National Oilwell Varco 2003 Annual Report Download - page 13

Download and view the complete annual report

Please find page 13 of the 2003 National Oilwell Varco annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 60

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60

12
Item 7. Management’s Discussion and Analysis of Financial Condition and Results
of Operations
General Overview
We design, manufacture and sell drilling systems, drilling equipment and downhole products as
well as distribute maintenance, repair and operating products to the oil and gas industry. Our
revenues and operating results are directly related to the level of worldwide oil and gas drilling
and production activities and the profitability and cash flow of oil and gas companies and drilling
contractors, which in turn are affected by current and anticipated prices of oil and gas. Oil and gas
prices have been and are likely to continue to be volatile. This is a cyclical industry and, unlike
most prior cycles, sustained, relatively high oil and gas prices have not driven a corresponding
level of increased spending by our customers. See “Risk Factors”.
We conduct our operations through the following segments:
Products and Technology
Our Products and Technology segment designs and manufactures complete land drilling and
workover rigs, and drilling related systems for offshore rigs. Technology has increased the
desirability of one vendor assuming responsibility for the entire suite of components used in the
drilling process, as mechanical and hydraulic components are replaced by or augmented with
integrated computerized systems. In addition to traditional components such as drawworks, mud
pumps, top drives, derricks, cranes, jacking and mooring systems, and other structural
components, we provide automated pipehandling, control and electrical power systems. We have
also developed new technology for drawworks and mud pumps applicable to the highly
demanding offshore markets. We have made strategic acquisitions during the past several years in
an effort to expand our product offering and our global manufacturing capabilities, including new
operations in Norway, the United Kingdom and China. Product and Technology revenues are
directly dependent on the levels of worldwide drilling activity.
Distribution Services
Our Distribution Services segment provides maintenance, repair and operating supplies and spare
parts from our network of distribution service centers to drill site and production locations
throughout North America and to offshore contractors worldwide. Products are purchased from
numerous manufacturers and vendors, including our Products and Technology segment. We have
expanded this business to locations outside North America, including Europe, the Middle East,
Southeast Asia, and South America. We have made significant investments in systems, staffing
and inventory in the international market and, using our information technology platforms and
processes, we can provide complete procurement, inventory management, and logistics services
to our customers. Approximately half of Distribution Services revenues are tied to worldwide
drilling activity, and the balance relates to the production of oil and gas reserves.