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nov-10q_20190331.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED March 31, 2019

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-12317

NATIONAL OILWELL VARCO, INC.

(Exact name of registrant as specified in its charter)

Delaware

76-0475815

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

7909 Parkwood Circle Drive

Houston, Texas

77036-6565

(Address of principal executive offices)

(713) 346-7500

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $.01 per share	NOV	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	☑	Accelerated filer	☐	Non-accelerated filer ☐
Smaller reporting company	☐	Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of April 18, 2019 the registrant had 385,920,426 shares of common stock, par value $0.01 per share, outstanding.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

NATIONAL OILWELL VARCO, INC.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In millions, except share data)

	March 31,			December 31,
	2019			2018
ASSETS
Current assets:
Cash and cash equivalents	$	1,270		$	1,427
Receivables, net		1,793			2,101
Inventories, net		3,131			2,986
Contract assets		539			565
Prepaid and other current assets		205			200
Total current assets		6,938			7,279
Property, plant and equipment, net		2,605			2,797
Lease right-of-use assets		789			—
Deferred income taxes		11			11
Goodwill		6,292			6,264
Intangibles, net		2,942			3,020
Investment in unconsolidated affiliates		299			301
Other assets		126			124
Total assets	$	20,002		$	19,796
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	679		$	722
Accrued liabilities		876			1,088
Contract liabilities		412			458
Current portion of lease liabilities		115			7
Current portion of long-term debt and short-term borrowings		—			—
Accrued income taxes		21			66
Total current liabilities		2,103			2,341
Lease liabilities		728			222
Long-term debt		2,483			2,482
Deferred income taxes		565			564
Other liabilities		283			298
Total liabilities		6,162			5,907
Commitments and contingencies
Stockholders’ equity:
Common stock - par value $.01; 1 billion shares authorized; 385,932,098 and 383,426,654 shares issued and outstanding at March 31, 2019 and December 31, 2018		4			4
Additional paid-in capital		8,408			8,390
Accumulated other comprehensive loss		(1,413	)		(1,437	)
Retained earnings		6,766			6,862
Total Company stockholders' equity		13,765			13,819
Noncontrolling interests		75			70
Total stockholders’ equity		13,840			13,889
Total liabilities and stockholders’ equity	$	20,002		$	19,796

See notes to unaudited consolidated financial statements.

NATIONAL OILWELL VARCO, INC.

CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)

(In millions, except per share data)

	Three Months Ended
	March 31,
	2019			2018
Revenue	$	1,940		$	1,795
Cost of revenue		1,684			1,508
Gross profit		256			287
Selling, general and administrative		304			288
Operating loss		(48	)		(1	)
Interest and financial costs		(25	)		(24	)
Interest income		6			7
Equity income in unconsolidated affiliates		—			2
Other income (expense), net		(18	)		(47	)
Loss before income taxes		(85	)		(63	)
Provision (benefit) for income taxes		(10	)		3
Net loss		(75	)		(66	)
Net income attributable to noncontrolling interests		2			2
Net loss attributable to Company	$	(77	)	$	(68	)

Net loss attributable to Company per share:
Basic	$	(0.20	)	$	(0.18	)
Diluted	$	(0.20	)	$	(0.18	)

Cash dividends per share	$	0.05		$	0.05

Weighted average shares outstanding:
Basic		380			377
Diluted		380			377

See notes to unaudited consolidated financial statements.

NATIONAL OILWELL VARCO, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)

(In millions)

	Three Months Ended
	March 31,
	2019			2018
Net loss	$	(75	)	$	(66	)
Currency translation adjustments		20			36
Changes in derivative financial instruments, net of tax		4			13
Changes in defined benefit plans, net of tax		—			—
Comprehensive loss		(51	)		(17	)
Comprehensive income attributable to noncontrolling interest		2			2
Comprehensive loss attributable to Company	$	(53	)	$	(19	)

See notes to unaudited consolidated financial statements.

NATIONAL OILWELL VARCO, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In millions)

	Three Months Ended
	March 31,
	2019			2018
Cash flows from operating activities:
Net loss	$	(75	)	$	(66	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		177			173
Deferred income taxes		(9	)		5
Equity income in unconsolidated affiliates		—			(2	)
Other, net		35			19
Change in operating assets and liabilities, net of acquisitions:
Receivables		326			(79	)
Inventories		(152	)		(146	)
Contract assets		26			80
Prepaid and other current assets		(4	)		(20	)
Accounts payable		(49	)		14
Accrued liabilities		(234	)		(279	)
Contract liabilities		(46	)		77
Income taxes payable		(45	)		(46	)
Other assets/liabilities, net		12			141
Net cash used by operating activities	$	(38	)	$	(129	)

Cash flows from investing activities:
Purchases of property, plant and equipment		(43	)		(39	)
Business acquisitions, net of cash acquired		(65	)		(36	)
Other		1			14
Net cash used in investing activities	$	(107	)	$	(61	)

Cash flows from financing activities:
Cash dividends paid		(19	)		(19	)
Other		(1	)		1
Net cash used in financing activities		(20	)		(18	)
Effect of exchange rates on cash		8			7
Increase (decrease) in cash and cash equivalents		(157	)		(201	)
Cash and cash equivalents, beginning of period		1,427			1,437
Cash and cash equivalents, end of period	$	1,270		$	1,236

Supplemental disclosures of cash flow information:
Cash payments during the period for:
Interest	$	5		$	3
Income taxes	$	29		$	42

See notes to unaudited consolidated financial statements.

NATIONAL OILWELL VARCO, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(In millions)

	Shares Outstanding		Common Stock		Additional Paid in Capital		Accumulated Other Comprehensive Income (Loss)			Retained Earnings (Loss)			Total Company Stockholders' Equity			Noncontrolling Interests		Total Stockholders' Equity
Balance at December 31, 2018		383	$	4	$	8,390	$	(1,437	)	$	6,862		$	13,819		$	70	$	13,889
Net income (loss)		—		—		—		—			(77	)		(77	)		2		(75	)
Other comprehensive income (loss), net		—		—		—		24			—			24			—		24
Cash dividends, $0.05 per common share		—		—		—		—			(19	)		(19	)		—		(19	)
Noncontrolling interest		—		—		—		—			—			—			3		3
Stock-based compensation		—		—		12		—			—			12			—		12
Common stock issued		3		—		6		—			—			6			—		6
Balance at March 31, 2019		386	$	4	$	8,408	$	(1,413	)	$	6,766		$	13,765		$	75	$	13,840

	Shares Outstanding		Common Stock		Additional Paid in Capital		Accumulated Other Comprehensive Income (Loss)			Retained Earnings (Loss)			Total Company Stockholders' Equity			Noncontrolling Interests		Total Stockholders' Equity
Balance at December 31, 2017		380	$	4	$	8,234	$	(1,110	)	$	6,966		$	14,094		$	66	$	14,160
Net income (loss)		—		—		—		—			(68	)		(68	)		—		(68	)
Other comprehensive income (loss), net		—		—		—		49			—			49			—		49
Cash dividends, $0.05 per common share		—		—		—		—			(19	)		(19	)		—		(19	)
Adoption of new accounting standards		—		—		—		—			4			4			—		4
Noncontrolling interest		—		—		—		—			—			—			3		3
Stock-based compensation		—		—		19		—			—			19			—		19
Common stock issued		2		—		3		—			—			3			—		3
Balance at March 31, 2018		382	$	4	$	8,256	$	(1,061	)	$	6,883		$	14,082		$	69	$	14,151

See notes to unaudited consolidated financial statements.

NATIONAL OILWELL VARCO, INC.

Notes to Consolidated Financial Statements (Unaudited)

1.	Basis of Presentation

The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) in the United States requires management to make estimates and assumptions that affect reported and contingent amounts of assets and liabilities as of the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The accompanying unaudited consolidated financial statements of National Oilwell Varco, Inc. (“NOV” or the “Company”) present information in accordance with GAAP in the United States for interim financial information and the instructions to Form 10-Q and applicable rules of Regulation S-X. They do not include all information or footnotes required by GAAP in the United States for complete consolidated financial statements and should be read in conjunction with the Company’s 2018 Annual Report on Form 10-K.

In our opinion, the consolidated financial statements include all adjustments, which are of a normal recurring nature unless otherwise disclosed, necessary for a fair presentation of the results for the interim periods. Certain reclassifications have been made to the prior year financial statements in order for them to conform with the current presentation, including the reclassification of $229 million from the December 31, 2018 debt balance to leases. The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the results to be expected for the full year.

The fair values of cash and cash equivalents, receivables and payables was approximately the same as their presented carrying values because of the short maturities of these instruments. The fair value of long-term debt is provided in Note 8, and the fair values of derivative financial instruments are provided in Note 11.

2.	Inventories, net

Inventories consist of (in millions):

	March 31,		December 31,
	2019		2018
Raw materials and supplies	$	627	$	614
Work in process		556		501
Finished goods and purchased products		1,948		1,871
Total	$	3,131	$	2,986

3.	Accrued Liabilities

Accrued liabilities consist of (in millions):

	March 31,		December 31,
	2019		2018
Compensation	$	189	$	331
Vendor costs		119		127
Warranties		102		105
Taxes (non-income)		77		124
Insurance		54		55
Commissions		34		34
Interest		27		7
Fair value of derivatives		24		23
Other		250		282
Total	$	876	$	1,088

Warranties

The Company provides warranties on certain of its products and services. The Company accrues warranty liability based upon specific claims and a review of historical claim experience in accordance with Accounting Standards Codification (“ASC”) Topic 450 “Contingencies”. Adjustments are made to accruals as claim data and historical experience change. In addition, the Company incurs discretionary costs to service its products in connection with product performance issues and accrues for them when they are encountered.

The changes in the warranty provision are as follows (in millions):

Balance at December 31, 2018	$	105
Net provisions for warranties during the period		9
Amounts incurred		(12	)
Balance at March 31, 2019	$	102

4.	Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss are as follows (in millions):

				Derivative			Defined
	Currency			Financial			Benefit
	Translation			Instruments,			Plans,
	Adjustments			Net of Tax			Net of Tax			Total
Balance at December 31, 2018	$	(1,396	)	$	(14	)	$	(27	)	$	(1,437	)
Accumulated other comprehensive income (loss) before reclassifications		20			3			—			23
Amounts reclassified from accumulated other comprehensive income (loss)		—			1			—			1
Balance at March 31, 2019	$	(1,376	)	$	(10	)	$	(27	)	$	(1,413	)

The components of amounts reclassified from accumulated other comprehensive income (loss) are as follows (in millions):

	Three Months Ended March 31,
	2019								2018
	Currency		Derivative		Defined				Currency		Derivative			Defined
	Translation		Financial		Benefit				Translation		Financial			Benefit
	Adjustments		Instruments		Plans		Total		Adjustments		Instruments			Plans		Total
Revenue	$	—	$	—	$	—	$	—	$	—	$	(1	)	$	—	$	(1	)
Cost of revenue		—		1		—		1		—		(4	)		—		(4	)
Tax effect		—		—		—		—		—		2			—		2
	$	—	$	1	$	—	$	1	$	—	$	(3	)	$	—	$	(3	)

The Company’s reporting currency is the U.S. dollar. A majority of the Company’s international entities in which there is a substantial investment have the local currency as their functional currency. As a result, currency translation adjustments resulting from the process of translating the entities’ financial statements into the reporting currency are reported in other comprehensive income (loss). For the three months ended March 31, 2019 and 2018, a majority of these local currencies strengthened against the U.S. dollar, resulting in other comprehensive income of $20 million and $36 million, respectively.

The effect of changes in the fair values of derivatives designated as cash flow hedges are accumulated in other comprehensive income or loss, net of tax, until the underlying transactions they hedge are realized. The movement in other comprehensive income (loss) from period to period will be the result of the combination of changes in fair value of open derivatives and the outflow of other comprehensive income (loss) related to cumulative changes in the fair value of derivatives that have settled in the current period. The accumulated effect was other comprehensive income of $4 million (net of tax of $1 million) and $13 million (net of tax of $4 million) for the three months ended March 31, 2019 and 2018, respectively.

Segments

Financial results by operating segment are as follows (in millions):

	Three Months Ended
	March 31,
	2019			2018
Revenue:
Wellbore Technologies	$	807		$	711
Completion & Production Solutions		581			670
Rig Technologies		603			483
Eliminations		(51	)		(69	)
Total revenue	$	1,940		$	1,795

Operating profit (loss):
Wellbore Technologies	$	19			12
Completion & Production Solutions		(35	)		16
Rig Technologies		31			18
Eliminations and corporate costs		(63	)		(47	)
Total operating profit (loss)	$	(48	)	$	(1	)

Operating profit (loss)%:
Wellbore Technologies		2.4	%		1.7	%
Completion & Production Solutions		(6.0	%)		2.4	%
Rig Technologies		5.1	%		3.7	%
Total operating profit (loss)%		(2.5	%)		(0.1	%)

Sales from one segment to another generally are priced at estimated equivalent commercial selling prices; however, segments originating an external sale are credited with the full profit to the Company. Eliminations include intercompany transactions conducted between the three reporting segments that are eliminated in consolidation. Intrasegment transactions are eliminated within each segment.

Revenue

Disaggregation of Revenue

The following table disaggregates the Company’s revenue by major geographic and market segment destination. In the table, North America includes the U.S. and Canada (in millions):

Three Months Ended March 31,

2019

2018

Completion

Wellbore

& Production