National Oilwell Varco 2015 Annual Report Download - page 81

Table of Contents
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.
The changes in the carrying amount of service and product warranties are as follows (in millions):
Balance at December 31, 2013 $ 228
Net provisions for warranties issued during the year 123
Amounts incurred (78)
Currency translation adjustments and other (1)
Balance at December 31, 2014 $ 272
Net provisions for warranties issued during the year 92
Amounts incurred (117)
Currency translation adjustments and other (3)
Balance at December 31, 2015 $ 244
Income Taxes
The liability method is used to account for income taxes. Deferred tax assets and liabilities are determined based on differences between the financial
reporting and tax basis of assets and liabilities and are measured using the enacted tax rates that will be in effect when the differences are expected to reverse.
Valuation allowances are established when necessary to reduce deferred tax assets to amounts which are more likely than not to be realized.
Concentration of Credit Risk
We grant credit to our customers, which operate primarily in the oil and gas industry. Concentrations of credit risk are limited because we have a large
number of geographically diverse customers, thus spreading trade credit
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