NOV Inc. (formerly National Oilwell Varco) — 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011; fourth-quarter results are noted separately. The company supplies drilling and production equipment, oilfield services and supplies, and distribution and supply-chain services through Rig Technology, Petroleum Services & Supplies, and Distribution & Transmission.
Financial performance
| Metric | FY 2011 | FY 2010 |
|---|
| Revenue | $14.658 billion | $12.156 billion |
| Operating profit | $2.937 billion | $2.447 billion |
| Operating margin | 20.0% | 20.1% |
| Net income attributable to NOV | $1.994 billion | $1.667 billion |
| Diluted EPS | $4.70 | $3.98 |
| Operating cash flow | $2.143 billion | $1.542 billion |
| Capital expenditures | $483 million | $232 million |
- Fourth-quarter revenue was $4.259 billion and net income attributable to NOV was $574 million, or $1.35 diluted EPS. Versus Q4 2010, revenue rose 34% and net income rose 30%.
- FY 2011 gross profit was $4.497 billion. Gross margin was approximately 30.7%, versus 31.5% in 2010.
- Cash and equivalents were $3.535 billion; total debt was $510 million, down from $887 million. Working capital was $6.694 billion and total assets were $25.515 billion.
- Cash flow from operations exceeded investing outflows of $1.458 billion, which included $1.038 billion for acquisitions and $483 million of capital spending. Financing activities used $464 million, including $191 million of dividends.
- At year-end, $1.138 billion remained available under the $2 billion revolving credit facility after letters of credit; there were no facility borrowings. Approximately $3.3 billion of cash was held outside the U.S.
Segments and changes versus 2010
| Segment | FY 2011 revenue | Operating profit | Operating margin | Year-over-year change |
|---|
| Rig Technology | $7.788 billion | $2.053 billion | 26.4% | Revenue +11.8%; profit down 0.5%; margin was 29.6% in 2010 |
| Petroleum Services & Supplies | $5.654 billion | $1.072 billion | 19.0% | Revenue +35.2%; profit +83.2%; margin was 14.0% in 2010 |
| Distribution & Transmission | $1.873 billion | $135 million | 7.2% | Revenue +21.2%; profit +73.1%; margin was 5.0% in 2010 |
- Company revenue increased 20.6%, operating profit 20.0%, and attributable net income 19.6%. Worldwide average rig count rose 16.1%; average WTI crude oil was $94.90 per barrel, up 19.5%, while average natural gas was $4.00 per mmbtu, down 8.9%.
- Rig Technology’s revenue grew, but operating profit was essentially flat as older, higher-margin backlog projects were replaced by lower-priced contracts. Petroleum Services & Supplies benefited from higher North American activity, volume and pricing. Distribution & Transmission improved on activity and cost efficiencies; acquired Ameron operations were modestly dilutive to its Q4 margins.
- Rig Technology backlog reached $10.2 billion at year-end, versus $5.0 billion in 2010. The company reported record 2011 segment orders of $10.8 billion; approximately 86% of backlog was offshore and 86% destined for international markets.
Outlook, risks and unusual items
- Management expected $6.6 billion of year-end backlog to be delivered in 2012. It anticipated modest Rig Technology margin declines in the first half of 2012 as lower-priced backlog shipped, with newer offshore awards expected to contribute at higher margins later. No specific full-year earnings or revenue guidance is provided.
- Outcomes in the other segments remain tied to rig activity, especially in North America. Management noted that oil-directed drilling could offset gas-rig declines, but falling overall rig counts could pressure pricing and volumes. It cited uncertainty around Europe’s sovereign-debt situation and global economic conditions.
- NOV completed nine acquisitions in 2011 for $1.038 billion, including Ameron, acquired in October. In February 2012, it agreed to acquire NKT Flexibles for approximately $670 million in cash, subject to customary closing conditions.
- Unusual 2011 charges included $17 million of Libyan asset write-downs and $24 million of transaction costs. The filing’s non-GAAP reconciliation reports diluted EPS of $4.77 excluding specified other costs, versus GAAP diluted EPS of $4.70.
- Risks include volatile oil and gas prices and customer capital spending, execution and margin estimates on large construction contracts, raw-material costs, acquisition integration, foreign exchange, environmental and regulatory exposure, and potential goodwill impairment. Samsung Heavy Industries accounted for 12% of 2011 revenue.
- The company disclosed ongoing U.S. agency inquiries concerning export-trade-law compliance and a potential resolution under negotiation; management expected any penalty to be within established accruals but could not predict effects if negotiations failed. Ameron also had a pre-acquisition OFAC matter under review. Other ordinary-course claims were not expected by management to have a material effect.
Important facts for investors to verify
- Backlog conversion, cancellations, project costs and margins, and the timing of higher-margin offshore orders.
- Whether oil-rig growth offsets gas-rig weakness and supports service-sector pricing and activity.
- Ameron integration, acquisition returns and funding of the announced NKT transaction.
- Cash availability and repatriation tax implications, near-term debt maturities, and remaining credit-facility capacity after letters of credit.
- Developments in the export-compliance and Ameron OFAC matters, customer concentration, and exposure to foreign exchange and environmental liabilities.
