Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
We are currently exposed to market risk from changes in foreign currency and changes in interest rates. From time to time, we may enter into derivative financial instrument transactions to manage or reduce our market risk. A discussion of our market risk exposure in these financial instruments follows.
Foreign Currency Exchange Rates and Inflationary Impacts
We conduct operations in approximately 75 countries and have service and sales locations in oil and natural gas producing regions globally. In some parts of the world, such as Latin America, the Middle East and Southeast Asia, the currency of our primary economic environment is the U.S. dollar, and thus we use the U.S. dollar primarily as our functional currency. In other parts of the world, we conduct our business in currencies other than the U.S. dollar, and the functional currency is the applicable local currency.
We recognized foreign currency exchange losses of $9 million and $34 million for the Successor years ended December 31, 2021 and 2020, respectively, and $14 million for Combined 2019 Predecessor Period. The unfavorable loss in 2021 and 2020 primarily relates to the weakening of foreign currencies resulting from the impacts of the COVID-19 pandemic. Foreign currency exchange losses and currency devaluation charges are included in current earnings in “art II – Item 8. – Financial Statements and Supplementary Data – Consolidated Statements of Operations”. For additional details see “Part II - Item 7. – Management's Discussion and Analysis of Financial Condition and Results of Operations. – Other Income (Expense), Net.”
Foreign Currency, Foreign Currency Forward Contracts and Cross-Currency Swaps
Assets and liabilities of entities where the functional currency other than the U.S. dollar are translated into U.S. dollars using the exchange rates in effect at the balance sheet date. The resulting translation adjustments are reflected in Accumulated Other Comprehensive Loss in the Shareholders’ Deficiency section on our Consolidated Balance Sheets.
As of December 31, 2021 and 2020, we had outstanding foreign currency forward contracts with total notional amounts aggregating $349 million and $337 million, respectively. These contracts were entered into in order to hedge our net monetary exposure to currency fluctuations in various foreign currencies. The total estimated fair value of these contracts and amounts owed associated with closed contracts resulted in an immaterial net liability in both periods. These derivative instruments were not designated as hedges, and the changes in fair value of the contracts are recorded each period in current earnings.
Interest Rates
We are subject to interest rate risk on our long-term fixed-interest rate debt borrowings. Fixed rate debt exposes us to changes in market interest rates reflected in the fair value of the debt and to the risk that we may need to refinance any maturing debt with new debt at a higher rate. All else being equal, the fair value of our fixed rate debt will increase or decrease inversely to changes in interest rates.
Weatherford International plc – 2021 Form 10-K | 40
Table of Contents Forward-Looking Statements
Our senior notes outstanding at December 31, 2021 and 2020, and that were subject to interest rate risk consist of the following:
December 31, 2021 December 31, 2020
(Dollars in millions) Carrying Value Fair Value Carrying Value Fair Value
11.00% Exit Notes due 2024 $ 300 $ 311 $ 2,098 $ 1,628
8.75% Senior Secured Notes due 2024 — — 455 507
6.5% Senior Secured Notes due 2028 488 528 — —
8.625% Senior Notes due 2030 1,584 1,660 — —
Total Long-Term Debt $ 2,372 $ 2,499 $ 2,553 $ 2,135