National Oilwell Varco 2011 Annual Report Download - page 73

Index to Financial Statements
Therefore, the Company performed its interim impairment test of goodwill for its reporting units and its indefinite-lived intangible assets at the end of the second quarter of
2009. Projections for the remainder of 2009 also reflected declines compared to the original 2009 annual forecast. The Company updated its 2009 operating forecast,
long-term forecast, and discounted cash flows based on this information.
The goodwill impairment analysis that the Company performed during the second quarter of 2009 did not result in goodwill impairment as of June 30, 2009. However, based
on the Companys indefinite-lived intangible asset impairment analysis performed during the second quarter of 2009, the Company incurred an impairment charge of $147
million in the Petroleum Services & Supplies segment related to a partial impairment of the Companys Grant Prideco trade name. The impairment charge was primarily the
result of the substantial decline in worldwide rig counts through June 2009, declines in forecasts in rig activity for the remainder of 2009, 2010, and 2011 compared to rig
count forecast at the beginning of 2009, and a decline in the revenue forecast for the drill pipe business unit for the remainder of 2009, 2010, and 2011.
The Company performed its annual impairment analysis for its goodwill and indefinite-lived intangible assets during the fourth quarter of 2009, 2010 and 2011 each resulting
in no further impairment. The valuation techniques used in the annual test were consistent with those used during previous testing. The inputs used in the annual test were
updated for current market conditions and forecasts.
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 losses were $10 million, $30 million and $79 million for the years ending December 31, 2011, 2010 and 2009, respectively, and are included in other
income (expense) in the accompanying statement of operations.
During the first quarter of 2010, the Venezuelan government officially devalued the Venezuelan bolivar against the U.S. dollar. As a result the Company converted its
Venezuela ledgers to U.S. dollar functional currency, devalued monetary assets resulting in a $27 million charge, and wrote-down certain accounts receivable in view of
deteriorating business conditions in Venezuela, resulting in an additional $11 million charge. The Companys net investment in Venezuela was $27 million at December 31,
2011.
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 Technology segment. 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 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
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