##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 
 (Mark one)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 Commission File Number 1-12317
 NATIONAL OILWELL VARCO, INC.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    76-0475815(State or other jurisdiction
    
    (I.R.S. Employerof incorporation or organization)
    
    Identification No.)
 7909 Parkwood Circle Drive
Houston, Texas
77036-6565
 (Address of principal executive offices)
 (713) 346-7500
 (Registrants telephone number, including area code)
 þ o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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TABLE OF CONTENTS  PART I    FINANCIAL INFORMATIONItem 1. Financial StatementsItem 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPART II    OTHER INFORMATIONItem 4. Submission of Matters to a Vote of Security HoldersItem 6. ExhibitsSIGNATUREINDEX TO EXHIBITSCertification Pursuant to Rule 13a-14(a)Certification Pursuant to Rule 13a-14(a)Certification Pursuant to Section 906Certification Pursuant to Section 906    Table of Contents  
 PART I    FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 NATIONAL OILWELL VARCO, INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
 June 30,
    
    
    December 31,2008
    
    
    2007(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    1,652.4
    
    
    $
    1,841.8Receivables, net
    
    
    3,015.0
    
    
    
    2,099.8Inventories, net
    
    
    3,484.1
    
    
    
    2,574.7Costs in excess of billings
    
    
    605.0
    
    
    
    643.5Deferred income taxes
    
    
    207.7
    
    
    
    131.5Prepaid and other current assets
    
    
    438.0
    
    
    
    302.5Total current assets
    
    
    9,402.2
    
    
    
    7,593.8Property, plant and equipment, net
    
    
    1,750.9
    
    
    
    1,197.3Deferred income taxes
    
    
    69.0
    
    
    
    55.6Goodwill
    
    
    5,081.3
    
    
    
    2,445.1Intangibles, net
    
    
    4,693.3
    
    
    
    774.1Investment in unconsolidated affiliate
    
    
    205.3
    
    
    
    Other assets
    
    
    69.5
    
    
    
    49.0Total assets
    
    $
    21,271.5
    
    
    $
    12,114.9LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    772.5
    
    
    $
    604.0Accrued liabilities
    
    
    2,155.1
    
    
    
    1,761.4Billings in excess of costs
    
    
    1,951.6
    
    
    
    1,396.1Current portion of long-term debt and short-term borrowings
    
    
    320.8
    
    
    
    152.8Accrued income taxes
    
    
    552.3
    
    
    
    112.4Total current liabilities
    
    
    5,752.3
    
    
    
    4,026.7Long-term debt
    
    
    1,392.7
    
    
    
    737.9Deferred income taxes
    
    
    2,078.6
    
    
    
    564.3Other liabilities
    
    
    79.4
    
    
    
    61.8Total liabilities
    
    
    9,303.0
    
    
    
    5,390.7Commitments and contingenciesMinority interest
    
    
    92.7
    
    
    
    62.8Stockholders equity:Common stock  par value $.01; 417,082,516 and 356,867,498 shares
issued and outstanding at June 30, 2008 and December 31, 2007
    
    
    4.2
    
    
    
    3.6Additional paid-in capital
    
    
    7,954.2
    
    
    
    3,617.2Accumulated other comprehensive income
    
    
    254.0
    
    
    
    195.0Retained earnings
    
    
    3,663.4
    
    
    
    2,845.6Total stockholders equity
    
    
    11,875.8
    
    
    
    6,661.4Total liabilities and stockholders equity
    
    $
    21,271.5
    
    
    $
    12,114.9
  2




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##### Table of Contents



NATIONAL OILWELL VARCO, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In millions, except per share data)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenue
    
    $
    3,324.2
    
    
    $
    2,384.9
    
    
    $
    6,009.6
    
    
    $
    4,550.6Cost of revenue
    
    
    2,342.7
    
    
    
    1,701.1
    
    
    
    4,231.5
    
    
    
    3,251.8Gross profit
    
    
    981.5
    
    
    
    683.8
    
    
    
    1,778.1
    
    
    
    1,298.8Selling, general, and administrative
    
    
    273.4
    
    
    
    186.6
    
    
    
    501.5
    
    
    
    374.5Transaction costs
    
    
    16.4
    
    
    
    
    
    
    
    16.4
    
    
    
    Operating profit
    
    
    691.7
    
    
    
    497.2
    
    
    
    1,260.2
    
    
    
    924.3Interest and financial costs
    
    
    (24.2
    )
    
    
    (13.1
    )
    
    
    (34.2
    )
    
    
    (25.4
    )Interest income
    
    
    10.5
    
    
    
    10.0
    
    
    
    26.2
    
    
    
    19.1Equity income in unconsolidated affiliate
    
    
    17.1
    
    
    
    
    
    
    
    17.1
    
    
    
    Other income (expense), net
    
    
    (14.6
    )
    
    
    (0.8
    )
    
    
    (1.1
    )
    
    
    (3.7
    )Income before income taxes and minority
interest
    
    
    680.5
    
    
    
    493.3
    
    
    
    1,268.2
    
    
    
    914.3Provision for income taxes
    
    
    254.9
    
    
    
    172.0
    
    
    
    443.0
    
    
    
    312.7Income before minority interest
    
    
    425.6
    
    
    
    321.3
    
    
    
    825.2
    
    
    
    601.6Minority interest in income of
consolidated
subsidiaries
    
    
    3.9
    
    
    
    2.8
    
    
    
    5.9
    
    
    
    7.2Net income
    
    $
    421.7
    
    
    $
    318.5
    
    
    $
    819.3
    
    
    $
    594.4Net income per share:Basic
    
    $
    1.05
    
    
    $
    0.90
    
    
    $
    2.16
    
    
    $
    1.68Diluted
    
    $
    1.04
    
    
    $
    0.89
    
    
    $
    2.15
    
    
    $
    1.68Weighted average shares outstanding:Basic
    
    
    401.7
    
    
    
    354.4
    
    
    
    378.9
    
    
    
    353.1Diluted
    
    
    404.0
    
    
    
    356.3
    
    
    
    380.7
    
    
    
    354.3
  3




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##### Table of Contents



NATIONAL OILWELL VARCO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In millions)
 Six Months EndedJune 30,2008
    
    
    2007Cash flow from operating activities:Net income
    
    $
    819.3
    
    
    $
    594.4Adjustments to reconcile net income to net cash provided
(used) by operating activities:Depreciation and amortization
    
    
    167.9
    
    
    
    99.2Equity income in unconsolidated affiliate
    
    
    (17.1
    )
    
    
    Dividend from unconsolidated affiliate
    
    
    112.7
    
    
    
    Other
    
    
    13.3
    
    
    
    1.6Changes in assets and liabilities, net of acquisitions:Receivables
    
    
    (507.4
    )
    
    
    (264.0
    )Inventories
    
    
    (297.0
    )
    
    
    (410.3
    )Costs in excess of billings
    
    
    38.5
    
    
    
    (131.5
    )Prepaid and other current assets
    
    
    74.0
    
    
    
    (76.8
    )Accounts payable
    
    
    21.6
    
    
    
    78.1Billings in excess of costs
    
    
    555.6
    
    
    
    255.4Other assets/liabilities, net
    
    
    375.4
    
    
    
    169.0Net cash provided by operating activities
    
    
    1,356.8
    
    
    
    315.1Cash flow from investing activities:Purchases of property, plant and equipment
    
    
    (160.4
    )
    
    
    (121.6
    )Businesses acquisitions, net of cash acquired
    
    
    (2,944.5
    )
    
    
    (237.4
    )Business divestitures, net of cash disposed
    
    
    783.9
    
    
    
    Other
    
    
    (0.5
    )
    
    
    0.6Net cash used by investing activities
    
    
    (2,321.5
    )
    
    
    (358.4
    )Cash flow from financing activities:Borrowing against lines of credit and other debt
    
    
    2,576.7
    
    
    
    1.6Payments against lines of credit and other debt
    
    
    (1,928.4
    )
    
    
    (6.4
    )Proceeds from stock options exercised
    
    
    76.8
    
    
    
    75.3Excess tax benefit from exercise of stock options
    
    
    36.4
    
    
    
    16.4Net cash provided by financing activities
    
    
    761.5
    
    
    
    86.9Effect of exchange rates on cash
    
    
    13.8
    
    
    
    31.7Increase (decrease) in cash equivalents
    
    
    (189.4
    )
    
    
    75.3Cash and cash equivalents, beginning of period
    
    
    1,841.8
    
    
    
    957.4Cash and cash equivalents, end of period
    
    $
    1,652.4
    
    
    $
    1,032.7Supplemental disclosures of cash flow information:Cash payments during the period for:Interest
    
    $
    30.0
    
    
    $
    27.6Income taxes
    
    $
    376.1
    
    
    $
    353.0
  4




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NATIONAL OILWELL VARCO, INC.
Notes to Consolidated Financial Statements (Unaudited)
 1. Basis of Presentation
     Revenue Recognition
  Revenue Recognition under Long-term Construction Contracts
  
    
    the contracts include custom designs for customer specific applications;
    
    the structural design is unique and requires significant engineering efforts; and
    
    construction projects often have progress payments.
  5




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Drill Pipe Sales
  2. Grant Prideco Merger and Other Acquisitions
    Consideration given to acquire the outstanding common stock of Grant Prideco:Shares issued totaled approximately 56.9 million shares at $72.74 per share
    
    $
    4,135.3Cash paid at $23.20 per share
    
    
    2,932.3Grant Prideco stock options assumed
    
    
    55.4Merger related transaction costs
    
    
    74.5Total preliminary purchase price
    
    $
    7,197.5
    6




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##### Table of Contents



Preliminary Purchase Price Allocation
  Cash and cash equivalents
    
    $
    171.3Receivables
    
    
    405.7Assets held for sale, net
    
    
    783.9Inventories
    
    
    616.8Prepaid and other current assets
    
    
    209.6Property, plant and equipment
    
    
    443.5Goodwill
    
    
    2,886.1Intangibles
    
    
    3,980.3Investment in unconsolidated affiliate
    
    
    300.0Other assets
    
    
    42.6Accounts payable and accrued liabilities
    
    
    (313.7
    )Accrued income taxes
    
    
    (622.9
    )Long-term debt
    
    
    (176.4
    )Deferred income taxes
    
    
    (1485.0
    )Minority interest
    
    
    (24.8
    )Other liabilities
    
    
    (19.5
    )Total preliminary purchase price
    
    $
    7,197.5
   Disposition of Certain Grant Prideco Businesses
  Pro Forma Financial Information
  7




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##### Table of Contents



Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Total revenues
    
    $
    3,444.7
    
    
    $
    2,845.4
    
    
    $
    6,613.3
    
    
    $
    5,467.2Net income
    
    $
    446.0
    
    
    $
    382.7
    
    
    $
    897.6
    
    
    $
    729.4Basic net income per share
    
    $
    1.08
    
    
    $
    0.93
    
    
    $
    2.17
    
    
    $
    1.78Diluted net income per share
    
    $
    1.07
    
    
    $
    0.93
    
    
    $
    2.16
    
    
    $
    1.77
 3. Inventories, net
  June 30,
    
    
    December 31,2008
    
    
    2007Raw materials and supplies
    
    $
    674.1
    
    
    $
    420.4Work in process
    
    
    1,194.2
    
    
    
    939.2Finished goods and purchased products
    
    
    1,615.8
    
    
    
    1,215.1Total
    
    $
    3,484.1
    
    
    $
    2,574.7
 4. Accrued Liabilities
  June 30,
    
    
    December 31,2008
    
    
    2007Compensation
    
    $
    191.2
    
    
    $
    214.7Customer prepayments
    
    
    730.1
    
    
    
    500.3Warranty
    
    
    113.1
    
    
    
    91.5Interest
    
    
    17.1
    
    
    
    13.8Taxes (non income)
    
    
    62.2
    
    
    
    47.3Insurance
    
    
    49.7
    
    
    
    42.4Accrued purchase orders
    
    
    648.7
    
    
    
    582.5Fair value of derivatives
    
    
    70.6
    
    
    
    111.3Other
    
    
    272.4
    
    
    
    157.6Total
    
    $
    2,155.1
    
    
    $
    1,761.4
 8




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##### Table of Contents



5. Costs and Estimated Earnings on Uncompleted Contracts
  June 30,
    
    
    December 31,2008
    
    
    2007Costs incurred on uncompleted contracts
    
    $
    3,646.6
    
    
    $
    3,167.0Estimated earnings
    
    
    1,591.2
    
    
    
    1,208.35,237.8
    
    
    
    4,375.5Less: Billings to date
    
    
    6,584.4
    
    
    
    5,128.1$
    (1,346.6
    )
    
    $
    (752.6
    )Costs and estimated earnings in excess
of billings on uncompleted contracts
    
    $
    605.0
    
    
    $
    643.5Billings in excess of costs and
estimated earnings on uncompleted
contracts
    
    
    (1,951.6
    )
    
    
    (1,396.1
    )$
    (1,346.6
    )
    
    $
    (752.6
    )
 6. Comprehensive Income
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income
    
    $
    421.7
    
    
    $
    318.5
    
    
    $
    819.3
    
    
    $
    594.4Currency translation adjustments
    
    
    11.0
    
    
    
    66.7
    
    
    
    38.1
    
    
    
    89.8Derivative financial instruments
    
    
    0.3
    
    
    
    3.3
    
    
    
    21.2
    
    
    
    3.3Change in defined benefit plans
    
    
    
    
    
    
    
    
    
    
    (0.3
    )
    
    
    (9.0
    )Comprehensive income
    
    $
    433.0
    
    
    $
    388.5
    
    
    $
    878.3
    
    
    $
    678.5
 9




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7. Business Segments
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenue:Rig Technology
    
    $
    1,911.1
    
    
    $
    1,409.2
    
    
    $
    3,514.0
    
    
    $
    2,629.0Petroleum Services & Supplies
    
    
    1,123.8
    
    
    
    746.1
    
    
    
    1,953.6
    
    
    
    1,437.9Distribution Services
    
    
    425.6
    
    
    
    344.8
    
    
    
    791.3
    
    
    
    696.7Elimination
    
    
    (136.3
    )
    
    
    (115.2
    )
    
    
    (249.3
    )
    
    
    (213.0
    )Total Revenue
    
    $
    3,324.2
    
    
    $
    2,384.9
    
    
    $
    6,009.6
    
    
    $
    4,550.6Operating Profit:Rig Technology
    
    $
    506.4
    
    
    $
    340.8
    
    
    $
    912.4
    
    
    $
    609.6Petroleum Services & Supplies (a)
    
    
    221.1
    
    
    
    177.8
    
    
    
    416.3
    
    
    
    348.8Distribution Services
    
    
    24.8
    
    
    
    23.1
    
    
    
    43.6
    
    
    
    48.0Unallocated expenses and eliminations
    
    
    (44.2
    )
    
    
    (44.5
    )
    
    
    (95.7
    )
    
    
    (82.1
    )Transaction costs
    
    
    (16.4
    )
    
    
    
    
    
    
    (16.4
    )
    
    
    Total Operating Profit
    
    $
    691.7
    
    
    $
    497.2
    
    
    $
    1,260.2
    
    
    $
    924.3Operating Profit %:Rig Technology
    
    
    26.5
    %
    
    
    24.2
    %
    
    
    26.0
    %
    
    
    23.2
    %Petroleum Services & Supplies (a)
    
    
    19.7
    %
    
    
    23.8
    %
    
    
    21.3
    %
    
    
    24.3
    %Distribution Services
    
    
    5.8
    %
    
    
    6.7
    %
    
    
    5.5
    %
    
    
    6.9
    %Total Operating Profit %
    
    
    20.8
    %
    
    
    20.8
    %
    
    
    21.0
    %
    
    
    20.3
    %
 
 (a)
    
    Under purchase accounting, a fair value step up adjustment of $89.1
million was made to inventory and is being charged to Cost of
revenue as the applicable inventory is sold. Cost of revenue includes
$46.1 million of these inventory charges for the three and six month
periods ended June 30, 2008.  10




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8. Debt
  June 30,
    
    
    December 31,2008
    
    
    2007Revolving credit facilities
    
    $
    800.0
    
    
    $
    $100.0 million Senior Notes, interest at 7.5% payable semiannually,
principal
due on February 15, 2008
    
    
    
    
    
    
    100.2$150.0 million Senior Notes, interest at 6.5% payable semiannually,
principal
due on March 15, 2011
    
    
    150.0
    
    
    
    150.0$200.0 million Senior Notes, interest at 7.25% payable semiannually,
principal due on May 1, 2011
    
    
    210.0
    
    
    
    211.7$200.0 million Senior Notes, interest at 5.65% payable semiannually,
principal due on November 15, 2012
    
    
    200.0
    
    
    
    200.0$150.0 million Senior Notes, interest at 5.5% payable semiannually,
principal
due on November 19, 2012
    
    
    151.2
    
    
    
    151.3Senior Notes, interest at 6.125% payable semiannually, principal due
on August 15, 2015
    
    
    174.6
    
    
    
    Other
    
    
    27.7
    
    
    
    77.5Total debt
    
    
    1,713.5
    
    
    
    890.7Less current portion
    
    
    320.8
    
    
    
    152.8Long-term debt
    
    $
    1,392.7
    
    
    $
    737.9
 Senior Notes
  Revolving Credit Facilities
    Other
  11




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9. Tax
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Federal income tax at U.S. federal statutory rate
of 35.0%
    
    $
    238.2
    
    
    $
    172.7
    
    
    $
    443.9
    
    
    $
    320.0Foreign income tax rate differential
    
    
    (23.2
    )
    
    
    (17.3
    )
    
    
    (43.4
    )
    
    
    (28.9
    )State income tax, net of federal benefit
    
    
    10.7
    
    
    
    5.4
    
    
    
    16.7
    
    
    
    10.1Foreign dividends, net of foreign tax credits
    
    
    32.3
    
    
    
    6.1
    
    
    
    34.5
    
    
    
    7.9Other
    
    
    (3.1
    )
    
    
    5.1
    
    
    
    (8.7
    )
    
    
    3.6Provision for income taxes
    
    $
    254.9
    
    
    $
    172.0
    
    
    $
    443.0
    
    
    $
    312.7
    12




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10. Stock-Based Compensation
   11. Derivative Financial Instruments
    13




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##### Table of Contents



"
  12. Net Income Per Share
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Numerator:Net income
    
    $
    421.7
    
    
    $
    318.5
    
    
    $
    819.3
    
    
    $
    594.4Denominator:Basicweighted average common shares outstanding
    
    
    401.7
    
    
    
    354.4
    
    
    
    378.9
    
    
    
    353.1Dilutive effect of employee stock options and
other unvested stock awards
    
    
    2.3
    
    
    
    1.9
    
    
    
    1.8
    
    
    
    1.2Diluted outstanding shares
    
    
    404.0
    
    
    
    356.3
    
    
    
    380.7
    
    
    
    354.3Basic earnings per share
    
    $
    1.05
    
    
    $
    0.90
    
    
    $
    2.16
    
    
    $
    1.68Diluted earnings per share
    
    $
    1.04
    
    
    $
    0.89
    
    
    $
    2.15
    
    
    $
    1.68
 14




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13. Recently Issued Accounting Standards
       15




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. ,
 16




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Introduction
  Rig Technology
  Petroleum Services & Supplies
  Distribution Services
  Critical Accounting Estimates
  17




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##### Table of Contents



Revenue Recognition
  Revenue Recognition under Long-term Construction Contracts
  
    
    the contracts include custom designs for customer specific applications;
    
    the structural design is unique and requires significant engineering efforts; and
    
    construction projects often have progress payments.
   Drill Pipe Sales
  18




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Executive Summary
  Grant Prideco Acquisition
      19




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Oil & Gas Equipment and Services Market
         20




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Segment Performance
    21




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Outlook
     22




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##### Table of Contents



Operating Environment Overview
  %
    
    
    %2Q08 v
    
    
    2Q08 v2Q08*
    
    
    2Q07*
    
    
    1Q08*
    
    
    2Q07
    
    
    1Q08Active Drilling Rigs:U.S.
    
    
    1,864
    
    
    
    1,756
    
    
    
    1,771
    
    
    
    6.2
    %
    
    
    5.3
    %Canada
    
    
    169
    
    
    
    139
    
    
    
    507
    
    
    
    21.6
    %
    
    
    (66.7
    )%International
    
    
    1,084
    
    
    
    1,002
    
    
    
    1,046
    
    
    
    8.2
    %
    
    
    3.6
    %Worldwide
    
    
    3,117
    
    
    
    2,897
    
    
    
    3,324
    
    
    
    7.6
    %
    
    
    (6.2
    )%West Texas Intermediate
    
    $
    124.05
    
    
    $
    64.99
    
    
    $
    97.87
    
    
    
    90.9
    %
    
    
    26.7
    %Crude Prices (per barrel)Natural Gas Prices ($/mmbtu)
    
    $
    11.38
    
    
    $
    7.52
    
    
    $
    8.64
    
    
    
    51.3
    %
    
    
    31.7
    %
 
 *
    
    Averages for the quarters indicated. See sources below.  
   23




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24




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Results of Operations
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenue:Rig Technology
    
    $
    1,911.1
    
    
    $
    1,409.2
    
    
    $
    3,514.0
    
    
    $
    2,629.0Petroleum Services & Supplies
    
    
    1,123.8
    
    
    
    746.1
    
    
    
    1,953.6
    
    
    
    1,437.9Distribution Services
    
    
    425.6
    
    
    
    344.8
    
    
    
    791.3
    
    
    
    696.7Elimination
    
    
    (136.3
    )
    
    
    (115.2
    )
    
    
    (249.3
    )
    
    
    (213.0
    )Total Revenue
    
    $
    3,324.2
    
    
    $
    2,384.9
    
    
    $
    6,009.6
    
    
    $
    4,550.6Operating Profit:Rig Technology
    
    $
    506.4
    
    
    $
    340.8
    
    
    $
    912.4
    
    
    $
    609.6Petroleum Services & Supplies (a)
    
    
    221.1
    
    
    
    177.8
    
    
    
    416.3
    
    
    
    348.8Distribution Services
    
    
    24.8
    
    
    
    23.1
    
    
    
    43.6
    
    
    
    48.0Unallocated expenses and eliminations
    
    
    (44.2
    )
    
    
    (44.5
    )
    
    
    (95.7
    )
    
    
    (82.1
    )Transaction costs
    
    
    (16.4
    )
    
    
    
    
    
    
    (16.4
    )
    
    
    Total Operating Profit
    
    $
    691.7
    
    
    $
    497.2
    
    
    $
    1,260.2
    
    
    $
    924.3Operating Profit %:Rig Technology
    
    
    26.5
    %
    
    
    24.2
    %
    
    
    26.0
    %
    
    
    23.2
    %Petroleum Services & Supplies (a)
    
    
    19.7
    %
    
    
    23.8
    %
    
    
    21.3
    %
    
    
    24.3
    %Distribution Services
    
    
    5.8
    %
    
    
    6.7
    %
    
    
    5.5
    %
    
    
    6.9
    %Total Operating Profit %
    
    
    20.8
    %
    
    
    20.8
    %
    
    
    21.0
    %
    
    
    20.3
    %
 
 (a)
    
    Under purchase accounting, a fair value step up adjustment of $89.1
million was made to inventory and is being charged to Cost of
revenue as the applicable inventory is sold. Cost of revenue includes
$46.1 million of these inventory charges for the three and six month
periods ended June 30, 2008. Rig Technology
 Three Months Ended June 30, 2008 and 2007.
  Six Months Ended June 30, 2008 and 2007.
  25




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##### Table of Contents



Petroleum Services & Supplies
 Three Months Ended June 30, 2008 and 2007.
   Six Months Ended June 30, 2008 and 2007.
  Distribution Services
 Three Months Ended June 30, 2008 and 2007.
  Six Months Ended June 30, 2008 and 2007.
  26




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##### Table of Contents



Unallocated expenses and eliminations
  Transaction costs
  Interest and financial costs
  Other income (expense), net
  Provision for income taxes
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Federal income tax at U.S. federal statutory rate
of 35.0%
    
    $
    238.2
    
    
    $
    172.7
    
    
    $
    443.9
    
    
    $
    320.0Foreign income tax rate differential
    
    
    (23.2
    )
    
    
    (17.3
    )
    
    
    (43.4
    )
    
    
    (28.9
    )State income tax, net of federal benefit
    
    
    10.7
    
    
    
    5.4
    
    
    
    16.7
    
    
    
    10.1Foreign dividends, net of foreign tax credits
    
    
    32.3
    
    
    
    6.1
    
    
    
    34.5
    
    
    
    7.9Other
    
    
    (3.1
    )
    
    
    5.1
    
    
    
    (8.7
    )
    
    
    3.6Provision for income taxes
    
    $
    254.9
    
    
    $
    172.0
    
    
    $
    443.0
    
    
    $
    312.7
 27




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##### Table of Contents



Liquidity and Capital Resources
         28




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Recently Issued Accounting Standards
      29




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. ,
 Forward-Looking Statements
  30




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
  Foreign Currency Exchange Rates
      31




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##### Table of Contents



Hedge Classification
    
    Currency
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    TotalCash FlowDKK
    
    $
    37.5
    
    
    $
    10.0
    
    
    $
    
    
    
    $
    47.5EUR
    
    
    634.1
    
    
    
    106.9
    
    
    
    1.2
    
    
    
    742.2GBP
    
    
    48.0
    
    
    
    13.4
    
    
    
    
    
    
    
    61.4NOK
    
    
    925.9
    
    
    
    658.3
    
    
    
    179.7
    
    
    
    1,763.9SEK
    
    
    1.8
    
    
    
    2.8
    
    
    
    0.8
    
    
    
    5.4USD
    
    
    91.5
    
    
    
    56.6
    
    
    
    
    
    
    
    148.1$
    1,738.8
    
    
    $
    848.0
    
    
    $
    181.7
    
    
    $
    2,768.5Fair ValueEUR
    
    $
    5.8
    
    
    $
    2.8
    
    
    $
    
    
    
    $
    8.6KRW
    
    
    0.4
    
    
    
    0.2
    
    
    
    
    
    
    
    0.6USD
    
    
    87.9
    
    
    
    70.5
    
    
    
    3.4
    
    
    
    161.8$
    94.1
    
    
    $
    73.5
    
    
    $
    3.4
    
    
    $
    171.0Balance SheetCNY
    
    $
    10.0
    
    
    $
    
    
    
    $
    
    
    
    $
    10.0DKK
    
    
    8.4
    
    
    
    
    
    
    
    
    
    
    
    8.4EUR
    
    
    60.6
    
    
    
    4.1
    
    
    
    
    
    
    
    64.7GBP
    
    
    2.0
    
    
    
    
    
    
    
    
    
    
    
    2.0NOK
    
    
    159.9
    
    
    
    0.4
    
    
    
    0.5
    
    
    
    160.8SEK
    
    
    0.5
    
    
    
    0.4
    
    
    
    
    
    
    
    0.9USD
    
    
    447.6
    
    
    
    
    
    
    
    
    
    
    
    447.6$
    689.0
    
    
    $
    4.9
    
    
    $
    0.5
    
    
    $
    694.4Total
    
    
    
    
    
    $
    2,521.9
    
    
    $
    926.4
    
    
    $
    185.6
    
    
    $
    3,633.9
   Interest Rate Risk
  32




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Item 4. Controls and Procedures
    33




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PART II    OTHER INFORMATION
 
 Item 4. Submission of Matters to a Vote of Security Holders
    
 Item 6. Exhibits
  
 SIGNATURE
  Date: August 8, 2008

    By: /s/ Clay C. WilliamsClay C. WilliamsSenior Vice President and Chief Financial Officer
(Duly Authorized Officer, Principal Financial and Accounting Officer) 34




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##### Table of Contents



INDEX TO EXHIBITS
  2.1
    
    Amended and Restated Agreement and Plan of Merger, effective as of August 11, between
National-Oilwell, Inc. and Varco International, Inc. (4).2.2
    
    Agreement and Plan of Merger, effective as of December 16, 2007, between National Oilwell
Varco, Inc., NOV Sub, Inc., and Grant Prideco, Inc. (8)3.1
    
    Amended and Restated Certificate of Incorporation of National-Oilwell, Inc. (Exhibit 3.1) (1).3.2
    
    Amended and Restated By-laws of National Oilwell Varco, Inc. (Exhibit 3.1) (9).10.1
    
    Employment Agreement dated as of January 1, 2002 between Merrill A. Miller, Jr. and National
Oilwell. (Exhibit 10.1) (2).10.2
    
    Employment Agreement dated as of January 1, 2002 between Dwight W. Rettig and National
Oilwell, with similar agreement with Mark A. Reese. (Exhibit 10.2) (2).10.3
    
    Form of Amended and Restated Executive Agreement of Clay C. Williams. (Exhibit 10.12) (3).10.4
    
    National Oilwell Varco Long-Term Incentive Plan (5)*.10.5
    
    Form of Employee Stock Option Agreement (Exhibit 10.1) (6)10.6
    
    Form of Non-Employee Director Stock Option Agreement (Exhibit 10.2) (6).10.7
    
    Form of Performance-Based Restricted Stock (18 Month) Agreement (Exhibit 10.1) (7).10.8
    
    Form of Performance-Based Restricted Stock (36 Month) Agreement (Exhibit 10.2) (7).10.9
    
    Five-Year Credit Agreement, dated as of April 21, 2008, among National Oilwell Varco, Inc.,
the financial institutions signatory thereto, including Wells Fargo Bank, N.A., in their
capacities as Administrative Agent, Co-Lead Arranger and Joint Book Runner, DnB Nor Bank ASA,
as Co-Lead Arranger and Joint Book Runner, and Fortis Capital Corp., The Bank of Nova Scotia
and The Bank of Tokyo  Mitsubishi UFJ, Ltd., as Co-Documentation Agents. (10).10.10
    
    364-Day Credit Agreement, dated as of April 21, 2008, among National Oilwell Varco, Inc., the
financial institutions signatory thereto, including Wells Fargo Bank, N.A., in their
capacities as Administrative Agent, Co-Lead Arranger and Joint Book Runner, DnB Nor Bank ASA,
as Co-Lead Arranger and Joint Book Runner, and Fortis Capital Corp., The Bank of Nova Scotia
and The Bank of Tokyo  Mitsubishi UFJ, Ltd., as Co-Documentation Agents. (10).31.1
    
    Certification pursuant to Rule 13a-14a and Rule 15d-14(a) of the Securities and Exchange Act,
as amended31.2
    
    Certification pursuant to Rule 13a-14a and Rule 15d-14(a) of the Securities and Exchange Act,
as amended32.1
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Compensatory plan or arrangement for management or others(1)
    
    Filed as an Exhibit to our Quarterly Report on Form 10-Q filed on August 11, 2000.(2)
    
    Filed as an Exhibit to our Annual Report on Form 10-K filed on March 28, 2002.(3)
    
    Filed as an Exhibit to Varco International, Inc.s Quarterly Report on Form 10-Q filed on May
6, 2004.(4)
    
    Filed as Annex A to our Registration Statement on Form S-4 filed on September 16, 2004.(5)
    
    Filed as Annex D to our Amendment No. 1 to Registration Statement on Form S-4 filed on January
31, 2005.(6)
    
    Filed as an Exhibit to our Current Report on Form 8-K filed on February 23, 2006.(7)
    
    Filed as an Exhibit to our Current Report on Form 8-K filed on March 27, 2007.(8)
    
    Filed as Annex A to our Registration Statement on Form S-4 filed on January 28, 2008.(9)
    
    Filed as an Exhibit to our Current Report on Form 8-K filed on February 21, 2008.(10)
    
    Filed as an Exhibit to our Current Report on Form 8-K filed on April 22, 2008.  35