Weatherford Reports Third Quarter 2013 EPS of $0.23 (non-GAAP)

 

GENEVA, Nov. 4, 2013 /PRNewswire/ -- Weatherford International Ltd. (NYSE/Euronext Paris/SIX: WFT) reported results for the third quarter ended September 30, 2013.

Third Quarter 2013 Summary

• $0.23 per diluted share (non-GAAP), or net income of $177 million excluding after-tax charges of $155 million;
• FCPA, Oil-for-Food and Sanctioned Countries definitive agreements reached, subject to final SEC Commission and Court approvals; estimated costs and terms of the settlement remain unchanged;
• International operating income margin increased 270 basis points sequentially, and all international segments showed operating income margin improvement;
• North America operating income margin expanded 260 basis points sequentially with the U.S. and Canada both generating margin improvement;
• Foreign exchange losses were $27 million in the third quarter, an increase of $12 million sequentially;
• The non-GAAP effective tax rate for the quarter was 20%;
• Announced the sale of Borets for $400 million with cash proceeds of $370 million in Q4;
• Free cash flow improved by over $150 million sequentially, driven by reduction in capital expenditures and operating efficiency improvements; and
• Capital expenditures, net of lost-in-hole, declined 39% compared to the prior year quarter and 20% sequentially.

 

Third Quarter 2013 Results

On a GAAP basis, segment operating income was $395 million with third quarter net income of $22 million, or earnings of $0.03 per diluted share. This included:

• $113 million, net of tax, associated with legacy lump sum contracts in Iraq;
• $25 million, net of tax, in severance, exit and other charges; and
• $17 million, net of tax, in professional fees and expenses related to the historical U.S. government investigations and the on‑going remediation of our material weakness related to income taxes.

Outlook

The Company expects the fourth quarter to continue to show sequential improvements in revenue and operating income in North America, with the U.S. benefiting from a lower operating cost structure and higher activity levels in Canada. Latin America will be flat sequentially. The outlook for the Eastern Hemisphere remains positive with continued expansion in Europe, Caspian and Sub-Saharan Africa, and with continued improvement in the Middle East/North Africa and Asia Pacific region. Better operating performance in the fourth quarter coupled with further cost reductions and improvements in capital efficiency measures point to a positive outlook. The Company now expects its 2013 annual effective tax rate to be in the range of 22% to 24%. The divestiture process of our non-core businesses is fully underway and progressing with all transactions expected to be complete by year-end 2014. Supplemental details related to the divestiture process are available on our website, www.weatherford.com in the Investor Relations section.

 

 

Regional Highlights

• North America
  North America revenues for the quarter were $1,597 million, up 4% sequentially and down 7% from the same quarter in the prior year. The quarter's operating income was up 29% sequentially at $215 million, and down $82 million, or 28% from the same quarter in the prior year. The sequential increase was largely due to the seasonal recovery from spring break-up in Canada positively impacting revenues and margins in all product lines, as well as higher profitability generated by further internal cost efficiencies and strong execution.

 

• Middle East/North Africa/Asia Pacific
  Third quarter revenues of $819 million were up $119 million, or 17% higher than the third quarter of 2012, and down $100 million, or 11% lower sequentially. The current quarter's operating income of $69 million increased $33 million, or 92% from the same quarter in the prior year, and increased 5% sequentially. Middle East and North Africa profitability improved sequentially and was partially offset by lower sequential performance in the Asia Pacific region. Iraq margins, excluding legacy contracts, also improved sequentially and year-over-year.

 

• Europe/Sub-Sahara Africa/Russia
  Third quarter regional operating income and revenue were the highest in our history. Third quarter revenues of $691 million were 10% higher than the third quarter of 2012 and up 1% sequentially. The current quarter's operating income of $103 million increased 17% when compared to the same quarter in the prior year, and increased $20 million or 24% sequentially.  The year-over-year operating income increase resulted from higher margins in the region driven by Europe and Sub-Saharan Africa. Sequentially, operating income expanded primarily driven by increased seasonal profitability in Russia. 

 

• Latin America
  Third quarter revenues of $713 million were down $26 million, or 4% sequentially and down $55 million, or 7% compared to the third quarter of 2012.  The decline in revenue in the third quarter compared to the prior year was largely related to lower activity in Mexico.  The current quarter's operating income of $115 million was up $18 million, or 19% compared to the same quarter in the prior year, and $25 million, or 28% higher sequentially, primarily driven by increased profitability in Argentina. Sequential increases in profitability were achieved despite activity contraction in Mexico, our largest country in the region.   

 

Liquidity and Free Cash Flow  

 

Free cash flow improved by over $150 million sequentially, driven by better operating efficiency and a reduction in capital expenditures. Capital expenditures, net of lost-in-hole, declined 39% year-over-year and 20% sequentially. Inventory levels were down for the second consecutive quarter and contracted 2% sequentially. Days sales in inventory decreased to 84 days from 85 days in the prior quarter and 87 days in the same quarter a year ago. Days sales outstanding increased two days year-over-year and five days sequentially mainly attributable to the deferment of cash collections in Latin America.   

 

Non-GAAP Performance Measures; Supplemental Divestiture Presentation

Unless explicitly stated to the contrary, all performance measures used throughout this document are non-GAAP. Corresponding reconciliations to GAAP financial measures have been provided in the following pages to offer meaningful comparisons between current results and results in prior operating periods.   As an adjunct to this press release, we have furnished and posted to our website a presentation about our ongoing divestiture program.

About Weatherford

Weatherford is a Swiss-based, multinational oilfield service company.  It is one of the largest global providers of technology and services for the oil and gas industry. Weatherford operates in over 100 countries, and employs over 65,000 people worldwide.  For more information, visit www.weatherford.com

 

Conference Call

The Company will host a conference call with financial analysts to discuss the quarterly results on November 5, 2013, at 8:30 a.m. eastern standard time (EST), 7:30 a.m. central standard time (CST). Weatherford invites investors to listen to the call live via the Company's website, www.weatherford.com in the Investor Relations section.  A recording of the conference call and transcript of the call will be available in that section of the website shortly after the call ends.

 

 

 

Forward-Looking Statements

This press release and the documents referenced herein contain, and the conference call announced in this release may include, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. This includes statements related to future levels of earnings, revenue, expenses, margins, capital expenditures, changes in working capital, cash flows, tax expense, effective tax rates, net income, and the ongoing divestiture program. Forward-looking statements also include any statements about the resolution or potential future resolution of our ongoing remediation of our material weaknesses in internal control over financial reporting for income taxes and our assessment of the degree to which historical remediation efforts have been successful to date.  It is inherently difficult to make projections or other forward-looking statements in a cyclical industry and given the current macroeconomic uncertainty. Such statements are based upon the current beliefs of Weatherford's management, and are subject to significant risks, assumptions and uncertainties. These include  the company's  inability to design or improve internal controls to address identified issues; the impact upon operations of legal compliance matters or internal controls review, improvement and remediation, including the detection of wrongdoing, improper activities or circumvention of internal controls; difficulties in controlling expenses, including costs of legal compliance matters or internal controls review, improvement and remediation; impact of changes in management or staff levels, the effect of global political, economic and market conditions on the company's projected results; the possibility that the company may be unable to recognize expected revenues from current and future contracts; the effect of currency fluctuations on the company's business; the company's ability to manage its workforce to control costs; the cost and availability of raw materials, the company's ability to manage its supply chain and business processes; the company's ability to commercialize new technology; whether the company can realize expected benefits from its redomestication of its former Bermuda parent company; the company's ability to realize expected benefits from its acquisitions and dispositions; the effect of a downturn in its industry on the company's carrying value of its goodwill; the effect of weather conditions on the company's operations; the impact of oil and natural gas prices and worldwide economic conditions on drilling activity; the effect of turmoil in the credit markets on the company's ability to manage risk with interest rate and foreign exchange swaps; the outcome of pending government investigations, including the Securities and Exchange Commission's investigation of the circumstances surrounding the company's material weakness in its internal control over financial reporting of income taxes; the outcome of ongoing litigation, including shareholder litigation related to the company's material weakness in its internal control over financial reporting of income taxes and its restatement of historical financial statements; the future level of crude oil and natural gas prices; demand for our products and services; levels of pricing for our products and services; utilization rates of our equipment; the effectiveness of our supply chain; weather-related disruptions and other operational and non-operational risks that are detailed in our most recent Form 10-K and other filings with the U.S. Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize, or underlying assumptions prove incorrect, actual results may vary materially from those indicated in our forward-looking statements. Specifically, statements regarding the current period assume that there will be no subsequent events or other adverse developments after the date of this press release that cause our financial statements for the current period, when filed with the SEC, to vary materially from the amounts herein.  We undertake no obligation to correct or update any forward-looking statement, whether as a result of new information, future events, or otherwise, except to the extent required under federal securities laws.