National Oilwell Varco 2010 Annual Report Download - page 42

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Distribution Services
Revenue from Distribution Services totaled $1,350 million for 2009, a decrease of $422 million (23.8%) from 2008. The decrease in revenue is
mainly concentrated in the North American region as average drilling activity declined 42% in 2009 compared to the prior year.
Operating profit decreased in 2009 to $50 million compared to $130 million in 2008. Operating profit percentage decreased to 3.7% in 2009 from
7.3% in 2008 as a result of strong price competition and volume declines as North American rig activity declined.
Unallocated expenses and eliminations
Unallocated expenses and eliminations were $319 million for the year ended December 31, 2009 compared to $226 million for 2008. The
increase in unallocated expenses and eliminations was primarily due to the voluntary retirement costs of $46 million. Acquisition costs also
contributed to the increase from 2008.
Interest and financial costs
Interest and financial costs were $53 million for 2009 compared to $67 million for 2008. The decrease in interest and financial costs were
primarily a direct result of the repayment of borrowings on the Companys credit facility used to purchase Grant Prideco, the repayment of the
Companys 7.5% Senior Notes and the repayment of a portion of the Companys 6.125% Senior Notes. These repayments occurred during 2008
causing lower debt levels in 2009.
Equity Income in Unconsolidated Affiliate
Equity income in unconsolidated affiliate was $47 million for 2009 compared to $42 million for 2008 and was related to the April 21, 2008
acquisition of Grant Prideco. The income was related to the equity earnings from the Companys 50.01% investment in Voest-Alpine Tubulars
(VAT) located in Kindberg, Austria.
Other income (expense), net
Other income (expense), net was expense, net of $110 million in 2009 compared to income, net of $23 million in 2008. The 2009 expense was
primarily due to a net foreign exchange loss of $79 million, as compared to a net foreign exchange gain of $50 million in 2008. The 2009 foreign
exchange losses were primarily due to adjustments of our hedge positions as a result of the current economic environment and the strengthening
of the Euro, the British pound sterling, Canadian dollar and Norwegian krone compared to the U.S. dollar. See Item 7A. Quantitative and
Qualitative Disclosures About Market Risk Foreign Currency Exchange Rates.
Provision for income taxes
The effective tax rate for the year ended December 31, 2009 was 33.3% compared to 33.5% for 2008. The tax rate includes $21 million of
additional tax provision recognized in the second quarter 2009 on prior year income in Norway. These additional taxes resulted from foreign
currency gains on dollar-denominated accounts that were realized for Norwegian tax purposes.
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