National Oilwell Varco, Inc. reported that for its second quarter ended June 30, 2008, it earned net income of $421.7 million, or $1.04 per fully diluted share, which includes $62.5 million of pre-tax charges ($0.10 per share after tax) related to its merger with Grant Prideco, Inc., $29.0 million ($0.07 per share) in additional tax provisions related to the Company's decision to repatriate earnings from certain foreign subsidiaries during the quarter and $7.2 million in pre-tax income ($0.01 per share after tax) from a Grant Prideco business that was sold during the quarter. Net income for the period excluding these charges and income was $486.5 million, or $1.20 per fully diluted share. Reported revenues for the second quarter were $3,324.2 million. Operating profit for the quarter, excluding the $62.5 million of transaction costs and income from the disposed Grant Prideco business, was $746.8 million.
The Company completed its merger with Grant Prideco, Inc. on April 21, 2008, and, as a result, its financial statements reflect Grant Prideco's results for all but the first 21 days of the quarter. The purchase price allocated to Grant Prideco for the merger was reduced by $127.0 million reflecting the Company's settlement of certain patent litigation.
In addition to reported results, the Company is also providing supplemental results, which include the combined financial results for the Company and Grant Prideco as if the acquisition occurred at the beginning of the period. The Company's as adjusted revenues and operating profit for the second quarter of 2008 were $3,444.7 million and $778.2 million, respectively, including the estimated effects of purchase accounting for the full quarter but excluding certain transaction costs. Revenues increased 9 percent from the first quarter of 2008, and increased 21 percent from the second quarter of 2007, on this combined basis. Operating profit flow-through, or the increase in operating profit divided by the increase in revenue, was 40 percent from the first quarter to the second quarter of 2008, and was 30 percent from the second quarter of 2007 to the second quarter of 2008, on a combined basis.
Backlog for capital equipment orders for the Company's Rig Technology segment at June 30, 2008 increased to $10.8 billion, compared to $9.9 billion at March 31, 2008, with record new orders during the quarter of $2.2 billion. The increase in the Company's backlog for capital equipment reflected the strong demand for its drilling equipment
products, particularly for international offshore rigs. Backlog for drill pipe orders in the Company's Petroleum Services & Supplies segment increased 19 percent during the second quarter.
Pete Miller, Chairman, President and CEO of National Oilwell Varco, remarked, "We are pleased with the strong results we achieved this quarter. Demand for our capital equipment products remained strong, as reflected in our record backlog. The merger helped position our Company to better benefit from the strong demand in the oilfield by providing us with oilfield products and services that complement our existing offering of products and services. We remain optimistic about market conditions for the remainder of the year."
Second quarter revenues for the Rig Technology segment were $1,911.1 million, an increase of 19 percent over the first quarter of 2008 and an increase of 36 percent from the second quarter of 2007. Operating profit for this segment was $506.4 million, or 26.5 percent of sales. Operating profit flow-through from the first quarter of 2008 to the second quarter of 2008 was 33 percent, and operating profit flow-through from the second quarter of 2007 to the second quarter of 2008 was 33 percent. Revenue out of backlog for the segment increased 18 percent sequentially and rose 40 percent year-over-year, to $1,337.4 million for the second quarter of 2008.
Petroleum Services & Supplies
Revenues for the second quarter of 2008 for the Petroleum Services & Supplies segment were $1,123.8 million. This segment now includes the Drilling Products and Services, ReedHycalog, XL Systems and IntelliServ products of Grant Prideco. On an adjusted combined basis for the merger for both periods, revenues for the Petroleum Services & Supplies segment for the second quarter of 2008 were $1,244.3 million, down 5 percent compared to first quarter of 2008, and operating profit was $296.7 million, or 23.8 percent of revenue, down 5 percent from the first quarter of 2008. During the second quarter, approximately $98 million of revenues from products previously reported in the Petroleum Services & Supplies segment were transferred to the Company's other two segments, due to a realignment of management responsibilities. Excluding this realignment, segment revenues were up 2 percent sequentially, on an adjusted combined basis.
The Distribution Services segment generated second quarter revenues of $425.6 million, a 16 percent increase over the first quarter of 2008 and a 23 percent increase from the second quarter of 2007. Second quarter operating profit was $24.8 million, or 5.8 percent of sales, a 32 percent increase over the first quarter of 2008 and a 7 percent increase from the second quarter of 2007.
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