Weatherford International PLC (WFRD) 2013 Q4 法說會逐字稿

Good morning. My name is Brent and I will be our conference operator today. At this time I would like to welcome everyone to the Weatherford International fourth-quarter 2013 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question and answer session.

(Operator Instructions)

As reminder ladies and gentlemen, today's call is being recorded. Thank you. I would now like to turn the conference over to Mr. Bernard Duroc-Danner, Chairman, President and Chief Executive Officer. Sir, you may begin your conference.

Thank you good morning everyone. We'll have three speakers today. Krishna will have prepared comments and then Dharmesh, and then myself, and then we will turn to Q&A afterwards. Krishna.

Thank you, Bernard, and good morning everybody. I would like to remind our audience that some of today's comments may include forward-looking statements, reflecting Weatherford's views about future events and the potential impact of performance. These matters involve risks and uncertainties that could impact operations and financial results, and cause our actual results to materially differ from our forward-looking statements. These risks are discussed in Weatherford's Form 10-K for the year ended December 31, 2013 filed yesterday, February 25, 2014. Our comments include non-GAAP financial measures; reconciliations to the most directly comparable GAAP financial measures are included in our fourth-quarter press release.

With that out of the way, the first thing I want to announce is that the long-standing material weakness on our tax accounting has been remediated. This was an enormous burden on the Company whose impact in prior years cannot be overstated. It is history now.

Moving onto specifics, non-GAAP earnings per share for the fourth quarter before charges were $0.07. After tax charges for the fourth quarter of $324 million included: $171 million associated with our legacy lump sum contracts in Iraq, principally for the Zubair EPF contract; $96 million for charges related to losses on monetizing 2026 bonds issued by PDVSA in Venezuela to settle part of our receivables and other accounts receivable write-offs and $57 million in severance, exit, and other charges.

My comments are going to address the fourth quarter of 2013, then the full-year 2013, and then finally the outlook for 2014. Starting with the fourth quarter, our operating margin before research and development costs and corporate expenses was 10.1%, down 310 basis points sequentially.

The fourth quarter was a perfect storm, with several factors coalescing to pressure our margins. These included activity shortages in North America, the North Sea, and Russia due to severe weather, and operational disruptions in the Middle East. Adding to these was sluggish activity in Mexico and the self-imposed activity reductions in Venezuela.

The tax rate in the fourth quarter was high at 45%, including one item of tax planning, which we accelerated into 2013 to benefit the tax rate of future years. Without this item, our tax rate for the quarter would have been 27%.

Moving on to cash flow now, during the fourth quarter we generated free cash flow of $298 million, a sequential improvement of $337 million from Q3, which was driven primarily by a reduction in working capital. Net debt reduced by $687 million in the fourth quarter, reflecting the strong free cash flow and the monetization of the sale of our equity investment in Borets for $400 million against which we collected $359 million, with $11 million settled against trade payables outstanding to Borets and the remaining $30 million in the form of a three year note.

Now moving onto the full year. For the full year 2013 operating margins were 11.2%. The operating margin for our core businesses came in at 16.3%, while our non-core businesses had a negative operating margin of minus 6.9%. This was the first time we are commenting on our core business margins versus the margins for the non-core businesses. This analysis clearly indicates that our core businesses do make attractive margins, and predict an overall improvement in Company margins once the non-core businesses have been divested. Bernard will comment on the core business margins in more detail later, as this touches on our future strategic directions.

The tax rate for 2013 was 25%. Free cash flow for all of the year 2013 was a consumption of $346 million, which is an improvement of $610 million versus 2012. As a result of running a focused capital discipline program right through 2013, we have reduced working capital by 14 days across the year, 7 days coming from DSO and 7 days from reduced inventories. In total, working capital balances declined by $563 million during the year.

Capital expenditures dipped to 10.3% of revenue in 2013, versus 14.3% in 2012. Given Weatherford's poor historical free cash flow performance, 2013 was a year in which the focus on capital discipline has been instilled in the Organization. This was a real shift in Weatherford's DNA. Net debt reduced $43 million in 2013 to end the year with $8.3 billion.

Now moving onto 2014. Our immediate focus is on reducing our cost base. We have already identified 6,192 positions for termination, which is expected to realize $466 million of savings on an annualized basis. These reductions will start immediately. The entire Organization will work intensely to reduce costs in the first two quarters of this year.

The first quarter of 2014 we'll see a seasonal weather-related dip in Russia, China, and the North Sea. Additionally, we expect weak activity in Latin America. In Venezuela, our determination to run our business in a more cash focused manner will curtail activity, and in Mexico we expect sluggish activity levels as we enter the new year. This means we will have a slow start to the year and focus on our cost reduction efforts.

We expect to see a significant pickup in the second half of the year and benefit from larger cost savings. As such, we reiterate our most recent earnings guidance of between $1.10 and $1.20 per share for the year. This assumes a full year of contribution by both our core and non-core businesses, and we will change our estimates as the non-core businesses get divested over the course of the year.

This guidance includes about $0.30 from our cost savings actions, which will really begin showing in our results from the second quarter onward. $0.25 out of the $0.30 cost savings will come from the headcount reduction, with the rest coming from location shutdowns in other areas.

Our tax rate for 2014 will range between 25% and 35%, but more likely between 27% and 33%, and will be dependent on the geographic mix of earnings. In 2014, we will continue the good work on capital discipline and expect to generate $500 million in free cash flow, with further improvements in working capital days, and reduce capital expenditure, which is budgeted at $1.25 billion to $1.3 billion, or between 7.5% and 8% of revenue.

Finally, let me give you an update on the status of our divestiture program. We have focused divestiture teams working on preparing data packages for each business. We have advanced well into the process of selling the first of the four non-core businesses. The work stream for the other three business divestitures are on schedule and we expect to complete these by the end of the third quarter. The work to carve out the land drilling rig business is also ongoing and on track for a year-end or first quarter 2015 IPO or spin.

Coupled with these operating cash flow improvements and expected cash proceeds from our divestiture program, we expect net debt to approach $7 billion by the end of 2014, resulting in an improved debt-to-cap ratio of about 45%. One word on the timings of future earnings calls. We expect to hold our earnings releases and calls in about the fourth week of each quarter of the month following the end of each quarter.

With that, I now turn the call over to Dharmesh Mehta to comment on operations.

Thank you Krishna and good morning everyone. I will provide an operations outlook for 2014.

US. Activity in the US continues to be robust. Rig and well costs in oil rich regions such as the Permian point to a healthy market. Weatherford has one of the best industry portfolios for unconventional development and our footprint, combined with market activity, will play to our strengths in 2014. All five core segments will benefit with increases in US activity.

Stimulation continues to show improvement and we enter 2014 with 85% of our available horsepower under subcontract. Based on current activity, we expect to reach 100% utilization by midyear.

Canada. Traditional Canadian activity remains steady and is projected to be modestly up versus last year. An area in Canada that is seeing growth is the heavy oil thermal market. Weatherford has an industry-leading thermal completion solution and we benefit from the growth of the thermal market.

Three technologies that will drive improvement in North America performance are the following:

- Completion technologies such as i-ball, TRUFRAC, and Invisiball. Successful pre-trials were completed for these technologies in the second half of 2013. They will provide customers with the best option for maximizing production from unconventional wells.

- Ongoing testing of our newest generation Rotary Steerable system in the fourth quarter was successful. Commercial launch in 2014 to US and other markets is progressing according to plan.

- New Artificial Lift capabilities such as guided sucker rods, rod rotators, and others that target the growing horizontal well market were successfully introduced in the second half of 2013.

A combination of market activity, contracted horsepower in Stimulation, commercialization of new technologies, and a lower cost structure will ensure the North American performance in 2014 will be significantly better when compared to 2013.

Latin America. 2014 will be a transition year for Latin America. Due to delays in implementation of the energy reform in Mexico, uncertainty in Venezuela both politically and with respect to getting paid, elections in Colombia, and the currency devaluation in Argentina. The E&P spend in Mexico will be delayed until Pemex is done with their assessment of what fields they will retain and passing of additional local legislation.

In Venezuela we have scaled back activity in all product lines, and now primarily provide products and services where we are getting paid. We continue to work with PDVSA management on payment arrangements, and will do work only after we have a mutually satisfactory solution in place. Colombia is projected to be flat until after the election period late in the second quarter.

Work stoppages due to unions and other local disputes remain a continued risk in Argentina and other Latin American countries. Weatherford has historically had and continues to have a very strong Latin American operational team that will continue to work through the challenges we face today.

MENA and Asia-Pacific. Asia will continue to show steady progress in 2014 driven by well construction awards during the second half of 2013. There were two material developments in MENA that were completed in 2013. They are as follows:

Establishment of MENA Gulf. Kuwait, Oman, UAE, and Saudi Arabia now make up almost 45% of Weatherford revenues in the Middle East region.

Key long-term contracts in core segments will restore MENA profitability by year end to what it used to be before the Arab Spring. In 2010 four countries: Algeria, Libya, Yemen, and Iraq made up almost 50% of the region's profitability. In 2014, the same countries will generate less than 5% of the regional profitability. In summary, MENA profitability, impacted by the Arab Spring and other events, will have [into place] with a more reliable revenue stream from the MENA Gulf countries.

Mitigation of risk in Iraq. During the first quarter of conference call last year Bernard announced that we will not be deploying any additional capital into southern Iraq. During 2013 we have methodically brought to closure most of the legacy contracts in Iraq.

Iraq status is as follows. Four of the five turnkey drilling projects are complete. We are still on the last two wells of the last contract and are expected to finish all work in the next couple of weeks. This will bring an end to all the turnkey drilling contracts in Iraq, and we will maintain our policy of not entering any more turnkey drilling contracts in Iraq.

The Gharraf Integrated Production facility project has been completed and we are demobilizing from the site. Zubair is the last of the legacy EPF contracts and will continue through the end of the year. At the end of January 2014, this project was 75% complete. As of today, we have reserved for $80 million of contingencies and also for the maximum penalty of $65 million associated with potential project delays. We have moved past the engineering and procurement phase of the project, substantially all of the project activities are now on-site and center around assembly of equipment as it is delivered to the project site.

We also have over $150 million in claims that have been submitted to the client. We are actually working with our client on the resolution of all the claims that have been submitted.

To summarize, the emergence of MENA Gulf, the completion of mitigation of risk in Iraq allows the MENA Asia-Pacific region to exit 2014 with the same profitability levels that we had before Arab Spring.

Europe, Caspian, SSA, and Russia. North Sea, primarily UK and Norway, will benefit from increased rig count. More than 80% of the forecasted revenue for the region is already contracted. Angola will allow us to keep our focus for growth in SSA. Well Construction and Formation Evaluation are the two key product lines that will drive the growth in this region.

Prognosis for Russia is positive. Horizontal drilling is growing by 15% and Formation Evaluation will benefit from that growth. The land rig business in Russia is also showing good progress. New projects in the Caspian, Sakhalin, and the Black Sea will drive growth in the Well Construction business in this region.

In summary, our outlook for 2014 is generally positive for all regions with the exception of Latin America. New technologies that are being rolled out, backlog of contracts that have been secured in 2013, combined with North American activity, paint a positive picture for 2014.

The first quarter will be the weakest quarter of the year, primarily due to the intense focus on cost cuts. However, the combination of activity and cost cuts will result in the second half of the year being substantially better than the first half.

Besides cash, the operational organization also focused on improvements in safety and service quality. Total Recordable Incident Rate reduced by 17% in 2013 and the Lost Time Incident Rate reduced by 12%. There's always more to be done to improve safety and service quality, and this area continues to get focus in 2014.

A sign of a mature organization is one that focuses on all the key metrics that define a good business. We have discussed core segments, cash, safety, and service quality. In addition to these two areas, 2014 will be a year that operations will deliver on two additional metrics: operating margin and improved revenue per headcount.

The following key items have been completed to ensure that we show a steady change in improvement in both these metrics: Operations have completed a total strategic review of every country and its support function in this country. As a result of these exercises, we have identified 6,192 positions for termination, most of which come from the support organization. As part of this process we are also standardizing the support structure in each country.

Standardizing the organization will result in increased efficiencies as we grow the business. Total cost savings as a result of these terminations is estimated to be $466 million on an annualized basis. The other component of the reprocess has been to identify locations where performance is poor and we do not have a competitive advantage. We will exit these locations once the reprocess is complete.

We are also reviewing our manufacturing locations globally, and are identifying potential sites for consolidation.

Further details of the exit locations and manufacturing consolidations will be provided in the next conference call. I will now turn the call over to Bernard.

Thank you Dharmesh. We enter 2014 with four very constructive accomplishments:

- Settlement of a six-year running US government agency investigation.

- Remediation of material weakness in tax accounting, which was uncovered in 2011.

- A newly minted culture of cash and returns as guiding principle and value system.

- A strong Management team, at the leadership level and across operating and support functions.

These were achieved in 2013, a year of serious fundamental progress.

Profitability in 2013 wasn't enough. Operations were plagued with poor contractual commitments and unfavorable dilution of business mix. Two factors responsible for this:

- A legacy culture of growth, which became excessive.

- An obsessive level of internal distraction on legal and accounting issues.

It's easy to forget our legacy of growth was born in 1987. The Company in its core was built from nothing over 21 years. Growth in building defined who we were and what was for a very long time a very good thing. In spite of a poor stock performance from 2009 to date, the shares of Weatherford and its predecessor company, EVI, delivered from inception in May 1987 to date in 2014, a CAGR compound annual growth rate of about 18.5% per annum over almost 27 years. Growth and relentless industrially-focused building were good, were rewarding to shareholders, clients, and employees and for a long time.

It went on for too long. We lost our industrial bearings while the implications of scale were not managed well. Did we lose our direction or was it just simply a lack of attention to strategic clarity combined with inefficiencies stemming from rapid growth? It was probably a combination of both.

I've been responsible for this Company from inception in 1987 and this was my responsibility. The turnaround and reengineering of the Company on a long-term financially rewarding path is the only way I know to make up for this. We will make money and shareholders will be rewarded. We are finally free to focus on strategic, practical, and shareholder value issues without any overruling distractions.

The Company has redirected and set on a course, which although different from the original building years, we believe will not only catch-up the lost shareholder returns of 2009 through 2012, particularly the two catastrophic years of 2011 and 2012, but beyond that we'll carve out a path of long-term attractive returns. Returns which will be reliable with consistent direction and prudent guidance quarter to quarter, year to year.

What is our direction? Core, cash, cost.

Core. Focus on our essential product lines. Well Construction, Formation Evaluation, Completion, Stimulation, and Artificial Lift. This also includes concentrating on people, technology, sales, and quality. Grow our core, divest the non-core.

Cost. This will include all administrative support, and operational aspects of our business. Lowering cost is a way of life. It isn't a single event of today or the next four months. Running support functions and operations with lower cost is a key management metric.

Cash. The culture of returns is a way of life. We will generate free cash flow every -- each and every year. Free cash flow is a key management metric, together with rising margins, efficient working capital, and the lowest capital intensity compatible with growing the core. Nothing else.

You know the core. The core is made up of five segments adding up in 2013 to just about $12 billion. The operating margins expressed here, what I'm about to share with you, are all-inclusive except for R&D and corporate, which is about $466 million in total for Weatherford as a whole in 2013, therefore on the same basis as regional operating income results, exactly the same basis as the regional results.

Well Construction 2013 revenues of $4.6 billion is the largest with operating income margins of 24.9%, or 25%. We are market share and technology leaders.

Completion 2013 revenues of $1 billion even, with 2013 operating income margin of 23.9%, or just about 24%. This is a specialized play, technologically focused on open-hole completion.

Artificial Lift, 2013 revenues of $2.6 billion with operating income margin of 16.4%. We are market share and technology leaders.

Formation Evaluation, 2013 revenues of $2.4 billion with operating income margin of 9.9%, or just about 10%. This is an early play with proprietary sensing technology. It requires better market selection and sales support.

Following the last segment that required near-term profitability focus:

Stimulation 2013 revenues were $1.3 billion and negative operating income margins of [negative 7.9%] (Company corrected after the call). Stimulation wasn't a core competency until recently. Its operating performance reflected this uncertainty. Today there is a focus on operating efficiency in the US and chemical-based Stimulation technology, which has confirmed our commitment to this product line.

In 2013, the core had an operating income margin of 16.3%. And excluding US Stimulation, an operating income margin of 18.9%. 18.9% compares to an overall Weatherford operating margin of 11.2%. The contrast is obvious.

Direction on all five core segments is underway. Well Construction, Completion, and Artificial Lift focused on high incremental margin growth with attractive cash returns. As much and as effective from a quality of execution standpoint as we can take on. Formation Evaluation's margin will expand with sales and marketing of its proprietary sensing technology and the immediate pruning of market positions that are not attractive long-term.

US Stimulation is already healing with focus on operating performance, cost, quality of service, and development of proprietary chemical solutions. We have a broad engineering chemical bench anchored in production and our industry-leading managed pressure drilling product line.

The lowering of the cost structure, which both Dharmesh and Krishna discussed, concerns the core. Is does not concern the divested assets, except for some scaling down of corporate expenses as divestments occur. The effect on margins is simple. We target as you know $500 million of low cost structure. Getting close to it already in Q1.

The completion of our cost drive will add over 400 basis points to the core's operating income margins. The joint effect of divesting non-core and lowering the cost structure is simple but powerful. Of course this relies on a successful completion of the cost and divestment initiatives. They are the immediate priority for the entire Management team. There is much to get done and we are moving very quickly. The first half of the year will be intensely busy.

Three other comments are relevant for our near term:

Cost reductions are difficult and stressful for the Organization. We will implement ours as fast as we can to close the uncertainty. We have designed and communicated a compensation plan, which will help with retention, morale, and placing the emphasis on metrics where it matters. We have done the same with officers.

Part of the turnaround is the completion and closure of all unfavorable contracts. Southern Iraq is by far the most egregious and punitive case. On completion of Zubair, our primary remaining contract, we will exit the EPF product line, and as a matter of policy will not engage in turnkey projects of any kind in Iraq.

More broadly, contractual policy has been tightened for all product lines. Margins and cash returns are the key metrics, with terms and conditions seeking to minimize risk.

The objective for us is derisk the Company as well as delever. Despite the heavy operational work in process in the first half of the year, 2014 as a whole will see disciplined growth around the core.

As a synthesis of 2014 regional outlook:

Weatherford's eastern hemisphere should have a strong year and higher margins. North Sea, Sub-Sahara Africa, Russia, and Middle East will show improvement throughout the year, particularly in the second half. Well Construction and Formation Evaluation are the driving force.

Weatherford's North America should have a better prognosis than most expect. Part of it is self help, which is our costs and operating measures around Stimulation and Formation Evaluation; the part of it is the market. We feel the prognosis for activity again particularly in the second half is stronger than generally anticipated.

Latin America is the exception, primary markets are either at a standstill: Mexico, Colombia, and Brazil. Or challenged by severe liquidity issues: Venezuela. Although the prognosis in Latin America is excellent long-term, Mexico in particular, 2014 is expected to be a down year.

Adding the pieces together, 2014 should be, from an operating and financial standpoint, the financial turnaround building on the achievements of 2013. The year will start slowly for both traditional and seasonal issues and the intense internal cost and divestment initiatives. The second half will demonstrate the financial standards, what is being sought by Management, and set up the credibility for 2015 and beyond. The 2014 objectives of $1.10 to $1.20 in earnings, free cash flow of $0.5 billion and net debt reduction in excess of $1 billion are reasonable and grounded on careful assessment.

We are mindful of past guidance which has not been reliable. There is a concerted effort to change this. Because of our newly established operational and administrative measures, we expect our future guidance to be consistent and reliable.

Again, we have three objectives in mind, and only three. Delever, derisk, and step change profitability. We want 2014 to show clear progression on all three. With that, I will turn the call back to the operator for the Q&A session.

Thank you.

(Operator Instructions)

James Crandell with Cowen.

Morning, everyone.

Morning, Jim.

Bernard, given your more selective strategy on pursuing growth, what do you think a reasonable target for a topline growth for Weatherford is for the full year?

And can you comment that given your cost-cutting and taking the growth into account, what is a reasonable target for overall margin improvement for the product lines that you are keeping?

I think 2014 being a year which we will see a lot of internal work, I would say the core growth should probably be constrained to about 10% and not more. I think beyond we would target, if all goes well, 15% -- 15% thereof.

With respect to the margin improvement, I will turn to Krishna to see how you would like to express that.

Just the core businesses, this year as we've said earlier, the core businesses made an operating income margin of 16.3%. Going into 2014, with the revenue growth that Bernard just put out there, we should definitely be in very high teens. Just pushing 20% in the fourth quarter on the exit rate with that kind of growth.

Okay. A question about the cost-reduction efforts that you are making.

I mean, 7,000 heads, I realize on a 49,000 base, is a lot of people. But you've made great progress so far. I guess two questions around this.

Number one, does this put your -- I understand most of these people are in non-revenue generating areas. Does this put your ratio of non-revenue generating employees to revenue-generating employees where you want it to be?

And if not, should we view this as maybe there is another shoe to drop or another step to take in terms of the cost-reduction process?

I will let Dharmesh give you some substance on that.

But I will say this, Jim. I think the heavy lifting in terms of finding the positions to close is happening now. We are trying to get it done very quickly. Afterwards there is pruning. Pruning is not heavy lifting.

With that I will turn it to Dharmesh.

First of all Jim, there is no second phase of cost cuts planned. The first though we have taken is a very intense effort serving its country by country, function by function. We do not have to go a second time.

So from a perspective of how we run the whole program, it has taken up a lot of time, a lot of focus by Management in the last five to six weeks to scrub everything.

Now, the only thing that is not finished is the locations that we will exit and consolidation of manufacturing locations. And those two will be identified on the next call.

So from a [your answer] perspective, the cost cuts really is a one-pass process.

The second question you asked, which is the ratio of indirect to direct, one thing we are not at all stopping is the hiring of people for locations where we have contracted with.

So a large percentage of our revenue because of the contracts we won in the second half of last year, we are hiring people, we're hiring direct headcount in our regions in almost every part of the world to support the contracts we have.

So the combination of hiring for revenue-generating positions with the cost cuts will get our ratio pretty much in line to where we want it to be by the end of the year.

I will add one last thing, which is very focused on R&D and technology. The R&D spend on the core for R&D spending in general, even after the non-cores are gone, will not drop commitments to technology. It will remain the same.

Okay. And one last quick question. In your asset divestiture program, are you keeping the international pieces of fluids and testing?

Jim, this is Krishna.

First, I'd like to answer the earlier question you had on the ratio of -- non-revenue earning employees to revenue-earning employees.

For the longest time in international oil and gas services company, the standard ratios for a business with our international exposure should be between 30% and 35%, which is non-revenue generating employees divided by revenue generating. So the 7,000 cuts that we are talking about will bring us in line with that range.

Now, on the divestments, right now we are working on the assumption that the testing and production of course we will sell the whole global business. And on the drilling fluids business, we are considering whether to sell the US piece separately and the retail international piece as it is quite embedded with our project revenue, our integrated project and management efforts.

Good, okay, good answers. Thank you and great rundown.

Thank you.

Jim Wicklund with Credit Suisse.

Good morning, guys.

Good morning, Jim.

That was so incredibly extensive and thorough and detailed that we are all scrambling to come up with a good question. So that's a compliment, by the way.

Thank you.

And the mea culpas and the acknowledgment of what's gone wrong in the past and what is going to fix it is good.

The question that leaps to mind is -- I don't mean to be rude with this -- but what makes you think you can effect all these changes now? And you haven't been able to for the last couple of years?

I think to give you an answer and then Dharmesh will fill it.

I think in the prior years, I am referring to 2011 and 2012, not 2013, where already a lot of what we're doing now are the seeds we've placed. 2011 and 2012, I think the Company -- to say it was distracted is to put it mildly. So I will leave it at that. It was unable to handle anything except staying alive. This is (inaudible) one.

Two, with respect to making the changes that we need to make, it is simple: divest the core, change the cost structure. Divest the non-core, change the cost structure.

Dharmesh will give you some more details.

Jim, two parts to my answer.

I remember a wise young man asking Bernard a question that implementing a culture of cash is very difficult. How do you expect to do it so quickly? And Bernard had answered that question with a very simple answer which is, it's the character of our organization.

Weatherford has a history of once it makes its mind up to do something, it will do it well.

If you look at the cash and implementation of the culture of cash in the 14 years of working capital in one year, by any standards for a Company that never generated free cash flow working capital, that is a very staggering achievement.

No argument.

The second one I would say is the following.

Which is, you cannot underestimate the distraction of the tax and the lawyers and the freeing up of that by an organization from those distractions.

So the combination of no distractions, the character of the organization, and to some extent the groundwork that has been laid in 2013, makes us very optimistic about getting what we need to get done in 2014.

Okay, guys. I was married to a lawyer once, I know they can be distracting.

There was a comment you made, Bernard, when you were talking about completing the strategic view and understanding guidance in the past hadn't been good. And you mentioned measures have been put in place to ensure that you are good at it.

This is also aimed at Krishna because, Krishna, you are new there. And you've got credibility to earn. Are there any things in place that -- carrots and sticks -- that give us confidence that future guidance and statements made get done?

Well, the first thing I would say is that the forecasting process within Weatherford certainly can do with some improvement. And we are working on all the building blocks to improve the forecasting process so that we can hold our fleet of managers much more accountable than they had been in the past.

The second thing, on the guidance, I would like to say here is that when you look at the separation of the core business and the non-core business and the granularity that we have not only provided on this call, but also the granularity of the cost reduction efforts that we have exposed today, can give us quite a lot of confidence.

In three or four weeks to identify 6,200 or thereabouts positions for termination, galvanizing the whole Organization to participate in this mammoth effort in such a short space of time, speaks volumes for itself.

I think the confidence with which we are approaching the strategic direction for the Company is very, very heartening to see, given the efforts of the field managers.

So I think we can execute on what we are saying and the guidance that we have given for us, given where we are today based on the cost cuts and the speed of the divestitures, we think it is a pretty good guidance, pretty solid.

Okay, gentlemen, impressive. Thank you very much.

Thank you.

James West with Barclays.

Good morning, guys.

Good morning, James.

Quick one for me and then a couple follow-ups. It was great to see the core margins broken out. I think a lot of people were surprised at how high those margins actually were.

Do you intend to, as we go through this year while you are doing the divestitures, to report those numbers each quarter so we can track progress?

Yes, certainly James. This is Krishna.

Of course the idea was to open this call with gross margins and then to keep it going right through every quarter to give you a rundown on how that progresses during the year.

You will see that as we divest the non-core businesses, the core profitability will emerge and the total Company profitability as well. But we will give the breakdown every quarter.

Okay, great. And then as we go through the divestiture process here, what are the accounting triggers that you need to meet before you can start putting these businesses into discontinued operations?

It is the usual accounting triggers.

We would have to have a data pack ready; hire bankers; start showing the data sets to buyers; and higher offers. Indicative offers in from buyers and extended level of due diligence should be ongoing before we get confidence of taken this out as disco.

So we will detail that as we go forward. The usual [US pack] based treatments.

Right, that would imply then that the first-half of that package that you are closest to selling -- or we're pretty close to seeing that go into discontinued ops. Is that a fair statement?

Yes, that's a fair statement in the first quarter. You will most likely see that business going out and discontinued, yes.

Okay. Has there been any change to the senior management compensation structure linking it more to the divestitures and the cost-reduction effort at this point?

Yes, there has been.

There has been throughout the Company, but the officer compensation plan is probably not a bad one to look at. Simply because the rest of the Company is not the same, but is on the same sort of philosophy.

I will turn again to Krishna to give you the details.

The bonus plan is made up of four different metrics, plus safety, which remains something which is in our DNA. This is one area we have done well, safety, but never well enough.

It matters a great deal in all respects. The four metrics are either going to be profitability-based, or they are going to be returns-based. And they are very, very specific. Do you want to share the one for officers?

The four metrics for the officers are spread between earnings as one of the four, the second one is cost reduction,

Specifically, cost reduction for now.

Yes, the third one is free cash flow generation. And the fourth one is reduction in net debt, which is of course completely reliant on divestitures.

There is a double-accounting free cash flow reliance on net debt, except the other components of net debt are divestments. And also there are some exogenous uses of cash in the US government payments. And we are trying to bring down as much as possible the non-recurrence expenses and/or uses of cash.

And we are trying to bring down as much as possible the non-recurrence expenses and/or uses of cash. That is actually an area where cash can leak out. We are trying to stop that. It's one of the measurements. Therefore, net debt addresses that also.

So the management in the plan is completely in line with the strategy that we spoke about.

Safety is the fifth component, which remains.

Right, perfect, okay. Thanks, guys.

Thank you, James.

Byron Pope with Tudor Pickering Holt.

Good morning.

Good morning.

Appreciate the color on the core product and service lines.

Bernard, as you think about the opportunity set across your geo-markets over the next couple of years, just curious as to which of those core product service lines you see driving -- really driving the topline growth.

You commented earlier about the 10% topline growth in 2014 for your core. But I'm just wondering for those various businesses in the core, which ones do you see being particularly robust in 2014?

Well, Construction for sure. It is an easy pick, it being the largest one. But it is well construction based on the contracts.

Remember that when one looks at the year, the international markets -- North America is different -- you should enter the year with 80% or 90% typically if things are running well.

So your revenue is booked already, and you can see the weight of the various product lines, and well construction has a disproportionate weight in terms of delta in 2014. I'm not saying the other ones won't do well also, but disproportionately so at the revenue line.

Dharmesh, do you want to add to that?

Sure.

Byron, there are a few secular teams that drive our growth: maturities and reservoirs, unconventional, and really what I call well integrity across all types of wells.

So if you look at mature reservoirs, artificial lift, completion, well construction -- they all benefit. And so Latin America and North America, those product lines will be driving the growth in both geo-markets.

As you start going East, reservoirs are aging; the wells are more complex; sometimes deepwater activity is higher; well construction has a bigger role to play and formation evaluation has a bigger role to play.

So it's really going to be driven by which are the more dominant secular teams in each of the geo-markets will drive each product line is the primary contributor to growth in that geo-market.

Okay, that is it for me. Thanks, I appreciate it.

Kurt Hallead with RBC.

Good morning.

Good morning, Kurt.

Well done, well done, congratulations on the turnaround. Sounds to be very impressive.

The questions I have as we move forward here is the -- you guys identified the specific product line areas with explicit detail.

I was looking at the stimulation where you mentioned the 2013 operating margin was negative 7.8%. Would like to get a handle on what that exit rate was in the fourth quarter.

And as you look out into 2014, where do you see that stimulation margin for the year?

This is actually a question which I will gladly hand over to Dharmesh. He will be more specific than I will be. I am directionally not specific.

So Q4 of 2013 was the best quarter from a margin perspective for stimulation. Q1 and Q2 were the worst; and as the year progressed, the margins got better and better.

So from an EBITDA perspective, we ended almost at a breakeven at this time the fourth quarter of last year. And we expect to be in the high-single digits sometime by the third quarter of this year.

Okay. And then that is really helpful.

And when you think about that, if you are going to be high-single digits by the third quarter, then clearly you're not going to average high single digits for the full year, obviously, right?

That is correct.

Okay. When you look at the regional -- the geo-market dynamics you provided an overall revenue growth for your core businesses. How do you think about trying to make it a little bit easier for us to follow? And appreciate the fact you'll be providing updates throughout each quarter.

But at this point, what are you thinking on core revenue growth? And what are you thinking about non-core revenue and non-core margin dynamics for 2014?

On the core, Kurt, I think the growth for the year should be around 10%. I think you have to assume there will be some measure of distraction earlier in the year. So the growth will be a little bit less than we'd anticipated it being beyond that on the core, specifically at the secular demand.

On the margin side, I will let Krishna -- what would you like to share for the cores?

The core margins, as I said earlier, were 16.3%, operating income margins for 2013. And it will start climbing upwards with the growth that Bernard has spoken about to approach close to 20% by the end of Q4 of 2014.

Now, the non-core businesses, which you asked about, they will grow at a much slower rate than the core businesses, although some parts of it, like testing are growing nicely. The testing and production business is growing very strongly.

But the margins on non-core are likely to heal to some degree. You saw some of it, clearly not enough, on the US stimulation. But it is going in the right direction.

You should find on non-core that the margin will be significant. It's going from seriously negative to not-so-negative and positive at some point.

That is right. For the year 2014, the non-core businesses -- they were not divested at all on that assumption, which makes up our $110 million to $120 million guidance.

The non-core businesses are expected to make a low-single-digit operating income margin for 2014. Which implies a growth rate of some measure, and the repairing of the businesses, the non-core businesses, which will continue relentlessly through this year.

That is fantastic and helpful. And maybe if I just could round out that discussion, and I think everybody's -- some have already probably done the math. But if you take the non-core out, and you look at 2014 on a pro forma basis, what is the core earnings power in 2014 for Weatherford?

I sort of touched on it.

Above 10% to above 20% is your guidance. If you take out the non-core, what are we looking at?

As opposed to migrating through the numbers I shared with you when I read my comment on what happens to the margins of the core when you take out US stimulation because it is a bit of an outlier. And then you add the cost cuts, which end up giving you operating income margin which are in excess of 20% in the core.

Krishna, would like to share on that?

I would say the vast majority of the $110 million to $120 million will come from the core businesses. Right?

Just as data point just for 2013, the year just past, we made -- we declared earnings of $0.60 for the year. The breakup of that between the core and the non-core is $0.85 of earnings for the core business and a negative $0.25 for the non-core.

So from what I have said just now, what we have been saying about the non-core, repairing the non-core, we can assume that we're going to bring that back to breakeven, to slightly positive in 2014. So the bulk of the earnings will come from the core.

And that is extremely helpful, and congrats again on the fix and this turnaround.

Thank you, Kurt. I think the call is ten minutes overdue.

We'll take one last question, if there is one, Operator. And then we'll close down the call.

Angie Sedita with UBS.

Great, good morning guys.

Good morning, Angie.

Could you talk a little bit about where you stand in the asset sales?

Clearly, we have seen other players in the service sector try to sell assets and have unsuccessfully done so, given what they're selling and who the buyers are and what the prices are.

So can you talk through the four tranches of assets that you're looking to sell and where you stand in the process of each of those groups?

What are you seeing as far as interest? Do you have a minimum sale price you would like to sell those assets for? Let's start there.

Okay. I would say first, Angie, that we are very organized, very meticulous. And a lot of the management, data, whatever process is necessary, is already set and behind us and ready to go to auction.

Out of the four, the rig Company is going to be run the balance of the year. We're preparing the orders, and then a spinoff IPO will be organized either in Q4 and Q1, which is a separate issue.

Of the four, the first of the four is under discussion now with interested bidders. Now, you know the process is well-engaged, and it will work or it won't.

Indications are that the bidders, of which there are quite a few, are interested in this serious. That much I can tell you.

Thanks, Bernard.

I would like to add, Angie, there is a number of interested buyers for each one of these businesses. We are actually holding them back, to be perfectly honest, until we get ready for each data package for each of the businesses, which is ongoing.

So the first data package began to be socialized with buyers on January 17, and we are in an advanced stage of discussion today on that business. So in a very rapid space of time, we are coming close to one of the business divestitures.

The others, one will come online on the 1st of April; and the other two will come online roughly around the beginning of the third quarter.

And if the long list of bidders that we have, if that is any indication of the interest that we are seeing, I have no doubt in my mind that we will be able to execute on most of these sales at a fairly reasonable price.

The only comment I would add, Angie, is one of the hardest parts of selling businesses is the extraction of the business. And one of the things we're doing very well upfront is making sure every buyer understands what the extraction issues are by location, by country, by area, by personnel, by support function.

That is not an issue for -- that doesn't delay the process.

What I was trying to allude to when I said we're organized is identification of what you are trying to sell, Angie, is actually not a simple matter when you have 1,100 bases et cetera, et cetera, operating in so many countries and you operate in a co-mingled manner.

So identification of assets, identification people, is actually something that we have done. And when I mentioned we were organized, that's what I was referring to.

All right. And then as far as the asset sales, obviously you appear to have bidders. But the bidding could be at, obviously, a range of prices.

So do you have minimums that you expect or you need to have in each of these tranches of asset sales for it to execute? Or are you more focused on getting the assets out of the Company, number one?

And then finally, number two, is on the land IPO or spin, when we will have more clarity on how exactly that will be structured as far as IPO versus spin, versus partial spin potentially, or 100% of spin? Just a little clarity there.

Let me take the first part, Angie. We have a good range of valuations that we are willing to accept for each one of the four businesses, excluding the land drilling rig business, which we'll come to separately.

And we are not in a fire-sale mode. We think these businesses are pretty solid businesses, but better owned by other owners for whom these businesses will be core. So that is the first part.

The second part I'm going to defer to Bernard.

Whether it is a full spin-off, a partial spin-off with IPO, or an IPO followed by a secondary, Angie, it is the same, same, same process between now and then. So I don't think the Board has decided which of the three will be the final option.

My particular guess is that when the time comes, we will probably do an IPO followed by spinoff of the rest of the shareholders. But again, do not hold me to that.

Remember, this is exactly the same process between now and the time of whether it's spin, IPO then spin, or IPO and then secondary, you are going to organize an independent company with independent management, audited statements.

If you remember, more than ten years ago, we did the same with Grant Prideco. That was a full spin-off. And it is the same process, except theirs was a spin-off. There could have been an IPO there, and it would have been the same process.

So in many respects, we don't have to decide now; and the Board does not have to decide now, but will. And part of the decision will be made probably towards the second half of the year.

Okay, thanks. I do appreciate the granularity on the rest of the call, and I will turn it over.

Thank you very much. I think this concludes our call. Thank you, everyone, for your time and attention.

Thank you. This concludes today's conference call. You may now disconnect. (End of Transcript)