National Oilwell Varco 2002 Annual Report Download - page 13

Products and Technology
Products and Technology revenues in 2002 were $203.6 million (18%) lower than the previous year as moderate oil
and gas prices failed to sustain the 2001 levels of market activity in all product areas. Capital equipment revenues
were down $72 million while related spare parts and expendable parts were lower than 2001 by $38 million. Sales
and rentals of downhole motors and fishing tools decreased by approximately $74 million, impacted by its strong
dependence on the North American market. Operating income fell $44 million in 2002 when compared to the prior
year, impacted by the margin reduction due to the significantly lower volume. The absence of amortization of
goodwill in 2002, as required per the new accounting guidance, favorably impacted operating income by $10.4
million. Reductions in compensation expense also contributed approximately $11.0 million in operating income
when compared to the prior year. Revenues from the mid-December 2002 acquisition of Hydralift ASA, and the
consolidation of our Chinese joint venture, each contributed $8.0 million in revenues and $0.3 million and $2.2
million in operating income, respectively.
Revenues for the Products and Technology segment in 2001 increased by $437.4 million (64 %) from 2000 as
virtually all products experienced significant revenue growth. Capital equipment revenues were up $285 million,
drilling spares up $35 million, expendable pumps and parts were higher by $47 million and downhole tools
increased $75 million. As a result of this robust revenue growth, operating income in 2001 increased by $110.0
million from the prior year. Revenues from acquisitions completed in 2001 under the purchase method of
accounting contributed $34 million in incremental revenues.
Backlog of the Products and Technology capital products was $364 million at December 31, 2002, $385 million at
December 31, 2001 and $282 million at December 31, 2000. Backlog at December 31, 2002 includes $170 million
acquired in late December through the purchase of Hydralift ASA. Substantially all of the current backlog is
expected to be shipped by mid-year 2004.
Distribution Services
Distribution Services revenues fell $21.6 million, or 3%, from the 2001 level as this segment’s strategy to create
strategic alliances and expand its international presence made significant market penetration during a difficult
market. North American revenues fell approximately 16% due to the lower activity level while shipments in the
international market almost doubled. Sales of our own-make products increased almost 12% while maintenance,
repair and operating (“MRO”) supplies fell almost 5%. Operating income in 2002 was $10.4 million lower than the
prior year. Margin reduction, due to the lower volume and project bidding pressures, contributed to approximately
80% of the operating income shortfall with the remainder due to significant infrastructure growth.
Distribution Services revenues in 2001 increased $186.5 million from the 2000 level with all areas and products
participating in the upswing that lasted until the middle of the 4th quarter 2001. U.S. revenues of MRO supplies
were up 44% while Canadian revenues were 13% higher than the prior year. Operating income in 2001 increased
by $15.6 million from the prior year due to the higher revenue volume and cost efficiencies linked to the new global
operating system. Revenues from acquisitions completed in 2001 under the purchase method of accounting
contributed $24 million in incremental revenues.
Corporate
Corporate charges represent the unallocated portion of centralized and executive management costs. Year 2002
costs of $10.8 million reflect certain corporate-led marketing initiatives and general overhead incurred to support a
larger company. Year 2001 costs of $10.2 million represents a 10% reduction from the prior year as various e-
strategy and e-commerce initiatives became operational. Year 2003 corporate charges are expected to approximate
$12 million due to recent acquisitions.
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