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NOV Inc. - Quarter Report: 2021 March (Form 10-Q)

 

 

 

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, 2021

OR

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

Commission File Number 1-12317

 

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 16, 2021 the registrant had 390,643,228 shares of common stock, par value $0.01 per share, outstanding.

 

 

 

 


 

 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

NOV INC.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In millions, except share data)

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,607

 

 

$

1,692

 

Receivables, net

 

 

1,265

 

 

 

1,274

 

Inventories, net

 

 

1,357

 

 

 

1,408

 

Contract assets, net

 

 

577

 

 

 

611

 

Prepaid and other current assets

 

 

190

 

 

 

224

 

Total current assets

 

 

4,996

 

 

 

5,209

 

Property, plant and equipment, net

 

 

1,894

 

 

 

1,927

 

Lease right-of-use assets, operating

 

 

356

 

 

 

371

 

Lease right-of-use assets, financing

 

 

187

 

 

 

195

 

Goodwill

 

 

1,495

 

 

 

1,493

 

Intangibles, net

 

 

516

 

 

 

527

 

Investment in unconsolidated affiliates

 

 

47

 

 

 

51

 

Other assets

 

 

181

 

 

 

156

 

Total assets

 

$

9,672

 

 

$

9,929

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

467

 

 

$

489

 

Accrued liabilities

 

 

792

 

 

 

863

 

Contract liabilities

 

 

349

 

 

 

354

 

Current portion of lease liabilities

 

 

106

 

 

 

110

 

Current portion of long-term debt

 

 

182

 

 

 

 

Accrued income taxes

 

 

38

 

 

 

51

 

Total current liabilities

 

 

1,934

 

 

 

1,867

 

Lease liabilities

 

 

590

 

 

 

612

 

Long-term debt

 

 

1,669

 

 

 

1,834

 

Deferred income taxes

 

 

77

 

 

 

78

 

Other liabilities

 

 

252

 

 

 

259

 

Total liabilities

 

 

4,522

 

 

 

4,650

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

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

 

 

8,598

 

 

 

8,591

 

Accumulated other comprehensive loss

 

 

(1,530

)

 

 

(1,509

)

Retained earnings

 

 

(1,991

)

 

 

(1,876

)

Total Company stockholders' equity

 

 

5,081

 

 

 

5,210

 

Noncontrolling interests

 

 

69

 

 

 

69

 

Total stockholders’ equity

 

 

5,150

 

 

 

5,279

 

Total liabilities and stockholders’ equity

 

$

9,672

 

 

$

9,929

 

 

See notes to unaudited consolidated financial statements.

2


 

NOV INC.

CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)

(In millions, except per share data)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Revenue

 

$

1,249

 

 

$

1,883

 

Cost of revenue

 

 

1,093

 

 

 

1,659

 

Gross profit

 

 

156

 

 

 

224

 

Selling, general and administrative

 

 

244

 

 

 

283

 

Goodwill and indefinite-lived intangible asset impairment

 

 

 

 

 

1,378

 

Long-lived asset impairment

 

 

 

 

 

513

 

Operating loss

 

 

(88

)

 

 

(1,950

)

Interest and financial costs

 

 

(20

)

 

 

(22

)

Interest income

 

 

2

 

 

 

3

 

Equity loss in unconsolidated affiliates

 

 

(4

)

 

 

(233

)

Other income (expense), net

 

 

(10

)

 

 

(3

)

Loss before income taxes

 

 

(120

)

 

 

(2,205

)

Provision (benefit) for income taxes

 

 

(6

)

 

 

(156

)

Net loss

 

 

(114

)

 

 

(2,049

)

Net income attributable to noncontrolling interests

 

 

1

 

 

 

(2

)

Net loss attributable to Company

 

$

(115

)

 

$

(2,047

)

 

 

 

 

 

 

 

 

 

Net loss attributable to Company per share:

 

 

 

 

 

 

 

 

Basic

 

$

(0.30

)

 

$

(5.34

)

Diluted

 

$

(0.30

)

 

$

(5.34

)

 

 

 

 

 

 

 

 

 

Cash dividends per share

 

$

-

 

 

$

0.05

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

385

 

 

 

383

 

Diluted

 

 

385

 

 

 

383

 

 

See notes to unaudited consolidated financial statements.

 

3


 

 

NOV INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)

(In millions)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Net loss

 

$

(114

)

 

$

(2,049

)

Currency translation adjustments

 

 

(19

)

 

 

(180

)

Changes in derivative financial instruments, net of tax

 

 

(2

)

 

 

(52

)

Comprehensive loss

 

 

(135

)

 

 

(2,281

)

Comprehensive income attributable to noncontrolling interest

 

 

1

 

 

 

(2

)

Comprehensive loss attributable to Company

 

$

(136

)

 

$

(2,279

)

 

See notes to unaudited consolidated financial statements.

 

4


 

 

NOV INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In millions)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

Net loss

 

$

(114

)

 

$

(2,049

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

79

 

 

 

105

 

Provision for inventory losses

 

 

24

 

 

 

125

 

Deferred income taxes

 

 

(1

)

 

 

(62

)

Equity loss in unconsolidated affiliates

 

 

4

 

 

 

233

 

Goodwill and indefinite-lived intangible asset impairment

 

 

 

 

 

1,378

 

Long-lived asset impairment

 

 

 

 

 

513

 

Other, net

 

 

25

 

 

 

45

 

Change in operating assets and liabilities, net of acquisitions:

 

 

 

 

 

 

 

 

Receivables

 

 

(5

)

 

 

(27

)

Inventories

 

 

28

 

 

 

47

 

Contract assets

 

 

35

 

 

 

(5

)

Prepaid and other current assets

 

 

33

 

 

 

9

 

Accounts payable

 

 

(22

)

 

 

(54

)

Accrued liabilities

 

 

(62

)

 

 

(142

)

Contract liabilities

 

 

(5

)

 

 

43

 

Income taxes payable

 

 

(13

)

 

 

(15

)

Other assets/liabilities, net

 

 

(33

)

 

 

(105

)

Net cash provided by (used by) operating activities

 

$

(27

)

 

 

39

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(49

)

 

 

(68

)

Other

 

 

(2

)

 

 

15

 

Net cash used in investing activities

 

$

(51

)

 

$

(53

)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Borrowings against lines of credit and other debt

 

 

17

 

 

 

 

Cash dividends paid

 

 

 

 

 

(19

)

Financing leases

 

 

(7

)

 

 

(8

)

Other

 

 

(13

)

 

 

(16

)

Net cash used in financing activities

 

 

(3

)

 

 

(43

)

Effect of exchange rates on cash

 

 

(4

)

 

 

1

 

Decrease in cash and cash equivalents

 

 

(85

)

 

 

(56

)

Cash and cash equivalents, beginning of period

 

 

1,692

 

 

 

1,171

 

Cash and cash equivalents, end of period

 

$

1,607

 

 

$

1,115

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash payments during the period for:

 

 

 

 

 

 

 

 

Interest

 

$

3

 

 

$

3

 

Income taxes

 

$

9

 

 

$

14

 

 

See notes to unaudited consolidated financial statements.

5


 

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, 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, 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.

6


 

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 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 2020 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, 2021 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,

 

 

 

2021

 

 

2020

 

Raw materials and supplies

 

$

353

 

 

$

373

 

Work in process

 

 

232

 

 

 

189

 

Finished goods and purchased products

 

 

1,323

 

 

 

1,423

 

 

 

 

1,908

 

 

 

1,985

 

Less: Inventory reserve

 

 

(551

)

 

 

(577

)

Total

 

$

1,357

 

 

$

1,408

 

 

3.

Accrued Liabilities

Accrued liabilities consist of (in millions):

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Compensation

 

$

195

 

 

$

196

 

Taxes (non-income)

 

 

111

 

 

 

158

 

Vendor costs

 

 

110

 

 

 

118

 

Warranties

 

 

79

 

 

 

87

 

Insurance

 

 

49

 

 

 

48

 

Interest

 

 

23

 

 

 

7

 

Commissions

 

 

21

 

 

 

19

 

Fair value of derivatives

 

 

8

 

 

 

15

 

Other

 

 

196

 

 

 

215

 

Total

 

$

792

 

 

$

863

 

 

 

7


 

 

4.

Accumulated Other Comprehensive Loss

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

 

 

 

 

 

 

 

Derivative

 

 

Defined

 

 

 

 

 

 

 

Currency

 

 

Financial

 

 

Benefit

 

 

 

 

 

 

 

Translation

 

 

Instruments,

 

 

Plans,

 

 

 

 

 

 

 

Adjustments

 

 

Net of Tax

 

 

Net of Tax

 

 

Total

 

Balance at December 31, 2020

 

$

(1,481

)

 

$

19

 

 

$

(47

)

 

$

(1,509

)

Accumulated other comprehensive

   income (loss) before reclassifications

 

 

(19

)

 

 

(2

)

 

 

 

 

 

(21

)

Amounts reclassified from accumulated

   other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

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,

 

 

 

2021

 

 

2020

 

 

 

Currency

 

 

Derivative

 

 

Defined

 

 

 

 

 

 

Currency

 

 

Derivative

 

 

Defined

 

 

 

 

 

 

 

Translation

 

 

Financial

 

 

Benefit

 

 

 

 

 

 

Translation

 

 

Financial

 

 

Benefit

 

 

 

 

 

 

 

Adjustments

 

 

Instruments

 

 

Plans

 

 

Total

 

 

Adjustments

 

 

Instruments

 

 

Plans

 

 

Total

 

Revenue

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

Cost of revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5

 

 

 

 

 

 

5

 

Tax effect

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(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, 2021, a majority of these local currencies weakened against the U.S. dollar, resulting in other comprehensive loss of $19 million compared to other comprehensive loss of $180 million for the three months ended March 31, 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 (-$2 million during the three months ended March 31, 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 ($0 during the three months ended March 31, 2021).

8


 

5.

Segments

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

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Revenue:

 

 

 

 

 

 

 

 

Wellbore Technologies

 

$

413

 

 

$

691

 

Completion & Production Solutions

 

 

439

 

 

 

675

 

Rig Technologies

 

 

431

 

 

 

557

 

Eliminations

 

 

(34

)

 

 

(40

)

Total revenue

 

$

1,249

 

 

$

1,883

 

 

 

 

 

 

 

 

 

 

Operating profit (loss):

 

 

 

 

 

 

 

 

Wellbore Technologies

 

$

(14

)

 

 

(663

)

Completion & Production Solutions

 

 

(17

)

 

 

(1,013

)

Rig Technologies

 

 

(8

)

 

 

(202

)

Eliminations and corporate costs

 

 

(49

)

 

 

(72

)

Total operating profit (loss)

 

$

(88

)

 

$

(1,950

)

 

 

 

 

 

 

 

 

 

Operating profit (loss)%:

 

 

 

 

 

 

 

 

Wellbore Technologies

 

 

(3.4

%)

 

 

(95.9

%)

Completion & Production Solutions

 

 

(3.9

%)

 

 

(150.1

%)

Rig Technologies

 

 

(1.9

%)

 

 

(36.3

%)

Total operating profit (loss)%

 

 

(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 three reporting segments that are eliminated in consolidation. Intrasegment transactions are eliminated within each segment.

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).

 

9


 

 

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,

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

Completion

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Completion

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wellbore

 

 

& Production

 

 

Rig

 

 

 

 

 

 

 

 

 

 

Wellbore

 

 

& Production

 

 

Rig

 

 

 

 

 

 

 

 

 

 

 

Technologies

 

 

Solutions

 

 

Technologies

 

 

Eliminations

 

 

Total

 

 

Technologies

 

 

Solutions

 

 

Technologies

 

 

Eliminations

 

 

Total

 

North America

 

$

188

 

 

$

162

 

 

$

55

 

 

$

 

 

$

405

 

 

$

361

 

 

$

225

 

 

$

77

 

 

$

 

 

$

663

 

International

 

 

211

 

 

 

264

 

 

 

369

 

 

 

 

 

 

844

 

 

 

313

 

 

 

437

 

 

 

470

 

 

 

 

 

 

1,220

 

Eliminations

 

 

14

 

 

 

13

 

 

 

7

 

 

 

(34

)

 

 

 

 

 

17

 

 

 

13

 

 

 

10

 

 

 

(40

)

 

 

 

 

 

$

413

 

 

$

439

 

 

$

431

 

 

$

(34

)

 

$

1,249

 

 

$

691

 

 

$

675

 

 

$

557

 

 

$

(40

)

 

$

1,883

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Land

 

$

294

 

 

$

265

 

 

$

91

 

 

$

 

 

$

650

 

 

$

529

 

 

$

416

 

 

$

151

 

 

$

 

 

$

1,096

 

Offshore

 

 

105

 

 

 

161

 

 

 

333

 

 

 

 

 

 

599

 

 

 

145

 

 

 

246

 

 

 

396

 

 

 

 

 

 

787

 

Eliminations

 

 

14

 

 

 

13

 

 

 

7

 

 

 

(34

)

 

 

 

 

 

17

 

 

 

13

 

 

 

10

 

 

 

(40

)

 

 

 

 

 

$

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 $12.5 million for the three months ended March 31, 2021, primarily due to change orders.

Remaining performance obligations represent 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, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations was $3,632 million. The Company expects to recognize approximately $707 million in revenue for the remaining performance obligations in 2021, and $2,925 million in 2022 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

 

Balance at December 31, 2020

 

$

611

 

 

$

354

 

Provision

 

 

(1

)

 

 

-

 

Billings

 

 

(226

)

 

 

204

 

Revenue recognized

 

 

214

 

 

 

(205

)

Currency translation adjustments and other

 

 

(21

)

 

 

(4

)

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.   

10


 

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 is reasonably certain to exercise a renewal option at 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 implicit interest rate in most of the Company’s leases is not readily determinable.

Components of leases are as follows (in millions):

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Current portion of lease liabilities:

 

 

 

 

 

 

 

 

Operating

 

$

81

 

 

$

82

 

Financing

 

 

25

 

 

 

28

 

Total

 

$

106

 

 

$

110

 

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Long-term portion of lease liability:

 

 

 

 

 

 

 

 

Operating

 

$

361

 

 

$

376

 

Financing

 

 

229

 

 

$

236

 

Total

 

$

590

 

 

$

612

 

 

8.Debt

Debt consists of (in millions):

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

$1.1 billion in Senior Notes, interest at 3.95% payable semiannually,

   principal due on December 1, 2042

 

$

1,089

 

 

$

1,089

 

$0.5 billion in Senior Notes, interest at 3.60% payable semiannually,

   principal due on December 1, 2029

 

 

493

 

 

 

493

 

$0.2 billion in Senior Notes, interest at 2.60% payable semiannually,

   principal due on December 1, 2022

 

 

182

 

 

 

182

 

Other debt

 

 

87

 

 

 

70

 

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, 2021, the Company was in compliance with a debt-to-capitalization ratio of 29.0% and had no 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, 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.

11


 

The Company had $444 million of outstanding letters of credit at March 31, 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, 2021 and December 31, 2020, the fair value of the Company’s unsecured Senior Notes approximated $1,690 million and $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, 2021 and December 31, 2020, the carrying value of the Company’s unsecured Senior Notes approximated $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 non-cash charges of $0.3 million 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 7.1%, respectively. The Company has established valuation allowances on deferred tax assets for losses and tax credits generated in 2021 and 2020.   The effective tax rate for 2021 was negatively impacted by current year losses in certain jurisdictions with no tax benefit, partially offset by favorable adjustments related to utilization of losses 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 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.      

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 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 42.7 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, 2021, 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 22, 2021, under the 2018 Plan, the Company granted 1,678,013 stock options with a fair value of $5.75 per option and an exercise price of $15.00 per share; 2,972,175 shares of restricted stock and restricted stock units with a fair value of $15.00 per share; and performance share awards (PSAs) to senior management employees with potential payouts varying from zero to 1,434,000 shares. The stock options vest over a three-year period from the grant date. The restricted stock and restricted stock units vest in three equal annual installments commencing on the first anniversary of the grant date. The 2021 PSAs can be earned based on performance against two established goals over a three-year period: 85% with a TSR (total shareholder return) goal and 15% with an internal NVA (“NOV Value Added”, a return on capital metric) goal. TSR performance is determined by comparing the Company’s TSR with the TSR of the members of the Philadelphia 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 is 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, with certain adjustments.

Total stock-based compensation for all stock-based compensation arrangements under the Plan and the 2018 Plan was $20 million and $27 million for the three months ended March 31, 2021 and 2020, respectively.

There was no income tax benefit recognized in the Consolidated Statements of Income (Loss) for stock-based compensation arrangements under the Plan for both the three months ended March 31, 2021 and 2020.

 

 

12


 

 

11.

Derivative Financial Instruments

The Company uses derivative instruments to manage certain foreign currency exchange rate risks 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 hedges). In addition, the Company executes forward currency contracts to manage the foreign currency risk on recognized nonfunctional currency monetary accounts (non-designated hedges).

The Company had the following outstanding foreign currency forward contracts at March 31, 2021 (in millions):

 

 

 

Currency Denomination

 

 

 

March 31,

 

 

December 31,

 

Foreign Currency

 

2021

 

 

2020

 

South Korean Won

 

KRW

 

17,600

 

 

KRW

 

17,600

 

Norwegian Krone

 

NOK

 

3,131

 

 

NOK

 

3,817

 

Russian Ruble

 

RUB

 

1,159

 

 

RUB

 

1,118

 

Mexican Peso

 

MXN

 

421

 

 

MXN

 

402

 

Japanese Yen

 

JPY

 

390

 

 

JPY

 

340

 

U.S. Dollar

 

USD

 

308

 

 

USD

 

367

 

Euro

 

EUR

 

131

 

 

EUR

 

116

 

South African Rand

 

ZAR

 

124

 

 

ZAR

 

124

 

Singapore Dollar

 

SGD

 

31

 

 

SGD

 

31

 

British Pound Sterling

 

GBP

 

17

 

 

GBP

 

18

 

Danish Krone

 

DKK

 

5

 

 

DKK

 

875

 

Canadian Dollar

 

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 ($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 ($4) million and ($43) million for the three months ended March 31, 2021 and 2020, respectively.

13


 

The Company has the following fair values of its derivative instruments and their balance sheet classifications (in millions):

 

 

 

Asset Derivatives

 

 

Liability Derivatives

 

 

 

 

 

Fair Value

 

 

 

 

Fair Value

 

 

 

Balance Sheet

 

March 31,

 

 

December 31,

 

 

Balance Sheet

 

March 31,

 

 

December 31,

 

 

 

Location

 

2021

 

 

2020

 

 

Location

 

2021

 

 

2020

 

Derivatives designated as

   hedging instruments

   under ASC Topic 815

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange contracts

 

Prepaid and other current

assets

 

$

4

 

 

$

17

 

 

Accrued liabilities

 

$

6

 

 

$

11

 

Foreign exchange contracts

 

Other Assets

 

 

 

 

 

12

 

 

Other liabilities

 

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total derivatives designated

   as hedging instruments

   under ASC Topic 815

 

 

 

$

4

 

 

$

29

 

 

 

 

$

6

 

 

$

11

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives not designated

   as hedging instruments

   under ASC Topic 815

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange contracts

 

Prepaid and other current

assets

 

$

20

 

 

$

17

 

 

Accrued liabilities

 

$

2

 

 

$

4

 

Foreign exchange contracts

 

Other Assets

 

 

3

 

 

 

 

 

Other Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total derivatives not

   designated as hedging

   instruments under ASC

   Topic 815

 

 

 

$

23

 

 

$

17

 

 

 

 

$

2

 

 

$

4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total derivatives

 

 

 

$

27

 

 

$

46

 

 

 

 

$

8

 

 

$

15

 

 

 

14


 

 

12.

Net Loss Attributable to Company Per Share

The following table sets forth the computation of weighted average basic and diluted shares outstanding (in millions, except per share data):

 

 

Three Months Ended

 

 

March 31,

 

 

2021

 

 

2020

 

Numerator:

 

 

 

 

 

 

 

Net loss attributable to Company

$

(115

)

 

$

(2,047

)

Denominator:

 

 

 

 

 

 

 

Basic—weighted average common shares outstanding

 

385

 

 

 

383

 

Dilutive effect of employee stock options and other

 

 

 

 

 

 

 

unvested stock awards

 

 

 

 

 

Diluted outstanding shares

 

385

 

 

 

383

 

 

 

 

 

 

 

 

 

Net loss attributable to Company per share:

 

 

 

 

 

 

 

Basic

$

(0.30

)

 

$

(5.34

)

Diluted

$

(0.30

)

 

$

(5.34

)

 

 

 

 

 

 

 

 

Cash dividends per share

$

 

 

$

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, 2021 and 2020 and therefore not excluded from net income attributable to Company per share calculation.

The Company had stock options outstanding that were anti-dilutive totaling 24 million shares and 27 million shares for each of the three months ended March 31, 2021 and 2020, respectively.

13.

Cash Dividends

Cash dividends were $0 and $19 million for the three months ended March 31, 2021 and March 31, 2020, 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.

15


 

14.

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, 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 which arise from legacy businesses that the Company has acquired over many years and from the Company’s current ordinary day-to-day business activities. These regulatory matters and disputes involve private parties and/or government authorities, which assert claims against the Company for a broad spectrum of potential claims including: employment law claims, collective actions or class action 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, 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 claims, individually or collectively, could have a material financial or reputational impact on the Company. As of March 31, 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 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. Because of uncertainty and risk inherent to litigation and arbitration, actual liabilities incurred may exceed our estimated liabilities and reserves, which could have a material financial or reputational impact on the Company.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 these 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.  

16


 

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, the Company may be exposed to additional liabilities and risks.

Due to these market conditions, demand for our products and services has declined. Our customers may attempt to cancel or delay projects, cancel contracts or may invoke force majure 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.

15.

New Accounting Pronouncements

Recently Adopted 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 2020-04 on the company’s financial position, results of operations and cash flows.

17


 

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Introduction

NOV Inc. (“NOV” or the “Company”) is a leading independent equipment and technology provider to the global energy industry. Originally founded in 1862, NOV and its predecessor companies have spent 159 years helping transform oil and gas field development and improving its cost-effectiveness, efficiency, safety, and environmental impact. 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. 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

18


 

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, 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, 2021, the Company generated a net loss of $115 million, compared to a net loss of $347 million in the fourth quarter of 2020 and a net loss of $2,047 million in the first quarter of 2020. Operating loss for the first quarter of 2021 was $88 million, compared to an operating loss of $301 million in the fourth quarter of 2020 and an operating loss of $1,950 million in the first quarter of 2020. First quarter 2021 Adjusted EBITDA was $0 million, compared to $17 million in the fourth quarter of 2020 and $178 million in the first quarter of 2020.

Segment Performance

Wellbore Technologies

Wellbore Technologies generated revenues of $413 million in the first quarter of 2021, an increase of 11 percent from the fourth quarter of 2020 and a decrease of 40 percent from the first quarter of 2020. The sequential increase in revenue was driven by improving drilling activity in the Western Hemisphere, partially offset by seasonality in the Eastern Hemisphere. Operating loss improved $64 million sequentially to $14 million, or 3.4 percent of sales, and included $6 million of other items. Adjusted EBITDA increased $22 million sequentially to $34 million, or 8.2 percent of sales.

Completion & Production Solutions

Completion & Production Solutions generated revenues of $439 million in the first quarter of 2021, a decrease of 20 percent from the fourth quarter of 2020 and a decrease of 35 percent from the first quarter of 2020. The sharp sequential decline in revenue was primarily the result of severe weather disruptions, certain project delays, COVID-19 shutdowns in Southeast Asia, and raw material shortages for the segment’s Fiberglass business unit. Operating loss improved $14 million sequentially to $17 million, or 3.9 percent of sales, and included -$2 million in other items. Adjusted EBITDA decreased $32 million sequentially to -$4 million, or -0.9 percent of sales.

New orders booked during the quarter totaled $338 million, representing a book-to-bill of 127 percent when compared to the $267 million of orders shipped from backlog. For 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 was $810 million.

Rig Technologies

Rig Technologies generated revenues of $431 million in the first quarter of 2021, a decrease of one percent from the fourth quarter of 2020 and a decrease of 23 percent from the first quarter of 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 improved $124 million to $8

19


 

million, or 1.9 percent of sales, and included $3 million of other items. Adjusted EBITDA decreased $6 million sequentially to $13 million, or 3.0 percent of sales. Profitability was negatively impacted by the decline in revenue, a less favorable product mix and costs associated with severe weather disruptions.

New orders booked during the quarter totaled $112 million, representing a book-to-bill of 59 percent when compared to the $190 million of orders shipped from backlog. At March 31, 2021, backlog for capital equipment orders for Rig Technologies was $2.59 billion.

Oil & Gas Equipment and Services Market and Outlook

During the first quarter of 2020, the coronavirus (COVID-19) outbreak rapidly spread across the world, driving sharp demand destruction for crude oil as countries took measures that curtailed economic activity to slow the spread of the outbreak. Companies across the industry responded with severe capital spending budget cuts, cost 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 is optimistic that recovering market fundamentals and the actions NOV has taken to position its business for the future will drive growth and improved profitability for the company. NOV remains committed to streamlining operations and improving organizational efficiencies while focusing on investing in innovative products and services, including environmentally friendly technologies, that are responsive to the longer-term needs of NOV’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 2021 and 2020, and the fourth quarter of 2020 include the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

%

 

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1Q21

 

 

1Q21

 

 

 

1Q21*

 

 

1Q20*

 

 

4Q20*

 

 

1Q20

 

 

4Q20

 

Active Drilling Rigs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

 

393

 

 

 

784

 

 

 

311

 

 

 

(49.9

%)

 

 

26.4

%

Canada

 

 

144

 

 

 

196

 

 

 

89

 

 

 

(26.5

%)

 

 

61.8

%

International

 

 

697

 

 

 

1,073

 

 

 

664

 

 

 

(35.0

%)

 

 

5.0

%

Worldwide

 

 

1,234

 

 

 

2,053

 

 

 

1,064

 

 

 

(39.9

%)

 

 

16.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

West Texas Intermediate

   Crude Prices (per barrel)

 

$

57.80

 

 

$

45.99

 

 

$

42.46

 

 

 

25.7

%

 

 

36.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Natural Gas Prices ($/mmbtu)

 

$

3.56

 

 

$

1.88

 

 

$

2.50

 

 

 

89.4

%

 

 

42.4

%

 

*

Averages for the quarters indicated. See sources below.

20


 

 

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, 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 increased 16 percent, and the U.S. increased 26 percent (from 311 to 393), in the first quarter of 2021 compared to the fourth quarter of 2020. The average per barrel price of West Texas Intermediate Crude Oil increased 36 percent (from $42.46 per barrel to $57.80 per barrel) and natural gas prices increased 42 percent (from $2.50 per mmbtu to $3.56 per mmbtu) in the first quarter of 2021 compared to the fourth quarter of 2020.

U.S. rig activity at April 16, 2021 was 439 rigs, increasing 12 percent compared to the first quarter of 2021 average of 393 rigs. The price for West Texas Intermediate Crude Oil was at $63.13 per barrel at April 16, 2021, increasing nine percent from the first quarter of 2021 average. The price for natural gas was at $2.68 per mmbtu at April 16, 2021, decreasing 25 percent from the first quarter of 2021 average.

21


 

Results of Operations

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

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Revenue:

 

 

 

 

 

 

 

 

Wellbore Technologies

 

$

413

 

 

$

691

 

Completion & Production Solutions

 

 

439

 

 

 

675

 

Rig Technologies

 

 

431

 

 

 

557

 

Eliminations

 

 

(34

)

 

 

(40

)

Total revenue

 

$

1,249

 

 

$

1,883

 

 

 

 

 

 

 

 

 

 

Operating profit (loss):

 

 

 

 

 

 

 

 

Wellbore Technologies

 

$

(14

)

 

 

(663

)

Completion & Production Solutions

 

 

(17

)

 

 

(1,013

)

Rig Technologies

 

 

(8

)

 

 

(202

)

Eliminations and corporate costs

 

 

(49

)

 

 

(72

)

Total operating profit (loss)

 

$

(88

)

 

$

(1,950

)

 

 

 

 

 

 

 

 

 

Operating profit (loss)%:

 

 

 

 

 

 

 

 

Wellbore Technologies

 

 

(3.4

%)

 

 

(95.9

%)

Completion & Production Solutions

 

 

(3.9

%)

 

 

(150.1

%)

Rig Technologies

 

 

(1.9

%)

 

 

(36.3

%)

Total operating profit (loss)%

 

 

(7.0

%)

 

 

(103.6

%)

 

Wellbore Technologies

Three months ended March 31, 2021 and 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, a decrease of $278 million or 40 percent.

Operating loss from Wellbore Technologies was $14 million for the three months ended March 31, 2021 compared to an operating loss of $663 million for the three months ended March 31, 2020, an increase of $649 million primarily due to the impairment of certain assets in 2020.

Completion & Production Solutions

Three months ended March 31, 2021 and 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, a decrease of $236 million or 35 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, an increase of $996 million primarily due to the impairment of certain 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 $810 million at March 31, 2021, a decrease of 32 percent from backlog of $1.2 billion at March 31, 2020. Although numerous factors affect the timing of revenue out of backlog, the Company reasonably expects approximately $657 million of revenue out of backlog for the remainder of 2021 and approximately $153 million of revenue out of backlog in 2022 and thereafter. At March 31, 2021, approximately 56 percent of the capital equipment backlog was for offshore products and approximately 77 percent of the capital equipment backlog was destined for international markets.

22


 

Rig Technologies

Three months ended March 31, 2021 and 2020. 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, a decrease of $126 million or 23 percent.

Operating loss from Rig Technologies was $8 million for the three months ended March 31, 2021 compared to $202 million for the three months ended March 31, 2020, an increase of $194 million primarily due to the impairment of certain assets in 2020.

The Rig Technologies segment monitors its capital equipment backlog to plan its business. New orders are added to backlog when the Company receives a firm written order for major drilling rig components or a signed contract for a construction project. The capital equipment backlog was $2.6 billion at March 31, 2021, a decrease of 12 percent, from backlog of $2.9 billion at March 31, 2020. Although numerous factors affect the timing of revenue out of backlog, the Company reasonably expects approximately $422 million of revenue out of backlog for the remainder of 2021 and approximately $2.2 billion of revenue out of backlog in 2022 and thereafter. At March 31, 2021, approximately 22 percent of the capital equipment backlog was for offshore products and approximately 90 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. 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. 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 7.1%, respectively. The Company has established valuation allowances on deferred tax assets for losses and tax credits generated in 2021 and 2020.   The effective tax rate for 2021 was negatively impacted by current year losses in certain jurisdictions with no tax benefit, partially offset by favorable adjustments related to utilization of losses 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 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.

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.

23


 

The following tables set forth the reconciliation of Adjusted EBITDA to its most comparable GAAP financial measure (in millions):

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

 

2020

 

Operating loss:

 

 

 

 

 

 

 

 

 

 

 

 

Wellbore Technologies

 

$

(14

)

 

$

(663

)

 

$

(78

)

Completion & Production Solutions

 

 

(17

)

 

 

(1,013

)

 

 

(31

)

Rig Technologies

 

 

(8

)

 

 

(202

)

 

 

(132

)

Eliminations and corporate costs

 

 

(49

)

 

 

(72

)

 

 

(60

)

Total operating loss

 

$

(88

)

 

$

(1,950

)

 

$

(301

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Other items:

 

 

 

 

 

 

 

 

 

 

 

 

Wellbore Technologies

 

$

6

 

 

$

715

 

 

$

46

 

Completion & Production Solutions

 

 

(2

)

 

 

1,054

 

 

 

43

 

Rig Technologies

 

 

3

 

 

 

238

 

 

 

132

 

Corporate

 

 

2

 

 

 

16

 

 

 

15

 

Total other items

 

$

9

 

 

$

2,023

 

 

$

236

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation & amortization:

 

 

 

 

 

 

 

 

 

 

 

 

Wellbore Technologies

 

$

42

 

 

$

51

 

 

$

44

 

Completion & Production Solutions

 

 

15

 

 

 

30

 

 

 

16

 

Rig Technologies

 

 

18

 

 

 

20

 

 

 

19

 

Corporate

 

 

4

 

 

 

4

 

 

 

3

 

Total depreciation & amortization

 

$

79

 

 

$

105

 

 

$

82

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA:

 

 

 

 

 

 

 

 

 

 

 

 

Wellbore Technologies

 

$

34

 

 

$

103

 

 

$

12

 

Completion & Production Solutions

 

 

(4

)

 

 

71

 

 

 

28

 

Rig Technologies

 

 

13

 

 

 

56

 

 

 

19

 

Eliminations and corporate costs

 

 

(43

)

 

 

(52

)

 

 

(42

)

Total Adjusted EBITDA

 

$

 

 

$

178

 

 

$

17

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of Adjusted EBITDA:

 

 

 

 

 

 

 

 

 

 

 

 

GAAP net loss attributable to Company

 

$

(115

)

 

$

(2,047

)

 

$

(347

)

Noncontrolling interests

 

 

1

 

 

 

(2

)

 

 

(1

)

Provision (benefit) for income taxes

 

 

(6

)

 

 

(156

)

 

 

22

 

Interest expense

 

 

20

 

 

 

22

 

 

 

19

 

Interest income

 

 

(2

)

 

 

(3

)

 

 

(2

)

Equity loss in unconsolidated affiliate

 

 

4

 

 

 

233

 

 

 

10

 

Other (income) expense, net

 

 

10

 

 

 

3

 

 

 

(2

)

Depreciation and amortization

 

 

79

 

 

 

105

 

 

 

82

 

Other items

 

 

9

 

 

 

2,023

 

 

 

236

 

Total Adjusted EBITDA

 

$

 

 

$

178

 

 

$

17

 

 

Liquidity and Capital Resources

Overview

At March 31, 2021, the Company had cash and cash equivalents of $1,607 million and total debt of $1,851 million. At December 31, 2020, cash and cash equivalents were $1,692 million and total debt was $1,834 million. As of March 31, 2021, approximately $850 million of the $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 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.

24


 

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, 2021, the Company was in compliance with a debt-to-capitalization ratio of 29.0% and had no outstanding letters of credit issued under the facility, resulting in $2.0 billion of available 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.

The Company’s outstanding debt at March 31, 2021 was $1,851 million and consisted of $1,089 million in 3.95% Senior Notes, $493 million in 3.60% Senior Notes, $182 million in 2.60% Senior Notes, and other debt of $87 million. The Company was in compliance with all covenants at March 31, 2021.

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, 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 $444 million of outstanding letters of credit at March 31, 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

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Net cash provided by (used by) operating activities

 

$

(27

)

 

$

39

 

Net cash used in investing activities

 

 

(51

)

 

 

(53

)

Net cash used in financing activities

 

 

(3

)

 

 

(43

)

 

Significant sources and uses of cash during the first three months of 2021

 

Cash flows used by operating activities was $27 million. This included changes in the primary components of our working capital (receivables, inventories and accounts payable).

 

Capital expenditures were $49 million.

Other

The effect of the change in exchange rates on cash flows was a decrease of $4 million and an increase of $1 million for the first three months of 2021 and 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 15 for recently adopted and recently issued accounting standards.

25


 

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, 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 foreign exchange loss in our income statement for the first three months of 2021 of $10 million, compared to nil 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.

26


 

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 with transactional exposures totaling $362 million and translation exposures totaling $381 million as of March 31, 2021. The Company estimates that a hypothetical 10 percent movement of all applicable foreign currency exchange rates on the transactional exposures could affect net income by $29 million and the translational exposures could affect Other Comprehensive Income by $38 million.

The counterparties to forward contracts are major financial institutions. We monitor the credit ratings and our concentration of credit risk with these financial institutions 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, 2021, borrowings consisted of $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, 2021, there were 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.

27


 

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 2020 Annual Report on Form 10-K.

 

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

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 867 thousand shares listed as “purchased” during 2021 were withheld from employee’s vesting restricted stock grants, as required for income taxes, and retired. These shares were not part of a publicly announced program to purchase common stock. 

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 29.

 

28


 

 

INDEX TO EXHIBITS

(a)

Exhibits

 

  3.1

 

Fifth Amended and Restated Certificate of Incorporation of NOV Inc. (Exhibit 3.1) (1)

 

 

 

  3.2

 

Amended and Restated By-laws of NOV Inc. (Exhibit 3.2) (1)

 

 

 

  4.1

 

Description of Securities (13)

 

 

 

10.1

 

Credit Agreement, dated as of June 27, 2017, among National Oilwell Varco, Inc., the financial institutions signatory thereto, including Wells Fargo Bank, N.A., in its capacity, among others, as Administrative Agent, Co-Lead Arranger and Joint Book Runner (Exhibit 3.1)(2)

 

 

 

10.2

 

Amendment No. 1 to Credit Agreement, dated as of October 30, 2019 (3)

 

 

 

10.3

 

National Oilwell Varco, Inc. 2018 Long-Term Incentive Plan, as amended and restated. (4)*

 

 

 

10.4

 

Form of Employee Stock Option Agreement. (Exhibit 10.1) (5)

 

 

 

10.5

 

Form of Non-Employee Director Stock Option Agreement. (Exhibit 10.2) (5)

 

 

 

10.6

 

Form of Performance-Based Restricted Stock. (18 Month) Agreement (Exhibit 10.1) (6)

 

 

 

10.7

 

Form of Performance-Based Restricted Stock. (36 Month) Agreement (Exhibit 10.2) (6)

 

 

 

10.8

 

Form of Performance Award Agreement (Exhibit 10.1) (7)

 

 

 

10.9

 

Form of Executive Employment Agreement. (Exhibit 10.1) (8)

 

 

 

10.10

 

Form of Executive Severance Agreement. (Exhibit 10.2) (9)

 

 

 

10.11

 

Form of Employee Nonqualified Stock Option Grant Agreement (10)

 

 

 

10.12

 

Form of Restricted Stock Agreement (10)

 

 

 

10.13

 

Form of Performance Award Agreement (10)

 

 

 

10.14

 

Form of Employee Nonqualified Stock Option Grant Agreement (2019) (11)

 

 

 

10.15

 

Form on Restricted Stock Agreement (2019) (11)

 

 

 

10.16

 

Form of Performance Award Agreement (2019) (11)

 

 

 

10.17

 

Form of Performance Award Agreement (2020) (12)

 

 

 

10.18

 

Form of Performance Award Agreement (2021) (14)

 

 

 

31.1

 

Certification pursuant to Rule 13a-14a and Rule 15d-14(a) of the Securities and Exchange Act, as amended. (14)

 

 

 

31.2

 

Certification pursuant to Rule 13a-14a and Rule 15d-14(a) of the Securities and Exchange Act, as amended. (14)

 

 

 

32.1

 

Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (14)

 

 

 

32.2

 

Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (14)

 

 

 

95

 

Mine Safety Information pursuant to section 1503 of the Dodd-Frank Act. (14)

 

 

 

101.INS

 

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

 

 

 

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document

 

 

 

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

101.LAB

 

Inline XBRL Taxonomy Extension Label Linkbase Document

 

 

 

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document

 

 

 

104

 

Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

 

 

 

 

 

 

*

 

Compensatory plan or arrangement for management or others.

 

 

 

 

 

 

29


 

(1)

 

Filed as an Exhibit to our Current Report on Form 8-K filed on December 21, 2020.

 

 

 

(2)

 

Filed as an Exhibit to our Current Report on Form 8-K filed on June 28, 2017.

 

 

 

(3)

 

Filed as an Exhibit to our Current Report on Form 8-K filed on November 4, 2019.

 

 

 

(4)

 

Filed as Appendix I to our Proxy Statement filed on April 15, 2019.

 

 

 

(5)

 

Filed as an Exhibit to our Current Report on Form 8-K filed on February 23, 2006.

 

 

 

(6)

 

Filed as an Exhibit to our Current Report on Form 8-K filed on March 27, 2007.

 

 

 

(7)

 

Filed as an Exhibit to our Current Report on Form 8-K filed on March 27, 2013.

 

 

 

(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, 2014.

 

 

 

(10)

 

Filed as an Exhibit to our Current Report on Form 8-K filed on February 26, 2016.

 

 

 

(11)

 

Filed as an Exhibit to our Quarterly Report on Form 10-Q filed on April 26, 2019.

 

 

 

(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 12, 2021.

 

 

 

(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.

 

30


 

 

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, 2021

By:

 

/s/ Scott K. Duff

 

Scott K. Duff

 

Vice President, Corporate Controller & Chief Accounting Officer

 

(Duly Authorized Officer, Principal Accounting Officer)

 

 

31