National Oilwell Varco 2011 Annual Report Download - page 42

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Index to Financial Statements
Operating profit from Petroleum Services & Supplies was $1,072 million for 2011 compared to $585 million for 2010, an increase of $487 million (83.2%). Operating profit
percentage increased to 19.0% up from 14.0% in 2010. This increase is primarily due to increased volume with a strong North American demand fueled by an increase in rig
count as well as continued favorable pricing within most business units within the segment. The increase was partially offset by lower levels of activity in the Middle East due
to continued unrest in that region. This unrest resulted in the write-down, in the first quarter, of Libyan assets of $15 million, mostly related to accounts receivable affected by
sanctions enacted during the quarter along with the write off of certain inventory and fixed assets in the country. The Companys Rig Technology and Distribution &
Transmission segments incurred $2 million of such asset write-downs during the first quarter for a total of $17 million in Libyan asset write-downs incurred by the Company.
Distribution & Transmission
Revenue from Distribution & Transmission totaled $1,873 million for 2011, an increase of $327 million (21.2%) from 2010. This increase was primarily attributable to
increased rig count activity in Canada and the U.S. Internationally, the segments Mono business unit also contributed to the increase in revenues as demand for its power
sections and artificial lift products increased in 2011 compared to 2010. In addition, strategic acquisitions in the U.S. and the U.K. contributed to the increase in revenue for
this segment.
Operating profit increased in 2011 to $135 million compared to $78 million in 2010. Operating profit percentage increased to 7.2% in 2011 from 5.0% in 2010 primarily due
to greater cost efficiencies and better pricing related to strong demand fueled by an increase in Canada and U.S. rig count activity. This increase was partially offset by rig
moves towards liquid shale plays, drill site construction delays and weather issues towards the end of the year in certain markets in which this segment participates.
Unallocated expenses and eliminations
Unallocated expenses and eliminations in operating profit were $323 million for the year ended December 31, 2011 compared to $280 million for 2010. This increase is
primarily due to the increased activity along all segments which in turn resulted in higher intersegment eliminations and higher incentive compensation.
Equity Income in Unconsolidated Affiliates
Equity income in unconsolidated affiliates was $46 million for 2011 compared to $36 million for 2010, a $10 million increase which was primarily related to increased 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 of $39 million in 2011 compared to expense of $49 million in 2010. The decrease in expense was primarily due to lower foreign
exchange losses in 2011 compared to 2010. The Venezuelan government officially devalued the Venezuelan bolivar against the U.S. dollar in 2010. The Company converted
its Venezuela ledgers to U.S. dollar functional currency and devalued monetary assets resulting in a $27 million foreign exchange loss during 2010. See
Item 7A. Quantitative and Qualitative Disclosures About Market Risk Foreign Currency Exchange Rates. Lower exchange losses were partially offset by increased bank
charges. The increase in bank charges is primarily due to an increase in our standby letters of credit coupled with increased bank activity through growth both internally and
through.
Provision for income taxes
The effective tax rate for the year ended December 31, 2011 was 32.1%, compared to 30.8% for 2010. 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 in foreign jurisdictions, an increase in the benefit of the manufacturing deduction as a result of increasing
income in the U.S., plus the effect of tax rate reductions on timing differences in foreign jurisdictions. This was partially offset by additional prior period taxes on foreign
dividends. The impact of these prior period discrete items is not material to any individual prior period.
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