National Oilwell Varco 2015 Annual Report Download - page 95

Table of Contents
In addition, we are involved in various other claims, internal investigations, regulatory agency audits and pending or threatened legal actions involving a
variety of matters. In many instances, the Company maintains insurance that covers claims arising from risks associated with the business activities of the
Company, including claims for premises liability, product liability and other such claims. The Company carries substantial insurance to cover such risks
above a self-insured retention. The Company believes and the Company’s experience has been that such insurance has been sufficient to cover such risks. See
Item 1A. Risk Factors.
As of December 31, 2015, the Company recorded reserves in an amount believed to be sufficient for contingent liabilities representing all contingencies
believed to be probable to cover liabilities. The Company has also assessed the potential for additional losses above the amounts accrued as well as potential
losses for matters that are not probable but are reasonably possible. The total potential loss on these matters cannot be determined; however, in our opinion,
any ultimate liability, to the extent not otherwise provided for and except for the specific cases referred to above, will not materially affect our financial
position, cash flow or results of operations. As it relates to the specific cases referred to above we currently anticipate that any administrative fine or penalty
agreed to as part of a resolution would be within established accruals, and would not have a material effect on our financial position or results of operations.
To the extent a resolution is not negotiated as anticipated, we cannot predict the timing or effect that any resulting government actions may have on our
financial position, cash flow or results of operations. These estimated liabilities are based on the Company’s assessment of the nature of these matters, their
progress toward resolution, the advice of legal counsel and outside experts as well as management’s intention and experience.
Our business is affected both directly and indirectly by governmental laws and regulations relating to the oilfield service industry in general, as well as by
environmental and safety regulations that specifically apply to our business. Although we have not incurred material costs in connection with our
compliance with such laws, there can be no assurance that other developments, such as new environmental laws, regulations and enforcement policies may
not result in additional, presently unquantifiable, costs or liabilities to us.
Further, in some instances, direct or indirect consumers of our products and services, entities providing financing for purchases of our products and services or
members of the supply chain for our products and services may become involved in governmental investigations, internal investigations, political or other
enforcement matters. In such circumstances, such investigations may adversely impact the ability of consumers of our products, entities providing financial
support to such consumers or entities in the supply chain to timely perform their business plans or to timely perform under agreements with us.
The on-going, publicly disclosed investigations in Brazil may continue to adversely impact our shipyard customers, their customers, entities providing
financing for our shipyard customers and/or entities in the supply chain. We consummated a settlement with a shipyard customer on December 28, 2015
concerning seven contracts for the supply of drilling equipment packages for drillship construction projects in Brazil (collectively the “Supply Contracts”).
Pursuant to the terms of the settlement, the Supply Contracts have been terminated. We did not take a charge as a result of the settlement and, on a net basis,
there was no change to our prior estimates on our Brazil contracts impacting income; however we did reduce the Rig Systems segment backlog by
$1.2 billion in the quarter. At December 31, 2015, our backlog included $1.8 billion for the remaining 15 rigs across three shipyards in Brazil. The
investigations in Brazil have led to, and are expected to continue to lead to, delays in deliveries to our shipyard customers in Brazil, along with temporary
suspension of performance under our supply contracts, and could result in additional cancellations or other breaches of our contracts by our shipyard
customers. Our shipyard customers’ customer in Brazil has stated its intent to build some of the drillships it originally contracted for with our shipyard
customers.
Customers (typically drillship owners or drilling contractors) of our shipyard customers have sought, and may in the future seek, to suspend, delay or cancel
their contracts or payments due to such shipyards. As a result, our shipyard customers have sought and may in the future seek to suspend, delay or cancel
deliveries of our drilling equipment packages for the affected drillships. To the extent our shipyard customers
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