National Oilwell Varco 2002 Annual Report Download - page 32

2002 2001 2000
Reported net income 73,069$ 104,063$ 13,136$
Add back: Goodwill amortization, net of tax - 10,959 9,930
Adjusted net income 73,069$ 115,022$ 23,066$
Adjusted net income per share:
Basic 0.90$ 1.42$ 0.29$
Diluted 0.89$ 1.41$ 0.29$
Weighted average shares outstanding:
Basic 80,974 80,813 79,325
Diluted 81,709 81,733 80,760
On at least an annual basis, we assess whether goodwill is impaired. Our annual impairment tests
are performed at the beginning of the 4th quarter of each year. If we determine that goodwill is
impaired, we measure that impairment based on the amount by which the book value of goodwill
exceeds its implied fair value. The implied fair value of goodwill is determined by deducting the
fair value of a reporting unit's identifiable assets and liabilities from the fair value of that
reporting unit as a whole. Additional impairment assessments may be performed on an interim
basis if we encounter events or changes in circumstances that would indicate that, more likely
than not, the carrying amount of goodwill has been impaired. Fair value of the reporting units is
determined based on internal management estimates.
Foreign Currency
The functional currency for our Canadian, United Kingdom, Norwegian, German, Netherlands
and Australian 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. The U.S. dollar is used as the functional
currency for the Singapore and Venezuelan operations. Accordingly, certain assets are translated
at historical exchange rates and all translation adjustments are included in income. For all
operations, gains or losses from remeasuring foreign currency transactions into the functional
currency are included in income.
Revenue Recognition
Our products and services are generally sold based upon purchase orders or contracts with the
customer that include fixed or determinable prices and that do not include right of return or other
similar provisions or other significant post delivery obligations. We record revenue at the time the
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 and when
collectibility is reasonably assured. We also recognize revenue on bill-and-hold transactions
where the product has been completed and is ready to be shipped, however at the customer's
request, we store the product on the customers' behalf for a brief period of time, typically less
than one year. Customer advances or deposits are deferred and recognized as revenue when we
have completed all of our performance obligations related to the sale. We also recognize revenue
as services are performed and as rental charges are incurred.
Revenues for the construction of large rig packages are reported on the percentage of completion
method of accounting. Revenues and gross profit are recognized as work is performed based
upon the relationship between actual costs incurred and total expected costs at completion. All
known or anticipated losses on contracts are provided for immediately in earnings.
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