##### 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 SEPTEMBER 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 
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
(Do not check if a smaller reporting company)
    
    Smaller reporting company o 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 1A. Risk FactorsItem 6. ExhibitsSIGNATUREINDEX TO EXHIBITSEX-31.1EX-31.2EX-32.1EX-32.2    Table of Contents  
 PART I    FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 NATIONAL OILWELL VARCO, INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
 September 30,
    
    
    December 31,2008
    
    
    2007(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    1,764.9
    
    
    $
    1,841.8Receivables, net
    
    
    3,113.5
    
    
    
    2,099.8Inventories, net
    
    
    3,627.4
    
    
    
    2,574.7Costs in excess of billings
    
    
    653.9
    
    
    
    643.5Deferred income taxes
    
    
    205.6
    
    
    
    131.5Prepaid and other current assets
    
    
    443.3
    
    
    
    302.5Total current assets
    
    
    9,808.6
    
    
    
    7,593.8Property, plant and equipment, net
    
    
    1,735.0
    
    
    
    1,197.3Deferred income taxes
    
    
    229.1
    
    
    
    55.6Goodwill
    
    
    5,339.4
    
    
    
    2,445.1Intangibles, net
    
    
    4,339.9
    
    
    
    774.1Investment in unconsolidated affiliate
    
    
    218.8
    
    
    
    Other assets
    
    
    64.1
    
    
    
    49.0Total assets
    
    $
    21,734.9
    
    
    $
    12,114.9LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    956.6
    
    
    $
    604.0Accrued liabilities
    
    
    2,231.4
    
    
    
    1,761.4Billings in excess of costs
    
    
    2,144.6
    
    
    
    1,396.1Current portion of long-term debt and short-term borrowings
    
    
    19.2
    
    
    
    152.8Accrued income taxes
    
    
    308.7
    
    
    
    112.4Total current liabilities
    
    
    5,660.5
    
    
    
    4,026.7Long-term debt
    
    
    1,492.7
    
    
    
    737.9Deferred income taxes
    
    
    2,128.2
    
    
    
    564.3Other liabilities
    
    
    72.9
    
    
    
    61.8Total liabilities
    
    
    9,354.3
    
    
    
    5,390.7Commitments and contingenciesMinority interest
    
    
    90.3
    
    
    
    62.8Stockholders equity:Common stock, $0.01 par value; 417,337,062 and 356,867,498
issued and ouststanding at September 30, 2008 and
December 31, 2007
    
    
    4.2
    
    
    
    3.6Additional paid-in capital
    
    
    7,977.8
    
    
    
    3,617.2Accumulated other comprehensive income
    
    
    97.2
    
    
    
    195.0Retained earnings
    
    
    4,211.1
    
    
    
    2,845.6Total stockholders equity
    
    
    12,290.3
    
    
    
    6,661.4Total liabilities and stockholders equity
    
    $
    21,734.9
    
    
    $
    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
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenue
    
    $
    3,611.6
    
    
    $
    2,579.5
    
    
    $
    9,621.2
    
    
    $
    7,130.1Cost of revenue
    
    
    2,511.6
    
    
    
    1,839.2
    
    
    
    6,743.1
    
    
    
    5,091.0Gross profit
    
    
    1,100.0
    
    
    
    740.3
    
    
    
    2,878.1
    
    
    
    2,039.1Selling, general and administrative
    
    
    309.7
    
    
    
    194.9
    
    
    
    811.2
    
    
    
    569.4Transaction costs
    
    
    
    
    
    
    
    
    
    
    16.4
    
    
    
    Operating income
    
    
    790.3
    
    
    
    545.4
    
    
    
    2,050.5
    
    
    
    1,469.7Interest and financial costs
    
    
    (18.6
    )
    
    
    (11.5
    )
    
    
    (52.8
    )
    
    
    (36.9
    )Interest income
    
    
    10.4
    
    
    
    12.6
    
    
    
    36.6
    
    
    
    31.7Equity income in unconsolidated
affiliate
    
    
    20.1
    
    
    
    
    
    
    
    37.2
    
    
    
    Other income (expense), net
    
    
    14.4
    
    
    
    1.8
    
    
    
    13.3
    
    
    
    (1.9
    )Income before income taxes and
minority
interests
    
    
    816.6
    
    
    
    548.3
    
    
    
    2,084.8
    
    
    
    1,462.6Provision for income taxes
    
    
    263.7
    
    
    
    177.8
    
    
    
    706.7
    
    
    
    490.5Income before minority interest
    
    
    552.9
    
    
    
    370.5
    
    
    
    1,378.1
    
    
    
    972.1Minority interest in income of
consolidated subsidiaries
    
    
    5.2
    
    
    
    4.5
    
    
    
    11.1
    
    
    
    11.7Net income
    
    $
    547.7
    
    
    $
    366.0
    
    
    $
    1,367.0
    
    
    $
    960.4Net income per share:Basic
    
    $
    1.32
    
    
    $
    1.03
    
    
    $
    3.49
    
    
    $
    2.71Diluted
    
    $
    1.31
    
    
    $
    1.02
    
    
    $
    3.48
    
    
    $
    2.71Weighted average shares outstanding:Basic
    
    
    415.7
    
    
    
    355.5
    
    
    
    391.2
    
    
    
    353.9Diluted
    
    
    418.3
    
    
    
    357.9
    
    
    
    393.0
    
    
    
    354.4
  3




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##### Table of Contents



NATIONAL OILWELL VARCO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In millions)
 Nine Months EndedSeptember 30,2008
    
    
    2007Cash flows from operating activities:Net income
    
    $
    1,367.0
    
    
    $
    960.4Adjustments to reconcile net income to net cash provided by operating
activities:Depreciation and amortization
    
    
    284.1
    
    
    
    155.6Equity income in unconsolidated affiliate
    
    
    (37.2
    )
    
    
    Other non-cash items, net
    
    
    10.0
    
    
    
    41.6Change in operating assets and liabilities, net of acquisitions:Receivables
    
    
    (596.2
    )
    
    
    (535.6
    )Inventories
    
    
    (450.4
    )
    
    
    (419.9
    )Costs in excess of billings
    
    
    (10.4
    )
    
    
    (184.5
    )Prepaid and other current assets
    
    
    69.4
    
    
    
    (161.8
    )Accounts payable
    
    
    201.2
    
    
    
    96.0Billings in excess of costs
    
    
    748.6
    
    
    
    538.4Other assets/liabilities, net
    
    
    119.6
    
    
    
    238.1Net cash provided by operating activities
    
    
    1,705.7
    
    
    
    728.3Cash flows from investing activities:Purchases of property, plant and equipment
    
    
    (264.2
    )
    
    
    (177.4
    )Business acquisitions, net of cash acquired
    
    
    (2,987.7
    )
    
    
    (287.4
    )Business divestitures, net of cash disposed
    
    
    800.9
    
    
    
    Dividend from unconsolidated affiliate
    
    
    112.7
    
    
    
    Other, net
    
    
    (0.7
    )
    
    
    1.5Net cash used in investing activities
    
    
    (2,339.0
    )
    
    
    (463.3
    )Cash flows from financing activities:Borrowings against lines of credit and other debt
    
    
    2,727.9
    
    
    
    1.7Payments against lines of credit and other debt
    
    
    (2,280.3
    )
    
    
    (9.7
    )Proceeds from stock option exercised
    
    
    83.8
    
    
    
    104.9Excess tax benefits from exercise of stock options
    
    
    36.8
    
    
    
    20.0Net cash provided by financing activities
    
    
    568.2
    
    
    
    116.9Effect of exchange rates on cash
    
    
    (11.8
    )
    
    
    146.7Increase (decrease) in cash equivalents
    
    
    (76.9
    )
    
    
    528.6Cash and cash equivalents, beginning of period
    
    
    1,841.8
    
    
    
    957.4Cash and cash equivalents, end of period
    
    $
    1,764.9
    
    
    $
    1,486.0Supplemental disclosures of cash flow information:Cash payments during the period for:Interest
    
    $
    52.3
    
    
    $
    37.6Income taxes
    
    $
    920.8
    
    
    $
    509.9
  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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##### Table of Contents



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
    
    $
    170.9Receivables
    
    
    419.7Assets held for sale, net
    
    
    783.9Inventories
    
    
    616.8Prepaid and other current assets
    
    
    209.5Property, plant and equipment
    
    
    443.5Goodwill
    
    
    3,164.3Intangibles
    
    
    3,691.8Investment in unconsolidated affiliate
    
    
    300.0Other assets
    
    
    42.6Accounts payable and accrued liabilities
    
    
    (315.9
    )Accrued income taxes
    
    
    (623.9
    )Long-term debt
    
    
    (176.4
    )Deferred income taxes
    
    
    (1,485.0
    )Minority interest
    
    
    (24.8
    )Other liabilities
    
    
    (19.5
    )Total preliminary purchase price
    
    $
    7,197.5
   Disposition of Certain Grant Prideco Businesses
  Unaudited Pro Forma Financial Information
  7




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Total revenues
    
    $
    3,611.6
    
    
    $
    3,066.1
    
    
    $
    10,224.9
    
    
    $
    8,533.3Net income
    
    $
    567.5
    
    
    $
    427.6
    
    
    $
    1,495.1
    
    
    $
    1,157.0Basic net income per share
    
    $
    1.37
    
    
    $
    1.04
    
    
    $
    3.61
    
    
    $
    2.82Diluted net income per share
    
    $
    1.36
    
    
    $
    1.03
    
    
    $
    3.59
    
    
    $
    2.81
 3. Inventories, net
  September 30,
    
    
    December 31,2008
    
    
    2007Raw materials and supplies
    
    $
    706.3
    
    
    $
    420.4Work in process
    
    
    1,383.7
    
    
    
    939.2Finished goods and purchased products
    
    
    1,537.4
    
    
    
    1,215.1Total
    
    $
    3,627.4
    
    
    $
    2,574.7
 4. Accrued Liabilities
  September 30,
    
    
    December 31,2008
    
    
    2007Compensation
    
    $
    291.3
    
    
    $
    214.7Customer prepayments
    
    
    880.9
    
    
    
    500.3Warranty
    
    
    112.7
    
    
    
    91.5Interest
    
    
    18.8
    
    
    
    13.8Taxes (non income)
    
    
    62.6
    
    
    
    47.3Insurance
    
    
    50.9
    
    
    
    42.4Accrued purchase orders
    
    
    533.8
    
    
    
    582.5Fair value of derivatives
    
    
    87.8
    
    
    
    111.3Other
    
    
    192.6
    
    
    
    157.6Total
    
    $
    2,231.4
    
    
    $
    1,761.4
 8




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##### Table of Contents



5. Costs and Estimated Earnings on Uncompleted Contracts
  September 30,
    
    
    December 31,2008
    
    
    2007Costs incurred on uncompleted contracts
    
    $
    4,223.0
    
    
    $
    3,167.2Estimated earnings
    
    
    1,933.3
    
    
    
    1,208.36,156.3
    
    
    
    4,375.5Less: Billings to date
    
    
    7,647.0
    
    
    
    5,128.1$
    (1,490.7
    )
    
    $
    (752.6
    )Costs and estimated earnings in excess of billings on
uncompleted contracts
    
    $
    653.9
    
    
    $
    643.5Billings in excess of costs and estimated earnings on
uncompleted contracts
    
    
    (2,144.6
    )
    
    
    (1,396.1
    )$
    (1,490.7
    )
    
    $
    (752.6
    )
 6. Comprehensive Income
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income
    
    $
    547.7
    
    
    $
    366.0
    
    
    $
    1,367.0
    
    
    $
    960.4Currency translation
adjustments
    
    
    (70.9
    )
    
    
    126.5
    
    
    
    (32.8
    )
    
    
    216.3Derivative financial
instruments
    
    
    (86.1
    )
    
    
    19.8
    
    
    
    (64.9
    )
    
    
    23.1Change in defined
benefit plans
    
    
    0.2
    
    
    
    
    
    
    
    (0.1
    )
    
    
    (9.0
    )Comprehensive income
    
    $
    390.9
    
    
    $
    512.3
    
    
    $
    1,269.2
    
    
    $
    1,190.8
   9




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7. Business Segments
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenue:Rig Technology
    
    $
    1,926.4
    
    
    $
    1,521.9
    
    
    $
    5,440.4
    
    
    $
    4,150.9Petroleum Services & Supplies
    
    
    1,310.5
    
    
    
    805.5
    
    
    
    3,264.1
    
    
    
    2,243.4Distribution Services
    
    
    497.6
    
    
    
    361.3
    
    
    
    1,288.9
    
    
    
    1,058.0Elimination
    
    
    (122.9
    )
    
    
    (109.2
    )
    
    
    (372.2
    )
    
    
    (322.2
    )Total Revenue
    
    $
    3,611.6
    
    
    $
    2,579.5
    
    
    $
    9,621.2
    
    
    $
    7,130.1Operating Profit:Rig Technology
    
    $
    500.5
    
    
    $
    373.5
    
    
    $
    1,412.9
    
    
    $
    983.1Petroleum Services & Supplies (a)
    
    
    301.6
    
    
    
    193.6
    
    
    
    717.9
    
    
    
    542.4Distribution Services
    
    
    43.7
    
    
    
    25.1
    
    
    
    87.3
    
    
    
    73.1Unallocated expenses and
eliminations
    
    
    (55.5
    )
    
    
    (46.8
    )
    
    
    (151.2
    )
    
    
    (128.9
    )Transaction costs
    
    
    
    
    
    
    
    
    
    
    (16.4
    )
    
    
    Total Operating Profit
    
    $
    790.3
    
    
    $
    545.4
    
    
    $
    2,050.5
    
    
    $
    1,469.7Operating Profit %:Rig Technology
    
    
    26.0
    %
    
    
    24.5
    %
    
    
    26.0
    %
    
    
    23.7
    %Petroleum Services & Supplies (a)
    
    
    23.0
    %
    
    
    24.0
    %
    
    
    22.0
    %
    
    
    24.2
    %Distribution Services
    
    
    8.8
    %
    
    
    6.9
    %
    
    
    6.8
    %
    
    
    6.9
    %Total Operating Profit %
    
    
    21.9
    %
    
    
    21.1
    %
    
    
    21.3
    %
    
    
    20.6
    %
 
 (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
$28.0 million and $74.1 million of these inventory charges for the
three and nine months ended September 30, 2008, respectively.  10




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8. Debt
  September 30,
    
    
    December 31,2008
    
    
    2007Revolving credit facilities
    
    $
    600.0
    
    
    $
    $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
    
    
    209.1
    
    
    
    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
    
    
    151.1
    
    
    
    151.3Senior Notes, interest at 6.125% payable
semiannually,
principal due on August 15, 2015
    
    
    174.6
    
    
    
    Other
    
    
    27.1
    
    
    
    77.5Total debt
    
    
    1,511.9
    
    
    
    890.7Less current portion
    
    
    19.2
    
    
    
    152.8Long-term debt
    
    $
    1,492.7
    
    
    $
    737.9
 Senior Notes
  Revolving Credit Facilities
   11




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Other
  9. Tax
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Federal income tax at U.S. federal
statutory rate
of 35.0%
    
    $
    285.8
    
    
    $
    191.9
    
    
    $
    729.7
    
    
    $
    511.9Foreign income tax rate differential
    
    
    (28.6
    )
    
    
    (17.0
    )
    
    
    (71.9
    )
    
    
    (45.9
    )State income tax, net of federal benefit
    
    
    9.3
    
    
    
    5.2
    
    
    
    26.0
    
    
    
    15.3Foreign dividends, net of foreign tax
credits
    
    
    (1.5
    )
    
    
    1.7
    
    
    
    33.0
    
    
    
    9.6Benefit of U.S. Manufacturing Deduction
    
    
    (7.5
    )
    
    
    (2.6
    )
    
    
    (12.7
    )
    
    
    (4.4
    )Other
    
    
    6.2
    
    
    
    (1.4
    )
    
    
    2.6
    
    
    
    4.0Provision for income taxes
    
    $
    263.7
    
    
    $
    177.8
    
    
    $
    706.7
    
    
    $
    490.5
    12




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




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12. Net Income Per Share
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Numerator:Net income
    
    $
    547.7
    
    
    $
    366.0
    
    
    $
    1,367.0
    
    
    $
    960.4Denominator:Basicweighted average common
shares
outstanding
    
    
    415.7
    
    
    
    355.5
    
    
    
    391.2
    
    
    
    353.9Dilutive effect of employee
stock options
and other unvested stock awards
    
    
    2.6
    
    
    
    2.4
    
    
    
    1.8
    
    
    
    0.5Diluted outstanding shares
    
    
    418.3
    
    
    
    357.9
    
    
    
    393.0
    
    
    
    354.4Basic earnings per share
    
    $
    1.32
    
    
    $
    1.03
    
    
    $
    3.49
    
    
    $
    2.71Diluted earnings per share
    
    $
    1.31
    
    
    $
    1.02
    
    
    $
    3.48
    
    
    $
    2.71
 14




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##### Table of Contents



13. Recently Issued Accounting Standards
     . ,
 15




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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
  16




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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
  17




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EXECUTIVE SUMMARY
   Grant Prideco Acquisition
   Oil & Gas Equipment and Services Market
  18




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##### Table of Contents



Segment Performance
  19




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##### Table of Contents



Outlook
   20




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##### Table of Contents



21




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##### Table of Contents



Operating Environment Overview
  %
    
    
    %3Q08 v
    
    
    3Q08 v3Q08*
    
    
    3Q07*
    
    
    2Q08*
    
    
    3Q07
    
    
    2Q08Active Drilling Rigs:U.S.
    
    
    1,978
    
    
    
    1,788
    
    
    
    1,864
    
    
    
    10.6
    %
    
    
    6.1
    %Canada
    
    
    432
    
    
    
    348
    
    
    
    169
    
    
    
    24.1
    %
    
    
    155.6
    %International
    
    
    1,095
    
    
    
    1,020
    
    
    
    1,084
    
    
    
    7.4
    %
    
    
    1.0
    %Worldwide
    
    
    3,505
    
    
    
    3,156
    
    
    
    3,117
    
    
    
    11.1
    %
    
    
    12.4
    %West Texas Intermediate
Crude Prices (per
barrel)
    
    $
    118.60
    
    
    $
    75.32
    
    
    $
    124.05
    
    
    
    57.5
    %
    
    
    (4.4
    %)Natural Gas Prices
($/mmbtu)
    
    $
    9.03
    
    
    $
    6.17
    
    
    $
    11.38
    
    
    
    46.4
    %
    
    
    (20.7
    %)
 
 *
    
    Averages for the quarters indicated. See sources below.  
  22




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23




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Results of Operations
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenue:Rig Technology
    
    $
    1,926.4
    
    
    $
    1,521.9
    
    
    $
    5,440.4
    
    
    $
    4,150.9Petroleum Services & Supplies
    
    
    1,310.5
    
    
    
    805.5
    
    
    
    3,264.1
    
    
    
    2,243.4Distribution Services
    
    
    497.6
    
    
    
    361.3
    
    
    
    1,288.9
    
    
    
    1,058.0Elimination
    
    
    (122.9
    )
    
    
    (109.2
    )
    
    
    (372.2
    )
    
    
    (322.2
    )Total Revenue
    
    $
    3,611.6
    
    
    $
    2,579.5
    
    
    $
    9,621.2
    
    
    $
    7,130.1Operating Profit:Rig Technology
    
    $
    500.5
    
    
    $
    373.5
    
    
    $
    1,412.9
    
    
    $
    983.1Petroleum Services & Supplies (a)
    
    
    301.6
    
    
    
    193.6
    
    
    
    717.9
    
    
    
    542.4Distribution Services
    
    
    43.7
    
    
    
    25.1
    
    
    
    87.3
    
    
    
    73.1Unallocated expenses and
eliminations
    
    
    (55.5
    )
    
    
    (46.8
    )
    
    
    (151.2
    )
    
    
    (128.9
    )Transaction costs
    
    
    
    
    
    
    
    
    
    
    (16.4
    )
    
    
    Total Operating Profit
    
    $
    790.3
    
    
    $
    545.4
    
    
    $
    2,050.5
    
    
    $
    1,469.7Operating Profit %:Rig Technology
    
    
    26.0
    %
    
    
    24.5
    %
    
    
    26.0
    %
    
    
    23.7
    %Petroleum Services & Supplies (a)
    
    
    23.0
    %
    
    
    24.0
    %
    
    
    22.0
    %
    
    
    24.2
    %Distribution Services
    
    
    8.8
    %
    
    
    6.9
    %
    
    
    6.8
    %
    
    
    6.9
    %Total Operating Profit %
    
    
    21.9
    %
    
    
    21.1
    %
    
    
    21.3
    %
    
    
    20.6
    %
 
 (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
$28.0 million and $74.1 million of these inventory charges for the
three and nine months ended September 30, 2008, respectively. Rig Technology
 Three Months Ended September 30, 2008 and 2007.
  Nine Months Ended September 30, 2008 and 2007.
  24




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Petroleum Services & Supplies
 Three Months Ended September 30, 2008 and 2007.
   Nine Months Ended September 30, 2008 and 2007.
  Distribution Services
 Three Months Ended September 30, 2008 and 2007.
  Nine Months Ended September 30, 2008 and 2007.
  Unallocated expenses and eliminations
  Transaction costs
  25




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##### Table of Contents



Interest and financial costs
  Other income (expense), net
  Provision for income taxes
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Federal income tax at U.S. federal
statutory rate
of 35.0%
    
    $
    285.8
    
    
    $
    191.9
    
    
    $
    729.7
    
    
    $
    511.9Foreign income tax rate differential
    
    
    (28.6
    )
    
    
    (17.0
    )
    
    
    (71.9
    )
    
    
    (45.9
    )State income tax, net of federal benefit
    
    
    9.3
    
    
    
    5.2
    
    
    
    26.0
    
    
    
    15.3Foreign dividends, net of foreign tax
credits
    
    
    (1.5
    )
    
    
    1.7
    
    
    
    33.0
    
    
    
    9.6Benefit of U.S. Manufacturing Deduction
    
    
    (7.5
    )
    
    
    (2.6
    )
    
    
    (12.7
    )
    
    
    (4.4
    )Other
    
    
    6.2
    
    
    
    (1.4
    )
    
    
    2.6
    
    
    
    4.0Provision for income taxes
    
    $
    263.7
    
    
    $
    177.8
    
    
    $
    706.7
    
    
    $
    490.5
 26




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##### Table of Contents



Liquidity and Capital Resources
        27




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##### Table of Contents



Recently Issued Accounting Standards
     28




---



##### Table of Contents



. ,
 Forward-Looking Statements
  29




---



##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
  Foreign Currency Exchange Rates
      30




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##### Table of Contents



Hedge Classification
    
    Currency
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    TotalCash Flow
    
    AUD
    
    $
    0.5
    
    
    $
    0.2
    
    
    $
    
    
    
    $
    
    
    
    $
    0.7DKK
    
    
    30.3
    
    
    
    9.2
    
    
    
    
    
    
    
    
    
    
    
    39.5EUR
    
    
    519.1
    
    
    
    112.2
    
    
    
    1.1
    
    
    
    
    
    
    
    632.4GBP
    
    
    44.2
    
    
    
    12.2
    
    
    
    
    
    
    
    
    
    
    
    56.4NOK
    
    
    678.5
    
    
    
    596.7
    
    
    
    214.5
    
    
    
    
    
    
    
    1,489.7SEK
    
    
    
    
    
    
    2.5
    
    
    
    0.7
    
    
    
    
    
    
    
    3.2USD
    
    
    64.9
    
    
    
    167.8
    
    
    
    18.5
    
    
    
    
    
    
    
    251.2$
    1,337.5
    
    
    $
    900.8
    
    
    $
    234.8
    
    
    $
    
    
    
    $
    2,473.1Fair Value
    
    EUR
    
    $
    3.0
    
    
    $
    2.8
    
    
    $
    
    
    
    $
    
    
    
    $
    5.8KRW
    
    
    0.8
    
    
    
    1.7
    
    
    
    
    
    
    
    
    
    
    
    2.5USD
    
    
    30.2
    
    
    
    89.3
    
    
    
    17.8
    
    
    
    0.7
    
    
    
    138.0$
    34.0
    
    
    $
    93.8
    
    
    $
    17.8
    
    
    $
    0.7
    
    
    $
    146.3Balance Sheet
    
    DKK
    
    $
    18.0
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    18.0EUR
    
    
    82.4
    
    
    
    3.8
    
    
    
    
    
    
    
    
    
    
    
    86.2GBP
    
    
    11.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11.6NOK
    
    
    253.6
    
    
    
    78.8
    
    
    
    0.5
    
    
    
    
    
    
    
    332.9SEK
    
    
    
    
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    0.3USD
    
    
    511.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    511.8$
    877.4
    
    
    $
    82.9
    
    
    $
    0.5
    
    
    $
    
    
    
    $
    960.8Total
    
    
    
    $
    2,248.9
    
    
    $
    1,077.5
    
    
    $
    253.1
    
    
    $
    0.7
    
    
    $
    3,580.2
   Interest Rate Risk
  31




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Item 4. Controls and Procedures
    32




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##### Table of Contents



PART II    OTHER INFORMATION
 
 Item 1A. Risk Factors
  Recent Worldwide Financial and Credit Crisis Could have a Negative Effect on Our Operating Results
and Financial Condition.
   
 Item 6. Exhibits
  
 SIGNATURE
  Date: November 4, 2008
    
    By: /s/ Clay C. WilliamsClay C. WilliamsSenior Vice President and Chief Financial Officer(Duly Authorized Officer, Principal Financial and 
Accounting Officer)
 33




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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.  34