National Oilwell Varco 2012 Annual Report Download - page 15

Index to Financial Statements
The primary customers for drilling services offered by the Petroleum Services & Supplies segment include drilling contractors, well servicing companies, major and
independent oil and gas companies, and national oil companies. Competitors in drilling services include Schlumberger, Ltd. (SWACO); Baker Hughes Incorporated;
Halliburton Company; Derrick Manufacturing Corp.; Fluid Systems; Oil Tools Pte. Ltd; Peak Energy Services, Ltd.; Varel; United Diamond; Roper; Robbins & Myers;
Southwest Oilfield Products; and a number of regional competitors. The Petroleum Services & Supplies segment sells drilling services into highly competitive markets.
Management believes that on-site service is becoming an increasingly important competitive element in this market, and that the principal competitive factors affecting the
business are performance, quality, reputation, customer service, product availability and technology, breadth of product line and price.
Distribution & Transmission
Prior to the Companys acquisition of Ameron in October 2011, the Companys Distribution & Transmission segment was called Distribution Services with one business
unit. Distribution Services was expanded as a result of certain business operations of the Ameron acquisition adding an additional business unit to the segment called
Transmission and changing the name of the segment to Distribution & Transmission. See Note 4 to the Consolidated Financial Statements for information regarding
acquisitions as well as Note 15 to the Consolidated Financial Statements for information regarding the Companys segments.
Distribution Services. The Distribution Services business unit is a market leader in the provision of supply chain management services to drilling contractors and exploration
and production companies around the world. Through its network of over 200 Distribution Service Center locations worldwide, this business unit stocks and sells a large line
of oilfield products including consumable maintenance, repair and operating supplies, valves, fittings, flanges and spare parts that are needed throughout the drilling,
completion and production process. The supplies and equipment stocked by our Distribution Service Centers are customized to meet a wide variety of customer demands.
The Distribution Services business unit also provides unique one-stop-shop value propositions in the Exploration and Production market in key areas of artificial lift,
measurement and controls, valving and actuation, and flow optimization. Through focused effort, the business unit has built expertise in providing applications engineering,
systems and parts integration, optimization solutions, and after-sales service and support in the aforementioned areas. Distribution Services is strengthening its offering by
adding new artificial lift technologies, as well as measurement and controls competencies.
Distribution Services supply chain solutions for customers include outsourcing the functions of procurement, inventory and warehouse management, logistics, business
process, and performance metrics reporting. This solution allows the business unit to leverage the flexible infrastructure of its SAP ERP system to streamline the acquisition
process from requisition to procurement to payment, by digitally managing approval routing and workflow, and by providing robust reporting functionality.
NOV RigStore is a cutting-edge industry offering by Distribution Services providing the installation, staffing and management of supply stores on offshore drilling rigs.
With the NOV RigStore business model, Distribution Services will install its own ERP system onboard in order to access and leverage Distribution Services global
inventory, hundreds of support locations, and thousands of vendors across multiple product lines. This business model relieves the average offshore drilling rigs balance
sheet by providing improved accounting of these expense items, lower capital costs, extended payment on part of the driller until the item is actually issued from the onboard
supply store, and removed risk of ownership from the customer. Whether it is a smaller, new drilling contractor or larger, established drilling company the benefits of effective
supply chain management and reduced total cost of ownership are substantial.
Approximately two-thirds of Distribution Services segments sales in 2011 were in the United States and Canada. The remainder comes from key international markets in
Latin America, the North Sea, Middle East, Africa and the Far East. The Distribution Services business unit has now expanded into oilfields in over 20 countries.
Approximately 30% of Distribution Services revenue is from the resale of goods manufactured by other segments within the Company and the balance is from the sale of
goods manufactured by third parties.
Distribution Services works to strategically increase revenue and enhance alliances with customers by continuous expansion of product and service solutions and creation of
differentiating value propositions. Additionally the business unit leverages its extensive purchasing power to reduce the cost of the goods. Distribution Services is strategically
expanding its sourcing network into low cost countries globally.
Transmission. The Transmission business unit supplies products and services used in the construction of water pipelines, lining and wind towers, progressing cavity pumps,
grinders, filters, screens, and a variety of artificial lift equipment. The business unit manufactures concrete cylinder pipe, prestressed concrete cylinder pipe, steel pipe and
reinforced concrete pipe for water transmission, storm and industrial waste water and sewage collection. Products are marketed directly using the Companys own personnel,
typically through competitive bidding. The Company competes with several other manufacturers and also with alternative products such as ductile iron, plastic, and clay pipe;
but ordinarily these other materials do not offer the full diameter range produced
14