The National Oilwell Varco, Inc. 401(k) and Retirement Savings Plan (the Plan) is subject to the requirements of the Employee Retirement Income Security Act
of 1974 (ERISA).
The Consent of Independent Registered Public Accounting Firm to the
incorporation by reference of the foregoing financial statements in the Registration Statement on Form
S-8
(No.
333-46459)
pertaining to the Plan is being filed as
Exhibit 23.1 to this Report.
National Oilwell Varco, Inc. 401(k) and Retirement Savings Plan
Report of Independent Registered Public Accounting Firm
To the Benefits Plan Administrative Committee and Plan Participants
National Oilwell Varco, Inc. 401(k) and Retirement Savings Plan
Opinion on the Financial Statements
We have
audited the accompanying statements of net assets available for benefits of the National Oilwell Varco, Inc. 401(k) and Retirement Savings Plan (the Plan) as of December 31, 2017 and 2016, and the related statement of changes in net assets
available for benefits for the year ended December 31, 2017, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the net assets
available for benefits of the Plan as of December 31, 2017 and 2016, and the changes in net assets available for benefits for the year ended December 31, 2017, in conformity with accounting principles generally accepted in the United
States of America.
Supplementary Information
The supplementary information in the accompanying schedule of assets (held at end of year) as of December 31, 2017 has been subjected to audit procedures
performed in conjunction with the audit of the Plans financial statements. The supplementary information is the responsibility of Plan management. Our audit procedures included determining whether the supplemental information reconciles to the
financial statements or the underlying accounting and other records, as applicable and performing procedures to test the completeness and accuracy of the information presented in the supplemental information. In forming our opinion on the
supplemental information in the accompanying schedules, we evaluated whether the supplementary information, including its form and content, is presented in conformity with the Department of Labors Rules and Regulations for Reporting and
Disclosure under the Employee Retirement Income Security Act of 1974. In our opinion, the supplemental information in the accompanying schedules is fairly stated in all material respects in relation to the financial statements as a whole.
Basis for Opinion
These financial statements are
the responsibility of Plan management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)
(PCAOB) and are required to be independent with respect to the Plan in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
1
Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Weaver and Tidwell, L.L.P.
WEAVER AND TIDWELL, L.L.P.
We have served as the Plans auditor since 2017.
Houston,
Texas
June 26, 2018
2
National Oilwell Varco, Inc. 401(k) and Retirement Savings Plan
Notes to Financial Statements
December 31, 2017
1. Description of
Plan
The following description of the National Oilwell Varco, Inc. 401(k) and Retirement Savings Plan (the Plan) is provided for general information
only. Participants should refer to the
Summary Plan Description
for a more complete description of the Plans provisions, a copy of which is available from National Oilwell Varco, L.P. (the Company or Plan Sponsor). The Company is a
wholly owned subsidiary of National Oilwell Varco, Inc.
General
The Plan was established effective April 1, 1987, for the benefit of the employees of the Company. The Plan is a defined contribution plan covering
substantially all domestic employees who have completed one hour of service. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended (ERISA).
Contributions
Participants may make both pretax and
after-tax
contributions to the Plan. The Plan allows pretax salary deferral contributions of 1% to 100% (less any
after-tax
contributions, required withholdings, or other
elected deductions) of compensation, subject to certain Internal Revenue Service (IRS) limitations. The Plan allows participants to designate their salary deferral contributions as Roth contributions.
After-tax
contributions may be made at 1% to 18% of eligible compensation. However, combined pretax and
after-tax
contributions, required withholdings, and other elected
deductions cannot exceed 100% of compensation. The Plan provides for the automatic enrollment and payroll deduction of 4% of a new eligible employees compensation as soon as practical following 60 days after employment.
5
National Oilwell Varco, Inc. 401(k) and Retirement Savings Plan
Notes to Financial Statements (continued)
1. Description of Plan (continued)
The Company matches 100% of the first 4% of each participants contribution. The Company may also make a
discretionary contribution (the Employer Retirement Contribution) to the Plan. The amount of the Employer Retirement Contribution is determined based upon participants eligible salary and years of service. Participants age 50 and older may
contribute additional pretax
catch-up
contributions, subject to IRS limitations. For the year ended December 31, 2017, the Company contributed $28,952,640 of Employer Retirement Contributions.
Participants must have completed one year of service in order to receive Company matching and Employer Retirement Contributions.
Vesting
Participants are immediately 100% vested in their participant and employer contributions and the related earnings that have been credited to their accounts.
Benefit Payments
The Plan pays
lump-sum
benefits upon retirement, disability, death, or termination of employment.
In-service
withdrawals, subject to certain rules and restrictions, may also be made from
certain account balances.
Participant Loans
The
Plan includes a loan provision that permits participants to borrow a minimum of $1,000 up to a maximum equal to the lesser of $50,000 or 50% of the total value of their Plan assets. The loans are payable in principal installments, plus interest, at
prime plus one percent through payroll deductions and are due in
one-
to five-year terms, unless the loan is used to acquire a principal residence, in which case the loan term cannot exceed ten years.
Repayments are made ratably through payroll deductions.
6
National Oilwell Varco, Inc. 401(k) and Retirement Savings Plan
Notes to Financial Statements (continued)
1. Description of Plan (continued)
Participant loans are recorded on the financial statements as notes receivable from participants at their
unpaid principal balance plus any accrued but unpaid interest. Interest income on notes receivable from participants is recorded when it is earned. Related fees are recorded as administrative expenses and are expensed when they are incurred. No
allowance for credit losses has been recorded as of December 31, 2017 or 2016. If a participant ceases to make loan repayments and the plan administrator deems the participant loan to be a distribution, the participant loan balance is reduced
and a benefit payment is recorded.
Administrative Expenses
Certain administrative expenses are paid from the Plans assets. All other Plan expenses are paid by the Company.
Plan Termination
Although it has not expressed any
intent to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. Participants are 100% vested in their accounts in any event. Assets would be
distributed to participants as prescribed by ERISA.
2. Summary of Accounting Policies
Basis of Accounting
The accompanying financial statements
of the Plan have been prepared on the accrual basis of accounting. Benefit payments to participants are recorded upon distribution.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates that
affect the amounts reported in the financial statements, accompanying notes, and supplemental schedule. Actual results could differ from those estimates.
7
National Oilwell Varco, Inc. 401(k) and Retirement Savings Plan
Notes to Financial Statements (continued)
2. Summary of Accounting Policies (continued)
Investment Valuation and Income Recognition
Wells Fargo, N.A. serves as the Plans trustee and holds all investments of the Plan. Investments held by the Plan (except for fully benefit-responsive
investment contracts) are stated at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price).
See Note 3 for further discussion of fair value measurements.
Purchases and sales of securities are recorded on a trade-date basis. Interest income
is recorded as earned. Dividends are recorded on the record date. Net appreciation includes the Plans gains and losses on investments bought and sold as well as held during the year.
Risks and Uncertainties
The Plan provides for
investments in various investment securities that, in general, are exposed to various risks, such as interest rate, credit, and overall market volatility risks. Due to the level of risk associated with certain investment securities, it is reasonably
possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the statements of net assets available for benefits and participant account balances.
8
National Oilwell Varco, Inc. 401(k) and Retirement Savings Plan
Notes to Financial Statements (continued)
3. Fair Value Measurements
The fair value framework establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives
the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
Level 1 Unadjusted quoted prices in active markets that are accessible to the reporting entity at the measurement date
for identical assets and liabilities.
Level 2 Inputs other than quoted prices in active markets for identical assets and
liabilities that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 2 inputs include the following:
|
|
|
quoted prices for similar assets and liabilities in active markets;
|
|
|
|
quoted prices for identical or similar assets or liabilities in markets that are not active;
|
|
|
|
observable inputs other than quoted prices that are used in the valuation of the asset or liabilities (e.g., interest rate and yield curve quotes at commonly quoted intervals);
|
|
|
|
inputs that are derived principally from or corroborated by observable market data by correlation or other means.
|
Level 3 Unobservable inputs for the asset or liability (i.e., supported by little or no market activity). Level 3
inputs include managements own assumption about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk).
The level in the fair value hierarchy within which the fair value measurement is classified is determined based on the lowest level input that is significant
to the fair value measure in its entirety.
9
National Oilwell Varco, Inc. 401(k) and Retirement Savings Plan
Notes to Financial Statements (continued)
3. Fair Value Measurements (continued)
Following is a description of the valuation techniques and inputs used for each general type of assets
measured at fair value by the Plan:
Self-directed brokerage accounts:
Accounts primarily consist of cash, money market funds,
mutual funds and common stocks that are valued on the basis of readily determinable market prices.
Common stocks:
Valued at the
closing price reported on the active market on which the individual securities are traded.
Mutual funds:
Valued at the net asset
value (NAV) of shares held by the Plan at
year-end.
Common collective trust funds:
Valued
at the NAV of shares held by the Plan at
year-end.
The NAV, as provided by the trustee, is used as a practical expedient to estimate fair value. The NAV is based on the fair value of the underlying investments
held by the fund.
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of
future fair values. Furthermore, while the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial
instruments could result in a different fair value measurement at the reporting date.
The following tables set forth, by level within the fair value
hierarchy, the Plans assets carried at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets at Fair Value as of
December 31, 2017
|
|
|
Assets at Fair Value as of
December 31, 2016
|
|
|
|
Level 1
|
|
|
Total
|
|
|
Level 1
|
|
|
Total
|
|
Corporate stock
|
|
$
|
84,395,833
|
|
|
$
|
84,395,833
|
|
|
$
|
104,231,112
|
|
|
$
|
104,231,112
|
|
Mutual funds
|
|
|
1,007,991,570
|
|
|
|
1,007,991,570
|
|
|
|
859,954,144
|
|
|
|
859,954,144
|
|
Self-directed brokerage accounts
|
|
|
3,394,759
|
|
|
|
3,394,759
|
|
|
|
2,774,799
|
|
|
|
2,774,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets in the fair value hierarchy
|
|
|
1,095,782,162
|
|
|
|
1,095,782,162
|
|
|
|
966,960,055
|
|
|
|
966,960,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments Measured at Net Asset Value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common collective trust funds
|
|
|
|
|
|
|
172,478,560
|
|
|
|
|
|
|
|
143,754,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments, at fair value
|
|
|
|
|
|
$
|
1,268,260,722
|
|
|
|
|
|
|
$
|
1,110,714,499
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
National Oilwell Varco, Inc. 401(k) and Retirement Savings Plan
Notes to Financial Statements (continued)
4. Fully Benefit-Responsive Investment Contracts
The Plan offers an investment called the National Oilwell Varco Stable Value Fund, which is managed by Galliard Capital Management and is comprised of
investments in fixed income security funds that are covered by synthetic guaranteed investment contracts (synthetic GICs), which are fully benefit-responsive investment contracts. Within this structure, the Plan owns both the fixed income security
funds and the wrapper contracts.
In a synthetic GIC structure, the Plan makes investments in fixed income security funds. To reduce the risk of losses on
these investments, the Plan purchases a wrapper contract from an insurance company or bank, which enables Plan participants to transact at a specified contract value by protecting the principal amount invested over a specific period of time.
Fully Benefit-Responsive investment contracts held by a defined contribution plan are required to be reported at contract value. Contract value is the
relevant measurement attributable to fully benefit-responsive investment contracts because contract value is the amount participants would receive if they were to initiate permitted transactions under the terms of the Plan. The contract value of the
fully benefit-responsive investment contracts represents contributions plus earnings, less participant withdrawals and administrative expenses.
The
Plans investments covered by the wrapper contracts earn interest at interest crediting rates that are typically reset on a monthly or quarterly basis. These interest crediting rates use a formula that is based on the characteristics of the
underlying fixed income portfolio.
Participants may ordinarily direct the withdrawal or transfer of all or a portion of their investment at contract
value. Certain events limit the ability of the Plan to transact at contract value with the issuer. Such events include the following: (i) amendments to the Plan documents (including complete or partial Plan termination or merger with another
plan), (ii) changes to the Plans prohibition on competing investment options or deletion of equity wash provisions, or (iii) bankruptcy of the Plan sponsor or other Plan sponsor events (e.g., divestitures or spin-offs of the
trust to qualify for exemption from federal income taxes or any required prohibited transaction exemption under ERISA). The Plan administrator does not believe that the occurrence of any such value event, which would limit the Plans ability to
transact at contract value with participants, is probable.
In some cases, an investment contract issuer may terminate a contract with the Plan and settle
at amounts different from the contract value. Examples of these events include the Plans loss of its qualified status, material breaches of responsibilities that are not cured, or material and adverse changes to the provisions of the Plan. If
one of these events were to occur, the investment contract issuer could terminate the contract at the market value of the underlying investments.
11
National Oilwell Varco, Inc. 401(k) and Retirement Savings Plan
Notes to Financial Statements (continued)
5. Common Collective Trusts
The Harris Associates Oakmark International collective fund, is a common collective trust fund established, operated and maintained by SEI Trust Company, which
is a direct filing entity with the U.S. Department of Labor. There are currently no redemption restrictions on this investment.
The Wells Fargo Short
Term Investment Fund S is a common collective trust fund which invests primarily in short term fixed income securities, which is a direct filing entity with the U.S. Department of Labor. There are currently no redemption restrictions on this
investment.
6. Related-Party Transactions and Parties of Interest Transactions
Certain investments of the Plan are managed by Wells Fargo, N.A., the trustee of the Plan; therefore, these transactions qualify as
party-in-interest
transactions. Additionally, a portion of the Plans assets are invested in the Companys common stock. Because the Company is the plan sponsor,
transactions involving the Companys common stock qualify as
party-in-interest
transactions. All of these transactions are exempt from the prohibited transactions
rules under ERISA.
7. Income Tax Status
The Plan
has received a determination letter from the IRS dated May 12, 2014, stating that the Plan is qualified under Section 401(a) of the Internal Revenue Code (IRC) and; therefore, the related trust is exempt from taxation. Once qualified, the
Plan is required to operate in conformity with the IRC to maintain its qualified status. The plan sponsor believes the Plan is being operated in compliance with the applicable requirements of the IRC and; therefore, believes that the Plan is
qualified and the related trust is
tax-exempt.
12
National Oilwell Varco, Inc. 401(k) and Retirement Savings Plan
Notes to Financial Statements (continued)
U.S. generally accepted accounting principles require plan management to evaluate uncertain tax positions
taken by the Plan. The financial statement effects of a tax position are recognized when the position is more likely than not, based on the technical merits, to be sustained upon examination by the IRS. The plan administrator has analyzed the tax
positions taken by the Plan and has concluded that, as of December 31, 2017, there are no uncertain positions taken or expected to be taken. The Plan has recognized no interest or penalties related to uncertain tax positions. The Plan is
subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. The plan administrator believes it is no longer subject to income tax examinations for years prior to 2014.
13
Supplemental Schedule
14