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National Oilwell Varco Announces Third Quarter 2014 Earnings

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National Oilwell Varco, Inc. (NYSE:NOV) today reported that for its third quarter ended September 30, 2014, it earned net income of $699 million, or $1.62 per fully diluted share, compared to second quarter ended June 30, 2014 net income of $619 million, or $1.44 per fully diluted share.

The third quarter 2014 fully diluted earnings per share includes ($0.14) per share for transaction charges and the amortization of intangible assets. Excluding these, operating (non-GAAP) earnings per fully diluted share for the third quarter of 2014 were $1.76 per share, compared to $1.61 per share in the second quarter of 2014, an increase of nine percent.

Revenues for the third quarter of 2014 were $5.59 billion, an increase of six percent from the second quarter of 2014 and an increase of 17 percent from the third quarter of 2013. Operating profit for the quarter, excluding non-recurring items, was $989 million, or 17.7 percent of sales. EBITDA for the quarter, excluding non-recurring items, was $1.21 billion, or 21.6 percent of sales, up six percent from the prior quarter.

Ending backlog for the third quarter of 2014 was $14.34 billion for the Company’s Rig Systems segment and $2.09 billion for the Company’s Completion & Production Solutions segment.

Clay Williams, Chairman, President and CEO of National Oilwell Varco, stated, “Thanks to outstanding execution by our employees, the Company posted strong results for its third quarter of 2014. We set new records for operating profit, EBITDA and earnings per share during the period on solid revenue gains from continuing operations. Looking forward, we are closely monitoring the potential impact of lower oil prices on our markets; nevertheless, our strong backlog, our growing aftermarket business supporting NOV equipment, our diverse product and service offering, our terrific team of employees and our strong balance sheet, all give us confidence in the bright long-term prospects for the Company. This confidence led us to announce, in the third quarter, an authorization to repurchase $3 billion in stock.”

Rig Systems

Third quarter revenues for the Rig Systems segment were $2.66 billion, an increase of 12 percent from the second quarter of 2014 and an increase of 29.0 percent from the third quarter of 2013. Operating profit for this segment was $533 million, or 20.0 percent of sales. EBITDA for this segment was $554 million, or 20.8 percent of sales. Revenue out of backlog for the segment was at $2.39 billion.

Backlog for capital equipment orders for the Company’s Rig Systems segment at September 30, 2014 was $14.34 billion, down 6.8 percent from the second quarter of 2014, and up 2.0 percent from the end of the third quarter of 2013. New orders during the quarter were $1.34 billion.

Rig Aftermarket

Third quarter revenues for the Rig Aftermarket segment were $837 million, an increase of seven percent from the second quarter of 2014 and an increase of 18.0 percent from the third quarter of 2013. Operating profit for this segment was $229 million, or 27.4 percent of sales. EBITDA for this segment was $236 million, or 28.2 percent of sales.

Wellbore Technologies

Revenues for the third quarter of the Wellbore Technologies segment were $1.47 billion, an increase of two percent from the second quarter of 2014 and an increase of 14.0 percent from the third quarter of 2013. Operating profit for this segment was $278 million, or 18.9 percent of sales. EBITDA for this segment was $390 million, or 26.5 percent of sales.

Completion & Production Solutions

The Completion & Production Solutions segment generated revenues of $1.19 billion, an increase of six percent from the second quarter of 2014 and an increase of nine percent from the third quarter of 2013. Operating profit for this segment was $184 million, or 15.4 percent of sales. EBITDA for this segment was $242 million, or 20.3 percent of sales.

Backlog for capital equipment orders for the Company’s Completion & Production Solutions segment at September 30, 2014 was $2.09 billion, down 2.7 percent from the second quarter of 2014, and up 39.4 percent from the end of the third quarter of 2013. New orders during the quarter were $609 million.

The Company has scheduled a conference call for October 30, 2014, at 8:00 a.m. Central Time to discuss third quarter results. The call will be broadcast through the Investor Relations link on National Oilwell Varco’s web site at www.nov.com, and a replay will be available on the site for thirty days following the conference. Participants may also join the conference call by dialing 1-800-447-0521 within North America or 1-847-413-3238 outside of North America five to ten minutes prior to the scheduled start time and asking for the “National Oilwell Varco Earnings Conference Call.”

National Oilwell Varco is a worldwide leader in the design, manufacture and sale of equipment and components used in oil and gas drilling and production operations, and the provision of oilfield services to the upstream oil and gas industry.

Statements made in this press release that are forward-looking in nature are intended to be “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934 and may involve risks and uncertainties. These statements may differ materially from actual future events or results. Readers are referred to documents filed by National Oilwell Varco with the Securities and Exchange Commission, including the Annual Report on Form 10-K, which identify significant risk factors which could cause actual results to differ from those contained in the forward-looking statements.

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NATIONAL OILWELL VARCO, INC.

CONSOLIDATED BALANCE SHEETS

(In millions, except share data)

September 30, December 31,
2014 2013
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 4,091 $ 3,436
Receivables, net 4,482 4,896
Inventories, net 5,464 5,603
Costs in excess of billings 1,615 1,539
Deferred income taxes 399 373
Prepaid and other current assets 619 576
Total current assets 16,670 16,423
Property, plant and equipment, net 3,377 3,408
Deferred income taxes 433 372
Goodwill 8,614 9,049
Intangibles, net 4,695 5,055
Investment in unconsolidated affiliates 356 390
Other assets 125 115
$ 34,270 $ 34,812
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 1,259 $ 1,275
Accrued liabilities 3,310 2,763
Billings in excess of costs 1,809 1,771
Current portion of long-term debt and short-term borrowings 151 1
Accrued income taxes 267 556
Deferred income taxes 405 312
Total current liabilities 7,201 6,678
Long-term debt 2,995 3,149
Deferred income taxes 2,088 2,292
Other liabilities 367 363
Total liabilities 12,651 12,482
Commitments and contingencies
Stockholders’ equity:
Common stock – par value $.01; 1 billion shares authorized; 430,569,502 and 428,433,703
shares issued and outstanding at September 30, 2014 and December 31, 2013 4 4
Additional paid-in capital 9,099 8,907
Accumulated other comprehensive loss (362 ) (4 )
Retained earnings 12,782 13,323
Total Company stockholders’ equity 21,523 22,230
Noncontrolling interests 96 100
Total stockholders’ equity 21,619 22,330
$ 34,270 $ 34,812

NATIONAL OILWELL VARCO, INC.

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(In millions, except per share data)

Three Months Ended Nine Months Ended
September 30, June 30, September 30,
2014 2013 2014 2014 2013
Revenue:
Rig Systems $ 2,659 $ 2,061 $ 2,372 $ 7,287 $ 6,053
Rig Aftermarket 837 712 785 2,372 1,933
Wellbore Technologies 1,469 1,293 1,446 4,193 3,738
Completion & Production Solutions 1,191 1,095 1,127 3,320 3,154
Eliminations (569 ) (400 ) (475 ) (1,441 ) (1,061 )
Total revenue 5,587 4,761 5,255 15,731 13,817
Gross profit 1,524 1,253 1,456 4,270 3,669
Gross profit % 27.3 % 26.3 % 27.7 % 27.1 % 26.6 %
Selling, general, and administrative 535 462 511 1,519 1,351
Other items 1 (92 ) 32 51 37
Operating profit 988 883 913 2,700 2,281
Interest and financial costs (26 ) (26 ) (27 ) (79 ) (84 )
Interest income 4 2 5 13 8
Equity income in unconsolidated affiliates 9 13 23 42 47
Other income (expense), net 9 (11 ) (21 ) (12 ) (15 )
Income before income taxes 984 861 893 2,664 2,237
Provision for income taxes 283 263 284 806 686
Income from continuing operations 701 598 609 1,858 1,551
Income from discontinued operations 38 11 52 116
Net income 701 636 620 1,910 1,667
Net income (loss) attributable to noncontrolling interests 2 1 3 (2 )
Net income attributable to Company $ 699 $ 636 $ 619 $ 1,907 $ 1,669
Per share data:
Basic:
Income from continuing operations $ 1.63 $ 1.40 $ 1.42 $ 4.34 $ 3.64
Income from discontinued operations $ $ 0.09 $ 0.03 $ 0.12 $ 0.28
Net income attributable to Company $ 1.63 $ 1.49 $ 1.45 $ 4.46 $ 3.92
Diluted:
Income from continuing operations $ 1.62 $ 1.40 $ 1.42 $ 4.31 $ 3.62
Income from discontinued operations $ $ 0.09 $ 0.02 $ 0.12 $ 0.28
Net income attributable to Company $ 1.62 $ 1.49 $ 1.44 $ 4.43 $ 3.90
Weighted average shares outstanding:
Basic 429 426 428 428 426
Diluted 431 428 430 430 428

NATIONAL OILWELL VARCO, INC.

OPERATING PROFIT – AS ADJUSTED SUPPLEMENTAL SCHEDULE (Unaudited)

(In millions)

Three Months Ended Nine Months Ended
September 30, June 30, September 30,
2014 2013 2014 2014 2013
Revenue:
Rig Systems $ 2,659 $ 2,061 $ 2,372 $ 7,287 $ 6,053
Rig Aftermarket 837 712 785 2,372 1,933
Wellbore Technologies 1,469 1,293 1,446 4,193 3,738
Completion & Production Solutions 1,191 1,095 1,127 3,320 3,154
Eliminations (569 ) (400 ) (475 ) (1,441 ) (1,061 )
Total revenue $ 5,587 $ 4,761 $ 5,255 $ 15,731 $ 13,817
Operating profit:
Rig Systems $ 533 $ 392 $ 501 $ 1,485 $ 1,157
Rig Aftermarket 229 202 217 637 533
Wellbore Technologies 278 206 269 771 609
Completion & Production Solutions 184 176 158 485 511
Unallocated expenses and eliminations (235 ) (185 ) (200 ) (627 ) (492 )

Total operating profit (before other items)

$ 989 $ 791 $ 945 $ 2,751 $ 2,318
Operating profit %:
Rig Systems 20.0 % 19.0 % 21.1 % 20.4 % 19.1 %
Rig Aftermarket 27.4 % 28.4 % 27.6 % 26.9 % 27.6 %
Wellbore Technologies 18.9 % 15.9 % 18.6 % 18.4 % 16.3 %
Completion & Production Solutions 15.4 % 16.1 % 14.0 % 14.6 % 16.2 %
Total operating profit % (before other items) 17.7 % 16.6 % 18.0 % 17.5 % 16.8 %

NATIONAL OILWELL VARCO, INC.

AS ADJUSTED BEFORE DEPRECIATION & AMORTIZATION SUPPLEMENTAL SCHEDULE (Unaudited)

(In millions)

Three Months Ended

Nine Months Ended

September 30, June 30,

September 30,

2014 2013 2014 2014 2013
Operating profit excluding other items (Note 1):
Rig Systems $ 533 $ 392 $ 501 $ 1,485 $ 1,157
Rig Aftermarket 229 202 217 637 533
Wellbore Technologies 278 206 269 771 609
Completion & Production Solutions 184 176 158 485 511
Unallocated expenses and eliminations (235 ) (185 ) (200 ) (627 ) (492 )
Total operating profit excluding other items $ 989 $ 791 $ 945 $ 2,751 $ 2,318
Depreciation & amortization:
Rig Systems $ 21 $ 19 $ 22 $ 65 $ 57
Rig Aftermarket 7 6 7 20 18
Wellbore Technologies 112 111 108 328 313
Completion & Production Solutions 58 51 53 166 155
Unallocated expenses and eliminations
Total depreciation & amortization $ 198 $ 187 $ 190 $ 579 $ 543
Operating profit as adjusted before depreciation &
amortization (Note 1):
Rig Systems $ 554 $ 411 $ 523 $ 1,550 $ 1,214
Rig Aftermarket 236 208 224 657 551
Wellbore Technologies 390 317 377 1,099 922
Completion & Production Solutions 242 227 211 651 666
Unallocated expenses and eliminations (235 ) (185 ) (200 ) (627 ) (492 )
Total operating profit as adjusted before depreciation &
amortization $ 1,187 $ 978 $ 1,135 $ 3,330 $ 2,861
Operating profit % as adjusted before depreciation &
amortization (Note 1):
Rig Systems 20.8 % 19.9 % 22.0 % 21.3 % 20.1 %
Rig Aftermarket 28.2 % 29.2 % 28.5 % 27.7 % 28.5 %
Wellbore Technologies 26.5 % 24.5 % 26.1 % 26.2 % 24.7 %
Completion & Production Solutions 20.3 % 20.7 % 18.7 % 19.6 % 21.1 %
Total operating profit % as adjusted before depreciation
& amortization 21.2 % 20.5 % 21.6 % 21.2 % 20.7 %
Total operating profit as adjusted before depreciation
& amortization: $ 1,187 $ 978 $ 1,135 $ 3,330 $ 2,861
Other items (1 ) 92 (32 ) (51 ) (37 )
Interest income 4 2 5 13 8
Equity income in unconsolidated affiliates 9 13 23 42 47
Other income (expense), net 9 (11 ) (21 ) (12 ) (15 )
Net income (loss) attributable to noncontrolling
interest (2 ) (1 ) (3 ) 2
EBITDA (Note 1) $ 1,206 $ 1,074 $ 1,109 $ 3,319 $ 2,866
Reconciliation of EBITDA (Note 1):
GAAP net income attributable to Company $ 699 $ 636 $ 619 $ 1,907 $ 1,669
Income from discontinued operations (38 ) (11 ) (52 ) (116 )
Provision for income taxes 283 263 284 806 686
Interest expense 26 26 27 79 84
Depreciation and amortization 198 187 190 579 543
EBITDA 1,206 1,074 1,109 3,319 2,866
Other items 1 (92 ) 32 51 37
EBITDA excluding other items (Note 1) $ 1,207 $ 982 $ 1,141 $ 3,370 $ 2,903

NATIONAL OILWELL VARCO, INC.

OPERATING (NON-GAAP) DILUTED EARNINGS PER SHARE RECONCILIATION (Unaudited)

Three Months Ended

Nine Months Ended

September 30,

June 30,

September 30,

2014

2013

2014

2014

2013

Net income attributable to Company

$ 1.62 $ 1.49 $ 1.44 $ 4.43 $ 3.90
Income from discontinued operations (0.09 ) (0.02 ) (0.12 ) (0.28 )
Income from continuing operations 1.62 1.40 1.42 4.31 3.62
Other items (0.16 ) 0.05 0.07 0.05
Amortization of intangible assets 0.14 0.14 0.14 0.43 0.42
Operating (non-GAAP) $ 1.76 $ 1.38 $ 1.61 $ 4.81 $ 4.09

Note 1: In an effort to provide investors with additional information regarding our results as determined by GAAP, we disclose various non-GAAP financial measures in our quarterly earnings press releases and other public disclosures. The primary non-GAAP financial measures we focus on are: (i) revenue excluding other items, (ii) operating profit excluding other items, (iii) operating profit percentage excluding other items, (iv) operating profit excluding other items before depreciation & amortization, (v) operating profit percentage excluding other items before depreciation & amortization (vi) EBITDA and (vii) Operating (non-GAAP) per fully diluted share. Each of these financial measures excludes the impact of certain other items and therefore has not been calculated in accordance with GAAP. A reconciliation of each of these non-GAAP financial measures to its most comparable GAAP financial measure is included here within.

We use these non-GAAP financial measures internally to evaluate and manage the Company’s operations because we believe it provides useful supplemental information regarding the Company’s on-going economic performance. We have chosen to provide this information to investors to enable them to perform more meaningful comparisons of operating results and as a means to emphasize the results of on-going operations.

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