National Oilwell Varco 2015 Annual Report Download - page 80

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Table of Contents
These impairment charges were primarily the result of the substantial decline in oil prices and worldwide rig counts continuing in the fourth quarter of 2015,
declines in forecasts in rig activity, and a decline in the revenue forecast for the Company for 2016.
Foreign Currency
The functional currency for most of our foreign operations is the local currency. The cumulative effects of translating the balance sheet accounts from the
functional currency into the U.S. dollar at current exchange rates are included in accumulated other comprehensive income (loss). Revenues and expenses are
translated at average exchange rates in effect during the period. Certain other foreign operations, including our operations in Norway, use the U.S. dollar as
the functional currency. Accordingly, financial statements of these foreign subsidiaries are remeasured to U.S. dollars for consolidation purposes using
current rates of exchange for monetary assets and liabilities and historical rates of exchange for nonmonetary assets and related elements of expense. Revenue
and expense elements are remeasured at rates that approximate the rates in effect on the transaction dates. For all operations, gains or losses from remeasuring
foreign currency transactions into the functional currency are included in income. Net foreign currency transaction gains (losses) were ($47) million, $20
million and ($24) million for the years ending December 31, 2015, 2014 and 2013, respectively, and are included in other income (expense) in the
accompanying statement of income.
Historically, the Venezuelan government has devalued the country’s currency. During the first quarters of 2015 and 2013, the Venezuelan government again
officially devalued the Venezuelan bolivar against the U.S. dollar. As a result, the Company incurred approximately $9 million and $12 million in
devaluation charges in the first quarter of 2015 and 2013, respectively. The reporting currency of all of the Company’s Venezuelan entities is the U.S. dollar.
The Company’s net remaining investment in Venezuela, which is largely U.S. dollar, was $25 million at December 31, 2015.
During the fourth quarter of 2015, the Argentinian government officially devalued the Argentine peso against the U.S. dollar. As a result, the Company
incurred approximately $7 million devaluation charges in the fourth quarter of 2015. The reporting currency of all of the Company’s Argentinian entities is
the Argentine peso.
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 Systems and Completion &
Production Solutions segments. 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
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