National Oilwell Varco 2012 Annual Report Download - page 21

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Index to Financial Statements
Worldwide financial and credit crisis could have a negative effect on our operating results and financial condition.
Events in 2008 and 2009 constrained credit markets and sparked a serious global banking crisis. The slowdown in worldwide economic activity caused by the global recession
reduced demand for energy and resulted in lower oil and natural gas prices. Any prolonged reduction in oil and natural gas prices will reduce oil and natural gas drilling
activity and result in a corresponding decline in the demand for our products and services, which could adversely impact our operating results and financial condition.
Furthermore, many of our customers access the credit markets to finance their oil and natural gas drilling activity. If the recent crisis and recession reduce the availability of
credit to our customers, they may reduce their drilling and production expenditures, thereby decreasing demand for our products and services. Any such reduction in spending
by our customers could adversely impact our operating results and financial condition.
There are risks associated with certain contracts for our drilling equipment.
As of December 31, 2011, we had a backlog of approximately $10.2 billion of drilling equipment to be manufactured, assembled, tested and delivered by our Rig Technology
segment. The following factors, in addition to others not listed, could reduce our margins on these contracts, adversely affect our position in the market or subject us to
contractual penalties:
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.
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. 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.
Competition in our industry could ultimately lead to lower revenues 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 revenues 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. Competition in our industry could lead to lower revenues and earnings.
We have aggressively expanded our businesses and intend to maintain an aggressive growth strategy.
We have aggressively expanded and grown our businesses during the past several years, through acquisitions and investment in internal growth. We anticipate that we will
continue to pursue an aggressive 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 the increased size of the Company or operate 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.
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