Welcome to the Second Quarter Financial Results Earnings Call. My name is Shannon, and I will be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. I would now turn the call over to Mr. Loren Singletary, Vice President of Investor and Industry Relations. Loren, you may begin.

Thank you, Shannon. And welcome everyone to the National Oilwell Varco second quarter 2014 earnings conference call. With me today is Clay Williams, President, CEO and Chairman of National Oilwell Varco; and Jeremy Thigpen, Senior Vice President and Chief Financial Officer. Before we begin this discussion of National Oilwell Varco’s financial results for its second quarter ended June 30, 2014, please note that some of the statements we make during this call may contain forecasts, projections and estimates, including, but not limited to, comments about our outlook for the company’s business These are forward-looking statements within the meaning of the federal securities laws based on limited information as of today, which is subject to change. They are subject to risks and uncertainties, and actual results may differ materially. No one should assume that these forward-looking statements remain valid later in the quarter or later in the year. I refer you to the latest Forms 10-K and 10-Q National Oilwell Varco has on file with the Securities and Exchange Commission for a more detailed discussion of the major risk factors affecting our business. Further information regarding these, as well as supplemental information and operating information, maybe found within our press release on our website at www.nov.com, or in our filings with the SEC. Later on this call, we will answer your questions, which we ask you to limit to two in order to permit more participation. Now, let me turn this call over to Clay.

Thank you, Loren. This morning we announced the National Oilwell Varco earned a $1.42 per fully diluted share from continuing operations and $1.44 per share attributable to the company for all operations in the second quarter ended June 30, 2014. Consolidated revenues from continuing operations were $5.3 billion, up 7% sequentially and up 12% year-over-year. Operating profit from continuing operations, excluding transaction costs was $945 million or 18% of sales. EBITDA from continuing operations, excluding non-recurring items was $1,141 billion or 21.7% of sales. The second quarter included $31 million pretax or $0.05 per share after-tax in transaction related charges mostly due to the spinout of our distribution NOW business, which we completed during the second quarter, adding this back our earnings were $1.47 per fully diluted share from continuing operations. Continuing earnings excluding non-recurring items of the $1.47 are consistent with what we have reported in the past and on this basis for all periods, second quarter earnings were up 14% sequentially and up 19% from the second quarter last year. We've seen any changes at National Oilwell Varco this quarter, including our spinout of our distribution NOW business. This morning we will be detailing our results along new business segments with new disclosures following our reorganization during the second quarter. Among these is our reporting of certain amortization expenses of purchased intangible assets. These were $91 million pre-tax or $0.14 per share after-tax for the second quarter of 2014. Excluding these and excluding discontinued operations and non-recurring items, second quarter 2014 operating non-GAAP earnings per fully diluted share were $1.61, up 13% sequentially and up 16% year-over-year on the same basis for all quarters. We offer this supplemental non-GAAP disclosure to win more transparency to our cash flow generating capability per share and Jeremy, will speak to this…

Thanks Clay. Before we begin our discussion of the quarterly operating results, let me take a quick moment to explain the change that we have made to the calculation of our adjusted EPS. From this point forward, our adjusted EPS metric will exclude the impact of the amortization of purchased intangible assets as well as discontinued operation and nonrecurring items as we always have. Going forward, we will be referring to these adjusted earnings per share results as operating non-GAAP earnings per share. Here is why we’re doing it. Since the amortization expense of purchased intangible assets is a non-cash period expense, we believe that the supplemental adjustment will help investors to more clearly understand how NOV's earnings per share relate to our periodic cash flow per share. Purchased intangible assets arise from the allocation of the purchase price of acquisition in excess of the fair market value of working capital and fixed assets of acquired businesses. Amortization of these differ from depreciation, another non-cash periodic charge and that depreciation expense reflects consumption of hard assets which must eventually be replaced used to produce periodic results, where as amortization of purchased intangibles reflects the initial startup cost of acquisition capital. Obviously, we will continue to report GAAP earnings and continue to provide a reconciliation between GAAP and our new operating non-GAAP earnings metric which you can see on the last page of our second quarter 2014 earnings release. We intend this to be a supplemental disclosure, not a replacement for GAAP earnings per share but rather to provide the investing public additional insight into the periodic cash results of our operations on a per share basis. Now let’s discuss the quarterly results. Since Clay already thoroughly covered the consolidated results, I would just like to offer one comment before transitioning…

Thank you, Jeremy. So to sum it up this morning, we're pleased to report strong double-digit earnings growth both sequential and year-over-year for our second quarter, record backlogs for both Rig Systems and Completion & Production Solutions with both posting book-to-bills north of 1 in the quarter, a 77% increase in our regular dividend during the quarter, completion of a $3.5 billion spinout to our shareholders of an exciting new public company, a whole bunch of new granular disclosure, and our path forward to develop and communicate our strategic plan. So with that, Shannon, I think we’re ready to open it up for questions.

(Operator Instructions) Our first question comes from Jeff Tillery from Tudor, Pickering, Holt. Please go ahead.

Hi, good morning, guys.

Good morning, Jeff.

As you think about the M&A program, just could you give us color around kind of businesses that require things are interesting, kind of where you see the best opportunities?

Yeah, Jeff, generally as I noted in my opening comments, we have a lot of conversations underway. They are generally with smaller companies. And I think I mentioned, we have closed five transactions year-to-date that I think are indicative of kind of what that population looks like. I will continue to -- I would say the flavor of this is continued investment in our aftermarket support of the growing installed base of rig equipment. And so a couple of these have to do with that strategic thrust. We have a lot going on in our tubular services world and have seen great organic growth and acquisition growth in our capability to repair tubular around the globe and we will continue to invest in that. But kind of the overarching theme here is generally I think we’re seeing smaller transactions and believe that those offer a better purchase economics. The bigger these deals become the more attention they attract. And when that happens, generally the price goes up, the multiples go up and our returns go down. So we’re looking forward. I would really like to put more focus on those smaller transactions and benefit from the higher economics that they can bring to our operation.

Great. And the second question I have is just around rig systems. Obviously with kind of the segment recasting, some of the benchmarks we’ve had historically have moved. But as you think about kind of the medium to longer-term margin goals, is that still in kind of the low-to mid 20s, is that how you think about it a normalized margin for the Rig Systems segment?

I think low-20s is probably more accurate for normalized margins. As you remember part of our margin enhancement story was around growth in certain product lines that were accretive to overall rig -- the old rig tech margins. Those have now moved into the Aftermarket segment and of course the Completion & Production Solutions segment. So I think low 20s normalized margins is probably appropriate.

Thank you very much.

Thanks, Jeff.

Our next question comes from Jim Wicklund from Credit Suisse. Please go ahead.

Good morning, guys.

Good morning, Jim.

You mentioned challenges going forward in Brazil and China. And I know the flex pipe plant in Brazil is little behind the schedule and getting flowing operational. Can you talk to us little bit about Brazil? What to expect? What’s going on? What should we see over the next 12 months or so in Brazil?

The other good news is so far so good in Brazil, Jim. We’re working on about a half dozen rigs currently. The first should be delivered in September of next year. And so we’re getting well into this build out of -- for NOV 21 deepwater floaters for that market. All of our customers are pressing ahead. And so I would say so far so good. To put in perspective, it’s building in terms of its contribution quarter by quarter. So in the second quarter, we did about $180 million in revenue within rig systems associated with that effort. And the challenges that we were referring to stem from a couple of things, one is that we won that work if you recall back in the 2009-2010 time period when pricing was under pressure. So the margins are good, but they're not great. And so the intrinsic margins in the work is a little lower than the rest of our backlog. Number two, it’s Brazil. We’ve been in networking Brazil for 30-plus years, a very challenging from a regulatory standpoint, from local content requirement standpoint, from a tax standpoint, from a foreign currency standpoint. So we’re just being a realistic about the incremental margins that will continue to flow from Brazil as we get deeper and deeper into the program, but again operationally so far so good. And to round up the picture, we're very excited about the about expansion that we’ve had underway in Brazil to support both that new construction as well as all of the rigs that we have at work in Brazil, supporting those on an ongoing basis from an aftermarket standpoint. So these are sort of dual purpose facilities. And I think middle of next year we’re going to open our riser manufacturing plant. We’ve got t other expansion initiatives going on around Brazil and so it will continue to be a very, very important market for us. On China, the other part of the comment, we’ve seen a lot of our offshore rig building work shift into Chinese shipyards predominantly with jack-ups, although there is a few semi’s coming together in Chinese yards as well. And what we know from experience and to be clear, we work closely with Chinese shipyards a quite a bit in the past. But we know from experience is sometimes those projects can be a little more challenging, but we’re not losing a lot of sleep over the China, China shift is just again being realistic. We know that sometimes it's a little more challenging in those yards vis-à-vis the yards in Korea or the yards in Singapore.

Okay. Not sound bad for Brazil considering everybody else’s issues there. My follow-up if I could in completion production. Coiled tubing, you mentioned coiled tubing a couple of times, demand for coiled tubing is picking up. That has been one segment that has lagged from an operating point of view in the U.S. Is your pickup in demand in coiled tubing primarily international? Are we seeing demand pickup in the U.S. as well?

Most of the incremental is U.S. and North America really, a lot of demand for components going into the larger diameter coiled tubing, so a lot of the incremental coiled tubing demand is around 2-inch. 2-3/8 inch, 2-5/8 inch diameters and so real trailers and the injector heads going into modify and upgrade actually over coiled tubing units is a trend we've seen lightly, but generally a lot of orders on the upswing and a lot more optimism about that market. The international market has remained steadier. It didn’t fall off the same way North America did. And so we’re seeing some resume demand overseas as well, but it never plummeted the way North America did back in 2012 and 2013.

Yeah. And in early ’13 we saw slight drop in demand internationally and some of the U.S. based customers were shipping excess equipment overseas to fulfill needs, but in the back half of ’13, we started to see more orders for new coiled tubing units going into the international markets and it has been pretty steady.

That’s encouraging across the broad. Okay. Thank you very much, gentlemen.

Thank you.

Our next question comes from Kurt Hallead from RBC Capital Markets. Please go ahead.

Good morning.

Hi, Kurt.

Again, I just wanted to follow up, you talked about the prospects looking at varying dynamics to return additional cash to shareholders and one of the, I guess, bottlenecks in that process have been the fact that you have only 37% of your existing cash in the U.S. So in that context, I just wondered if could provide us with maybe some insights on how you maybe able to accomplish some of those goals in terms of returning more cash to shareholders? And how serious the consideration doing the levered recap might be?

The first, it’s 7% of our cash in the U. S., but you say 37%?

Yeah. I’m sorry. I must have misheard what you said on the call. Thanks for clarifying that.

Only 7%, so we are essentially dividending out our U.S. cash flow. So it’s already pushing the envelope in the U.S. And so yes, internally we are looking at different ways to get cash back in the U.S. in the tax efficient manner. It is challenging, but we’re certainly doing that. To next question?

Yeah. So, $3.5 billion plus in cash overseas, some of the things we’re looking at presently are ways to repatriate that and to improve the ability to repatriate U.S. cash generated overseas, which would give us more flexibility around either share buyback or upping the dividend with that cash we have on our balance sheet. And we’re alternatively looking for really good, solid acquisitions overseas or probably a combination of both and this is what we’re looking at, Kurt.

So it’s a levered recap, not necessarily the forefront of your thoughts.

Not in the near-term and probably I think I detailed the fact that our new segments, the new segment leaders are going through a deep dive on strategic reviews, the strategic plans of their businesses this summer. And so first thing first is to get the strategic. We’re not expecting major departures, but let’s get settled on the strategic plans going forward and the capital needs around those. And then I think that will then lead us into a conversation later this year around the new opportunities to return capital to shareholders.

Okay, great. Thanks. And then my follow-up question is just on the Rig Systems second half outlook on the order book. We can make our own guesses and assumptions as we have in the past, you provided some general directional guidance of being -- having book-to-bill being under 1. There is a big range of that. So are we talking about an absolute plummet in orders in the back half of the year or more of a -- I’d say more of a gradual decline?

Yeah. Kurt, over the last two quarters, we provided a little more granularity into our order intake and really broken out what was from new build construction for jack-ups and floaters versus everything else. I wouldn’t call everything else a baseline because that fluctuates each quarter as well, but it will give you some indication as to what we think each orders could look like in that space. And then we also provided some guidance that we think jack-ups could continue to be strong in Q3 and fairly steady in Q4. So probably back into a number that way.

Yeah. We’re not going to zero. Let me clear on that. So, I mean, there is a lot of things cooking out there. Land rigs demand is ascending and it's a small piece now, but it's growing and growing quickly. And as Jeremy mentioned, we had a lot of jackups to push from Q2 to Q3 and so that outlook for the back half of year for jackups at least is pretty good. And then I would add too, I touched on a number of specific floating rig opportunities that are continuing to work out there around 20,000 PSI capabilities, around Arctic capabilities and so even in the floater space it's not going to zero. So we can't, I'm not sure we can be a lot more quantitative than that but direction that's where the three main groups are going.

All right. I think that helps to clarify. And if I may just sneak one more point -- pointing on your guidance relating to the wellbore technology group, you had a significant increase in revenue sequentially, you have indicated a 13% even with the breakup in Canada and now suggesting a more moderate sequential increase into the third quarter even with the Canadian rebound? Just trying to help, you can try to help connect the dots there because it appears to us that rig activity, well activities on the rise in U.S. you got a rebound in Canada. So just not quite sure why the sequential increase would be say more than half or what it was in the second quarter?

Yeah. I think there is a possibility for that, Kurt. But really what we've seen in this segment historically and really think a back to our PS&S businesses. When activity starts to pick up and customers work to their inventory, they start -- they kind of start to buy in bulk and add some inventory, so they are not compromise if activity continues to grow. So we think there was a little bit of that going on in the second quarter and don’t know if that will continue in the third or they just kind of go to replenishing inventories if they consume at that point in time.

Okay. That’s great. That was great color. Perfect. Thank you, guys.

Thanks, Kurt.

Our next question comes from Bill Sanchez from Howard Weil. Please go ahead.

Thanks. Good morning.

Hi. Good morning.

Clay or Jeremy, I was hoping perhaps maybe you can give us an outlook on two things. One, I know this is second quarter and now you discussed the expectation of book-to-bill and rig systems going below 1. Just curious if you had any thoughts on the duration of how long you might see book-to-bill stay below that target. I guess my first question is my follow-up? I got to believe the revenue capacity or the revenue efficiency continues to increase, I know Jeremy, you able to give us an expectation on aftermarket growth year-over-year? Is there any thought as we look ‘14 and maybe even next year, what type of topline growth we could perhaps expect out of rig systems?

Well, the first question, Bill, with regards to the duration of this downturn. We’re not sure, we believe, it's not a one quarter dip. We get at least a few quarters and it could extend beyond that overall. Long-term our outlook is still very, very bright. There’s an awful lot of development drilling and expiration drilling that still needs to go on in deepwater basins require floating rigs. So we think the fundamental demand is there. But a lot of capacity flowing into the market last year, this year, next year is giving rise to this. I mentioned some of the special purpose rigs that we’re looking at, another kind of interesting set of conversations. We’ve got a couple of folks looking at 2017, 2018 not seeing any floater delivery scheduled outside of Brazil and thinking of maybe opportunities to introduce to go ahead and sign-up for newbuilds to try to hit that point in the market when very few new rigs are coming in and so there’s a lot of conversations that are underway. So, our expectation is we’re headed for a cyclical soft patch here. I’m not sure have a lot of insight to offer around how long that might last. With regards to what your, I am sorry, your second question was topline growth for which segments?

The rig system around the capacity.

Yeah. The -- that we have a lot of visibility into a $15.4 billion of firm orders and you kind of do the math, that means we’ve got a couple of years of work ahead of us with rising prospect for land rigs and so far continued demand for jackups as well for at least the next couple quarters. And so, not prepared at this point to give you a number year-to-year ’14, ’15, what that might look like, but certainly orders will not be the gating item. As you correctly point out, we've been adding a lot of capacity throughout our infrastructure to deal with record backlog, a lot of challenges in the supply chain to deal with these record backlogs and so a lot of continued capacity coming online to handle this work to connect the dots there, though, if the downturn in floater demand does stay down a while, we’re not overly concerned because we foresee a big pickup in special periodic surveys, particularly as we move into 2017. I think this is something I reference to my comments as well. Every five years, all floating rigs need to come back to the shipyard for whole inspections and for drilling equipment to be inspected and the recertified and get new certificates of compliance. And when we look at the demographics of the birth years of the growing offshore fleet, what we see is, they’re all starting to stack up 2017 and 2018. And so, there is going to be a lot of work for us to do even if it's not necessarily building as many new deepwater floaters as have in past.

And specifically to your question, Bill, in terms of revenue conversion out of backlog, we had the big capacity, the major capacity additions in 2012 and early 2013. We’re not getting comfortable with those additions. And if you look, we've been running at between $2 billion and $2.2 billion in revenue out of backlog for the last couple of few quarters and I think that's probably a reasonable proxy for the future.

Yeah. That’s helpful, Jeremy. Just to quantify that, I appreciate it. If I could ask just one more, with regard to the amortization of intangible assets, as we look through the press release, I just try to basically identify that back to specific segment or segments, Jeremy. Is that concentrated in one particular area, we try to reconcile what maybe the…

It really show that but if you look at the difference between EBIT margins, EBITDA margins, you can see that disconnect really and it’s really Wellbore Technologies primarily but also in Completion & Production Solutions.

Okay.

And little bit in rig…

In rig, but not as pronounces as it is in those two segments.

But as we look at the restated numbers, I mean, if apple like, at least the first quarter comparison, that’s an apples-to-apples comparison as we think about the 2Q?

Correct.

Okay, great.

By the way, on that topic, we’re going to continue to break out. It will be running about $0.14 a share. I think we get 10 quarters going back historically on our tear sheet. You can see its $0.13%, $0.14, $0.15 every quarter. So it’s a pretty level load and we will be disclosing that separately from our non-recurring transaction charges.

Great. I appreciate the time. I’ll turn it back

Thanks.

Our final question comes from Waqar Syed from Goldman Sachs. Please go ahead.

Thank you for taking my question. In terms of the five-year surveys, we’ve seen some offshore drillers defer or even cancel this five-year surveys innovating for better visibility in markets. Are you seeing that in your discussions with the offshore drillers and how does that factor into your guidance on aftermarket business for the coming years? Goldman Sachs: Thank you for taking my question. In terms of the five-year surveys, we’ve seen some offshore drillers defer or even cancel this five-year surveys innovating for better visibility in markets. Are you seeing that in your discussions with the offshore drillers and how does that factor into your guidance on aftermarket business for the coming years?

Waqar, I think they maybe able defer that but they need do it before they go back to work because it’s a statutory, I think regulatory requirements. It’s been required for decades and it’s the practice across the industry that every five years these come in. We've been in the industry dialog around how to make that more efficient. Because right now, we’ve been on a run rate of about 40 rigs a year going into shipyards and as I mentioned earlier, see that going up to 130 in 2017, that’s just based on NOV delivered kit. And we’re going to have to do some thing different to accommodate that. That's a tremendous amount of work. And so, we're exploring with the industry ideas to make that more efficient. We’ve also reorganized internally to bring some of our project management expertise within Rig Systems to bear on these projects. The planning for these is critical. As you can imagine, taking your rig off day rate, putting in a shipyard to accommodate this periodic survey has a high opportunity cost because it’s off day rate. So, our customer want to get as much done as they can while that rig is in the shipyard. And that can be made much more efficient and minimize opportunity cost if a lot of very tight planning goes into that project well in advance and as long as we can get out to the rigs and survey the equipment. And so, our plan is to try to work with the industry to build better way that’s more efficient and enables them to get the rigs through with -- and minimize the opportunity costs associated with that requirement.

So, just to understand in your forecast are you assuming any major regular time of order rates or you feel that every single rig that’s due for five-year surveys gets that done? Goldman Sachs: So, just to understand in your forecast are you assuming any major regular time of order rates or you feel that every single rig that’s due for five-year surveys gets that done?

Well, I mean if rigs are not on contract at the time, I suppose they may be able to defer. I don’t know that for sure but nevertheless there’s a lot of new iron out there required by the Coast Guard to come in. So I think that’s a fairly save bet on our perspective.

The other thing to point out to is that we’re in conversations with these customers a year in advance of their [FDA] (ph) surveys .So, we know if and when they are coming in and what kind of aggregates they are going to require. This part of that challenge and kind of streamlining this process that Clay was talking about. So, we know what’s coming in.

Okay. Great. Now just one last on the Chinese shipyard regarding jackups. Are you -- there is also a view that's being floated around by the offshore drillers saying that many of the rigs that are being built, the jackups are being built in Chinese shipyards may not actually get built. Are you hitting any cancellations there, any concern at the part of the shipyards that the rigs may not get built? Goldman Sachs: Okay. Great. Now just one last on the Chinese shipyard regarding jackups. Are you -- there is also a view that's being floated around by the offshore drillers saying that many of the rigs that are being built, the jackups are being built in Chinese shipyards may not actually get built. Are you hitting any cancellations there, any concern at the part of the shipyards that the rigs may not get built?

No the -- I think what you’re referring to the Chinese -- generally we’re offering very attractive terms, for instance, 10% down 90% at delivery. So China is financing the build out of these rigs and whether or not the customer shows up and makes the final payment or not. We’ve got very, very strong contracts with our customers there. And so we’re not concerned about this. We went through a massive downturn economically in 2009 and had a very small, I think 2%, 3%, 4% of our backlog where customers defaulted in the projects one away. So I think we demonstrated before our contracts are pretty solid and our expectation is that our customers in China are going to see those projects through and that’s -- many of these too. Although they are not necessarily contracted now. You’ve got to Pemex talking about picking up a dozen rigs next year and other 20 or 30 few years after that. Lot of interest out of the Far East, India. So there is a lot of jackup interest out there and in the final thing is if you look at the demographics of the jackup rig is what you're seeing here is retooling, rejuvenating that fleet in earnest and that’s the fundamental driver for demand for these rigs.

Yeah. And to be clear, we’re not offering that financing to our shipyard. Customers….

That’s right.

And in fact, we’re getting paid as we go.

Right.

We stay cash positive, cash neutral at worst on these projects.

Yes. Thank you, Jeremy and it’s an important point.

All right. Well, thank you, very much. Thanks guys

Thank you

Thank you Waqar.

Well, that wraps up our call. We appreciate everyone joining us and look forward to speaking to you next quarter. Thanks very much

Thank you, ladies and gentlemen. This concludes today’s conference. Thank you for participating. You may now disconnect.