Weatherford Reports Second Quarter 2013 Results

Weatherford International Ltd.

Consolidated Condensed Statements of Operations

(Unaudited)

(In Millions, Except Per Share Amounts)

Three Months Ended  

Six Months Ended  

6/30/2013

6/30/2012

6/30/2013

6/30/2012

Net Revenues:

North America

$      1,529

$      1,663

$      3,221

$      3,417

Middle East/North Africa/Asia 

919

649

1,704

1,244

Europe/SSA/Russia

681

653

1,314

1,224

Latin America

739

782

1,466

1,453

3,868

3,747

7,705

7,338

Operating Income (Expense):

North America

167

226

391

584

Middle East/North Africa/Asia 

66

24

111

77

Europe/SSA/Russia

83

102

148

168

Latin America

90

90

188

173

Research and Development

(71)

(64)

(138)

(126)

Corporate Expenses

(49)

(49)

(97)

(99)

Goodwill and Equity Investment Impairment

-

(793)

-

(793)

US Government Investigation Loss Contingency

(153)

(100)

(153)

(100)

Other Items

(78)

(68)

(116)

(146)

55

(632)

334

(262)

Other Income (Expense):

Interest Expense, Net

(128)

(121)

(259)

(233)

Devaluation of Venezuelan Bolivar

-

-

(100)

-

Other, Net

(18)

(27)

(31)

(45)

Loss Before Income Taxes

(91)

(780)

(56)

(540)

Benefit (Provision) for Income Taxes:

Provision for Operations

(17)

(68)

(65)

(184)

Adjustments to Provision

(3)

5

40

11

(20)

(63)

(25)

(173)

Net Loss

(111)

(843)

(81)

(713)

Net Income Attributable to Noncontrolling Interests

(7)

(6)

(15)

(13)

Net Loss Attributable to Weatherford

$        (118)

$        (849)

$          (96)

$        (726)

Loss Per Share Attributable to Weatherford

Basic

$       (0.15)

$       (1.11)

$       (0.12)

$       (0.95)

Diluted 

$       (0.15)

$       (1.11)

$       (0.12)

$       (0.95)

Weighted Average Shares Outstanding:

Basic

770

765

770

763

Diluted 

770

765

770

763

Weatherford International Ltd.

Selected Statements of Operations Information

(Unaudited)

(In Millions)

Three Months Ended

6/30/2013

3/31/2013

12/31/2012

9/30/2012

6/30/2012

Net Revenues:

North America

$    1,529

$    1,692

$      1,682

$    1,725

$    1,663

Middle East/North Africa/Asia 

919

785

851

700

649

Europe/SSA/Russia

681

633

669

626

653

Latin America

739

727

856

768

782

$    3,868

$    3,837

$      4,058

$    3,819

$    3,747

Three Months Ended

6/30/2013

3/31/2013

12/31/2012

9/30/2012

6/30/2012

Operating Income (Expense):

North America

$       167

$       224

$         226

$       297

$       226

Middle East/North Africa/Asia 

66

45

58

36

24

Europe/SSA/Russia

83

65

59

88

102

Latin America

90

98

125

97

90

Research and Development

(71)

(67)

(63)

(68)

(64)

Corporate Expenses 

(49)

(48)

(49)

(48)

(49)

Goodwill and Equity Investment Impairment

-

-

-

-

(793)

US Government Investigation Loss Contingency

(153)

-

-

-

(100)

Other Items

(78)

(38)

(111)

(87)

(68)

$         55

$       279

$         245

$       315

$      (632)

Three Months Ended

6/30/2013

3/31/2013

12/31/2012

9/30/2012

6/30/2012

Product Line Revenues:

Formation Evaluation and Well Construction⁽¹⁾

$    2,361

$    2,273

$      2,348

$    2,128

$    2,058

Completion and Production⁽²⁾

1,507

1,564

1,710

1,691

1,689

$    3,868

$    3,837

$      4,058

$    3,819

$    3,747

Three Months Ended

6/30/2013

3/31/2013

12/31/2012

9/30/2012

6/30/2012

Depreciation and Amortization:

North America

$       102

$       108

$         108

$       108

$       101

Middle East/North Africa/Asia 

98

93

94

90

85

Europe/SSA/Russia

68

71

71

63

60

Latin America

68

68

63

61

59

Research and Development and Corporate

5

6

7

7

6

$       341

$       346

$         343

$       329

$       311

(1)

Formation Evaluation and Well Construction includes Drilling Services, Well Construction, Integrated Drilling, Wireline and Evaluation Services, Drilling Tools and Fishing and Re-entry.

(2)

Completion and Production includes Artificial Lift Systems, Stimulation and Chemicals, Completion Systems and Pipeline and Specialty Services.

We report our financial results in accordance with generally accepted accounting principles (GAAP).  However, Weatherford's management believes that certain non-GAAP financial measures and ratios (as defined under the SEC's Regulation G) may provide users of this financial information, additional meaningful comparisons between current results and results of prior periods.  The non-GAAP amounts shown below should not be considered substitutes for operating income, provision for income taxes, net income or other data prepared and reported in accordance with GAAP, but should be viewed in addition to the Company's reported results prepared in accordance with GAAP.

Weatherford International Ltd.

Reconciliation of GAAP to Non-GAAP Financial Measures

(Unaudited)

(In Millions, Except Per Share Amounts)

Three Months Ended

Six Months Ended

6/30/2013

3/31/2013

6/30/2012

6/30/2013

6/30/2012

Operating Income:

GAAP Operating Income (Loss)

$         55

$       279

$     (632)

$       334

$     (262)

Goodwill and Equity Investment Impairment

-

-

793

-

793

US Government Investigation Loss Contingency

153

-

100

153

100

Legacy Contracts (a)

21

3

62

24

93

Tax Remediation and Restatement Expenses

6

21

11

27

26

Other Adjustments

51

14

(5)

65

27

Non-GAAP Operating Income

$       286

$       317

$       329

$       603

$       777

Income (Loss) Before Income Taxes:

GAAP Income (Loss) Before Income Taxes

$       (91)

$         35

$     (780)

$       (56)

$     (540)

Goodwill and Equity Investment Impairment

-

-

793

-

793

US Government Investigation Loss Contingency

153

-

100

153

100

Devaluation of Venezuelan Bolivar

-

100

-

100

-

Legacy Contracts

21

3

62

24

93

Tax Remediation and Restatement Expenses

6

21

11

27

26

Other Adjustments

51

14

(5)

65

24

Non-GAAP Income Before Income Taxes

$       140

$       173

$       181

$       313

$       496

Provision for Income Taxes:

GAAP Provision for Income Taxes

$       (20)

$         (5)

$       (63)

$       (25)

$     (173)

Goodwill and Equity Investment Impairment

-

-

(1)

-

(1)

US Government Investigation Loss Contingency

-

-

(1)

-

(1)

Devaluation of Venezuelan Bolivar

-

(39)

-

(39)

-

Legacy Contracts

10

5

-

15

-

Tax Remediation and Restatement Expenses

(1)

(3)

(3)

(4)

(6)

Other Adjustments

(6)

(6)

-

(12)

(3)

Non-GAAP Provision for Income Taxes

$       (17)

$       (48)

$       (68)

$       (65)

$     (184)

Net Income (Loss) Attributable to Weatherford:

GAAP Net Income (Loss)

$     (118)

$         22

$     (849)

$       (96)

$     (726)

Total Charges, net of tax

234

(b)

95

(c)

956

(d)

329

 (e) 

1,025

(f)

Non-GAAP Net Income

$       116

$       117

$       107

$       233

$       299

Diluted Earnings (Loss) Per Share Attributable to Weatherford:

GAAP Diluted Earnings (Loss) per Share

$    (0.15)

$      0.03

$    (1.11)

$    (0.12)

$    (0.95)

Total Charges, net of tax

0.30

0.12

1.25

0.42

1.34

Non-GAAP Diluted Earnings per Share  

$      0.15

$      0.15

$      0.14

$      0.30

$      0.39

GAAP Effective Tax Rate (g)

-22%

14%

-8%

-45%

-32%

Annual Effective Tax Rate (h)

12%

28%

38%

21%

37%

Note (a):  The revenues associated with the legacy lump sum contracts in Iraq were $215 million, $166 million and $39 million for the three months ended June 30, 2013, March 31, 2013, and June 30, 2012 and $380 million and $91 million for the six months ended June 30, 2013 and 2012, respectively.

Note (b):  Non-GAAP adjustments are comprised of (i) $153 million loss accrual related to US government investigation matters, (ii) $31 million in operating losses and tax expense related to legacy lump sum contracts in Iraq, (iii) $38 million in other adjustments consisting of severance of $25 million and $13 million in other charges and (iv) $12 million related to US government investigations and tax related professional fees.  

Note (c):  Non-GAAP adjustments are comprised of (i) a charge for the devaluation of the Venezuelan Bolivar of $61 million, (ii) $8 million in operating losses and tax expense related to legacy lump sum contracts in Iraq, (iii) tax restatement and remediation expenses of $18 million and (iv) $8 million in other adjustments consisting of severance and other charges including $3 million in investigation related expenses.

Note (d):  Non-GAAP adjustments are comprised of (i) goodwill and equity method investment impairments of $793 million, (ii) $100 million loss accrual related to US government investigation matters, (iii) $62 million in operating losses and tax expense related to legacy lump sum contracts in Iraq, (iv) tax restatement and remediation expenses of $8 million and (v) $(7) million in other adjustments.

Note (e):  Non-GAAP adjustments are comprised of (i) $153 million loss accrual related to US government investigation matters, (ii) $39 million in operating losses and tax expense related to legacy lump sum contracts in Iraq, (iii) tax restatement and remediation expenses of $23 million, (iv) a $61 million charge for the devaluation of the Venezuelan Bolivar and (v) $53 million in other adjustments consisting of $31 million in severance, $10 million in investigation related expenses and $12 million in other charges.

Note (f):  Non-GAAP adjustments are comprised of (i) goodwill and equity method investment impairments of $793 million, (ii) $100 million loss accrual related to US government investigation matters, (iii) $93 million in operating losses and tax expense related to legacy lump sum contracts in Iraq, (iv) tax restatement and remediation expenses of $20 million and (v) $19 million in other adjustments.

Note (g):  GAAP Effective Tax Rate is GAAP provision for income taxes divided by GAAP income before income taxes.

Note (h):  Annual Effective Tax Rate is the Non-GAAP provision for income taxes divided by Non-GAAP income before income taxes.

Weatherford International Ltd.

Selected Balance Sheet Data

(Unaudited)

(In Millions)

6/30/2013

3/31/2013

12/31/2012

9/30/2012

6/30/2012

Assets:

Cash and Cash Equivalents

$       295

$       286

$         300

$       365

$       381

Accounts Receivable, Net

3,837

3,850

3,885

3,911

3,608

Inventories, Net

3,637

3,744

3,675

3,676

3,399

Property, Plant and Equipment, Net

8,333

8,299

8,299

8,122

7,733

Goodwill and Intangibles, Net

4,402

4,485

4,637

4,653

4,581

Equity Investments

671

660

646

642

629

Liabilities:

Accounts Payable

2,144

2,191

2,108

2,023

1,635

Short-term Borrowings and Current Portion 

of Long-term Debt

2,148

1,896

1,585

1,606

1,263

Long-term Debt

7,087

7,032

7,049

7,300

7,311

Weatherford International Ltd.

Net Debt

(Unaudited)

(In Millions)

Change in Net Debt for the Three Months Ended 6/30/2013:

Net Debt at 3/31/2013

$     (8,642)

Operating Income

55

Depreciation and Amortization

341

Capital Expenditures

(446)

Decrease in Working Capital 

187

Income Taxes Paid

(133)

Interest Paid

(81)

Acquisitions and Divestitures of Assets and Businesses, Net

(22)

Net change in Billing in Excess/Costs in Excess

(115)

Other

(84)

Net Debt at 6/30/2013

$     (8,940)

Change in Net Debt for the Six Months Ended 6/30/2013:

Net Debt at 12/31/2012

$     (8,334)

Operating Income

334

Depreciation and Amortization

687

Capital Expenditures

(846)

Decrease in Working Capital 

120

Income Taxes Paid

(257)

Interest Paid

(264)

Acquisitions and Divestitures of Assets and Businesses, Net

59

Net change in Billing in Excess/Costs in Excess

(173)

Other

(266)

Net Debt at 6/30/2013

$     (8,940)

Components of Net Debt

6/30/2013

3/31/2013

12/31/2012

Cash

$         295

$         286

$            300

Short-term Borrowings and Current Portion of Long-term Debt

(2,148)

(1,896)

(1,585)

Long-term Debt

(7,087)

(7,032)

(7,049)

Net Debt

$     (8,940)

$     (8,642)

$       (8,334)

"Net Debt" is debt less cash.  Management believes that Net Debt provides useful information regarding the level of Weatherford indebtedness by reflecting cash that could be used to repay debt.

Working capital is defined as accounts receivable plus inventory less accounts payable.

We report our financial results in accordance with generally accepted accounting principles (GAAP).  However, Weatherford's management believes that certain non-GAAP financial measures and ratios (as defined under the SEC's Regulation G) may provide users of this financial information, additional meaningful comparisons between current results and results of prior periods.  The non-GAAP amounts shown below should not be considered substitutes for cash flow information prepared in accordance with GAAP, but should be viewed in addition to the Company's reported cash flow statements prepared in accordance with GAAP.

Weatherford International Ltd.

Selected Cash Flow Data

(Unaudited)

(In Millions)

Three Months Ended

Six Months Ended

6/30/2013

3/31/2013

6/30/2012

6/30/2013

6/30/2012

Net Cash Provided by (Used in) Operating Activities

$      252

$       (11)

$      145

$      241

$      285

Less: Capital Expenditures for Property, Plant and

(446)

(400)

(584)

(846)

(1,098)

Equipment

Free Cash Flow

$     (194)

$     (411)

$     (439)

$     (605)

$     (813)

Free cash flow is defined as net cash provided by or used in operating activities less capital expenditures.  Free cash flow is an important indicator of how much cash is generated or used by our normal business operations, including capital expenditures.  Management uses free cash flow as a measure of progress on its capital efficiency and cash flow initiatives.