Weatherford International plc — FY 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014. The filing also reports fourth-quarter results. Weatherford is a global oilfield services company operating in more than 100 countries. It redomesticated from Switzerland to Ireland in June 2014; its shares trade on the NYSE under WFT.
Financial performance and position
| Metric | 2014 | 2013 |
|---|---|---|
| Revenue | $14.911 billion | $15.263 billion |
| Operating income | $505 million | $523 million |
| Net loss attributable to Weatherford | $584 million; diluted loss per share $0.75 | $345 million; diluted loss per share $0.45 |
| Cash from operating activities | $963 million | $1.229 billion |
| Capital expenditures | $1.450 billion | $1.575 billion |
| Cash and cash equivalents | $474 million | $435 million |
| Short-term borrowings and current debt | $727 million | $1.653 billion |
| Long-term debt | $6.798 billion | $7.061 billion |
| Total assets / shareholders’ equity | $18.889 billion / $7.033 billion | $21.977 billion / $8.203 billion |
- Revenue declined 2%; operating income declined 3%. Reported operating margin was approximately 3.4%, including substantial restructuring and impairment charges and gains on divestitures.
- Operating cash flow less capital expenditures was negative $487 million in 2014 (calculated from reported figures; this is not a company-defined free-cash-flow measure).
- The company had $1.975 billion available under its $2.25 billion revolving credit agreement at year-end, after commercial paper and letters of credit. It was in compliance with the facility’s debt-to-capitalization covenant.
- Cash-flow pressure included more than $340 million of payments tied to completion and end-of-contract obligations on legacy Iraq projects and $253 million paid to settle U.S. government investigations.
Material changes and unusual items
- North America revenue rose 7% to $6.852 billion and operating income rose 21% to $996 million; reported segment margin improved to 15% from 13%. Latin America revenue fell 16% to $2.380 billion and operating income fell 16% to $256 million. MENA/Asia Pacific revenue declined 7%, while operating income improved to $85 million from a $96 million loss. Europe/SSA/Russia revenue declined 4%, but operating income increased 34% to $386 million.
- FY 2014 included $331 million of restructuring charges and $656 million of non-cash impairment charges ($495 million long-lived assets; $161 million goodwill). The company recorded $349 million of net gains on sales of businesses and investments.
- Venezuelan bolivar devaluation generated a $245 million pre-tax charge. Weatherford used an exchange rate of approximately 50 bolivars per U.S. dollar at year-end and anticipated further remeasurement charges in Q1 2015.
- Iraq early-production-facility contracts generated $72 million of estimated losses in 2014; cumulative estimated losses on the loss-making projects reached $379 million at year-end. Project estimates included $90 million of claims revenue; collection and approval remain uncertain.
- Divestitures generated approximately $1.7 billion in proceeds, of which approximately $1.2 billion was used to reduce debt. Sales included Russian and Venezuelan land rigs, pipeline and specialty services, engineered chemistry and drilling fluids businesses, and the Proserv investment. Weatherford intended to divest its remaining land-rig business.
- Fourth-quarter revenue was $3.727 billion and net loss attributable to Weatherford was $475 million. The quarter included a $352 million rig-asset impairment, $40 million goodwill impairment, $245 million Venezuela currency charge, and gains primarily related to business sales.
Outlook, risks and contingencies
- Management expected the steep oil-price decline to materially reduce customer spending, Weatherford revenue and pricing in 2015. North America was expected to face significant volume and pricing pressure; management described Eastern Hemisphere performance as more resilient, with mixed regional trends.
- The company planned approximately $900 million of 2015 capital expenditures, versus $1.450 billion in 2014. It initiated a workforce reduction targeting 5,000 positions and expected to identify about 3,000 additional positions in Q1 2015.
- Key risks include oil-price and customer-spending volatility, high indebtedness and refinancing access, credit-rating pressure (S&P placed ratings on CreditWatch with negative implications), currency controls and devaluation, geopolitical disruption and sanctions, and customer collection risk. Latin American customers represented 26% of net receivables; amounts due included $66 million from PDVSA and $142 million from Pemex.
- The company had $876 million of letters of credit and performance or bid bonds outstanding. Its $400 million 364-day term loan facility had $175 million outstanding and matured April 9, 2015. Contractual obligations also included $5.615 billion of future interest on long-term debt and $1.128 billion of non-cancellable operating leases.
- Weatherford disclosed ongoing shareholder litigation and SEC/DOJ investigations concerning prior financial-statement restatements and internal controls. The 2011 securities class action settlement required $53 million, funded by insurers. The company said it could not predict the outcome of continuing matters; some adverse outcomes could be material. Its 2013–2014 government settlements required $253 million in payments and ongoing compliance monitoring.
- Management and the auditor reported effective internal control over financial reporting at December 31, 2014; the auditor issued unqualified opinions on the financial statements and controls. The filing notes prior tax-control weaknesses and continuing investigations related to them.
Important facts for investors to verify
- Whether 2015 activity, pricing and cash generation deteriorated more than management’s outlook assumed.
- Debt maturities, refinancing of the 364-day term loan, covenant headroom and the effect of any rating downgrade.
- Cash conversion, capital-spending reductions, and whether divestiture proceeds and future rig-sale proceeds reduce debt as planned.
- Collection of Latin American receivables and the financial impact of Venezuela’s changing exchange mechanisms.
- Final costs, claims and recoveries on Iraq projects, plus potential additional impairments as rig utilization and asset values change.
- Resolution and potential financial consequences of legal, regulatory, tax and shareholder matters, and execution of announced workforce and cost reductions.