National Oilwell Varco 2015 Annual Report Download - page 48

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Table of Contents
Eliminations
Eliminations in operating profit were $892 million for the year ended December 31, 2014 compared to $652 million for the year ended December 31, 2013.
This increase was primarily due to increased intercompany sales activity for all segments resulting in higher 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 four reporting segments that are eliminated in
consolidation. Intercompany transactions within each reporting segment are eliminated within each reporting segment.
Other income (expense), net
Other income (expense), net were expenses of $90 million for the year ended December 31, 2014 compared to expenses of $39 million for the year ended
December 31, 2013. The increase was primarily due to losses on the sale of certain non-core industrial assets as well as increased bank fees, partially offset by
foreign exchange gains.
Provision for income taxes
The effective tax rate for the year ended December 31, 2014 was 29.7%, compared to 30.2% for 2013. Compared to the U.S. statutory rate, the effective tax
rate was positively impacted in the period by the effect of lower tax rates on income earned in foreign jurisdictions, a reduction in valuation allowance on
deferred taxes, and the deduction in the U.S. for manufacturing activities. The effective tax rate was negatively impacted by foreign dividends net of foreign
tax credits, and nondeductible expenses.
Non-GAAP Financial Measures and Reconciliations
In an effort to provide investors with additional information regarding our results as determined by GAAP, we disclose various non-GAAP financial measures
in our quarterly earnings press releases and other public disclosures. The primary non-GAAP financial measures we focus on are: (i) operating profit
excluding other items, (ii) operating profit percentage excluding other items, (iii) diluted earnings per share excluding other items and operating (non-GAAP)
earnings. Each of these financial measures excludes the impact of certain amounts as further identified below and has not been calculated in accordance with
GAAP. A reconciliation of each of these non-GAAP financial measures to its most comparable GAAP financial measure is included below.
We use these non-GAAP financial measures internally to evaluate and manage the Company’s operations because we believe it provides useful supplemental
information regarding the Company’s on-going economic performance. We have chosen to provide this information to investors to enable them to perform
more meaningful comparisons of operating results, and as a means to emphasize the results of on-going operations.
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