first six months of 2021, respectively, and primarily represents interest on our 11.0% Exit Notes due 2024 (“Exit Notes”) and our 8.75% Senior Secured Notes due 2024 (“Senior Secured Notes”) as well as accretion expense amortized on our deferred issuance costs and discount on our Senior Secured Notes.

Interest expense was $59 million and $117 million in the second quarter and first six months of 2020, respectively, and primarily represents interest on our Exit Notes.

See “Note 8 – Borrowings and Other Obligations” to the Condensed Consolidated Financial Statements for further details.

Net interest expense was $69 million and $211 million in the third quarter and first nine months of 2021, respectively, and primarily represents interest on our 11.0% Exit Notes due 2024 (“Exit Notes”) and our 8.75% Senior Secured Notes due 2024 (“2024 Senior Secured Notes”) as well as amortization of debt issuance costs and discounts.

Net interest expense was $64 million and $181 million in the third quarter and first nine months of 2020, respectively, and primarily represents interest on our Exit Notes and our 2024 Senior Secured Notes.

Loss on Termination of ABL Credit Agreement

On December 13, 2019, we entered into a senior secured asset-based lending agreement in an aggregate amount of $450 million (the “ABL Credit Agreement”) which was terminated on August 28, 2020.

Upon its termination, we recorded $15 million of noncash “Loss on Termination of ABL Credit Agreement” on our Condensed Consolidated Financial Statements related to unamortized deferred debt issuance costs.

Loss on Extinguishment of Debt and Bond Redemption Premium

On September 30, 2021, we repaid our 2024 Senior Secured Notes and recognized a $22 million bond redemption premium on the early redemption and a $37 million noncash loss on extinguishment of debt related to unamortized debt issuance costs and discount, which is presented as “Loss on Extinguishment of Debt and Bond Redemption Premium” on the Condensed Consolidated Statements of Operations.

Other Expense, Net

Other expense was $11 million and $15 million in the second quarter and first six months of 2021, respectively, compared to other expense of $11 million and $36 million in the second quarter and first six months of 2020, respectively.

Other expense is 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.

The first six months year-over-year improvement was primarily due to lower currency volatility in 2021 compared to the significant volatility in the same period of the prior year following the start of the COVID-19 pandemic.

In the three and six months ended June 30, 2021, we recognized tax expense of $15 million and $38 million, respectively, on a loss before income taxes of $58 million and $145 million, respectively, compared to the three and six months ended June 30, 2020 where we recognized tax expense of $12 million and $56 million, respectively, on a loss before income taxes of $567 million and $1.5 billion, respectively.

Our income tax provisions 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.

Tax expense in the three and the six months ended June 30, 2021 includes a $13 million tax benefit attributed to the reversal of a tax accrual in connection with an internal restructuring transaction completed in the second quarter of 2021.

Tax expense for the six months ended June 30, 2020 included $20 million recorded in the first quarter of 2020 to recognize valuation allowance in jurisdictions where we were no longer able to forecast taxable income.

Other expense, net was $4 million and $19 million in the third quarter and first nine months of 2021, respectively, compared to other expense of $20 million and $65 million in the third quarter and first nine months of 2020, respectively.

Other expense, net is 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.

The first nine months year-over-year improvement was primarily due to lower currency volatility in 2021 compared to the significant volatility in the same period in the prior year following the start of the COVID-19 pandemic.

In 2020, the balance included $9 million in reorganization expenses.

In the three and nine months ended September 30, 2021, we recognized tax expense of $28 million and $66 million, respectively, on a loss before income taxes of $61 million and $206 million, respectively, compared to the three and nine months ended September 30, 2020 where we recognized tax expense of $8 million and $64 million, respectively, on a loss before income taxes of $159 million and $1.6 billion, respectively.

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.

Please see “Note 13 – Income Taxes” to our Condensed Consolidated Financial Statements for additional details.

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Liquidity and Capital Resources

At June 30, 2021, we had total cash and cash equivalents and restricted cash of $1.4 billion, which increased $102 million compared to the year ended December 31, 2020.

Included in total cash and cash equivalents was $170 million and $167 million of restricted cash at June 30, 2021 and December 31, 2020, respectively.

Restricted cash is primarily cash collateral for letters of credit not held under the senior secured letter of credit agreement.

The following table summarizes cash flows provided by (used in) each type of activity and a reconciliation of operating cash flow to non-GAAP free cash flow for the six months ended June 30, 2021 and June 30, 2020:

Six Months Ended June 30,

At September 30, 2021, we had total cash and cash equivalents and restricted cash of $1.45 billion, which increased $161 million compared to the year ended December 31, 2020.

Included in total cash and cash equivalents was $155 million and $167 million of restricted cash at September 30, 2021 and December 31, 2020, respectively.

Restricted cash is primarily cash collateral for letters of credit not held under the senior secured letter of credit agreement (the “LC Credit Agreement”).

The following table summarizes cash flows provided by (used in) each type of activity and a reconciliation of operating cash flow to non-GAAP free cash flow for the nine months ended September 30, 2021 and September 30, 2020:

Nine Months Ended September 30,

(Dollars in millions) 2021 2020

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Net Cash Used in Investing Activities (2) (65)

Net Cash Used in Financing Activities (15) (36)

Net Cash Provided by (Used in) Financing Activities (65) 376

Reconciliation of Operating Cash Flow to Non-GAAP Free Cash Flow:

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Operating Activities

Cash provided by operating activities was $120 million for the six months ended June 30, 2021 compared to $61 million for the six months ended June 30, 2020.

During the six months ended June 30, 2021, the primary sources of cash provided by operating activities were driven by higher operating income, continued collections on our accounts receivables and inventory utilization, partially offset by higher interest payments.

During the six months ended June 30, 2020, the primary sources of cash provided by operating activities were from collections on our accounts receivables, and lower payments for working capital activities, retention and performance cash bonuses, partially offset by payments for interest.

Cash provided by operating activities was $234 million for the nine months ended September 30, 2021 compared to $188 million for the nine months ended September 30, 2020.

During the nine months ended September 30, 2021, the primary sources of cash provided by operating activities were driven by higher operating income and lower accounts payable spend partially offset by higher interest payments.

During the nine months ended September 30, 2020, the primary sources of cash provided by operating activities were from collections on our accounts receivable, and lower payments for working capital activities, retention and performance cash bonuses, partially offset by payments for interest.

Investing Activities

Cash used in investing activities was $2 million for the six months ended June 30, 2021 compared to $62 million for the six months ended June 30, 2020.

During the six months ended June 30, 2021, the primary uses of cash were capital expenditures of $24 million for property, plant and equipment, offset by proceeds of $22 million from asset dispositions.

During the six months ended June 30, 2020, the primary uses of cash were capital expenditures of $73 million for property, plant and equipment, offset by proceeds of $8 million from other asset dispositions.

Cash used in investing activities was $2 million for the nine months ended September 30, 2021 compared to $65 million for the nine months ended September 30, 2020.

During the nine months ended September 30, 2021, the primary uses of cash

were capital expenditures of $44 million for property, plant and equipment, offset by proceeds of $39 million from asset dispositions.

During the nine months ended September 30, 2020, the primary uses of cash were capital expenditures of $100 million for property, plant and equipment, offset by proceeds of $13 million from asset dispositions and $25 million of cash proceeds from Angolan government bonds.

Financing Activities

Cash used in financing activities was $15 million for the six months ended June 30, 2021 compared to $36 million for the six months ended June 30, 2020.

During the six months ended June 30, 2021, the primary uses of cash were for the repayment of finance lease obligations and dividends paid to noncontrolling interests.

During the six months ended June 30, 2020, the primary uses of cash were for a $24 million deferred payment for our acquisition of a joint venture in the Middle East and dividends paid to noncontrolling interests.

Cash used in financing activities was $65 million for the nine months ended September 30, 2021 compared to cash provided by financing activities of $376 million for the nine months ended September 30, 2020.

During the nine months ended September 30, 2021, the primary uses of cash were repayments of long-term debt of $510 million primarily for the repayment of our 2024 Senior Secured Notes and finance lease obligations, a $22 million bond redemption premium payment for the early redemption of our 2024 Senior Secured Notes, and $20 million primarily for dividends paid to noncontrolling interests.

The primary sources of cash were net proceeds of $491 million, net of commitments fees and debt issuance costs, from the issuance of the 2028 Senior Secured Notes.

See “Note 7 – Borrowings and Other Obligations” to our Condensed Consolidated Financial Statements for further details on the debt financing.

During the nine months ended September 30, 2020, the primary source of cash were net proceeds of $457 million from the issuance of our 2024 Senior Secured Notes, offset by uses of cash of $81 million for the repayment of short-term debt and other financing activities related to a deferred payment for our 2018 acquisition of our Qatari joint venture and dividends paid to noncontrolling interests.

Non-GAAP Free Cash Flow

Non-GAAP free cash flow (“free cash flow”) represents cash provided by (used in) operating activities less capital expenditures for property, plant and equipment plus proceeds from the disposition of assets.

Operating cash flow was $120 million and $61 million in the six months ended June 30, 2021 and 2020, respectively.

Free cash flow was a positive $118 million and negative $4 million in the six months ended June 30, 2021 and 2020, respectively.

Management believes that free cash flow is useful to investors and management as an important liquidity measure of our ability to generate cash, pay obligations and grow the business and shareholder value.

It is a non-GAAP financial measure that should be considered in addition to, not as substitute for or superior to, cash provided by (used in) operating activities.

Non-GAAP free cash flow (“free cash flow”) represents cash provided by operating activities less capital expenditures for property, plant and equipment plus proceeds from the disposition of assets.

It is a non-GAAP financial measure that should be considered in addition to, not as substitute for or superior to, cash provided by operating activities.

Management believes that free cash flow is useful to investors and management as an important operating liquidity measure and is an indicator of our ability to generate cash, pay obligations, reinvest in the business and create shareholder value.

Cash provided by operating activities was $234 million and $188 million in the nine months ended September 30, 2021 and 2020, respectively.

Free cash flow was a positive $229 million and $101 million in the nine months ended September 30, 2021 and 2020, respectively.

Sources of Liquidity

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We historically have accessed banks for short-term loans and the capital markets for debt and equity offerings.

While the market has stabilized recently, the energy industry’s access to capital is improving and although we may have access to capital markets, it may not be on terms that are commercially acceptable to the Company.

Based upon current and anticipated levels of operations, we believe we will have sufficient cash from operations and cash on hand to fund our expected financial obligations and cash requirements (discussed below) both in the short-term and long-term.

Customer Receivables

In weak economic environments, we may experience increased delays and failures to pay our invoices due to, among other reasons, a reduction in our customers’ cash flow from operations and their access to the credit markets as well as unsettled political conditions.

If the economic environment weakens we could experience delayed customer payments and payment defaults associated with customer liquidity issues.

Based upon current and anticipated levels of operations and our recently completed and announced anticipated long-term debt refinancing, we believe we have sufficient cash from operations and cash on hand to fund our expected financial obligations and cash requirements (discussed below) both in the short-term and long-term.

LC Credit Agreement Amendment

The LC Credit Agreement is a senior secured letter of credit agreement in an aggregate amount of $215 million maturing on May 29, 2024, which is used by the Company and certain of its subsidiaries for the issuance of bid and performance letters of credit.

On September 20, 2021, certain provisions and covenants of the LC Credit Agreement were amended as follows:

• Permit the borrowing of up to an additional $400 million of secured indebtedness under an asset-based lending facility or a revolving credit facility upon compliance with certain conditions;

• Removed the minimum secured liquidity requirement;

• Increased the minimum aggregate liquidity requirement from $175 million to $300 million;

• Decreased the minimum aggregate book value of certain pledged assets requirement from $1.25 billion to $1 billion;

• Increased the ability to redeem debt to $500 million subject to a minimum aggregate liquidity of $400 million

at the time of redemption.

2028 Senior Secured Notes

On September 30, 2021, we entered into an indenture and issued the 6.5% Senior Secured Notes in aggregate principal amount of $500 million maturing September 15, 2028 (the “2028 Senior Secured Notes”).

Interest accrues at the rate of 6.5% per annum and is payable semiannually on September 15 and March 15 of each year, commencing on March 15, 2022.

The 2028 Senior Secured Notes are guaranteed by the Company and the same subsidiaries that guaranteed the 2024 Senior Secured Notes.

Exit Notes Redemption

On October 20, 2021 we redeemed $200 million of our Exit Notes and paid related accrued interest of $8 million with an early bond redemption premium of $6 million.

2030 Senior Notes and Exit Notes Redemption

On October 27, 2021, we issued $1.6 billion of 8.625% senior notes due April 30, 2030 (the “2030 Senior Notes”).

The net proceeds and cash on hand were used to redeem $1.6 billion in principal of our Exit Notes at applicable prices, plus accrued and unpaid interest.

The 2030 Senior Notes pay interest semi-annually on June 1 and December 1 of each year, beginning on June 1, 2022 at a rate of 8.625% per year and will mature on April 30, 2030.

The 2030 Senior Notes are guaranteed by the Company and the same subsidiaries that guaranteed the 2028 Senior Secured Notes.

Cash Requirements

Our cash requirements will continue to include interest payments on our long-term debt, payments for capital expenditures, repayment on finance leases, payments for short-term working capital needs and costs associated with our revenue and restructuring payments, including severance.

During 2020, we accumulated working capital due to the sharp decrease in demand due to the COVID-19 pandemic.

In 2021, operating cash flow benefited from the monetization of working capital accumulated in 2020.

As business activity rises to pre-COVID-19 pandemic levels we expect that we will utilize cash to invest in capital assets and inventory.

Our cash requirements may also include awards under our employee incentive programs and other amounts to settle litigation related matters.

As of June 30, 2021, we had $2.1 billion in aggregate principal amount maturing on December 1, 2024 and $500 million in aggregate principal amount maturing on September 1, 2024 for our Exit Notes and Senior Secured Notes, respectively.

We expect to have interest payments of approximately $275 million annually until their maturity.

Please see “Note 8 – Borrowings and Other Obligations” to our Condensed Consolidated Financial Statements for additional details.

As of September 30, 2021, we had $2.1 billion in aggregate principal amount maturing on December 1, 2024 and $500 million in aggregate principal amount maturing on September 15, 2028 for our Exit Notes and 2028 Senior Secured Notes, respectively.

In addition, on October 20, 2021 we redeemed $200 million of our Exit Notes and on October 27, 2021, we issued $1.6 billion in aggregate principal amount of the 2030 Senior Notes with an interest rate of 8.625%.

We used the net proceeds from the 2030 Senior Notes issuance and cash on hand to redeem $1.6 billion principal amount of our Exit Notes.

Please see “Note 7 – Borrowings and Other Obligations” and “Note 14 – Subsequent Events” to our Condensed Consolidated Financial Statements for additional details.

Prior to refinancing of our Exit Notes and 2024 Secured Senior Notes we expected to make annual interest payments of approximately $275 million until their maturity.

Subsequent to refinancing our Exit Notes and the 2024 Secured Notes, we expect to make annual interest payments of approximately $204 million until their maturity.

Our 2021 payments on operating leases are expected to be $91 million and capital spending is expected to be approximately $100 - $110 million.

Cash and cash equivalents (including restricted cash of $170 million primarily related to cash collateral on our letters of credit) totaled $1.4 billion at June 30, 2021, and are held by subsidiaries outside of Ireland.

At June 30, 2021 we had $175 million of our cash and cash equivalents that cannot be immediately repatriated from various countries due to country central bank controls or other regulations.

Cash and cash equivalents (including restricted cash of $155 million primarily related to cash collateral on our letters of credit) totaled $1.45 billion at September 30, 2021 and are held by subsidiaries outside of Ireland.

At September 30, 2021 we had approximately $195 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.

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.

Accounts Receivable Factoring

From time to time, we participate in factoring arrangements to sell accounts receivable to third-party financial institutions or cash proceeds net of discount and hold-back.

The programs we factor under are uncommitted and thus we cannot assure they will be available as a source of liquidity.

Our factoring transactions in the three and nine months ended September 30, 2021 and 2020 were recognized as sales of accounts receivable, and the proceeds are included as operating cash flows in our Condensed Consolidated Statements of Cash Flows.

During the three and nine months ended September 30, 2021, we received cash proceeds from the sale of accounts receivable of $12 million and $46 million, respectively, compared to $10 million and $30 million in the three and nine months ended September 30, 2020, respectively.

Ratings Services’ Credit Ratings

On July 1, 2021, our S&P credit ratings improved to a B, with a stable outlook, on our Senior Secured Notes and the senior secured letter of credit agreement (the “LC Credit Agreement”).

The S&P credit rating on our Exit Notes improved to a CCC+ with a stable outlook.

As of June 30, 2021, our Moody’s Investor Services credit rating on the Senior Secured Notes and the LC Credit Agreement was Ba3, with a negative outlook.

Our Exit Notes have a credit rating of B3 with a negative outlook.

While we may continue to have access to credit markets, our credit ratings, restrictions under our Exit Notes, Senior Secured Notes and LC Credit Agreement, could limit our ability to raise capital, refinance our existing debt, or could cause us to refinance or issue debt with less favorable and more restrictive terms and conditions, and could increase certain fees and interest of our borrowings.

On July 1, 2021, the Standard and Poor’s (“S&P”) credit ratings of our 2024 Senior Secured Notes and the LC Credit Agreement improved to a B with a stable outlook.

The S&P credit rating of our Exit Notes improved to a CCC+ with a stable outlook.

On October 12, 2021, S&P placed our issuer credit rating on CreditWatch with positive implications related to our refinancing of a substantial portion of our Exit Notes.

On October 12, 2021, Moody’s Investor Services (“Moody’s”) changed its outlook for the Company to stable from negative and assigned a B3 rating to our new 2030 Senior Unsecured Notes.

The ratings on our other debt remained unchanged including a Ba3 credit rating on the 2028 Senior Secured Notes and the LC Credit Agreement, B3 on our Exit Notes, and a B2 long-term corporate family rating.

Off Balance Sheet Arrangements

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Letters of Credit and Surety Bonds

As of June 30, 2021, we had $331 million of letters of credit outstanding, consisting of $160 million under the LC Credit Agreement and $171 million under various uncommitted facilities (of which there was $165 million in cash collateral held and recorded in “Restricted Cash” on our Consolidated Balance Sheets).

As of June 30, 2021, we had outstanding surety bonds of $307 million, which were primarily in Latin America where we utilize surety bonds as part of our customary business practice.

As of September 30, 2021, we had $329 million of letters of credit outstanding, consisting of $173 million under the LC Credit Agreement and $156 million under various bi-lateral uncommitted facilities (for which there was $152 million in cash collateral held and recorded in “Restricted Cash” on our Condensed Consolidated Balance Sheets).

As of September 30, 2021, we had outstanding surety bonds of $287 million, which were primarily in Latin America where we utilize surety bonds as part of our customary business practice.

Any of our outstanding letters of credit or surety bonds could be called by the beneficiaries should we breach certain contractual or performance obligations.

If the beneficiaries were to call the letters of credit under our LC Credit Agreement or surety bonds, our available liquidity would be reduced by the amount called.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operation is based upon our Condensed Consolidated Financial Statements.

We prepare these financial statements in conformity with U.S.

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 financial statements and the reported amounts of revenues and expenses during the periods presented.

We base our estimates on historical experience, 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.

There have been no material changes or developments in our evaluation of the accounting estimates and the underlying assumptions or methodologies that we believe to be critical accounting policies and estimates as disclosed in our 2020 Annual Report.

If the beneficiaries were to call the letters of credit under our LC Credit Agreement or our surety bonds, our available liquidity would be reduced by the amount called.

Forward-Looking Statements

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• adverse weather conditions in certain regions of our operations;

• failure to ensure on-going compliance with current and future laws and government regulations, including but not limited to environmental and tax and accounting laws, rules and regulations as well as stock exchange listing rules.

• failure to ensure on-going compliance with current and future laws and government regulations, including but not limited to environmental, social, governance and tax and accounting laws, rules and regulations as well as stock exchange listing rules.

Many of these factors are macro-economic in nature and are, therefore, beyond our control.

1 unchanged sentence

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

For additional information regarding risks and uncertainties, see our other filings with the SEC.

For additional information regarding

risks and uncertainties, see our other filings with the SEC.

In the event of an inconsistency between any prior or current SEC filing, the most current SEC filing would control.

Quantitative and Qualitative Disclosures About Market Risk.

Other than the change in the fair value of our debt as discussed in “Note 8 – Borrowings and Other Obligations” to our Condensed Consolidated Financial Statements, our exposure to market risk has not changed materially since December 31, 2020.

Other than the recent debt refinancing and change in the fair value of our debt as discussed in “Note 7 – Borrowings and Other Obligations” to our Condensed Consolidated Financial Statements, our exposure to market risk has not changed materially since December 31, 2020.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis