Weatherford International plc — 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018. The filing also provides unaudited fourth-quarter results; it is an annual report, not a standalone quarterly filing. Weatherford provides oilfield equipment and services in more than 80 countries and reports Western and Eastern Hemisphere segments.
Financial performance and position
| Metric | 2018 | 2017 |
|---|---|---|
| Revenue | $5.744 billion | $5.699 billion |
| Operating loss | $2.084 billion | $2.170 billion |
| Net loss attributable to Weatherford | $2.811 billion | $2.813 billion |
| Loss per diluted share | $2.82 | $2.84 |
| Cash used in operating activities | $242 million | $388 million |
| Cash and cash equivalents at year-end | $602 million | $613 million |
| Long-term debt | $7.605 billion | $7.541 billion |
| Total shareholders’ deficiency | $3.666 billion | $571 million |
- Fourth-quarter revenue was $1.429 billion and net loss attributable to Weatherford was $2.103 billion. The quarter’s loss included approximately $1.9 billion of goodwill impairment.
- Reported 2018 gross profit was $1.230 billion. Segment operating income was $208 million in the Western Hemisphere and $119 million in the Eastern Hemisphere; corporate costs and impairment and other charges drove the consolidated operating loss.
- Interest expense, net, increased to $614 million from $579 million. 2018 also included a $49 million currency devaluation charge and a $70 million non-cash warrant fair-value gain.
- At year-end, current assets were $3.450 billion and current liabilities were $2.300 billion. The company reported $325 million of borrowing availability under its credit agreements.
Material changes versus the prior period
- Revenue increased 1% year over year. Western Hemisphere revenue rose 4% to $3.063 billion, while Eastern Hemisphere revenue fell 3% to $2.681 billion.
- Segment operating results improved from a combined $252 million loss in 2017 to $327 million income in 2018, attributed to stronger activity and product mix, cost reductions, and transformation initiatives. Consolidated operating loss narrowed by $86 million, but remained substantial.
- The company recorded $1.917 billion of goodwill impairment in 2018, versus none in 2017, and $151 million of long-lived asset impairments, versus $928 million in 2017. Total assets fell to $6.601 billion from $9.747 billion.
- Operating cash outflow improved by $146 million, but operations still used cash. Investing activities provided $122 million, including disposition proceeds; financing activities provided $168 million.
- Weatherford issued $600 million of 9.875% senior notes due 2025 and used proceeds in part to repay nearer-term notes. It repaid the 6.00% notes due 2018 and retired its 9.625% notes due 2019 through tender and redemption, recording a $34 million loss on those transactions.
Outlook, risks, contingencies, and unusual items
- Management projected 2019 capital expenditures of approximately $200–$250 million, subject to activity and liquidity. It expected North American customer spending to be flat or lower, constructive activity in Latin America, and growth in the North Sea, Continental Europe, and GCC countries; Russia, Africa, and Asia were expected to remain relatively stable. No numerical revenue or earnings guidance was provided.
- Management described continued oil-price volatility and a “medium-for-longer” industry environment, and emphasized cost reduction, operational efficiency, technology, and transformation initiatives. The transformation plan was expected to continue through 2019.
- Liquidity and refinancing are central risks. The company had approximately $7.6 billion of long-term debt, $2.6 billion maturing by 2021, and expected approximately $553 million of 2019 interest payments. Credit ratings were downgraded to deeply speculative levels with negative outlooks; the company cautioned that refinancing could be unavailable or more costly. Several revolving facilities mature in 2019, and management noted no assurance of refinancing.
- Weatherford stated it was in compliance with debt covenants at December 31, 2018 and expected to remain compliant in 2019. It warned that operating losses, reduced liquidity, covenant breaches, or failed refinancing could impair its ability to meet obligations. The NYSE continued-listing minimum includes a share-price threshold; the stock closed at $0.91 on February 5, 2019, and delisting could trigger a repurchase offer on $1.265 billion of exchangeable notes.
- Divestitures: Weatherford received $216 million gross proceeds from two ADES land-rig sale closings and expected the remaining closings in early 2019. It had agreed to sell its laboratory services business for $205 million and surface data logging business for $50 million, with closings expected in 2019. Completion, proceeds, and timing remained subject to conditions and adjustments.
- Other notable exposures include $495 million of outstanding letters of credit and performance or bid bonds, $255 million of uncertain tax positions plus accrued interest and penalties, and ongoing litigation. The company reported $29 million of accrued litigation and settlements; it warned that adverse outcomes in certain matters could be material.
- Auditor KPMG gave unqualified opinions on the financial statements and internal control over financial reporting; management also concluded disclosure controls and internal controls were effective at year-end.
Key facts for investors to verify
- Cash generation, cash availability, and the company’s ability to refinance or repay upcoming debt maturities and meet interest obligations.
- Progress against credit-agreement covenants and whether borrowing availability or access to supplier and bank credit changes.
- Closing, net proceeds, and use of proceeds from the remaining ADES rig sales and the laboratory and surface-data-logging divestitures.
- Whether market conditions, share price, or operating forecasts prompt further goodwill or asset impairments.
- Actual 2019 activity, regional performance, transformation savings, capital spending, and any change in management’s outlook.
- NYSE listing compliance, potential consequences for the exchangeable notes, and material developments in tax examinations and litigation.