Weatherford International plc — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; comparisons are with Q1 2014 unless otherwise noted. Amounts are in U.S. dollars. Weatherford provides oilfield products and services, and land drilling rigs, in more than 100 countries.
Financial performance and position
| Metric | Q1 2015 | Q1 2014 / prior date |
|---|---|---|
| Revenue | $2.794 billion | $3.596 billion |
| Operating income | $50 million | $130 million |
| Net loss attributable to Weatherford | $118 million; $0.15 per diluted share | $41 million; $0.05 per diluted share |
| Operating margin | 1.8% | 3.6% |
| Net margin attributable to Weatherford | (4.2%) | (1.1%) |
| Operating cash flow | $(42) million | $(406) million |
| Capital expenditures | $224 million | $286 million |
| Cash and cash equivalents | $512 million | $474 million at Dec. 31, 2014 |
| Total debt | $7.832 billion | $7.525 billion at Dec. 31, 2014 |
| Available committed credit | $1.467 billion | — |
Gross profit, calculated as revenue less cost of products and services, was $592 million, or approximately 21.2% of revenue, versus $757 million, or 21.1%, in Q1 2014. The current ratio was approximately 1.73 at March 31, compared with 1.97 at year-end 2014. Debt includes $1.554 billion of short-term borrowings and current maturities and $6.278 billion of long-term debt.
Material changes versus Q1 2014
- Revenue fell 22%; declines affected every segment. North America revenue dropped 28%, international regional revenue 13%, and Land Drilling Rigs revenue 43%.
- Segment operating income fell 33% to $229 million. North America moved from $196 million of operating income to a $10 million loss; MENA/Asia Pacific improved to $60 million from $5 million.
- Attributable net loss widened to $118 million from $41 million. The 2015 quarter included a $26 million Venezuelan bolivar remeasurement charge; the prior-year quarter included a $27 million tax provision.
- Operating cash use improved to $42 million from $406 million, reflecting working-capital improvement and no repeat of $253 million in government settlement payments made in 2014; weaker operating earnings partly offset the improvement.
Outlook, commentary and risks
- Management expected the oil-price decline to materially reduce customer spending, revenue and pricing. North America was expected to remain severely affected; management anticipated relatively resilient international performance, with opportunities in Brazil, Argentina, Gulf markets and Sub-Saharan Africa.
- Management targeted workforce reductions of 10,000 positions, expected to be substantially complete in the first half of 2015, and planned to close or consolidate 60 North American facilities by year-end. Q1 restructuring charges were $41 million.
- 2015 capital expenditures were projected at approximately $850 million. Management intended to divest remaining land drilling rigs and use any proceeds to repay or repurchase debt.
- The $2.25 billion revolving credit agreement requires debt-to-total capitalization below 60%; Weatherford reported compliance at quarter-end. The $175 million balance on a 364-day term loan maturing April 9, 2015 was paid on that date. S&P, Moody’s and Fitch had negative outlooks on the company’s credit ratings by mid-April 2015.
- Estimated total losses on Iraqi early-production-facility projects were $337 million at March 31, 2015. Project estimates included $137 million of claims revenue and $26 million of back charges; realization of unapproved claims was uncertain.
- Other notable exposures include $26 million of Venezuelan currency charges, ongoing U.S. government investigations relating to prior matters and restatements, shareholder litigation, and possible material uninsured losses from litigation. The company also reported a $111 million net monetary asset position in Argentine pesos and was monitoring inflation-related developments.
- Weatherford reported effective disclosure controls at March 31, 2015 and no material change in internal control over financial reporting during the quarter. It cautioned that results are sensitive to commodity prices, activity and pricing, access to capital, currency movements, litigation and execution of cost reductions and divestitures.
Important facts for investors to verify
- Whether lower oilfield activity and pricing continue to pressure revenue, segment margins and cash generation, particularly in North America.
- Progress and cash costs of the 10,000-position workforce reduction and facility closures, and whether expected savings materialize.
- Debt maturities, refinancing needs, credit-facility availability and the effect of negative rating outlooks; also monitor covenant compliance.
- Cash conversion and working capital, including collections, inventories and the substantial costs-in-excess-of-billings balance on long-term projects.
- Updates on Iraqi project loss estimates and claims, Venezuelan and Argentine currency exposures, government investigations, and shareholder litigation contingencies.
- Whether planned asset divestitures proceed and proceeds are applied to debt reduction as management described.