The Company recorded an after tax charge of $6.9 million ($0.08 per share) to correct an accumulated three-year clearing account problem within the Distribution segment's SAP purchasing system. SAP was installed in 1999, and a detail reconciliation problem began in the second quarter of 2000 and continued undetected until the third quarter of 2003. Process changes have been implemented to prevent any recurrence of this situation.
Fourth quarter results also included after tax charges to catch up depreciation and amortization expense primarily related to finalization of purchase accounting of $1.6 million ($0.02 per share) within the Products and Technology Group and $0.5 million ($0.01 per share) within the Distribution Services Group. Products and Technology also recorded a $1.7 million ($0.02 per share) after tax charge resulting from an annual analysis of foreign pension accounting. An analysis of the provision for income tax for 2003 determined that the proper rate for the full year was 29%, and the fourth quarter contains a lower than normal tax provision to reflect this full year rate.
Backlog of capital equipment orders totaled $339 million at December 31, 2003, essentially the same as at the end of the third quarter, as revenues from backlog of $151 million approximated new orders into backlog of $150 million.
Products and Technology Group
Revenues of $349 million in the fourth quarter are at a record pace, up 10% over the third quarter of 2003 even though revenues from capital equipment were essentially flat. Absent the charges discussed above, operating income also improved sequentially by a similar percent.
Distribution Services Group
Revenues again exceeded $200 million and were up slightly from the third quarter of 2003. In addition to the charges discussed above, operating income declined from the third quarter due to a number of individually small year-end adjustments, including severance and inventory charges.
Pete Miller, president and CEO of National Oilwell, stated "Each of our business groups, and each of the operations within a business group, achieved sequential top line growth over the third quarter of 2003. Except for the non-cash charge to Distribution and other normal year-end adjustments, consolidated operating results also improved. We continue to see good demand for our capital equipment from international markets, and we are optimistic about the prospects for 2004 and beyond. As an example of current market strength, we currently are quoting on ten offshore premium jackups that we believe will become firm projects in 2004."
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