National Oilwell Varco 2003 Annual Report Download - page 36

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all operations, gains or losses from remeasuring foreign currency transactions into the functional
currency are included in income. Net foreign currency transaction losses were $7.2 million, $0.3
million and $0.6 million for the years ending December 31, 2003, December 31, 2002 and
December 31, 2001, and are included in other income(expense) in the accompanying statement of
operations.
Revenue Recognition
Product and service sales are recognized on purchase orders or contracts when product delivery
has occurred or services have been rendered, pricing is fixed or determinable, and collection is
reasonably assured. Our arrangements do not include right of return or other similar provisions or
other significant post delivery obligations. Revenues from arrangements with multiple elements
are recognized based on the relative fair value of each element and when the delivered elements
have value to customers on a stand-alone basis. Amounts allocated to each element are based on
its objectively determined fair value, such as the sales price for the product or service when it is
sold separately or competitor prices for similar products or services. Customer advances or
deposits are deferred and recognized as revenue when we have completed all of our performance
obligations related to the sale. The amounts billed for shipping and handling costs are included in
revenue and related costs are included in costs of sales.
Long-term fabrication contracts are recorded on the percentage-of-completion method. Revenues
and gross profit are recognized as work is performed either on an incurred cost to total expected
cost basis or based upon engineering estimates. Contract costs include all direct material, labor
and subcontract costs. Provisions for anticipated losses on long-term contracts are recorded in full
when such losses become evident.
Income Taxes
The liability method is used to account for income taxes. Deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws 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 risk. We control credit risk thorough credit
evaluations, credit limits and monitoring procedures. We perform periodic credit evaluations of
our customers’ financial condition and generally do not require collateral, but may require letters
of credit for certain international sales. Credit losses are provided for in the financial statements.
We maintain an allowance for doubtful accounts for accounts receivables by providing for
specifically identified accounts where collectibility is doubtful and an additional allowance based
on the aging of the receivables compared to past experience and current trends. Accounts
receivable are net of allowances for doubtful accounts of approximately $18.3 million and $12.6
million at December 31, 2003 and December 31, 2002, respectively.
Stock-Based Compensation
We use the intrinsic value method in accounting for our stock-based employee compensation
plans.
Assuming that we had accounted for our stock-based compensation using the alternative fair
value method of accounting under FAS No. 123 and amortized the fair value to expense over the