Weatherford International plc — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. Weatherford provides oilfield equipment and services and reports Western and Eastern Hemisphere segments. Comparisons with 2019 require caution: the company emerged from bankruptcy in December 2019 and adopted fresh-start accounting, so successor and predecessor periods are not directly comparable.
Financial results and position
| Metric | Q2 2020 | Comparable Q2 2019 | Six months 2020 | Comparable six months 2019 |
|---|---|---|---|---|
| Revenue | $821 million | $1.309 billion | $2.036 billion | $2.655 billion |
| Operating loss | $497 million | $118 million | $1.319 billion | $419 million |
| Net loss attributable to Weatherford | $581 million | $316 million | $1.547 billion | $797 million |
| Loss per share | $8.30 | $0.31 | $22.10 | $0.79 |
- Management reported Q2 revenue down 37% year over year and 32% sequentially, with lower activity—especially in North America—as the primary driver. Western Hemisphere revenue fell 57% year over year; Eastern Hemisphere revenue fell 13%.
- Q2 segment operating loss was $8 million; six-month segment operating income was $39 million. Reported operating losses included substantial impairments and other charges.
- Q2 charges included $178 million of long-lived asset impairments, $72 million of goodwill impairment, $134 million of inventory charges, and $57 million of restructuring and severance. Six-month long-lived asset and goodwill impairments were $818 million and $239 million, respectively.
- Net interest expense was $59 million in Q2 and $117 million for six months, down from the 2019 predecessor periods, primarily due to lower debt following bankruptcy emergence. The company’s $2.1 billion unsecured Exit Notes bear 11% interest and mature in December 2024.
- For the six months, operating cash flow was positive $61 million, versus negative $478 million in 2019; investing cash flow was negative $86 million and financing cash flow negative $12 million. Capital expenditures were $73 million. Operating cash flow less capital expenditures was approximately negative $12 million.
- At June 30, cash and cash equivalents were $680 million, restricted cash $76 million, and total debt approximately $2.18 billion ($32 million short-term and $2.148 billion long-term). ABL availability was approximately $91 million; management reported available liquidity above $770 million, calculated using cash and ABL availability.
- Total current assets were $2.927 billion and current liabilities $1.426 billion. Total assets were $5.409 billion, total liabilities $4.104 billion, and shareholders’ equity $1.305 billion.
Changes, outlook, risks and unusual items
- Operating outlook: Management expected below-normal demand through the rest of 2020 and potentially 2021, with a multi-year industry downturn possible. It cited COVID-19 disruption, oil-market uncertainty, customer spending cuts, supply and logistics interruptions, and difficulty forecasting activity. No revenue or earnings guidance was provided.
- Cost and capital actions: The company reported management and board cash-retainer pay reductions, substantial workforce reductions, furloughs, further operational consolidation, and a planned 2020 capital-spending reduction of about 50% versus 2019. Capital expenditures were projected at approximately $100–$135 million for 2020. Additional restructuring charges were expected.
- Liquidity and going concern: Weatherford was compliant with debt covenants at June 30, but warned that an ABL covenant breach could occur in the first half of 2021 as lower activity could shrink borrowing-base assets. An uncured breach could trigger defaults, acceleration or cash collateralization of obligations and raise substantial doubt about the company’s ability to continue as a going concern within 12 months.
- Subsequent financing: On August 4, 2020, the company signed a binding commitment letter for $500 million of 8.75% senior secured first-lien notes due September 2024. The commitment was extended to August 21 and remained subject to conditions; the filing gave no assurance the financing would close. Management said issuance and a reduction in ABL commitments were expected to alleviate going-concern doubt.
- Accounting and controls: A $65 million Q2 impairment charge corrected an immaterial error that should have been recorded in Q1; management said it did not affect cash flows, covenant compliance, or year-to-date results. The company disclosed a material weakness in internal control over financial reporting concerning review of asset-group net book values in the impairment assessment; disclosure controls were deemed ineffective at quarter-end.
- Other developments: The NYSE delisting became effective July 16, 2020; shares continued trading on OTC Pink as WFTLF, and the company said it would consider relisting when conditions were appropriate. Litigation exposures could exceed reserves, though outcomes were not reliably predictable. Management also cited senior executive and board changes.
Most important facts for investors to verify
- Whether the $500 million secured-note financing closed, its final terms, and any associated changes to ABL availability or commitments.
- Subsequent liquidity, borrowing-base availability, covenant headroom, and progress toward or risk of the forecast ABL covenant breach.
- Revenue and cash-flow trends, especially North American activity, customer collections, and the impact of continued industry weakness.
- Whether restructuring actions deliver durable savings and whether further impairments or inventory charges are required.
- Remediation of the material weakness and effectiveness of the revised impairment-review controls.
- Trading venue, share liquidity, and any relisting developments following NYSE delisting.