National Oilwell Varco 2015 Annual Report Download - page 20

Table of Contents
• credit market conditions for consumers of our capital equipment;
• our failure to adequately estimate costs for making this 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.
The Company’s existing contracts for rig equipment generally carry significant down payment and progress billing terms favorable to the ultimate
completion of these projects and the majority do not allow customers to cancel projects for convenience. However, unfavorable market conditions or
financial difficulties experienced by our customers may result in cancellation of contracts or the delay or abandonment of projects. Any such developments
could have a material adverse effect on our operating results and financial condition. We consummated a settlement with a shipyard customer on
December 28, 2015 concerning seven contracts for the supply of drilling equipment packages for drillship construction projects in Brazil (collectively the
“Supply Contracts”). Pursuant to the terms of the settlement, the Supply Contracts have been terminated. We did not take a charge as a result of the
settlement; however we did reduce the Rig Systems segment backlog by $1.2 billion in the quarter. At December 31, 2015, our backlog included $1.8 billion
for the remaining 15 rigs across three shipyards in Brazil.
Competition in our industry could ultimately lead to lower revenue and earnings.
The oilfield products and services industry is highly competitive. We compete with national, regional and foreign competitors in each of our current major
product lines. Certain of these competitors may have greater financial, technical, manufacturing and marketing resources than us, and may be in a better
competitive position. The following competitive actions can each affect our revenue and earnings:
• price changes;
• new product and technology introductions; and
• improvements in availability and delivery.
In addition, certain foreign jurisdictions and government-owned petroleum companies located in some of the countries in which we operate have adopted
policies or regulations which may give local nationals in these countries competitive advantages. Actions taken by our competitors and changes in local
policies, preferences or regulations could impact our ability to compete in certain markets and adversely affect our financial results.
We have expanded our businesses through acquisitions and internal growth and intend to maintain a growth strategy.
We have expanded and grown our businesses during the past several years, through acquisitions and investment in internal growth and continue to pursue a
growth strategy but we cannot assure you that attractive acquisitions will be available to us at reasonable prices or at all. In addition, we cannot assure you
that we will successfully integrate the operations and assets of any acquired business with our own or that our management will be able to manage effectively
any new lines of business. Any inability on the part of management to integrate and manage acquired businesses and their assumed liabilities could adversely
affect our business and financial performance. In addition, we may need to incur substantial indebtedness to finance future acquisitions. We cannot assure
you that we will be able to obtain this financing on terms acceptable to us or at all. Future acquisitions may result in increased depreciation and amortization
expense, increased interest expense, increased financial leverage or decreased operating income for the Company, any of which could cause our business to
suffer.
19