Weatherford – the ‘non-recurring’ recurring charges

On Wednesday Weatherford, one of the largest oilfield service companies, announced its quarterly results. The company had a GAAP net operating loss of $399 million in the fourth quarter of 2016. After adjusting for certain charges and credits the non-GAAP operating loss was $148 million. The non-GAAP loss beat market expectations and the share price rose.

The problem is that Weatherford has had adjustments for the past 20 quarters! These adjustments total $6.3 billion. A GAAP cumulative operating loss of $2.5 billion magically turns into an adjusted profit of $3.8 billion! Obviously the company wants you to believe these charges are ‘one-off’ or non-recurring, though at least they don’t label them as such.

Let’s look at all the different ways Weatherford has had adjustments to operating income.

  • Over $700 million losses on fixed price contracts in Iraq (2012-2015).
  • Settlement payment of $153 million over foreign bribery allegations (2012-2013).
  • Settlement payment of $100 million over sanctions violations (2012-2013).
  • Settlement payment of $140 million to the SEC as a result of using false income tax accounting (2016).
  • Settlement payment of $120 million over class action lawsuit on the tax accounting (2015).
  • Approx $75 million of legal fees associated with the tax accounting settlements.
  • $98 million write-off of Venezuelan notes receivable (2013).
  • $4 billion in impairments of inventory, goodwill and other long-lived assets (2012-2016).
  • Nearly $1 billion in restructuring and severance costs (2014-2016).

That’s quite a list!

Weatherford is finally making a serious attempt to put its house in order. In November 2016, CEO Bernard Duroc-Danner left the company after 18 years in the role (with a $57 million severance package). Interim CEO (and permanent CEO candidate) Krishna Shrivram aims to transform the company from a one-stop shop into a company specializing in well construction and production optimization. The North American pressure pumping business has been idled and its assets put up for sale as well as the land rig business that operates in the Middle East and North Africa. He hopes to raise between $1.5 billion and $2 billion from these sales.

There will probably be a few more quarters of credits and adjustments before we find out whether the strategy is working.

 

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