National-Oilwell Varco 10-K 2005
Documents found in this filing:
WASHINGTON, D.C. 20549
Amendment No. 1
For the fiscal year ended December 31, 2004.
For the transition period from to
Commission file number 1-12317
NATIONAL OILWELL VARCO, INC.
(Exact name of registrant as specified in its charter)
Registrants telephone number, including area code 713-346-7500
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is an accelerated filer (as defined in rule 12b-2 of the Act.) Yes þ No o
The aggregate market value of the voting and non-voting common equity held by non-affiliates as of June 30, 2004, the last business day of the registrants most recently completed second quarter, was $2,675,203,255.
As of March 31, 2005, there were 172,257,132 shares of the registrants common stock outstanding.
On March 11, 2005, National-Oilwell, Inc., a Delaware corporation (National Oilwell) held a special meeting of stockholders to approve the merger of Varco International, Inc., a Delaware corporation (Varco) with and into National Oilwell, with National Oilwell being the surviving corporation (the Merger). National Oilwell then changed its name to National Oilwell Varco, Inc. (the Company), pursuant to the Amended and Restated Agreement and Plan of Merger, effective as of August 11, 2004 (the Merger Agreement).
As a result of the special meeting, the Company has postponed its 2005 Annual Meeting of Stockholders, which will likely be held in the third quarter of 2005. The Company is filing this Amendment No. 1 on Form 10-K/A (the Amendment) to amend its Annual Report on Form 10-K for the fiscal year ended December 31, 2004, as filed with the Securities and Exchange Commission on March 8, 2005 (the Annual Report). The Amendment is being filed solely to include information that would normally be included in the Companys proxy statement for the 2005 Annual Stockholder Meeting. Items 10, 11, 12, 13 and 14 of Part III of the Annual Report are hereby amended and restated in their entirety as set forth below. In addition, Item 15 is being refiled to include the required certifications [and to include certain other exhibits].
This Amendment No. 1 to the Annual Report does not change or update the previously reported financial statements or other disclosures included in our Annual Report.
Table of Contents
Item 10. Directors and Executive Officers of the Registrant.
Board of Directors
The Merger Agreement provided that as of the effective time of the Merger, the board would consist of 10 persons including John F. Lauletta, Chairman and Chief Executive Officer of Varco, Merrill A. Miller, Jr., Chairman, President and Chief Executive Officer of National Oilwell, four directors designated by National Oilwell and four directors designated by Varco.
Set forth below are the names and ages of the Directors of the Company, the year in which such Directors term expires, and a brief account of the business experience of each Director during the past five years.
The Merger Agreement provided that as of the effective time of the Merger, Mr. Lauletta, Chairman and Chief Executive Officer of Varco, would become Chairman of the Company; Mr. Miller, Chairman, President and Chief Executive Officer of National Oilwell, would become President and Chief Executive Officer of the Company; Joseph C. Winkler, President and Chief Operating Officer of Varco, would become Chief Operating Officer of the Company; and Clay C. Williams, Vice President and Chief Financial Officer of Varco, would become Vice President and Chief Financial Officer of the Company. The Company expects that the Board of Directors may make further changes to its executive officers as a result of the recent Merger.
Set forth below are the names and ages of the executive officers of the Company, the positions held by each executive officer, and a brief account of the business experience of each executive officer during the past five years. The executive officers of the Company serve at the pleasure of the Board of Directors and are subject to annual appointment by the Board of Directors at its first meeting following the Annual Meeting of Stockholders.
None of the executive officers or directors of the Company has any family relationships with each other.
The Company has a separately-designated standing audit committee. Messrs. Harrison (Chair), Armstrong, Guill and Mattson are the current members of the Audit Committee. All members of this committee are independent within the meaning of the rules governing audit committees by the New York Stock Exchange. Prior to the Merger, the board of directors of National Oilwell determined that Messrs. Harrison and Guill meet the New York Stock Exchange (the NYSE) standard of having accounting or related financial management expertise and meet the Securities and Exchange Commission (the SEC) criteria of an Audit Committee Financial Expert. Also prior to the Merger, the Varco board of directors determined that Mr. Armstrong is an audit committee financial expert within the meaning of the SEC and NYSE rules.
Section 16(a) Beneficial Ownership Reporting Compliance
The rules of the SEC require that the Company disclose late filings of reports of stock ownership (and changes in stock ownership) by its directors, executive officers, and beneficial owners of more than ten percent of the Companys stock. The Company has undertaken responsibility for preparing and filing the stock ownership forms required under Section 16(a) of the Exchange Act on behalf of its officers and directors. Based upon a review of forms filed and information provided by the Companys officers and directors, we believe that all Section 16(a) reporting requirements were met during 2004.
Policies on Business Ethics and Conduct
The Company has a long-standing Business Ethics Policy. In April 2003, the Board adopted the Code of Business Conduct and Ethics For Members of the Board of Directors and Executive Officers and the Code of Ethics for Senior Financial Officers. These codes are designed to focus the board and management on areas of ethical risk, provide guidance to personnel to help them recognize and deal with ethical issues, provide mechanisms to report unethical conduct and help to foster a culture of honesty and accountability. As set forth in the Corporate Governance Guidelines, the Board may not waive the application of the Companys policies on business ethics and conduct for any Director or Executive Officer. Copies of the Code of Business Conduct and Ethics For Members of the Board of Directors and Executive Officers and the Code of Ethics for Senior Financial Officers, which were included as Appendices V and VI to the Proxy Statement for the 2003 Annual Meeting of Stockholders, are available on the Companys website, www.natoil.com, under the Investor Relations/Corporate Governance section.
NYSE Corporate Governance Matters
As a listed company with the New York Stock Exchange, our Chief Executive Officer, as required under Section 303A.12(a) of the NYSE Listed Company Manual, must certify to the NYSE each year whether or not he is aware of any violation by the company of NYSE Corporate Governance listing standards as of the date of the certification. On May 19, 2004, the Companys Chief Executive Officer submitted such a certification to the NYSE which stated that he was not aware of any violation by the Company of the NYSE Corporate Governance listing standards. On March 8, 2005, the Company filed its 2004 Form 10-K with the SEC, which included as Exhibits 31.1 and 31.2 the Chief Executive Officer and Chief Financial Officer certifications required under Section 302 of the Sarbanes-Oxley Act of 2002. The Company has also included with this amendment to the 2004 Form 10-K new Exhibits 31.1 and 31.2 the Chief Executive Officer and Chief Financial Officer certifications required under Section 302 of the Sarbanes-Oxley Act of 2002.
Item 11. Executive Compensation
The following table sets forth for the years ended December 31, 2004, 2003 and 2002 the compensation paid by the Company to its Chief Executive Officer and four other most highly compensated executive officers (the Named Executive Officers) serving in such capacity at December 31, 2004.
SUMMARY COMPENSATION TABLE
(1)These amounts include:
(a)The Companys cash contributions for 2004 under the National-Oilwell Retirement and Thrift
Plan, a defined contribution plan, on behalf of Mr. Miller $14,350; Mr. Krablin $9,904; Mr.
Stratulate $14,350; Mr. Neveu $15,375; and Mr. Reese $15,425.
(2) At the effective time of the Merger, Mr. Krablin ceased service as Sr. Vice President and CFO. His employment was terminated effective April 1, 2005.
(3) In connection with the organization of the Company following the Merger, the position of Group President Rig Solutions Eastern Hemisphere was eliminated. Mr. Stratulate remains in the employ of the Company.
(4)Includes $77,803 of taxable tuition related to Mr. Stratulates participation in Harvard Business Schools Advanced Management Program.
(5)Mr. Neveu has served as President of the Companys Rig Solutions Group since April 2005.
Grants of Options/SARs in Last Fiscal Year
The following table provides information concerning stock options granted to Named Executive Officers during the fiscal year ended December 31, 2004. The Company has granted no stock appreciation rights.
The option exercise price per share is equal to the fair market value of a share of Common Stock on the date of grant. The grants have terms of ten years from the date of grant and vest in three equal annual installments beginning one year from the date of grant.
Option Exercises and Year-End Option Values
The following table provides information about option exercises by the Named Executive Officers during 2004 and the value of unexercised options held by them at December 31, 2004.
The Company made no awards during 2004 under any Long-Term Incentive Plan, nor did the Company at December 31, 2004 have any defined benefit or actuarial plans under which benefits are determined primarily by final compensation and years of service. However, the Company has assumed defined benefit plans in connection with prior acquisitions but none of our named executive officers as of December 31, 2004 was eligible to participate in these plans.
Compensation of Directors
During 2004, directors who are not our employees were paid $1,250 for each Board and Committee meeting attended or for special assignments; $2,000 for the Committee Chairman for each Audit
Committee, Compensation Committee and Nominating/Corporate Governance Committee meeting attended; and $8,750 for each quarter of the year in which the person serves as a director.
These directors also received non-qualified stock options under our stock option plan. On March 11, 2004, each non-employee director was granted an option to purchase 7,500 shares of our common stock. The option exercise price per share was $28.22, the fair market value of a share of our common stock on the date of grant. The options have a term of ten years from the date of grant and vest in three equal annual installments beginning one year after the date of grant.
Employment Contracts and Termination of Employment and Change-in-Control Arrangements
The Company entered into employment agreements on January 1, 2002 with Messrs. Miller and Krablin. Under the employment agreements, Messrs. Miller and Krablin are provided base salaries, currently set at $600,000 and $400,000, respectively. The employment agreements also entitle them to receive an annual bonus and to participate in the Companys incentive, savings and retirement plans. The agreements each have a term of three years and are automatically extended on an annual basis. The agreements provide for a base salary, participation in employee incentive plans, and employee benefits as generally provided to all employees. In addition, the agreements contain certain termination provisions. If the employment relationship is terminated by the Company for any reason other than (i) voluntary termination; (ii) termination for cause (as defined); (iii) death; or (iv) long-term disability; or if the employment relationship is terminated by the employee for Good Reason, the employee is entitled to receive three times the sum of his current base salary plus the highest annual bonus received by the employee over the preceding three-year period, three times the amount equal to the total of the employer matching contributions under the Companys Retirement and Thrift Plan and Supplemental Savings Plan, and three years participation in the Companys welfare and medical benefit plans. The employee shall have the right, during the 60-day period after such termination, to elect to surrender all or part of any stock options held by the employee at the time of termination, whether or not exercisable, for a cash payment equal to the spread between the cost of the option and the highest reported per share sales price during the 60-day period prior to the date of termination. Any option not so surrendered will remain exercisable until the earlier of one year after the date of termination or the stated expiration date of the specific option grant. Under the agreements, termination by the employee for Good Reason means (i) the assignment to the employee of any duties inconsistent with his current position or any action by the Company that results in a diminution in the employees position, authority, duties or responsibilities; (ii) a failure by the Company to comply with the terms of the agreement; or (iii) the requirement of the employee to relocate or to travel to a substantially greater extent than required at the date of the agreement. In addition, compensation will be grossed up for any excise tax imposed under Section 4999 of the Internal Revenue Code as a result of any payment or benefit provided to Messrs. Miller or Krablin under the employment agreements. The agreements also contain restrictions on competitive activities and solicitation of our employees for three years following the date of termination.
Mr. Krablin, whose employment was terminated effective April 1, 2005 in connection with the Merger, has received $2,174,050 related to the severance payment under his employment contract and $1,792,476 related to the value of unexercisable options that became exercisable. In addition, Mr. Krablin will receive the above-described benefits as a result of his termination.
We entered into employment agreements on January 1, 2002 with Messrs. Neveu and Reese that contain certain termination provisions. Under the employment agreements, Messrs. Neveu and Reese are provided base salary, currently set at $250,000 each. The agreements have a one-year term and are automatically extended on an annual basis. The agreements also provide for participation in employee incentive plans, and employee benefits as generally provided to all employees. If the employment relationship is terminated by The Company for any reason other than (i) voluntary termination; (ii) termination for cause (as defined); (iii) death; or (iv) long-term disability; or if the employment
relationship is terminated by the employee for Good Reason, the employee is entitled to receive the sum of his current base salary plus the highest annual bonus he would be entitled to earn under the current year incentive plan and an amount equal to the total of the employer matching contributions under the Companys Retirement and Thrift Plan and Supplemental Savings Plan, and one years participation in the Companys welfare and medical benefit plans. The agreements also contain restrictions on competitive activities and solicitation of our employees for one year following the date of termination.
We entered into an employment agreement with Mr. Stratulate in connection with the June 28, 2000 merger between the Company and IRI International Corporation. Under the employment agreement, Mr. Stratulate is provided a base salary currently set at $255,895. The agreement also provides for participation in employee incentive plans, and employee benefits as generally provided to all employees. The agreement automatically extends for one year on an annual basis. If Mr. Stratulates employment is involuntarily terminated at any time without cause, he will have the right to receive a lump sum payment of 150% of his base salary. The agreement also contains restrictions on competitive activities and solicitation of our employees for one year following the date of termination.
Additionally, the Companys stock option agreements provide for full vesting of unvested outstanding options in the event of a change of control of the Company and a change in the optionees responsibilities following a change of control.
Compensation Committee Interlocks and Insider Participation
During 2004, Messrs. Guill, Beauchamp and Jarvis served on the Compensation Committee. None of these members is a former or current officer or employee of the Company or any of its subsidiaries, is involved in a relationship requiring disclosure as an interlocking executive officer/director, or had any relationship requiring disclosure under Item 404 of Regulation S-K.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Securities Authorized for Issuance under Equity Compensation Plan
The following table sets forth information as of our fiscal year ended December 31, 2004, with respect to compensation plans under which our common stock may be issued:
Security Ownership of Certain Beneficial Owners
Based on information filed with the SEC as of the most recent practicable date, this table shows the number and percentage of shares beneficially owned by owners of more than five percent of the outstanding shares of the stock of National Oilwell at December 31, 2004. The number and percentage of shares beneficially owned is based on 85,995,266 shares outstanding as of December 31, 2004.
(1)Shares owned at December 31, 2004, as reflected in Amendment No. 6 to Schedule 13G filed with the SEC on February 15, 2005. Fidelity Management & Research Company (Fidelity), a wholly-owned subsidiary of FMR Corp. (FMR) is the beneficial owner of 12,095,297 shares as a result of acting as investment adviser to various investment companies (the Funds). Edward C. Johnson 3d, Chairman of FMR, FMR Corp., through its control of Fidelity, and the Funds each has sole power to dispose of the 12,095,297 shares owned by the Funds. Neither FMR nor Edward C. Johnson 3d has the sole power to vote or direct the voting of the shares owned directly by the Funds, which power resides with the Funds Boards of Trustees. Fidelity carries out the voting of the shares under written guidelines established by the Funds Boards of Trustees. Fidelity Management Trust Company (FMTC), a wholly-owned subsidiary of FMR, is the beneficial owner of 773,475 shares as a result of its serving as investment manager of the institutional account(s). Edward C. Johnson 3d and FMR, through its control of FMTC, each has sole dispositive power over 773,475 shares and sole power to vote or to direct the voting of 773,475 shares owned by the institutional account(s). Members of the Edward C. Johnson 3d family are the predominant owners of Class B shares of common stock of FMR, representing approximately 49% of the voting power of FMR. Mr. Johnson 3d owns 12.0% and Abigail Johnson, a Director of FMR, owns 24.5% of the aggregate outstanding voting stock of FMR. Mr. Johnson 3d is Chairman of FMR and Abigail P. Johnson is a Director of FMR. The Johnson family group and all other Class B Shareholders have entered into a shareholders voting agreement under which all Class B shares will be voted in accordance with the majority vote of Class B Shares. Accordingly, through their ownership of voting
common stock and the execution of the shareholders voting agreement, members of the Johnson family may be deemed, under the Investment Company Act of 1940, to form a controlling group with respect to FMR. Fidelity International Limited and various foreign-based subsidiaries provide investment advisory and management services to a number of non-U.S. investment companies (the International Funds) and certain institutional investors. Fidelity International Limited is the beneficial owner of 23,800 shares.
(2)On February 14, 2005, FMR Corp. filed a Schedule 13G/A with the SEC disclosing beneficial ownership of 14,670,104 shares of Varco common stock. In connection with the Merger on March 11, 2005, each share of Varco common stock was exchanged for .8363 share of the Company common stock. As of March 31, 2005, there were 172,257,132 shares of the Companys common stock outstanding.
(3)Shares owned at December 31, 2004, as reflected in Amendment Number 1 to Schedule 13G filed with the SEC on February 11, 2005. According to the filing, First Pacific Advisors, Inc. has sole voting and dispositive power with respect to none of the shares, shared voting power with respect to 2,311,000 of these shares and shared dispositive power with respect to all of these shares.
(4)Shares owned at December 31, 2004, as reflected in Amendment No. 2 to Schedule 13G filed with the SEC on February 15, 2005. According to the filing, Neuberger Berman, Inc. and Neuberger Berman, LLC. have sole voting power with respect to 80,872 of these shares, shared voting power with respect to 4,634,829 of these shares, sole dispositive power with respect to none of these shares and shared dispositive power with respect to all of these shares.
(5)Shares owned at December 31, 2004 as reflected in Schedule 13G filed with the SEC on February 11, 2005. According to the filing, Fred Alger Management, Inc. and Fred M. Alger III have sole voting and dispositive power with respect to all of these shares and shared voting and dispositive power with respect to none of these shares.
Security Ownership of Management
This table shows the number and percentage of shares of the Companys stock beneficially owned by our current directors and executive officers and all current directors and executive officers as a group as of March 31, 2005. The number and percentage of shares beneficially owned is based on 172,257,132 shares outstanding as of March 31, 2005. Beneficial ownership includes any shares as to which the director or executive officers has the right to acquire within 60 days of March 31, 2005 through the exercise of any stock option warrant or other right. Each stockholder has sole voting and investment power, or shares these powers with his spouse, with respect to the shares beneficially owned.
*Less than 1 percent.
Item 13. Certain Relationships and Related Transactions
We transact business with companies with which certain of our Directors are affiliated. All transactions with these companies are on terms competitive with other third party vendors, and none of these is material either to us or any of these companies.
Item 14. Principal Accounting Fees and Services
The Audit Committee pre-approves all services provided by the Companys independent auditors to the Company and its subsidiaries. Consideration and approval of such services generally occurs in the regularly scheduled quarterly meetings of the Audit Committee. The Audit Committee has delegated the Chairman of the Audit Committee to pre-approve allowed non-audit services, subject to review by the full committee at the next regularly scheduled meeting. The Audit Committee has considered whether the provision of all services other than those rendered for the audit of the Companys financial statements is compatible with maintaining Ernst & Youngs independence and has concluded that their independence is not compromised.
The following table sets forth Ernst & Young LLPs fees for services rendered in connection with fiscal years ended December 31, 2003 and 2004. All 2004 services provided by Ernst & Young LLP were pre-approved by the Audit Committee.
(1)Consists primarily of fees for employee benefit plans, due diligence related to acquisition transactions, and accounting consultations.
(2)Consists primarily of fees for compliance, planning and advice with respect to various domestic and foreign corporate tax matters.
Item 15. Exhibits and Financial Statement Schedules
a) Financial Statements and Exhibits
1. Financial Statements
All schedules, other than Schedule II, are omitted because they are not applicable, not required or the information is included in the financial statements or notes thereto.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Index to Exhibits