Loren Singletary – Vice President of Investor and Industry Relations Clay Williams – Chairman, President, Chief Executive Officer Jeremy Thigpen – Chief Financial Officer, Senior Vice President.

Jim Crandell – Cowen Jud Bailey – Wells Fargo Marshall Adkins – Raymond James Jeff Tillery – Tudor Pickering Holt Robin Shoemaker – KeyBanc Capital Markets.

Welcome to the National Oilwell Varco Fourth Quarter and Full Year Results Conference Call. My name is Loraine and I will be the 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 will now turn the call over to Mr.

Loren Singletary, Vice President of Investor and Industry Relations. Mr. Singletary, you may begin..

Thank you, Loraine, and welcome everyone to the National Oilwell Varco fourth quarter and full year 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 fourth quarter and fiscal year ended December 31, 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 risk 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, financial and operating information, may be 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 the call over to Clay..

Thank you, Loren, and welcome everyone to National Oilwell Varco’s fourth quarter 2014 earnings conference call. This morning, we announced that the company earned $1.39 per fully diluted share in its fourth quarter ended December 31, 2014.

Excluding transaction in asset impairment charges, earnings were record $1.69 per fully diluted share, increased 4% sequentially and 13% year-over-year. Fourth quarter revenues were $5.7 billion, up 2% sequentially and up 8% year-over-year. Fourth quarter EBITDA excluding other items was $1.2 billion or 21.3% of sales.

EBITDA on this basis improved 1% sequentially and 8% year-over-year. For the full year 2014, GAAP earnings per fully diluted share were $5.82. Excluding other items in impairment charges, earnings were a record $6.07 per fully diluted share, up 12% from the prior year.

EBITDA for the year excluding other items in impairment charges was record $4.6 billion, up 14% from the prior year on the same basis. Looking forward, we obviously face some significant challenges in the markets that we serve and we will be discussing these through the next hour.

But first, I want to take a moment and reflect on the company’s accomplishments in 2014 and say thanks to the world’s best oilfield services team. NOV completed the spinout of our distribution services business to our shareholders as now Inc.

in May, which led us to reorganize our remaining business along four new reporting segments and promote several executives and into new leadership positions. Our new segment architecture is around customer access which opened up new strategic possibilities for us.

So our leadership teams spent the summer developing long-term strategies for each business. We presented these at our first Investor Day in November, where we also laid out ambitious five year goals.

2014 also saw us announce a large increase in our dividend, lifting our payout ratio to within a range of 30% as well as the authorization of $3 billion stock buyback. Given the pace of change here through 2014, it would have been easy that has been distracted. I think the pace of change here makes NOVs 2014 record results doubly impressive.

We had several business units post record annual and record quarterly results in 2014. I would like to express my gratitude to every one of our 60,000 employees and continue to execute exceptionally well on behalf of our customers, despite all these changes deliver great financial results for our shareholders. Thank you.

As we look forward, we face a tough market with oil prices down more than 50% our customers are quickly cutting spending and a downturn we face will be severe in 2015 and possibly beyond. Drilling activity is falling sharply in our visibilities limited.

The industry point itself in this downturn, we believe because rapidly growing North American oil supply coupled with slowing demand in the OECD, slowing demand growth in China and other emerging economies and a strong U.S. dollar our contributed to our supply demand in balance for oil like last year.

With regards to slow oil demand in Europe and emerging economies significantly lower energy cost rate meaningful wide spread economic stimulus, as economies in Europe and Asia eventually strengthen low oil prices in rising economic activity will spur oil demand growth from these regions.

Secondly, we do not believe the global excess production capacity is excessive by historical standards. We do not face the kind of structural global overhang the industry faced in 1986 when Saudi Arabian production have been prepare down to that 4 million barrels of oil per day as fair global oil capacity exceeded 15% of demand.

We believe this downturn will be more like 2002 or 2009. Both prior instances recovery came within about two years. Third, we believe the recent swing source of incremental global oil supply is coming from North American shales.

The production type curve from these basins exhibit extraordinarily steep decline rates, which is well documented across thousands of wells in multiple share basins. New share reservoirs exhibit perhaps the highest natural decline rates for many major source of oil and the industries modern history.

We see North American shale drilling slowing dramatically and quickly seen the rate of new shale wells coming online will decline and 4 million barrels of oil per day from U.S. shales within begin to decline will decline steeply.

We believe this could lead to modest oil price recoveries early is late 2015, however we expect shale production to continue to grow to the first half of 2015 before begins to fall as remaining inventory of Wellbore is completed in brought online, which means recovery once it arise maybe a slower drive higher despite the steep decline curve behavior shale oil.

So in summary of significant oil demand component to be in balance driven by macroeconomic conditions, lower oil cost contributing to eventual economic recovery, a major source of supply from extraordinarily high decline curve reservoirs and a sharp drilling reduction response from the oil industry a pretty good set of ingredients with which to bake an oil price recovery scenario.

Nevertheless, we acknowledge many factors to keep oil prices down for longer deteriorating global economic conditions continued strengthening of U.S. dollar for the returned market of oil concerned sideline countries are a few that come to mind.

However, given the speed at which we see drilling activities slowing, it is very difficult to for us to imagine that we were not see a significant oil supply response relatively soon.

We don’t believe the world can sustainably grow its oil supply with prices below $80 – $75 of barrel and with prices below $60 oil production will begin to contract, since oil supply growth will eventually the required some point of few substance reason oil prices most eventually cycle backed up about $75 over the long run.

Given our short-term lack of visibility into the timing of the recovery, our approach to 2015 will be to focus on what we can control.

We plan to manage NOV to the market quarter-to-quarter and few of near term orders and activity while we steadily reduced cost as utilization levels permit, while also continuing to advance the long-term strategic goals we outline that our Investor Day.

We will manage to the realities of the markets we serve, but we plan to emerge from the cyclical downturn a better company achieving new higher levels of operational excellence.

The record fourth quarter results that we just announced reflect very little of the impending downturn, in fact many of our operations spent the fourth quarter, working three shifts, 24x7 to meet our delivery obligations.

Through 2014, we shipped record levels of top drives, [indiscernible] fiberglass pipe, jacking systems and numerous other products. In January, we did begin to see the drop in activity affecting our operations in a more widespread way, most acutely in Wellbore Technologies, but really all segment seeing some impact.

In view the challenges ahead, we are beginning to bring working from our suppliers to keep our own facilities better loaded. So for instance right now, 52% of our machining requirements within Rig Systems in aftermarket are outsourced as work declines we will be repositioning some of that work into our own facilities.

We’re examining opportunities to consolidate facilities were possible and we are working with our suppliers to improve efficiencies and cost as our customers process for cost savings for their supply chains. I have tremendous confidence in the NOV team’s ability to manage through the downturn and reduced costs.

Although, we had new leadership and new positions throughout our new organization, I’ll stress that these measures are not new to NOV nor are they new to the industry or to cyclical downturns. I might count this will be the sixth cyclical downturn we have faced through our carriers.

Unfortunately despite our cost reduction measures, we will nevertheless expect to see steep decrementals through 2015 as pricing pressure and low absorption on lower volumes will pressure margins. Orders for all our products had slowed sharply.

Offshore land drilling completion and production, customers are delaying purchases of both capital and consumables wherever possible seeking to conserve cash in the phase of market uncertainty. We soon expect to see our customers behind to cannibalize existing equipment for capital components.

For instance, full of top drives often idle rig within their fleet rather than placed a new order for a new one with NOV. In order to keep another contracted rig in need for the top drive working.

Our customers will rate the spares inventory from their idle rigs to support those that are contracted and contributing and continuing to work rather than place (indiscernible) with us. They will redirect drill pipe, bids, jars, shakers and other kit rather than placed new orders with us.

History teaches us to expect this behavior to continue for at least the next couple of quarters meaning orders will continue to be slow and our book-to-bill and Rig Systems well below one. However, this behavior is not sustainable over the long-term. Drilling consumes rigs much like driving consumes your automobile.

The rate of consumption of capital equipment and consumables is declining with drilling activity with customer spending always seems to overreact through cyclical downturns by living off their inventory and postponing maintenance and upgrades wherever they can. That only worked for so long.

Maintenance and upgrades can be deferred, but cannot be postponed indefinitely for drilling rigs, so demand will return. In the past, this behavior has fuel demand surges for the kit NOV provides. Our markets changed quickly in both directions.

Also we see drilling contractors continuing to upgrade their rigs to meet contractual requirements or simply differentiate the rigs and rise to offer the most efficient drilling rigs.

There remains interest if only academic for the time being and what the next big thing is for drilling, configurable drill force, closed-loop automated drilling systems, automated pipe tailing and stand transfer of vehicles for land rigs, retrievable subsea BOP pods, low cost midwater floater designs concepts which NOV continues to advance in accordance with our 10 year goals.

Offshore, we are seeing customers defer some of their SPS survey work, although our total volume of SPS was continues to rise. As we’ve described in the past, offshore rigs are required to undergo shipyard surveys and obtain OEM certificates of compliance and activity called a special periodic survey or SPS.

To maintain their class designations and be qualified to drill in those markets. In an $80 oil world, contractors will proceed with the SPS on an uncontracted rig to ensure it is qualified for any potential contract which may rise which would require a pressing spud date.

In a $50 oil world, contractors are incrementally less willing to invest in the SPS for an uncontracted rig.

If you are more willing to forego the possibility of missing a quick spud date contract, as an aside on note that when the recovery comes to the offshore drilling market shipyard capacity to execute SPS has may become a very scarce resource, and the $50 oil-well contractors become much more circumspect about all investments in older rigs.

We expect to see even more rig retirements, both land and offshore both announced and unannounced in addition to those that we’ve seen already. This phenomenon has been witnessed in every category of drilling rigs passing through periodic cyclical downturns and incrementally contributes to better supply demand balance for the fleets.

Rig Systems post the new orders of $470 million, or a book-to-bill just 21% reflecting to customer mindset I just discussed. This resulted in a Rig Systems backlog the $12.5 billion to start 2015. This is high backlog for NOV by historical standards 16% higher than we carried into the 2009 downturn coincidence.

We expected to partly but not fully litigate the effect of lower orders to 2015 on day-to-day operations in Rig Systems. We perceive revenue had a backlog remaining strong through the first quarter 2015 north of $2 billion, but beginning to decline modestly in the second quarter more steeply in the third and fourth quarters of 2015.

Our 2015 orders will be slow we do continue to see modest demand for certain markets, but 20,000 psi deepwater, Middle-Eastern land markets, Mexico and Argentina.

Order for Completion & Production Solutions did better for the fourth quarter posting a book-to-bill of 60% on $469 million in orders, which resulted in a backlog of $1.8 billion to start 2015. On the production side we continue to advance discussions around some large FPSO projects in spite of the low oil prices.

In fact, the downturn in the troubled offshore project execution performance by the majors in NOCs has opened the door to new ideas amongst our large E&P customers.

This growing interests around doing this differently in deepwater developments to drive lower cost, reflecting lots of invitations from majors to discuss our modular approach to vessels construction to bring modern supply chain management techniques to bear to produce better results.

Necessity is the mother of invention in this market is wide open to new approaches. Our new approach is to offer tightly integrated package of NOV kit, to minimize the interface conflicts brought about by the fragmented supply chain approach currently used to build these vessels.

We see to recycle designs in avoid reinventing the wheel for each new vessel, which inevitably leads to unplanned manufacturing cost and delays. NOV as a tremendous track record of success and brining this modular package approach to the construction of offshore drilling rigs through the last decade.

Our extensive experience in working closely with shipyards to execute, install and commission these complex construction projects, uniquely positions NOV to help the industry pioneer our better way.

Although the large integrated package FPSO order for NOV is still a way to way, we’ve made great progress in securing customer buy into our new approach on two specific FPSO projects, which we ultimately expected turn into firm orders, perhaps, as early as late 2015.

For both Rig Systems in Completion & Production Solution segments, we are glad to be able to carry strong backlogs into this downturn. Except for minor exceptions the firm contracts governing our backlog projects do not permit cancellation for convenience.

In 2009, we saw about 4% of our backlog if operate not really from cancellations, but rather from customer payment defaults. We expect the vast majority of our current backlog to be executed in accordance with the agreed terms, like we experienced six years ago.

In certain instances, we are considering customer request for delivery delays which can help us better manage cost in our currently stretch supply chain. We generally we expect to continue to all time execution of our backlog to continue. Our 2009, stress test provides good empirical evidence this outlook.

Our 22 Brazil Atlas Project floating rigs constitute about $3.5 billion of our backlog. We are head on progress payments on each of these projects, meaning we are collective more and we had invested in the inventory delivered on these as plan as we continue to fabricate components.

We will begin installations and commissioning operation soon in our commencing rise our manufacturing in Brazil currently.

Generally progress has been steady but a little slower than originally plan which is not surprised, while we have had some payment delays with some of our Brazilian shipyard customers will building out there new shipyard facilities we are confident and a successful completion of these rigs, due to the financing package provided to Sete the shipyards customers.

By the Brazilian development bank and consortium of banks, a few weeks ago to fund the next 18 months of construction. Additionally the shipyards of agent partners, who are in some instances providing additional capital to complete the construction of their facilities.

The country of Brazil is all in on this and the rigs will be completed successfully. Like I said earlier, NOV will emerge from this downturn a stronger and better company. We are continuing to advance new technologies like closed loop automated drilling, which is significantly improved drilling performance through several pilot programs.

Other innovations like our WaterWolf oil recovery system for produced waters, thermal cutting absorption technologies, tundra max mud coolers, automated pipe handling equipment for land rigs and retrievable parts for subsea BOPs will continue to make the oilfield safer and more productive. We have a strong balance sheet to help weather this downturn.

We are seeking to invest opportunistically through this downturn. We continue to pursue our singles and doubles acquisition strategy, which improves our capabilities and global reach in our technology portfolio. We have seven letters of intent in place and probably triple that in potential prospects.

We also began investing in a share repurchase program during the fourth quarter. Today, we have repurchased over 11.6 million shares of NOV for $779 million, which is a 2.7% reduction in our share count. Thus far, we’ve been able to accomplish this using cash on our balance sheet, which we’ve been able to repatriate from overseas locations.

A $2.2 billion remaining on our current authorization, we plan to continue to repurchase NOV shares through the downturn including if necessary using modest levels of debt from time-to-time to bridge to the next opportunity to repatriate cash from overseas.

Importantly, we acknowledged at our recent Investor Day that this is a cyclical business and once or twice every decade, oil has a commodity tests it’s microeconomic variable cash cost floor of the marginal barrel.

Incenting our long-term strategy, we intentionally look through the cyclical downturn for entrepreneurially focused on actionable opportunities that we see ahead.

My sixth cyclical downturn has not dissuaded me from the basic pieces we outlined in November in line with ExxonMobil’s outlook 2014 study that the world’s population will grow from $7 billion to $9 billion by the year 2040, economic growth will continue, standards of living will rise, oil and gas production will grow from a combination of shales and deepwater to fueled the world’s appetite for energy and a better life.

Specifically, the Exxon stake holds for 25% growth in oil and 65% growth in gas through the next 25 years.

In the near-term, the E&P industry will sharpen its focus on improving economic efficiency and marginal cost for production of oil from all sources of oil has always done and as the leading provider of innovation and technology and industrial capability to this critical entrepreneurial industry, National Oilwell Varco will play a key role and making that happen and emerged better position for the inevitable upturn.

With that, let me turn it over to Jeremy to take you through our fourth quarter and outlook.

Jeremy?.

Thanks, Clay. Since Clay already covered the consolidated results, I’ll just dive straight into our segment operating performance for the fourth quarter and the fiscal year ended December 31, 2014. And then attempt to provide little color on the outlook for 2015.

The Rig Systems segment generated quarterly revenues of $2.6 billion in the fourth quarter, down 4% from a record third quarter as revenue added backlog on offshore projects was not quite a strong sequentially.

Compared to the fourth quarter of 2013, Rig Systems revenues were up 7%, due to heightened demand for high-spec land rigs and equipment and our recent capacity additions, which have enabled us to convert more revenue out of backlog over the prior year.

Operating profit for the segment was $511 million and operating margins were 20%, which were flat with the previous quarter despite the 4% sequential decline in revenue and up 90 basis points from the prior year. Fourth quarter EBITDA for the segment was $534 million or 20.9% of sales.

For the full year of 2014, Rig Systems posted record revenues of $9.8 billion, up 16.5% over 2013 and produced operating profit of almost $2 billion or 20.3% of sales, which resulted in year-over-year flow through or leverage of 27%.

Now let’s transition to the capital equipment orders for our Rig Systems segment for the fourth quarter of 2014 and our resulting backlog. In the quarter, we recognized $2.3 billion of revenue out of backlog and captured $470 million in new orders resulting in a quarter-ending backlog of $12.5 billion.

In the quarter, we secured three each drilling equipment packages for jack-ups, five each land rigs and it’s mattering of offshore line components. Of the total $12.5 billion in quarter ending backlog, approximately 91% is offshore and 91% adjusting for international markets.

The rig asset market segment posted record revenues of $850 million in the fourth quarter 2014, up 2% sequentially and a 12% over the fourth quarter of 2013, as a large in growing installed base of equipment, combined with the investments that we have made in additional personnel, training, global infrastructure and inventory have resulted in solid growth.

Operating profit for the segment was $245 million or 28.8% of revenue, that’s up 140 basis points sequentially and a 300 basis points from the year or more favorable mix, with the higher percentage of high margin service board and then unseasonably lower percentage of lower margin retail work.

For the quarter EBITDA for the segment was $252 million, or 29.6% of revenue. For the full year 2014, Rig Aftermarket posted the record revenues of $3.2 billion, or 19.7% over 2013 and produced operating profit of $882 million, or 27.4% of sales, which represented 29% leverage on the incremental revenue.

The Wellbore Technologies segment posted record revenues of $1.5 billion, up 4% sequentially and at 11.5% compared to the fourth quarter of 2013.

In the quarter several businesses including our drilling invention formally down hole, our Grant Prideco drill pipe, our IntelliServ wired pipe and our well site services businesses delivered record or near record results for customer revenue, which explains both the sequential and year-over-year increases.

Operating profit for the segment was $276 million or 18.1% of sales down 80 basis points sequentially, but up 20 basis points over the prior year. Despite sequential decline in margin was expected, as the holidays invariably lead to under absorption and our manufacturing and service facilities.

For the quarter, EBITDA for the segment was $387 million, or 25.3% of sales. For the full year 2014, Wellbore Technologies posted record revenues of $5.7 billion, up 12% over 2013, a produced operating profit of $1 billion or 18.3% of sales, which represented 31% leverage on the incremental revenues.

The Completion & Production Solution segment generated revenues of $1.3 billion, up 11% sequentially in up 15% from the fourth quarter of 2013. On a sequential basis, the revenue growth was driven by strong deliveries of intervention and stimulation equipment, which were up 24% and floating production equipment which is up 29%.

As lower solid sales in fiberglass systems and subsea production equipment, on a year-over-year basis most businesses within the segment delivered low to mid-teens percentage growth with the exception of our intervention and stimulation equipment business, which posted a 40% gain over the fourth quarter of 2015.

Operating profit for the segment was $215 million or 16.2% of revenues, which was up 80 basis points from the third quarter of 2014, and 30 basis points from the third quarter up to – up from the fourth quarter of 2013. Fourth quarter EBITDA for the segment was $273 million, or 20.6% of sales.

For the full year 2014, the Completion & Production Solution segment posted record revenues of $4.6 billion, up 7.8% over 2013 and produced operating profit of $700 million, or 15.1% of sales. Knowledge transition to the capital equipment orders for our Completion & Production Solution segment.

During the quarter, the segment secured $469 million in new orders, which more than offset by record shipments of $776 million out of backlog, resulting in a quarter-ending backlog of $1.8 billion, sequentially orders for production related equipment increase slightly.

However, this increase was more than offset by 45% reduction in orders for intervention and stimulation equipment into the North American land market. Overall is another solid quarter, the market end of a transformative and record breaking year for NOV.

So I would say – I would like to thank each and every member of NOV family for the commitment or focused and hard work in the fourth quarter and throughout 2014.

As we move into 2015, is clear with the sharp decline in oil prices will negatively impact our business, while we have some visibility into the first quarter of 2015, our forecast for the balance of the year, it seems to be changing by the day.

For the first quarter, we believe the Rig Systems revenues could decline in the high single-digit percentage range and that margins could road on lower margins.

Our higher percentage of Brazil related revenue and additional expenses associated with customer requested scheduling changes, with some customers requesting that we slightly delay projects in others actually asking at expedite deliveries.

And from an order perspective, we believe that pace and composition of orders could look somewhat similar to the pace and composition of orders that we received in the fourth quarter of 2014. However, continued market uncertainty could lead to indefinite delays on some of these expected orders, which could result even lower booking sequentially.

For Rig Aftermarket business as we move into the first quarter 2015, we believe that revenues could actually decline slightly for two reasons; number one, our customers clearly started feeling back in the fourth quarter as evidenced by the noticeable reduction in bookings for spare parts and [indiscernible] expendables and two, we are facing significant and raising pricing pressure from our customers, which could leave and probably will lead to some pricing concessions and negatively impact our top-line and our margins.

For Wellbore Technology segment, it’s important to remember that the segment is driven by drilling activity, more rigs drilling more wells and more footage produced more opportunity for the various businesses within Wellbore Technologies.

Unfortunately given the precipitous declines in oil prices and the active rig count, our customers are dramatically cutting spending while simultaneously demanding significant discounts.

As such for the first quarter, we believe that Wellbore Technologies segment revenues could decline in the mid-teens percentage range with decrementals in the 50% to 60% range.

And finally for our completion and production solution segment, we believe that first quarter 2015 revenues to decline by as much as 25% with decrementals in the mid 30% range as we expect short declines in our higher margin, invention and stimulation equipment business had orders for coiled tubing units and pressure pumping equipment and consumables have virtually disappeared.

Predicting the full year 2015 is impossible in this environment. Still I’ll make a few comments about each segment that are over helpful. At our Analyst Day in November, NOV was $75 of barrels. We included the chart that essentially forecasted a 10% year-over-year revenue decline in our Rig System segment.

And in the Q&A session, we specifically stated that despite this 10% decline in revenue, Rig Systems margins could hope barely steady at that 20% range. Unfortunately after watching oil prices plummet below $50 a barrel, our underlying assumption have changed.

In November, we expected about $7 billion to $7.5 billion of our third quarter ending backlog to flow out as revenue in 2015 and we expect the demand for land rigs and for discrete components for both land and offshore to remained strong in the fourth quarter of 2014 and well in the 2015, but is evidenced by the $470 million in fourth quarter 2015 bookings and the recent announcements from our land and offshore drilling customers, the previously expected book in turn revenue in 2015 is now clearly in question.

Additionally as you might expect, we’ve received request some customers to delay specific projects and shipments on select projects, which could ultimately push some revenue out of 2015 and into 2016 and since we may not received the higher margin book in turn orders that we expected and since we may have to juggle manufacturing delivery and installation and commissioning schedules, all of which could add cost.

We believe that margins would take down slightly on the additional revenue reduction.

For our rig aftermarket segment, we do not willing to know what to expect on the top-line, however, we know that rig counts are falling in the customers are uncertain about their future prospects and customers are uncertain about their future prospects, they often curtailed spending consume existing inventories, cannibalize underutilized assets and indefinitely postponed upgrades, so when you couple that customer behavior with pricing concessions, we do not expect to see the same mid-teens percentage year-over-year growth that we have come to enjoy in previous years and we believe that margins could grow slightly from 2014 levels.

Because it’s based on drilling activity and because we do not know how quickly or how far the rig count will ultimately fall, forecasting the full year for Wellbore Technology segment is equally challenging.

If one wanted to use the 2008 to 2009 timeframe is a proxy for 2014 to 2015, one could predict revenues to fall between 20% and 25% would seek 50% to 60% decremental margins. As a point of reference, Wellbore Technology segment revenues for the full year 2009 excluding non-recurring items were 9.8%.

Obviously a phase with the top-line decline similar to 2008 to 2009, we will make every effort to maximize profitability and improve upon the margins that we posted in 2009.

However, it’s important to remember that this segment is already facing substantial pricing pressure and carries a heavy D&A load including manufacturing and service facility infrastructure, sizable rental fleets, and intangibles associated with prior acquisitions that worked together a challenged profitability in the severe downturn.

And finally, our completion and production solutions segment is perhaps the most difficult to forecast due to the fact that supplies both long lead time capital equipment and short cycle consumables to support a very volatile completions market and sometimes frustratingly slow to materialize offshore production market.

As we move throughout 2015, we believe that demand for pressure pumping and coiled tubing units will most likely be very soft in the U.S. with pockets of opportunity internationally and we think the demand for floating and subsea production equipment will continue to be lumpy.

But since we are entering the year with a reasonably healthy backlog, we would expect revenues to slightly outperform the decline in the overall market and depending on the suddenness and magnitude of that top-line decline. We believe the decremental leverage for the segment could be between 40% and 50%.

So, 2015 could certainly prove to be challenging, but as Clay stated and as we clearly demonstrated in the past, we remained confident in the ability of this organization to adopt and not just survived, but thrive in a cyclical downturn.

So with that let’s turn to some of the remaining elements of National-Oilwell Varco’s consolidated fourth quarter 2014 income statement. Gross margin declined 20 basis points sequentially, but increased 60 basis points year-over-year to 27.1%. For the full year 2014, gross margin also improved 60 basis points to 27.1%.

SG&A decreased $7 million sequentially but increased $46 million year-over-year, as a percent of revenue. SG&A declined 40 basis points sequentially and increased 10 basis points year-over-year to 9.2%. For the full year 2014, SG&A increased $214 million or 11.7%, but as a percentage of sales SG&A actually declined slightly to 9.5%.

Other items which includes the impairment of some indefinite large trade names within our Wellbore Technologies segment as well as loss associated with the sale of a non-core industrial business that was acquired in the Robbins & Myers transaction were $163 million in the quarter.

For the year, other items were $214 million versus $53 million in 2013. Interest expense was flat sequentially at $26 million and interest income increased $1 million to $5 million. As compared to 2013, interest expense decreased $6 million and interest income increased $6 million.

Equity income in our Voest-Alpine JV increased $7 million sequentially to $16 million, as the plant was once again fully operational following its annual maintenance in the third quarter. Compared to the fourth quarter of 2013, equity income was flat and compared to the full year 2013 equity income declined $5 million to $58 million.

For the first quarter and full year 2015, we believe that equity income will fall as demand for drill pipe and therefore green tube will moderate. Other expense for the quarter was $20 million, which represents a $29.9 million delta sequentially but it is more consistent with historical trends.

For the full year, other expense was $32 million versus $30 million in 2013. The effective tax rate for the fourth quarter was 28.1% which was 70 basis points lower than the 28.8% rate that we posted in the third quarter of 2014 and 200 to 300 basis points lower than historical trends and our expectations.

Excluding discrete items in the quarter, the company’s effective tax rate would have been close to 30%, therefore as we move into 2015, we believe that 30% to 31% continues to be a realistic estimate of NOV’s effective tax rate.

If you now quickly turn to the first supplemental schedule, you’ll see that eliminations were $556 million for the quarter, down slightly from $569 million in the third quarter of 2014. Unallocated expenses and eliminations were $229 million for the quarter, down $6 million sequentially on a lower volume of intersegment revenues.

As compared to the full year 2013, eliminations increased 38.6% on higher volumes and unallocated expenses and eliminations increased 31.7%.

And finally, if you turn to the last supplemental schedule, you will see that the depreciation and amortization expense in the quarter was $199 million, up $1 million from the third quarter and $4 million from the previous year. For the full depreciation and amortization expense was $778 million, up 5.4% from 2013.

EBITDA for the fourth quarter excluding other items was $1.2 billion or 23.3% of sales, for the full year 2014, EBITDA was a record $4.6 billion, up 13.9% from 2013. Turning to the balance sheet, our December 31, 2014 balance sheet employed working capital excluding cash and debt of $5.4 billion, down a $125 million or 2.3% sequentially.

Looking more closely at working capital, accounts receivable decreased $66 million or 1.5% sequentially.

Despite the $122 million sequential increase in revenue, inventory declined $183 million, or 3.3% sequentially, as reductions in Rig Systems, Wellbore Technologies and Completion & Production Solutions were partially offset by inventory growth in Rig Aftermarket.

Also leading to a sequential reduction working capital, accounts payable and accrued liabilities increased a $138 million.

Unfortunately, due to the sequential decline in bookings for offshore new builds, cost incurred on major projects significantly outpaced milestone invoicing, which resulted in a $297 million sequential decline in customer financing.

For the quarter, the company generated $736 million in cash flow from operations, capital spending for the fourth quarter was $231 million, up almost 38% sequentially due to better than expected progress on several significant ongoing construction projects.

In the quarter, we also invested $110 million in three acquisitions, we made divided payments of $196 million and we spent $779 million repurchase shares.

As a result, we ended the fourth quarter of 2014 with a cash balance of $3.5 billion, down $555 million sequentially, but up $100 million from the prior year and we ended the year in a net cash position of $370 million. We were able to make the previously mentioned investments without assuming any incremental debt.

Of the $3.5 billion in cash, almost 16% of the balance was in the U.S. at December 31, 2014. As we move into 2015, we will continue to invest in our 10 year strategies. However, we will do so at a more measured phase than previously envisaged. As a result, we will expect to reduce year-over-year capital spending by 15%. Now, let me turn it back to Clay..

Thank you, Jeremy. With that, Loraine, I think we’re ready to open it up for questions..

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Jim Crandell of Cowen. Please go ahead..

Thank you. Good morning everyone..

Hi, Jim..

Hi, Jim..

Clay, you just touched on M&A and you described you and your efforts is mainly continuation of the singles and double strategy which NOV has done very well at over the past 15 years, but you’ve also done very well at the home run strategy and you have a great record of that the last 15 years in order to execute sort of the home run strategy, I think you degree you need to be coactive.

What was kind of place in the company’s strategy thus coactively looking for larger acquisitions have at the current time?.

Well, thanks for your time and comments, Jim, we absolutely are continuing to look for larger transactions. Those take much typically take much longer to cultivate and so we have had conversations with a few larger potential counterparties out there.

What we generally find is in a declining market, it’s hard to get the [indiscernible] and most of those transactions are better accomplished and you get more agreement between the counterparties is market serve and increasing.

So I think until we began start to see a little bit of recovery and a little bit stronger outlook, it’s going to be hard to get bids to come together.

But we – as you know we are always out there looking for opportunities to deploy capital into good return opportunities and recognized at those conversations are long-term investments and so we do have a couple going on now, but nothing – really nothing to report, we – I don’t think there is any sort of transaction out there is eminent..

Okay. And then my follow-up guide is could you paid on your major businesses in North America and talk about the magnitude of pricing weakness and such things like Tuboscope and Grant Prideco and mission and some of the other important domestic businesses..

Yeah, I’ll say that our customers are being very aggressive and seems to have the same form letter that they are sending to everyone within the people receive a letter and demanding very high discounts, double digit percentage discounts.

We are responding to those by sitting around the table with those customers by product line, nothing that across the board, by product line and discussing ways that we can work together to mutually drive cost out of the system. And so I think buying large every business is handling it individually by customer..

Yeah, trying to make lemonade out of lemons were also trying to turn those conversations more towards a volume based rebates, so that we get more volume out of the concessions that we are making things like ideas like that or what we are trying to push forward..

Okay, good job guys. Thank you..

Thank you, Jim..

Thank you, Jim..

Thank you. And our next question comes from Jud Bailey from Wells Fargo. Please go ahead..

Thanks, good morning..

Good morning..

Question on you just kind of think about your revenue out of backlog for this year and trending our margins that Rig Systems understanding your customers and giving you or bombarding with other requests like you said delaying or accelerating.

Did you give an exact number on what you think revenue out of backlog could be and then on top of that how quickly can you adjust your cost structure as you at the delayed projects help us think about and you bring your production in-house, how quickly can you preserve margin at Rig Systems?.

Yeah, Jeff, it’s on the – in the prepared remarks I talked about at the end of Q3 and as we got to our Analyst Day, we actually thought that is about $7 billion to $7.5 billion would flow out of our current backlog and that was the backlog at the end of Q3.

We then assume that we get the book in turn in Q4 and throughout 2015 that will take that number up. Given the pace of orders, we think it’s probably going to be close to that $7 billion range in terms of revenue flow, not a backlog this year, based on what we see today.

Now we could receive some orders here in the next few months that we can turn into revenue before the end of the year, but right now it’s looking pretty soft. So I think somewhere in that $7 billion range is probably reasonable.

And with regards to the margin, we’re probably a little beyond our optimal kind of efficiency in terms of margin production in the backlog meaning we have more work and we were relying on graveyard shifts and a lot of overtime and kind of third and fourth and five tier suppliers.

I think there is some benefit actually as volume start to back off just a little bit, in terms of reducing some overtime of reverting to our hot most productive shifts, reverting to our most productive sub suppliers and so that will help in the margin front, on the margin front, but I would – and I would add to that too our own suppliers we’re in discussions with about reducing the prices that they charge us.

We’re hesitant though to wrap margin improvement around that scenario because no doubt we’re going to continue to see price pressure and in case challenges that are coming out of the current slow market..

Okay.

And my follow-up is kind of a bigger picture question, when you think about the decline in oil today and people like to reference 2009, but as we stand today, deep water rig rates are coming down much more quickly in general that the backlog for the offshore drillers is much less than that timeframe and there is a probably legitimate discussion that offshore rig grades could go close to catch breakeven.

How do you think about Rig Systems and orders over the next two to three years if that happens, and how do you think shipyards will react to the price standpoint.

Last time they reduced price, which helped but will it really help if rig rates are at such a depressed level that doesn’t even – even bother to reduce price, because no one is going to work out anyway. .

Yeah, I don’t think lower cost or price of rigs delivered is going to catalyze much demand right now and as I said in the opening remarks, our plan is to manage to the market realities kind of quarter-by-quarter.

We have a great backlog which will burn off over the next several quarters as we find ourselves to say this time next year, without a resumption in orders in the offshore world, we expect two things to happen, one is our installation and commissioning efforts around the rigs that are being build will continue to strong through 2015 and will end at 2016.

As it starts to wind down a little down though, we have good opportunities to hit it and refocus, the technical capabilities of that group and infrastructure that supports that group towards SBS’s which we do see rising in spite of the market challenges, we see opportunities to pivot and refocus that group towards more onshore aftermarket support, I think there is a great potential out there for NOV to build on its franchise in the land side and provide better aftermarket support to those customers, likewise on manufacturing we expect to pivot and refocus in the aftermarket opportunity around that.

And then secondly that will help a lot, but secondly we’re going to be sizing to what the market dictates.

As I also mentioned in my opening comments, we’re outsourcing more than half of our machining work and rig for instance, and so we have a lot of sort of flexible or flexible supply chain that supports our efforts that we can diminish and then thirdly, we’ve got two other big segments that has different cyclical behaviors and so recovery and rig counts in 2016, we do a lot very rapidly with demand by Wellbore Technologies for machining capabilities, for assembly likewise Completion & Production solutions is on a little different cyclical trajectory.

So we have – by having three different segments throughout different cyclical behaviors it gives us an opportunity to refocus resources into places that may need them..

Alright, great, I’ll turn it back in appreciate the commentary..

Yeah, thanks Jeff..

Thank you. And our next question comes from Marshall Adkins from Raymond James. Please go ahead..

Hi guys, thank you for all detail, subsector is very helpful. Clay, I want to ask you a bigger picture question, you touched a little bit on it, so far. Typically in downturn you guys went -- in that your strong cash flows and you pursue this M&A strategy.

Now it looks like you have the start buybacks going on as well as possibly which you didn’t have before. What make through, how you prioritize and you mentioned M&A is going to become a slow to develop given the bit spread, but how you think about in terms of timing on spinning the excess cash over the next couple of years..

Well, I think Marshall we came in to this downturn with $4.1 billion of cash on our balance sheet at the beginning of Q4, a lot of credit capacity and expectation that as business loads, we will have cash come out of working capital and half of our balance sheet plus $14.3 billion backlog translates to a pretty significant margin embedded in that backlog, which will turn to cash over the next year or too.

So we kind of enter this downturn with a lot of resources and I think what that means is we have the capability to really do all the above and so we have very intentionally stepped up our focus on M&A mostly around the smaller company opportunities because frankly there are more doable in this kind of market downturn.

I think it’s challenging for public company to enter into an agreement so and so if it’s not distressed when the stock prices way below at 52 week high and so makes it difficult to do a larger transaction in this kind of environment.

It’s not the sale like I mentioned earlier to Jim, it’s not to say that we’re not continuing conversations and serving landscape out there.

But in terms of how we prioritize, I think we can do all the above and do so in a way that it doesn’t sacrifice future flexibility and do so in a way that keeps some cover drive for those opportunities as they rise, so that’s kind of the through process that we’re going through.

Specifically with regard to the share buyback, I mean this is the company we know best, we can buying shares with no purchase premium and we can size those transactions to whatever size we feel comfortable with which is why at our Analyst Day we sort of linked the application of capital through in the share buyback program to the repatriation of cash from overseas..

Okay, just one quick unrelated follow-up, we’re going to see a lot of rig retirements both on land and offshore stacking whether we want to call it.

I presume that hurts your aftermarket business, but help me to understand kind of how that close through for all as you retire rigs, I presume that’s a lot less aftermarket stuff, but I’m not sure about that..

No, that’s exactly correct.

The older rigs are less – far less aftermarket intensive in the net rigs and so that the newer rigs that are coming out of the shipyard now that have come out of the shipyard in the last few years have much higher levels of electronic controls, many, many, many more miles of wiring and cabling and more precision machines components that help them work more efficiently and what we know is it that kind of equipment – that style of equipment is going to be much more aftermarket intensive than the old rigs are being laid down, so the old rigs, yeah, we’ve got some level of participation really in all rigs.

So the old rigs, there is a little bit aftermarket to goes away, but it’s a good trade for us and all things considered with much, much prefer a new rig in terms of its aftermarket potential..

Perfect, thanks guys..

Thank you, Marshal..

Thank you..

Thank you. And our next question comes from Jeff Tillery from Tudor Pickering Holt. Please go ahead..

Hi, good morning..

Hi, Jeff..

For the rig aftermarket business, could you just provide some qualitative color around the mix at in terms of onshore versus offshore and then the deepwater component, I mean, I think about that the level of business for you guys just tracking kind of working deepwater rig count and trying to think of different ways to forecast the business over the next year..

Sure, Jeff, obviously [indiscernible] little bit depending on the quarter, but buy in large is about an 80-20 split offshore land..

Yeah and which gives us the belief that there is more to do in the land and think longer term there is opportunities to kind of grow that business to focus on the land fleet.

The other kind of interesting observation about our aftermarket business is that as our customers are become a lot more focused on their expenditures they are probably going to be more open to repairing old drilling equipment rather than replacing with new drilling equipment.

So we think there will be life of instances where rather than selling for instance a new set of draw-works out of Rig Systems that will actually have our rig aftermarket business now fixing an older set of draw-works and getting them back up and running. And so that may actually help the aftermarket business a little later in the year..

Thank you. And then for the Wellbore Technology segment, if I think about the composition of the business today versus 2009, walk us through kind of the puts and takes that would make either the ’09 comparison valid or something that drive either better or worse decremental performance relative to the ’09 cycle..

Yeah, I think obviously all of the businesses are larger now, but in terms of kind of the percentage of total revenue they are probably fairly similar to the way they were in ‘09.

I think the comparison is probably fair, it won’t be exactly that, that will be – it will be reasonably close I would think, it could be at the market maturity as quickly as it did and as steeply as it did from ‘08 to ‘09 and ‘14 to ‘15..

Yes, generally there are all very high operating leverage businesses and so it will see – we’ll feel that as they come back down. Not sure pricing ever got up to the levels we had in ‘08.

And of course some of the other oil field service companies referencing that which their point too is limiting, essentially limiting the decrementals, I am probably hesitant to forecast that previous downturns, points of pretty high decrementals in Wellbore Technologies businesses, and we are probably likely to see the same thing in 2015..

Just one thing that could be encouraging Jeff is if you think back to ‘08 or ’09, you’ve had a number of years of steady increases.

Here we went through kind of a destocking late ‘12 and throughout ‘13, I am not sure that we actually – that our customers actually built inventory levels in ‘14 to a degree they did in 2008, so that would suggest hopefully that as the market starts to rebound that demand comes back to us more quickly than it did, just because I don’t think we have the same inventory overhang as we did back in ‘08..

And our 2012 as well..

It’s very helpful color. Did pricing rode more than 10% in ’09, I’m trying to think on balance, I still remember 5% to 10% that’s stuck in my head for pricing reductions..

I actually believe those are probably north of 10% for lot of business….

Okay, thank you..

Yeah, thank you..

Thank you. And our last question will come from Robin Shoemaker from KeyBanc Capital Markets. Please go ahead..

Yeah, thanks a lot.

I was wondering if you could update us on the portion of the $12.5 billion of Rig Systems backlog that relates to Brazil and how has this ongoing internal investigation in Petrobras that’s clearly slowed down drilling, how has it affected the pace of rig construction or shipyard construction, the things that you referred to?.

Yeah, thanks Robin.

Actually, thankfully for us, it really hasn’t created a big impact on our programs, if you remember back a few years ago, when Petrobras settled this up, they set up a separate financing arm called SESA in Brazil, that is actually the customer and it went out in secured it’s equity partner investors and secured it’s bank financings and kind of and so it sort of moving along separately without virtually – there is virtually no capital support from Petrobras into those projects to construct the rigs.

Where the support comes is in the contracts to operate those rigs once they are delivered and that’s still a couple years out, but based upon SESA placing orders to construct these rigs with their partners, shipyards jumped in the foray and concluding a couple of new shipyards that were constructed for this program and so those have been proceeding long relatively smoothly, that’s not to say without some delays and some issues and some challenges that we fully expected but by and large those projects are moving ahead, we expect the first rig to be delivered I think you Q3 or Q4 this year and the first of 22 rigs that were signed up to deliver and the specific challenges that group of projects in shipyards that faced have been more around cost over runs on the constructions of the shipyards -- that led to a few payment delays for us, working through that and the good news here within the past few weeks, a couple of financing packages have been made available to SESA, I mentioned in my opening comments the development Bank of Brazil, I think the Central Bank is involved, Banco do Brasil and then some of the Asian partners to some of the shipyards are also financing the completion of the construction of those yards.

So net-net we’re in pretty decent shape, I think important for NOV shareholders is that we are ahead, we received more payments than we had delivered equipment into these projects, and so very important to us that we maintain that position from a risk management. So we are in pretty good shape on this Robin..

Okay, and on the pricing discussions that you are having with customers and where they are coming to you, just wanted to clarify that that – does any of that pertain to existing backlog and rig systems or Completion & Production Solutions is or is it entirely on new orders..

Entirely on new orders and really mostly around kind of the short cycle consumable type item….

Sure. Okay..

Alright..

Yeah, to the extent that we’re entertaining any changes in the backlog at all it’s usually around just delivery dates like I said we push things just a little bit we can actually save money..

Right and a reference to my early question, did you want to give a portion of your Rig Systems backlog that pertains to Brazil or…?.

Yes, $3.5 billion..

Okay, great..

Out of the $12.5 billion is still Atlas projects 22 floating rates..

Thank you..

Thank you. I will now turn the call over to Mr. A - Clay Williams for closing remarks..

Thank you, Loraine and thanks to all of you for joining us and we look forward to meeting with you in April as we update you on the first quarter..

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