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, 20202021
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 1-12317
NATIONAL OILWELL VARCO,NOV INC.
(Exact name of registrant as specified in its charter)
Delaware | 76-0475815 | |
(State or other jurisdiction of incorporation or organization) | (IRS 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.
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 17, 202016, 2021 the registrant had 388,223,024390,643,228 shares of common stock, par value $0.01 per share, outstanding.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
NATIONAL OILWELL VARCO,NOV INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In millions, except share data)
|
| March 31, |
|
| December 31, |
|
| March 31, |
|
| December 31, |
| ||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 1,115 |
|
| $ | 1,171 |
|
| $ | 1,607 |
|
| $ | 1,692 |
|
Receivables, net |
|
| 1,879 |
|
|
| 1,855 |
|
|
| 1,265 |
|
|
| 1,274 |
|
Inventories, net |
|
| 2,032 |
|
|
| 2,197 |
|
|
| 1,357 |
|
|
| 1,408 |
|
Contract assets, net |
|
| 639 |
|
|
| 643 |
|
|
| 577 |
|
|
| 611 |
|
Prepaid and other current assets |
|
| 237 |
|
|
| 247 |
|
|
| 190 |
|
|
| 224 |
|
Total current assets |
|
| 5,902 |
|
|
| 6,113 |
|
|
| 4,996 |
|
|
| 5,209 |
|
Property, plant and equipment, net |
|
| 2,003 |
|
|
| 2,354 |
|
|
| 1,894 |
|
|
| 1,927 |
|
Lease right-of-use assets, operating |
|
| 399 |
|
|
| 444 |
|
|
| 356 |
|
|
| 371 |
|
Lease right-of-use assets, financing |
|
| 211 |
|
|
| 230 |
|
|
| 187 |
|
|
| 195 |
|
Goodwill |
|
| 1,515 |
|
|
| 2,807 |
|
|
| 1,495 |
|
|
| 1,493 |
|
Intangibles, net |
|
| 534 |
|
|
| 852 |
|
|
| 516 |
|
|
| 527 |
|
Investment in unconsolidated affiliates |
|
| 57 |
|
|
| 282 |
|
|
| 47 |
|
|
| 51 |
|
Other assets |
|
| 69 |
|
|
| 67 |
|
|
| 181 |
|
|
| 156 |
|
Total assets |
| $ | 10,690 |
|
| $ | 13,149 |
|
| $ | 9,672 |
|
| $ | 9,929 |
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 662 |
|
| $ | 715 |
|
| $ | 467 |
|
| $ | 489 |
|
Accrued liabilities |
|
| 888 |
|
|
| 949 |
|
|
| 792 |
|
|
| 863 |
|
Contract liabilities |
|
| 470 |
|
|
| 427 |
|
|
| 349 |
|
|
| 354 |
|
Current portion of lease liabilities |
|
| 115 |
|
|
| 114 |
|
|
| 106 |
|
|
| 110 |
|
Current portion of long-term debt |
|
| 182 |
|
|
| — |
| ||||||||
Accrued income taxes |
|
| 28 |
|
|
| 42 |
|
|
| 38 |
|
|
| 51 |
|
Total current liabilities |
|
| 2,163 |
|
|
| 2,247 |
|
|
| 1,934 |
|
|
| 1,867 |
|
Lease liabilities |
|
| 646 |
|
|
| 674 |
|
|
| 590 |
|
|
| 612 |
|
Long-term debt |
|
| 2,002 |
|
|
| 1,989 |
|
|
| 1,669 |
|
|
| 1,834 |
|
Deferred income taxes |
|
| 69 |
|
|
| 140 |
|
|
| 77 |
|
|
| 78 |
|
Other liabilities |
|
| 256 |
|
|
| 253 |
|
|
| 252 |
|
|
| 259 |
|
Total liabilities |
|
| 5,136 |
|
|
| 5,303 |
|
|
| 4,522 |
|
|
| 4,650 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock - par value $.01; 1 billion shares authorized; 388,222,777 and 385,886,682 shares issued and outstanding at March 31, 2020 and December 31, 2019 |
|
| 4 |
|
|
| 4 |
| ||||||||
Common stock - par value $.01; 1 billion shares authorized; 390,653,325 and 388,255,374 shares issued and outstanding at March 31, 2021 and December 31, 2020 |
|
| 4 |
|
|
| 4 |
| ||||||||
Additional paid-in capital |
|
| 8,518 |
|
|
| 8,507 |
|
|
| 8,598 |
|
|
| 8,591 |
|
Accumulated other comprehensive loss |
|
| (1,655 | ) |
|
| (1,423 | ) |
|
| (1,530 | ) |
|
| (1,509 | ) |
Retained earnings |
|
| (1,381 | ) |
|
| 690 |
|
|
| (1,991 | ) |
|
| (1,876 | ) |
Total Company stockholders' equity |
|
| 5,486 |
|
|
| 7,778 |
|
|
| 5,081 |
|
|
| 5,210 |
|
Noncontrolling interests |
|
| 68 |
|
|
| 68 |
|
|
| 69 |
|
|
| 69 |
|
Total stockholders’ equity |
|
| 5,554 |
|
|
| 7,846 |
|
|
| 5,150 |
|
|
| 5,279 |
|
Total liabilities and stockholders’ equity |
| $ | 10,690 |
|
| $ | 13,149 |
|
| $ | 9,672 |
|
| $ | 9,929 |
|
See notes to unaudited consolidated financial statements.
NATIONAL OILWELL VARCO,NOV INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)
(In millions, except per share data)
|
| Three Months Ended |
|
| Three Months Ended |
| ||||||||||
|
| March 31, |
|
| March 31, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
Revenue |
| $ | 1,883 |
|
| $ | 1,940 |
|
| $ | 1,249 |
|
| $ | 1,883 |
|
Cost of revenue |
|
| 1,659 |
|
|
| 1,684 |
|
|
| 1,093 |
|
|
| 1,659 |
|
Gross profit |
|
| 224 |
|
|
| 256 |
|
|
| 156 |
|
|
| 224 |
|
Selling, general and administrative |
|
| 283 |
|
|
| 304 |
|
|
| 244 |
|
|
| 283 |
|
Goodwill and indefinite-lived intangible asset impairment |
|
| 1,378 |
|
|
| — |
|
|
| — |
|
|
| 1,378 |
|
Long-lived asset impairment |
|
| 513 |
|
|
| — |
|
|
| — |
|
|
| 513 |
|
Operating loss |
|
| (1,950 | ) |
|
| (48 | ) |
|
| (88 | ) |
|
| (1,950 | ) |
Interest and financial costs |
|
| (22 | ) |
|
| (25 | ) |
|
| (20 | ) |
|
| (22 | ) |
Interest income |
|
| 3 |
|
|
| 6 |
|
|
| 2 |
|
|
| 3 |
|
Equity loss in unconsolidated affiliates |
|
| (233 | ) |
|
| — |
|
|
| (4 | ) |
|
| (233 | ) |
Other income (expense), net |
|
| (3 | ) |
|
| (18 | ) |
|
| (10 | ) |
|
| (3 | ) |
Loss before income taxes |
|
| (2,205 | ) |
|
| (85 | ) |
|
| (120 | ) |
|
| (2,205 | ) |
Provision (benefit) for income taxes |
|
| (156 | ) |
|
| (10 | ) |
|
| (6 | ) |
|
| (156 | ) |
Net loss |
|
| (2,049 | ) |
|
| (75 | ) |
|
| (114 | ) |
|
| (2,049 | ) |
Net income attributable to noncontrolling interests |
|
| (2 | ) |
|
| 2 |
|
|
| 1 |
|
|
| (2 | ) |
Net loss attributable to Company |
| $ | (2,047 | ) |
| $ | (77 | ) |
| $ | (115 | ) |
| $ | (2,047 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Company per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | (5.34 | ) |
| $ | (0.20 | ) |
| $ | (0.30 | ) |
| $ | (5.34 | ) |
Diluted |
| $ | (5.34 | ) |
| $ | (0.20 | ) |
| $ | (0.30 | ) |
| $ | (5.34 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends per share |
| $ | 0.05 |
|
| $ | 0.05 |
|
| $ | - |
|
| $ | 0.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 383 |
|
|
| 380 |
|
|
| 385 |
|
|
| 383 |
|
Diluted |
|
| 383 |
|
|
| 380 |
|
|
| 385 |
|
|
| 383 |
|
See notes to unaudited consolidated financial statements.
NATIONAL OILWELL VARCO,
NOV INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)
(In millions)
|
| Three Months Ended |
|
| Three Months Ended |
| ||||||||||
|
| March 31, |
|
| March 31, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
Net loss |
| $ | (2,049 | ) |
| $ | (75 | ) |
| $ | (114 | ) |
| $ | (2,049 | ) |
Currency translation adjustments |
|
| (180 | ) |
|
| 20 |
|
|
| (19 | ) |
|
| (180 | ) |
Changes in derivative financial instruments, net of tax |
|
| (52 | ) |
|
| 4 |
|
|
| (2 | ) |
|
| (52 | ) |
Comprehensive loss |
|
| (2,281 | ) |
|
| (51 | ) |
|
| (135 | ) |
|
| (2,281 | ) |
Comprehensive income attributable to noncontrolling interest |
|
| (2 | ) |
|
| 2 |
|
|
| 1 |
|
|
| (2 | ) |
Comprehensive loss attributable to Company |
| $ | (2,279 | ) |
| $ | (53 | ) |
| $ | (136 | ) |
| $ | (2,279 | ) |
See notes to unaudited consolidated financial statements.
NATIONAL OILWELL VARCO,
NOV INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In millions)
|
| Three Months Ended |
|
| Three Months Ended |
| ||||||||||
|
| March 31, |
|
| March 31, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
Cash flows from operating activities: |
|
|
|
|
|
| ||||||||||
Net loss |
| $ | (2,049 | ) |
| $ | (75 | ) |
| $ | (114 | ) |
| $ | (2,049 | ) |
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 105 |
|
|
| 177 |
|
|
| 79 |
|
|
| 105 |
|
Provision for inventory losses |
|
| 125 |
|
|
| 14 |
|
|
| 24 |
|
|
| 125 |
|
Deferred income taxes |
|
| (62 | ) |
|
| (9 | ) |
|
| (1 | ) |
|
| (62 | ) |
Equity loss in unconsolidated affiliates |
|
| 233 |
|
|
| — |
|
|
| 4 |
|
|
| 233 |
|
Goodwill and indefinite-lived intangible asset impairment |
|
| 1,378 |
|
|
| — |
|
|
| — |
|
|
| 1,378 |
|
Long-lived asset impairment |
|
| 513 |
|
|
| — |
|
|
| — |
|
|
| 513 |
|
Other, net |
|
| 45 |
|
|
| 21 |
|
|
| 25 |
|
|
| 45 |
|
Change in operating assets and liabilities, net of acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables |
|
| (27 | ) |
|
| 326 |
|
|
| (5 | ) |
|
| (27 | ) |
Inventories |
|
| 47 |
|
|
| (152 | ) |
|
| 28 |
|
|
| 47 |
|
Contract assets |
|
| (5 | ) |
|
| 26 |
|
|
| 35 |
|
|
| (5 | ) |
Prepaid and other current assets |
|
| 9 |
|
|
| (4 | ) |
|
| 33 |
|
|
| 9 |
|
Accounts payable |
|
| (54 | ) |
|
| (49 | ) |
|
| (22 | ) |
|
| (54 | ) |
Accrued liabilities |
|
| (142 | ) |
|
| (234 | ) |
|
| (62 | ) |
|
| (142 | ) |
Contract liabilities |
|
| 43 |
|
|
| (46 | ) |
|
| (5 | ) |
|
| 43 |
|
Income taxes payable |
|
| (15 | ) |
|
| (45 | ) |
|
| (13 | ) |
|
| (15 | ) |
Other assets/liabilities, net |
|
| (105 | ) |
|
| 12 |
|
|
| (33 | ) |
|
| (105 | ) |
Net cash provided by (used by) operating activities |
|
| 39 |
|
| $ | (38 | ) |
| $ | (27 | ) |
|
| 39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
|
| (68 | ) |
|
| (43 | ) |
|
| (49 | ) |
|
| (68 | ) |
Business acquisitions, net of cash acquired |
|
| — |
|
|
| (65 | ) | ||||||||
Other |
|
| 15 |
|
|
| 1 |
|
|
| (2 | ) |
|
| 15 |
|
Net cash used in investing activities |
| $ | (53 | ) |
| $ | (107 | ) |
| $ | (51 | ) |
| $ | (53 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings against lines of credit and other debt |
|
| 17 |
|
|
| — |
| ||||||||
Cash dividends paid |
|
| (19 | ) |
|
| (19 | ) |
|
| — |
|
|
| (19 | ) |
Financing leases |
|
| (7 | ) |
|
| (8 | ) | ||||||||
Other |
|
| (24 | ) |
|
| (1 | ) |
|
| (13 | ) |
|
| (16 | ) |
Net cash used in financing activities |
|
| (43 | ) |
|
| (20 | ) |
|
| (3 | ) |
|
| (43 | ) |
Effect of exchange rates on cash |
|
| 1 |
|
|
| 8 |
|
|
| (4 | ) |
|
| 1 |
|
Increase (decrease) in cash and cash equivalents |
|
| (56 | ) |
|
| (157 | ) | ||||||||
Decrease in cash and cash equivalents |
|
| (85 | ) |
|
| (56 | ) | ||||||||
Cash and cash equivalents, beginning of period |
|
| 1,171 |
|
|
| 1,427 |
|
|
| 1,692 |
|
|
| 1,171 |
|
Cash and cash equivalents, end of period |
| $ | 1,115 |
|
| $ | 1,270 |
|
| $ | 1,607 |
|
| $ | 1,115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments during the period for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
| $ | 3 |
|
| $ | 5 |
|
| $ | 3 |
|
| $ | 3 |
|
Income taxes |
| $ | 14 |
|
| $ | 29 |
|
| $ | 9 |
|
| $ | 14 |
|
See notes to unaudited consolidated financial statements.
NATIONAL OILWELL VARCO,NOV 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, 2019 |
|
| 386 |
|
| $ | 4 |
|
| $ | 8,507 |
|
| $ | (1,423 | ) |
| $ | 690 |
|
| $ | 7,778 |
|
| $ | 68 |
|
| $ | 7,846 |
|
Net income (loss) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,047 | ) |
|
| (2,047 | ) |
|
| (2 | ) |
|
| (2,049 | ) |
Other comprehensive income (loss), net |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (232 | ) |
|
| — |
|
|
| (232 | ) |
|
| — |
|
|
| (232 | ) |
Cash dividends, $0.05 per common share |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (19 | ) |
|
| (19 | ) |
|
| — |
|
|
| (19 | ) |
Adoption of new accounting standard |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5 | ) |
|
| (5 | ) |
|
| — |
|
|
| (5 | ) |
Noncontrolling interest |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2 |
|
|
| 2 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 27 |
|
|
| — |
|
|
| — |
|
|
| 27 |
|
|
| — |
|
|
| 27 |
|
Common stock issued |
|
| 2 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
Withholding taxes |
|
| — |
|
|
| — |
|
|
| (17 | ) |
|
| — |
|
|
| — |
|
|
| (17 | ) |
|
| — |
|
|
| (17 | ) |
Balance at March 31, 2020 |
|
| 388 |
|
| $ | 4 |
|
| $ | 8,518 |
|
| $ | (1,655 | ) |
| $ | (1,381 | ) |
| $ | 5,486 |
|
| $ | 68 |
|
| $ | 5,554 |
|
|
| 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, 2020 |
|
| 388 |
|
| $ | 4 |
|
| $ | 8,591 |
|
| $ | (1,509 | ) |
| $ | (1,876 | ) |
| $ | 5,210 |
|
| $ | 69 |
|
| $ | 5,279 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (115 | ) |
|
| (115 | ) |
|
| 1 |
|
|
| (114 | ) |
Other comprehensive loss, net |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (21 | ) |
|
| — |
|
|
| (21 | ) |
|
| — |
|
|
| (21 | ) |
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 20 |
|
|
| — |
|
|
| — |
|
|
| 20 |
|
|
| — |
|
|
| 20 |
|
Common stock issued |
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Withholding taxes |
|
| — |
|
|
| — |
|
|
| (13 | ) |
|
| — |
|
|
| — |
|
|
| (13 | ) |
|
| — |
|
|
| (13 | ) |
Other |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1 | ) |
|
| (1 | ) |
Balance at March 31, 2021 |
|
| 390 |
|
| $ | 4 |
|
| $ | 8,598 |
|
| $ | (1,530 | ) |
| $ | (1,991 | ) |
| $ | 5,081 |
|
| $ | 69 |
|
| $ | 5,150 |
|
|
| 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 |
|
| — |
|
|
| — |
|
|
| 33 |
|
|
| — |
|
|
| — |
|
|
| 33 |
|
|
| — |
|
|
| 33 |
|
Common stock issued |
|
| 3 |
|
|
| — |
|
|
| 3 |
|
|
| — |
|
|
| — |
|
|
| 3 |
|
|
| — |
|
|
| 3 |
|
Withholding taxes |
|
| — |
|
|
| — |
|
|
| (18 | ) |
|
| — |
|
|
| — |
|
|
| (18 | ) |
|
| — |
|
|
| (18 | ) |
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, 2019 |
|
| 386 |
|
| $ | 4 |
|
| $ | 8,507 |
|
| $ | (1,423 | ) |
| $ | 690 |
|
| $ | 7,778 |
|
| $ | 68 |
|
| $ | 7,846 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,047 | ) |
|
| (2,047 | ) |
|
| (2 | ) |
|
| (2,049 | ) |
Other comprehensive loss, net |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (232 | ) |
|
| — |
|
|
| (232 | ) |
|
| — |
|
|
| (232 | ) |
Cash dividends, $0.05 per common share |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (19 | ) |
|
| (19 | ) |
|
| — |
|
|
| (19 | ) |
Adoption of new accounting standards |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5 | ) |
|
| (5 | ) |
|
| — |
|
|
| (5 | ) |
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 27 |
|
|
| — |
|
|
| — |
|
|
| 27 |
|
|
| — |
|
|
| 27 |
|
Common stock issued |
|
| 2 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
Withholding taxes |
|
| — |
|
|
| — |
|
|
| (17 | ) |
|
| — |
|
|
| — |
|
|
| (17 | ) |
|
| — |
|
|
| (17 | ) |
Other |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2 |
|
|
| 2 |
|
Balance at March 31, 2020 |
|
| 388 |
|
| $ | 4 |
|
| $ | 8,518 |
|
| $ | (1,655 | ) |
| $ | (1,381 | ) |
| $ | 5,486 |
|
| $ | 68 |
|
| $ | 5,554 |
|
See notes to unaudited consolidated financial statements.
NATIONAL OILWELL VARCO,NOV 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,NOV 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 20192020 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. The results of operations for the three months ended March 31, 20202021 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 were 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, |
|
| March 31, |
|
| December 31, |
| ||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
Raw materials and supplies |
| $ | 531 |
|
| $ | 577 |
|
| $ | 353 |
|
| $ | 373 |
|
Work in process |
|
| 377 |
|
|
| 364 |
|
|
| 232 |
|
|
| 189 |
|
Finished goods and purchased products |
|
| 1,983 |
|
|
| 2,099 |
|
|
| 1,323 |
|
|
| 1,423 |
|
|
|
| 2,891 |
|
|
| 3,040 |
|
|
| 1,908 |
|
|
| 1,985 |
|
Less: Inventory reserve |
|
| (859 | ) |
|
| (843 | ) |
|
| (551 | ) |
|
| (577 | ) |
Total |
| $ | 2,032 |
|
| $ | 2,197 |
|
| $ | 1,357 |
|
| $ | 1,408 |
|
3. | Accrued Liabilities |
Accrued liabilities consist of (in millions):
|
| March 31, |
|
| December 31, |
|
| March 31, |
|
| December 31, |
| ||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
Compensation |
| $ | 176 |
|
| $ | 270 |
|
| $ | 195 |
|
| $ | 196 |
|
Taxes (non-income) |
|
| 111 |
|
|
| 158 |
| ||||||||
Vendor costs |
|
| 130 |
|
|
| 121 |
|
|
| 110 |
|
|
| 118 |
|
Warranties |
|
| 79 |
|
|
| 87 |
| ||||||||
Insurance |
|
| 49 |
|
|
| 48 |
| ||||||||
Interest |
|
| 23 |
|
|
| 7 |
| ||||||||
Commissions |
|
| 21 |
|
|
| 19 |
| ||||||||
Fair value of derivatives |
|
| 97 |
|
|
| 24 |
|
|
| 8 |
|
|
| 15 |
|
Warranties |
|
| 86 |
|
|
| 90 |
| ||||||||
Taxes (non-income) |
|
| 74 |
|
|
| 112 |
| ||||||||
Insurance |
|
| 53 |
|
|
| 57 |
| ||||||||
Commissions |
|
| 33 |
|
|
| 31 |
| ||||||||
Interest |
|
| 25 |
|
|
| 8 |
| ||||||||
Other |
|
| 214 |
|
|
| 236 |
|
|
| 196 |
|
|
| 215 |
|
Total |
| $ | 888 |
|
| $ | 949 |
|
| $ | 792 |
|
| $ | 863 |
|
4. | Accumulated Other Comprehensive Loss |
The components of accumulated other comprehensive loss are as follows (in millions):
|
|
|
|
|
| Derivative |
|
| Defined |
|
|
|
|
|
|
|
|
|
| Derivative |
|
| Defined |
|
|
|
|
| ||||
|
| Currency |
|
| Financial |
|
| Benefit |
|
|
|
|
|
| Currency |
|
| Financial |
|
| Benefit |
|
|
|
|
| ||||||
|
| Translation |
|
| Instruments, |
|
| Plans, |
|
|
|
|
|
| Translation |
|
| Instruments, |
|
| Plans, |
|
|
|
|
| ||||||
|
| Adjustments |
|
| Net of Tax |
|
| Net of Tax |
|
| Total |
|
| Adjustments |
|
| Net of Tax |
|
| Net of Tax |
|
| Total |
| ||||||||
Balance at December 31, 2019 |
| $ | (1,403 | ) |
| $ | (4 | ) |
| $ | (16 | ) |
| $ | (1,423 | ) | ||||||||||||||||
Balance at December 31, 2020 |
| $ | (1,481 | ) |
| $ | 19 |
|
| $ | (47 | ) |
| $ | (1,509 | ) | ||||||||||||||||
Accumulated other comprehensive income (loss) before reclassifications |
|
| (180 | ) |
|
| (56 | ) |
|
| — |
|
|
| (236 | ) |
|
| (19 | ) |
|
| (2 | ) |
|
| 0 |
|
|
| (21 | ) |
Amounts reclassified from accumulated other comprehensive income (loss) |
|
| — |
|
|
| 4 |
|
|
| — |
|
|
| 4 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Balance at March 31, 2020 |
| $ | (1,583 | ) |
| $ | (56 | ) |
| $ | (16 | ) |
| $ | (1,655 | ) | ||||||||||||||||
Balance at March 31, 2021 |
| $ | (1,500 | ) |
| $ | 17 |
|
| $ | (47 | ) |
| $ | (1,530 | ) |
The components of amounts reclassified from accumulated other comprehensive income (loss) are as follows (in millions):
|
| Three Months Ended March 31, |
|
| Three Months Ended March 31, |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| Currency |
|
| Derivative |
|
| Defined |
|
|
|
|
|
| Currency |
|
| Derivative |
|
| Defined |
|
|
|
|
|
| Currency |
|
| Derivative |
|
| Defined |
|
|
|
|
|
| Currency |
|
| Derivative |
|
| Defined |
|
|
|
|
| ||||||||||||
|
| Translation |
|
| Financial |
|
| Benefit |
|
|
|
|
|
| Translation |
|
| Financial |
|
| Benefit |
|
|
|
|
|
| Translation |
|
| Financial |
|
| Benefit |
|
|
|
|
|
| Translation |
|
| Financial |
|
| Benefit |
|
|
|
|
| ||||||||||||
|
| Adjustments |
|
| Instruments |
|
| Plans |
|
| Total |
|
| Adjustments |
|
| Instruments |
|
| Plans |
|
| Total |
|
| Adjustments |
|
| Instruments |
|
| Plans |
|
| Total |
|
| Adjustments |
|
| Instruments |
|
| Plans |
|
| Total |
| ||||||||||||||||
Revenue |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Cost of revenue |
|
| — |
|
|
| 5 |
|
|
| — |
|
|
| 5 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5 |
|
|
| — |
|
|
| 5 |
|
Tax effect |
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| (1 | ) |
|
| $ | — |
|
| $ | 4 |
|
| $ | — |
|
| $ | 4 |
|
| $ | — |
|
| $ | 1 |
|
| $ | — |
|
| $ | 1 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 4 |
|
| $ | — |
|
| $ | 4 |
|
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, 2020,2021, a majority of these local currencies weakened against the U.S. dollar, resulting in other comprehensive loss of $180$19 million compared to other comprehensive incomeloss of $20$180 million for the three months ended March 31, 2019.2020.
The effect of changes in the fair values of derivatives designated as cash flow hedges are accumulated in other comprehensive income (loss), net of tax, until the underlying transactions they hedge are realized. The movement in other comprehensive income (loss) from period to period will be the result of the combination of: 1) changes in fair value of open derivatives ($-56(-$2 million during the three months ended March 31, 2020)2021); and, 2) the outflow of other comprehensive income (loss) related to cumulative changes in the fair value of derivatives that have settled in the current period that is reclassified into earnings in the current period ($4 million0 during the three months ended March 31, 2020)2021).
5. | Segments |
Financial results by operating segment are as follows (in millions):
|
| Three Months Ended |
|
| Three Months Ended |
| ||||||||||
|
| March 31, |
|
| March 31, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wellbore Technologies |
| $ | 691 |
|
| $ | 807 |
|
| $ | 413 |
|
| $ | 691 |
|
Completion & Production Solutions |
|
| 675 |
|
|
| 581 |
|
|
| 439 |
|
|
| 675 |
|
Rig Technologies |
|
| 557 |
|
|
| 603 |
|
|
| 431 |
|
|
| 557 |
|
Eliminations |
|
| (40 | ) |
|
| (51 | ) |
|
| (34 | ) |
|
| (40 | ) |
Total revenue |
| $ | 1,883 |
|
| $ | 1,940 |
|
| $ | 1,249 |
|
| $ | 1,883 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wellbore Technologies |
| $ | (663 | ) |
|
| 19 |
|
| $ | (14 | ) |
|
| (663 | ) |
Completion & Production Solutions |
|
| (1,013 | ) |
|
| (35 | ) |
|
| (17 | ) |
|
| (1,013 | ) |
Rig Technologies |
|
| (202 | ) |
|
| 31 |
|
|
| (8 | ) |
|
| (202 | ) |
Eliminations and corporate costs |
|
| (72 | ) |
|
| (63 | ) |
|
| (49 | ) |
|
| (72 | ) |
Total operating profit (loss) |
| $ | (1,950 | ) |
| $ | (48 | ) |
| $ | (88 | ) |
| $ | (1,950 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss)%: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wellbore Technologies |
|
| (95.9 | %) |
|
| 2.4 | % |
|
| (3.4 | %) |
|
| (95.9 | %) |
Completion & Production Solutions |
|
| (150.1 | %) |
|
| (6.0 | %) |
|
| (3.9 | %) |
|
| (150.1 | %) |
Rig Technologies |
|
| (36.3 | %) |
|
| 5.1 | % |
|
| (1.9 | %) |
|
| (36.3 | %) |
Total operating profit (loss)% |
|
| (103.6 | %) |
|
| (2.5 | %) |
|
| (7.0 | %) |
|
| (103.6 | %) |
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 3 reporting segments that are eliminated in consolidation. Intrasegment transactions are eliminated within each segment.
|
| Three Months Ended |
| |||||
|
| March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Other items in operating profit: |
|
|
|
|
|
|
|
|
Wellbore Technologies |
| $ | 715 |
|
| $ | (2 | ) |
Completion & Production Solutions |
|
| 1,054 |
|
|
| 11 |
|
Rig Technologies |
|
| 238 |
|
|
| 2 |
|
Eliminations and corporate costs |
|
| 16 |
|
|
| — |
|
Total other items in operating profit |
| $ | 2,023 |
|
| $ | 11 |
|
First quarter 2021 operating profit includes pre-tax charges for severance, facility closures and other items ($9 million). First quarter 2020 operating profit (loss) includes pre-tax charges for impairment of goodwill, indefinite-lived and finite-lived intangible and long-lived tangible assets ($1,891 million); inventory charges ($114 million); and, severance, facility closures and other items ($18 million). First quarter 2019 operating profit includes pre-tax charges for inventory, facility closure and other items ($11 million).
6. | 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, |
|
| Three Months Ended March 31, |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| Completion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Completion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Completion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Completion |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| Wellbore |
|
| & Production |
|
| Rig |
|
|
|
|
|
|
|
|
|
| Wellbore |
|
| & Production |
|
| Rig |
|
|
|
|
|
|
|
|
|
| Wellbore |
|
| & Production |
|
| Rig |
|
|
|
|
|
|
|
|
|
| Wellbore |
|
| & Production |
|
| Rig |
|
|
|
|
|
|
|
|
| ||||||||||||
|
| Technologies |
|
| Solutions |
|
| Technologies |
|
| Eliminations |
|
| Total |
|
| Technologies |
|
| Solutions |
|
| Technologies |
|
| Eliminations |
|
| Total |
|
| Technologies |
|
| Solutions |
|
| Technologies |
|
| Eliminations |
|
| Total |
|
| Technologies |
|
| Solutions |
|
| Technologies |
|
| Eliminations |
|
| Total |
| ||||||||||||||||||||
North America |
| $ | 361 |
|
| $ | 225 |
|
| $ | 77 |
|
| $ | — |
|
| $ | 663 |
|
| $ | 460 |
|
| $ | 269 |
|
| $ | 141 |
|
| $ | — |
|
| $ | 870 |
|
| $ | 188 |
|
| $ | 162 |
|
| $ | 55 |
|
| $ | — |
|
| $ | 405 |
|
| $ | 361 |
|
| $ | 225 |
|
| $ | 77 |
|
| $ | — |
|
| $ | 663 |
|
International |
|
| 313 |
|
|
| 437 |
|
|
| 470 |
|
|
| — |
|
|
| 1,220 |
|
|
| 331 |
|
|
| 296 |
|
|
| 443 |
|
|
| — |
|
|
| 1,070 |
|
|
| 211 |
|
|
| 264 |
|
|
| 369 |
|
|
| — |
|
|
| 844 |
|
|
| 313 |
|
|
| 437 |
|
|
| 470 |
|
|
| — |
|
|
| 1,220 |
|
Eliminations |
|
| 17 |
|
|
| 13 |
|
|
| 10 |
|
|
| (40 | ) |
|
| — |
|
|
| 16 |
|
|
| 16 |
|
|
| 19 |
|
|
| (51 | ) |
|
| — |
|
|
| 14 |
|
|
| 13 |
|
|
| 7 |
|
|
| (34 | ) |
|
| — |
|
|
| 17 |
|
|
| 13 |
|
|
| 10 |
|
|
| (40 | ) |
|
| — |
|
|
| $ | 691 |
|
| $ | 675 |
|
| $ | 557 |
|
| $ | (40 | ) |
| $ | 1,883 |
|
| $ | 807 |
|
| $ | 581 |
|
| $ | 603 |
|
| $ | (51 | ) |
| $ | 1,940 |
|
| $ | 413 |
|
| $ | 439 |
|
| $ | 431 |
|
| $ | (34 | ) |
| $ | 1,249 |
|
| $ | 691 |
|
| $ | 675 |
|
| $ | 557 |
|
| $ | (40 | ) |
| $ | 1,883 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land |
| $ | 529 |
|
| $ | 416 |
|
| $ | 151 |
|
| $ | — |
|
| $ | 1,096 |
|
| $ | 665 |
|
| $ | 405 |
|
| $ | 215 |
|
| $ | — |
|
| $ | 1,285 |
|
| $ | 294 |
|
| $ | 265 |
|
| $ | 91 |
|
| $ | — |
|
| $ | 650 |
|
| $ | 529 |
|
| $ | 416 |
|
| $ | 151 |
|
| $ | — |
|
| $ | 1,096 |
|
Offshore |
|
| 145 |
|
|
| 246 |
|
|
| 396 |
|
|
| — |
|
|
| 787 |
|
|
| 126 |
|
|
| 160 |
|
|
| 369 |
|
|
| — |
|
|
| 655 |
|
|
| 105 |
|
|
| 161 |
|
|
| 333 |
|
|
| — |
|
|
| 599 |
|
|
| 145 |
|
|
| 246 |
|
|
| 396 |
|
|
| — |
|
|
| 787 |
|
Eliminations |
|
| 17 |
|
|
| 13 |
|
|
| 10 |
|
|
| (40 | ) |
|
| — |
|
|
| 16 |
|
|
| 16 |
|
|
| 19 |
|
|
| (51 | ) |
|
| — |
|
|
| 14 |
|
|
| 13 |
|
|
| 7 |
|
|
| (34 | ) |
|
| — |
|
|
| 17 |
|
|
| 13 |
|
|
| 10 |
|
|
| (40 | ) |
|
| — |
|
|
| $ | 691 |
|
| $ | 675 |
|
| $ | 557 |
|
| $ | (40 | ) |
| $ | 1,883 |
|
| $ | 807 |
|
| $ | 581 |
|
| $ | 603 |
|
| $ | (51 | ) |
| $ | 1,940 |
|
| $ | 413 |
|
| $ | 439 |
|
| $ | 431 |
|
| $ | (34 | ) |
| $ | 1,249 |
|
| $ | 691 |
|
| $ | 675 |
|
| $ | 557 |
|
| $ | (40 | ) |
| $ | 1,883 |
|
Performance Obligations
Net revenue recognized from performance obligations satisfied in previous periods was $4$12.5 million for the three months ended March 31, 2020,2021, primarily due to change orders.
Remaining performance obligations representsrepresent the transaction price of firm orders for all revenue streams for which work has not been performed on contracts with original expected duration of one year or more. We do not disclose the remaining performance obligations of royalty contracts, service contracts for which there is a right to invoice, and short-term contracts that are expected to have a duration of one year or less. As of March 31, 2020,2021, the aggregate amount of the transaction price allocated to remaining performance obligations was $3,558$3,632 million. The Company expects to recognize approximately $937$707 million in revenue for the remaining performance obligations in 2020,2021, and $2,621$2,925 million in 20212022 and thereafter.
Contract Assets and Liabilities
Contract assets include unbilled amounts when revenue recognized exceeds the amount billed to the customer under contracts where revenue is recognized over-time. Contract liabilities consist of customer billings in excess of revenue recognized under over-time contracts, customer advance payments and deferred revenue.
The changes in the carrying amount of net contract assets and contract liabilities are as follows (in millions):
|
| Contract Assets |
|
| Contract Liabilities |
|
| Contract Assets |
|
| Contract Liabilities |
| ||||
Balance at December 31, 2019 |
| $ | 643 |
|
| $ | 427 |
| ||||||||
Balance at December 31, 2020 |
| $ | 611 |
|
| $ | 354 |
| ||||||||
Provision |
|
| (4 | ) |
|
| - |
|
|
| (1 | ) |
|
| - |
|
Billings |
|
| (84 | ) |
|
| 282 |
|
|
| (226 | ) |
|
| 204 |
|
Revenue recognized |
|
| 99 |
|
|
| (233 | ) |
|
| 214 |
|
|
| (205 | ) |
Currency translation adjustments and other |
|
| (15 | ) |
|
| (6 | ) |
|
| (21 | ) |
|
| (4 | ) |
Balance at March 31, 2020 |
| $ | 639 |
|
| $ | 470 |
| ||||||||
Balance at March 31, 2021 |
| $ | 577 |
|
| $ | 349 |
|
Allowance for Credit Losses
The Company estimates its allowance for credit losses using information about past events, current conditions and risk characteristics of each customer, and reasonable and supportable forecasts relevant to assessing risk associated with the collectability of Receivables and Contract Assets. The Company’s customer base, mostly in the oil and gas industry, have generally similar collectability risk characteristics, although larger and state-owned customers may have lower risk than smaller independent customers. As of March 31, 2021, allowance for credit losses totaled $98 million.
7. | Leases |
The Company leases certain facilities and equipment to support its operations around the world. These leases generally require the Company to pay maintenance, insurance, taxes and other operating costs in addition to rent. Renewal options are common in longer term leases; however, it is rare that the Company initially intends thatis reasonably certain to exercise a leaserenewal option will be exercisedat the inception of a least due to the cyclical nature of the Company’s business. Residual value guarantees are not typically part of the Company’s leases. Occasionally, the Company sub-leases excess facility space, generally at terms similar to the source lease. The Company reviews agreements at inception to determine if they include a lease and, when they do, uses its incremental borrowing rate to determine the present value of the future lease payments as most do not include implicit interest rates.rate in most of the Company’s leases is not readily determinable.
Components of leases are as follows (in millions):
|
| March 31, |
|
| December 31, |
|
| March 31, |
|
| December 31, |
| ||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
Current portion of lease liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating |
| $ | 83 |
|
| $ | 84 |
|
| $ | 81 |
|
| $ | 82 |
|
Financing |
|
| 32 |
|
|
| 30 |
|
|
| 25 |
|
|
| 28 |
|
Total |
| $ | 115 |
|
| $ | 114 |
|
| $ | 106 |
|
| $ | 110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| March 31, |
|
| December 31, |
|
| March 31, |
|
| December 31, |
| ||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
Long-term portion of lease liability: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating |
| $ | 394 |
|
| $ | 424 |
|
| $ | 361 |
|
| $ | 376 |
|
Financing |
|
| 252 |
|
| $ | 250 |
|
|
| 229 |
|
| $ | 236 |
|
Total |
| $ | 646 |
|
| $ | 674 |
|
| $ | 590 |
|
| $ | 612 |
|
8.Debt
Debt consists of (in millions):
|
| March 31, |
|
| December 31, |
|
| March 31, |
|
| December 31, |
| ||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
$1.1 billion in Senior Notes, interest at 3.95% payable semiannually, principal due on December 1, 2042 |
| $ | 1,089 |
|
| $ | 1,088 |
|
| $ | 1,089 |
|
| $ | 1,089 |
|
$0.5 billion in Senior Notes, interest at 3.60% payable semiannually, principal due on December 1, 2029 |
|
| 493 |
|
|
| 493 |
|
|
| 493 |
|
|
| 493 |
|
$0.4 billion in Senior Notes, interest at 2.60% payable semiannually, principal due on December 1, 2022 |
|
| 399 |
|
|
| 399 |
| ||||||||
$0.2 billion in Senior Notes, interest at 2.60% payable semiannually, principal due on December 1, 2022 |
|
| 182 |
|
|
| 182 |
| ||||||||
Other debt |
|
| 21 |
|
|
| 9 |
|
|
| 87 |
|
|
| 70 |
|
Total |
| $ | 2,002 |
|
| $ | 1,989 |
| ||||||||
Total debt |
|
| 1,851 |
|
|
| 1,834 |
| ||||||||
Less current portion |
|
| 182 |
|
|
| - |
| ||||||||
Long-term debt |
| $ | 1,669 |
|
| $ | 1,834 |
|
The Company has a $2.0 billion, five-year unsecured revolving credit facility, which expires on October 30, 2024. The Company has the right to increase the commitments under this agreement to an aggregate amount of up to $3.0 billion upon the consent of only those lenders holding any such increase. Interest under the multicurrency facility is based upon LIBOR, NIBOR or CDOR plus 1.125% subject to a ratings-based grid or the U.S. prime rate. The credit facility contains a financial covenant regarding maximum debt-to-capitalization ratio of 60%. As of March 31, 2020,2021, the Company was in compliance with a debt-to-capitalization ratio of 29.2%.29.0% and had 0 outstanding letters of credit issued under the facility, resulting in $2.0 billion of available funds.
Additionally, the Company has a $150 million bank line of credit for the construction of a facility in Saudi Arabia. Interest under the bank line of credit is based upon LIBOR plus 1.40%. The bank line of credit contains a financial covenant regarding maximum debt-to-equity ratio of 75%. As of March 31, 2020,2021, the Company was in compliance. Other debt at March 31, 2021 included $25 million of funding provided by a minority interest partner of an NOV consolidated joint venture.
The Company has a commercial paper program under which borrowings are classified as long-term since the program is supported by the $2.0 billion, five-year credit facility. At March 31, 2020, there were 0 commercial paper borrowings, and there were 0 outstanding letters of credit issued under the credit facility, resulting in $2.0 billion of funds available under this credit facility.
The Company had $524$444 million of outstanding letters of credit at March 31, 2020,2021, primarily in the U.S. and Norway, that are under various bilateral letter of credit facilities. Letters of credit are issued as bid bonds, advanced payment bonds and performance bonds.
At March 31, 20202021 and December 31, 2019,2020, the fair value of the Company’s unsecured Senior Notes approximated $1,445$1,690 million and $1,947$1,833 million, respectively. The fair value of the Company’s debt is estimated using Level 2 inputs in the fair value hierarchy and is based on quoted prices for those or similar instruments. At March 31, 20202021 and December 31, 2019,2020, the carrying value of the Company’s unsecured Senior Notes approximated $1,981$1,764 million.
Subsequent Event: Redemption of unsecured Senior Notes Due 2022
On April 9, 2021, the Company repaid the entire outstanding balance ($182 million) of its 2.60% unsecured Senior Notes due December 2022 using available cash balances. Upon redemption, the Company paid $191 million, which included a redemption premium of $6.8 million as well as accrued and unpaid interest of $1.7 million. As a result of the redemption, the Company recorded a loss on extinguishment of debt of $7.1 million in the second quarter, including a make whole premium of $6.8 million and $1,980non-cash charges of $0.3 million respectively.to write-off unamortized discount and debt issuance costs. Following the repayment, the Company’s earliest bond maturity is in 2029.
9. | Income Taxes |
The effective tax rate for the three months ended March 31, 2021 and 2020 was 5.0% and 2019 was 7.1% and 11.8%, respectively. The Company has established valuation allowances on deferred tax assets for losses and tax credits generated in 20202021 and 2019.2020. The change in the effective tax rate from 2019 to 2020for 2021 was negatively impacted by a changecurrent year losses in jurisdictional mixcertain jurisdictions with no tax benefit, partially offset by favorable adjustments related to utilization of income between the two periodslosses and tax credits for prior year tax returns. The effective tax rate for 2020 was negatively impacted by losses in certain jurisdictions with no tax benefit as well as the impairment of nondeductible goodwill, partially offset by an income tax benefit of $123 million from the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) that was enacted on March 27, 2020 allowing net operating losses originating in 2018, 2019 or 2020 to be carried back five years. The Company anticipates filing a refund claim to carryback its 2019 United States net operating loss to its 2014 tax year which will result in a cash refund of $123 million.
10. | Stock-Based Compensation |
The Company’s stock-based compensation plan, known as the National Oilwell Varco, Inc. 2018 Long-Term Incentive Plan (the “2018 Plan”), was approved by shareholders on May 11, 2018 and amended and restated on May 28, 2019.20, 2020. The 2018 Plan provides for the granting of stock options, restricted stock, restricted stock units, performance awards, phantom shares, stock appreciation rights, stock payments and substitute awards. The number of shares authorized under the 2018 Plan is 20.242.7 million. The 2018 Plan is also subject to a fungible ratio concept, such that the issuance of stock options and stock appreciation rights reduces the number of available shares under the 2018 Plan on a 1-for-1 basis, and the issuance of other awards reduces the number of available shares under the 2018 Plan on a 2.5-for-1 basis. At March 31, 2020, 1,348,8772021, approximately 13.3 million shares remain available for future grants under the 2018 Plan. The Company also has outstanding awards under its other stock-based compensation plan known as the National Oilwell Varco, Inc. Long-Term Incentive Plan (the “Plan”), however the Company is no longer granting new awards under the Plan.
On February 25, 2020,22, 2021, under the 2018 Plan, the Company granted 1,650,2621,678,013 stock options with a fair value of $5.83$5.75 per option and an exercise price of $20.23$15.00 per share; 2,535,1742,972,175 shares of restricted stock and restricted stock units with a fair value of $20.23$15.00 per share; and performance share awards (PSAs) to senior management employees with potential payouts varying from 0 to 1,063,2741,434,000 shares. The stock options vest over a three-year period from the grant date. The restricted stock and restricted stock units vest in 3 equal annual installments commencing on the first anniversary of the grant date. The 2020 performance share awards2021 PSAs can be earned based on performance against two established goals over a three-year performance period. The performance share awards are divided into two independent parts that are subject to two separate performance metrics:period: 85% with a TSR (total shareholder return) goal and 15% with an internal NVA (“National Oilwell VarcoNOV Value Added”) (return, a return on capital metric) goal. Performance against the TSR goalperformance is determined by comparing the performance of the Company’s TSR with the TSR performance of the members of the OSX indexPhiladelphia Stock Exchange’s Oil Services Sector Index (OSX) for the three-year performance period. The TSR portion of the performance share awards is subject to a vesting cap equal to 100% of Target Level if the Company’s absolute TSR is negative, regardless of relative TSR results. Conversely, if the Company’s absolute TSR is greater than 15% annualized over the three-year performance period the payout amount shall not be less than 50% of Target Level, regardless of relative TSR results.The NVA goal is based on the Company’s improvement in NVA from the beginning of the performance period until the end of the performance period. NVA shall beis calculated as an amount equal to the Company’s (a) gross cash earnings less (b) average gross operating assets times an amount equal to a required return on assets.assets, with certain adjustments.
Total stock-based compensation for all stock-based compensation arrangements under the Plan and the 2018 Plan was $27$20 million and $33$27 million for the three months ended March 31, 20202021 and 2019,2020, respectively.
The totalThere was 0 income tax benefit recognized in the Consolidated Statements of Income (Loss) for all stock-based compensation arrangements under the Plan was nil and $4 million for both the three months ended March 31, 20202021 and 2019, respectively.2020.
11. | Derivative Financial Instruments |
The Company is exposed to certain risks relating to its ongoing business operations. The primary risk managed by usinguses derivative instruments is theto manage certain foreign currency exchange rate riskrisks associated with sourcing goods and services in a currency different than the
currency of sale. Forward currency contracts are executed to manage the foreign exchange risk on forecasted revenues and expenses denominated in currencies other than the functional currency of the operating unit (cash flow hedge)hedges). In addition, the Company executes forward currency contracts to manage the foreign currency risk on recognized nonfunctional currency monetary accounts (non-designated hedgehedges).
The Company had the following outstanding foreign currency forward contracts at March 31, 20202021 (in millions):
|
| Currency Denomination |
|
| Currency Denomination |
| ||||||||||||||
|
| March 31, |
|
| December 31, |
|
| March 31, |
|
| December 31, |
| ||||||||
Foreign Currency |
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||||||
South Korean Won |
| KRW |
| 17,600 |
|
| KRW |
| 17,600 |
|
| KRW |
| 17,600 |
|
| KRW |
| 17,600 |
|
Norwegian Krone |
| NOK |
| 5,232 |
|
| NOK |
| 5,377 |
|
| NOK |
| 3,131 |
|
| NOK |
| 3,817 |
|
Russian Ruble |
| RUB |
| 1,274 |
|
| RUB |
| 1,012 |
|
| RUB |
| 1,159 |
|
| RUB |
| 1,118 |
|
Mexican Peso |
| MXN |
| 421 |
|
| MXN |
| 402 |
| ||||||||||
Japanese Yen |
| JPY |
| 390 |
|
| JPY |
| 340 |
| ||||||||||
U.S. Dollar |
| USD |
| 536 |
|
| USD |
| 686 |
|
| USD |
| 308 |
|
| USD |
| 367 |
|
Mexican Peso |
| MXN |
| 458 |
|
| MXN |
| 115 |
| ||||||||||
Euro |
| EUR |
| 207 |
|
| EUR |
| 188 |
|
| EUR |
| 131 |
|
| EUR |
| 116 |
|
Japanese Yen |
| JPY |
| 191 |
|
| JPY |
| 36 |
| ||||||||||
South African Rand |
| ZAR |
| 124 |
|
| ZAR |
| 124 |
|
| ZAR |
| 124 |
|
| ZAR |
| 124 |
|
Singapore Dollar |
| SGD |
| 31 |
|
| SGD |
| 31 |
| ||||||||||
British Pound Sterling |
| GBP |
| 38 |
|
| GBP |
| 20 |
|
| GBP |
| 17 |
|
| GBP |
| 18 |
|
Danish Krone |
| DKK |
| 25 |
|
| DKK |
| 21 |
|
| DKK |
| 5 |
|
| DKK |
| 875 |
|
Singapore Dollar |
| SGD |
| 18 |
|
| SGD |
| 42 |
| ||||||||||
Canadian Dollar |
| CAD |
| 1 |
|
| CAD |
| 3 |
|
| CAD |
| 2 |
|
| CAD |
| 1 |
|
Brazilian Real |
| BRL |
| - |
|
| BRL |
| 768 |
|
Cash Flow Hedging Strategy
To protect against the volatility of forecasted foreign currency cash flows resulting from forecasted revenues and expenses, the Company has instituted a cash flow hedging program. For derivative instruments that are designated and qualify as a cash flow hedge, the gain or loss on the derivative instrument is recorded in accumulated other comprehensive income (loss) and reclassified into earnings in the same line item associated with the forecasted transaction and in the same period or periods during which the hedged transaction affects earnings (e.g., in “revenues” when the hedged transactions are cash flows associated with forecasted revenues). The Company includes time value in hedge relationships.
The Company expects $41($19) million of the accumulated other comprehensive income (loss) will be reclassified into earnings within the next twelve months.
Non-designated Hedging Strategy
The Company enters into forward exchange contracts to hedge certain nonfunctional currency monetary accounts. The gain or loss on the derivative instrument is recognized in other income (expense), together with the foreign exchange driven value changes in the hedged nonfunctional monetary accounts.
The amount of gain (loss) recognized in other income (expense), net was ($43)4) million and $4($43) million for the three months ended March 31, 20202021 and 2019,2020, respectively.
The Company has the following fair values of its derivative instruments and their balance sheet classifications (in millions):
|
| Asset Derivatives |
|
| Liability Derivatives |
|
| Asset Derivatives |
|
| Liability Derivatives |
| ||||||||||||||||||||||||||||
|
|
|
| Fair Value |
|
|
|
| Fair Value |
|
|
|
| Fair Value |
|
|
|
| Fair Value |
| ||||||||||||||||||||
|
| Balance Sheet |
| March 31, |
|
| December 31, |
|
| Balance Sheet |
| March 31, |
|
| December 31, |
|
| Balance Sheet |
| March 31, |
|
| December 31, |
|
| Balance Sheet |
| March 31, |
|
| December 31, |
| ||||||||
|
| Location |
| 2020 |
|
| 2019 |
|
| Location |
| 2020 |
|
| 2019 |
|
| Location |
| 2021 |
|
| 2020 |
|
| Location |
| 2021 |
|
| 2020 |
| ||||||||
Derivatives designated as hedging instruments under ASC Topic 815 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
| Prepaid and other current assets |
| $ | 7 |
|
| $ | 5 |
|
| Accrued liabilities |
| $ | 65 |
|
| $ | 18 |
|
| Prepaid and other current assets |
| $ | 4 |
|
| $ | 17 |
|
| Accrued liabilities |
| $ | 6 |
|
| $ | 11 |
|
Foreign exchange contracts |
| Other Assets |
|
| 3 |
|
|
| 4 |
|
| Other liabilities |
|
| 21 |
|
|
| 2 |
|
| Other Assets |
|
| — |
|
|
| 12 |
|
| Other liabilities |
|
| — |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging instruments under ASC Topic 815 |
|
|
| $ | 10 |
|
| $ | 9 |
|
|
|
| $ | 86 |
|
| $ | 20 |
|
|
|
| $ | 4 |
|
| $ | 29 |
|
|
|
| $ | 6 |
|
| $ | 11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments under ASC Topic 815 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
| Prepaid and other current assets |
| $ | 15 |
|
| $ | 8 |
|
| Accrued liabilities |
| $ | 32 |
|
| $ | 6 |
|
| Prepaid and other current assets |
| $ | 20 |
|
| $ | 17 |
|
| Accrued liabilities |
| $ | 2 |
|
| $ | 4 |
|
Foreign exchange contracts |
| Other Assets |
|
| 2 |
|
|
| 1 |
|
| Other Liabilities |
|
| — |
|
|
| — |
|
| Other Assets |
|
| 3 |
|
|
| — |
|
| Other Liabilities |
|
| — |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedging instruments under ASC Topic 815 |
|
|
| $ | 17 |
|
| $ | 9 |
|
|
|
| $ | 32 |
|
| $ | 6 |
|
|
|
| $ | 23 |
|
| $ | 17 |
|
|
|
| $ | 2 |
|
| $ | 4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives |
|
|
| $ | 27 |
|
| $ | 18 |
|
|
|
| $ | 118 |
|
| $ | 26 |
|
|
|
| $ | 27 |
|
| $ | 46 |
|
|
|
| $ | 8 |
|
| $ | 15 |
|
12. | Net |
The following table sets forth the computation of weighted average basic and diluted shares outstanding (in millions, except per share data):
| Three Months Ended |
| Three Months Ended |
| ||||||||||
| March 31, |
| March 31, |
| ||||||||||
| 2020 |
|
| 2019 |
| 2021 |
|
| 2020 |
| ||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Company | $ | (2,047 | ) |
| $ | (77 | ) | $ | (115 | ) |
| $ | (2,047 | ) |
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic—weighted average common shares outstanding |
| 383 |
|
|
| 380 |
|
| 385 |
|
|
| 383 |
|
Dilutive effect of employee stock options and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
unvested stock awards |
| — |
|
|
| — |
|
| — |
|
|
| — |
|
Diluted outstanding shares |
| 383 |
|
|
| 380 |
|
| 385 |
|
|
| 383 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Company per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic | $ | (5.34 | ) |
| $ | (0.20 | ) | $ | (0.30 | ) |
| $ | (5.34 | ) |
Diluted | $ | (5.34 | ) |
| $ | (0.20 | ) | $ | (0.30 | ) |
| $ | (5.34 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends per share | $ | 0.05 |
|
| $ | 0.05 |
| $ | — |
|
| $ | 0.05 |
|
ASC Topic 260, “Earnings Per Share” requires companies with unvested participating securities to utilize a two-class method for the computation of net income attributable to Company per share. The two-class method requires a portion of net income attributable to Company to be allocated to participating securities, which are unvested awards of share-based payments with non-forfeitable rights to receive dividends or dividend equivalents, if declared. Net income (loss) attributable to Company allocated to these participating securities was immaterial for the three months ended March 31, 20202021 and 20192020 and therefore not excluded from net income attributable to Company per share calculation.
The Company had stock options outstanding that were anti-dilutive totaling 2724 million shares and 2127 million shares for each of the three months ended March 31, 20202021 and 2019,2020, respectively.
13. | Cash Dividends |
On February 27, 2020, the Company announced that its Board of Directors declared a cash dividend of $0.05 per share. The cash dividend was paid on March 27, 2020, to each stockholder of record on March 13, 2020. Cash dividends were $0 and $19 million for both the three months ended March 31, 2021 and March 31, 2020, and 2019.respectively. The declaration and payment of future dividends is at the discretion of the Company’s Board of Directors and will be dependent upon the Company’s results of operations, financial condition, capital requirements and other factors deemed relevant by the Company’s Board of Directors.
14. |
|
Impairment of Goodwill and Other Indefinite-Lived Intangible Assets
The Company tests intangible assets for impairment annually, or more frequently if events or circumstances indicate they could be impaired. Potential impairment indicators include, but are not limited to: a sustained increase in worldwide inventories of oil or gas, sustained reductions in: worldwide oil and gas prices or drilling activity; the profitability or cash flow of oil and gas companies or drilling contractors; available financing or other capital for oil and gas companies or drilling contractors; the market capitalization of the Company or its customers; or, capital investments by drilling companies and oil and gas companies.
The unprecedented global oil and gas downturn that began in 2014 has repeatedly exhibited signs of recovery that subsequently faded. There have been three points when, in management’s judgement, based on the information available at the time, market factors, events and circumstances clearly indicated a fundamental shift to a more prolonged downturn and shallower recovery than had been expected. As a result, management reduced its forecasts in the third quarter of 2016, the second quarter of 2019 and the first quarter of 2020. Forecasts were based on management’s judgement of the information management had at the time the forecast was made, which often included, but was not limited to: internally developed market intelligence and sales forecasts; formal and informal communications from customers and other industry participants about their economic outlook and spending plans; 3rd party industry analysts and information compilers and the reports and forecasts they publish; and, industry-specific and general global economic statistics, outlook and forecasts from Governmental and other sources. These external sources assisted management in developing our views regarding forecasted rig counts and capital spending by our customers, among other matters.
During the first quarter of 2020 the widely publicized and discussed coronavirus (COVID-19) outbreak rapidly spread across the world, driving sharp demand destruction for crude oil as whole economies ordered curtailed activity. Members of the Organization of the Petroleum Exporting Countries and other producing countries (OPEC+), including Russia, met in early March to discuss additional production cuts to help stabilize prices, however, the group could not come to an agreement and production was instead increased into the already oversupplied market, decimating oil prices. The result was the Company’s stock price reaching a new low during the quarter and its market capitalization falling below its carrying value. West Texas Intermediate (WTI), a key benchmark for the US oil market, fell more than $40 per barrel from January 1, 2020 to March 31, 2020 (losing two thirds of its value in 90 days) to its lowest level in nearly two decades. As travel restrictions and government directives to shut down businesses increase, demand is expected to continue declining in the second quarter of 2020. Management reduced its forecast accordingly.
In the Company’s view, falling rig count levels in the first quarter and a depressed outlook provided evidence to the equity markets that oil and gas producers were committed to reduced levels of capital investment in drilling, which will further reduce levels of demand for capital equipment and oilfield services that the Company sells to its customers. Also, due to the prolonged poor market conditions, capital availability to many of the Company’s customers became even more limited and is unlikely to improve near-term. In management’s judgement the facts and circumstances including those described above constituted a triggering event in the first quarter which indicated the Company’s goodwill and other long-lived assets may be impaired. The Company performed a detailed analysis under ASC 350, incorporating this refined outlook, which determined that the fair values were less than the respective carrying values for all of the Company’s business units (“Reporting Units”).
The Company primarily uses the discounted cash flow method to estimate the fair value of its Reporting Units when conducting the impairment test, but also considers the comparable companies and representative transaction methods to validate the test result and management’s forecast and other expectations, where possible. The valuation techniques used in the test were consistent with those used during previous testing. Fair value of the Reporting Unit is determined using significant unobservable inputs, or level 3 in the fair value hierarchy. These inputs are based on internal management estimates, forecasts and judgements, using discounted cash flow. The inputs used in the test were updated to reflect management’s judgement, current market conditions and forecasts.
The discounted cash flow was based on management’s forecast of operating performance for each Reporting Unit. The two main assumptions used, which bear the risk of change and could impact the test result, include the forecast cash flow from operations from each of the Company’s Reporting Units and their respective weighted average cost of capital. The starting point for each of the Reporting Unit’s cash flow from operations was the detailed forecast, modified to incorporate our revised outlook, as appropriate. The Reporting Unit carrying values were adjusted based on the long-lived asset impairment assessment noted below. Cash flows beyond the plan or forecast were estimated using a terminal value calculation which incorporated historical and forecasted financial cyclical trends for each Reporting Unit and considered long-term earnings growth rates. Financial and credit market volatility directly impacts our fair value measurement through the weighted average cost of capital used to determine a discount rate. During times of volatility, significant judgement must be applied to determine whether credit changes are a short-term or long-term trend.
For the first quarter of 2020, the Company recorded $1,295 million in impairment charges to goodwill and $83 million in charges to indefinite-lived intangible assets.
Following the impairment charges, several Reporting Units did not have a fair value substantially in excess of their book value. Further deterioration of market conditions, in management’s judgement, beyond those incorporated into the extended forecast by management, will likely result in additional impairment charges. The remaining goodwill balance for these Reporting Units at March 31, 2020 is as follows: Rig Equipment ($661 million), Marine Construction ($51 million), ReedHycalog ($124 million), M/D Totco ($32 million), Wellsite ($174 million), XL Systems ($64 million), Fiberglass Systems ($346 million), and Process and Flow Technologies ($63 million).
The Company has approximately $1.52 billion of goodwill, by segment as follows (in millions):
|
| Wellbore Technologies |
|
| Completion & Production Solutions |
|
| Rig Technologies |
|
| Total |
| ||||
Balance at December 31, 2019 |
| $ | 843 |
|
| $ | 1,054 |
|
| $ | 910 |
|
| $ | 2,807 |
|
Impairment |
|
| (517 | ) |
|
| (580 | ) |
|
| (198 | ) |
|
| (1,295 | ) |
Additions |
|
| 4 |
|
|
| — |
|
|
| — |
|
|
| 4 |
|
Currency translation adjustments and other |
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| (1 | ) |
Balance at March 31, 2020(1) |
| $ | 330 |
|
| $ | 473 |
|
| $ | 712 |
|
| $ | 1,515 |
|
|
|
Impairment of Long-Lived Assets (Excluding Goodwill and Other Indefinite-Lived Intangible Assets)
Long-lived assets, which include property, plant and equipment, right of use, and finite-lived intangible assets, comprise a significant amount of the Company’s total assets. The Company makes judgements and estimates in conjunction with the carrying value of these assets, including amounts to be capitalized, depreciation and amortization methods and estimated useful lives.
The Company identifies its Reporting Units as individual asset groups. The carrying values of these asset groups are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. An impairment loss is recorded in the period in which it is determined that the carrying amount of the asset is not recoverable based on estimated future undiscounted cash flows. We estimate the fair value of these intangible and fixed assets using an income approach that requires the Company to make long-term forecasts of its future revenues and costs related to the assets subject to review. These forecasts require assumptions about demand for the Company’s products and services, future market conditions and technological developments. The forecasts are dependent upon assumptions including those regarding oil and gas prices, the general outlook for the global oil and gas industry, available financing for the Company’s customers, political stability in major oil and gas producing areas, and the potential obsolescence of various types of equipment we sell, among other factors. Financial and credit market volatility directly impacts our fair value measurement through our income forecast. Changes to these assumptions, including, but not limited to: sustained declines in worldwide rig counts below current analysts’ forecasts; collapse of spot and futures prices for oil and gas; significant deterioration of external financing for our customers; higher risk premiums or higher cost of equity; or any other significant adverse economic news could require a provision for impairment.
During the first quarter of 2020, the results of the Company's test for impairment of goodwill and indefinite-lived intangible assets, and the other negative market indicators described above, were a triggering event that indicated that its long-lived tangible assets and finite-lived intangible assets were impaired.
Impairment testing performed in the first quarter resulted in the determination that certain long-lived assets associated with most of the Company’s asset groups were not recoverable. The estimated fair value of these asset groups was below the carrying value and as a result, during the first quarter of 2020, the Company recorded impairment charges of $209 million to customer relationships, patents, trademarks, tradenames, and other finite-lived intangible assets, $262 million to property, plant and equipment, and $42 million for right-of-use assets. Additionally, the Company recorded a $224 million impairment on its equity investment in unconsolidated affiliates.
The Company has approximately $534 million of identified intangible assets, by segment as follows (in millions):
|
| Wellbore Technologies |
|
| Completion & Production Solutions |
|
| Rig Technologies |
|
| Total |
| ||||
Balance at December 31, 2019 |
| $ | 326 |
|
| $ | 275 |
|
| $ | 251 |
|
| $ | 852 |
|
Impairment |
|
| (78 | ) |
|
| (214 | ) |
|
| — |
|
|
| (292 | ) |
Additions |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Amortization |
|
| (4 | ) |
|
| (6 | ) |
|
| (7 | ) |
|
| (17 | ) |
Currency translation adjustments and other |
|
| (2 | ) |
|
| (5 | ) |
|
| (2 | ) |
|
| (9 | ) |
Balance at March 31, 2020 |
| $ | 242 |
|
| $ | 50 |
|
| $ | 242 |
|
| $ | 534 |
|
At March 31, 2020, the Company’s Wellbore Technology segment recorded $71 million, Completion and Production Solutions recorded $221 million and Rig Technology reported $12 million of the total $304 million impairment related to property, plant and equipment and right-of-use assets.
| Commitments and Contingencies |
Our business is governed by laws and regulations promulgated by U.S. federal and state governments and regulatory agencies, as well as international governmental authorities in the many countries in which we conduct business, including those related to the oilfield service industry. In the United States these governmental authorities include: the U.S. Department of Labor, the Occupational Safety and Health Administration, (“OSHA”), the Environmental Protection Agency, the Bureau of Land Management, the Department of Treasury, Office of Foreign Asset Controls, state and international environmental agencies and many others. We are unaware of any material unreserved liabilities in connection with our compliance with such laws. New laws, regulations and enforcement policies may result in additional, presently unquantifiable or unknown, costs or liabilities.
The Company is involved in various claims, regulatory agency audits and pending or threatened legal actions involving a variety of matters. The Company maintains insurance that covers many of the claims arising from risks associated with the business activities of the Company, including claims for premises liability, product liability and other such claims. The Company carries substantial insurance to cover such risks above a self-insured retention. The Company believes, and the Company’s experience has been, that such insurance has been enough to cover any such material risks. See Item 1A. Risk Factors.
The Company is also a party to claims, threatened and actual litigation, private arbitration, internal investigations of potential regulatory and compliance matters arisingwhich arise from legacy businesses that the Company has acquired over many years and from the Company’s current ordinary day-to-day business activities in whichactivities. These regulatory matters and disputes involve private parties includingand/or government authorities, which assert claims against the Company for a broad spectrum of potential claims and theories of liability, including: individual employment law claims, collective actions or class actionsaction claims under employment laws, intellectual property claims, (such as alleged patent infringement, and/or misappropriation of trade secrets), premises liability claims, environmental claims, product liability claims, warranty claims, personal injury claims arising from exposure to or use of allegedly defective products, negligence or other theories of liability, alleged regulatory violations, alleged violations of anti-corruption and anti-bribery laws and other commercial claims seeking recovery for alleged actual or exemplary damages or fines and penalties. Such claims involve various theories of liability which include: negligence, strict liability, product liability, and other theories of liability. For some of these contingent claims, the Company’s insurance coverage is inapplicable or an exclusion to coverage may apply. In such instances, settlement or other resolution of such contingent claims, individually or collectively, could have a material financial or reputational impact on the Company. As of DecemberMarch 31, 2019,2021, the Company recorded reserves in an amount believed to be sufficient, given the range of potential outcomes, for contingent liabilities representing all contingencies believed to be probable. These reserves include all costs expected for reclamation of a closed barite mine and product liability claims, as well as other circumstances involving material claims.
Risks and Uncertainties
The Company has assessed the potential for additional losses above the amounts accrued as well as potential losses for matters that are not probable but are reasonably possible. The litigation process as well as the final outcome of regulatory oversight is inherently uncertain, and our best judgement concerning the probable outcome of litigation or regulatory enforcement matters may prove to be incorrect in some instances. The total potential loss on these matters cannot be determined; however, in our opinion, any ultimate liability, to the extent not otherwise provided for, will not materially affect our financial position, cash flow or results of operations. These estimated liabilities are based on the Company’s assessment of the nature of these matters, their progress toward resolution, the advice of legal counsel and outside experts as well as management’s experience. Of course, becauseBecause of uncertainty and risk inherent to litigation and arbitration, the actual liabilities incurred may exceed our estimated liabilities and reserves, which could have a material financial or reputational impact on the Company. InCompany.In many instances, the Company’s products and services embody or incorporate trade secrets or patented inventions. From time to time, we are engaged in disputes concerning protection of trade secrets and confidential information, patents and other intellectual property rights. Such disputes frequently involve complex, factual, technical and/or legal issues which result in high costs to adjudicate our rights and difficulty in predicting the ultimate outcome. Because of the importance of the Company’s intellectual property to the Company’s performance, an adverse result in such disputes could result in the loss of revenue from royalties or a decline in sales of products protected by patents, which could materially and adversely impact our financial performance.
Further, in some instances, direct or indirect consumers of our products and services, entities providing financing for purchases of our products and services or members of the supply chain for our products and services have become involved in governmental investigations, internal investigations, political or other enforcement matters. In such circumstances, such investigations may adversely impact the ability of consumers of our products, entities providing financial support to such consumers or entities in the supply chain to timely perform their business plans or to timely perform under agreements with us. We may, from time to time, become involved in these investigations, at substantial cost to the Company. We also are subject to trade regulations, supply chain regulations, and other regulatory compliance in which the laws and regulations of different jurisdictions conflict or tradethese regulations may conflict with contractual terms. In such circumstances, our compliance with U.S. laws and regulations may subject us to risk of fines, penalties or contractual liability in other jurisdictions. Our efforts to actively manage such risks may not always be successful which could lead to negative impacts on revenue or earnings.
The Company is exposed to customs and regulatory risk in the countries in which we do business or to which we transport goods. For example, the effects of the United Kingdom’s withdrawal from the European Union, known as Brexit, may have a negative impact on our results from operations. Uncertainty concerning the legal and regulatory risks of Brexit, include: (i) supply chain risks resulting from lack of trade agreements, the implementation of new trade agreements, and other potential changes in customs administrations or tariffs; (ii) revenue risk, loss of customers or increased costs; (iii) delays in delivery of materials to the Company or delay in delivery by the Company; and (iv) the need for renegotiation of agreements; and other business disruptions. In addition, trade regulations, export controls, and other laws may adversely impact our ability to do business in certain countries, e.g.: Iran, Syria, Russia, China and Venezuela. Such trade regulations can be complex and present compliance challenges which could result in future liabilities.
COVID-19
The COVID-19 pandemic continues to adversely impact many jurisdictions and disrupt normal economic activities. The demand for energy continues to be constrained with adverse consequences for our customers and for the Company. As a result, of the recent COVID-19 pandemic, the Company may be exposed to additional liabilities and risks. “Shelter-in-Place” orders in response
Due to the COVID-19 pandemic have resulted in a severe slowdown in economic activity, and a sharp reduction in oil activity and a corresponding decline in demand for oil. This has and will lead to a sharp reduction in drilling activity in North America and reduction of activity internationally. The persistence of this supply/demand imbalance has caused oil prices to drop precipitously, to the lowest prices in decades.
As a result of these market conditions, demand for our products and services will decline.has declined. Our customers may attempt to cancel or delay projects, cancel contracts or may invoke force majeuremajure clauses. Our customers may also seek to delay or may default on their payments to us. Further, we have seen, and expect to see, an increasing number of energy companies filing bankruptcy. Our collection of receivables could be materially delayed and/or impaired.
The Company also may be exposed to liabilities resulting from operational delays due to supply chain disruption and closure or limitations imposed on our facilities and work force, from “shelter in place” orders around the world. The Company’s ability to perform services could also be impaired and the Company could be exposed to liabilities resulting from interruption in its ability to perform due to limited manpower and travel restrictions. These potential operational and service delays resulting from the COVID-19 pandemic could result in contractual or other legal claims from our customers. At this time, it is not possible to quantify these risks, but the combination of these factors could have a material impact on our financial results.
| New Accounting Pronouncements |
Recently Adopted Accounting Standards
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (ASC Topic 326): Measurement of Credit Losses on Financial Instruments. This update improves financial reporting by requiring earlier recognition of credit losses on financing receivables and other financial assets in scope. ASU 2016-13 is effective for fiscal periods beginning after December 15, 2019, including interim periods within those fiscal years. The Company adopted this update on January 1, 2020, with no material impact. The Company estimates its reserves using information about past events, current conditions and risk characteristics of each customer, and reasonable and supportable forecasts relevant to assessing risk associated with the collectability of Trade Accounts Receivables, Contract Assets, Unbilled Accounts Receivables, and Long-Term Receivables. The Company’s customer base, mostly in the oil and gas industry, have generally similar collectability risk characteristics, although larger and state-owned customers may have lower risk than smaller independent customers. As of March 31, 2020, allowance for bad debts and contract assets totaled $138 million.
Recently Issued Accounting Standards
In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes.” This ASU eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of accounting for income taxes. ASU 2019-12 is effective for interim and annual reporting periods beginning after December 15, 2020, with early adoption permitted. The Company adopted ASU 2019-12 for the first quarter of 2021 with no material impact on the company’s financial position, results of operations and cash flows.
Recently Issued Accounting Standards
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848)” This ASU applies only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. Management is currently assessing the impact of adopting ASU 2019-122020-04 on the company’s financial position, results of operations and cash flows.
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
Introduction
National Oilwell Varco,NOV Inc. (the(“NOV” or the “Company”) is a leading independent provider of equipment and technology provider to the upstreamglobal energy industry. Originally founded in 1862, NOV and its predecessor companies have spent 159 years helping transform oil and gas industry. The Company designs, manufacturesfield development and services a comprehensive line of drilling and well servicing equipment; sells and rents drilling motors, specialized downhole tools, and rig instrumentation; performs inspection and internal coating of oilfield tubular products; provides drill cuttings separation, management and disposal systems and services; and provides expendables and spare parts used in conjunction with the Company’s large installed base of equipment. The Company also manufactures coiled tubing and high-pressure fiberglass and composite tubing and sells and rents advanced in-line inspection equipment to makers of oil country tubular goods. The Company has a long tradition of pioneering innovations which improve theimproving its cost-effectiveness, efficiency, safety, and environmental impactimpact. Over the past few decades, the Company has pioneered and refined key technologies to improve the economic viability of frontier resources, including unconventional and deepwater oil and gas operations.gas. More recently, by applying its deep expertise and technology, the company has helped advance the transition toward sustainable energy.
NOV’s extensive proprietary technology portfolio supports the industry’s full-field drilling, completion, and production needs. With unmatched cross-segment capabilities, scope, and scale, NOV continues to develop and introduce technologies that further enhance the economics and efficiencies of energy production, with a focus on automation, predictive analytics, and condition-based maintenance.
NOV serves major-diversified, national, and independent service companies, contractors, and energy producers in 61 countries, operating under three segments: Wellbore Technologies, Completion & Production Solutions, and Rig Technologies.
Unless indicated otherwise, results of operations are presented in accordance with accounting principles generally accepted in the United States (“GAAP”). Certain reclassifications have been made to prior period financial information in order to conform with current period presentation. The Company discloses Adjusted EBITDA (defined as Operating Profit excluding Depreciation, Amortization and, when applicable, Other Items) in its periodic earnings press releases and other public disclosures to provide investors additional information about the results of ongoing operations. See Non-GAAP Financial Measures and Reconciliations in Results of Operations for an explanation of our use of non-GAAP financial measures and reconciliations to their corresponding measures calculated in accordance with GAAP.
Wellbore Technologies
The Company’s Wellbore Technologies segment designs, manufactures, rents, and sells a variety of equipment and technologies used to perform drilling operations, and offers services that optimize their performance, including: solids control and waste management equipment and services; portable power generation; premium drill pipe; wired pipe; drilling optimization and automation services; tubular inspection, repair and coating services; rope access inspection; instrumentation; measuring and monitoring; downhole and fishing tools; steerable technologies; hole openers; and drill bits.
Wellbore Technologies focuses on oil and gas companies and supports drilling contractors, oilfield service companies, and oilfield equipment rental companies. Demand for the segment’s products and services depends on the level of oilfield drilling activity by oil and gas companies, drilling contractors, and oilfield service companies.
Completion & Production Solutions
The Company’s Completion & Production Solutions segment integrates technologies for well completions and oil and gas production. The segment designs, manufactures, and services equipment and technologies needed for hydraulic fracture stimulation, including downhole multistage fracturing tools, pressure pumping trucks, blenders, sanders, hydration units, injection units, flowline, and manifolds; well intervention, including coiled tubing units, coiled tubing, and wireline units and tools; well construction, including premium connections and liner hangers; onshore production, including composite pipe, surface transfer and progressive cavity pumps, and artificial lift systems; and, offshore production, including floating production systems and subsea production technologies.
Completion & Production Solutions supports service companies and oil and gas companies. Demand for the segment’s products depends on the level of oilfield completions and workover activity by oilfield service companies and drilling contractors, and capital spending plans by oil and gas companies and oilfield service companies.
Rig Technologies
The Company’s Rig Technologies segment makes and supports the capital equipment and integrated systems needed to drill oil and gas wells on land and offshore as well as other marine-based markets, including offshore wind vessels. The segment designs, manufactures and sells land rigs, offshore drilling equipment packages, including installation and commissioning services, and drilling rig components that mechanize and automate the drilling process and rig functionality. Equipment and technologies the segment brings to customers include: substructures, derricks, and masts; cranes; jacking systems; pipe lifting, racking, rotating, and assembly systems; fluid transfer technologies, such as mud pumps; pressure control equipment, including blowout preventers; power transmission systems, including drives and generators; rig instrumentation and control systems; mooring, anchor, and deck handling
machinery; and pipelay and construction systems. The segment also provides spare parts, repair, and rentals as well as comprehensive remote equipment monitoring, technical support, field service, and customer training through an extensive network of aftermarket service and repair facilities strategically located in major areas of drilling operations around the world.
Rig Technologies supports land and offshore drillers. Demand for the segment’s products depends on drilling contractors’ and oil and gas companies’ capital spending plans, specifically capital expenditures on rig construction and refurbishment; and secondarily on the overall level of oilfield drilling activity, which drives demand for spare parts, service, and repair for the segment’s large installed base of equipment. The segment also designs and builds equipment for wind turbine installation companies, where demand is dependent on global investment into offshore wind energy developments.
Critical Accounting Policies and Estimates
In our annual report on Form 10-K for the year ended December 31, 2019,2020, we identified our most critical accounting policies. In preparing the financial statements, we make assumptions, estimates and judgments that affect the amounts reported. We periodically evaluate our estimates and judgments that are most critical in nature which are related to revenue recognition (See Note 6); allowance for doubtful accounts; inventory reserves; impairment of long-lived assets (excluding goodwill and other indefinite-lived intangible assets); goodwill and other indefinite-lived intangible assets; purchase price allocation of acquisitions; warranties; and income taxes. Our estimates are based on historical experience and on our future expectations that we believe are reasonable. The combination of these factors forms the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results are likely to differ from our current estimates and those differences may be material.
EXECUTIVE SUMMARY
For the first quarter ended March 31, 2020,2021, the Company generated a net loss of $2,047$115 million, compared to a net loss of $385$347 million in the fourth quarter of 20192020 and a net loss of $77$2,047 million in the first quarter of 2019.2020. Operating loss for the first quarter of 20202021 was $1,950$88 million, compared to an operating loss of $349$301 million in the fourth quarter of 20192020 and an operating loss of $48$1,950 million in the first quarter of 2019.2020. First quarter 20202021 Adjusted EBITDA was $178$0 million, compared to $288$17 million in the fourth quarter of 20192020 and $140$178 million in the first quarter of 2019.2020.
Segment Performance
Wellbore Technologies
Wellbore Technologies generated revenues of $691$413 million in the first quarter of 2020, a decrease2021, an increase of 1011 percent from the fourth quarter of 20192020 and a decrease of 1440 percent from the first quarter of 2019.2020. The sequential declineincrease in revenue was primarily due todriven by improving drilling activity in the Western Hemisphere, partially offset by seasonality in international markets and lower drilling activity levels in North America.the Eastern Hemisphere. Operating loss was $663improved $64 million sequentially to $14 million, or 3.4 percent of sales, and included $715$6 million of other items. Adjusted EBITDA was $103 million.increased $22 million sequentially to $34 million, or 8.2 percent of sales.
Completion & Production Solutions
Completion & Production Solutions generated revenues of $675$439 million in the first quarter of 2020,2021, a decrease of 1620 percent from the fourth quarter of 20192020 and an increasea decrease of 1635 percent from the first quarter of 2019. Deteriorating conditions2020. The sharp sequential decline in revenue was primarily the North American completions market, seasonalityresult of severe weather disruptions, certain project delays, COVID-19 shutdowns in Southeast Asia, and logistical disruptions from COVID-19 related restrictions contributed toraw material shortages for the sequential decrease in results.segment’s Fiberglass business unit. Operating loss was $1,013improved $14 million sequentially to $17 million, or 3.9 percent of sales, and included $1,054-$2 million in other items. Adjusted EBITDA was $71 million.decreased $32 million sequentially to -$4 million, or -0.9 percent of sales.
New orders booked during the quarter totaled $335$338 million, for the quarter, representing a book-to-bill of 81127 percent when compared to the $416$267 million of orders shipped from backlog. BacklogFor 2021, the segment began including Denali brand underground fiberglass tanks in its capital equipment backlog, increasing the January 1, 2021 backlog balance by $57 million. Book-to-bill for the quarter was 115 percent excluding Denali. At March 31, 2021, backlog for capital equipment orders for Completion & Production Solutions at March 31, 2020 was $1.19 billion.$810 million.
Rig Technologies
Rig Technologies generated revenues of $557$431 million in the first quarter of 2020,2021, a decrease of 27one percent from the fourth quarter of 20192020 and a decrease of eight23 percent from the first quarter of 2019.2020. Revenue declined due to soft orders and lower backlog in the segment’s rig equipment business, partially offset by growing demand for offshore wind related equipment and the initial progress on the first two rigs to be built at the Company’s new manufacturing facility in Saudi Arabia. Operating loss was $202improved $124 million to $8
million, or 1.9 percent of sales, and included $238$3 million of other items. Adjusted EBITDA decreased $6 million sequentially to $13 million, or 3.0 percent of sales. Profitability was $56 million. Revenues werenegatively impacted by lower sales of capital equipmentthe decline in revenue, a less favorable product mix and a decrease in aftermarket revenue, due in part to COVID-19-relatedcosts associated with severe weather disruptions.
New orders booked during the quarter totaled $146$112 million, representing a book-to-bill of 7059 percent when compared to the $208$190 million of orders shipped from backlog. At March 31, 2020,2021, backlog for capital equipment orders for Rig Technologies was $2.93$2.59 billion.
Oil & Gas Equipment and Services Market and Outlook
Following approximately two and a half years of steady improvements in oil prices and global drilling activity levels, commodity prices declined sharply during the fourth quarter of 2018 due to stronger than expected growth in U.S. oil production and concerns regarding the global economy. As a result of reduced 2019 budgets, and despite a modest recovery in commodity prices, drilling activity levels in the U.S. declined throughout last year resulting in the first double digit percentage decrease in the average annual rig count since 2016. While the North American market deteriorated, the new-found capital austerity and fiscal discipline exhibited by U.S. operators along with declining production from underinvestment in overseas markets and rapidly growing demand for LNG inspired greater levels of confidence from international oil and gas companies. The industry entered 2020 anticipating higher international and offshore activity levels would mostly offset the ongoing effects of capital austerity in the North American land marketplace, where a meaningful recovery was not expected before 2021.
During the first quarter of 2020, the widely publicized and discussed coronavirus (COVID-19) outbreak rapidly spread across the world, driving sharp demand destruction for crude oil as whole economies orderedcountries took measures that curtailed activity. In responseeconomic activity to declining demand for crude oil, membersslow the spread of the Organization of the Petroleum Exporting Countries and other producing countries (OPEC+), including Russia, met in early March to discuss additional production cuts to help stabilize prices. The group failed to reach an agreement, and production was instead increased into the already oversupplied market, decimating oil prices and rapidly filling worldwide oil storage facilities. OPEC+ eventually reached an agreement in April 2020 to reduce production, which had a muted effect on oil prices due to the belief that the cuts were significantly less than the demand destructions caused by COVID-19. As a result, companiesoutbreak. Companies across the industry responded with severe capital spending budget cuts, cost cuts,reductions, personnel layoffs, facility closures and bankruptcy filings. COVID-19 continued to spread throughout 2020, extending depressed demand, uncertainty and additional spending reductions across the oil and gas industry, causing the U.S. rig count to fall to its lowest level since 1940 in August 2020.
During the fourth quarter of 2020 and the first quarter of 2021, rising activity levels in the U.S. drove higher revenues for NOV’s short-cycle businesses in North America. These modest improvements were more than offset by a continued decline in international drilling activity and limited demand for capital equipment, a condition management anticipates will continue through at least the first half of 2021. Accelerating distribution of COVID-19 vaccines are expected to support the reopening of economies around the world and large government economic stimulus programs should hasten and amplify that recovery. Improving economic activity should drive higher demand for oil and gas, potentially setting the stage for a synchronized global recovery in drilling activity.
Management expects industry activity levelsis optimistic that recovering market fundamentals and spending by customersthe actions NOV has taken to decrease throughoutposition its business for the remainder of 2020 as oil supplies continue to increasefuture will drive growth and demand destruction from COVID-19 remains.improved profitability for the company. NOV remains committed to streamlining operations and improving organizational efficiencies while continuing to focusfocusing on investing in innovative products and services, including environmentally friendly technologies, that are responsive to the longer-term needs of ourNOV’s customers. We believe this strategy will further advance the Company’s competitive position, regardless of the market environment.
Operating Environment Overview
The Company’s results are dependent on, among other things, the level of worldwide oil and gas drilling, well remediation activity, the prices of crude oil and natural gas, capital spending by other oilfield service companies and drilling contractors, and worldwide oil and gas inventory levels. Key industry indicators for the first quarter of 20202021 and 2019,2020, and the fourth quarter of 20192020 include the following:
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Active Drilling Rigs: |
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U.S. |
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| 784 |
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| 1,046 |
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| 821 |
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| -25.0 | % |
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| (4.5 | %) |
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| 393 |
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| 784 |
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| 311 |
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| (49.9 | %) |
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| 26.4 | % |
Canada |
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| 196 |
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| 185 |
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| 139 |
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| 5.9 | % |
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| 41.0 | % |
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| 144 |
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| 196 |
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| 89 |
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| (26.5 | %) |
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| 61.8 | % |
International |
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| 1,073 |
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| 1,029 |
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| 1,111 |
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| 4.3 | % |
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| (3.4 | %) |
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| 697 |
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| 1,073 |
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| 664 |
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| (35.0 | %) |
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| 5.0 | % |
Worldwide |
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| 2,053 |
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| 2,260 |
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| 2,071 |
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| 1,234 |
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| 2,053 |
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| 1,064 |
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West Texas Intermediate Crude Prices (per barrel) |
| $ | 45.99 |
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| $ | 54.83 |
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| $ | 56.92 |
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| (16.1 | %) |
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| (19.2 | %) |
| $ | 57.80 |
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| $ | 45.99 |
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| $ | 42.46 |
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Natural Gas Prices ($/mmbtu) |
| $ | 1.88 |
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| $ | 2.87 |
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| $ | 2.36 |
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| $ | 3.56 |
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| 89.4 | % |
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| 42.4 | % |
* | Averages for the quarters indicated. See sources below. |
The following table details the U.S., Canadian, and international rig activity and West Texas Intermediate Crude Oil prices for the past nine quarters ended March 31, 2020,2021, on a quarterly basis:
Source: Rig count: Baker Hughes, Inc. (www.bakerhughes.com); West Texas Intermediate Crude Oil and Natural Gas Prices: Department of Energy, Energy Information Administration (www.eia.doe.gov).
The worldwide quarterly average rig count decreased oneincreased 16 percent, and the U.S. decreased fiveincreased 26 percent (from 821311 to 784)393), in the first quarter of 20202021 compared to the fourth quarter of 2019.2020. The average per barrel price of West Texas Intermediate Crude Oil decreased 19increased 36 percent (from $56.92$42.46 per barrel to $45.99$57.80 per barrel) and natural gas prices decreased 20increased 42 percent (from $2.36$2.50 per mmbtu to $1.88$3.56 per mmbtu) in the first quarter of 20202021 compared to the fourth quarter of 2019.2020.
U.S. rig activity at April 17, 202016, 2021 was 529439 rigs, decreasing 33increasing 12 percent compared to the first quarter of 20202021 average of 784393 rigs. The price for West Texas Intermediate Crude Oil was at $18.27$63.13 per barrel at April 17, 2020, decreasing 6016, 2021, increasing nine percent from the first quarter of 20202021 average. The price for natural gas was at $1.75$2.68 per mmbtu at April 17, 2020,16, 2021, decreasing seven25 percent from the first quarter of 20202021 average.
Results of Operations
Financial results by operating segment are as follows (in millions):
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| Three Months Ended |
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| Three Months Ended |
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Revenue: |
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Wellbore Technologies |
| $ | 691 |
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| $ | 807 |
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| $ | 413 |
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| $ | 691 |
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Completion & Production Solutions |
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| 675 |
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| 581 |
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| 439 |
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| 675 |
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Rig Technologies |
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| 557 |
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| 603 |
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| 431 |
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| 557 |
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Eliminations |
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| (40 | ) |
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| (51 | ) |
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| (34 | ) |
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| (40 | ) |
Total revenue |
| $ | 1,883 |
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| $ | 1,940 |
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| $ | 1,249 |
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| $ | 1,883 |
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Operating profit (loss): |
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Wellbore Technologies |
| $ | (663 | ) |
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| 19 |
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| $ | (14 | ) |
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| (663 | ) |
Completion & Production Solutions |
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| (1,013 | ) |
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| (35 | ) |
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| (17 | ) |
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| (1,013 | ) |
Rig Technologies |
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| (202 | ) |
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| 31 |
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| (8 | ) |
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| (202 | ) |
Eliminations and corporate costs |
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| (72 | ) |
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| (63 | ) |
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| (49 | ) |
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| (72 | ) |
Total operating profit (loss) |
| $ | (1,950 | ) |
| $ | (48 | ) |
| $ | (88 | ) |
| $ | (1,950 | ) |
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Operating profit (loss)%: |
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Wellbore Technologies |
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| (95.9 | %) |
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| 2.4 | % |
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| (3.4 | %) |
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| (95.9 | %) |
Completion & Production Solutions |
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| (150.1 | %) |
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| (6.0 | %) |
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| (3.9 | %) |
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| (150.1 | %) |
Rig Technologies |
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| (36.3 | %) |
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| 5.1 | % |
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| (1.9 | %) |
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| (36.3 | %) |
Total operating profit (loss)% |
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| (103.6 | %) |
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| (2.5 | %) |
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| (7.0 | %) |
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| (103.6 | %) |
Wellbore Technologies
Three months ended March 31, 20202021 and 2019.2020. Revenue from Wellbore Technologies was $413 million for the three months ended March 31, 2021, compared to $691 million for the three months ended March 31, 2020, compared to $807a decrease of $278 million or 40 percent.
Operating loss from Wellbore Technologies was $14 million for the three months ended March 31, 2019, a decrease2021 compared to an operating loss of $116 million or 14 percent.
Operating loss from Wellbore Technologies was $663 million for the three months ended March 31, 2020, compared to an operating profitincrease of $19 million for the three months ended March 31, 2019, a decrease of $682$649 million primarily due to the impairment of certain assets.assets in 2020.
Completion & Production Solutions
Three months ended March 31, 20202021 and 2019.2020. Revenue from Completion & Production Solutions was $439 million for the three months ended March 31, 2021, compared to $675 million for the three months ended March 31, 2020, compared to $581 million for the three months ended March 31, 2019, an increasea decrease of $94$236 million or 1635 percent.
Operating loss from Completion & Production Solutions was $17 million for the three months ended March 31, 2021 compared to $1,013 million for the three months ended March 31, 2020, compared to $35 million for the three months ended March 31, 2019, a decreasean increase of $978$996 million primarily due to the impairment of certain assets.assets in 2020.
The Completion & Productions Solutions segment monitors its capital equipment backlog to plan its business. New orders are added to backlog only when the Company receives a firm written order for major completion and production components or a contract related to a construction project. The capital equipment backlog was $1.19$810 million at March 31, 2021, a decrease of 32 percent from backlog of $1.2 billion at March 31, 2020, an increase of fourteen percent from backlog of $1.04 billion at March 31, 2019. Numerous2020. Although numerous factors may affect the timing of revenue out of backlog. Considering these factors,backlog, the Company reasonably expects approximately $957$657 million of revenue out of backlog for the remainder of 20202021 and approximately $229$153 million of revenue out of backlog in 20212022 and thereafter. At March 31, 2020,2021, approximately 6456 percent of the capital equipment backlog was for offshore products and approximately 8577 percent of the capital equipment backlog was destined for international markets.
Rig Technologies
Three months ended March 31, 20202021 and 20192020. Revenue from Rig Technologies was $431 million for the three months ended March 31, 2021, compared to $557 million for the three months ended March 31, 2020, compared to $603a decrease of $126 million or 23 percent.
Operating loss from Rig Technologies was $8 million for the three months ended March 31, 2019, a decrease of $46 million or eight percent.
Operating loss from Rig Technologies was2021 compared to $202 million for the three months ended March 31, 2020, compared to an operating profitincrease of $31 million for the three months ended March 31, 2019, a decrease of $233$194 million primarily due to the impairment of certain assets.assets in 2020.
The Rig Technologies segment monitors its capital equipment backlog to plan its business. New orders are added to backlog only when the Company receives a firm written order for major drilling rig components or a signed contract related tofor a construction project. The capital equipment backlog was $2.93$2.6 billion at March 31, 2020,2021, a decrease of seven12 percent, from backlog of $3.14$2.9 billion at March 31, 2019. Numerous2020. Although numerous factors may affect the timing of revenue out of backlog. Considering these factors,backlog, the Company reasonably expects approximately $530$422 million of revenue out of backlog for the remainder of 20202021 and approximately $2.4$2.2 billion of revenue out of backlog in 20212022 and thereafter. At March 31, 2020,2021, approximately 2822 percent of the capital equipment backlog was for offshore products and approximately 9390 percent of the capital equipment backlog was destined for international markets.
Eliminations and corporate costs
Eliminations and corporate costs were $49 million for the three months ended March 31, 2021, compared to $72 million for the three months ended March 31, 2020, respectively, compared to $63 million for the three months ended March 31, 2019. This change2020. The decrease is primarily due to the change in intersegment eliminations. 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.
Other income (expense), net
Other income (expense), net were expenses of $10 million for the three months ended March 31, 2021 compared to expenses of $3 million for the three months ended March 31, 2020 compared to expenses of $18 million for the three months ended March 31, 2019.2020. The change in expense was primarily due to the fluctuations in foreign currencies.
Provision for income taxes
The effective tax rate for the three months ended March 31, 2021 and 2020 was 5.0% and 2019 was 7.1% and 11.8%, respectively. The Company has established valuation allowances on deferred tax assets for losses and tax credits generated in 20202021 and 2019.2020. The change in the effective tax rate from 2019 to 2020for 2021 was negatively impacted by a changecurrent year losses in jurisdictional mixcertain jurisdictions with no tax benefit, partially offset by favorable adjustments related to utilization of income between the two periodslosses and tax credits for prior year tax returns. The effective tax rate for 2020 was negatively impacted by losses in certain jurisdictions with no tax benefit as well as the impairment of nondeductible goodwill, partially offset by an income tax benefit of $123 million from the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) that was enacted on March 27, 2020 allowing net operating losses originating in 2018, 2019 or 2020 to be carried back five years. The Company anticipates filing a refund claim to carryback its 2019 United States net operating loss to its 2014 tax year which will result in a cash refund of $123 million.
Non-GAAP Financial Measures and Reconciliations
The Company discloses Adjusted EBITDA (defined as Operating Profit excluding Depreciation, Amortization and, when applicable, Other Items) in its periodic earnings press releases and other public disclosures to provide investors additional information about the results of ongoing operations. The Company uses Adjusted EBITDA internally to evaluate and manage the business. Adjusted EBITDA is not intended to replace GAAP financial measures, such as Net Income. Other items include impairment charges, inventory charges, severance accruals, and other restructuring costs.
The following tables set forth the reconciliation of Adjusted EBITDA to its most comparable GAAP financial measure (in millions):
|
| Three Months Ended |
|
| Three Months Ended |
| ||||||||||||||||||
|
| March 31, |
|
| December 31, |
|
| March 31, |
|
| December 31, |
| ||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
|
| 2020 |
| ||||||
Operating profit (loss): |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Operating loss: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Wellbore Technologies |
| $ | (663 | ) |
| $ | 19 |
|
| $ | (317 | ) |
| $ | (14 | ) |
| $ | (663 | ) |
| $ | (78 | ) |
Completion & Production Solutions |
|
| (1,013 | ) |
|
| (35 | ) |
|
| 57 |
|
|
| (17 | ) |
|
| (1,013 | ) |
|
| (31 | ) |
Rig Technologies |
|
| (202 | ) |
|
| 31 |
|
|
| (23 | ) |
|
| (8 | ) |
|
| (202 | ) |
|
| (132 | ) |
Eliminations and corporate costs |
|
| (72 | ) |
|
| (63 | ) |
|
| (66 | ) |
|
| (49 | ) |
|
| (72 | ) |
|
| (60 | ) |
Total operating profit (loss) |
| $ | (1,950 | ) |
| $ | (48 | ) |
| $ | (349 | ) | ||||||||||||
Total operating loss |
| $ | (88 | ) |
| $ | (1,950 | ) |
| $ | (301 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wellbore Technologies |
| $ | 715 |
|
| $ | (2 | ) |
| $ | 410 |
|
| $ | 6 |
|
| $ | 715 |
|
| $ | 46 |
|
Completion & Production Solutions |
|
| 1,054 |
|
|
| 11 |
|
|
| 13 |
|
|
| (2 | ) |
|
| 1,054 |
|
|
| 43 |
|
Rig Technologies |
|
| 238 |
|
|
| 2 |
|
|
| 114 |
|
|
| 3 |
|
|
| 238 |
|
|
| 132 |
|
Corporate |
|
| 16 |
|
|
| — |
|
|
| — |
|
|
| 2 |
|
|
| 16 |
|
|
| 15 |
|
Total other items |
| $ | 2,023 |
|
| $ | 11 |
|
| $ | 537 |
|
| $ | 9 |
|
| $ | 2,023 |
|
| $ | 236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation & amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wellbore Technologies |
| $ | 51 |
|
| $ | 100 |
|
| $ | 50 |
|
| $ | 42 |
|
| $ | 51 |
|
| $ | 44 |
|
Completion & Production Solutions |
|
| 30 |
|
|
| 52 |
|
|
| 26 |
|
|
| 15 |
|
|
| 30 |
|
|
| 16 |
|
Rig Technologies |
|
| 20 |
|
|
| 23 |
|
|
| 21 |
|
|
| 18 |
|
|
| 20 |
|
|
| 19 |
|
Corporate |
|
| 4 |
|
|
| 2 |
|
|
| 3 |
|
|
| 4 |
|
|
| 4 |
|
|
| 3 |
|
Total depreciation & amortization |
| $ | 105 |
|
| $ | 177 |
|
| $ | 100 |
|
| $ | 79 |
|
| $ | 105 |
|
| $ | 82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wellbore Technologies |
| $ | 103 |
|
| $ | 117 |
|
| $ | 143 |
|
| $ | 34 |
|
| $ | 103 |
|
| $ | 12 |
|
Completion & Production Solutions |
|
| 71 |
|
|
| 28 |
|
|
| 96 |
|
|
| (4 | ) |
|
| 71 |
|
|
| 28 |
|
Rig Technologies |
|
| 56 |
|
|
| 56 |
|
|
| 112 |
|
|
| 13 |
|
|
| 56 |
|
|
| 19 |
|
Eliminations and corporate costs |
|
| (52 | ) |
|
| (61 | ) |
|
| (63 | ) |
|
| (43 | ) |
|
| (52 | ) |
|
| (42 | ) |
Total Adjusted EBITDA |
| $ | 178 |
|
| $ | 140 |
|
| $ | 288 |
|
| $ | — |
|
| $ | 178 |
|
| $ | 17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Adjusted EBITDA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP net income (loss) attributable to Company |
| $ | (2,047 | ) |
| $ | (77 | ) |
| $ | (385 | ) | ||||||||||||
GAAP net loss attributable to Company |
| $ | (115 | ) |
| $ | (2,047 | ) |
| $ | (347 | ) | ||||||||||||
Noncontrolling interests |
|
| (2 | ) |
|
| 2 |
|
|
| — |
|
|
| 1 |
|
|
| (2 | ) |
|
| (1 | ) |
Provision (benefit) for income taxes |
|
| (156 | ) |
|
| (10 | ) |
|
| (46 | ) |
|
| (6 | ) |
|
| (156 | ) |
|
| 22 |
|
Interest expense |
|
| 22 |
|
|
| 25 |
|
|
| 25 |
|
|
| 20 |
|
|
| 22 |
|
|
| 19 |
|
Interest income |
|
| (3 | ) |
|
| (6 | ) |
|
| (4 | ) |
|
| (2 | ) |
|
| (3 | ) |
|
| (2 | ) |
Equity (income) loss in unconsolidated affiliate |
|
| 233 |
|
|
| — |
|
|
| 7 |
| ||||||||||||
Equity loss in unconsolidated affiliate |
|
| 4 |
|
|
| 233 |
|
|
| 10 |
| ||||||||||||
Other (income) expense, net |
|
| 3 |
|
|
| 18 |
|
|
| 54 |
|
|
| 10 |
|
|
| 3 |
|
|
| (2 | ) |
Depreciation and amortization |
|
| 105 |
|
|
| 177 |
|
|
| 100 |
|
|
| 79 |
|
|
| 105 |
|
|
| 82 |
|
Other items |
|
| 2,023 |
|
|
| 11 |
|
|
| 537 |
|
|
| 9 |
|
|
| 2,023 |
|
|
| 236 |
|
Total Adjusted EBITDA |
| $ | 178 |
|
| $ | 140 |
|
| $ | 288 |
|
| $ | — |
|
| $ | 178 |
|
| $ | 17 |
|
Liquidity and Capital Resources
Overview
At March 31, 2020,2021, the Company had cash and cash equivalents of $1,115$1,607 million and total debt of $2,002$1,851 million. At December 31, 2019,2020, cash and cash equivalents were $1,171$1,692 million and total debt was $1,989$1,834 million. As of March 31, 2020,2021, approximately $744$850 million of the $1,115$1,607 million of cash and cash equivalents was held by our foreign subsidiaries and the earnings associated with this cash could be subject to foreign withholding taxes and incremental U.S. taxation.taxation if transferred among countries or repatriated to the U.S. If opportunities to invest in the U.S. are greater than available cash balances that are not subject to income tax, rather than repatriating cash, the Company may choose to borrow against its revolving credit facility or utilize its commercial paper program.facility.
The Company has a $2.0 billion, five-year unsecured revolving credit facility, which expires on October 30, 2024. The Company has the right to increase the commitments under this agreement to an aggregate amount of up to $3.0 billion upon the consent of only those lenders holding any such increase. Interest under the multicurrency facility is based upon LIBOR, NIBOR or CDOR plus 1.125% subject to a ratings-based grid or the U.S. prime rate. The credit facility contains a financial covenant regarding maximum debt-to-capitalization ratio of 60%. As of March 31, 2020,2021, the Company was in compliance with a debt-to-capitalization ratio of 29.2%.
At March 31, 2020, there were no commercial paper borrowings,29.0% and there werehad no outstanding letters of credit issued under the credit facility, resulting in $2.0 billion of funds available under this credit facility.funds.
The Company also has a $150 million bank line of credit for the construction of a facility in Saudi Arabia. Interest under the bank line of credit is based upon LIBOR plus 1.40%. The bank line of credit contains a financial covenant regarding maximum debt-to-equity ratio of 75%. As of March 31, 2020, the Company was in compliance.
From time to time, we participate in factoring arrangements to sell accounts receivable to third-party financial institutions. Our factoring transactions are recognized as sales, and the proceeds are included as operating cash flows in our Condensed Consolidated Statements of Cash Flows. During the quarter ended March 31, 2020 we sold accounts receivable of $45 million at a cost of approximately $0.2 million.
OurThe Company’s outstanding debt at March 31, 20202021 was $2,002$1,851 million and consisted primarily of $399 million in 2.60% Senior Notes, $1,089 million in 3.95% Senior Notes, $493 million in 3.60% Senior Notes, $182 million in 2.60% Senior Notes, and lease liabilitiesother debt of $646$87 million. The Company was in compliance with all covenants at March 31, 2020.2021.
WeOn April 9, 2021, the Company repaid the entire outstanding balance ($182 million) of its 2.60% unsecured Senior Notes due December 2022 using available cash balances. Upon redemption, the Company paid $191 million, which included a redemption premium of $6.8 million as well as accrued and unpaid interest of $1.7 million. As a result of the redemption, the Company recorded a loss on extinguishment of debt of $7.1 million, which included the make whole premium of $6.8 million and non-cash charges of $0.3 million attributable to the write-off of unamortized discount and debt issuance costs. Following the repayment, the Company’s earliest bond maturity is in 2029.
The Company had $524$444 million of outstanding letters of credit at March 31, 2020,2021, primarily in the U.S. and Norway, that are under various bilateral letter of credit facilities. Letters of credit are issued as bid bonds, advanced payment bonds and performance bonds.
The following table summarizes our net cash provided by continuing operating activities, continuing investing activities and continuing financing activities for the periods presented (in millions):
|
| Three Months Ended |
|
| Three Months Ended |
| ||||||||||
|
| March 31, |
|
| March 31, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
Net cash provided by (used by) operating activities |
| $ | 39 |
|
| $ | (38 | ) |
| $ | (27 | ) |
| $ | 39 |
|
Net cash used in investing activities |
|
| (53 | ) |
|
| (107 | ) |
|
| (51 | ) |
|
| (53 | ) |
Net cash used in financing activities |
|
| (43 | ) |
|
| (20 | ) |
|
| (3 | ) |
|
| (43 | ) |
Significant sources and uses of cash during the first three months of 20202021
| • | Cash flows |
|
|
|
• |
|
Oil and Gas Market Downturn and COVID-19 Pandemic
Since the oil and gas market downturn began in late 2014 the Company has maintained a continuous process of actively managing its strategy, structure and resources to the changing market conditions and new realities. The Company has closed or realigned hundreds of facilities, reduced headcount, sharply lowered costs, cut capital expenditure budgets and reviewed all product lines for acceptable returns in the evolved market. Additionally, the Company has proactively reduced the balances and extended the maturity profile of its debt. In the fall of 2019, the Company retired $1 billion of notes due 2022 for cash, issued $500 million of notes due 2029 and extended the maturity of its undrawn credit facility to 2024. While aggressively matching size and spend to the market, and protecting its balance sheet, the Company has continued investing in new products and technologies that enable its customers to improve their operational efficiencies.
When the COVID-19 global pandemic and OPEC+ actions further depressed oil prices and industry activity beginning in March of 2020, the Company’s prior prudent actions helped ensure adequate available liquidity resources. Management intends to continue managing the business to the market realities to ensure the Company’s access to capital remains sufficient. – See Item 1A Risk Factors.
Other
The effect of the change in exchange rates on cash flows was a decrease of $4 million and an increase of $1 million and $8 million for the first three months of 20202021 and 2019,2020, respectively.
We believe that cash on hand, cash generated from operations and amounts available under our credit facilities and from other sources of debt will be sufficient to fund operations, lease payments, working capital needs, capital expenditure requirements, dividends and financing obligations.
We may pursue additional acquisition candidates, but the timing, size or success of any acquisition effort and the related potential capital commitments cannot be predicted. We continue to expect to fund future cash acquisitions primarily with cash flow from operations and borrowings, including the unborrowed portion of the revolving credit facility or new debt issuances, but may also issue additional equity either directly or in connection with acquisitions. There can be no assurance that additional financing for acquisitions will be available at terms acceptable to us.
New Accounting Pronouncements
See Note 1615 for recently adopted and recently issued accounting standards.
Forward-Looking Statements
Some of the information in this document contains, or has incorporated by reference, forward-looking statements. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. Forward-looking statements typically are identified by use of terms such as “may,” “expect,” “anticipate,” “estimate,” and similar words, although some forward-looking statements are expressed differently. All statements herein regarding expected merger synergies are forward-looking statements. You should be aware that our actual results could differ materially from results anticipated in the forward-looking statements due to a number of factors, including but not limited to changes in oil and gas prices, customer demand for our products, difficulties encountered in integrating mergers and acquisitions, and worldwide economic activity. You should also consider carefully the statements under “Risk Factors,” as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019,2020, which address additional factors that could cause our actual results to differ from those set forth in the forward-looking statements. Given these uncertainties, current or prospective investors are cautioned not to place undue reliance on any such forward-looking statements. We undertake no obligation to update any such factors or forward-looking statements to reflect future events or developments.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
We are exposed to changes in foreign currency exchange rates and interest rates. Additional information concerning each of these matters follows:
Foreign Currency Exchange Rates
We have extensive operations in foreign countries. The net assets and liabilities of these operations are exposed to changes in foreign currency exchange rates, although such fluctuations generally do not affect income since their functional currency is typically the local currency. These operations also have net assets and liabilities not denominated in the functional currency, which exposes us to changes in foreign currency exchange rates that impact income. We recorded no foreign exchange loss in our income statement for the first three months of 2020,2021 of $10 million, compared to approximately $9 millionnil in the same period of the prior year. The gains and losses are primarily due to exchange rate fluctuations related to monetary asset balances denominated in currencies other than the functional currency and adjustments to our hedged positions as a result of changes in foreign currency exchange rates. Currency exchange rate fluctuations may create losses in future periods to the extent we maintain net monetary assets and liabilities not denominated in the functional currency of the countries using the local currency as their functional currency.
Some of our revenues in foreign countries are denominated in U.S. dollars, and therefore, changes in foreign currency exchange rates impact our earnings to the extent that costs associated with those U.S. dollar revenues are denominated in the local currency. Similarly, some of our revenues are denominated in foreign currencies, but have associated U.S. dollar costs, which also give rise to foreign currency exchange rate exposure. In order to mitigate that risk, we may utilize foreign currency forward contracts to better match the currency of our revenues and associated costs. We do not use foreign currency forward contracts for trading or speculative purposes.
The Company had other financial market risk sensitive instruments (cash balances, overdraft facilities, accounts receivable and accounts payable) denominated in foreign currencies forwith transactional exposures totaling $234$362 million and translation exposures totaling $79$381 million as of March 31, 2020 excluding trade receivables and payables, which approximate fair value. These market risk sensitive instruments consisted of cash balances and overdraft facilities.2021. The Company estimates that a hypothetical 10 percent movement of all applicable foreign currency exchange rates on the transactional exposures financial market risk sensitive instruments could affect net income by $18$29 million and the translational exposures financial market risk sensitive instruments could affect the future fair valueOther Comprehensive Income by $8$38 million.
The counterparties to forward contracts are major financial institutions. TheWe monitor the credit ratings and our concentration of credit risk ofwith these financial institutions are monitored on a continuing basis. In the event that the counterparties fail to meet the terms of a foreign currency contract, which are net-settled instruments, our exposure is limited to the foreign currency rate differential.
Interest Rate Risk
At March 31, 2020, long term2021, borrowings consisted of $399 million in 2.60% Senior Notes, $1,089 million in 3.95% Senior Notes, $493 million in 3.60% Senior Notes, and $182 million in 2.60% Senior Notes. At March 31, 2020,2021, there were no commercial paper borrowings and no outstanding letters of credit issued under the credit facility, resulting in $2.0 billion of funds available under this credit facility. Occasionally a portion of borrowings under our credit facility could be denominated in multiple currencies which could expose us to market risk with exchange rate movements. These instruments carry interest at a pre-agreed upon percentage point spread from either LIBOR, NIBOR or CDOR, or at the U.S. prime rate. Under our credit facility, we may, at our option, fix the interest rate for certain borrowings based on a spread over LIBOR, NIBOR or CDOR for 30 days to six months. Our objective is to maintain a portion of our debt in variable rate borrowings for the flexibility obtained regarding early repayment without penalties and lower overall cost as compared with fixed-rate borrowings.
Item 4. | Controls and Procedures |
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. The Company’s disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by the Company in the reports it files under the Exchange Act is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures and is recorded, processed, summarized and reported within the time period specified in the rules and forms of the Securities and Exchange Commission. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective as of the end of the period covered by this report at a reasonable assurance level.
There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1A. | Risk Factors |
As of the date of this filing, the Company and its operations continue to be subject to the risk factors previously disclosed in Part I, Item 1A “Risk Factors” in our 20192020 Annual Report on Form 10-K. The risk factor below updates our risk factors previously discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
The recent COVID-19 pandemic and related economic repercussions have had, and are expected to continue to have, a significant impact on our business, and depending on the duration of the pandemic and its effect on the oil and gas industry, could have a material adverse effect on our business, liquidity, consolidated results of operations and consolidated financial condition.
As a result of the recent COVID-19 pandemic, the Company may be exposed to additional liabilities and risks created by this unprecedented crisis. The COVID-19 pandemic has resulted in unprecedented governmental actions ordering citizens in the United States and countries around the world to “shelter in place,” and issuing “stay at home orders,” which curtail travel and commerce. In the United States alone, over 26 million have filed for unemployment benefits during the sharp decline in economic activity resulting from governmental orders.
Oil demand has significantly deteriorated as a result of the virus outbreak and corresponding preventative measures taken around the world to mitigate the spread of the virus. At the same time, aggressive increases in production of oil by Saudi Arabia and Russia created a significant surplus in the supply of oil. WTI oil spot prices decreased from a high of $63 per barrel in early January 2020 to a low of $14 per barrel in late March 2020. Physical markets have been distressed as spot prices have been negatively impacted by the lack of available storage capacity. While OPEC+ agreed in April to cut production, downward pressure on commodity prices has continued and could continue for the foreseeable future.
The forced shutdown of economic activity, has directly affected our business and has exacerbated the potential negative impact from many of the risks described in our Form 10-K for the year ended December 31, 2019, including those relating to our customers’ capital spending and sharply reduced oil and natural gas prices. Demand for our products and services is declining as our customers continue to revise their capital budgets downwards and swiftly adjust their operations in response to lower commodity prices.
The nature, scale, and scope of the above-described events combined with the uncertain duration and extent of governmental actions prevent us from identifying all potential risks to our business. We believe that the well-known impacts described above and other potential impacts include, but are not limited to, the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
Item 2. | Purchases of Equity Securities by the Issuer and Affiliated Purchasers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period |
| Total number of shares purchased* |
|
| Average price paid per share |
|
| Total number of shares purchased as part of publicly announced plans or programs |
|
| Approximate dollar value of shares that may yet be purchased(2) under the plans or programs* |
| ||||
January 1 through January 31, 2020 |
|
| — |
|
|
| — |
|
|
| — |
|
| $ | 500,000 |
|
February 1 through February 29, 2020 |
|
| 817 |
|
| $ | 20.50 |
|
|
| — |
|
|
| 500,000 |
|
March 1 through March 31, 2020 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 500,000 |
|
Total (1) |
|
| 817 |
|
| $ | 20.50 |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Period |
| Total number of shares purchased* |
|
| Average price paid per share |
|
| Total number of shares purchased as part of publicly announced plans or programs |
|
| Approximate dollar value of shares that may yet be purchased under the plans or programs* |
| ||||
January 1 through January 31, 2021 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
February 1 through February 28, 2021 |
|
| 867 |
|
| $ | 15.22 |
|
|
| — |
|
|
| — |
|
March 1 through March 31, 2021 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total (1) |
|
| 867 |
|
| $ | 15.22 |
|
|
| — |
|
|
|
|
|
*Amounts in thousands
(1) | The |
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|
Item 4. | Mine Safety Disclosures |
Information regarding mine safety and other regulatory actions at our mines is included in Exhibit 95 to this Form 10-Q.
Item 6. | Exhibits |
Reference is hereby made to the Exhibit Index commencing on page 32.29.
INDEX TO EXHIBITS
(a) | Exhibits |
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| Filed as an Exhibit to our Current Report on Form 8-K filed on |
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| Filed as an Exhibit to our Current Report on Form 8-K filed on June 28, 2017. |
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| Filed as an Exhibit to our Current Report on Form 8-K filed on November 4, 2019. |
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| Filed as Appendix I to our Proxy Statement filed on April 15, 2019. |
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| Filed as an Exhibit to our Current Report on Form 8-K filed on February 23, 2006. |
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| Filed as an Exhibit to our Current Report on Form 8-K filed on March 27, 2007. |
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| Filed as an Exhibit to our Current Report on Form 8-K filed on March 27, 2013. |
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(8) | Filed as an Exhibit to our Current Report on Form 8-K filed on December 4, 2020. | |
(9) |
| Filed as an Exhibit to our Current Report on Form 8-K filed on November 21, |
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(10) |
| Filed as an Exhibit to our Current Report on Form 8-K filed on February 26, 2016. |
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(11) |
| Filed as an Exhibit to our Quarterly Report on Form 10-Q filed on April 26, 2019. |
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(12) |
| Filed as an Exhibit to our Quarterly Report on Form 10-Q filed on April 28, 2020. |
(13) | Filed as an Exhibit to our Annual Report on Form 10-K filed on February | |
(14) | Filed herewith. | |
We hereby undertake, pursuant to Regulation S-K, Item 601(b), paragraph (4) (iii), to furnish to the U.S. Securities and Exchange Commission, upon request, all constituent instruments defining the rights of holders of our long-term debt not filed herewith.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: April 28, | By: |
| /s/ Scott K. Duff |
| Scott K. Duff | ||
| Vice President, Corporate Controller & Chief Accounting Officer | ||
| (Duly Authorized Officer, Principal Accounting Officer) |
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