Item 1. Financial Statements
Item 1. Financial Statements
NOV INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
March 31,
December 31,
2024
2023
ASSETS
(Unaudited)
Current assets:
Cash and cash equivalents
$
468
$
816
Receivables, net
1,867
1,905
Inventories, net
2,278
2,151
Contract assets
814
739
Prepaid and other current assets
261
229
Total current assets
5,688
5,840
Property, plant and equipment, net
1,878
1,865
Lease right-of-use assets, operating
381
372
Lease right-of-use assets, financing
176
172
Deferred income taxes
484
488
Goodwill
1,602
1,562
Intangibles, net
508
450
Investment in unconsolidated affiliates
247
211
Other assets
341
334
Total assets
$
11,305
$
11,294
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
$
823
$
904
Accrued liabilities
767
870
Contract liabilities
533
532
Current portion of lease liabilities
99
94
Current portion of long-term debt
44
13
Accrued income taxes
6
22
Total current liabilities
2,272
2,435
Long-term debt
1,764
1,712
Lease liabilities
564
558
Deferred income taxes
92
70
Other liabilities
292
277
Total liabilities
4,984
5,052
Commitments and contingencies
Stockholders’ equity:
Common stock - par value $ .01 ; 1 billion shares authorized; 395,503,573 and 393,945,659 shares issued and outstanding at March 31, 2024 and December 31, 2023
4
4
Additional paid-in capital
8,818
8,812
Accumulated other comprehensive loss
( 1,520
)
( 1,493
)
Retained deficit
( 1,056
)
( 1,155
)
Total Company stockholders' equity
6,246
6,168
Noncontrolling interests
75
74
Total stockholders’ equity
6,321
6,242
Total liabilities and stockholders’ equity
$
11,305
$
11,294
See notes to unaudited consolidated financial statements.
2
NOV INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In millions, except per share data)
Three Months Ended
March 31,
2024
2023
Revenue
$
2,155
$
1,962
Cost of revenue
1,697
1,551
Gross profit
458
411
Selling, general and administrative
296
285
Operating profit
162
126
Interest and financial costs
( 24
)
( 21
)
Interest income
8
8
Equity income in unconsolidated affiliates
29
48
Other expense, net
( 10
)
( 16
)
Net income before income taxes
165
145
Provision for income taxes
44
20
Net income
121
125
Net income (loss) attributable to noncontrolling interests
2
( 1
)
Net income attributable to Company
$
119
$
126
Net income attributable to Company per share:
Basic
$
0.30
$
0.32
Diluted
$
0.30
$
0.32
Cash dividends per share
$
0.05
$
0.05
Weighted average shares outstanding:
Basic
394
392
Diluted
397
396
See notes to unaudited consolidated financial statements.
3
NOV INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(In millions)
Three Months Ended
March 31,
2024
2023
Net income
$
121
$
125
Currency translation adjustments
( 26
)
39
Changes in derivative financial instruments, net of tax
-
( 10
)
Changes in defined benefit plans, net of tax
( 1
)
10
Comprehensive income
94
164
Comprehensive income (loss) attributable to noncontrolling interest
2
( 1
)
Comprehensive income attributable to Company
$
92
$
165
See notes to unaudited consolidated financial statements.
4
NOV INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In millions)
Three Months Ended
March 31,
2024
2023
Cash flows from operating activities:
Net income
$
121
$
125
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization
83
77
Provision for inventory losses
—
4
Deferred income taxes
25
( 2
)
Equity income in unconsolidated affiliates
( 29
)
( 48
)
Stock-based compensation
19
15
Other, net
14
( 2
)
Change in operating assets and liabilities, net of acquisitions:
Receivables
69
( 39
)
Inventories
( 20
)
( 221
)
Contract assets
( 75
)
48
Prepaid and other current assets
( 32
)
( 10
)
Accounts payable
( 105
)
53
Accrued liabilities
( 144
)
( 201
)
Contract liabilities
—
( 1
)
Income taxes payable
( 16
)
( 7
)
Other assets/liabilities, net
12
7
Net cash used in operating activities
$
( 78
)
$
( 202
)
Cash flows from investing activities:
Purchases of property, plant and equipment
( 69
)
( 57
)
Business acquisitions, net of cash acquired
( 243
)
—
Other
1
5
Net cash used in investing activities
$
( 311
)
$
( 52
)
Cash flows from financing activities:
Borrowings against lines of credit and other debt
83
1
Cash dividends paid
( 20
)
( 20
)
Financing leases
( 6
)
( 6
)
Other
( 14
)
( 16
)
Net cash provided by (used in) financing activities
43
( 41
)
Effect of exchange rates on cash
( 2
)
—
Decrease in cash and cash equivalents
( 348
)
( 295
)
Cash and cash equivalents, beginning of period
816
1,069
Cash and cash equivalents, end of period
$
468
$
774
Supplemental disclosures of cash flow information:
Cash payments during the period for:
Interest
$
6
$
4
Income taxes
$
28
$
20
See notes to unaudited consolidated financial statements.
5
NOV INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
(In millions)
Shares Issued
and
Outstanding
Common
Stock
Additional
Paid in
Capital
Accumulated
Other
Comprehensive
Loss
Retained
Deficit
Total
Company
Stockholders'
Equity
Noncontrolling
Interests
Total
Stockholders'
Equity
Balance at December 31, 2023
394
$
4
$
8,812
$
( 1,493
)
$
( 1,155
)
$
6,168
$
74
$
6,242
Net income
—
—
—
—
119
119
2
121
Other comprehensive loss
—
—
—
( 27
)
—
( 27
)
—
( 27
)
Cash dividends, $ 0.05 per common share
—
—
—
—
( 20
)
( 20
)
—
( 20
)
Transactions with non-controlling interests
—
—
1
—
—
1
( 1
)
—
Stock-based compensation
—
—
19
—
—
19
—
19
Common stock issued
3
—
—
—
—
—
—
—
Withholding taxes
( 1
)
—
( 15
)
—
—
( 15
)
—
( 15
)
Other
—
—
1
—
—
1
—
1
Balance at March 31, 2024
396
$
4
$
8,818
$
( 1,520
)
$
( 1,056
)
$
6,246
$
75
$
6,321
Shares Issued
and
Outstanding
Common
Stock
Additional
Paid in
Capital
Accumulated
Other
Comprehensive
Loss
Retained
Deficit
Total
Company
Stockholders'
Equity
Noncontrolling
Interests
Total
Stockholders'
Equity
Balance at December 31, 2022
393
$
4
$
8,754
$
( 1,593
)
$
( 2,069
)
$
5,096
$
38
$
5,134
Net income
—
—
—
—
126
126
( 1
)
125
Other comprehensive income, net
—
—
—
39
—
39
—
39
Cash dividends, $ 0.05 per common share
—
—
—
—
( 20
)
( 20
)
—
( 20
)
Transactions with non-controlling interests
—
—
3
—
—
3
28
31
Stock-based compensation
—
—
15
—
—
15
—
15
Common stock issued
2
—
—
—
—
-
—
—
Withholding taxes
( 1
)
—
( 17
)
—
—
( 17
)
—
( 17
)
Other
—
—
1
—
—
1
—
1
Balance at March 31, 2023
394
$
4
$
8,756
$
( 1,554
)
$
( 1,963
)
$
5,243
$
65
$
5,308
See notes to unaudited consolidated financial statements.
6
NOV INC.
Notes to Consolidated Financial Statements (Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements of NOV Inc. (“NOV” or the “Company”) present information in accordance with generally accepted accounting principles in the United States (“GAAP”) 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 for complete consolidated financial statements and should be read in conjunction with the audited consolidated financial statements and footnotes included in the Company’s 2023 Annual Report on Form 10-K. Certain reclassifications have been made to prior period financial information in order to conform with current period presentation.
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, 2024 are not necessarily indicative of the results to be expected for the full year.
The preparation of financial statements in conformity with GAAP 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 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 9, and the fair values of derivative financial instruments are provided in Note 12.
2. Inventories, net
Inventories consist of (in millions):
March 31,
December 31,
2024
2023
Raw materials and supplies
$
469
$
479
Work in process
269
230
Finished goods and purchased products
1,865
1,796
2,603
2,505
Less: Inventory reserve
( 325
)
( 354
)
Total
$
2,278
$
2,151
3. Accrued Liabilities
Accrued liabilities consist of (in millions):
March 31,
December 31,
2024
2023
Compensation
$
173
$
294
Vendor costs
167
133
Taxes (non-income)
69
112
Warranties
76
72
Insurance
52
44
Commissions
17
17
Fair value of derivatives
18
19
Interest
26
8
Other
169
171
Total
$
767
$
870
7
4. Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss are as follows (in millions):
Derivative
Employee
Currency
Financial
Benefit
Translation
Instruments,
Plans,
Adjustments
Net of Tax
Net of Tax
Total
Balance at December 31, 2023
$
( 1,432
)
$
( 5
)
$
( 56
)
$
( 1,493
)
Accumulated other comprehensive loss before
reclassifications
( 26
)
( 2
)
( 1
)
( 29
)
Amounts reclassified from accumulated other comprehensive
loss
—
2
—
2
Balance at March 31, 2024
$
( 1,458
)
$
( 5
)
$
( 57
)
$
( 1,520
)
The components of amounts reclassified from accumulated other comprehensive loss are as follows (in millions):
Three Months Ended March 31,
2024
2023
Currency
Derivative
Employee
Currency
Derivative
Employee
Translation
Financial
Benefit
Translation
Financial
Benefit
Adjustments
Instruments
Plans
Total
Adjustments
Instruments
Plans
Total
Revenue
$
—
$
1
$
—
$
1
$
—
$
1
$
—
$
1
Cost of revenue
—
1
—
1
—
1
—
1
Other expense
—
—
—
—
2
—
—
2
Selling, general and administrative
—
—
—
—
—
—
1
1
Tax effect
—
—
—
—
—
—
—
—
$
—
$
2
$
—
$
2
$
2
$
2
$
1
$
5
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).
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 are realized. The movement in other comprehensive income (loss) from period to period will be the combination of: 1) changes in fair value of open derivatives of ($ 2 ) million during the three months ended March 31, 2024 ; and, 2) the outflow of other comprehensive loss related to cumulative changes in the fair value of derivatives that have settled in the current period were $ 2 million the three months ended March 31, 2024 .
8
5. Segments
Effective January 1, 2024, NOV consolidated its reporting structure into two segments: Energy Products and Services, and Energy Equipment. Segment disclosures pertaining to prior periods have been restated to reflect the change in reportable segments.
Financial results by operating segment are as follows (in millions):
Three Months Ended
March 31,
2024
2023
Revenue:
Energy Products and Services
$
1,017
$
941
Energy Equipment
1,178
1,052
Eliminations
( 40
)
( 31
)
Total revenue
$
2,155
$
1,962
Operating profit:
Energy Products and Services
$
121
$
112
Energy Equipment
95
71
Eliminations and corporate costs
( 54
)
( 57
)
Total operating profit
$
162
$
126
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 two reporting segments that are eliminated in consolidation. Intrasegment transactions are eliminated within each segment.
Total other items included in operating profit for the three months ended March 31, 2024 and March 31, 2023 , were a pre-tax credit of $ 3 million and $ 4 million, respectively, primarily related to gains on sale of previously reserved inventory.
6. Business Combinations
During the first quarter of 2024, our Energy Products and Services segment made two strategic acquisitions to enhance and expand our existing portfolio for a total consideration of $ 243 million, net of cash acquired. One of the two acquisitions involved White Deer Energy, a middle market private equity fund focused on energy investments. As the transaction involved a related party at the time it was entered into (e.g., directors Ben A. Guill and Eric L. Mattson both had an investment interest in certain White Deer Energy funds), the acquisition was approved by the disinterested members of the Company’s Board of Directors.
At March 31, 2024, we provisionally recorded $ 112 million of goodwill and amortizable intangible assets; $ 63 million of PP&E, including financing and operating lease right of use assets; $ 85 million of net working capital; and $ 17 million of finance and operating lease liabilities. The fair values of the assets acquired and liabilities assumed are preliminary and subject to change until we finalize our accounting for these acquisitions.
9
7. 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,
2024
2023
Energy
Energy
Products
Energy
Products
Energy
and Services
Equipment
Elims.
Total
and Services
Equipment
Elims.
Total
North America
$
537
$
296
$
—
$
833
$
502
$
312
$
—
$
814
International
456
866
—
1,322
421
727
—
1,148
Eliminations
24
16
( 40
)
—
18
13
( 31
)
—
$
1,017
$
1,178
$
( 40
)
$
2,155
$
941
$
1,052
$
( 31
)
$
1,962
Land
$
772
$
427
$
—
$
1,199
$
697
$
485
$
—
$
1,182
Offshore
221
735
—
956
226
554
—
780
Eliminations
24
16
( 40
)
—
18
13
( 31
)
—
$
1,017
$
1,178
$
( 40
)
$
2,155
$
941
$
1,052
$
( 31
)
$
1,962
Performance Obligations
Net revenue recognized from performance obligations satisfied in previous periods was $ 6 million for the three months ended March 31, 2024 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, 2024 , the aggregate amount of the transaction price allocated to remaining performance obligations was $ 4,267 million. The Company expects to recognize approximately $ 1,079 million in revenue for the remaining performance obligations in 2024 and $ 3,188 million in 2025 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 contract assets and contract liabilities are as follows (in millions):
Contract
Assets
Contract
Liabilities
Balance at December 31, 2023
$
739
$
532
Billings
( 275
)
314
Revenue recognized
366
( 301
)
Currency translation adjustments and other
( 16
)
( 12
)
Balance at March 31, 2024
$
814
$
533
Royalty Revenue
The Company recognizes royalty revenue due under various licenses for the Company's intellectual property, including for technology related to drill bits. The Company recognized revenue for drill bit licenses of approximately $ 16 million for the three months ended March 31, 2024 , and $ 20 million for the three months ended March 31, 2023. The Company is currently pursuing litigation against certain non-paying licensees, which will impact our ability to collect the receivables timely. As such, revenue and the related receivables are recorded at a discount to reflect the delayed timing of future cash collections. As of March 31, 2024 , the receivables of $ 84 million, net of allowances of $ 13 million for credit losses and $ 20 million for the remaining timing related discount, are included in Other assets on the Consolidated Balance Sheets. These allowances do not impact the amount the Company is entitled to recover on its claims from the licensees in litigation. While we continue to believe it is probable the Company will collect all or substantially all of the consideration
10
to which it is entitled pursuant to the terms of the licensing agreements, the Company will also continue to evaluate the credit quality of the receivables. See Note 15 for discussion of the ongoing litigation.
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, 2024, the allowance for credit losses totaled $ 75 million.
The changes in the carrying amount of the allowance for credit losses are as follows (in millions):
Balance at December 31, 2023
$
72
Provision for expected credit losses
15
Recoveries collected
( 5
)
Other
( 7
)
Balance at March 31, 2024
$
75
11
8. 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 initially intends that a lease option will be exercised 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 most do not include implicit interest rates.
Components of leases are as follows (in millions):
March 31,
December 31,
2024
2023
Current portion of lease liabilities:
Operating
$
72
$
70
Financing
27
24
Total
$
99
$
94
March 31,
December 31,
2024
2023
Long-term portion of lease liabilities:
Operating
$
347
$
343
Financing
217
215
Total
$
564
$
558
12
9. Debt
Debt consists of (in millions):
March 31,
December 31,
2024
2023
$ 1.1 billion in Senior Notes, interest at 3.95 % payable
semiannually, principal due on December 1, 2042
$
1,091
$
1,091
$ 0.5 billion in Senior Notes, interest at 3.60 % payable
semiannually, principal due on December 1, 2029
496
495
Other debt
221
139
Total Debt
1,808
1,725
Less current portion
44
13
Long-term debt
$
1,764
$
1,712
The Company has a revolving credit facility with a borrowing capacity of $ 2.0 billion through October 30, 2024, and a borrowing capacity of $ 1.8 billion from October 31, 2024 to October 30, 2025. 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 Secured Overnight Financing Rate (SOFR), NIBOR or CDOR plus 1.25 % 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, 2024, the Company was in compliance with a debt-to-capitalization ratio of 24.5 % and had $ 50 million of outstanding borrowings under the facility, resulting in $ 1.95 billion of available funds.
A consolidated joint venture of the Company borrowed $ 120 million against 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 SOFR plus 1.40 %. The bank line of credit contains a financial covenant regarding maximum debt-to-equity ratio of 75 %. As of March 31, 2024 , the joint venture was in compliance. The facility construction was completed in the fourth quarter of 2022, and the joint venture will not have future borrowings on the line of credit. The line of credit repayment schedule began in December 2022 with final payment no later than June 2032 . As of March 31, 2024 , the Company has $ 104 million in borrowings related to this line of credit. The carrying value of debt under the Company’s consolidated joint venture approximates fair value because the interest rates are variable and reflective of current market rates. The Company has $ 10 million in payments related to this line of credit due in the next twelve months. The Company can repay the entire outstanding facility balance without penalty at its sole discretion.
Other debt at March 31, 2024 included $ 34 million of funding provided by minority interest partners of NOV consolidated joint ventures, of which $ 3 million is due in the next twelve months.
The Company had $ 472 million of outstanding letters of credit at March 31, 2024, primarily in Norway and the United States, 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, 2024 and December 31, 2023, the fair value of the Company’s unsecured Senior Notes approximated $ 1,380 million and $ 1,316 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 of similar instruments. At March 31, 2024 and December 31, 2023 , the carrying value of the Company’s unsecured Senior Notes approximated $ 1,587 million and $ 1,586 million, respectively.
13
10. Income Taxes
The effective tax rate for the three months ended March 31, 2024 was 26.7 %, compared to 13.8 % for the same period in 2023. The effective tax rate for 2024 was negatively impacted by a mix of earnings in higher tax rate jurisdictions, losses in certain jurisdictions with no tax benefit, and a shortfall related to previously recognized stock compensation deductibility, partially offset by the reduction of valuation allowances related to U.S. and state deferred tax assets. The effective tax rate for 2023 was positively impacted by the utilization of previously unrealized loss carryforwards and tax credits as well as favorable adjustments related to changes in certain exchange rates, partially offset by losses in certain jurisdictions with no tax benefit.
11. Stock-Based Compensation
The Company’s stock-based compensation plan, known as the NOV Inc. Long-Term Incentive Plan (the “NOV Plan”), was approved by shareholders on May 11, 2018 and amended and restated on May 24, 2022. The NOV 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 NOV Plan is 55.7 million. The NOV 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 NOV Plan on a 1-for-1 basis, and the issuance of other awards reduces the number of available shares under the NOV Plan on a 1.5-for-1 basis. At March 31, 2024, approximately 7.6 million shares remained available for future grants under the NOV Plan. The Company also has outstanding awards under its former stock-based compensation plan known as the National Oilwell Varco, Inc. Long-Term Incentive Plan (the “Former Plan”), however the Company is no longer granting new awards under the Former Plan.
On February 6, 2024, under the NOV Plan, the Company granted 1,110,478 stock options with a fair value of $ 7.90 per option and an exercise price of $ 17.52 per share; 2,571,356 restricted stock units with a fair value of $ 17.52 per share; and performance share awards (PSAs) to senior management employees with potential payouts varying from zero to 1,061,644 shares. The stock options vest over a three-year period from the grant date. The restricted stock units vest in three equal annual installments commencing on the first anniversary of the grant date. The 2024 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 expense for all stock-based compensation arrangements was $ 19 million for the three months ended March 31, 2024, and $ 15 million for the three months ended March 31, 2023.
There was an income tax benefit of $ 4 million recognized in the Consolidated Statements of Income for stock-based compensation arrangements under the NOV Plan for the three months ended March 31, 2024 . There was no income tax benefit recognized in the Consolidated Statements of Income for stock-based compensation arrangements under the NOV Plan for the three months ended March 31, 2023.
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12. Derivative Financial Instruments
The Company uses forward currency contracts to manage the foreign currency exchange rate risk on forecasted revenues and expenses denominated in currencies other than the functional currency of the operating unit (cash flow hedge). The Company also executes forward currency contracts to manage the foreign currency exchange rate risk on recognized nonfunctional currency monetary accounts (non-designated hedge).
The fair values of these derivative financial instruments are determined using level 2 inputs (inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly for substantially the full term of the asset or liability) in the fair value hierarchy as the fair value is based on publicly available foreign exchange and interest rates at each financial reporting date.
Forward currency contracts consist of (in millions):
Currency Denomination
March 31,
December 31,
Currency
2024
2023
Colombian Peso
COP
46,764
COP
57,487
South Korean Won
KRW
26,739
KRW
—
Norwegian Krone
NOK
2,668
NOK
2,179
Japanese Yen
JPY
1,118
JPY
1,118
U.S. Dollar
USD
853
USD
677
Brazilian Real
BRL
291
BRL
291
Mexican Peso
MXN
168
MXN
157
Euro
EUR
134
EUR
102
Singapore Dollar
SGD
27
SGD
23
South African Rand
ZAR
25
ZAR
25
British Pound Sterling
GBP
7
GBP
5
Danish Krone
DKK
4
DKK
2
Canadian Dollar
CAD
2
CAD
1
Cash Flow Hedging Strategy
To protect against the volatility of forecasted foreign currency cash flows resulting from forecasted revenues and expenses, the Company 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 accumulated other comprehensive income of $ 3 million 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 earnings in other income (expense), together with the changes in the hedged nonfunctional monetary accounts.
The amount of loss recognized in other expense, net was $ 3 million for the three months ended March 31, 2024 and $ 5 million for the three months ended March 31, 2023.
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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
2024
2023
Location
2024
2023
Derivatives designated as hedging
instruments under ASC Topic 815
Foreign exchange contracts
Prepaid and other
current assets
$
—
$
8
Accrued liabilities
$
4
$
2
Foreign exchange contracts
Other assets
—
—
Other
liabilities
—
1
Total derivatives designated as hedging
instruments under ASC Topic 815
$
—
$
8
$
4
$
3
Derivatives not designated as hedging
instruments under ASC Topic 815
Foreign exchange contracts
Prepaid and other
current assets
$
3
$
11
Accrued liabilities
$
14
$
17
Foreign exchange contracts
Other assets
—
—
Other
liabilities
—
1
Total derivatives not designated as
hedging instruments under ASC Topic 815
$
3
$
11
$
14
$
18
Total derivatives
$
3
$
19
$
18
$
21
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13. Net Income 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,
2024
2023
Numerator:
Net income attributable to Company
$
119
$
126
Denominator:
Basic—weighted average common shares outstanding
394
392
Dilutive effect of employee stock options and other
unvested stock awards
3
4
Diluted outstanding shares
397
396
Net income attributable to Company per share:
Basic
$
0.30
$
0.32
Diluted
$
0.30
$
0.32
Cash dividends per share
$
0.05
$
0.05
Companies with unvested participating securities are required 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 attributable to the Company allocated to these participating securities was immaterial for each of the three months ended March 31, 2024 and 2023 , respectively.
The Company had stock options outstanding that were anti-dilutive totaling 17 million shares for the three months ended March 31, 2024, compared to 16 million shares for the three months ended March 31, 2023 .
14. Cash Dividends
Cash dividends were $ 20 million for both the three months ended March 31, 2024 and March 31, 2023 . 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. Commitments and Contingencies
Our business is governed by laws and regulations, including those directed to the oilfield service industry, 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. 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 environmental agencies and many others. We are unaware of any material liabilities in connection with our compliance with such laws. New laws, investigations, regulations and enforcement policies may result in additional, presently unquantifiable, or unknown, costs or liabilities.
From time to time, the Company is involved in various claims, regulatory agency audits, investigations and legal actions involving a variety of matters. The Company maintains insurance that covers claims such as third-party personal injuries or property damage arising from risks associated with the business activities of the Company, such as premises liability, product liability, personal injury, marine risk, property damage, and other such insurable losses. The Company carries substantial insurance to cover insurable risks above a self-insured retention. The Company believes, and the Company’s experience has been, that such insurance has been sufficient to cover any such material risks.
The Company is also a party to claims, threatened and actual litigation, arbitration, and internal investigations of potential regulatory and compliance matters which may arise from the Company’s business activities. These regulatory matters and disputes may involve private parties and/or government authorities who may assert a broad variety of potential claims against the Company, such as employment law claims, collective actions or class action claims, intellectual property claims (such as alleged patent infringement, and/or misappropriation of trade secrets by the company), premises liability claims, environmental claims, product liability claims, warranty claims, personal injury claims arising from exposure to or use of allegedly defective products or from activities of the Company, alleged regulatory violations, alleged violations of anti-corruption and anti-bribery, trade, customs or other laws and other commercial
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and/or regulatory claims seeking recovery for alleged actual or exemplary damages or fines and penalties. Such claims involve various theories of liability which may include negligence, breach of contract, strict liability, product liability, and other theories of liability. For some of these contingent claims and potential liabilities, the Company’s insurance coverage may not apply, or exclusions to coverage or legal impediments 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, 2024, the Company recorded reserves in an amount believed to be sufficient, given the estimated range of potential outcomes, for contingent liabilities believed to be probable. These reserves include costs currently and reasonably estimated to be incurred for reclamation of a closed barite mine and product liability claims, as well as other circumstances involving material claims.
The Company periodically assesses the potential for losses above the amounts accrued as well as potential losses for matters that are believed to be not probable, but which are reasonably possible. The Company sets accruals in accordance with GAAP based on its best judgment about the probable results of disputed claims, regulatory enforcement actions, tax and other governmental audits, and other contingencies. The litigation process and the outcome of regulatory oversight is inherently uncertain, and our best judgment concerning the probable outcome of litigation or regulatory enforcement matters may prove to be incorrect. No assurance can be given as to the outcome of these matters. 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 the uncertainty and risk inherent to litigation, arbitration, audits, governmental investigations, enforcement actions, and similar matters, the Company’s actual liabilities incurred may materially 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 the Company’s 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 for which it may be difficult to predict the ultimate outcome. At any given time, the Company may be a plaintiff or defendant in disputes involving disputed intellectual property rights.
The Company is currently pursuing litigation against several companies involving royalties due under licenses for technology related to drill bits. This technology resulted in a portfolio of patents related to leaching technology, a revolutionary technology owned by the Company that improves the performance of drill bits and other products utilizing certain synthetic diamond parts. The Company previously sued several drill bit manufacturers for patent infringement and those lawsuits were resolved by a series of licensing agreements with various drill bit manufacturers. To settle and end litigation or to avoid litigation, the licensees were provided access to the portfolio of leaching patents owned by the Company in exchange for a royalty payment, as defined in each license agreement. The companies agreed to pay the royalties for the right to use the portfolio of patents, whether they used some, all or none of the specific patented claims in any particular patent. The license agreements each provide that they terminate on the date of the last to expire of the patents in the licensed portfolio. Having obtained the benefit of these licenses for more than a decade, all of the drill bit manufacturer licensees unilaterally stopped making royalty payments even though all of the patents in the portfolio have not expired. These companies have asserted, among other reasons, that they are entitled to stop making these payments because they have not elected to manufacture products covered by the unexpired patents. Some of these companies stopped making payments after the expiration of what are allegedly the patents in the portfolio that they elected to use. Others paid for some period of time after that date but have since stopped payment. The Company has sued asserting that failure to pay the royalties is a breach of the license agreements at issue. The Company is in litigation with most of the licensees seeking a judicial determination that it is entitled to be paid royalties pursuant to the terms of the licenses. The parties’ legal filings to date can be found in two cases currently pending in the United States District Court for the Southern District of Texas: Grant Prideco, Inc., et al. v. Schlumberger Tech. Corp., et al., No. 4:23-cv-00730; and Halliburton Energy Serv, Inc. v. Grant Prideco, Inc., et al., No. 4:23-cv-01789. While the Company strongly believes that the royalties for which it has sued are due and owing pursuant to the terms of the licensing agreements, there is inherent risk with the related litigation and the Company makes no assurances as to the outcome of such litigation. See Note 7 to the Consolidated Financial Statements for discussion of the financial impact of royalties.
The protection of intellectual property is important to the Company’s performance, and as such, an adverse result in disputes related to our intellectual property could result in materially adverse financial consequences such as a decline in sales of products protected by patents, which could materially and adversely impact our financial performance.
From time-to-time purchasers of our products and services or members of our supply chain or sales chain become involved in litigation, governmental investigations, internal investigations, political or other enforcement matters, or other dispute proceedings. In such circumstances, such proceedings may adversely impact the ability of purchasers of our products, entities providing financial support to such consumers or entities in the supply chain or sales 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 proceedings, at substantial cost to the Company.
The Company is exposed to customs and trade regulation risk in the countries in which we do business and countries from which or to which we import or export goods. Such trade regulations can be complex and conflicting, as different countries use trade regulation to promote conflicting policy objectives. Compliance with these laws and regulations presents challenges which could result in future
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liabilities (for example, alleged violation of those laws or when laws conflict between countries). The Company may face increased tariffs and trade costs, loss of revenue, loss of customers, fines, penalties, increased costs, the need for renegotiation of agreements, and other business disruptions. Trade regulations, supply chain regulations, and other regulatory compliance in different jurisdictions may conflict with one another or with contractual terms with our various counterparties. 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 and this could lead to negative impacts on revenue or earnings. In addition, trade regulations, export controls, and other laws adversely impact our ability to do business in certain countries, e.g., Iran, Syria, Russia, China and Venezuela.
In response to additional sanctions enacted by governments in the European Union, the United States, the United Kingdom, Switzerland, and other countries regarding the armed conflict in Ukraine, we ceased new investments in Russia and have curtailed our activities there. During the third quarter of 2022, we sold our business in Belarus and entered into an agreement to sell our business in Russia. The sale is subject to various government approvals in Russia and other jurisdictions. The Russian government continues to enact new laws impacting the exit of western companies from Russia, including some instances of expropriation of western businesses. We may incur additional costs as a result of conditions in Russia if we are unable to complete the transaction to sell our Russian business on the terms of the agreements.
Geopolitical events continue to pose supply chain risks. The Company’s ability to manufacture equipment and perform services could be impaired from such disruptions and the Company could be exposed to liabilities resulting from additional interruption or delay in its ability to perform due to factors such as materials shortages, inflationary pressures, and limited manpower. We may face loss of workers, labor shortages, litigation, fines and/or other adverse consequences resulting from ongoing labor impacts. The combined impact of supply chain and labor market disruptions along with the inflationary impacts of pandemic monetary and regulatory policies could have material adverse impacts on our financial results.
Disputes may arise regarding application of force majeure and other contract provisions concerning allocation of responsibility among customers, the Company, and suppliers, resulting in material added cost and/or litigation. Our customers may attempt to cancel or delay projects, cancel contracts, or may invoke force majeure clauses. Our customers may also seek to delay or may default on their payments to us. As a result, the Company may be exposed to additional costs, liabilities and risks which could materially adversely impact our financial performance and results. These potential operational and service delays could result in contractual or other legal claims from our customers. At this time, it is not possible to quantify all these risks, but the combination of these factors could have a material impact on our financial results.
16. Subsequent Event
On April 9, 2024, NOV completed the divestiture of its Pole Products business. Pole Products is a leading manufacturer of premium spun-cast concrete, tapered steel, and innovative fiberglass poles for diverse applications.
On April 25, 2024, the Company announced that its Board of Directors authorized and approved a share repurchase program for up to $ 1 billion of the currently outstanding shares of the Company’s common stock over a period of 36 months. Under the share repurchase program, the Company may repurchase shares from time to time through open market purchases, in privately negotiated transactions or by other means, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Securities Exchange Act of 1934 (the “Exchange Act”), as amended, in accordance with applicable securities laws and other restrictions, including Rule 10b-18. The timing and total amount of any stock repurchases will depend upon business, economic and market conditions, corporate and regulatory requirements, prevailing stock prices and other considerations.
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