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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 (Mark one)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 FOR THE YEAR ENDED DECEMBER 31, 2007
 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)
    
    (IRS 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)
  Common Stock, par value $.01
    
    New York Stock Exchange(Title of Class)
    
    (Exchange on which registered)
 None
  þ o
  o þ
  þ o
 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
  Documents Incorporated by Reference




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TABLE OF CONTENTS  ITEM 1. BUSINESSITEM 1A. RISK FACTORSGLOSSARY OF OILFIELD TERMSITEM 1B. UNRESOLVED STAFF COMMENTSITEM 2. PROPERTIESITEM 3. LEGAL PROCEEDINGSITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSPART IIITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIESITEM 6. SELECTED FINANCIAL DATAITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.ITEM 9A. CONTROLS AND PROCEDURESITEM 9B. OTHER INFORMATIONPART IIIITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEITEM 11. EXECUTIVE COMPENSATIONITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCEITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICESPART IVITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULESSIGNATURESMANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTINGREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTINGSubsidiaries of the RegistrantConsent of Ernst & Young LLPCertification Pursuant to Rule 13a-14a and Rule 15d-14(a)Certification Pursuant to Rule 13a-14a and Rule 15d-14(a)Certification Pursuant to Section 906Certification Pursuant to Section 906    Table of Contents  
 ITEM 1.    BUSINESS
 General
    http://www.nov.com
  Rig Technology
  Petroleum Services & Supplies
  1




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Distribution Services
   Years Ended December 31,2007
    
    
    2006
    
    
    2005Revenue:Rig Technology
    
    $
    5,744.7
    
    
    $
    3,584.9
    
    
    $
    2,216.8Petroleum Services & Supplies
    
    
    3,061.0
    
    
    
    2,425.0
    
    
    
    1,645.8Distribution Services
    
    
    1,423.7
    
    
    
    1,369.6
    
    
    
    1,074.5Eliminations
    
    
    (440.4
    )
    
    
    (353.7
    )
    
    
    (292.6
    )Total Revenue
    
    $
    9,789.0
    
    
    $
    7,025.8
    
    
    $
    4,644.5
   Influence of Oil and Gas Activity Levels on the Companys Business
     2




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Overview of Oil and Gas Well Drilling and Servicing Processes
     3




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4




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Rig Technology
   Land Rig Packages Ideal Rig Rapid Rig ®
 Top Drives
 Drilling Motors.
 Rotary Equipment
 Pipe Handling Systems
   Pipe Handling Tools
 5




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Mud Pumps.
 Hoisting Systems
 Cranes.
 Motion Compensation Systems
 Blowout Preventers ®
 ®
 Derricks and Substructures.
 Coiled Tubing Equipment
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Wireline Equipment
  Facilities.
 Customers and Competition.
  Petroleum Services & Supplies
  7




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® ®
 Tubular Coating ® 2 2
 Tubular Inspection.
  8




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ä
 Mill Systems and Sales.
 Fiberglass & Composite Tubulars. ®
 Coiled Tubing.
 Pipeline Inspection
 Downhole Tools. TM TM ® TM
 TM ®
  9




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Solids Control
  
 Instrumentation ® ®
 Pumps & Expendables
 ®
 10




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Customers and Competition.
  Distribution Services
     11




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Customers and Competition.
 2007 Acquisitions and Other Investments
 
 Operating
    
    Date ofAcquisition
    
    Form
    
    Segment
    
    TransactionsGammaloy Holdings, L.P.
    
    Asset
    
    Petroleum Services & Supply
    
    April 2007Molde Produksjonssenter AS
    
    Stock
    
    Rig Technology
    
    April 2007Moineaus S.A.I.C.
    
    Stock
    
    Petroleum Services & Supply
    
    June 2007Hiram Industries, Inc.
    
    Asset
    
    Petroleum Services & Supply
    
    June 2007Sampwell Testing Services, Ltd./New Era
Machining, Ltd.
    
    Stock/Asset
    
    Petroleum Services & Supply
    
    July 2007CTES, LP
    
    Asset
    
    Rig Technology
    
    July 2007Sara Services and Engineers Pvt. Ltd.
    
    Stock
    
    Rig Technology
    
    July 2007Kreiter Geartech
    
    Asset
    
    Rig Technology
    
    October 2007
  Seasonal Nature of the Companys Business
    
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Marketing & Distribution Network
       Research and New Product Development and Intellectual Property
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Engineering and Manufacturing
     Raw Materials
  Backlog
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Employees
  
 ITEM 1A. RISK FACTORS
 You should carefully consider the risks described below, in addition to other information contained
or incorporated by reference herein. Realization of any of the following risks could have a
material adverse effect on our business, financial condition, cash flows and results of operations.
 Risks Related to the Grant Prideco Merger and the Related Transactions
  We may not be able to successfully integrate the operations of the two companies and realize the
anticipated benefits of the Grant Prideco merger.
  
    
    operating a significantly larger combined company with operations in more geographic
areas and with more business lines;
    
    integrating personnel with diverse backgrounds and organizational cultures;
    
    coordinating sales and marketing functions;
    
    retaining key employees, customers or suppliers;
    
    preserving the research and development, collaboration, distribution, marketing,
promotion and other important relationships of National Oilwell Varco and Grant Prideco;
    
    integrating the internal controls and procedures that National Oilwell Varco will be
required to maintain under the Sarbanes-Oxley Act of 2002; and
    
    consolidating other corporate and administrative functions.
  The costs of the Grant Prideco merger could adversely affect combined financial results.
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National Oilwell Varco shareholders will be diluted by the Grant Prideco merger
  Failure to complete the Grant Prideco merger or delays in completing the Grant Prideco merger could
negatively impact National Oilwell Varcos and Grant Pridecos stock prices and future business and
operations.
  
    
    the individual companies will not realize the benefits expected from becoming part of a
combined company, including potentially enhanced financial and competitive position;
    
    under certain circumstances, Grant Prideco may be required to pay National Oilwell Varco
a termination fee of $185.0 million, and under certain other circumstances, either of the
companies may be required to reimburse the other party for up to $5.0 million in
merger-related expenses;
    
    the price of common stock of National Oilwell Varco or Grant Prideco may decline to the
extent that the current market price of the common stock reflects a market assumption that
the merger will be completed; and
    
    some costs related to the merger, such as legal, accounting and financial advisor fees,
must be paid even if the merger is not completed.
 Whether or not the Grant Prideco merger is completed, the pendency of the transaction could cause
disruptions in the businesses of National Oilwell Varco, which could have an adverse effect on
their businesses and financial results.
  National Oilwell Varco and Grant Prideco could be required to divest, hold separate or license
assets to complete the Grant Prideco merger.
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If National Oilwell Varco or Grant Prideco fails to obtain all required consents and waivers, third
parties may terminate or alter existing contracts.
  Certain litigation against Grant Prideco, its directors and National Oilwell Varco has been
instituted. This litigation could delay or prevent the Grant Prideco merger. Similar litigation
could also be instituted in the future.
   Risks Related to National Oilwell Varco
 We are dependent upon the level of activity in the oil and gas industry, which is volatile .
  
    
    the ability of the members of the Organization of Petroleum Exporting Countries, or
OPEC, to maintain price stability through voluntary production limits, the level of
production by non-OPEC countries and worldwide demand for oil and gas;
    
    level of production from known reserves;
    
    cost of exploring for and producing oil and gas;
    
    level of drilling activity and drilling rig dayrates;
    
    worldwide economic activity;
    
    national government political requirements;
    
    development of alternate energy sources; and
    
    environmental regulations.
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Volatile oil and gas prices affect demand for our products.
   Competition in our industry could ultimately lead to lower revenues and earnings.
  
    
    price changes;
    
    new product and technology introductions; and
    
    improvements in availability and delivery.
  We have aggressively expanded our businesses and intend to maintain an aggressive growth strategy.
  Our operating results have fluctuated during recent years and these fluctuations may continue.
  
    
    fluctuations in the oil and gas industry;
    
    competition;
    
    the ability to service the debt obligations of the Company;
    
    the ability to identify strategic acquisitions at reasonable prices;
    
    the ability to manage and control operating costs of the Company;
    
    fluctuations in political and economic conditions in the United States and abroad; and
    
    the ability to protect our intellectual property rights.
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There are risks associated with our presence in international markets, including political or
economic instability and currency restrictions.
   The results of our operations are subject to market risk from changes in foreign currency exchange
rates.
  An impairment of goodwill could reduce our earnings.
  We could be adversely affected if we fail to comply with any of the numerous federal, state and
local laws, regulations and policies that govern environmental protection, zoning and other matters
applicable to our businesses.
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Our businesses expose us to potential environmental liability.
  
    
    personal injury or loss of life;
    
    severe damage to or destruction of property; or
    
    environmental damage and suspension of operations.
  
    
    negligence;
    
    strict liability;
    
    breach of contract with customers; or
    
    as a result of our contractual agreement to indemnify our customers in the normal course
of business, which is normally the case.
 We may not have adequate insurance for potential environmental liabilities.
  
    
    we may not be able to continue to obtain insurance on commercially reasonable terms;
    
    we may be faced with types of liabilities that will not be covered by our insurance;
    
    our insurance carriers may not be able to meet their obligations under the policies; or
    
    the dollar amount of any liabilities may exceed our policy limits.
  There are risks associated with certain contracts for our drilling equipment.
  
    
    our failure to adequately estimate costs for making this drilling equipment;
    
    our inability to deliver equipment that meets contracted technical requirements;
    
    our inability to maintain our quality standards during the design and manufacturing
process;
    
    our inability to secure parts made by third party vendors at reasonable costs and within
required timeframes;
    
    unexpected increases in the costs of raw materials; and
    
    our inability to manage unexpected delays due to weather, shipyard access, labor
shortages or other factors beyond our control.
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GLOSSARY OF OILFIELD TERMS
 (Sources:  Company management; A Dictionary for the Petroleum
Industry, The University of Texas at Austin, 2001.)API
    
    Abbr: American Petroleum InstituteAnnular Blowout Preventer
    
    A large valve, usually installed above the ram blowout preventers,
that forms a seal in the annular space between the pipe and the
wellbore or, if no pipe is present, in the wellbore itself.Annulus
    
    The open space around pipe in a wellbore through which fluids may pass.Automatic Pipe Handling 
Systems (Automatic Pipe 
Racker)
    
    A device used on a drilling rig to automatically remove and insert
drill stem components from and into the hole. It replaces the need for
a person to be in the derrick or mast when tripping pipe into or out
of the hole.Automatic Roughneck
    
    A large, self-contained pipe-handling machine used by drilling crew
members to make up and break out tubulars. The device combines a
spinning wrench, torque wrench, and backup wrenches.Beam pump
    
    Surface pump that raises and lowers sucker rods continually, so as to
operate a downhole pump.Bit
    
    The cutting or boring element used in drilling oil and gas wells. The
bit consists of a cutting element and a circulating element. The
cutting element is steel teeth, tungsten carbide buttons, industrial
diamonds, or polycrystalline diamonds (PDCs). These teeth, buttons, or
diamonds penetrate and gouge or scrape the formation to remove it. The
circulating element permits the passage of drilling fluid and utilizes
the hydraulic force of the fluid stream to improve drilling rates. In
rotary drilling, several drill collars are joined to the bottom end of
the drill pipe column, and the bit is attached to the end of the drill
collars. Drill collars provide weight on the bit to keep it in firm
contact with the bottom of the hole. Most bits used in rotary drilling
are roller cone bits, but diamond bits are also used extensively.Blowout
    
    An uncontrolled flow of gas, oil or other well fluids into the
atmosphere. A blowout, or gusher, occurs when formation pressure
exceeds the pressure applied to it by the column of drilling fluid. A
kick warns of an impending blowout.Blowout Preventer (BOP)
    
    Series of valves installed at the wellhead while drilling to prevent
the escape of pressurized fluids.Blowout Preventer (BOP) Stack
    
    The assembly of well-control equipment including preventers, spools,
valves, and nipples connected to the top of the wellhead.Closed Loop Drilling Systems
    
    A solids control system in which the drilling mud is reconditioned and
recycled through the drilling process on the rig itself.Coiled Tubing
    
    A continuous string of flexible steel tubing, often hundreds or
thousands of feet long, that is wound onto a reel, often dozens of
feet in diameter. The reel is an integral part of the coiled tubing
unit, which consists of several devices that ensure the tubing can be
safely and efficiently inserted into the well from the surface.
Because tubing can be lowered into a well without having to make up
joints of tubing, running coiled tubing into the well is faster and
less expensive than running conventional tubing. Rapid advances in the
use of coiled tubing make it a popular way in which to run tubing into
and out of a well. Also called reeled tubing.Cuttings
    
    Fragments of rock dislodged by the bit and brought to the surface in
the drilling mud. Washed and dried cutting samples are analyzed by
geologist to obtain information about the formations drilled.
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Directional Well
    
    Well drilled in an orientation other than vertical in order to access
broader portions of the formation.Drawworks
    
    The hoisting mechanism on a drilling rig.
It is essentially a large winch that spools
off or takes in the drilling line and thus
raises or lowers the drill stem and bit.Drill Pipe Elevator (Elevator)
    
    On conventional rotary rigs and top-drive
rigs, hinged steel devices with manual
operating handles that crew members latch
onto a tool joint (or a sub). Since the
elevators are directly connected to the
traveling block, or to the integrated
traveling block in the top drive, when the
driller raises or lowers the block or the
top-drive unit, the drill pipe is also
raised or lowered.Drilling jars
    
    A percussion tool operated manually or
hydraulically to deliver a heavy downward
blow to free a stuck drill stem.Drilling mud
    
    A specially compounded liquid circulated
through the wellbore during rotary drilling
operations.Drilling riser
    
    A conduit used in offshore drilling through
which the drill bit and other tools are
passed from the rig on the waters surface
to the sea floor.Drill stem
    
    All members in the assembly used for rotary
drilling from the swivel to the bit,
including the Kelly, the drill pipe and
tool joints, the drill collars, the
stabilizers, and various specialty items.Formation
    
    A bed or deposit composed throughout of
substantially the same kind of rock; often
a lithologic unit. Each formation is given
a name, frequently as a result of the study
of the formation outcrop at the surface and
sometimes based on fossils found in the
formation.Hardbanding
    
    A special wear-resistant material often
applied to tool joints to prevent abrasive
wear to the area when the pipe is being
rotated downhole.Iron roughneck
    
    A floor-mounted combination of a spinning
wrench and a torque wrench. The Iron
Roughneck moves into position hydraulically
and eliminates the manual handling involved
with suspended individual tools.Jack-up rig
    
    A mobile bottom-supported offshore drilling
structure with columnar or open-truss legs
that support the deck and hull. When
positioned over the drilling site, the
bottoms of the legs penetrate the seafloor.Jar
    
    A mechanical device placed near the top of
the drill stem which allows the driller to
strike a very heavy blow upward or downward
on stuck pipe.Joint
    
    1)  In drilling, a single length (from 16
feet to 45 feet, or 5 meters to 14.5
meters, depending on its range length) of
drill pipe, drill collar, casing or tubing
that has threaded connections at both ends.
Several joints screwed together constitute
a stand of pipe. 2)  In pipelining, a
single length (usually 40 feet-12 meters)
of pipe. 3)  In sucker rod pumping, a
single length of sucker rod that has
threaded connections at both ends.Kelly
    
    The heavy steel tubular device, four- or
six-sided, suspended from the swivel
through the rotary table and connected to
the top joint of drill pipe to turn the
drill stem as the rotary table returns. It
has a bored passageway that permits fluid
to be circulated into the drill stem and up
the annulus, or vice versa. Kellys
manufactured to API specifications are
available only in four-  or six-sided
versions, are either 40 or 54 feet (12 to
16 meters) long, and have diameters as
small as 21/2 inches (6
centimeters) and as large as 6 inches (15
centimeters).Kelly bushing
    
    A special device placed around the kelly
that mates with the kelly flats and fits
into the master bushing of the rotary
table. The kelly bushing is designed so
that the kelly is free to move up or down
through it. The bottom of the bushing may
be shaped to fit the opening in
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the master bushing or it may have pins that fit into
the master bushing. In either case, when
the kelly bushing is inserted into the
master bushing and the master bushing is
turned, the kelly bushing also turns. Since
the kelly bushing fits onto the kelly, the
kelly turns, and since the kelly is made up
to the drill stem, the drill stem turns.
Also called the drive bushing.Kelly spinner
    
    A pneumatically operated device mounted on
top of the kelly that, when actuated,
causes the kelly to turn or spin. It is
useful when the kelly or a joint of pipe
attached to it must be spun up, that is,
rotated rapidly for being made up.Kick
    
    An entry of water, gas, oil, or other
formation fluid into the wellbore during
drilling. It occurs because the pressure
exerted by the column of drilling fluid is
not great enough to overcome the pressure
exerted by the fluids in the formation
drilled. If prompt action is not taken to
control the kick, or kill the well, a
blowout may occur.Making-up
    
    1.  To assemble and join parts to form a complete unit (e.g., to
make up a string of drill pipe). 2.  To screw together two
threaded pieces. Compare break out. 3.  To mix or prepare (e.g.,
to make up a tank of mud). 4. To compensate for (e.g., to make
up for lost time).Manual tongs (Tongs)
    
    The large wrenches used for turning when making up or breaking out drill pipe,
casing, tubing, or other pipe; variously called casing tongs, pipe tongs, and so
forth, according to the specific use. Power tongs or power wrenches are pneumatically
or hydraulically operated tools that serve to spin the pipe up tight and, in some
instances to apply the final makeup torque.Master bushing
    
    A device that fits into the rotary table to accommodate the slips and drive the kelly
bushing so that the rotating motion of the rotary table can be transmitted to the
kelly. Also called rotary bushing.Motion compensation 
equipment
    
    Any device (such as a bumper sub or heave compensator) that serves to maintain
constant weight on the bit in spite of vertical motion of a floating offshore
drilling rig.Mud pump
    
    A large, high-pressure reciprocating pump used to circulate the mud on a drilling rig.Plug gauging
    
    The mechanical process of ensuring that the inside threads on a piece of drill pipe
comply with API standards.Pressure control equipment
    
    1.  The act of preventing the entry of formation fluids into a wellbore. 2.  The act
of controlling high pressures encountered in a well.Pressure pumping
    
    Pumping fluids into a well by applying pressure at the surface.Ram blowout preventer
    
    A blowout preventer that uses rams to seal off pressure on a hole that is with or
without pipe. Also called a ram preventer.Ring gauging
    
    The mechanical process of ensuring that the outside threads on a piece of drill pipe
comply with API standards.Riser
    
    A pipe through which liquids travel upward.Riser pipe
    
    The pipe and special fitting used on floating offshore drilling rigs to established a
seal between the top of the wellbore, which is on the ocean floor, and the drilling
equipment located above the surface of the water. A riser pipe serves as a guide for
the drill stem from the drilling vessel to the wellhead and as a conductor or
drilling fluid from the well to the vessel. The riser consists of several sections of
pipe and includes special devices to compensate for any movement of the drilling rig
caused by waves. Also called marine riser pipe, riser joint.
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Rotary table
    
    The principal piece of equipment in the rotary table assembly; a turning device used
to impart rotational power to the drill stem while permitting vertical movement of
the pipe for rotary drilling. The master bushing fits inside the opening of the
rotary table; it turns the kelly bushing, which permits vertical movement of the
kelly while the stem is turning.Rotating blowout 
preventer (Rotating Head)
    
    A sealing device used to close off the annular space around the kelly in drilling
with pressure at the surface, usually installed above the main blowout preventers. A
rotating head makes it possible to drill ahead even when there is pressure in the
annulus that the weight of the drilling fluid is not overcoming; the head prevents
the well from blowing out. It is used mainly in the drilling of formations that have
low permeability. The rate of penetration through such formations is usually rapid.Safety clamps
    
    A clamp placed very tightly around a drill collar that is suspended in the rotary
table by drill collar slips. Should the slips fail, the clamp is too large to go
through the opening in the rotary table and therefore prevents the drill collar
string from falling into the hole. Also called drill collar clamp.Shaker
    
    See Shale ShakerShale shaker
    
    A piece of drilling rig equipment that uses a vibrating screen to remove cuttings
from the circulating fluid in rotary drilling operations. The size of the openings in
the screen should be selected carefully to be the smallest size possible to allow 100
per cent flow of the fluid. Also called a shaker.Slim-hole completions
(Slim-hole Drilling)
    
    Drilling in which the size of the hole is smaller than the conventional hole diameter
for a given depth. This decrease in hole size enables the operator to run smaller
casing, thereby lessening the cost of completion.Slips
    
    Wedge-shaped pieces of metal with serrated inserts (dies) or other gripping
elements, such as serrated buttons, that suspend the drill pipe or drill
collars in the master bushing of the rotary table when it is necessary to
disconnect the drill stem from the kelly or from the top-drive units drive
shaft. Rotary slips fit around the drill pipe and wedge against the master
bushing to support the pipe. Drill collar slips fit around a drill collar and
wedge against the master bushing to support the drill collar. Power slips are
pneumatically or hydraulically actuated devices that allow the crew to dispense
with the manual handling of slips when making a connection.Solids
    
    See CuttingsSpinning wrench
    
    Air-powered or hydraulically powered wrench used to spin drill pipe in making
or breaking connections.Spinning-in
    
    The rapid turning of the drill stem when one length of pipe is being joined to
another. Spinning-out refers to separating the pipe.Stand
    
    The connected joints of pipe racked in the derrick or mast when making a trip.
On a rig, the usual stand is about 90 feet (about 27 meters) long (three
lengths of drill pipe screwed together), or a treble.String
    
    The entire length of casing, tubing, sucker rods, or drill pipe run into a hole.Sucker rod
    
    A special steel pumping rod. Several rods screwed together make up the link
between the pumping unit on the surface and the pump at the bottom of the well.Tensioner
    
    A system of devices installed on a floating offshore drilling rig to maintain a
constant tension on the riser pipe, despite any vertical motion made by the
rig. The guidelines must also be tensioned, so a separate tensioner system is
provided for them.Thermal desorption
    
    The process of removing drilling mud from cuttings by applying heat directly to
drill cuttings.
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Top drive
    
    A device similar to a power swivel that is used in place of the rotary table to
turn the drill stem. It also includes power tongs. Modern top drives combine
the elevator, the tongs, the swivel, and the hook. Even though the rotary table
assembly is not used to rotate the drill stem and bit, the top-drive system
retains it to provide a place to set the slips to suspend the drill stem when
drilling stops.Torque wrench
    
    Spinning wrench with a gauge for measuring the amount of torque being applied
to the connection.Trouble cost
    
    Costs incurred as a result of unanticipated complications while drilling a
well. These costs are often referred to as contingency costs during the
planning phase of a well.Well completion
    
    1.  The activities and methods of preparing a well for the production of oil
and gas or for other purposes, such as injection; the method by which one or
more flow paths for hydrocarbons are established between the reservoir and the
surface. 2.  The system of tubulars, packers, and other tools installed beneath
the wellhead in the production casing; that is, the tool assembly that provides
the hydrocarbon flow path or paths.Well stimulation
    
    Any of several operations used to increase the production of a well, such as
acidizing or fracturing.Well workover
    
    The performance of one or more of a variety of remedial operations on a
producing oilwell to try to increase production. Examples of workover jobs are
deepening, plugging back, pulling and resetting liners, and squeeze cementing.Wellbore
    
    A borehole; the hole drilled by the bit. A wellbore may have casing in it or it
may be open (uncased); or part of it may be cased, and part of it may be open.
Also called a borehole or hole.Wireline
    
    A slender, rodlike or threadlike piece of metal usually small in diameter, that
is used for lowering special tools (such as logging sondes, perforating guns,
and so forth) into the well. Also called slick line.
 
 ITEM 1B. UNRESOLVED STAFF COMMENTS
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ITEM 2. PROPERTIES
  BuildingSize
    
    Property
    
    
    
    Lease(Square
    
    Size
    
    Owned/
    
    TerminationLocation
    
    Description
    
    Feet)
    
    (Acres)
    
    Leased
    
    DateRig Technology:Lanzhou, China
    
    Mfg. Plant (Drilling Equipment) &
Administrative Offices
    
    
    945,836
    
    
    
    44
    
    
    Building
Owned*
    
    
    10/20/20Houston, Texas
    
    West Little York Manufacturing
Facility, Repair, Service,
Administrative & Sales Offices
    
    
    619,000
    
    
    
    34
    
    
    OwnedPampa, Texas
    
    Mfg. Plant
    
    
    548,000
    
    
    
    400
    
    
    OwnedHouston, Texas
    
    Mfg. Plant (Drilling Machinery and
Equip)
    
    
    417,000
    
    
    
    
    
    
    Leased
    
    VariousHouston, Texas
    
    Bammel Facility  Repair, Service,
Parts, Administrative & Sales
Offices
    
    
    377,750
    
    
    
    18.5
    
    
    Leased
    
    
    10/30/21Fort Worth, Texas
    
    Coiled Tubing Manufacturing
Facility, Warehouse, Administrative
& Sales Offices
    
    
    297,000
    
    
    
    24
    
    
    OwnedCarquefou, France
    
    Mfg. Plant (Offshore Equipment)
    
    
    213,000
    
    
    
    
    
    
    OwnedHouston, Texas
    
    Mfg. Plant (Braking Systems)
    
    
    200,000
    
    
    
    24
    
    
    OwnedHouston, Texas
    
    Mfg. Plant (Electrical Power Systems)
    
    
    184,000
    
    
    
    11
    
    
    OwnedHouston, Texas
    
    Mfg. Plant (Drilling Rigs and
Components)
    
    
    178,000
    
    
    
    
    
    
    OwnedKristiansand, Norway
    
    Mfg. (Drilling and Offshore
Equipment)
    
    
    159,429
    
    
    
    
    
    
    OwnedAberdeen, Scotland
    
    Pressure Control Manufacturing,
Administrative & Sales
    
    
    143,859
    
    
    
    5
    
    
    Leased
    
    
    08/31/18Orange, California
    
    Manufacturing & Office Facility -
759 N. Eckhoff
    
    
    126,000
    
    
    
    9
    
    
    Building
Owned*
    
    
    04/30/12Anderson, Texas
    
    Rolligon Mfg. Facility,
Administrative & Sales Offices
    
    
    105,000
    
    
    
    35
    
    
    Leased
    
    
    11/06/11Conroe, Texas
    
    Mfg., Administration & Sales
    
    
    86,000
    
    
    
    
    
    
    Leased
    
    
    12/31/21Molde, Norway
    
    Mfg. (Marine Handling Equipment)
    
    
    78,000
    
    
    
    
    
    
    OwnedMexicali, Mexico
    
    Mfg. Plant
    
    
    76,402
    
    
    
    
    
    
    Leased
    
    
    04/01/14Calgary, Canada
    
    Mfg. (Coiled Tubing and Wireline
Units)
    
    
    76,000
    
    
    
    
    
    
    OwnedEtten-Leur,
Netherlands
    
    Mfg. Plant/Sales (Drilling Equipment)
    
    
    75,000
    
    
    
    6
    
    
    OwnedDuncan, Oklahoma
    
    Nitrogen Units Manufacturing
Facility, Warehouse & Offices
    
    
    67,600
    
    
    
    13
    
    
    OwnedHouston, Texas
    
    Brittmore Mfg. Plant (Electrical
Power Systems)
    
    
    66,500
    
    
    
    6
    
    
    Leased
    
    
    11/01/11Aberdeen, Scotland
    
    Rig Solutions Facility
    
    
    63,076
    
    
    
    3
    
    
    LeasedAberdeen, Scotland
    
    Systems & Shaffer Sales, Service &
Distribution Facility
    
    
    63,000
    
    
    
    6
    
    
    OwnedEdmonton, Canada
    
    Mfg. (Drilling Machinery and Equip.)
    
    
    61,000
    
    
    
    
    
    
    OwnedNisku, Canada
    
    Mfg. (Drilling Machinery and Equip.)
    
    
    60,000
    
    
    
    
    
    
    OwnedMinsk, Belarus
    
    Coiled Tubing Manufacturing
Facility, Administrative & Sales
Offices
    
    
    49,800
    
    
    
    1
    
    
    Leased
    
    
    10/31/08Calgary, Canada
    
    Coiled Tubing Manufacturing
Facility, Administrative & Sales
Offices
    
    
    48,040
    
    
    
    5
    
    
    Owned
 26




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##### Table of Contents



BuildingSize
    
    Property
    
    
    
    Lease(Square
    
    Size
    
    Owned/
    
    TerminationLocation
    
    Description
    
    Feet)
    
    (Acres)
    
    Leased
    
    DateStavanger, Norway
    
    Drilling Equipment Work Shop,
Warehouse & Customer Service Center
    
    
    41,333
    
    
    
    1
    
    
    Leased
    
    
    06/01/09Dehradun, India
    
    Mfg. Plant & Admin. Offices (Unit I)
    
    
    41,086
    
    
    
    2
    
    
    OwnedTulsa, Oklahoma
    
    Pumping Manufacturing Facility,
Warehouse & Offices
    
    
    40,700
    
    
    
    4
    
    
    Leased
    
    
    12/31/08Dehradun, India
    
    Mfg. Plant & Admin. Offices (Unit II)
    
    
    37,826
    
    
    
    2
    
    
    OwnedSingapore
    
    Wireline Products Manufacturing &
Offices
    
    
    35,300
    
    
    
    2
    
    
    Building
Owned*
    
    
    04/15/14Singapore
    
    Systems Offices, Service &
Distribution Facility
    
    
    35,079
    
    
    
    1
    
    
    Building
Owned*
    
    
    07/01/40Orange, California
    
    Administrative Offices743 N. Eckhoff
    
    
    35,000
    
    
    
    2
    
    
    Leased
    
    
    04/30/12Great Yarmouth,
    
    Coiled Tubing & Nitrogen Units
    
    
    34,400
    
    
    
    2
    
    
    Leased
    
    
    08/22/11England
    
    Manufacturing, Administrative & Sales
OfficesHouston, Texas
    
    Technical College & Training Offices
    
    
    33,600
    
    
    
    
    
    
    Leased
    
    
    12/01/17Petroleum Services & Supplies:Al Khobar, Saudi
Arabia
    
    Reclamation, Inspection Facility &
Offices
    
    
    340,203
    
    
    
    8
    
    
    Leased
    
    
    11/30/10Houston, Texas
    
    Sheldon Road: Inspection Facility
    
    
    335,993
    
    
    
    192
    
    
    OwnedHouston, Texas
    
    Holmes Road Complex: Manufacturing,
Warehouse, Corporate Offices, Coating
Manufacturing Plant & Pipeline
Services
    
    
    300,000
    
    
    
    50
    
    
    OwnedLittle Rock, Arkansas
    
    Fiberglass Tubular Manufacturing
Plant, R&D Lab, Administrative
Offices
    
    
    262,784
    
    
    
    44
    
    
    OwnedCedar Park, Texas
    
    Instrumentation Manufacturing
Facility, Administrative & Sales
Offices
    
    
    260,000
    
    
    
    40
    
    
    OwnedHarbin, China
    
    Fiberglass Tubular Manufacturing
Plant, Administrative Offices
    
    
    260,000
    
    
    
    11
    
    
    OwnedManchester, England
    
    Mfg. (Pumps and expendable parts)
    
    
    244,000
    
    
    
    
    
    
    OwnedConroe, Texas
    
    Solids Control Manufacturing
Facility, Warehouse, Administrative &
Sales Offices & Engineering Labs
    
    
    222,000
    
    
    
    37
    
    
    OwnedSand Springs,
Oklahoma
    
    Fiberglass Tubular Manufacturing
Plant & Administrative Offices
    
    
    189,173
    
    
    
    7
    
    
    OwnedJebel Ali, Dubai
    
    Mfg. (Downhole Tools) & Distribution
Warehouse
    
    
    180,000
    
    
    
    
    
    
    Leased
    
    
    01/29/21Amelia, Louisiana
    
    Coating Plant & Inspection Facility
    
    
    179,574
    
    
    
    84
    
    
    Leased
    
    
    12/31/16Houston, Texas
    
    QT Coiled Tubing Manufacturing
Facility, Warehouse and Offices
    
    
    172,472
    
    
    
    27
    
    
    OwnedSan Antonio, Texas
    
    Fiberglass Tubular Manufacturing
Plant, R & D Lab, Administrative
Offices
    
    
    170,500
    
    
    
    20
    
    
    OwnedHouston, Texas
    
    Coating Plant & Inspection Facility
    
    
    168,683
    
    
    
    49
    
    
    OwnedTulsa, Oklahoma
    
    Mfg. (Pumps and expendable parts)
    
    
    165,000
    
    
    
    
    
    
    OwnedEdmonton, Canada
    
    Mfg. (Downhole Tools)
    
    
    162,000
    
    
    
    
    
    
    OwnedWichita, Kansas
    
    Fiberglass Tubular Manufacturing Plant
    
    
    129,746
    
    
    
    15
    
    
    OwnedSu Zhou, China
    
    Fiberglass Tubular Manufacturing
Plant, Administrative Offices
    
    
    125,000
    
    
    
    5
    
    
    OwnedNisku, Canada
    
    Trucking, Rod Plant, Inspection &
Storage Facility
    
    
    122,398
    
    
    
    155
    
    
    OwnedMcAlester, Oklahoma
    
    Mfg. (Pumps)
    
    
    120,000
    
    
    
    
    
    
    OwnedBig Spring, Texas
    
    Fiberglass Tubular Manufacturing
Plant & Administrative Offices
    
    
    118,600
    
    
    
    12
    
    
    OwnedNisku, Canada
    
    Coating Plant, Inspection & Drill
Pipe Facility
    
    
    110,990
    
    
    
    47
    
    
    OwnedNisku, Canada
    
    Mfg. Downhole Tools
    
    
    105,000
    
    
    
    
    
    
    Owned
 27




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##### Table of Contents



BuildingSize
    
    Property
    
    
    
    Lease(Square
    
    Size
    
    Owned/
    
    TerminationLocation
    
    Description
    
    Feet)
    
    (Acres)
    
    Leased
    
    DateAmelia, Louisiana
    
    Coating Plant, Inspection & Storage
Facilities
    
    
    102,000
    
    
    
    90
    
    
    Building
Owned*
    
    
    05/31/11Casper, Wyoming
    
    Inspection Facility
    
    
    91,720
    
    
    
    29
    
    
    OwnedMidland, Texas
    
    Coating Plant
    
    
    87,000
    
    
    
    25
    
    
    OwnedHouston, Texas
    
    Mfg. (Downhole Tools)
    
    
    86,175
    
    
    
    
    
    
    Leased
    
    
    12/31/18Houston, Texas
    
    Highway 90: Coating Plant
    
    
    83,000
    
    
    
    43
    
    
    Leased
    
    
    07/31/11Aberdeen, Scotland
    
    Solids Control Manufacturing Facility
Assembly, Administrative & Sales
    
    
    77,400
    
    
    
    6
    
    
    OwnedHouston, Texas
    
    Engineering/Technical Research Center
    
    
    76,000
    
    
    
    6
    
    
    OwnedBogota, Colombia
    
    Solids Control & Inspection Yard &
Warehouse
    
    
    69,966
    
    
    
    
    
    
    Leased
    
    
    08/31/08Navasota, Texas
    
    Coating Plant, Inspection Pipe Storage
    
    
    65,000
    
    
    
    
    
    
    Building
Owned*
    
    
    06/30/13Marble Falls, Texas
    
    Mfg. (Expendable parts)
    
    
    65,000
    
    
    
    
    
    
    OwnedStafford, Texas
    
    Mfg. and Service of Downhole tools
    
    
    65,000
    
    
    
    
    
    
    OwnedLeduc, Canada
    
    MDT, Shaffer, Chimo, Alberta
Instruments, Varco Services &
Warehouse Facility
    
    
    64,056
    
    
    
    5
    
    
    OwnedGladbeck, Germany
    
    Coating Plant
    
    
    68,641
    
    
    
    4
    
    
    OwnedLone Star, Texas
    
    Inspection Facility
    
    
    56,700
    
    
    
    80
    
    
    OwnedNeiva, Colombia
    
    Inspection Yard & Warehouse
    
    
    54,898
    
    
    
    1
    
    
    Leased
    
    
    02/01/08Aberdeen, Scotland
    
    Inspection Facility, Coating Plant,
Manufacturing, Administrative & Sales
    
    
    53,425
    
    
    
    10
    
    
    OwnedCoevorden,
Netherlands
    
    Inspection Reclamation & Repair
Facility
    
    
    53,361
    
    
    
    2
    
    
    Leased
    
    
    12/04/09Harvey, Louisiana
    
    Coating Plant & Inspection Facility
    
    
    53,000
    
    
    
    7
    
    
    Owned &
Leased
    
    
    04/20/08Houston, Texas
    
    Mfg. (Pumps and expendable parts)
    
    
    51,000
    
    
    
    
    
    
    Leased
    
    
    12/31/10Tuas, Singapore
    
    Inspection Facility
    
    
    50,644
    
    
    
    8
    
    
    Building
Owned*
    
    
    06/09/19Houston, Texas
    
    Mfg. (Rotors, Starters & Artificial
Lifts)
    
    
    50,000
    
    
    
    
    
    
    OwnedHouston, Texas
    
    Warehouse (Pumps and expendable parts)
    
    
    48,000
    
    
    
    
    
    
    Leased
    
    
    07/31/16Odessa, Texas
    
    Coating Plant & Inspection Facility
    
    
    45,332
    
    
    
    10
    
    
    OwnedLittle Rock, Arkansas
    
    Fiberglass Tubular Manufacturing Plant
    
    
    45,000
    
    
    
    1.5
    
    
    Leased
    
    
    10/01/09Hebei, China
    
    Coating Plant
    
    
    45,000
    
    
    
    13
    
    
    Leased
    
    
    04/26/25Berlaimont, France
    
    Coating Plant
    
    
    44,000
    
    
    
    16
    
    
    OwnedCelle, Germany
    
    Inspection Facility, Administrative &
Engineering Offices
    
    
    43,560
    
    
    
    12
    
    
    Building
Owned*
    
    
    2049Casper, Wyoming
    
    Inspection Facility
    
    
    41,030
    
    
    
    40
    
    
    OwnedEdmond, Oklahoma
    
    Coating Plant
    
    
    40,000
    
    
    
    19
    
    
    OwnedFarmington, New
Mexico
    
    Inspection Storage Facilities
    
    
    37,725
    
    
    
    50
    
    
    Leased
    
    
    03/31/14Oklahoma City,
Oklahoma
    
    Inspection Facility
    
    
    36,000
    
    
    
    21
    
    
    OwnedMacae, Brazil
    
    Inspection Yard & Rig Service Facility
    
    
    34,445
    
    
    
    5
    
    
    OwnedOdessa, Texas
    
    Inspection Facility
    
    
    33,910
    
    
    
    50
    
    
    OwnedEdmonton, Canada
    
    Oilwell Engine Reclamation
    
    
    32,550
    
    
    
    10
    
    
    Leased
    
    
    04/30/13Yopal, Colombia
    
    Inspection and Solids Control
Warehouse & Storage
    
    
    27,674
    
    
    
    5
    
    
    OwnedDistribution:Houston, Texas
    
    Distribution and Warehouse
    
    
    124,000
    
    
    
    
    
    
    Building Owned*
    
    
    12/31/21Edmonton, Canada
    
    Redistribution Center
    
    
    100,000
    
    
    
    
    
    
    Leased
    
    
    01/31/14
 28




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##### Table of Contents



BuildingSize
    
    Property
    
    
    
    Lease(Square
    
    Size
    
    Owned/
    
    TerminationLocation
    
    Description
    
    Feet)
    
    (Acres)
    
    Leased
    
    DateLloydminster, Canada
    
    Applied Products Facility
    
    
    100,000
    
    
    
    
    
    
    Leased
    
    
    05/31/19Corporate:Houston, Texas
    
    Administrative Offices
    
    
    196,000
    
    
    Office Building
    
    Leased
    
    
    12/01/17Houston, Texas
    
    Administrative Offices
    
    
    140,430
    
    
    Office Building
    
    Leased
    
    
    05/31/17Houston, Texas
    
    Corporate Administrative Office
    
    
    115,000
    
    
    Office Building
    
    Leased
    
    
    10/31/15Houston, Texas
    
    Administrative Offices
    
    
    48,000
    
    
    Office Building
    
    Leased
    
    
    10/31/15
 
 *
    
    Building owned but land leased.   
 ITEM 3. LEGAL PROCEEDINGS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  29




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##### Table of Contents



PART II
 
 ITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
 Market Information
  2007
    
    2006High
    
    Low
    
    High
    
    Low1st Quarter
    
    $
    39.36
    
    
    $
    27.00
    
    
    $
    38.27
    
    
    $
    28.502nd Quarter
    
    
    54.47
    
    
    
    39.10
    
    
    
    35.93
    
    
    
    28.253rd Quarter
    
    
    73.67
    
    
    
    51.56
    
    
    
    34.04
    
    
    
    28.174th Quarter
    
    
    79.28
    
    
    
    63.09
    
    
    
    34.06
    
    
    
    26.04
    30




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##### Table of Contents



PERFORMANCE GRAPH
  COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
 
 
 *
    
    $100 invested on 12/31/02 in stock or index-including investment of dividends. Fiscal year ending December 31.Copyright© 2008, Standard & Poors, a division of The McGraw-Hill Companies, Inc. All rights reserved
www.researchdatagroup.com/S&P .htm Cumulative Total Return12/02
    
    
    12/03
    
    
    12/04
    
    
    12/05
    
    
    12/06
    
    
    12/07National Oilwell Varco
    
    
    
    100.00
    
    
    
    
    102.38
    
    
    
    
    161.58
    
    
    
    
    287.09
    
    
    
    
    280.13
    
    
    
    
    672.71S&P500
    
    
    
    100.00
    
    
    
    
    128.68
    
    
    
    
    142.69
    
    
    
    
    149.70
    
    
    
    
    173.34
    
    
    
    
    182.87S&P Oil & Gas Equipment & Services
    
    
    
    100.00
    
    
    
    
    124.74
    
    
    
    
    164.49
    
    
    
    
    244.37
    
    
    
    
    282.35
    
    
    
    
    417.59
  31




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##### Table of Contents



ITEM 6. SELECTED FINANCIAL DATA
 Years Ended December 31,2007
    
    
    2006
    
    
    2005 (1)
    
    
    2004
    
    
    2003(dollars in millions, except per share data)Operating Data:Revenue
    
    $
    9,789.0
    
    
    $
    7,025.8
    
    
    $
    4,644.5
    
    
    $
    2,318.1
    
    
    $
    2,004.9Operating profit
    
    
    2,044.4
    
    
    
    1,111.1
    
    
    
    476.8
    
    
    
    176.0
    
    
    
    164.1Income before taxes
    
    
    2,028.9
    
    
    
    1,049.2
    
    
    
    430.0
    
    
    
    138.9
    
    
    
    121.8Net income
    
    $
    1,337.1
    
    
    $
    684.0
    
    
    $
    286.9
    
    
    $
    115.2
    
    
    $
    79.7Net income per shareBasic
    
    $
    3.77
    
    
    $
    1.95
    
    
    $
    0.92
    
    
    $
    0.67
    
    
    $
    0.47Diluted
    
    $
    3.76
    
    
    $
    1.93
    
    
    $
    0.91
    
    
    $
    0.67
    
    
    $
    0.47Other Data:Depreciation and amortization
    
    $
    214.1
    
    
    $
    160.6
    
    
    $
    114.6
    
    
    $
    44.0
    
    
    $
    39.2Capital expenditures
    
    $
    251.8
    
    
    $
    200.4
    
    
    $
    105.0
    
    
    $
    39.0
    
    
    $
    32.4Balance Sheet Data:Working capital
    
    $
    3,567.1
    
    
    $
    2,300.4
    
    
    $
    1,811.0
    
    
    $
    711.0
    
    
    $
    763.0Total assets
    
    $
    12,114.9
    
    
    $
    9,019.3
    
    
    $
    6,678.5
    
    
    $
    2,576.5
    
    
    $
    2,213.1Long-term debt, less current maturities
    
    $
    737.9
    
    
    $
    834.7
    
    
    $
    835.6
    
    
    $
    350.0
    
    
    $
    594.0Stockholders equity
    
    $
    6,661.4
    
    
    $
    5,023.5
    
    
    $
    4,194.2
    
    
    $
    1,270.2
    
    
    $
    1,059.2
 
 (1)
    
    Financial results of Varco International, Inc. (Varco) have been included in our consolidated
financial statements beginning March 11, 2005, the date the Varco merger was completed and Varco
common shares were exchanged for our common shares. Financial information for prior periods and
dates may not be comparable with 2005 due to the impact of this business combination on our
financial position and results of operation. See Note 3 of the Notes to the Consolidated Financial
Statements for a description of the Varco merger and related adjusted financial information.
Results for the year ended December 31, 2005 include integration costs associated with the Varco
merger of $31.7 million and stock-based compensation costs of $15.6 million related to the
amortization expense of options assumed in the Varco merger. 32




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##### Table of Contents



ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 General Overview
   Operating Environment Overview
  %
    
    
    %2007 vs.
    
    
    2007 vs.2007*
    
    
    2006*
    
    
    2005*
    
    
    2006
    
    
    2005Active Drilling Rigs:U.S.
    
    
    1,767
    
    
    
    1,648
    
    
    
    1,381
    
    
    
    7.2
    %
    
    
    28.0
    %Canada
    
    
    344
    
    
    
    470
    
    
    
    458
    
    
    
    (26.8
    %)
    
    
    (24.9
    %)International
    
    
    1,005
    
    
    
    925
    
    
    
    908
    
    
    
    8.6
    %
    
    
    10.7
    %Worldwide
    
    
    3,116
    
    
    
    3,043
    
    
    
    2,747
    
    
    
    2.4
    %
    
    
    13.4
    %West Texas Intermediate
    
    $
    72.33
    
    
    $
    66.00
    
    
    $
    56.65
    
    
    
    9.6
    %
    
    
    27.7
    %Crude Prices (per barrel)Natural Gas Prices ($/mmbtu)
    
    $
    6.97
    
    
    $
    6.74
    
    
    $
    8.83
    
    
    
    3.4
    %
    
    
    (21.1
    %)
 
 *
    
    Averages for the years indicated. See sources below. 33




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www.bakerhughes.com www.eia.doe.gov
   34




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Executive Summary
  Oil & Gas Equipment and Services Market
        35




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##### Table of Contents



Segment Performance
      36




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##### Table of Contents



Outlook
     37




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##### Table of Contents



Results of Operations
 Years Ended December 31, 2007 and December 31, 2006
  Years Ended December 31,
    
    
    Variance2007
    
    
    2006
    
    
    $
    
    
    %Revenue:Rig Technology
    
    $
    5,744.7
    
    
    $
    3,584.9
    
    
    $
    2,159.8
    
    
    
    60.2
    %Petroleum Services & Supplies
    
    
    3,061.0
    
    
    
    2,425.0
    
    
    
    636.0
    
    
    
    26.2
    %Distribution Services
    
    
    1,423.7
    
    
    
    1,369.6
    
    
    
    54.1
    
    
    
    4.0
    %Eliminations
    
    
    (440.4
    )
    
    
    (353.7
    )
    
    
    (86.7
    )
    
    
    24.5
    %Total Revenue
    
    $
    9,789.0
    
    
    $
    7,025.8
    
    
    $
    2,763.2
    
    
    
    39.3
    %Operating Profit:Rig Technology
    
    $
    1,393.6
    
    
    $
    608.5
    
    
    $
    785.1
    
    
    
    129.0
    %Petroleum Services & Supplies
    
    
    731.6
    
    
    
    545.6
    
    
    
    186.0
    
    
    
    34.1
    %Distribution Services
    
    
    94.0
    
    
    
    94.0
    
    
    
    
    
    
    
    Unallocated expenses and eliminations
    
    
    (174.8
    )
    
    
    (137.0
    )
    
    
    (37.8
    )
    
    
    27.6
    %Total Operating Profit
    
    $
    2,044.4
    
    
    $
    1,111.1
    
    
    $
    933.3
    
    
    
    84.0
    %Operating Profit %:Rig Technology
    
    
    24.3
    %
    
    
    17.0
    %Petroleum Services & Supplies
    
    
    23.9
    %
    
    
    22.5
    %Distribution Services
    
    
    6.6
    %
    
    
    6.9
    %Total Operating Profit %
    
    
    20.9
    %
    
    
    15.8
    %
 Rig Technology
    Petroleum Services & Supplies
   38




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Distribution Services
   Unallocated expenses and eliminations
  Interest and financial costs
  Other income (expense), net
  Provision for income taxes
  39




---



##### Table of Contents



Years Ended December 31, 2006 and December 31, 2005
  Years Ended December 31,
    
    
    Variance2006
    
    
    2005
    
    
    $
    
    
    %Revenue:Rig Technology
    
    $
    3,584.9
    
    
    $
    2,216.8
    
    
    $
    1,368.1
    
    
    
    61.7
    %Petroleum Services & Supplies
    
    
    2,425.0
    
    
    
    1,645.8
    
    
    
    779.2
    
    
    
    47.3
    %Distribution Services
    
    
    1,369.6
    
    
    
    1,074.5
    
    
    
    295.1
    
    
    
    27.5
    %Eliminations
    
    
    (353.7
    )
    
    
    (292.6
    )
    
    
    (61.1
    )
    
    
    20.9
    %Total Revenue
    
    $
    7,025.8
    
    
    $
    4,644.5
    
    
    $
    2,381.3
    
    
    
    51.3
    %Operating Profit:Rig Technology
    
    $
    608.5
    
    
    $
    238.4
    
    
    $
    370.1
    
    
    
    155.2
    %Petroleum Services & Supplies
    
    
    545.6
    
    
    
    281.0
    
    
    
    264.6
    
    
    
    94.2
    %Distribution Services
    
    
    94.0
    
    
    
    46.6
    
    
    
    47.4
    
    
    
    101.7
    %Unallocated expenses and eliminations
    
    
    (137.0
    )
    
    
    (89.2
    )
    
    
    (47.8
    )
    
    
    53.6
    %Total Operating Profit
    
    $
    1,111.1
    
    
    $
    476.8
    
    
    $
    634.3
    
    
    
    133.0
    %Operating Profit %:Rig Technology
    
    
    17.0
    %
    
    
    10.8
    %Petroleum Services & Supplies
    
    
    22.5
    %
    
    
    17.1
    %Distribution Services
    
    
    6.9
    %
    
    
    4.3
    %Total Operating Profit %
    
    
    15.8
    %
    
    
    10.3
    %
 Rig Technology
    Petroleum Services & Supplies
  40




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##### Table of Contents



Distribution Services
    Unallocated expenses and eliminations
  Interest and financial costs
  Other income (expense), net
  Provision for income taxes
  41




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##### Table of Contents



Liquidity and Capital Resources
       Payment Due by PeriodLess than 1
    
    
    
    
    
    
    
    
    
    
    After 5Total
    
    
    Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    YearsTotal debt
    
    $
    890.7
    
    
    $
    152.8
    
    
    $
    33.8
    
    
    $
    703.7
    
    
    $
    0.4Operating leases
    
    
    378.6
    
    
    
    94.4
    
    
    
    123.5
    
    
    
    64.6
    
    
    
    96.1Total contractual obligations
    
    $
    1,269.3
    
    
    $
    247.2
    
    
    $
    157.3
    
    
    $
    768.3
    
    
    $
    96.5Standby letters of credit
    
    $
    1,712.4
    
    
    $
    719.9
    
    
    $
    735.2
    
    
    $
    257.3
    
    
    $
    
   42




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##### Table of Contents



Critical Accounting Estimates
  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.
   Allowance for Doubtful Accounts
  43




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##### Table of Contents



Inventory Reserves
   Impairment of Long-Lived Assets (Excluding Goodwill)
   Goodwill Impairment
   44




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##### Table of Contents



Income Taxes
   Accounting for Uncertainty in Income Taxes, Accounting for
Income Taxes
    45




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##### Table of Contents



Recently Issued Accounting Standards
      ForwardLooking Statements
  46




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##### Table of Contents



ITEM 7A.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Foreign Currency Exchange Rates
       47




---



##### Table of Contents



Hedge Classification
    
    Currency
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    TotalCash FlowDKK
    
    $
    7.6
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    7.6EUR
    
    
    31.0
    
    
    
    35.3
    
    
    
    11.8
    
    
    
    
    
    
    
    78.1GBP
    
    
    2.9
    
    
    
    15.5
    
    
    
    
    
    
    
    
    
    
    
    18.4SEK
    
    
    0.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.6SGD
    
    
    0.4
    
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    0.7USD
    
    
    269.6
    
    
    
    524.9
    
    
    
    118.9
    
    
    
    5.4
    
    
    
    918.8$
    312.1
    
    
    $
    576.0
    
    
    $
    130.7
    
    
    $
    5.4
    
    
    $
    1,024.2Fair ValueEUR
    
    $
    170.1
    
    
    $
    26.7
    
    
    $
    0.6
    
    
    $
    
    
    
    $
    197.4GBP
    
    
    11.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11.7KRW
    
    
    1.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.0SGD
    
    
    5.9
    
    
    
    1.3
    
    
    
    
    
    
    
    
    
    
    
    7.2USD
    
    
    1,005.0
    
    
    
    353.4
    
    
    
    2.1
    
    
    
    1.3
    
    
    
    1,361.8$
    1,193.7
    
    
    $
    381.4
    
    
    $
    2.7
    
    
    $
    1.3
    
    
    $
    1,579.1Balance SheetEUR
    
    $
    0.1
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    0.1GBP
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1SDG
    
    
    0.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.7USD
    
    
    276.8
    
    
    
    1.5
    
    
    
    
    
    
    
    
    
    
    
    278.3$
    277.7
    
    
    $
    1.5
    
    
    $
    
    
    
    $
    
    
    
    $
    279.2Net InvestmentCAD
    
    $
    601.4
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    601.4NOK
    
    
    620.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    620.2$
    1,221.6
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    1,221.6Total
    
    
    
    
    
    $
    3,005.1
    
    
    $
    958.9
    
    
    $
    133.4
    
    
    $
    6.7
    
    
    $
    4,104.1
   Foreign Currency
Translation
 48




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##### Table of Contents



Interest Rate Risk
   
 ITEM 8.
    
    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  
 ITEM 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
  
 ITEM 9A.
    
    CONTROLS AND PROCEDURES
        49




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##### Table of Contents



ITEM 9B.
    
    OTHER INFORMATION
  50




---



##### Table of Contents



PART III
 
 ITEM 10.
    
    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  
 ITEM 11.
    
    EXECUTIVE COMPENSATION
  
 ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
    Number of securitiesremaining available forNumber of securities to be
    
    
    
    
    
    
    future issuance under equityissued upon exercise of
    
    
    Weighted-average exercise
    
    
    compensation plansoutstanding options, warrants
    
    
    price of outstanding
    
    
    (excluding securitiesand rights
    
    
    options, warrant and rights
    
    
    reflected in column (a) (c))Plan Category
    
    (a)
    
    
    (b)
    
    
    (1)Equity compensation
plans approved by
security holders
    
    
    8,409,702
    
    
    $
    29.12
    
    
    
    7,014,404Equity compensation
plans not approved
by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    8,409,702
    
    
    $
    29.12
    
    
    
    7,014,404
 
 (1)
    
    Shares could be issued other than upon the exercise of stock options, warrants or rights;
however, none are anticipated during 2008. 
 ITEM 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
  
 ITEM 14.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
  51




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##### Table of Contents



PART IV
 
 ITEM 15.
    
    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
  (1)
    
    Financial StatementsThe following financial statements are presented in response to Part II, Item 8:
 PageConsolidated Balance Sheets
    
    58Consolidated Statements of Income
    
    59Consolidated Statements of Cash Flows
    
    60Consolidated Statements of Stockholders Equity and Comprehensive Income
    
    61Notes to Consolidated Financial Statements
    
    62
 (2)
    
    Financial Statement Schedule
 Schedule II  Valuation and Qualifying Accounts
    
    87
  (3)
    
    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. (9)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) (10).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) (7)10.6
    
    Form of Non-Employee Director Stock Option Agreement (Exhibit 10.2) (7).10.7
    
    Amended and Restated Credit Agreement, dated as of June 21, 2005, among National Oilwell
Varco, Inc., the financial institutions signatory thereto, including Wells Fargo Bank,
National Association, in their capacities as lenders thereunder, as US administrative agent
for the lenders, as Lead Arranger and Sole Book Runner, DnB NOR Bank ASA, as Norwegian
Administrative Agent, DnB NOR Bank ASA and the Bank of Nova Scotia as Co-Documentation
Agents, and Comerica Bank and JPMorgan Chase Bank, N.A. as Co-Syndication Agents. (Exhibit
10.1) (6).10.8
    
    Form of Performance-Based Restricted Stock (18 Month) Agreement (Exhibit 10.1) (8).10.9
    
    Form of Performance-Based Restricted Stock (36 Month) Agreement (Exhibit 10.2) (8).
 52




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##### Table of Contents



21.1
    
    Subsidiaries of the Registrant23.1
    
    Consent of Ernst & Young LLP24.1
    
    Power of Attorney (included on signature page hereto).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 June 23, 2005.(7)
    
    Filed as an Exhibit to our Current Report on Form 8-K filed on February 23, 2006.(8)
    
    Filed as an Exhibit to our Current Report on Form 8-K filed on March 27, 2007.(9)
    
    Filed as Annex A to our Registration Statement on Form S-4 filed on January 28, 2008.(10)
    
    Filed as an Exhibit to our Current Report on Form 8-K filed on February 21, 2008. 53




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##### Table of Contents



SIGNATURES
  NATIONAL OILWELL VARCO, INC.Dated: February 28, 2008
    By:
    /s/ MERRILL A. MILLER, JR.Merrill A. Miller, Jr.Chairman, President and Chief Executive Officer   Signature
    
    Title
    
    Date/s/ MERRILL A. MILLER, JR.

Merrill A. Miller, Jr.
    
    Chairman, President and Chief Executive
Officer
    
    February 28, 2008/s/ CLAY C. WILLIAMS

Clay C. Williams
    
    Senior Vice President and Chief Financial
Officer
    
    February 28, 2008/s/ ROBERT W. BLANCHARD

Robert W. Blanchard
    
    Vice President, Corporate Controller and
Chief Accounting Officer
    
    February 28, 2008/s/ GREG L. ARMSTRONG
    
    Director
    
    February 28, 2008Greg L. Armstrong/s/ ROBERT E. BEAUCHAMP
    
    Director
    
    February 28, 2008Robert E. Beauchamp/s/ BEN A. GUILL
    
    Director
    
    February 28, 2008Ben A. Guill/s/ DAVID D. HARRISON
    
    Director
    
    February 28, 2008David D. Harrison/s/ ROGER L. JARVIS
    
    Director
    
    February 28, 2008Roger L. Jarvis/s/ ERIC L. MATTSON
    
    Director
    
    February 28, 2008Eric L. Mattson/s/ JEFFERY A. SMISEK
    
    Director
    
    February 28, 2008Jeffery A. Smisek
 54




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##### Table of Contents



MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
     /s/ Merrill A. Miller, Jr.

Merrill A. Miller, Jr.Chairman, President and Chief Executive Officer/s/ Clay C. Williams

Clay C. WilliamsSenior Vice President and
Chief Financial OfficerHouston, TexasFebruary 28, 2008
 55




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    Accounting for Uncertainty in Income Taxes an
Interpretation of FASB Statement No. 109 Share Based
Payment Employers Accounting for
Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88,
106, and 132(R)
   
 56




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##### Table of Contents



REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
        
 57




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##### Table of Contents



NATIONAL OILWELL VARCO, INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
 December 31,2007
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    1,841.8
    
    
    $
    957.4Receivables, net
    
    
    2,099.8
    
    
    
    1,614.6Inventories, net
    
    
    2,574.7
    
    
    
    1,828.8Costs in excess of billings
    
    
    643.5
    
    
    
    308.9Deferred income taxes
    
    
    131.5
    
    
    
    101.6Prepaid and other current assets
    
    
    302.5
    
    
    
    154.3Total current assets
    
    
    7,593.8
    
    
    
    4,965.6Property, plant and equipment, net
    
    
    1,197.3
    
    
    
    1,022.1Deferred income taxes
    
    
    55.6
    
    
    
    56.1Goodwill
    
    
    2,445.1
    
    
    
    2,244.7Intangibles, net
    
    
    774.1
    
    
    
    705.2Other assets
    
    
    49.0
    
    
    
    25.6$
    12,114.9
    
    
    $
    9,019.3LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    604.0
    
    
    $
    505.2Accrued liabilities
    
    
    1,761.4
    
    
    
    1,420.2Billings in excess of costs
    
    
    1,396.1
    
    
    
    564.4Current portion of long-term debt and short-term borrowings
    
    
    152.8
    
    
    
    5.6Accrued income taxes
    
    
    112.4
    
    
    
    169.8Total current liabilities
    
    
    4,026.7
    
    
    
    2,665.2Long-term debt
    
    
    737.9
    
    
    
    834.7Deferred income taxes
    
    
    564.3
    
    
    
    389.0Other liabilities
    
    
    61.8
    
    
    
    71.4Total liabilities
    
    
    5,390.7
    
    
    
    3,960.3Commitments and contingenciesMinority interest
    
    
    62.8
    
    
    
    35.5Stockholders equity:Common stock  par value $.01; 356,867,498 and 351,143,326 shares
issued and outstanding at December 31, 2007 and December 31, 2006
    
    
    3.6
    
    
    
    3.5Additional paid-in capital
    
    
    3,617.2
    
    
    
    3,460.0Accumulated other comprehensive income
    
    
    195.0
    
    
    
    46.1Retained earnings
    
    
    2,845.6
    
    
    
    1,513.96,661.4
    
    
    
    5,023.5$
    12,114.9
    
    
    $
    9,019.3
  58




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##### Table of Contents



NATIONAL OILWELL VARCO, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share data)
 Years Ended December 31,2007
    
    
    2006
    
    
    2005Revenue:Sales
    
    $
    7,873.3
    
    
    $
    5,472.5
    
    
    $
    3,605.5Services
    
    
    1,915.7
    
    
    
    1,553.3
    
    
    
    1,039.0Total
    
    
    9,789.0
    
    
    
    7,025.8
    
    
    
    4,644.5Cost of revenue:Cost of sales
    
    
    5,675.3
    
    
    
    4,230.4
    
    
    
    2,905.1Cost of services
    
    
    1,283.5
    
    
    
    1,034.8
    
    
    
    752.2Total
    
    
    6,958.8
    
    
    
    5,265.2
    
    
    
    3,657.3Gross profit
    
    
    2,830.2
    
    
    
    1,760.6
    
    
    
    987.2Selling, general, and administrative
    
    
    785.8
    
    
    
    641.6
    
    
    
    478.7Integration costs
    
    
    
    
    
    
    7.9
    
    
    
    31.7Operating profit
    
    
    2,044.4
    
    
    
    1,111.1
    
    
    
    476.8Interest and financial costs
    
    
    (50.3
    )
    
    
    (48.7
    )
    
    
    (52.9
    )Interest income
    
    
    52.6
    
    
    
    18.1
    
    
    
    4.9Other income (expense), net
    
    
    (17.8
    )
    
    
    (31.3
    )
    
    
    1.2Income before income taxes and minority interest
    
    
    2,028.9
    
    
    
    1,049.2
    
    
    
    430.0Provision for income taxes
    
    
    675.8
    
    
    
    355.7
    
    
    
    138.9Income before minority interest
    
    
    1,353.1
    
    
    
    693.5
    
    
    
    291.1Minority interest in income of consolidated subsidiaries
    
    
    16.0
    
    
    
    9.5
    
    
    
    4.2Net income
    
    $
    1,337.1
    
    
    $
    684.0
    
    
    $
    286.9Net income per share:Basic
    
    $
    3.77
    
    
    $
    1.95
    
    
    $
    0.92Diluted
    
    $
    3.76
    
    
    $
    1.93
    
    
    $
    0.91Weighted average shares outstanding:Basic
    
    
    354.4
    
    
    
    350.4
    
    
    
    312.8Diluted
    
    
    355.4
    
    
    
    353.6
    
    
    
    316.5
  59




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NATIONAL OILWELL VARCO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
 Years Ended December 31,2007
    
    
    2006
    
    
    2005Cash flow from operating activities:Net income
    
    $
    1,337.1
    
    
    $
    684.0
    
    
    $
    286.9Adjustments to reconcile net income to net cash provided
by operating activities:Depreciation and amortization
    
    
    214.1
    
    
    
    160.6
    
    
    
    114.6Stock-based compensation
    
    
    43.1
    
    
    
    31.2
    
    
    
    15.6Tax benefit from exercise of nonqualified stock options
    
    
    
    
    
    
    
    
    
    
    29.7Excess benefit from the exercise of stock options
    
    
    (22.9
    )
    
    
    (13.5
    )
    
    
    Other
    
    
    63.8
    
    
    
    27.2
    
    
    
    3.1Changes in assets and liabilities, net of acquisitions:Receivables
    
    
    (464.8
    )
    
    
    (442.1
    )
    
    
    (293.9
    )Inventories
    
    
    (757.6
    )
    
    
    (619.9
    )
    
    
    (215.4
    )Costs in excess of billings
    
    
    (334.6
    )
    
    
    33.0
    
    
    
    (131.1
    )Prepaid and other current assets
    
    
    (143.6
    )
    
    
    (101.7
    )
    
    
    (8.6
    )Accounts payable
    
    
    84.2
    
    
    
    (93.5
    )
    
    
    68.1Billings in excess of costs
    
    
    831.6
    
    
    
    466.4
    
    
    
    94.5Other assets/liabilities, net
    
    
    337.6
    
    
    
    1,085.0
    
    
    
    114.0Net cash provided by operating activities
    
    
    1,188.0
    
    
    
    1,216.7
    
    
    
    77.5Cash flow from investing activities:Purchases of property, plant and equipment
    
    
    (251.8
    )
    
    
    (200.4
    )
    
    
    (105.0
    )Cash acquired in Varco merger, net
    
    
    
    
    
    
    
    
    
    
    163.5Business acquisitions, net of cash acquired
    
    
    (323.9
    )
    
    
    (329.7
    )
    
    
    (16.0
    )Other
    
    
    0.8
    
    
    
    
    
    
    
    (4.5
    )Net cash provided (used) by investing activities
    
    
    (574.9
    )
    
    
    (530.1
    )
    
    
    38.0Cash flow from financing activities:Borrowing against lines of credit and other debt
    
    
    47.0
    
    
    
    30.0
    
    
    
    418.8Payments against lines of credit and other debt
    
    
    (11.6
    )
    
    
    (35.1
    )
    
    
    (571.1
    )Excess tax benefit from exercise of stock options
    
    
    22.9
    
    
    
    13.5
    
    
    
    Proceeds from stock options exercised
    
    
    91.3
    
    
    
    32.7
    
    
    
    111.9Net cash provided (used) by financing activities
    
    
    149.6
    
    
    
    41.1
    
    
    
    (40.4
    )Effect of exchange rate changes on cash
    
    
    121.7
    
    
    
    20.3
    
    
    
    (8.4
    )Net increase in cash and cash equivalents
    
    
    884.4
    
    
    
    748.0
    
    
    
    66.7Cash and cash equivalents, beginning of period
    
    
    957.4
    
    
    
    209.4
    
    
    
    142.7Cash and cash equivalents, end of period
    
    $
    1,841.8
    
    
    $
    957.4
    
    
    $
    209.4Supplemental disclosures of cash flow information:Cash payments during the period for:Interest
    
    $
    56.8
    
    
    $
    56.2
    
    
    $
    61.5Income taxes
    
    $
    703.4
    
    
    $
    272.4
    
    
    $
    88.3
  60




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NATIONAL OILWELL VARCO, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME
(In millions)
 AccumulatedAdditional
    
    
    Unearned
    
    
    OtherShares
    
    
    Common
    
    
    Paid in
    
    
    Stock-Based
    
    
    Comprehensive
    
    
    RetainedOutstanding
    
    
    Stock
    
    
    Capital
    
    
    Compensation
    
    
    Income (Loss)
    
    
    Earnings
    
    
    TotalBalance at December 31, 2004
    
    
    172.0
    
    
    $
    1.7
    
    
    $
    692.1
    
    
    $
    
    
    
    $
    33.4
    
    
    $
    543.0
    
    
    $
    1,270.2Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    286.9
    
    
    
    286.9Other comprehensive incomeCurrency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (50.3
    )
    
    
    
    
    
    
    (50.3
    )Derivative financial instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8.5
    )
    
    
    
    
    
    
    (8.5
    )Change in defined benefit plans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.6
    
    
    
    
    
    
    
    3.6Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    231.7Stock issued and stock options
assumed for acquisition
    
    
    168.0
    
    
    
    1.7
    
    
    
    2,565.6
    
    
    
    (32.1
    )
    
    
    
    
    
    
    
    
    
    
    2,535.2Amortization of unearned
stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15.6
    
    
    
    
    
    
    
    
    
    
    
    15.6Common stock issued
    
    
    8.7
    
    
    
    0.1
    
    
    
    111.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    111.8Tax benefit of options exercised
    
    
    
    
    
    
    
    
    
    
    29.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29.7Balance at December 31, 2005
    
    
    348.7
    
    
    $
    3.5
    
    
    $
    3,399.1
    
    
    $
    (16.5
    )
    
    $
    (21.8
    )
    
    $
    829.9
    
    
    $
    4,194.2Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    684.0
    
    
    
    684.0Other comprehensive incomeCurrency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    66.8
    
    
    
    
    
    
    
    66.8Derivative financial instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8.0
    
    
    
    
    
    
    
    8.0Change in defined benefit plans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6.6
    )
    
    
    
    
    
    
    (6.6
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    752.2Adoption of FAS158, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.3
    )
    
    
    
    
    
    
    (0.3
    )Adoption of FAS123(R)
    
    
    
    
    
    
    
    
    
    
    (16.5
    )
    
    
    16.5
    
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    31.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31.2Common stock issued
    
    
    2.4
    
    
    
    
    
    
    
    32.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32.7Tax benefit of options exercised
    
    
    
    
    
    
    
    
    
    
    13.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13.5Balance at December 31, 2006
    
    
    351.1
    
    
    $
    3.5
    
    
    $
    3,460.0
    
    
    $
    
    
    
    $
    46.1
    
    
    $
    1,513.9
    
    
    $
    5,023.5Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,337.1
    
    
    
    1,337.1Other comprehensive incomeCurrency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    136.6
    
    
    
    
    
    
    
    136.6Derivative financial instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17.7
    
    
    
    
    
    
    
    17.7Change in defined benefit plans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5.4
    )
    
    
    
    
    
    
    (5.4
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,486.0Adoption of FIN48
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5.4
    )
    
    
    (5.4
    )Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    43.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43.1Common stock issued
    
    
    4.8
    
    
    
    0.1
    
    
    
    91.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    91.3Tax benefit of options exercised
    
    
    
    
    
    
    
    
    
    
    22.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22.9Balance at December 31, 2007
    
    
    355.9
    
    
    $
    3.6
    
    
    $
    3,617.2
    
    
    $
    
    
    
    $
    195.0
    
    
    $
    2,845.6
    
    
    $
    6,661.4
  61




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NATIONAL OILWELL VARCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. Organization and Basis of Presentation
 Nature of Business
  Basis of Consolidation
  2. Summary of Significant Accounting Policies
 Fair Value of Financial Instruments
  Derivative Financial Instruments
    62




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##### Table of Contents



Foreign Currency
Translation
 Inventories
  Property, Plant and Equipment
  Long-lived Assets
  63




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##### Table of Contents



Intangible Assets
   PetroleumRig
    
    
    Services &
    
    
    Distribution
    
    
    Corporate /Technology
    
    
    Supplies
    
    
    Services
    
    
    Eliminations
    
    
    TotalBalance December 31, 2005
    
    $
    1,117.2
    
    
    $
    959.2
    
    
    $
    35.0
    
    
    $
    6.3
    
    
    $
    2,117.7Purchase price and other adjustments
    
    
    (14.3
    )
    
    
    (6.9
    )
    
    
    
    
    
    
    
    
    
    
    (21.2
    )Goodwill acquired during period
    
    
    37.8
    
    
    
    79.0
    
    
    
    
    
    
    
    
    
    
    
    116.8Translation adjustments
    
    
    27.6
    
    
    
    3.6
    
    
    
    0.2
    
    
    
    
    
    
    
    31.4Balance December 31, 2006
    
    
    1,168.3
    
    
    
    1,034.9
    
    
    
    35.2
    
    
    
    6.3
    
    
    
    2,244.7Purchase price and other adjustments
    
    
    (27.9
    )
    
    
    29.8
    
    
    
    
    
    
    
    
    
    
    
    1.9Goodwill acquired during period
    
    
    44.8
    
    
    
    96.8
    
    
    
    
    
    
    
    
    
    
    
    141.6Translation adjustments
    
    
    45.5
    
    
    
    7.5
    
    
    
    3.9
    
    
    
    
    
    
    
    56.9Balance December 31, 2007
    
    $
    1,230.7
    
    
    $
    1,169.0
    
    
    $
    39.1
    
    
    $
    6.3
    
    
    $
    2,445.1
    PetroleumRig
    
    
    Services &
    
    
    Distribution
    
    
    Corporate /Technology
    
    
    Supplies
    
    
    Services
    
    
    Eliminations
    
    
    TotalBalance December 31, 2005
    
    $
    278.5
    
    
    $
    330.8
    
    
    $
    2.2
    
    
    $
    
    
    
    $
    611.5Additions to intangible assets
    
    
    0.5
    
    
    
    130.0
    
    
    
    
    
    
    
    
    
    
    
    130.5Amortization
    
    
    (18.0
    )
    
    
    (22.7
    )
    
    
    (0.3
    )
    
    
    
    
    
    
    (41.0
    )Translation
    
    
    3.2
    
    
    
    1.0
    
    
    
    
    
    
    
    
    
    
    
    4.2Balance December 31, 2006
    
    
    264.2
    
    
    
    439.1
    
    
    
    1.9
    
    
    
    
    
    
    
    705.2Additions to intangible assets
    
    
    38.7
    
    
    
    75.5
    
    
    
    
    
    
    
    
    
    
    
    114.2Amortization
    
    
    (20.7
    )
    
    
    (39.6
    )
    
    
    (0.3
    )
    
    
    
    
    
    
    (60.6
    )Translation
    
    
    6.6
    
    
    
    8.4
    
    
    
    0.3
    
    
    
    
    
    
    
    15.3Balance December 31, 2007
    
    $
    288.8
    
    
    $
    483.4
    
    
    $
    1.9
    
    
    $
    
    
    
    $
    774.1
 64




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##### Table of Contents



AccumulatedGross
    
    
    Amortization
    
    
    Net Book ValueDecember 31, 2007:Customer relationships
    
    $
    554.1
    
    
    $
    (81.9
    )
    
    $
    472.2Trademarks
    
    
    214.6
    
    
    
    (22.8
    )
    
    
    191.8Other
    
    
    143.0
    
    
    
    (32.9
    )
    
    
    110.1Total identified intangibles
    
    $
    911.7
    
    
    $
    (137.6
    )
    
    $
    774.1December 31, 2006:Customer relationships
    
    $
    460.9
    
    
    $
    (45.5
    )
    
    $
    415.4Trademarks
    
    
    200.2
    
    
    
    (11.9
    )
    
    
    188.3Other
    
    
    121.1
    
    
    
    (19.6
    )
    
    
    101.5Total identified intangibles
    
    $
    782.2
    
    
    $
    (77.0
    )
    
    $
    705.2
 Foreign Currency
   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.
  65




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##### Table of Contents



Service and Product Warranties
   Balance at December 31, 2005
    
    $
    24.9Net provisions for warranties issued during the year
    
    
    54.2Payments
    
    
    (22.5
    )Foreign currency translation
    
    
    0.7Balance at December 31, 2006
    
    $
    57.3Net provisions for warranties issued during the year
    
    
    78.2Payments
    
    
    (45.9
    )Foreign currency translation
    
    
    1.9Balance at December 31, 2007
    
    $
    91.5
 Income Taxes
  Concentration of Credit Risk
  Stock-Based Compensation
  66




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##### Table of Contents



Pro Forma Net Income
  Year EndedDecember 31,2005Net income, as reported
    
    $
    286.9Add:Total stock-based employee compensation expense included in
net income, net of related tax effects
    
    
    10.1Deduct:Total stock-based employee compensation expense determined
under fair value based method for all awards, net of related
tax effects
    
    
    (15.3
    )Pro forma net income
    
    $
    281.7Net income per common share:Basic, as reported
    
    $
    0.92Basic, pro forma
    
    $
    0.90Diluted, as reported
    
    $
    0.91Diluted, pro forma
    
    $
    0.89
 Environmental Liabilities
  Use of Estimates
  67




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##### Table of Contents



Contingencies
  Net Income Per Share
  Years Ended December 31,2007
    
    
    2006
    
    
    2005Numerator:Net income
    
    $
    1,337.1
    
    
    $
    684.0
    
    
    $
    286.9Denominator:Basicweighted average common shares outstanding
    
    
    354.4
    
    
    
    350.4
    
    
    
    312.8Dilutive effect of employee stock options and other unvested stock awards
    
    
    1.0
    
    
    
    3.2
    
    
    
    3.7Diluted outstanding shares
    
    
    355.4
    
    
    
    353.6
    
    
    
    316.5Basic earnings per share
    
    $
    3.77
    
    
    $
    1.95
    
    
    $
    0.92Diluted earnings per share
    
    $
    3.76
    
    
    $
    1.93
    
    
    $
    0.91
  Recently Issued Accounting Standards
    68




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##### Table of Contents



3. Varco Merger
    Shares
issued to acquire the outstanding common stock of Varco (84.0 million shares at $29.99 per share)
    
    $
    2,518.4Fair value of Varco stock options assumed
    
    
    48.9Unearned compensation related to stock options assumed
    
    
    (32.1
    )Merger related transaction costs
    
    
    44.1Total purchase price
    
    $
    2,579.3
    69




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##### Table of Contents



Pro Forma Financial Information
   Year EndedDecember 31,2005Total revenues
    
    $
    4,952.4Net income
    
    $
    304.4Basic net income per share (1)
    
    $
    0.88Diluted net income per share (1)
    
    $
    0.87
 
 (1)
    
    - Restated to reflect a two-for-one stock split effected as a 100 percent stock dividend in
September 2007. 4. Other Acquisitions
  2007
  
    
    Gammaloy Holdings, L.P., a Texas-based manufacturer of downhole tools.
    
    Kreiter Geartech, a Texas-based manufacturer of gearing products.
    
    Sara Services and Engineers Pvt. Ltd., an India-based manufacturer of oil field
equipment.
 70




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##### Table of Contents



TotalCurrent assets, net of cash acquired
    
    $
    49.9Property, plant and equipment
    
    
    48.9Intangible assets
    
    
    114.2Goodwill
    
    
    141.6Total assets acquired
    
    
    354.6Current liabilities
    
    
    37.4Long term debt
    
    
    20.0Total liabilities
    
    
    57.4Minority interest
    
    
    11.4Cash consideration, net of cash acquired
    
    $
    285.8
   2006
   
    
    Rolligon Ltd., a Texas-based manufacturer of coiled tubing support units and related
equipment.
    
    Soil Recovery A/S, a Danish-based designer and manufacturer of soil recovery units used
to process drilled cuttings for final disposal.
  All OtherNQL
    
    
    Acquisitions
    
    
    TotalCurrent assets, net of cash acquired
    
    $
    68.9
    
    
    $
    30.5
    
    
    $
    99.4Property, plant and equipment
    
    
    64.3
    
    
    
    13.6
    
    
    
    77.9Intangible assets
    
    
    126.6
    
    
    
    3.9
    
    
    
    130.5Goodwill
    
    
    60.1
    
    
    
    56.7
    
    
    
    116.8Total assets acquired
    
    
    319.9
    
    
    
    104.7
    
    
    
    424.6Current liabilities
    
    
    65.7
    
    
    
    19.4
    
    
    
    85.1Long term debt
    
    
    0.4
    
    
    
    9.4
    
    
    
    9.8Total liabilities
    
    
    66.1
    
    
    
    28.8
    
    
    
    94.9Cash consideration, net of cash acquired
    
    $
    253.8
    
    
    $
    75.9
    
    
    $
    329.7
 71




---



##### Table of Contents



2005
   2007
    
    
    2006
    
    
    2005Fair value of assets acquired, net of cash acquired
    
    $
    354.6
    
    
    $
    424.6
    
    
    $
    31.0Cash paid, net of cash acquired
    
    
    (285.8
    )
    
    
    (329.7
    )
    
    
    (16.0
    )Liabilities assumed, debt issued and minority interest
    
    $
    68.8
    
    
    $
    94.9
    
    
    $
    15.0Excess purchase price over fair value of net assets acquired
    
    $
    141.6
    
    
    $
    116.8
    
    
    $
    13.9
 5. Inventories
  2007
    
    
    2006Raw materials and supplies
    
    $
    420.4
    
    
    $
    266.5Work in progress
    
    
    939.2
    
    
    
    520.9Finished goods and purchased products
    
    
    1,215.1
    
    
    
    1,041.4$
    2,574.7
    
    
    $
    1,828.8
 6. Property, Plant and Equipment
  EstimatedUseful Lives
    
    
    2007
    
    
    2006Land and buildings
    
    5-35 Years
    
    $
    412.3
    
    
    $
    361.7Operating equipment
    
    3-15 Years
    
    
    927.3
    
    
    
    774.5Rental equipment
    
    3-12 Years
    
    
    370.5
    
    
    
    259.91,710.1
    
    
    
    1,396.1Less accumulated depreciation
    
    
    
    
    
    
    (512.8
    )
    
    
    (374.0
    )$
    1,197.3
    
    
    $
    1,022.1
 7. Accrued Liabilities
  2007
    
    
    2006Compensation
    
    $
    214.7
    
    
    $
    160.0Customer prepayments
    
    
    500.3
    
    
    
    538.4Warranty
    
    
    91.5
    
    
    
    57.3Interest
    
    
    13.8
    
    
    
    11.9Taxes (non income)
    
    
    47.3
    
    
    
    34.1Insurance
    
    
    42.4
    
    
    
    39.1Accrued purchase orders
    
    
    582.5
    
    
    
    334.9Fair value of derivatives
    
    
    111.3
    
    
    
    33.0Other
    
    
    157.6
    
    
    
    211.5Total
    
    $
    1,761.4
    
    
    $
    1,420.2
 72




---



##### Table of Contents



8. Costs and Estimated Earnings on Uncompleted Contracts
  2007
    
    
    2006Costs incurred on uncompleted contracts
    
    $
    3,167.2
    
    
    $
    1,924.0Estimated earnings
    
    
    1,208.3
    
    
    
    470.04,375.5
    
    
    
    2,394.0Less: Billings to date
    
    
    5,128.1
    
    
    
    2,649.5$
    (752.6
    )
    
    $
    (255.5
    )Costs and estimated earnings in excess of billings on uncompleted contracts
    
    $
    643.5
    
    
    $
    308.9Billings in excess of costs and estimated earnings on uncompleted contracts
    
    
    (1,396.1
    )
    
    
    (564.4
    )$
    (752.6
    )
    
    $
    (255.5
    )
 9. Long-Term Debt
  2007
    
    
    2006$100.0 million Senior Notes, interest at 7.5% payable semiannually, principal due
on February 15, 2008
    
    $
    100.2
    
    
    $
    101.9$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
    
    
    211.7
    
    
    
    215.2$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
    
    
    151.3
    
    
    
    151.6Other
    
    
    77.5
    
    
    
    21.6Total debt
    
    
    890.7
    
    
    
    840.3Less current portion
    
    
    152.8
    
    
    
    5.6Long-term debt
    
    $
    737.9
    
    
    $
    834.7
  2008
    
    $
    152.82009
    
    
    28.72010
    
    
    5.12011
    
    
    352.82012
    
    
    350.9Thereafter
    
    
    0.4$
    890.7
 Senior Notes
  Revolver Facilities
  73




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##### Table of Contents



Other
  10. Employee Benefit Plans
    Pension benefits
    
    
    Postretirement benefitsFor the year
    
    2007
    
    
    2006
    
    
    2005
    
    
    2007
    
    
    2006
    
    
    2005Service cost  benefits earned during the period
    
    $
    5.1
    
    
    $
    3.8
    
    
    $
    3.4
    
    
    $
    
    
    
    $
    
    
    
    $
    Interest cost on projected benefit obligation
    
    
    12.2
    
    
    
    10.7
    
    
    
    10.0
    
    
    
    1.0
    
    
    
    1.0
    
    
    
    0.9Expected return on plan assets
    
    
    (12.5
    )
    
    
    (10.5
    )
    
    
    (9.2
    )
    
    
    
    
    
    
    
    
    
    
    Net amortization and deferral
    
    
    1.9
    
    
    
    0.8
    
    
    
    1.5
    
    
    
    0.1
    
    
    
    0.2
    
    
    
    0.2Curtailment/settlement gain
    
    
    
    
    
    
    (0.4
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net periodic benefit cost
    
    $
    6.7
    
    
    $
    4.4
    
    
    $
    5.7
    
    
    $
    1.1
    
    
    $
    1.2
    
    
    $
    1.1
 74




---



##### Table of Contents



Pension benefits
    
    
    Postretirement benefitsAt year end
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Benefit obligation at beginning of year
    
    $
    229.9
    
    
    $
    183.9
    
    
    $
    17.0
    
    
    $
    19.0Service cost
    
    
    5.1
    
    
    
    3.8
    
    
    
    
    
    
    
    Interest cost
    
    
    12.2
    
    
    
    10.7
    
    
    
    1.0
    
    
    
    1.0Actuarial loss (gain)
    
    
    (0.7
    )
    
    
    17.8
    
    
    
    (1.3
    )
    
    
    (2.3
    )Benefits paid
    
    
    (10.4
    )
    
    
    (9.1
    )
    
    
    (1.3
    )
    
    
    (1.4
    )Participant contributions
    
    
    0.9
    
    
    
    0.8
    
    
    
    
    
    
    
    Exchange rate loss (gain)
    
    
    10.0
    
    
    
    21.5
    
    
    
    
    
    
    
    Curtailments/settlements
    
    
    (0.7
    )
    
    
    (0.4
    )
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    0.9
    
    
    
    (1.4
    )
    
    
    0.7Benefit obligation at end of year
    
    $
    246.3
    
    
    $
    229.9
    
    
    $
    14.0
    
    
    $
    17.0Accumulated benefit obligation at end of year
    
    $
    222.7
    
    
    $
    214.7Fair value of plan assets at beginning of year
    
    $
    183.4
    
    
    $
    142.6
    
    
    $
    
    
    
    $
    Actual return
    
    
    14.7
    
    
    
    11.8
    
    
    
    
    
    
    
    Benefits paid
    
    
    (9.2
    )
    
    
    (8.0
    )
    
    
    (1.3
    )
    
    
    (1.4
    )Company contributions
    
    
    9.9
    
    
    
    18.0
    
    
    
    1.3
    
    
    
    1.4Participants contributions
    
    
    0.9
    
    
    
    0.8
    
    
    
    
    
    
    
    Exchange rate (loss) gain
    
    
    6.4
    
    
    
    18.2
    
    
    
    
    
    
    
    Fair value of plan assets at end of year
    
    $
    206.1
    
    
    $
    183.4
    
    
    $
    
    
    
    $
    Funded status
    
    $
    (41.9
    )
    
    $
    (46.5
    )
    
    $
    (13.7
    )
    
    $
    (16.6
    )Unrecognized actuarial net loss
    
    
    28.6
    
    
    
    32.0
    
    
    
    0.7
    
    
    
    2.2Prior service costs not yet recognized
    
    
    0.8
    
    
    
    0.9
    
    
    
    (0.7
    )
    
    
    (0.7
    )Accrued benefit cost
    
    $
    (12.5
    )
    
    $
    (13.6
    )
    
    $
    (13.7
    )
    
    $
    (15.1
    )
  Pension benefits
    
    
    Postretirement benefits2007
    
    
    2006
    
    
    2007
    
    
    2006Current assets
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Non current assets
    
    
    0.9
    
    
    
    0.9
    
    
    
    
    
    
    
    Non current liabilities
    
    
    (42.8
    )
    
    
    (47.4
    )
    
    
    (13.7
    )
    
    
    (16.6
    )Accumulated other comprehensive income
    
    
    29.4
    
    
    
    32.9
    
    
    
    
    
    
    
    1.5Accrued benefit cost
    
    $
    (12.5
    )
    
    $
    (13.6
    )
    
    $
    (13.7
    )
    
    $
    (15.1
    )
 Defined Benefit Pension Plans
   Years ending December 31,2007
    
    2006Discount rate:United States plan
    
    
    6.34
    %
    
    
    5.97
    %International plans
    
    
    5.50 - 5.75
    %
    
    
    4.75 - 5.25
    %Salary increase:United States plan
    
    
    N/A
    
    
    
    N/AInternational plans
    
    
    2.50 - 4.50
    %
    
    
    2.25 - 3.00
    %
 75




---



##### Table of Contents



Years ending December 31,2007
    
    2006
    
    2005Discount rate:United States plan
    
    
    5.97
    %
    
    
    5.66
    %
    
    
    6.0
    %International plans
    
    
    4.75 - 5.25
    %
    
    
    5.66
    %
    
    
    6.0
    %Salary increase:United States plan
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/AInternational plans
    
    
    2.25 - 3.00
    %
    
    
    2.00  2.75
    %
    
    
    2.5  2.75
    %Expected return on assets:United States plan
    
    
    7.75
    %
    
    
    7.75
    %
    
    
    8.5
    %International plans
    
    
    5.17 - 6.86
    %
    
    
    5.25  6.85
    %
    
    
    6.25  7.17
    %
   2007
    
    2006United States
    
    International
    
    United States
    
    InternationalEquity securities
    
    
    61.0
    %
    
    
    46.3
    %
    
    
    60.2
    %
    
    
    48.3
    %Fixed income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Debt securities
    
    
    38.8
    %
    
    
    32.7
    %
    
    
    38.8
    %
    
    
    34.4
    %Real estate
    
    
    
    
    
    
    4.8
    %
    
    
    
    
    
    
    5.0
    %Other
    
    
    0.2
    %
    
    
    16.2
    %
    
    
    1.0
    %
    
    
    12.3
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
   For year ending 2007
    
    For year ending 2006United States
    
    International
    
    United States
    
    InternationalProjected benefit obligation
    
    $
    10.5
    
    
    $
    216.5
    
    
    $
    29.4
    
    
    $
    116.1Accumulated benefit obligation
    
    
    10.5
    
    
    
    192.4
    
    
    
    29.4
    
    
    
    107.5Fair value of assets
    
    
    
    
    
    
    183.1
    
    
    
    16.5
    
    
    
    80.5
  For year ending 2007
    
    For year ending 2006United States
    
    International
    
    United States
    
    InternationalProjected benefit obligation
    
    $
    10.5
    
    
    $
    24.4
    
    
    $
    29.4
    
    
    $
    109.2Accumulated benefit obligation
    
    
    10.5
    
    
    
    22.3
    
    
    
    29.4
    
    
    
    102.2Fair value of assets
    
    
    
    
    
    
    
    
    
    
    16.5
    
    
    
    73.5
  76




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##### Table of Contents



United States
    
    InternationalPlan
    
    Plans2008
    
    $
    2.7
    
    
    $
    6.02009
    
    
    2.7
    
    
    
    6.22010
    
    
    2.7
    
    
    
    6.52011
    
    
    2.6
    
    
    
    6.92012
    
    
    2.5
    
    
    
    7.3Subsequent five years
    
    
    10.6
    
    
    
    46.6
 11. Accumulated Other Comprehensive Income (Loss)
  CumulativeChange in
    
    
    Currency
    
    
    DerivativeDefined
    
    
    Translation
    
    
    FinancialBenefit Plans
    
    
    Adjustment
    
    
    Instruments
    
    
    TotalBalance at December 31, 2004
    
    $
    (12.0
    )
    
    $
    43.5
    
    
    $
    1.9
    
    
    $
    33.4Current period activity
    
    
    4.7
    
    
    
    (49.0
    )
    
    
    (11.8
    )
    
    
    (56.1
    )Tax effect
    
    
    (1.1
    )
    
    
    (1.3
    )
    
    
    3.3
    
    
    
    0.9Balance at December 31, 2005
    
    
    (8.4
    )
    
    
    (6.8
    )
    
    
    (6.6
    )
    
    
    (21.8
    )Adoption of FAS 158, net of tax
    
    
    (0.3
    )
    
    
    
    
    
    
    
    
    
    
    (0.3
    )Current period activity
    
    
    (9.3
    )
    
    
    61.2
    
    
    
    11.3
    
    
    
    63.2Tax effect
    
    
    2.7
    
    
    
    5.6
    
    
    
    (3.3
    )
    
    
    5.0Balance at December 31, 2006
    
    
    (15.3
    )
    
    
    60.0
    
    
    
    1.4
    
    
    
    46.1Current period activity
    
    
    (8.3
    )
    
    
    210.6
    
    
    
    25.3
    
    
    
    227.6Tax effect
    
    
    2.9
    
    
    
    (74.0
    )
    
    
    (7.6
    )
    
    
    (78.7
    )Balance at December 31, 2007
    
    $
    (20.7
    )
    
    $
    196.6
    
    
    $
    19.1
    
    
    $
    195.0
 12. Commitments and Contingencies
    77




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##### Table of Contents



2008
    
    $
    94.42009
    
    
    70.52010
    
    
    53.02011
    
    
    37.62012
    
    
    27.0Thereafter
    
    
    96.1Total future lease commitments
    
    $
    378.6
 13. Common Stock
   Stock Options
     Years Ended December 31,2007
    
    
    2006
    
    
    2005Average
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageNumber of
    
    
    Exercise
    
    
    Number of
    
    
    Exercise
    
    
    Number of
    
    
    Exerciseshares
    
    
    Price
    
    
    shares
    
    
    Price
    
    
    shares
    
    
    PriceShares under option at beginning
of year
    
    
    10,559,862
    
    
    $
    23.28
    
    
    
    8,681,684
    
    
    $
    15.18
    
    
    
    7,464,632
    
    
    $
    13.35Granted
    
    
    2,381,300
    
    
    
    35.55
    
    
    
    4,680,000
    
    
    
    33.29
    
    
    
    10,584,148
    
    
    
    14.44Cancelled
    
    
    (301,608
    )
    
    
    30.55
    
    
    
    (415,396
    )
    
    
    23.43
    
    
    
    (904,196
    )
    
    
    13.98Exercised
    
    
    (4,735,722
    )
    
    
    19.28
    
    
    
    (2,386,426
    )
    
    
    13.58
    
    
    
    (8,462,900
    )
    
    
    12.71Shares under option at end of year
    
    
    7,903,832
    
    
    $
    29.12
    
    
    
    10,559,862
    
    
    $
    23.28
    
    
    
    8,681,684
    
    
    $
    15.18Exercisable at end of year
    
    
    1,619,374
    
    
    $
    19.55
    
    
    
    2,688,298
    
    
    $
    13.85
    
    
    
    1,827,116
    
    
    $
    11.87
 78




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##### Table of Contents



Options Outstanding
    
    
    Options ExercisableWeighted-AvgRange of
    
    
    Remaining
    
    
    
    
    
    
    Weighted-Avg
    
    
    
    
    
    
    Weighted-AvgExercise Price
    
    
    Contractual Life
    
    
    Shares
    
    
    Exercise Price
    
    
    Shares
    
    
    Exercise Price$4.53 to $9.42
    
    
    
    3.69
    
    
    
    287,995
    
    
    $
    8.48
    
    
    
    287,995
    
    
    $
    8.48$10.04 to $19.47
    
    
    
    6.60
    
    
    
    1,820,511
    
    
    
    17.18
    
    
    
    781,793
    
    
    
    15.40$20.25 to $49.07
    
    
    
    8.50
    
    
    
    5,795,326
    
    
    
    33.89
    
    
    
    549,586
    
    
    
    31.25Totals
    
    
    
    7.89
    
    
    
    7,903,832
    
    
    $
    29.12
    
    
    
    1,619,374
    
    
    $
    19.55
   Years Ended December 31,2007
    
    2006
    
    2005Expected volatility
    
    
    38.6
    %
    
    
    39.4
    %
    
    
    46.0
    %Risk-free interest rate
    
    
    4.6
    %
    
    
    4.6
    %
    
    
    3.7
    %Expected dividends
    
    
    
    
    
    
    
    
    
    
    Expected term (in years)
    
    
    3.5
    
    
    
    3.8
    
    
    
    5.0
    79




---



##### Table of Contents



Weighted AverageRemainingWeighted Average
    
    Contractual Term
    
    AggregateShares
    
    Exercise Price
    
    (years)
    
    Intrinsic ValueOutstanding at December 31, 2006
    
    
    10,559,862
    
    
    $
    23.28Granted
    
    
    2,381,300
    
    
    $
    35.55Exercised
    
    
    (4,735,722
    )
    
    $
    19.28Cancelled
    
    
    (301,608
    )
    
    $
    30.55Outstanding at December 31, 2007
    
    
    7,903,832
    
    
    $
    29.12
    
    
    
    7.89
    
    
    $
    350,472,298Vested or expected to vest
    
    
    7,544,998
    
    
    $
    29.12
    
    
    
    7.89
    
    
    $
    354,560,856Exercisable at December 31, 2007
    
    
    1,619,374
    
    
    $
    19.55
    
    
    
    6.13
    
    
    $
    87,299,339
   Restricted Shares
   Weighted Average GrantRestricted Shares
    
    Units
    
    Date Fair ValueNon Vested at January 1, 2007
    
    
    72,000
    
    
    $
    29.13Granted
    
    
    1,028,402
    
    
    $
    37.06Vested
    
    
    
    
    
    
    Forfeited
    
    
    (39,400
    )
    
    $
    37.40Non Vested at December 31, 2007
    
    
    1,061,002
    
    
    $
    36.56
  80




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14. Income Taxes
  Years Ended December 31,2007
    
    
    2006
    
    
    2005Domestic
    
    $
    1,243.5
    
    
    $
    627.1
    
    
    $
    213.6Foreign
    
    
    785.4
    
    
    
    422.1
    
    
    
    216.4$
    2,028.9
    
    
    $
    1,049.2
    
    
    $
    430.0
  Years Ended December 31,2007
    
    
    2006
    
    
    2005Current:Federal
    
    $
    490.2
    
    
    $
    255.8
    
    
    $
    70.5State
    
    
    38.8
    
    
    
    14.4
    
    
    
    2.8Foreign
    
    
    136.0
    
    
    
    99.3
    
    
    
    67.6665.0
    
    
    
    369.5
    
    
    
    140.9Deferred:Federal
    
    
    (66.0
    )
    
    
    (36.5
    )
    
    
    2.6State
    
    
    (3.3
    )
    
    
    (2.0
    )
    
    
    (0.7
    )Foreign
    
    
    80.1
    
    
    
    24.7
    
    
    
    (3.9
    )10.8
    
    
    
    (13.8
    )
    
    
    (2.0
    )$
    675.8
    
    
    $
    355.7
    
    
    $
    138.9
  Years Ended December 31,2007
    
    
    2006
    
    
    2005Federal income tax at statutory rate
    
    $
    710.1
    
    
    $
    367.2
    
    
    $
    150.5Foreign income tax rate differential
    
    
    (65.9
    )
    
    
    (28.6
    )
    
    
    (13.3
    )State income tax, net of federal benefit
    
    
    23.1
    
    
    
    9.3
    
    
    
    1.4Tax benefit of foreign sales income
    
    
    
    
    
    
    (5.2
    )
    
    
    (6.8
    )Nondeductible expenses
    
    
    9.5
    
    
    
    7.3
    
    
    
    5.0Tax benefit of manufacturing deduction
    
    
    (10.5
    )
    
    
    (1.2
    )
    
    
    (0.6
    )Foreign dividends net of FTCs
    
    
    9.0
    
    
    
    3.4
    
    
    
    6.2Change in deferred tax valuation allowance
    
    
    2.5
    
    
    
    2.7
    
    
    
    (4.4
    )Other
    
    
    (2.0
    )
    
    
    0.8
    
    
    
    0.9$
    675.8
    
    
    $
    355.7
    
    
    $
    138.9
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2007
    
    
    2006Deferred tax assets:Allowances and operating liabilities
    
    $
    152.1
    
    
    $
    115.4Net operating loss carryforwards
    
    
    8.2
    
    
    
    28.5Postretirement benefits
    
    
    16.5
    
    
    
    0.6Capital loss carryforwards
    
    
    6.9
    
    
    
    0.2Other
    
    
    17.8
    
    
    
    19.8Total deferred tax assets
    
    
    201.5
    
    
    
    164.5Valuation allowance for deferred tax assets
    
    
    (14.4
    )
    
    
    (6.8
    )187.1
    
    
    
    157.7Deferred tax liabilities:Tax over book depreciation
    
    
    94.7
    
    
    
    89.0Intangible assets
    
    
    218.0
    
    
    
    210.0Deferred income
    
    
    166.3
    
    
    
    55.4Other
    
    
    85.3
    
    
    
    34.6Total deferred tax liabilities
    
    
    564.3
    
    
    
    389.0Net deferred tax asset (liability)
    
    $
    (377.2
    )
    
    $
    (231.3
    )
   Reduction in Retained Earnings (cumulative effect)
    
    $
    5.4Additional Goodwill
    
    
    4.5Increase in Liability
    
    $
    9.9
  Balance at January 1, 2007
    
    $
    54.5Additions based on tax positions related to the current year
    
    
    2.2Additions for tax positions of prior years
    
    
    1.3Reductions for tax positions of prior years
    
    
    (10.0
    )Settlements
    
    
    (0.6
    )Reductions for lapse of applicable statutes of limitations
    
    
    (0.4
    )Balance at December 31, 2007
    
    $
    47.0
  82




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83




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15. Business Segments and Geographic Areas
  Rig Technology:
 Petroleum Services & Supplies:
 Distribution Services:
   84




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Geographic Areas:
 United
    
    
    
    
    
    
    
    
    
    UnitedStates
    
    Canada
    
    Norway
    
    Kingdom
    
    Other
    
    TotalDecember 31, 2007Revenues
    
    $
    5,555.5
    
    
    $
    700.5
    
    
    $
    1,698.8
    
    
    $
    496.8
    
    
    $
    1,337.4
    
    
    $
    9,789.0Long-lived assets
    
    
    690.1
    
    
    
    136.8
    
    
    
    43.7
    
    
    
    96.5
    
    
    
    230.2
    
    
    
    1,197.3December 31, 2006Revenues
    
    $
    3,985.1
    
    
    $
    714.9
    
    
    $
    987.2
    
    
    $
    402.2
    
    
    $
    936.4
    
    
    $
    7,025.8Long-lived assets
    
    
    596.3
    
    
    
    115.8
    
    
    
    42.1
    
    
    
    88.7
    
    
    
    179.2
    
    
    
    1,022.1December 31, 2005Revenues
    
    $
    2,646.6
    
    
    $
    653.6
    
    
    $
    394.8
    
    
    $
    298.0
    
    
    $
    651.5
    
    
    $
    4,644.5Long-lived assets
    
    
    584.1
    
    
    
    82.7
    
    
    
    32.6
    
    
    
    57.1
    
    
    
    121.1
    
    
    
    877.6
 Business Segments:
 PetroleumServices &
    
    Distribution
    
    Unallocated/Rig Technology
    
    Supplies
    
    Services
    
    Eliminations
    
    TotalDecember 31, 2007Revenues
    
    $
    5,744.7
    
    
    $
    3,061.0
    
    
    $
    1,423.7
    
    
    $
    (440.4
    )
    
    $
    9,789.0Operating profit
    
    
    1,393.6
    
    
    
    731.6
    
    
    
    94.0
    
    
    
    (174.8
    )
    
    
    2,044.4Capital expenditures
    
    
    63.8
    
    
    
    159.6
    
    
    
    5.5
    
    
    
    22.9
    
    
    
    251.8Depreciation and amortization
    
    
    53.7
    
    
    
    147.9
    
    
    
    5.0
    
    
    
    7.5
    
    
    
    214.1Goodwill
    
    
    1,230.7
    
    
    
    1,169.0
    
    
    
    39.1
    
    
    
    6.3
    
    
    
    2,445.1Total assets
    
    
    7,096.8
    
    
    
    3,964.5
    
    
    
    651.8
    
    
    
    401.8
    
    
    
    12,114.9December 31, 2006Revenues
    
    $
    3,584.9
    
    
    $
    2,425.0
    
    
    $
    1,369.6
    
    
    $
    (353.7
    )
    
    $
    7,025.8Operating profit
    
    
    608.5
    
    
    
    545.6
    
    
    
    94.0
    
    
    
    (137.0
    )
    
    
    1,111.1Capital expenditures
    
    
    46.8
    
    
    
    138.5
    
    
    
    3.7
    
    
    
    11.4
    
    
    
    200.4Depreciation and amortization
    
    
    48.1
    
    
    
    100.9
    
    
    
    5.3
    
    
    
    6.3
    
    
    
    160.6Goodwill
    
    
    1,168.3
    
    
    
    1,034.9
    
    
    
    35.2
    
    
    
    6.3
    
    
    
    2,244.7Total assets
    
    
    4,936.8
    
    
    
    3,248.3
    
    
    
    592.7
    
    
    
    241.5
    
    
    
    9,019.3December 31, 2005Revenues
    
    $
    2,216.8
    
    
    $
    1,645.8
    
    
    $
    1,074.5
    
    
    $
    (292.6
    )
    
    $
    4,644.5Operating profit
    
    
    238.4
    
    
    
    281.0
    
    
    
    46.6
    
    
    
    (89.2
    )
    
    
    476.8Capital expenditures
    
    
    22.9
    
    
    
    72.6
    
    
    
    3.7
    
    
    
    5.8
    
    
    
    105.0Depreciation and amortization
    
    
    35.4
    
    
    
    68.9
    
    
    
    5.4
    
    
    
    4.9
    
    
    
    114.6Goodwill
    
    
    1,117.2
    
    
    
    959.2
    
    
    
    35.0
    
    
    
    6.3
    
    
    
    2,117.7Total assets
    
    
    3,310.3
    
    
    
    2,717.5
    
    
    
    479.7
    
    
    
    171.0
    
    
    
    6,678.5
 85




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16. Quarterly Financial Data (Unaudited)
  First
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    Quarter
    
    TotalYear ended December 31, 2007Revenues
    
    $
    2,165.7
    
    
    $
    2,384.9
    
    
    $
    2,579.5
    
    
    $
    2,658.9
    
    
    $
    9,789.0Gross Profit
    
    
    615.0
    
    
    
    683.8
    
    
    
    740.3
    
    
    
    791.1
    
    
    
    2,830.2Net income
    
    
    275.9
    
    
    
    318.5
    
    
    
    366.0
    
    
    
    376.7
    
    
    
    1,337.1Net income per basic share
    
    
    0.78
    
    
    
    0.90
    
    
    
    1.03
    
    
    
    1.06
    
    
    
    3.77Net income per diluted share
    
    
    0.78
    
    
    
    0.89
    
    
    
    1.02
    
    
    
    1.05
    
    
    
    3.76Year ended December 31, 2006Revenues
    
    $
    1,511.8
    
    
    $
    1,657.4
    
    
    $
    1,777.9
    
    
    $
    2,078.7
    
    
    $
    7,025.8Gross Profit
    
    
    349.8
    
    
    
    400.7
    
    
    
    442.7
    
    
    
    567.4
    
    
    
    1,760.6Net income
    
    
    120.3
    
    
    
    147.9
    
    
    
    176.6
    
    
    
    239.2
    
    
    
    684.0Net income per basic share
    
    
    0.34
    
    
    
    0.42
    
    
    
    0.50
    
    
    
    0.68
    
    
    
    1.95Net income per diluted share
    
    
    0.34
    
    
    
    0.42
    
    
    
    0.50
    
    
    
    0.68
    
    
    
    1.93
 86




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##### Table of Contents



SCHEDULE II
 NATIONAL OILWELL VARCO, INC.
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2007, 2006 and 2005
 Additions(Deductions)
    
    ChargeBalance
    
    charged to
    
    offsbeginning
    
    costs and
    
    and
    
    Balance end ofof year
    
    expenses
    
    other
    
    year(in millions)Allowance for doubtful accounts:2007
    
    $
    30.4
    
    
    $
    16.2
    
    
    $
    (1.8
    )
    
    $
    44.82006
    
    
    17.4
    
    
    
    17.3
    
    
    
    (4.3
    )
    
    
    30.42005
    
    
    12.8
    
    
    
    7.8
    
    
    
    (3.2
    )
    
    
    17.4Allowance for excess and obsolete inventories:2007
    
    $
    86.1
    
    
    $
    33.9
    
    
    $
    (20.7
    )
    
    $
    99.32006
    
    
    56.8
    
    
    
    36.9
    
    
    
    (7.6
    )
    
    
    86.12005
    
    
    41.2
    
    
    
    24.0
    
    
    
    (8.4
    )
    
    
    56.8Valuation allowance for deferred tax assets:2007
    
    $
    6.8
    
    
    $
    2.6
    
    
    $
    5.0
    
    
    $
    14.42006
    
    
    1.9
    
    
    
    2.7
    
    
    
    2.2
    
    
    
    6.82005
    
    
    16.8
    
    
    
    (4.4
    )
    
    
    (10.5
    )
    
    
    1.9Warranty reserve:2007
    
    $
    57.3
    
    
    $
    78.2
    
    
    $
    (44.0
    )
    
    $
    91.52006
    
    
    24.9
    
    
    
    54.2
    
    
    
    (21.8
    )
    
    
    57.32005
    
    
    22.4
    
    
    
    27.1
    
    
    
    (24.6
    )
    
    
    24.9
 87




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##### Table of Contents



Exhibit Index
 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. (9)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) (10).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) (7)10.6
    
    Form of Non-Employee Director Stock Option Agreement (Exhibit 10.2) (7).10.7
    
    Amended and Restated Credit Agreement, dated as of June 21, 2005, among
National Oilwell Varco, Inc., the financial institutions signatory
thereto, including Wells Fargo Bank, National Association, in their
capacities as lenders thereunder, as US administrative agent for the
lenders, as Lead Arranger and Sole Book Runner, DnB NOR Bank ASA, as
Norwegian Administrative Agent, DnB NOR Bank ASA and the Bank of Nova
Scotia as Co-Documentation Agents, and Comerica Bank and JPMorgan Chase
Bank, N.A. as Co-Syndication Agents. (Exhibit 10.1) (6).10.8
    
    Form of Performance-Based Restricted Stock (18 Month) Agreement
(Exhibit 10.1) (8).10.9
    
    Form of Performance-Based Restricted Stock (36 Month) Agreement
(Exhibit 10.2) (8).21.1
    
    Subsidiaries of the Registrant23.1
    
    Consent of Ernst & Young LLP24.1
    
    Power of Attorney (included on signature page hereto).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 amended




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32.1
    
    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 June 23, 2005.(7)
    
    Filed as an Exhibit to our Current Report on Form 8-K filed on February 23, 2006.(8)
    
    Filed as an Exhibit to our Current Report on Form 8-K filed on March 27, 2007.(9)
    
    Filed as Annex A to our Registration Statement on Form S-4 filed on January 28, 2008.(10)
    
    Filed as an Exhibit to our Current Report on Form 8-K filed on February 21, 2008.