National Oilwell Varco 2010 Annual Report Download - page 75

Download and view the complete annual report

Please find page 75 of the 2010 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 110

  • 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
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110

transactions into the functional currency are included in income. Net foreign currency transaction gains (losses) were ($30) million, ($79) million
and $50 million for the years ending December 31, 2010, 2009 and 2008, respectively, and are included in other income (expense) in the
accompanying statement of operations.
During the first quarter of 2010, the Venezuelan government officially devalued the Venezuelan bolivar against the U.S. dollar. As a result the
Company converted its Venezuela ledgers to U.S. dollar functional currency, devalued monetary assets resulting in a $27 million charge, and
wrote-down certain accounts receivable in view of deteriorating business conditions in Venezuela, resulting in an additional $11 million charge.
The Companys net investment in Venezuela was $28 million at December 31, 2010.
Revenue Recognition
The Companys products and services are sold based upon purchase orders or contracts with the customer that include fixed or determinable
prices and that do not generally include right of return or other similar provisions or other significant post delivery obligations. Except for certain
construction contracts and drill pipe sales described below, the Company records revenue at the time its manufacturing process is complete, the
customer has been provided with all proper inspection and other required documentation, title and risk of loss has passed to the customer,
collectability is reasonably assured and the product has been delivered. Customer advances or deposits are deferred and recognized as revenue
when the Company has completed all of its performance obligations related to the sale. The Company also recognizes revenue as services are
performed. The amounts billed for shipping and handling cost are included in revenue and related costs are included in cost of sales.
Revenue Recognition under Long-term Construction Contracts
The Company uses the percentage-of-completion method to account for certain long-term construction contracts in the Rig Technology segment.
These long-term construction contracts include the following characteristics:
the contracts include custom designs for customer specific applications;
the structural design is unique and requires significant engineering efforts; and
construction projects often have progress payments.
This method requires the Company to make estimates regarding the total costs of the project, progress against the project schedule and the
estimated completion date, all of which impact the amount of revenue and gross margin the Company recognizes in each reporting period. The
Company prepares detailed cost estimates at the beginning of each project. Significant projects and their related costs and profit margins are
updated and reviewed at least quarterly by senior management. Factors that may affect future project costs and margins include shipyard access,
weather, production efficiencies, availability and costs of labor, materials and subcomponents and other factors. These factors can impact the
accuracy of the Companys estimates and materially impact the Companys current and future reported earnings.
The asset, Costs in excess of billings, represents revenues recognized in excess of amounts billed. The liability, Billings in excess of costs,
represents billings in excess of revenues recognized.
Drill Pipe Sales
For drill pipe sales, if requested in writing by the customer, delivery may be satisfied through delivery to the Companys customer storage
location or to a third-party storage facility. For sales transactions where title and risk of loss have transferred to the customer but the supporting
documentation does not meet the criteria for revenue recognition prior to the products being in the physical possession of the customer, the
recognition of the revenues and related inventory costs from these transactions are deferred until the customer takes physical possession.
Service and Product Warranties
The Company provides service and warranty policies on certain of its products. The Company accrues liabilities under service and warranty
policies based upon specific claims and a review of historical warranty and service claim experience in accordance with ASC Topic 450
Contingencies (ASC Topic 450). Adjustments are made to accruals as claim data and historical experience change. In addition, the
Company incurs discretionary costs to service its products in connection with product performance issues and accrues for them when they are
encountered. The Company monitors the actual cost of performing these discretionary services and adjusts the accrual based on the most current
information available. 72