##### 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 MARCH 31, 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 
of incorporation or organization)
    
    (I.R.S. Employer
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 6. ExhibitsSIGNATUREINDEX TO EXHIBITSCertification Pursuant to Rule 13a-14(a) and 15d-14(a)Certification Pursuant to Rule 13a-14(a) and 15d-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)
 March 31,
    
    
    December 31,2008
    
    
    2007(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    2,139.4
    
    
    $
    1,841.8Receivables, net
    
    
    2,258.6
    
    
    
    2,099.8Inventories, net
    
    
    2,821.4
    
    
    
    2,574.7Costs in excess of billings
    
    
    766.2
    
    
    
    643.5Deferred income taxes
    
    
    156.5
    
    
    
    131.5Prepaid and other current assets
    
    
    323.0
    
    
    
    302.5Total current assets
    
    
    8,465.1
    
    
    
    7,593.8Property, plant and equipment, net
    
    
    1,262.6
    
    
    
    1,197.3Deferred income taxes
    
    
    67.7
    
    
    
    55.6Goodwill
    
    
    2,525.4
    
    
    
    2,445.1Intangibles, net
    
    
    761.0
    
    
    
    774.1Other assets
    
    
    18.7
    
    
    
    49.0Total assets
    
    $
    13,100.5
    
    
    $
    12,114.9LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    663.6
    
    
    $
    604.0Accrued liabilities
    
    
    1,960.2
    
    
    
    1,761.4Billings in excess of costs
    
    
    1,605.4
    
    
    
    1,396.1Current portion of long-term debt and short-term borrowings
    
    
    5.6
    
    
    
    152.8Accrued income taxes
    
    
    263.1
    
    
    
    112.4Total current liabilities
    
    
    4,497.9
    
    
    
    4,026.7Long-term debt
    
    
    737.4
    
    
    
    737.9Deferred income taxes
    
    
    604.4
    
    
    
    564.3Other liabilities
    
    
    65.0
    
    
    
    61.8Total liabilities
    
    
    5,904.7
    
    
    
    5,390.7Commitments and contingenciesMinority interest
    
    
    63.6
    
    
    
    62.8Stockholders equity:Common stock  par value $.01; 357,815,569 and
356,867,498 shares
issued and outstanding at March 31, 2008 and December 31, 2007
    
    
    3.6
    
    
    
    3.6Additional paid-in capital
    
    
    3,644.2
    
    
    
    3,617.2Accumulated other comprehensive income
    
    
    242.7
    
    
    
    195.0Retained earnings
    
    
    3,241.7
    
    
    
    2,845.6Total stockholders equity
    
    
    7,132.2
    
    
    
    6,661.4Total liabilities and stockholders equity
    
    $
    13,100.5
    
    
    $
    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 EndedMarch 31,2008
    
    
    2007Revenue
    
    $
    2,685.4
    
    
    $
    2,165.7Cost of revenue
    
    
    1,888.8
    
    
    
    1,550.7Gross profit
    
    
    796.6
    
    
    
    615.0Selling, general, and administrative
    
    
    228.1
    
    
    
    187.9Operating profit
    
    
    568.5
    
    
    
    427.1Interest and financial costs
    
    
    (10.0
    )
    
    
    (12.3
    )Interest income
    
    
    15.7
    
    
    
    9.1Other income (expense), net
    
    
    13.5
    
    
    
    (2.9
    )Income before income taxes and minority interest
    
    
    587.7
    
    
    
    421.0Provision for income taxes
    
    
    188.1
    
    
    
    140.7Income before minority interest
    
    
    399.6
    
    
    
    280.3Minority interest in income of consolidated subsidiaries
    
    
    2.0
    
    
    
    4.4Net income
    
    $
    397.6
    
    
    $
    275.9Net income per share:Basic
    
    $
    1.12
    
    
    $
    0.78Diluted
    
    $
    1.11
    
    
    $
    0.78Weighted average shares outstanding:Basic
    
    
    356.1
    
    
    
    351.8Diluted
    
    
    358.6
    
    
    
    355.1
  3




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NATIONAL OILWELL VARCO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In millions)
 Three Months EndedMarch 31,2008
    
    
    2007Cash flow from operating activities:Net income
    
    $
    397.6
    
    
    $
    275.9Adjustments to reconcile net income to net cash provided
(used) by operating activities:Depreciation and amortization
    
    
    61.5
    
    
    
    47.3Excess tax benefit from exercise of stock options
    
    
    (2.4
    )
    
    
    (9.1
    )Other
    
    
    24.1
    
    
    
    12.0Changes in assets and liabilities, net of acquisitions:Receivables
    
    
    (153.0
    )
    
    
    (69.9
    )Inventories
    
    
    (224.0
    )
    
    
    (167.9
    )Costs in excess of billings
    
    
    (122.7
    )
    
    
    (65.9
    )Prepaid and other current assets
    
    
    (20.5
    )
    
    
    (32.4
    )Accounts payable
    
    
    55.4
    
    
    
    67.2Billings in excess of costs
    
    
    209.4
    
    
    
    168.9Other assets/liabilities, net
    
    
    377.9
    
    
    
    38.1Net cash provided by operating activities
    
    
    603.3
    
    
    
    264.2Cash flow from investing activities:Purchases of property, plant and equipment
    
    
    (54.3
    )
    
    
    (48.0
    )Businesses acquisitions, net of cash acquired
    
    
    (129.1
    )
    
    
    (38.1
    )Other
    
    
    
    
    
    
    0.3Net cash used by investing activities
    
    
    (183.4
    )
    
    
    (85.8
    )Cash flow from financing activities:Borrowing against lines of credit and other debt
    
    
    0.5
    
    
    
    0.4Payments against lines of credit and other debt
    
    
    (147.3
    )
    
    
    (1.5
    )Proceeds from stock options exercised
    
    
    11.2
    
    
    
    42.2Excess tax benefit from exercise of stock options
    
    
    2.4
    
    
    
    9.1Net cash provided (used) by financing activities
    
    
    (133.2
    )
    
    
    50.2Effect of exchange rates on cash
    
    
    10.9
    
    
    
    4.2Increase in cash equivalents
    
    
    297.6
    
    
    
    232.8Cash and cash equivalents, beginning of period
    
    
    1,841.8
    
    
    
    957.4Cash and cash equivalents, end of period
    
    $
    2,139.4
    
    
    $
    1,190.2Supplemental disclosures of cash flow information:Cash payments during the period for:Interest
    
    $
    9.4
    
    
    $
    9.5Income taxes
    
    $
    32.0
    
    
    $
    108.8
  4




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NATIONAL OILWELL VARCO, INC.
Notes to Consolidated Financial Statements (Unaudited)
 1. Basis of Presentation
    2. Subsequent Event  Grant Prideco Acquisition
  3. Inventories, net
  March 31,
    
    
    December 31,2008
    
    
    2007Raw materials and supplies
    
    $
    409.1
    
    
    $
    420.4Work in process
    
    
    1,129.7
    
    
    
    939.2Finished goods and purchased products
    
    
    1,282.6
    
    
    
    1,215.1Inventories, net
    
    $
    2,821.4
    
    
    $
    2,574.7
 4. Accrued Liabilities
  March 31,
    
    
    December 31,2008
    
    
    2007Compensation
    
    $
    158.5
    
    
    $
    214.7Customer prepayments
    
    
    524.8
    
    
    
    500.3Warranty
    
    
    93.9
    
    
    
    91.5Interest
    
    
    14.2
    
    
    
    13.8Taxes (non income)
    
    
    33.7
    
    
    
    47.3Insurance
    
    
    45.9
    
    
    
    42.4Accrued purchase orders
    
    
    730.9
    
    
    
    582.5Fair value of derivatives
    
    
    111.4
    
    
    
    111.3Other
    
    
    246.9
    
    
    
    157.6Accrued liabilities
    
    $
    1,960.2
    
    
    $
    1,761.4
 5




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5. Costs and Estimated Earnings on Uncompleted Contracts
  March 31,
    
    
    December 31,2008
    
    
    2007Costs incurred on uncompleted contracts
    
    $
    3,054.4
    
    
    $
    3,167.2Estimated earnings
    
    
    1,287.6
    
    
    
    1,208.34,342.0
    
    
    
    4,375.5Less: Billings to date
    
    
    5,181.2
    
    
    
    5,128.1$
    (839.2
    )
    
    $
    (752.6
    )Costs and estimated earnings in excess of billings on uncompleted contracts
    
    $
    766.2
    
    
    $
    643.5Billings in excess of costs and estimated earnings on uncompleted contracts
    
    
    (1,605.4
    )
    
    
    (1,396.1
    )$
    (839.2
    )
    
    $
    (752.6
    )
 6. Comprehensive Income
  Three Months EndedMarch 31,2008
    
    
    2007Net income
    
    $
    397.6
    
    
    $
    275.9Currency translation adjustments
    
    
    27.1
    
    
    
    23.1Derivative financial instruments
    
    
    20.9
    
    
    
    Change in defined benefit plans
    
    
    (0.3
    )
    
    
    (9.0
    )Comprehensive income
    
    $
    445.3
    
    
    $
    290.0
 6




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7. Business Segments
  Three Months EndedMarch 31,2008
    
    
    2007Revenue:Rig Technology
    
    $
    1,602.9
    
    
    $
    1,219.8Petroleum Services & Supplies
    
    
    829.8
    
    
    
    691.8Distribution Services
    
    
    365.7
    
    
    
    351.9Elimination
    
    
    (113.0
    )
    
    
    (97.8
    )Total Revenue
    
    $
    2,685.4
    
    
    $
    2,165.7Operating Profit:Rig Technology
    
    $
    406.0
    
    
    $
    268.8Petroleum Services & Supplies
    
    
    195.2
    
    
    
    171.0Distribution Services
    
    
    18.8
    
    
    
    24.9Unallocated expenses and eliminations
    
    
    (51.5
    )
    
    
    (37.6
    )Total operating profit
    
    $
    568.5
    
    
    $
    427.1Operating profit %:Rig Technology
    
    
    25.3
    %
    
    
    22.0
    %Petroleum Services & Supplies
    
    
    23.5
    %
    
    
    24.7
    %Distribution Services
    
    
    5.1
    %
    
    
    7.1
    %Total Operating Profit %
    
    
    21.2
    %
    
    
    19.7
    %
 8. Debt
  March 31,
    
    
    December 31,2008
    
    
    2007$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
    
    
    210.8
    
    
    
    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
    
    
    
    151.3Other
    
    
    31.0
    
    
    
    77.5Total debt
    
    
    743.0
    
    
    
    890.7Less current portion
    
    
    5.6
    
    
    
    152.8Long-term debt
    
    $
    737.4
    
    
    $
    737.9
 7




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Senior Notes
  Revolver Facilities
    Other
  9. Tax
      8




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10. Stock-Based Compensation
   11. Derivative Financial Instruments
      9




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12. Net Income Per Share
  Three Months EndedMarch 31,2008
    
    
    2007Numerator:Net income
    
    $
    397.6
    
    
    $
    275.9Denominator:Basicweighted average common shares outstanding
    
    
    356.1
    
    
    
    351.8Dilutive effect of employee stock options and other unvested stock awards
    
    
    2.5
    
    
    
    3.3Diluted outstanding shares
    
    
    358.6
    
    
    
    355.1Basic earnings per share
    
    $
    1.12
    
    
    $
    0.78Diluted earnings per share
    
    $
    1.11
    
    
    $
    0.78
 13. Recently Issued Accounting Standards
     10




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11




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Introduction
  Rig Technology
  Petroleum Services & Supplies
  Distribution Services
  12




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Executive Summary
  Oil & Gas Equipment and Services Market
        13




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Grant Prideco Acquisition
  Segment Performance
   14




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Outlook
     15




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Operating Environment Overview
  %
    
    
    %1Q08 v
    
    
    1Q08 v1Q08*
    
    
    1Q07*
    
    
    4Q07*
    
    
    1Q07
    
    
    4Q07Active Drilling Rigs:U.S.
    
    
    1,771
    
    
    
    1,732
    
    
    
    1,790
    
    
    
    2.3
    %
    
    
    (1.1
    %)Canada
    
    
    507
    
    
    
    532
    
    
    
    356
    
    
    
    (4.7
    %)
    
    
    42.4
    %International
    
    
    1,046
    
    
    
    982
    
    
    
    1,017
    
    
    
    6.5
    %
    
    
    2.9
    %Worldwide
    
    
    3,324
    
    
    
    3,246
    
    
    
    3,163
    
    
    
    2.4
    %
    
    
    5.1
    %West Texas Intermediate
Crude Prices (per barrel)
    
    $
    97.87
    
    
    $
    58.14
    
    
    $
    90.85
    
    
    
    68.3
    %
    
    
    7.7
    %Natural Gas Prices ($/mmbtu)
    
    $
    8.64
    
    
    $
    7.20
    
    
    $
    6.99
    
    
    
    20.0
    %
    
    
    23.6
    %
 
 *
    
    Averages for the quarters indicated. See sources below.  
   16




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Results of Operations
  Three Months EndedMarch 31,2008
    
    
    2007Revenue:Rig Technology
    
    $
    1,602.9
    
    
    $
    1,219.8Petroleum Services & Supplies
    
    
    829.8
    
    
    
    691.8Distribution Services
    
    
    365.7
    
    
    
    351.9Eliminations
    
    
    (113.0
    )
    
    
    (97.8
    )Total Revenue
    
    $
    2,685.4
    
    
    $
    2,165.7Operating Profit:Rig Technology
    
    $
    406.0
    
    
    $
    268.8Petroleum Services & Supplies
    
    
    195.2
    
    
    
    171.0Distribution Services
    
    
    18.8
    
    
    
    24.9Unallocated expenses and eliminations
    
    
    (51.5
    )
    
    
    (37.6
    )Total Operating Profit
    
    $
    568.5
    
    
    $
    427.1Operating Profit %:Rig Technology
    
    
    25.3
    %
    
    
    22.0
    %Petroleum Services & Supplies
    
    
    23.5
    %
    
    
    24.7
    %Distribution Services
    
    
    5.1
    %
    
    
    7.1
    %Total Operating Profit %
    
    
    21.2
    %
    
    
    19.7
    %
 Rig Technology
 Three Months Ended March 31, 2008 and 2007.
  Petroleum Services & Supplies
 Three Months Ended March 31, 2008 and 2007.
  17




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Distribution Services
 Three Months Ended March 31, 2008 and 2007.
  Unallocated expenses and eliminations
  Interest and financial costs
  Other income (expense), net
  Provision for income taxes
  Liquidity and Capital Resources
   18




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Recently Issued Accounting Standards
   19




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Forward-Looking Statements
  20




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Item 3. Quantitative and Qualitative Disclosures About Market Risk
  Foreign Currency Exchange Rates
       21




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Hedge Classification
    
    Currency
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    TotalCash Flow
    
    DKK
    
    $
    28.9
    
    
    $
    10.1
    
    
    $
    
    
    
    $
    39.0EUR
    
    
    376.5
    
    
    
    78.2
    
    
    
    1.2
    
    
    
    455.9GBP
    
    
    30.1
    
    
    
    13.4
    
    
    
    
    
    
    
    43.5NOK
    
    
    899.6
    
    
    
    634.3
    
    
    
    122.5
    
    
    
    1,656.4SEK
    
    
    3.9
    
    
    
    2.8
    
    
    
    0.8
    
    
    
    7.5USD
    
    
    142.7
    
    
    
    6.2
    
    
    
    
    
    
    
    148.9$
    1,481.7
    
    
    $
    745.0
    
    
    $
    124.5
    
    
    $
    2,351.2Fair ValueEUR
    
    $
    4.1
    
    
    $
    0.6
    
    
    $
    
    
    
    $
    4.7KRW
    
    
    0.9
    
    
    
    
    
    
    
    
    
    
    
    0.9USD
    
    
    101.2
    
    
    
    24.1
    
    
    
    2.7
    
    
    
    128.0$
    106.2
    
    
    $
    24.7
    
    
    $
    2.7
    
    
    $
    133.6Balance SheetEUR
    
    $
    2.9
    
    
    $
    
    
    
    $
    
    
    
    $
    2.9GBP
    
    
    0.8
    
    
    
    
    
    
    
    
    
    
    
    0.8NOK
    
    
    137.5
    
    
    
    0.4
    
    
    
    0.5
    
    
    
    138.4USD
    
    
    52.0
    
    
    
    
    
    
    
    
    
    
    
    52.0$
    193.2
    
    
    $
    0.4
    
    
    $
    0.5
    
    
    $
    194.1Total
    
    
    
    
    
    $
    1,781.1
    
    
    $
    770.1
    
    
    $
    127.7
    
    
    $
    2,678.9
   Interest Rate Risk
  22




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Item 4. Controls and Procedures
   23




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PART II    OTHER INFORMATION
 
 Item 6. Exhibits
  
 SIGNATURE
  Date: May 9, 2008
    By:
    /s/ Clay C. WilliamsClay C. WilliamsSenior Vice President and Chief Financial Officer
(Duly Authorized Officer, Principal Financial and Accounting Officer) 24




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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.  25