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Weatherford Reports Second Quarter 2016 Results

BAAR, Switzerland, July 27, 2016 /PRNewswire/ -- Weatherford International plc (NYSE: WFT) reported GAAP net loss for the second quarter of 2016 of $565 million, or a net loss of $0.63 per share, and adjusted net loss before charges and credits of $253 million ($0.28 adjusted net loss per share) on revenues of $1.40 billion for the second quarter of 2016.

Second Quarter 2016 Highlights

  • Industry leading operating income decrementals of 6% sequentially and 24% year-over-year; sequential incrementals of 50% (GAAP basis);
  • Ceased operations in three manufacturing and service facilities, a year-to-date total of seven of the nine planned closures for the year;
  • Closed 28 additional operating and other facilities, now at 54 year-to-date, 11 more than originally projected;
  • Completed 92% of the planned 8,000 reduction in force, with expected annualized savings of $446 million;
  • Entered into an agreement defining the terms and conditions of the Zubair early production facility construction contract settlement in the amount of $150 million;
  • Raised net proceeds of $2.7 billion from newly issued debt: $1.265 billion in exchangeable (convertible) notes maturing in 2021 and $1.5 billion in new senior notes, $750 million maturing in 2021 and $750 million maturing in 2023;
  • Settled in cash, a tender offer of $1.9 billion face value of existing senior notes on June 30, 2016; and
  • Gained inclusion in the Euronext Vigeo World 120 Index, which recognizes companies achieving the most advanced Environmental, Social and Governance (ESG) performance.

(In Millions, Except Per Share Amounts)


Three Months Ended


Change



6/30/2016


3/31/2016


6/30/2015


Sequential


Year-on-Year

Total
















Revenue


$

1,402



$

1,585



$

2,390



(11)

%


(41)

%

Operating Income (Loss)


$

(66)



$

(157)



$

36



58

%


(283)

%

Operating Margin


(4.7)

%


(9.9)

%


1.5

%


520

bps


(621)

bps

Adjusted Operating Income (Loss) *


$

(116)



$

(105)



$

117



(11)

%


(200)

%

Adjusted Operating Margin


(8.3)

%


(6.6)

%


4.9

%


(168)

bps


(1,318)

bps

Adjusted Decrementals **











(6)

%


(24)

%

















Net Loss


$

(565)



$

(498)



$

(489)



(13)

%


(16)

%

Adjusted Net Loss *


$

(253)



$

(239)



$

(77)



(6)

%


(225)

%

















Diluted Loss per Share


$

(0.63)



$

(0.61)



$

(0.63)



(3)

%


%

Adjusted Diluted Loss per Share *


$

(0.28)



$

(0.29)



$

(0.10)



4

%


(181)

%


* Adjusted Operating Income, Net Loss and Diluted Loss per Share are non-GAAP measures and primarily exclude the charges and credits for the Zubair legacy contract.


** Incremental/decremental operating margin is calculated by taking the change in adjusted operating income over the change in revenue.

Bernard J. Duroc-Danner, Chairman of the Board, President and Chief Executive Officer, stated, "During the second quarter, we continued to drive progress both operationally and financially.

On the operational front, our results show the impact of the cost transformation of Weatherford, resulting in our adjusted operating income declining by only $11 million on a sequential revenue decline of 11% or $183 million, with an improvement in our adjusted earnings per share. Underlying our operating results are benefits from our continued cost reduction efforts, supporting strong adjusted operating income decrementals of 6% sequentially and 24% year-over-year.

North America revenue declined 26%, outperforming a 35% reduction in average rig count and continued pricing headwinds. However, operating losses were reduced substantially with the aggressive cost actions taken this year. We believe North America activity levels have hit a bottom.

Internationally, our revenue declined 3% on a sequential rig count reduction of 7%. Latin America bore the brunt of the decline with steep customer spending cuts across the board. Eastern Hemisphere revenue increased by 4% sequentially. In the Europe/Caspian/Russia/Sub-Sahara Africa region, sharp activity reductions in offshore West Africa were only partly mitigated by a seasonal recovery in Russia. In the Middle East/North Africa/Asia Pacific region, the revenue increase reflected the final contract settlement of the Zubair project and higher activity in Algeria more than offsetting declines across several Asia Pacific operations. Revenue for the Land Drilling Rigs business declined with lower sequential utilization rates.

On the financial front, we successfully completed two upsized capital markets transactions, materially de-risking our near-term financial profile and meaningfully improving our liquidity position. We reduced near term debt maturities over the next three years from $2.1 billion down to $639 million, ensuring that we can meet our obligations under any business scenario. The settlement of the Zubair early production facility contract located in Iraq was an important milestone during the quarter. We also substantially completed our full year headcount reduction and continued to optimize our headcount support ratio, all of which should positively impact our results moving forward.

The industry has now hit a bottom on both the activity and pricing fronts. Customers have begun to recognize that reliable, high quality products and services have been discounted below economic minimums and are at unsustainable levels. Our conversations with several customers support expectations that both activity and pricing levels will improve gradually over the next several quarters.

With our legacy issues now behind us, and a fundamentally transformed cost structure, Weatherford is positioned for the market recovery. As we look forward to a gradual improving macro environment, our core set of differentiated product lines and technology, along with a very disciplined approach and a much strengthened operational team, all support strong incremental operating income margin improvement and future free cash flow generation.

Our performance to come will reflect our transformation in all metrics."

Second Quarter 2016 Results

Revenue for the second quarter of 2016 was $1.40 billion compared with $1.59 billion in the first quarter of 2016 and $2.39 billion in the second quarter of 2015. Second quarter revenues declined 11% sequentially and 41% from the prior year. The sequential decline was 26% in North America and 3% for International operations.

GAAP net loss for the second quarter of 2016 was $565 million (net loss of $0.63 per share), compared to a net loss of $498 million in the first quarter of 2016 (net loss of $0.61 per share), and a net loss of $489 million in the second quarter of the prior year (net loss of $0.63 per share).

Adjusted net loss for the second quarter of 2016 was $253 million (adjusted net loss of $0.28 per share), compared to a net loss of $239 million in the first quarter of 2016 (adjusted net loss of $0.29 per share), and a net loss of $77 million in the second quarter of the prior year (adjusted net loss of $0.10 per share).

After-tax charges, net of credits, of $312 million for the second quarter include:

  • $146 million in charges primarily from a fair market value adjustment of a note receivable from our customer in Venezuela and write-downs in inventory and other assets;
  • $101 million in litigation charges mainly related to advancement in negotiations with the SEC/DOJ regarding our income tax restatements from previous years;
  • $69 million in charges from bond tender premiums related to the repurchase of our senior notes; and
  • $41 million in severance and restructuring charges.

The above charges were partly offset with $45 million of income from the settlement of our Zubair legacy contract.

Operating margin of -4.7% for the second quarter improved by 520 basis points sequentially, and deteriorated 621 basis points from the second quarter of 2015. Adjusted operating margin of -8.3%, for the second quarter decreased by 168 basis points sequentially, and declined 1,318 basis points from the second quarter of 2015. Sequentially, an overall 11% reduction in revenue resulted in adjusted operating income decrementals of 6%. Year-over-year revenue was down 41% with adjusted operating income decrementals of 24%. The negative operating margins continue to include about $50 million of costs per quarter to preserve the operating infrastructure and structural organization to enable the company to respond effectively to the anticipated increase in activity levels.

Segment Highlights

North America

(In Millions, Except Per Share Amounts)


Three Months Ended



Change




6/30/2016


3/31/2016



6/30/2015



Sequential



Year-on-Year

North America















Revenue


$

401



$

543



$

808



(26)

%


(50)

%

Operating Loss


$

(101)



$

(128)



$

(92)



21

%


(9)

%

Operating Margin


(25.2)

%


(23.6)

%


(11.5)

%


(153)

bps


(1,371)

bps

Second quarter revenues of $401 million were down $142 million, or 26% sequentially, and down $407 million, or 50%, over the same quarter in the prior year. Second quarter operating losses decreased by $27 million sequentially to $101 million (-25.2% margin) and increased $9 million from an operating loss of $92 million in the same quarter of the prior year. The 26% decrease in sequential revenue in the region outperformed the 35% drop in the North American rig count and reflected reduced customer activity and spending as well as the Canadian seasonal spring break-up, coupled with continued pricing headwinds. Operating losses decreased sequentially, resulting in incrementals of 19%. Driving these results were the benefits from aggressive cost saving actions taken during the first half of 2016. Year-over-year decrementals were a respectable 2%.

International Operations

(In Millions, Except Per Share Amounts)


Three Months Ended



Change




6/30/2016



3/31/2016



6/30/2015



Sequential



Year-on-Year

International Operations
















Revenue


$

892



$

923



$

1,397



(3)

%


(36)

%

Operating Income (Loss)


$

52



$

(3)



$

124



1,833

%


(58)

%

Adjusted Operating Income


$

2



$

49



$

205



(97)

%


(99)

%

Adjusted Operating Margin


0.2

%


5.4

%


14.7

%


(517)

bps


(1,451)

bps

Second quarter revenues of $892 million were down $31 million, or 3% sequentially, and lower by $505 million, or 36% compared to the same quarter in the prior year. Second quarter operating income of $52 million (5.8% margin) was $55 million higher sequentially and $72 million lower versus the same quarter in the prior year. Second quarter adjusted operating income of $2 million (0.2% margin) was lower by $47 million sequentially and $203 million lower versus the same quarter in the prior year. Adjusted operating income excludes both charges...


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