| • | | Marine Constructiondesigns, engineers, and manufactures heavy-lift cranes; a large range of knuckle-boom and lattice boomlattice-boom cranes, including active heave options; mooring, anchor, and deck handlingdeck-handling machinery; a full range and models of jacking systems;systems both for drilling rigs and wind turbine installation jack-ups; and solutions for installing offshore wind towers and turbines, pipelay, and construction vessel systems. Within Marine Construction, GustoMSC provides design solutions for drilling jack-ups and floaters, wind turbine installation jack-ups, and floating offshore wind solutions like the TriFloater. Marine Construction serves the oil and gas industry as well as wind energy and other marine-based end markets. This business unit also provides aftermarket support, including upgrades of existing equipment, spare parts, repair and field services. |
See Note 1516 to the Consolidated Financial Statements for financial information by segment and a geographical breakout of revenuesrevenue and long-lived assets.asset breakout. We have also included a glossary of oilfield terms at the end of Item 1. “Business” of this Annual Report. 10
Overview of Oil and Gas Well-Construction Processes The well-construction process starts with an oil and gas operator and its contractors designating a suitable drilling site and placing a drilling rig at the location. The rig’s crew assembles the drill stem, which consists of drillpipe joints, specialized drilling components known as downhole tools, and a drill bit at the end. Modern rigs typically power the drill bit through a drilling motor, which is attached to the bottom of the drill stem and provides rotational force directly to the bit, or a top drive, a device suspended from the derrick that turns the entire drill stem. The evolution of drilling motors and top drives has facilitated operators’ abilities to drill directionally and horizontally as opposed to being limited to the traditional vertical trajectory. The Company sells and rents drilling motors, agitators, drill bits, downhole tools and drill pipe through Wellbore Technologies, and sells top drives through Rig Technologies. Heavy drilling fluids, or “drilling muds,” are pumped down the drill stem and forced out through jets in the bit. The drilling mud returns to the surface through the space between the borehole wall and the drill stem, carrying with it the rock cuttings drilled out by the bit. The cuttings are removed from the mud by a solids control system (which can include shakers, centrifuges, and other specialized equipment) and disposed of in an environmentally sound manner. The solids control system permits the mud, which is often comprised of expensive compounds, to be continuously reused and re-circulated back into the hole. Rig Technologies sells the large “mud pumps” that are used to pump drilling mud through the drill stem, down, and back up the hole. Wellbore Technologies sells and rents solids control equipment and provides solids control, waste management and drilling fluids services. Many operators internally coat the drill stem to improve its hydraulic efficiency and protect it from the corrosive fluids sometimes encountered during drilling; have hard-facing alloys applied to drillpipe joints, collars, and other components to protect tool joints and casing against wear; and inspect and assess the integrity of the drillpipe from time to time. Wellbore Technologies manufactures and sells drillpipe and provides coating, “hardfacing,” and drillpipe inspection and repair. As hole depth increases, additional joints of drillpipe are continuously added to the drill stem. When the bit becomes dull or the equipment at the bottom of the drill stem – including the drilling motors – otherwise requires servicing, the entire drill stem is pulled out of the hole and disassembled by disconnecting the joints of drillpipe. These are set aside or “racked,” the old bit is replaced or service is performed, and the drill stem is reassembled and lowered back into the hole (a process called “tripping”). During drilling and tripping operations, joints of drillpipe must be screwed together and tightened (“made up”), and loosened and unscrewed (“spun out”), a process that can create a considerable amount of stress on the pipe connections while also being quite time consuming. Rig Technologies provides drilling equipment to manipulate and maneuver the drillpipe in an efficient and safe manner, and Wellbore Technologies manufactures premium connections that are designed to reduce failure downhole and improve the rate of connection on the rig floor. When the hole has reached a specified depth, all the drillpipe is pulled out of the hole, and larger-diameter pipe known as casing is lowered into the 6
hole and permanently cemented in place in order to protect against collapse and contamination of the hole. The casing is typically inspected before it is lowered into the hole, another service provided by Wellbore Technologies. Hole openers from Wellbore Technologies, which mount above the drill bits in the drill stem, open the tolerance of the hole to allow for easier and faster casing installation. Completion & Production Solutions manufactures cement mixing and pumping equipment that is used to cement the casing in place. The rig’s hoisting system raises and lowers the drill stem while drilling or tripping, and lowers casing into the wellbore. A conventional hoisting system is a block-and-tackle mechanism that works within the drilling rig’s derrick. The mechanism is lifted by a series of pulleys that are attached to the drawworks at the base of the derrick. Rig Technologies sells and installs drawworks and pipe hoisting-systems. During the course of normal drilling operations, the drill stem passes through different geological formations that exhibit varying pressure characteristics. If this pressure is not contained, oil, gas, and/or water would flow out of these formations to the surface. Containing reservoir pressures is accomplished primarily by the circulation of heavy drilling muds and secondarily by blowout preventers (“BOPs”), should the mud prove inadequate. Drilling muds are carefully designed to exhibit certain qualities that optimize the drilling process. In addition to containing formation pressure, they must provide power to the drilling motor; carry drilled solids to the surface; protect the drilled formations from being damaged; and cool the drill bit. Achieving these objectives often requires a formulation specific to a given well, requires a high level of cleanliness for better bottomhole assembly, and can involve the use of expensive chemicals as well as natural materials, such as certain types of clay. The fluid itself is often oil or more expensive synthetic mud. Given the cost, it is highly desirable to reuse as much of the drilling mud as possible. Solids control equipment such as shale shakers, centrifuges, cuttings dryers, and mud cleaners help accomplish this objective. Wellbore Technologies provides drilling fluids and rents, sells, operates, and services 11
solids control equipment. Rig Technologies manufactures pumps that power the flow of the mud and fluid downhole and back to the surface. Drilling muds are formulated based on expected drilling conditions. However, as the hole is drilled, the drill stem may encounter a high-pressure zone where the mud density is inadequate to maintain sufficient pressure. Should efforts to “weight up” the mud to contain such a pressure kick fail, a blowout could result, whereby reservoir fluids would flow uncontrolled into the well. A series of BOPs are positioned at the top of the well and, when activated, form tight seals that prevent the escape of fluids to the surface. Conventional BOPs prevent normal rig operations when closed so the BOPs are activated only if drilling mud and normal well control procedures cannot safely contain the pressure. Rig Technologies engineers and manufactures BOPs. The operations of the rig and the condition of the drilling mud are closely monitored by various sensors, which measure operating parameters such as the weight on the rig’s hook, the incidence of pressure kicks, the operation of the drilling mud pumps, weight on bit, etc. Wellbore Technologies sells and rents drilling rig instrumentation packages that perform these monitoring functions as well as additional sensors that continuously collect downhole data that can be transmitted back to the surface via wired drill pipe. Wellbore Technologies’ also offers drilling optimization and automation software and services that utilize this downhole data to maximize drilling performance by mitigating vibrations, dynamic and impact loading, and stick-slip, which ensures longer bit runs, and reduces the number of necessary trips. During drilling operations, the drilling rig and related equipment and tools are subject to severe stresses, pressures, and temperatures, as well as a corrosive environment, and require regular repair and maintenance. Rig Technologies supplies spare parts and can dispatch field service engineers with the expertise to quickly repair and maintain equipment, minimizing down time. Once a well has been drilled, cased, and cemented, and the operator determines hydrocarbons are present in commercial quantities, the well is then completed, and sometimes stimulated. After the casing is cemented in place, the well undergoes one of several completion processes to open the bottom of the wellbore and allow hydrocarbons to flow from the reservoir and up the well to the surface. The most commonly used technique is known as perforation. The perforating process entails lowering a string of shaped charges to the desired depth in the well using an electric wireline unit and firing the charges to perforate the casing or liner. Wireline units are also used to perform logging operations and other intervention services. At this point, the operator may decide, based on well design and flow rate, to further enhance production by stimulating the well. Unconventional wells almost always require stimulation through multi-stage hydraulic fracturing, a process by which a fluid or slurry is pumped down the well by large pumping units. This causes the underground formation to crack or fracture, opening up space for hydrocarbons to flow more freely out of tight rock formations. A proppant is suspended in the fluid and lodges in the cracks, propping them open and allowing hydrocarbons to flow after the fluid is gone. A coiled tubing unit is often used to drill out bridge plugs that isolate the many stages needed to stimulate a horizontal well. A coiled tubing unit utilizes a large continuous length of steel tubing to enter and traverse long laterals and perform completion and well remediation operations. As drilling laterals have lengthened in recent years, many operators are electing to use larger high-specification well service rigs to assist in several phases of the completion phase by conveying tools downhole and drilling out completion plugs. Workover rigs are similar to drilling rigs in their capabilities to handle tubing but are usually smaller and somewhat less sophisticated. Completion & Production Solutions provides the essential equipment necessary for the entirety of the completion and stimulation process, designing and manufacturing coiled tubing units, wireline units, pressure pumping equipment, completion tools, snubbing units, nitrogen units, and treating iron. In addition, the well completion process creates a large amount of wear and tear on the equipment used, which creates healthy demand for Completion & Production Solutions’ aftermarket services. The use of coiled tubing and wireline equipment typically requires the use of a BOP to ensure safety during operations. Completion & Production Solutions manufactures this well control equipment. Due to the corrosive nature of many produced fluids, production tubing is often inspected and coated, services offered by Wellbore 7
Technologies. Increasingly, operators choose to use corrosion-resistant composite materials or alloys in the process, which are also sold by Completion & Production Solutions. Once the well has been stimulated, it is usually ready to be capped with a production wellhead and linked up to a gathering system where it can begin producing and generating cash flow for the operator. This process is significantly more involved offshore, where pipes are often required to reach thousands of feet from the wellhead back to the surface, contending with tides, debris, and weather. The development of flexible pipe solved many of the issues associated with linking offshore wells back to their respective floating production, storage, and offloading vessels (“FPSOs”),FPSOs, which serve as gathering hubs, sometimes in some of the most remote areas of the world. Completion & Production Solutions is one of only three global manufacturers ofmanufactures flexible subsea pipe in addition to offering turret mooring systems and topside process modules for FPSOs. 12
Natural decline rates set in as a well ages, and workover procedures and other services may be necessary to extend its life and increase its production rate. Over time, downhole equipment, casing, or tubing may need to be serviced or replaced. When producing wells require anything from routine maintenance to major modifications and repair, a well servicing rig is typically needed. Workover rigs are used to disassemble the wellhead, tubing and other completion components of an existing well in order to stimulate or remediate the well. As a well continues to mature, its natural reservoir pressure may no longer be enough to force fluids to the surface. Artificial lift equipment is then typically installed, which adds energy to the fluid column in a wellbore using one of several types of pump.pumps. In addition to reduced pressure, the water cut of a well’s production tends to increase as the well ages, which typically requires the addition of water treatment and separation equipment. The Company offers a comprehensive range of workover rigs through Rig Technologies. Tubing and sucker rods removed from a well during a well remediation operation are often inspected to determine their suitability to be reused in the well, a service Wellbore Technologies provides. Completion & Production Solutions offers several types of artificial lift and related support systems as well as integrated systems that provide water treatment, separation, hydrate inhibition, and gas processing. Markets and Competition The Company’s customers are predominantly service companies, and oil and gas companies.companies, and shipyards. Products within Wellbore Technologies and Completion & Production Solutions are rentedsold and soldrented worldwide through NOV’s sales force and through commissioned representatives. Substantially all of Rig Technologies’ capital equipment and spare parts sales, and a large portion of smaller pumps and parts sales, are made through NOV’s direct sales force and distribution service centers. Sales to foreign oil companies are often made with or through representative arrangements. The Company’s competition consists primarily of publicly traded oilfield service and equipment companies and smaller independent equipment manufacturers.manufacturers in the oil and gas, industrial, and renewable energy equipment markets. The Company’s foreign operations, which include significant operations in Canada, Europe, Russia, the Far East, the Middle East, Africa and Latin America, Russia, the Far East, Canada and Europe are subject to the risks normally associated with conducting business in foreign countries, including foreign currency exchange risks and uncertain political and economic environments, which may limit or disrupt markets, restrict the movement of funds or result in the deprivation of contract rights or the taking of property without fair compensation. Government-owned petroleum companies located in some of the countries in which the Company operates have adopted policies (or are subject to governmental policies) giving preference to the purchase of goods and services from companies that are majority-owned by local nationals. As a result of such policies, the Company relies on joint ventures, license arrangements, and other business combinations with local nationals in these countries. See Note 1516 to the Consolidated Financial Statements for information regarding geographic revenue information. 2017 Acquisitions and Other Investments
During 2017, the Company completed a total of eight acquisitions and other investments for an aggregate cash investment of $86 million, net of cash acquired.
Influence of Oil and Gas Activity Levels on the Company’s Business The oil and gas industry has historically experienced significant volatility. Demand for the Company’s products and services depends primarily upon the general level of activity in the oil and gas industry worldwide. Oil and gas activity is in turn heavily influenced by, among other factors, oil and gas prices worldwide. High levels of drilling and well remediation generally spurs demand for the Company’s products and services. Additionally, high levels of oil and gas activity increase cash flows available for oil and gas companies, drilling contractors, oilfield service companies, and manufacturers of OCTG to invest in equipment that the Company sells. See additional discussion on the current worldwide economic environment and related oil and gas activity levels in Item 1A. “Risk Factors” and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” 13
Seasonal Nature of the Company’s Business Historically, activity levels of some of the Company’s segments have followed seasonal trends to some degree. Extremely harsh winter weather can reduce oilfield operations in far northern or high-altitude locations, including parts of Colorado, Canada, Russia and China, and the annual thaw (or “breakup”) in Canada makes some unimproved roads inaccessible to heavy equipment during part of each second quarter. Both situations temporarily reduce demand for of the Company’s products and services in the effected geographic area, although revenues generally recover once conditions improve. Fluctuations in customer’s activity levels caused by national or customary holiday seasons and annual budgetary cycles can also affect their spending levels with the Company, leading to both temporary local decreases and increases in sales. TheOver the past few years, the Company has seen a more pronounced level of spending during the fourth quarter, and a decline in the first quarter, in certain of its businesses, which it believes is related to annual budgetary cycles. While the Company anticipates that the seasonal and other trends described above willmay continue, however, there can be no guarantee that spending by the Company’s customers will continue to follow patterns seen in the past. Research and New Product Development and Intellectual Property The Company believes that it has been a leader in the development of new technology and equipment to enhance the safety and productivity of drilling and well servicing processes and that its sales and earnings have been dependent, in part, upon the successful introduction of new or improved products. It also invests in new technologies related to its non-oil and gas business as well as renewable energy-related technologies. Through its internal development programs and certain acquisitions, the Company has assembled an extensive array of technologies protected by a substantial number of tradetrademarks, for both goods and service marks,services, patents, trade secrets, and other proprietary rights. 8
As of December 31, 2017,2020, the Company held a substantial number of United Statesgranted patents and had additionalpending patent applications pending. As of this date, the Company also had foreignworldwide, including U.S. patents and U.S. patent applications as well as patents and patent applications pending relatingin a variety of other countries. Expiration dates of such patents range from 2021 to inventions covered by the United States patents.2040. Additionally, the Company maintains a substantial number of tradetrademarks for both goods and service marksservices and maintains a number of trade secrets. Expiration dates of such patents range from 2018 to 2037. Although the Company believes that this intellectual property has value, competitive products with different designs have been successfully developed and marketed by others. The Company considers the quality and timely delivery of its products, the service it provides to its customers, and the technical knowledge and skills of its personnel to be as important as its intellectual property in its ability to compete. While the Company stresses the importance of its research and development programs, the technical challenges and market uncertainties associated with the development and successful introduction of new products are such that there can be no assurance that the Company will realize future revenue from new products. Manufacturing and Service Locations The manufacturing processes for the Company’s products generally consist of machining, welding and fabrication, heat treating, assembly of manufactured and purchased components, and testing. Most equipment is manufactured primarily from alloy steel. The availability and price of alloy steel castings, forgings, purchased components, and bar stock is critical to the production and timing of shipments. Wellbore Technologies designs, manufactures, rents, and sells a variety of equipment and technologies used to perform drilling operations, and offers services that optimize their performance, including: solids control and waste management equipment and services, drilling fluids, premium drillpipe, wired pipe, drilling optimization services, tubular inspection and coating services, instrumentation, downhole tools, and drill bits. Primary facilities are located in Houston, Conroe, Navasota, and Cedar Park, Texas; Veracruz, Mexico; and Dubai, UAE. Completion & Production Solutions designs, manufactures, and integrates technologies for well completions, and oil and gas production. The segment designs, manufactures,production, and sellsindustrial markets. This includes equipment and technologies needed for hydraulic fracture stimulation, including pressure pumping trucks, blenders, sanders, hydration units, injection units, flowline, manifolds, and wellheads;manifolds; well intervention, including coiled tubing units, coiled tubing, and wireline units and tools; cementing products for pumping, mixing, transport, and storage; onshore production, including fluid processing, composite pipe, surface transfer and progressive cavity pumps, and artificial lift systems; and offshore production, including floatingintegrated production systems and subsea production technologies. Primary facilities are located in Houston, and 14
Fort Worth, Texas; Tulsa, Oklahoma; Senai, Malaysia; Qingdau, Shandong, China; Kalundborg, Denmark; Superporto du Acu, Brazil; Manchester, England; Nisku, Canada; Dammam, Saudi Arabia; Jiangyan, China; and Manchester, England.Aberdeenshire, Scotland, UK. Rig Technologies provides drilling rig components, complete land drilling rigs, and offshore drilling equipment packages. Primary manufacturing and service facilities are located in Houston, Texas; Orange, California;Mexicali, Mexico; Dubai, UAE; Pune, India; Stavanger, Norway; Kristiansand, Norway; New Iberia, Louisiana; Singapore;Port Elizabeth, South Africa; Macae, Brazil; Ulsan Korea and Dubai, UAE.Singapore. Raw Materials The Company believes that materials and components used in its operations are generally available from multiple sources. The prices paid by the Company for its raw materials may be affected by, among other things, energy, steel, and other commodity prices; tariffs and duties on imported materials; and foreign currency exchange rates. The Company has experienced rising, declining, and stable prices for milled steel and standard grades in line with broader economic activity and has generally seen specialty alloy prices continue to rise, driven primarily by escalation in the price of the alloying agents. The Company has generally been successful in its effort to mitigate the financial impact of higher raw materials costs on its operations by applying surcharges to, and adjusting prices on, the products it sells. Higher prices and lower availability of steel and other raw materials the Company uses in its business may adversely impact future periods. Backlog The Company monitors its backlog of orders within its Completion & Production Solutions and Rig Technologies segments to guide its planning. Backlog includes orders which typically require more than three months to manufacture and deliver. Backlog measurements are made on the basis of written orders that are firm but may be defaulted upon by the customer in some instances. Most require reimbursement to the Company for costs incurred in such an event. There can be no assurance that the backlog amounts will ultimately be realized as revenue, or that the Company will earn a profit on backlog work. Backlog for Completion & Production Solutions at December 31, 2017, 20162020, 2019 and 20152018 was $1.1$0.7 billion, $0.8$1.3 billion and $1.0$0.9 billion, respectively. Backlog for Rig Technologies at December 31, 2017, 20162020, 2019 and 2015,2018, was $1.9$2.7 billion, $2.5$3.0 billion and $6.1$3.1 billion, respectively. EmployeesHuman Capital
At December 31, 2017,NOV’s 27,631 global, diverse employees use their skill and expertise to provide the products and services that help our customers operate safely, efficiently, sustainably, and competitively. NOV’s team designs and manufactures a broad array of equipment and technology, from some of the heaviest, largest and most complex mobile machines on earth (on and offshore drilling rigs, wind turbine installation ships, and FPSOs) to very small precision sensors and measuring devices.
NOV’s employee base includes: | • | Inventors, designers, scientists and engineers (including mechanical, electrical, chemical, hydraulic, materials, computer, software, data analytics, and other disciplines) who design and improve the equipment, electronics, software, services and process that bring value to NOV’s customers. |
| • | Technical sales, marketing and training professionals who educate customers, the industry, and our own organization about NOVs’ many products, services and unique capabilities. |
| • | Supply chain, logistics, warehousing, and quality testing professionals who ensure our factories, workshops, repair centers and field technicians have the right materials and tools to do their jobs efficiently. |
| • | Production and service planners and schedulers, project managers, and process design and Quality Health Safety and Environmental professionals who plan, manage and monitor the activities of our workforce to ensure high-quality, efficient, safe, and environmentally compliant operations. |
| • | Machinists, metal fabricators, welders, assemblers, pipe fitters, riggers, electronics technicians, system integrators, composite material fabricators, paint and industrial coatings specialists, and other skilled |
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| | trade professionals who use a wide variety of industrial processes, tools, and techniques to transform raw materials and purchased components into the many products NOV sells. |
| • | Field service engineers, mechanics, and technicians who maintain, service, repair, and upgrade NOV equipment and, in some cases, assist customers with its operation. |
| • | Business leaders and managers who create business strategies and targets, assess goals and priorities, and allocate resources to ensure NOV’s employees have the tools they need to get the job done and further build the Company’s competitive advantages. |
| • | Support function professionals, including: Information Technology, Human Resources, Legal, Compliance, Clerical, and Accounting and Finance who support operations to keep the business infrastructure and administrative burdens flowing. |
Thirty-five percent of NOV employees work in the United States, 25% in Europe, 13% in the Asia Pacific region, 12% in Latin America, 9% in the Middle East and Africa, and 3% in each of Canada and China. The Company’s 573 physical locations include various size manufacturing plants, research facilities, machine shops, office buildings, warehouses and distribution centers where between 20 to 1,100 people work and repair shops, rental tool bases, sales offices and other small locations where between 5 to 200 people work. Many NOV employees travel to work at customer locations, including onshore and offshore drilling sites, shipyards, and other industrial locations where equipment needs installation, commissioning, service or repair, or where customers need training or technical support. NOV’s success depends on these dedicated, skilled hardworking employees. The Company strongly believes that safeguarding and supporting the health, safety, diversity, respect, skills, career satisfaction and wellbeing of NOV’s employees are critical to the success of the business. The Company’s Human Resources and Health Safety and Environmental organizations provide policies, oversight, monitoring, resources, training, and assistance companywide that are designed to foster a culture that embraces this belief. Safety Protecting the health and safety of all stakeholders is a core value. NOV maintains comprehensive monitoring and tracking of reportable injuries, reviewed each quarter by our operating Segment Presidents with the CEO, CFO, and Chief HSE Officer (including significant injuries, root cause analysis, and remediation measures). Successful safety programs and campaigns are also shared across the Company’s operations, including: | • | Stop Work Authority – all NOV employees have the authority, responsibility, and duty to stop an unsafe act, practice, or job. |
| • | Life Saving Rules – standardized rules aligning NOV with industry partners to reduce the risk of serious injury or death associated with critical hazards in the workplace. |
| • | Fresh-Eyes – program coordinating safety walk-throughs, observations, and improvements at peer NOV facilities. |
| • | Safety stand downs –pausing normal operations for general safety meetings or to address a specific risk. |
Health and wellbeing The Company offers locally competitive health benefits, paid holidays and time off, and retirement benefits to our employees. In the US this includes health, vision and dental insurance, life insurance, disability insurance, a 401(k)-retirement savings plan, an employee assistance program, and a wellness program. During the COVID-19 pandemic NOV has implemented programs tailored to each location that may include, among other things, working from home, virtual meetings, social distancing, masking, contact tracing and quarantining, facility and machine sanitizing, staggered work shifts, and staggered workdays. Diversity and inclusion NOV is committed to maintaining a diverse workforce, individual inclusion, and equal opportunities. The Company believes an employee base with different education, training and life experiences (gender, age, religion, race, ethnicity, cultural background, sexual orientation, language, education, abilities, perspectives, etc.) lead to more 16
innovative and creative business solutions, more informed decision-making, greater employee engagement, and better retention and recruitment of top talent. In support of this commitment, NOV has communicated a Diversity and Inclusion Statement from the CEO to our employees and has implemented training programs covering the Company’s Code of Conduct and Business Ethics, Unconscious Bias, and Harassment in the Workplace. Across NOV’s global workforce, women make up 16% of all employees, 23% of salaried employees, 20% of the C-Suite and hold 22% of the Company’s Board of Directors seats. Career satisfaction and skills NOV tracks and monitors data on the employee experience including hiring, turnover, and promotion trends. The Company also obtains employee feedback through ‘pulse’ surveys which measure employee satisfaction across several areas. Human resources managers and business managers across the Company had a total of 31,889 employees, of which 568 were temporary employees. Approximately 344 employeesreview this information to identify areas for improvement and create remediation strategies. The Company invests in opportunities for employee education, growth, and development, providing comprehensive training opportunities in technical, managerial, and soft skills. Some programs include: Powering Excellence designed for current and potential business leaders, Supervisor Training and Resources (STAR) and Leading Self and Others designed for new managers, as well as many other courses through the U.S. are subject to collective bargaining agreements. Additionally, certain employeesCompany’s dedicated Technical Training Centers based in various foreign locations are subject to collective bargaining agreements. Based upon the geographical diversification of these employees, we do not believe any risk of loss from employee strikes or other collective actions would be material to the conduct of our operations taken as a whole.Houston, Singapore, UAE, Norway, UK, and South America. 9
Available Information The Company’s principal executive offices are located at 7909 Parkwood Circle Drive, Houston, Texas 77036. Its telephone number is (713)346-7500. Further information about the Company’s products and services can be found on its website at: http://www.nov.com. The Company’s common stock is traded on the New York Stock Exchange under the symbol “NOV”. The Company’s annual reports on Form10-K, quarterly reports on Form10-Q, current reports on Form8-K, and all related amendments are available free of charge on the Investor Relations portion of the Company’s website, www.nov.com/investor, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”). The Company’s Code of Ethics is also posted on its website. 17 10
You should carefully consider the risks described below, in addition to other information contained or incorporated by reference herein. Realization of any of the following risks could have a material adverse effect on our business, financial condition, cash flows and results of operations. Industry Environment and Operations Related We are dependent upon the level of activity in the oil and gas industry, which is volatile and has caused, and may cause future, fluctuations in our operating results. The oil and gas industry historically has experienced significant volatility. Demand for our products and services depends primarily upon the number of oil rigs in operation, the number of oil and gas wells being drilled, the depth and drilling conditions of these wells, the volume of production, the number of well completions, capital expenditures of other oilfield service companies and the level of workover activity. Drilling and workover activity can fluctuate significantly in a short period, particularly in the United States and Canada. The willingness of oil and gas operators to make capital expenditures to explore for and produce oil and natural gas and the willingness of oilfield service companies to invest in capital equipment will continue to be influenced by numerous factors over which we have no control, including the: | • | current and anticipated future prices for oil and natural gas; |
| • | volatility of prices for oil and natural gas; |
| • | ability or willingness of the members of the Organization of Petroleum Exporting Countries (“OPEC”) and other countries, such as Russia, to maintain or influence price stability through voluntary production limits; |
level of production bynon-OPEC countries; | • | sanctions and other restrictions placed on certain oil producing countries, such as Russia, Iran, and Venezuela; |
level of excess production capacity; | • | level of production by non-OPEC countries including production from U.S. shale plays; |
cost of exploring for and producing oil and gas; | • | level of excess production capacity; |
level of drilling activity and drilling rig dayrates; | • | cost of exploring for and producing oil and gas; |
worldwide economic activity and associated demand for oil and gas; | • | level of drilling activity and drilling rig dayrates; |
availability and access to potential hydrocarbon resources; | • | worldwide economic activity and associated demand for oil and gas; |
national government political requirements; | • | public health crises and other catastrophic events, such as the COVID-19 pandemic; |
fluctuations in political conditions in the United States and abroad; | • | availability and access to potential hydrocarbon resources; |
currency exchange rate fluctuations and devaluations; | • | governmental political requirements, regulation and energy policies; |
development of alternate energy sources; | • | fluctuations in political conditions in the United States and abroad; |
| • | currency exchange rate fluctuations and devaluations; |
| • | development of alternate energy sources; and, |
| • | environmental regulations. |
Expectations for future oil and gas prices cause many shifts in the strategies and expenditure levels of oil and gas companies, drilling contractors, and other service companies, particularly with respect to decisions to purchase major capital equipment of the type we manufacture. Although oilOil and gas prices, which are determined by the marketplace, have increased in recent months, prices may remain below a range that is acceptable to certain of our customers, which could continue the reduced demand for our products and have a material adverse effect on our financial condition, results of operations and cash flows. 18
There are risks associated with certain contracts for our equipment. As of December 31, 2017,2020, we had a backlog of capital equipment to be manufactured, assembled, tested and delivered by Completion & Production Solutions and Rig Technologies in the amount of $1.1$0.7 billion and $1.9$2.7 billion, respectively. The following factors, in addition to others not listed, could reduce our margins on these contracts, adversely impact completion of these contracts, adversely affect our position in the market or subject us to contractual penalties: | • | financial challenges for consumers of our capital equipment; |
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| • | credit market conditions for consumers of our capital equipment; |
| • | our failure to adequately estimate costs for making this equipment; |
| • | our inability to deliver equipment that meets contracted technical requirements; |
| • | our inability to maintain our quality standards during the design and manufacturing process; |
| • | our inability to secure parts made by third party vendors at reasonable costs and within required timeframes; |
| • | unexpected increases in the costs of raw materials; |
our inability to manage unexpected delays due to weather, shipyard access, labor shortages or other factors beyond our control; and, | • | our inability to manage unexpected delays due to weather, shipyard access, labor shortages or other factors beyond our control; |
| • | the imposition of tariffs or duties between countries, which could materially affect our global supply chain. For example, section 232 tariffs on steel may increase our costs, reduce margins or otherwise adversely affect the Company; and, |
| • | export sanctions, controls or other trade restrictions, which could affect our ability to manufacture, sell, or receive payment for our equipment and/or services. |
The Company’s existing contracts for rig and production equipment generally carry significant down payment and progress billing terms favorable to the ultimate completion of these projects and the majority do not allow customers to cancel projects for convenience. However, unfavorable market conditions or financial difficulties experienced by our customers may result in cancellation of contracts or the delay or abandonment of projects. Any such developments could have a material adverse effect on our operating results and financial condition. Competition in our industry, including the introduction of new products and technologies by our competitors, as well as the expiration of the intellectual property rights protecting our products and technologies, could ultimately lead to lower revenue and earnings. The oilfield products and services industry is highly competitive. We compete with national, regional and foreign competitors in each of our current major product lines. Certain of these competitors may have greater financial, technical, manufacturing and marketing resources than us, and may be in a better competitive position. The following can each affect our revenue and earnings: | • | improvements in the availability and delivery of products and services by our competitors; |
| • | the introduction of new products and technologies by our competitors; and, |
| • | the expiration of intellectual property rights protecting our products and technologies. |
We are a leader in the development of new technology and equipment to enhance the safety and productivity of drilling and well servicing processes. If we are unable to maintain our technology leadership position, it could adversely affect our competitive advantage for certain products and services. Our revenues and operating results have been dependent, in part, upon the successful introduction of new or improved products. Through our internal development programs and acquisitions, we have assembled an extensive array of technologies protected by a substantial number of trade and service marks, patents, trade secrets, and other proprietary rights, some of which expire after a prescribed duration, some at varying times in the near future. The expiration of these rights could have a material 19
adverse effect on our operating results. Furthermore, while the Company stresses the importance of its research and development programs, the technical challenges and market uncertainties associated with the development and successful introduction of new products are such that there can be no assurance that the Company will realize future revenue from new products. The tools, techniques, methodologies, programs and components we use to provide our services may infringe upon the intellectual property rights of others. Infringement claims generally result in significant legal and other costs and may distract management from running our core business. Royalty payments under licenses from third parties, if available, would increase our costs. Additionally, developingnon-infringing technologies would increase our costs. If a license were not available, we might not be able to continue providing a particular service or product, which could adversely affect our financial condition, results of operations and cash flows. In addition, certain foreign jurisdictions and government-owned petroleum companies located in some of the countries in which we operate have adopted policies or regulations which may give local nationals in these countries competitive advantages. Actions taken by our competitors and changes in local policies, preferences or regulations could impact our ability to compete in certain markets and adversely affect our financial results. 12
A significant portion of our revenue is derived from ournon-United States operations, which exposes us to risks inherent in doing business in each of the over 6561 countries in which we operate. Approximately 60%73% of our revenues in 20172020 were derived from operations outside the United States (based on revenue destination). Our foreign operations include significant operations in every oil producing region in the world. Our revenues and operations are subject to the risks normally associated with conducting business in foreign countries, including: | • | uncertain political, social and economic environments; |
| • | social unrest, acts of terrorism, war and other armed conflict; |
| • | public health crises and other catastrophic events, such as the coronavirus outbreak at the beginning of 2020; |
| • | trade and economic sanctions, export controls, and other restrictions imposed by the United States, European Union or other countries; |
| • | restrictions under the United States Foreign Corrupt Practices Act (“FCPA”) or similar legislation, as well as foreign anti-bribery and anti-corruption laws; |
| • | confiscatory taxation, tax duties, complex and everchanging tax regimes or other adverse tax policies; |
| • | exposure to expropriation of our assets and other actions by foreign governments; |
| • | deprivation of contract rights; |
| • | restrictions on the repatriation of income or capital; |
| • | currency exchange rate fluctuations and devaluations. |
The COVID-19 pandemic and related economic repercussions have had, and are expected to continue to have, a significant impact on our business, and depending on the duration of the pandemic and its effect on the oil and gas industry, could have a material adverse effect on our business, liquidity, consolidated results of operations and consolidated financial condition. As a result of the COVID-19 pandemic, the Company may be exposed to additional liabilities and risks. The COVID-19 pandemic has resulted in unprecedented governmental actions ordering citizens in the United States European Union or other countries; restrictions underand countries around the world to “shelter in place,” closing borders and issuing “stay at home orders,” which curtail travel and commerce. In the United States Foreign Corrupt Practices Act (“FCPA”)alone, over 26 million have filed for unemployment benefits during the sharp decline in economic activity resulting from governmental orders.In 2020, oil demand significantly deteriorated as a result of the virus outbreak and corresponding preventative 20
measures taken around the world to mitigate the spread of the virus. Also in early 2020 aggressive increases in production of oil by Saudi Arabia and Russia created a significant surplus in the supply of oil. Physical markets became distressed as spot prices were negatively impacted by a lack of available storage capacity. The COVID-19 virus continued to spread during 2020, extending depressed demand, uncertainty and additional spending reductions by the entire oil and gas industry as U.S. rig count fell to its lowest level since 1940 in August despite oil prices beginning to stabilize. The forced shutdown of economic activity has directly affected our business and has exacerbated the potential negative impact from many of the risks described in our Form 10-K for the year ended December 31, 2019, including those relating to our customers’ capital spending and sharply reduced oil and natural gas prices. Demand for our products and services declined as our customers continued to revise their capital budgets downwards and swiftly adjusted their operations in response to lower commodity prices. The nature, scale, and scope of the above-described events combined with the uncertain duration and extent of governmental actions prevent us from identifying all potential risks to our business. We believe that the well-known impacts described above, and other potential impacts include, but are not limited to, the following: | • | Disruption to our supply chain for materials essential to our business, including restrictions on importing and exporting products; |
| • | Customers may attempt to cancel or delay projects or may attempt to invoke force majeure clauses in certain contracts resulting in a decreased on delayed demand for our products and services; |
| • | Customers may also seek to delay payments, may default on payment obligations and/or seek bankruptcy protection that could delay or prevent collections of certain accounts receivable; |
| • | A credit rating downgrade of our corporate debt and potentially higher borrowing costs in the future; |
| • | A need to preserve liquidity; |
| • | Reduction of our global workforce to adjust to market conditions, including severance payments, retention issues, and an inability to hire employees when market conditions improve; |
| • | Liabilities resulting from operational delays due to decreased productivity resulting from stay-at-home orders affecting its work force or facility closures resulting from the COVID-19 pandemic; |
| • | Liabilities resulting from an inability to perform services due to limited manpower availability or an inability to travel to perform the services; |
| • | Other contractual or other legal claims from our customers resulting from the COVID-19 pandemic; |
| • | Costs associated with rationalization of our portfolio of real estate facilities, including possible exit of leases and facility closures to align with expected activity and workforce capacity; |
| • | Additional asset impairments, including an impairment of the carrying value of our goodwill, along with other accounting charges as demand for our services and products decreases; and, |
| • | Infections and quarantining of our employees and the personnel of our customers, suppliers and other third parties. |
Cybersecurity risks and threats could adversely affect our business. We rely heavily on information systems to conduct our business. Any failure, interruption, or similar legislation,breach in security of our information systems could result in failures or disruptions in our customer relationship management, general ledger systems and other systems. While we have policies and procedures designed to prevent or limit the effect of the failure, interruption or security breach of our information systems, there can be no assurance that any such failures, interruptions or security breaches will not occur or, if they do occur, that any breach or interruption will be sufficiently limited. The occurrence of any failures, interruptions or security breaches of our information systems could damage our reputation, result in a loss of our intellectual property or other proprietary information, including customer data, result in a loss of customer business, subject us to additional regulatory scrutiny, or expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on our financial position or results of operations. 21
Our ability to hire and retain qualified personnel at competitive cost could materially affect our operations and growth potential. Many of the products we sell, and related services that we provide, are complex and technologically advanced, which enable them to perform in challenging conditions. Our ability to succeed is, in part, dependent on our success in attracting and retaining qualified personnel to provide service and to design, manufacture, use, install and commission our products. A significant increase in wages paid by competitors, both within and outside the energy industry, for such highly skilled personnel could result in insufficient availability of skilled labor or increase our labor costs, or both. If the supply of skilled labor is constrained or our costs increase, our margins could decrease and our growth potential could be impaired. Severe weather conditions may adversely affect our operations. Our business may be materially affected by severe weather conditions in areas where we operate. This may entail the evacuation of personnel and stoppage of services. In addition, if particularly severe weather affects platforms or structures, this may result in a suspension of activities. Any of these events could adversely affect our financial condition, results of operations and cash flows. An impairment of goodwill or other indefinite lived intangible assets could reduce our earnings. The Company has approximately $1.5 billion of goodwill and $0.2 billion of other intangible assets with indefinite lives as of December 31, 2020. Generally accepted accounting principles require the Company to test goodwill and other indefinite lived intangible assets for impairment on an annual basis or whenever events or circumstances indicate they might be impaired. Events or circumstances which could indicate a potential impairment include (but are not limited to) a significant sustained reduction in worldwide oil and gas prices or drilling; a significant sustained reduction in profitability or cash flow of oil and gas companies or drilling contractors; a significant sustained reduction in capital investment by other oilfield service companies; or a significant increase in worldwide inventories of oil or gas. The timing and magnitude of any goodwill impairment charge, which could be material, would depend on the timing and severity of the event or events triggering the charge and would require a high degree of management judgement. If we were to determine that any of our remaining balance of goodwill or other indefinite lived intangible assets was impaired, we would record an immediate charge to earnings with a corresponding reduction in stockholders’ equity; resulting in a possible increase in balance sheet leverage as measured by debt to total capitalization. See additional discussion on “Goodwill and Other Indefinite – Lived Intangible Assets” in Critical Accounting Estimates of Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We have expanded and grown our businesses through acquisitions and continue to pursue a growth strategy but we cannot assure that attractive acquisitions will be available to us at reasonable prices or at all. We cannot assure that we will successfully integrate the operations and assets of any acquired business with our own or that our management will be able to manage effectively any new lines of business. Any inability on the part of management to integrate and manage acquired businesses and their assumed liabilities could adversely affect our business and financial performance. In addition, we may need to incur substantial indebtedness to finance future acquisitions. We cannot assure that we will be able to obtain this financing on terms acceptable to us or at all. Future acquisitions may result in increased depreciation and amortization expense, increased interest expense, increased financial leverage or decreased operating income for the Company, any of which could cause our business to suffer. The adoption of any future federal, state, or local laws or implementing regulations imposing reporting obligations on, or limiting or banning, the hydraulic fracturing process could make it more difficult to complete natural gas and oil wells and could have a material adverse effect on our business, consolidated results of operations and consolidated financial condition. Various federal and state legislative and regulatory initiatives, as well as foreign anti-briberyactions in other countries, have been or could be undertaken which could result in additional requirements or restrictions being imposed on hydraulic fracturing operations. For example, legislation and/or regulations have been adopted in many U.S. states that require 22
additional disclosure regarding chemicals used in the hydraulic fracturing process but that generally include protections for proprietary information. Legislation, regulations and/or policies have also been adopted at the state level that impose other types of requirements on hydraulic fracturing operations (such as limits on operations in the event of certain levels of seismic activity). Additional legislation and/or regulations are being considered at the state and anti-corruption laws; confiscatory taxation, tax duties, complex and everchanging tax regimeslocal level that could impose further chemical disclosure or other adverse tax policies;
exposure to expropriationregulatory requirements (such as prohibitions on hydraulic fracturing operations in certain areas) that could affect our operations. Three states (New York, Maryland and Vermont) have banned the use of our assetshigh volume hydraulic fracturing. Local jurisdictions in some states have adopted ordinances that restrict or in certain cases prohibit the use of hydraulic fracturing, although many of these ordinances have been challenged and other actions bysome have been overturned. In addition, governmental authorities in various foreign governments;
deprivation of contract rights;
countries where we have provided or may provide hydraulic fracturing services have imposed or are considering imposing various restrictions on the repatriation of income or capital; conditions that may affect hydraulic fracturing operations.inflation; and,
currency exchange rate fluctuationsLegal and devaluations.
Regulatory RelatedOur failure to comply with complexexisting or future U.S. and foreign laws and regulations could have a material adverse effect on our business and our results of operations. Our ability to comply with various complex U.S. and foreign laws and regulations, such as the FCPA, the U.K. Bribery Act and other foreign anti-bribery and anti-corruption laws, as well as various trade control regulations, and human rights and anti-slavery legislation is dependent on the success of our ongoing compliance program, including our ability to continue to effectively supervise and train our employees to deter prohibited practices.These various laws and regulations can change frequently and significantly. We may become involved in a governmental investigation even if the Company has complied with these laws. If we fail to comply with applicable laws and regulation, we could be subject to investigations, sanctions and civil and criminal prosecution as well as fines and penalties, which could have a material adverse effect on our reputation and our business, financial condition, results of operations and cash flows. In addition, government disruptions could negatively impact our ability to conduct our business. Supply chain restrictions such as the U.K. Modern Slavery Act and other similar legislation could also materially affect our supply chain, cost of production, and ability to manufacture our products. We are also required to comply with various complex U.S. and foreign tax laws, regulations and treaties. These laws, regulations and treaties can change frequently and significantly, and it is reasonable to expect changes in the future. If we fail to comply with any of these tax laws, regulations or treaties, we could be subject to, among other things, civil and criminal prosecution, fines, penalties and confiscation of our assets, which could disrupt our ability to provide our products and services to our customers. Any of these events could have a material adverse effect on our business, financial condition, results of operations and cash flows. 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 Company could also become involved in investigations of consumers of our products at significant cost to the Company. Focus and attention by advocacy groups and regulatory agencies on climate change and greenhouse gas (GHG) emissions in the United States and the European Union has accelerated during the COVID-19 Pandemic. Investors, customers, governance pundits and government officials have increased focus on sustainability, stakeholder governance and the energy transition. As a result, there has been increased promotion of alternative energy sources and increased negative attitudes or perceptions of fossil fuels. The combination of these factors may significantly reduce demand for production of oil and gas and for our products and services. Furthermore, we face increased reputational risk and demand for our stock could be negatively impacted based on societal perceptions of our industry sector and our response to sustainability issues. 23
We could be adversely affected if we fail to comply with any of the numerous federal, state and local laws, regulations and policies that govern environmental protection, zoning and other matters applicable to our businesses. Our businesses are subject to numerous federal, state and local laws, regulations and policies governing environmental protection, zoning and other matters. These laws and regulations have changed frequently in the past and it is reasonable to expect additional changes in the future. If existing regulatory requirements change, we may be required to make significant unanticipated capital and operating expenditures. We cannot assure you that our operations will continue to comply with future laws and regulations. Governmental authorities may seek to impose fines and penalties on us or to revoke or deny the issuance or renewal of operating permits for failure to comply with applicable laws and regulations. Under these circumstances, we might be required to reduce or cease operations or conduct site remediation or other corrective action which could adversely impact our operations and financial condition. 13
Our businesses expose us to potential environmental, product or personal injury liability. Our businesses expose us to the risk that harmful substances may escape into the environment or a product could fail to perform or cause personal injury, or individuals may assert claims due to exposure to chemicals, harmful substances, environmental conditions any of which could result in: | • | personal injury or loss of life; |
| • | severe damage to or destruction of property; or, |
| • | environmental damage and suspension of operations. |
Our current and past activities, as well as the activities of our former divisions and subsidiaries, could result in our facing substantial environmental, regulatory, personnel injury, class action, mass tort and other litigation and liabilities. These could include the costs of cleanup of contaminated sites and site closure obligations. These liabilities could also be imposed on the basis of one or more of the following theories: | • | breach of contract with customers; or, |
| • | as a result of our contractual agreement to indemnify our customers in the normal course of business, which is normally the case. |
strict liability;
breach of contract with customers; or,
as a result of our contractual agreement to indemnify our customers in the normal course of business, which is normally the case.
We may not have adequate insurance for potential environmental, product or personal injury liabilities. While we maintain liability insurance, this insurance is subject to coverage limits. In addition, certain policies do not provide coverage for damages resulting from environmental contamination or may exclude coverage for other reasons. We face the following risks with respect to our insurance coverage: | • | we may not be able to continue to obtain insurance on commercially reasonable terms; |
| • | we may be faced with types of liabilities that will not be covered by our insurance; |
| • | our insurance carriers may not be able to meet their obligations under the policies; or, |
| • | the dollar amount of any liabilities may exceed our policy limits. |
Even a partially uninsured claim, if successful and of significant size, could have a material adverse effect on our consolidated financial statements. The adoption of climate change legislation, restrictions on emissions of greenhouse gases, or other environmental regulations could increase our operating costs or reduce demand for our products. Environmental advocacy groups and regulatory agencies in the United States and other countries have been focusing considerable attention on the emissions of carbon dioxide, methane and other greenhouse gases and their potential 24
role in climate change. The adoption of laws and regulations to implement controls of greenhouse gases, including the imposition of fees or taxes, could adversely impact our operations and financial condition. The U.S. Congress and other governments routinely consider legislation to control and reduce emissions of greenhouse gassesgases and other climate change related legislation, which could require significant reductions in emissions from oil and gas related operations. Additionally, recent concerns regarding the potential impact of hydraulic stimulation, or “fracking”, activities have resulted in government officials promulgating regulations to impose certain operational restrictions and disclosure requirements on oil and gas companies. Changes in the legal and regulatory environment could reduce oil and natural gas drilling activity and result in a corresponding decline in the demand for our products and services, which could adversely impact our operating results and financial condition. 14
Cybersecurity risks and threats could adversely affect our business.
We rely heavily on information systems to conduct our business. Any failure, interruption or breach in security of our information systems could result in failures or disruptions in our customer relationship management, general ledger systems and other systems. While we have policies and procedures designed to prevent or limit the effect of the failure, interruption or security breach of our information systems, there can be no assurance that any such failures, interruptions or security breaches will not occur or, if they do occur, that any breach or interruption will be sufficiently limited. The occurrence of any failures, interruptions or security breaches of our information systems could damage our reputation, result in a loss of our intellectual property or other proprietary information, including customer data, result in a loss of customer business, subject us to additional regulatory scrutiny, or expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on our financial position or results of operations.
Local content requirements imposed in certain jurisdictions may increase the complexity of our operations and impact the demand for our services. A growing number of nations are requiring equipment providers and contractors to meet local content requirements or other local standards. To meet many of these local content and other requirements, we are required to attract and retain qualified local personnel. If we are unable to do so because the supply of qualified local personnel is constrained for any reason, the growth and profitability of our business may be adversely affected. In addition, our ability to work in certain jurisdictions is sometimes subject to our ability to successfully negotiate and agree upon acceptable joint venture agreements. The failure to reach acceptable agreements could adversely impact the Company’s operations in certain countries. Additionally, we may share control of joint ventures with unaffiliated third parties. Differences in views, and disagreements, among joint venture parties may result in delayed decision making and disputes on important issues. In some instances, we could suffer a material adverse effect to the results of our joint ventures and our consolidated results of operations. Our ability to hire and retain qualified personnel at competitive cost could materially affect our operations and growth potential.
Many of the products we sell, and related services that we provide, are complex and technologically advanced, which enable them to perform in challenging conditions. Our ability to succeed is, in part, dependent on our success in attracting and retaining qualified personnel to provide service and to design, manufacture, use, install and commission our products. A significant increase in wages paid by competitors, both within and outside the energy industry, for such highly skilled personnel could result in insufficient availability of skilled labor or increase our labor costs, or both. If the supply of skilled labor is constrained or our costs increase, our margins could decrease and our growth potential could be impaired.25
Severe weather conditions may adversely affect our operations.
Our business may be materially affected by severe weather conditions in areas where we operate. This may entail the evacuation of personnel and stoppage of services. In addition, if particularly severe weather affects platforms or structures, this may result in a suspension of activities. Any of these events could adversely affect our financial condition, results of operations and cash flows.
An impairment of goodwill or other indefinite lived intangible assets could reduce our earnings.
The Company has approximately $6.2 billion of goodwill and $0.4 billion of other intangible assets with indefinite lives as of December 31, 2017. Generally accepted accounting principles require the Company to test goodwill and other indefinite lived intangible assets for impairment on an annual basis or whenever events or circumstances indicate they might be impaired. Events or circumstances which could indicate a potential impairment include (but are not limited to) a significant sustained reduction in worldwide oil and gas prices or drilling; a significant sustained reduction in profitability or cash flow of oil and gas companies or drilling contractors; a significant sustained reduction in capital investment by other oilfield service companies; or a significant increase in worldwide inventories of oil or gas. The timing and magnitude of any goodwill impairment charge, which could be material, would depend on the timing and severity of the event or events triggering the charge and would require a high degree of management judgment. If we were to determine that any of our remaining balance of goodwill or other indefinite lived intangible assets was impaired, we would record an immediate charge to earnings with a corresponding reduction in stockholders’ equity; resulting in a possible increase in balance sheet leverage as measured by debt to total capitalization.
See additional discussion on “Goodwill and Other Indefinite – Lived Intangible Assets” in Critical Accounting Estimates of Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
We have expanded our businesses through acquisitions and intend to maintain a growth strategy.
We have expanded and grown our businesses through acquisitions and continue to pursue a growth strategy but we cannot assure that attractive acquisitions will be available to us at reasonable prices or at all. In addition, we cannot assure that we will successfully integrate the operations and assets of any acquired business with our own or that our management will be able to manage effectively any new lines of business. Any inability on the part of management to integrate and manage acquired businesses and their assumed liabilities could adversely affect our business and financial performance. In addition, we may need to incur substantial indebtedness to finance future acquisitions. We cannot assure that we will be able to obtain this financing on terms acceptable to us or at all. Future acquisitions may result in increased depreciation and amortization expense, increased interest expense, increased financial leverage or decreased operating income for the Company, any of which could cause our business to suffer.
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GLOSSARY OF OILFIELD TERMS | | | | | (Sources: Company management; “A Dictionary for the Petroleum Industry,” The University of Texas at Austin, 2001.) | | | API | | Abbr: American Petroleum Institute | | | Annular Blowout Preventer | | A large valve, usually installed above the ram blowout preventers, that forms a seal in the annular space between the pipe and the wellbore or, if no pipe is present, in the wellbore itself. | | | Annulus | | The open space around pipe in a wellbore through which fluids may pass. | | | Automatic Pipe Handling Systems (Automatic Pipe Racker) | | A device used on a drilling rig to automatically remove and insert drill stem components from and into the hole. It replaces the need for a person to be in the derrick or mast when tripping pipe into or out of the hole. | | | Automatic Roughneck | | A large, self-contained pipe-handling machine used by drilling crew members to make up and break out tubulars. The device combines a spinning wrench, torque wrench, and backup wrenches. | | | Beam pump | | Surface pump that raise and lowers sucker rods continually, so as to operate a downhole pump. | | | Bit | | The cutting or boring element used in drilling oil and gas wells. The bit consists of a cutting element and a circulating element. The cutting element is steel teeth, tungsten carbide buttons, industrial diamonds, or polycrystalline diamonds (“PDCs”). These teeth, buttons, or diamonds penetrate and gouge or scrape the formation to remove it. The circulating element permits the passage of drilling fluid and utilizes the hydraulic force of the fluid stream to improve drilling rates. In rotary drilling, several drill collars are joined to the bottom end of the drill pipe column, and the bit is attached to the end of the drill collars. Drill collars provide weight on the bit to keep it in firm contact with the bottom of the hole. | | | Blowout | | An uncontrolled flow of gas, oil or other well fluids into the atmosphere. A blowout, or gusher, occurs when formation pressure exceeds the pressure applied to it by the column of drilling fluid. A kick warns of an impending blowout. | | | Blowout Preventer (BOP) | | Series of valves installed at the wellhead while drilling to prevent the escape of pressurized fluids. | | | Blowout Preventer (BOP) Stack | | The assembly of well-control equipment including preventers, spools, valves, and nipples connected to the top of the wellhead. | | | Borehole Enlargement (“BHE”) | | The process of opening up or enlarging the internal diameter of the wellbore. This is typically done with under-reamers, reamers, or hole openers. | | | | Bottomhole Assembly (“BHA”) | | The lower portion of the drillstring including (if used): the bit, bit sub, mud motor, stabilizers, drillcollar, heavy-weight drillpipe, jarring devices, and crossovers for various thread forms. | | | | Carbon-Neutral | | The state of achieving net zero carbon dioxide emissions with removal or simply eliminating carbon dioxide emissions altogether. | | | | Closed Loop Drilling Systems | | A solids control system in which the drilling mud is reconditioned and recycled through the drilling process on the rig itself. | | | | | |
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Coiled Tubing | | A continuous string of flexible steel tubing, often hundreds or thousands of feet long, that is wound onto a reel, often dozens of feet in diameter. The reel is an integral part of the coiled tubing unit, which consists of several devices that ensure the tubing can be safely and efficiently inserted into the well from the surface. Because tubing can be lowered into a well without having to make up joints of tubing, running coiled tubing into the well is faster and less expensive than running conventional tubing. Rapid advances in the use of coiled tubing make it a popular way in which to run tubing into and out of a well. Also called reeled tubing. | | | Cuttings | | Fragments of rock dislodged by the bit and brought to the surface in the drilling mud. Washed and dried cutting samples are analyzed by geologist to obtain information about the formations drilled. | | | Directional Well | | Well drilled in an orientation other than vertical in order to access broader portions of the formation. | | | Drawworks | | The hoisting mechanism on a drilling rig. It is essentially a large winch that spools off or takes in the drilling line and thus raises or lowers the drill stem and bit. |
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| | | | | Drill Pipe Elevator (Elevator) | | On conventional rotary rigs andtop-drive rigs, hinged steel devices with manual operating handles that crew members latch onto a tool joint (or a sub). Since the elevators are directly connected to the traveling block, or to the integrated traveling block in the top drive, when the driller raises or lowers the block or thetop-drive unit, the drill pipe is also raised or lowered. | | | | Drilling jars | | A percussion tool operated manually or hydraulically to deliver a heavy downward blow to free a stuck drill stem. | | | | Drilling mud | | A specially compounded liquid circulated through the wellbore during rotary drilling operations. | | | | Drilling riser | | A conduit used in offshore drilling through which the drill bit and other tools are passed from the rig on the water’s surface to the sea floor. | | | | Drill stem | | All members in the assembly used for rotary drilling from the swivel to the bit, including the Kelly, the drill pipe and tool joints, the drill collars, the stabilizers, and various specialty items. | | | | Fiberglass-reinforced spoolable pipe | | A spoolable glass fiber-reinforced epoxy composite tubular product for onshore oil and gas gathering and injection systems, with superior corrosion resistant properties and lower installed cost than steel. | | | | Flexible pipe | | A dynamic riser that connects subsea production equipment to a topside facility allowing for the flow of oil, gas, and/or water. Also used on the seafloor to tie wells and subsea equipment together. | | | | Formation | | A bed or deposit composed throughout of substantially the same kind of rock; often a lithologic unit. Each formation is given a name, frequently as a result of the study of the formation outcrop at the surface and sometimes based on fossils found in the formation. | | | | FPSO | | A Floating Production, Storage and Offloading vessel used to receive hydrocarbons from subsea wells, and then produce and store the hydrocarbons until they can be offloaded to a tanker or pipeline. | | | |
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Hardbanding | | A special wear-resistant material often applied to tool joints to prevent abrasive wear to the area when the pipe is being rotated downhole. | | | | Hub Height | | The distance from the turbine platform to the rotor of an installed wind turbine and indicates how high the turbine stands above the ground (or water), not including the length of the wind blades. | | | | Hydraulic Fracturing | | The process of creating fractures in a formation by pumping fluids, at high pressures, into the reservoir, which allows or enhances the flow of hydrocarbons. | | | | Iron Roughneck | | A floor-mounted combination of a spinning wrench and a torque wrench. The Iron Roughneck moves into position hydraulically and eliminates the manual handling involved with suspended individual tools. | | | | Jack-up rig | | A mobile bottom-supported offshore drilling structure with columnar or open-truss legs that support the deck and hull. When positioned over the drilling site, the bottoms of the legs penetrate the seafloor. | | | | Jar | | A mechanical device placed near the top of the drill stem which allows the driller to strike a very heavy blow upward or downward on stuck pipe. | | | | Joint | | 1. In drilling, a single length (from 16 feet to 45 feet, or 5 meters to 14.5 meters, depending on its range length) of drill pipe, drill collar, casing or tubing that has threaded connections at both ends. Several joints screwed together constitute a stand of pipe. 2. In pipelining, a single length (usually 40feet-12 meters) of pipe. 3. In sucker rod pumping, a single length of sucker rod that has threaded connections at both ends. | | | | Kelly | | The heavy steel tubular device,four-orsix-sided, four-or six-sided, suspended from the swivel through the rotary table and connected to the top joint of drill pipe to turn the drill stem as the rotary table turns. It has a bored passageway that permits fluid to be circulated into the drill stem and up the annulus, or vice versa. Kellys manufactured to API specifications are available only infour-orsix-sided four-or six-sided versions, are either 40 or 54 feet (12 or 16 meters) long, and have diameters as small as 2.5 inches (6 centimeters) and as large as 6 inches (15 centimeters). |
| | Kelly bushing | | A special device placed around the kelly that mates with the kelly flats and fits into the master bushing of the rotary table. The kelly bushing is designed so that the kelly is free to move up or down through it. The bottom of the bushing may be shaped to fit the opening in the master bushing or it may have pins that fit into the master bushing. In either case, when the kelly bushing is inserted into the master bushing and the master bushing is turned, the kelly bushing also turns. Since the kelly bushing fits onto the kelly, the kelly turns, and since the kelly is made up to the drill stem, the drill stem turns. Also called the drive bushing. |
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| | | | | Kelly spinner | | A pneumatically operated device mounted on top of the kelly that, when actuated, causes the kelly to turn or spin. It is useful when the kelly or a joint of pipe attached to it must be spun up, that is, rotated rapidly for being made up. | | | Kick | | An entry of water, gas, oil, or other formation fluid into the wellbore during drilling. It occurs because the pressure exerted by the column of drilling fluid is not great enough to overcome the pressure exerted by the fluids in the formation drilled. If prompt action is not taken to control the kick, or kill the well, a blowout may occur. | | | | Making-upLevelized Cost of Energy (“LCOE”) | | A measure of the average net present cost of electricity generation for a generating plant over its lifetime. The LCOE is calculated as the ratio between all the discounted costs over the lifetime on an electricity generating plant divided by a discounted sum of the actual energy amounts delivered. LCOE is used to compare different methods of electricity generation on a consistent basis. |
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| | Making-up | | 1. To assemble and join parts to form a complete unit (e.g., to make up a string of drill pipe). 2. To screw together two threaded pieces. 3. To mix or prepare (e.g., to make up a tank of mud). 4. To compensate for (e.g., to make up for lost time). | | | Manual tongs (Tongs) | | The large wrenches used for turning when making up or breaking out drill pipe, casing, tubing, or other pipe; variously called casing tongs, pipe tongs, and so forth, according to the specific use. Power tongs or power wrenches are pneumatically or hydraulically operated tools that serve to spin the pipe up tight and, in some instances to apply the final makeup torque. | | | Master bushing | | A device that fits into the rotary table to accommodate the slips and drive the kelly bushing so that the rotating motion of the rotary table can be transmitted to the kelly. Also called rotary bushing. | | | Mooring system | | The method by which a vessel or buoy is fixed to a certain position, whether permanently or temporarily. | | | Motion compensation equipment | | Any device (such as a bumper sub or heave compensator) that serves to maintain constant weight on the bit in spite of vertical motion of a floating offshore drilling rig. | | | Mud pump | | A large, high-pressure reciprocating pump used to circulate the mud on a drilling rig. | | | | Nacelle | | A cover housing that houses all of the generating components in a wind turbine, including the generator, gearbox, drive train, and brake assembly. The nacelle must be easily accessible for maintenance and repair work. | | | Plug gauging | | The mechanical process of ensuring that the inside threads on a piece of drill pipe comply with API standards. | | | Pressure control equipment | | Equipment used in: 1. The act of preventing the entry of formation fluids into a wellbore. 2. The act of controlling high pressures encountered in a well. | | | Pressure pumping | | Pumping fluids into a well by applying pressure at the surface. | | | Ram blowout preventer | | A blowout preventer that uses rams to seal off pressure on a hole that is with or without pipe. Also called a ram preventer. | | | Ring gauging | | The mechanical process of ensuring that the outside threads on a piece of drill pipe comply with API standards. | | | Riser | | A pipe through which liquids travel upward. | | | Riser pipe | | The pipe and special fitting used on floating offshore drilling rigs to establish a seal between the top of the wellbore, which is on the ocean floor, and the drilling equipment located above the surface of the water. A riser pipe serves as a guide for the drill stem from the drilling vessel to the wellhead and as a conductor for drilling fluid from the well to the vessel. The riser consists of several sections of pipe and includes special devices to compensate for any movement of the drilling rig caused by waves. Also called marine riser pipe, riser joint. | | | Rotary table | | The principal piece of equipment in the rotary table assembly; a turning device used to impart rotational power to the drill stem while permitting vertical movement of the pipe for rotary drilling. The master bushing fits inside the opening of the rotary table; it turns the kelly bushing, which permits vertical movement of the kelly while the stem is turning. | | |
29
Rotating blowout preventer (Rotating Head) | | A sealing device used to close off the annular space around the kelly in drilling with pressure at the surface, usually installed above the main blowout preventers. A rotating head makes it possible to drill ahead even when there is pressure in the annulus that the weight of the drilling fluid is not overcoming; the head prevents the well from blowing out. It is used mainly in the drilling of formations that have low permeability. The rate of penetration through such formations is usually rapid. | | | | Safety clamps | | A clamp placed very tightly around a drill collar that is suspended in the rotary table by drill collar slips. Should the slips fail, the clamp is too large to go through the opening in the rotary table and therefore prevents the drill collar string from falling into the hole. Also called drill collar clamp. |
18
| | | | | | Shale shaker | | A piece of drilling rig equipment that uses a vibrating screen to remove cuttings from the circulating fluid in rotary drilling operations. The size of the openings in the screen should be selected carefully to be the smallest size possible to allow 100 per cent flow of the fluid. Also called a shaker. | | | | Slim-hole completions (Slim-hole Drilling) | | Drilling in which the size of the hole is smaller than the conventional hole diameter for a given depth. This decrease in hole size enables the operator to run smaller casing, thereby lessening the cost of completion. | | | | Slips | | Wedge-shaped pieces of metal with serrated inserts (dies) or other gripping elements, such as serrated buttons, that suspend the drill pipe or drill collars in the master bushing of the rotary table when it is necessary to disconnect the drill stem from the kelly or from thetop-drive unit’s drive shaft. Rotary slips fit around the drill pipe and wedge against the master bushing to support the pipe. Drill collar slips fit around a drill collar and wedge against the master bushing to support the drill collar. Power slips are pneumatically or hydraulically actuated devices that allow the crew to dispense with the manual handling of slips when making a connection. | | | | Solids | | See “Cuttings” | | | | Spinning wrench | | Air-powered or hydraulically powered wrench used to spin drill pipe in making or breaking connections. | | | | Spinning-in | | The rapid turning of the drill stem when one length of pipe is being joined to another.“Spinning-out” “Spinning-out” refers to separating the pipe. | | | | Stand | | The connected joints of pipe racked in the derrick or mast when making a trip. On a rig, the usual stand is about 90 feet (about 27 meters) long (three lengths of drill pipe screwed together), or a treble. | | | | Steerable Technologies | | Tools that allow for steering the BHA towards a target while rotating from surface. | | | | String | | The entire length of casing, tubing, sucker rods, or drill pipe run into a hole. | | | | Sucker rod | | A special steel pumping rod. Several rods screwed together make up the link between the pumping unit on the surface and the pump at the bottom of the well. | | | | Tensioner | | A system of devices installed on a floating offshore drilling rig to maintain a constant tension on the riser pipe, despite any vertical motion made by the rig. The guidelines must also be tensioned, so a separate tensioner system is provided for them. | | | | Thermal desorption | | The process of removing drilling mud from cuttings by applying heat directly to drill cuttings. |
30
| | | Tiebacks (Subsea) | | A series of flowlines and pipes that connect numerous subsea wellheads to a single collection point. | | | | Top drive | | A device similar to a power swivel that is used in place of the rotary table to turn the drill stem. It also includes power tongs. Modern top drives combine the elevator, the tongs, the swivel, and the hook. Even though the rotary table assembly is not used to rotate the drill stem and bit, thetop-drive system retains it to provide a place to set the slips to suspend the drill stem when drilling stops. | | | | Torque wrench | | Spinning wrench with a gauge for measuring the amount of torque being applied to the connection. |
19
| | | | | Trouble cost | | Costs incurred as a result of unanticipated complications while drilling a well. These costs are often referred to as contingency costs during the planning phase of a well. | | | Turret | | Mechanical device that allows a floating vessel to rotate around stationary flowlines, umbilicals, and other associated risers. | | | Well completion | | 1. The activities and methods of preparing a well for the production of oil and gas or for other purposes, such as injection; the method by which one or more flow paths for hydrocarbons are established between the reservoir and the surface. 2. The system of tubulars, packers, and other tools installed beneath the wellhead in the production casing; that is, the tool assembly that provides the hydrocarbon flow path or paths. | | | Wellhead | | The termination point of a wellbore at surface level or subsea, often incorporating various valves and control instruments. | | | Well stimulation | | Any of several operations used to increase the production of a well, such as acidizing or fracturing. | | | Well workover | | The performance of one or more of a variety of remedial operations on a producing oil well to try to increase production. Examples of workover jobs are deepening, plugging back, pulling and resetting liners, and squeeze cementing. | | | Wellbore | | A borehole; the hole drilled by the bit. A wellbore may have casing in it or it may be open (uncased); or part of it may be cased, and part of it may be open. Also called a borehole or hole. | | | Wireline | | A slender, rodlike or threadlike piece of metal usually small in diameter, that is used for lowering special tools (such as logging sondes, perforating guns, and so forth) into the well. Also called slick line. |
None. 31 20
The Company owned or leased approximately 611573 facilities worldwide as of December 31, 2017,2020, including the following principal manufacturing, service, distribution and administrative facilities: | | | | | Building | | | Property | | | | | Lease | | | | | | | | | | | | | | | Size | | | Size | | | Owned / | | Termination | Location | | Description | | Building
Size
(SqFt) | | | Property
Size
(Acres) | | | Owned /
Leased | | Lease
Termination
Date | | | Description | | (SqFt) | | | (Acres) | | | Leased | | Date | | Wellbore Technologies: | | | | | | | | | | | Wellbore Technologies: | | | | | | | | | | | | | Navasota, Texas | | Manufacturing Facility & Administrative Offices | | | 562,112 | | | | 196 | | | Owned | | | | Manufacturing Facility & Administrative Offices | | 562,112 | | | 196 | | | Owned | | | Conroe, Texas | | Manufacturing Facility of Drill Bits and Downhole Tools, Administrative & Sales Offices | | | 410,623 | | | | 35 | | | Owned | | | | Manufacturing Facility of Drill Bits and | | 410,623 | | | 35 | | | Owned | | | | | | Downhole Tools, Administrative & Sales Offices | | | | | | | | | | | | | Houston, Texas | | Sheldon Road Inspection Facility | | | 319,365 | | | | 192 | | | Owned | | | | Sheldon Road Inspection Facility | | 319,365 | | | 192 | | | Owned | | | Veracruz, Mexico | | Manufacturing Facility of Tool Joints, Warehouse & Administrative Offices | | | 303,400 | | | | 42 | | | Owned | | | | Manufacturing Facility of Tool Joints, | | 303,400 | | | 42 | | | Owned | | | | | | Warehouse & Administrative Offices | | | | | | | | | | | | | Houston, Texas | | Holmes Rd Complex: Manufacturing, Warehouse, Coating Manufacturing Plant & Corporate Office | | | 300,000 | | | | 50 | | | Owned | | | | Holmes Rd Complex: Manufacturing, Warehouse, | | 300,000 | | | 50 | | | Owned | | | | | | Coating Manufacturing Plant & Corporate Office | | | | | | | | | | | | | Cedar Park, Texas | | Instrumentation Manufacturing Facility, Administrative & Sales Offices | | | 215,778 | | | | 38 | | | Owned | | | | Instrumentation Manufacturing Facility, Administrative & Sales Offices | | 215,778 | | | 34 | | | Owned | | | Dubai, UAE | | Manufacturing Facility of Downhole Tools, Distribution Warehouse | | | 184,492 | | | | 8 | | | Leased | | | 1/29/2021 | | | Manufacturing Facility of Downhole Tools, Distribution Warehouse | | 184,492 | | | 8 | | | Leased | | 1/29/2021 | Conroe, Texas | | Solids Control Manufacturing Facility, Warehouse, Administrative & Sales Offices, and Engineering Labs | | | 153,750 | | | | 35 | | | Owned | | | | Solids Control Manufacturing Facility, Warehouse, | | 153,750 | | | 42 | | | Owned | | | | | | Administrative & Sales Offices, and Engineering Labs | | | | | | | | | | | | | Houston, Texas | | | Manufacturing of plastic thread products | | 158,250 | | | 7 | | | Owned | | | | | | | | | | | | | | | | | | | | | | Completion & Production Solutions: | Completion & Production Solutions: | | | | | | | | | Completion & Production Solutions: | | | | | | | | | | | | | Senai, Malaysia | | Manufacturing Facility of Fiber Glass Products | | | 595,965 | | | | 14 | | | Owned* | | | 10/31/2027 | | | Manufacturing Facility of Fiber Glass Products | | | 595,965 | | | | 14 | | | Owned* | | 10/31/2027 | Kalundborg, Denmark | | Flexibles Manufacturing, Warehouse, Shop & Administrative Offices | | | 485,067 | | | | 38 | | | Owned | | | | Flexibles Manufacturing, Warehouse, Shop & Administrative Offices | | | 485,067 | | | | 38 | | | Owned | | | Superporto du Acu, Brazil | | Flexibles Manufacturing, Warehouse, Shop & Administrative Offices | | | 464,885 | | | | 30 | | | Owned* | | | 10/20/2031 | | | Flexibles Manufacturing, Warehouse, Shop & Administrative Offices | | 464,885 | | | 30 | | | Owned* | | 10/20/2031 | Manchester, England | | Manufacturing, Assembly & Testing of PC Pumps and Expendable Parts, Administrative & Sales Offices | | | 464,000 | | | | 28 | | | Owned | | | | Manufacturing, Assembly & Testing of PC Pumps and Expendable Parts, Administrative & Sales Offices | | | 464,000 | | | 28 | | | Owned | | | Houston, Texas | | Manfufacturing of Wireline and Pressure Performance Equipment, Warehouse and Administrative Offices | | | 383,750 | | | | 26 | | | Leased | | | 6/30/2041 | | | Manufacturing of Wireline and Pressure Performance Equipment, Warehouse and Administrative Offices | | 383,750 | | | 26 | | | Leased | | 6/30/2041 | Fort Worth, Texas | | Coiled Tubing Manufacturing Facility, Warehouse, Administrative & Sales Offices | | | 342,999 | | | | 24 | | | Owned | | | | Coiled Tubing Manufacturing Facility, | | 342,999 | | ` | 24 | | | Owned | | | Qingdau, Shagdong, China | | Manufacturing of fiber-reinforced tubular products | | | 309,150 | | | | 25 | | | Leased | | | 10/26/2036 | | | | | | Warehouse, Administrative & Sales Offices | | | | | | | | | | | | | Qingdau, Shandong, China | | | Manufacturing of fiber-reinforced tubular products | | 309,150 | | | 25 | | | Leased | | 10/26/2036 | Tulsa, Oklahoma | | Manufacturing Facility of Pumps, Warehouse and Administrative & Sales Offices | | | 222,625 | | | | 10 | | | Owned | | | | Manufacturing Facility of Pumps, Warehouse and Administrative & Sales Offices | | | 222,625 | | | | 10 | | | Owned | | | Houston, Texas | | Manufacturing of fiber-reinforced tubular products & Administrative Offices | | | 130,873 | | | | 6 | | | Leased | | | 4/30/2021 | | | Manufacturing of fiber-reinforced tubular products & Administrative Offices | | | 130,873 | | | | 6 | | | Leased | | 4/30/2021 | Kintore, Aberdeenshire, Scotland, UK | | | Manufacturing & Servicing of Elmar, ASEP and Anson Equipment | | | 210,000 | | | | 13 | | | Leased | | 9/3/2037 | Dammam, Saudi Arabia | | | Manufacturing of fiberglass products | | | 213,484 | | | | 23 | | | Leased | | 12/7/2036 | Mt. Union, Pennsylvania | | | Manufacturing of fiberglass products | | | 160,000 | | | | 24 | | | Owned | | | | | | | | | | | | | | | | | | | | | | Rig Technologies: | Rig Technologies: | | | | | | | | | | | | | | | | | | | | | | | Houston, Texas | | Bammel Facility, Repairs, Service, Aftermarket Parts, Administrative & Sales Offices | | | 602,110 | | | | 33 | | | Leased | | | 6/30/2028 | | | Bammel Facility, Repairs, Service, Aftermarket Parts, | | 602,110 | | | 33 | | | Leased | | 6/30/2028 | | | | Administrative & Sales Offices | | | | | | | | | | | | | Houston, Texas | | Manufacturing Plant of Drilling Equipment | | | 511,964 | | | | 33 | | | Leased | | | 4/30/2019 | | | Manufacturing Plant of Drilling Equipment | | 511,964 | | | 36 | | | Leased | | 4/30/2022 | Houston, Texas | | West Little York Manufacturing Facility, Repairs, Service, Administrative & Sales Offices | | | 483,450 | | | | 34 | | | Owned | | | | West Little York Manufacturing Facility, | | | 483,450 | | | 51 | | | Owned | | | Orange, California | | Manufacturing & Office Facility | | | 338,337 | | | | 9 | | | Owned* | | | 12/31/2020 | | | | | | Repairs, Service, Administrative & Sales Offices | | | | | | | | | | | | | New Iberia, Louisiana | | Repair, Services and Spares facility | | | 189,000 | | | | 17 | | | Leased | | | 10/1/2025 | | | Repair, Services and Spares facility | | 189,000 | | | 17 | | | Leased | | 10/1/2025 | Singapore | | Manufacturing, Repairs, Service, Field Service/Training, Administrative & Sales Offices | | | 133,659 | | | | 4 | | | Leased | | | 1/5/2024 | | | Manufacturing, Repairs, Service, Field | | 133,659 | | | 4 | | | Leased | | 1/5/2024 | | | | Service/Training, Administrative & Sales Offices | | | | | | | | | | | | | Dubai, UAE | | Repair & Overhaul of Drilling Equipment, Warehouse & Sales Office | | | 39,433 | | | | 2 | | | Owned | | | | Repair & Overhaul of Drilling Equipment, | | 39,433 | | | 2 | | | Owned | | | | | | Warehouse & Sales Office | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Corporate: | | | | | | | | | | | | | | | | | | | | | | | | | Houston, Texas | | Corporate and Shared Administrative Offices | | | 337,019 | | | | 14 | | | Leased | | | 5/31/2037 | | | Corporate and Shared Administrative Offices | | 337,019 | | | 14 | | | Leased | | 5/31/2037 | Houston, Texas | | Corporate and Shared Administrative Offices | | | 441,029 | | | | 3 | | | Leased | | | 1/31/2041 | | | Corporate and Shared Administrative Offices | | 441,029 | | | 3 | | | Leased | | 1/31/2041 |
* | Building owned but land leased. |
*Building owned but land leased. We own or lease approximately 218325 repair and manufacturing facilities that refurbish and manufacture new equipment and parts, 239122 service centers that provide inspection and equipment rental and 154126 engineering, sales and administration facilities. 32 21
We have various claims, lawsuits, arbitrationsSee Note 12 – Commitments and administrative proceedings that are pending or threatened, arising in the ordinary course of business. Such claims, threatened and actual litigation, and arbitrations involve claims against the Company for a broad spectrum of potential liabilities, including: individual employment law claims, collective actions under federal employment laws, intellectual property claims, including alleged patent infringement, and/or misappropriation of trade secrets, premises liability claims, personal injuries arising from allegedly defective products, alleged improper payments under anti-corruption and anti-bribery laws and other commercial claims seeking recovery for alleged actual or exemplary damages. For many such contingent claims, the Company’s insurance coverage is inapplicable or an exclusion to coverage may apply, in such instances, settlement or other resolution of such contingent claims could have a material financial or reputational impact on the Company. Such disputes arise in locations around the world and include proceedings in civil courts and arbitrations.
Forecasting the ultimate outcome of such matters requires a combination of judgment, experience and involves inherent uncertainties. In some instances, parties assert baseless orfar-fetched damage claims or inflate their claimed damages in an effort to exert leverage in settlement discussions, such assertions can involve unsubstantiated claims that if ultimately accepted by an arbitrator, jury or tribunal could materially impact the Company on a financial and reputational basis. The Company vigorously defends against such claims and tactics.
In those instances, in which we believe that incurrence of a loss is probable and the amount can be reasonably estimated, we estimate a range of probable outcomes and record a reserve within that range, including accruals for self-insured losses which may be calculated based on historical claim data, specific loss development factors and other information. We have many product liability, premises liability and commercial claims pending against our subsidiaries. A range of total possible losses for all litigation matters cannot be reasonably estimated because of the number of uncertainties and incomplete information for individual claims. Based on our considered judgment as to pertinent facts and circumstances, including the inputs and advice of experienced and knowledgeable advisors, we do not expect the ultimate outcome of any currently pending lawsuits or claims against us will have a material adverse effect on our financial position, results of operations or cash flows. However, no assurance as to the ultimate outcome of these matters can be provided.
For many commercial and regulatory claims and disputes, we do not have insurance or our insurance may contain an exclusion under the terms of our policies of insurance. The Company maintains substantial insurance against risks arising from our business based on market availability of insurance and our judgment concerning such risks, for example risks arising from product liability claims. No assurance can be given that the amount of that insurance will be sufficient to fully indemnify us against liabilities arising out of pending or future legal proceedings or other claims. Typically, our insurance policies contain deductibles or self-insured retentions, for which we are responsible for payment. In determining whether to, and the amount of self-insurance, it is our policy to self-insure at a level that we deem appropriate considering the cost of self-insuring compared to premiums for insurance with lower deductibles or self-insured retentions.
Although no assurance can be given with respect to the outcome of these or any other pending legal and administrative proceedings and the effect such outcomes may have, we believe any ultimate liability resulting from the outcome of such claims, lawsuits or administrative proceedings will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.
In the fourth quarter of 2016, one of our subsidiaries settled a product liability claim for CAD 42 million ($31 million at December 31, 2016), in Canada. The settlement was paid in 2017 by our insurers under a reservation of rights. In 2017, we resolved our claims against our insurer asserting that our existing policies of insurance covered all settled claims. The outcomeContingencies (Part IV, Item 15 of this settlement did not have a material adverse impact on our earnings.Form 10-K) for further discussion.
ITEM 4. | MINE SAFETY DISCLOSURES |
Information regarding mine safety and other regulatory actions at our mines is included in Exhibit 95 to this Form10-K. 2233
PART II ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Market Information Our common stock is traded on the New York Stock Exchange (NYSE) under the symbol “NOV”. The following table sets forth, for the calendar periods indicated, the range of high and low closing prices for the common stock, as reported by the NYSE and the cash dividends declared per share. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2017 | | | 2016 | | | | | First
Quarter | | | Second
Quarter | | | Third
Quarter | | | Fourth
Quarter | | | First
Quarter | | | Second
Quarter | | | Third
Quarter | | | Fourth
Quarter | | Common stock sale price: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | High | | $ | 41.74 | | | $ | 39.68 | | | $ | 36.30 | | | $ | 36.03 | | | $ | 34.93 | | | $ | 36.98 | | | $ | 36.86 | | | $ | 40.32 | | Low | | $ | 37.40 | | | $ | 31.64 | | | $ | 29.94 | | | $ | 31.51 | | | $ | 26.34 | | | $ | 27.32 | | | $ | 31.27 | | | $ | 31.43 | | Cash dividends per share | | $ | 0.05 | | | $ | 0.05 | | | $ | 0.05 | | | $ | 0.05 | | | $ | 0.46 | | | $ | 0.05 | | | $ | 0.05 | | | $ | 0.05 | |
As of February 9, 2018,5, 2021, there were 3,5592,462 holders of record of our common stock. Many stockholders choose to own shares through brokerage accounts and other intermediaries rather than as holders of record (excluding individual participants in securities positions listing) so the actual number of stockholders is unknown but significantly higher. Cash dividends aggregated $76declared were $0.05 per share in the first quarter of 2020 and $0.05 per share in the first, second, third, and fourth quarters of 2019, aggregating to $19 million and $230$77 million for the years ended December 31, 20172020 and 2016,2019, respectively. TheWe have no plans to pay dividends in the future; however, the declaration and payment of future dividends is at the discretion of the Company’s Board of Directors and will be dependent upon the Company’s results of operations, financial condition, capital requirements, future outlook and other factors deemed relevant by the Company’s Board of Directors. The information relating to our equity compensation plans required by Item 5. “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” is incorporated by reference to such information as set forth in Item 12. “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” contained herein. 34 23
PERFORMANCE GRAPH The graph below compares the cumulative total shareholder return on our common stock to the S&P 500 Index and the S&P Oil & Gas Equipment & Services Index. The total shareholder return assumes $100 invested on December 31, 20122015 in National Oilwell Varco,NOV Inc., the S&P Oil & Gas Equipment Select Index, the S&P 500 Index and the S&P Oil & Gas Equipment & Services Index. It also assumes reinvestment of all dividends. The peer group is weighted based on the market capitalization of each company. The results shown in the graph below are not necessarily indicative of future performance. COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among National Oilwell Varco, Inc., the S&P 500 Index
and the S&P Oil & Gas Equipment & Services Index
| | 12/15 | | | 12/16 | | | 12/17 | | | 12/18 | | | 12/19 | | | 12/20 | | NOV Inc. | | | 100.00 | | | | 113.91 | | | | 110.23 | | | | 79.07 | | | | 77.74 | | | | 42.85 | | S&P 500 | | | 100.00 | | | | 111.96 | | | | 136.40 | | | | 130.42 | | | | 171.49 | | | | 203.04 | | S&P Oil & Gas Equipment & Services | | | 100.00 | | | | 131.93 | | | | 112.56 | | | | 65.88 | | | | 72.83 | | | | 46.45 | | S&P Oil & Gas Equipment Select | | | 100.00 | | | | 128.70 | | | | 100.61 | | | | 53.30 | | | | 48.70 | | | | 27.57 | |
* | $100 invested on 12/31/12 in stock or index, including reinvestment of dividends. |
Fiscal year ending December 31.
Copyright© 2018 Standard & Poor’s, a division of S&P Global. All rights reserved.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | 12/12 | | | 12/13 | | | 12/14 | | | 12/15 | | | 12/16 | | | 12/17 | | National Oilwell Varco, Inc. | | | 100.00 | | | | 117.78 | | | | 110.05 | | | | 58.69 | | | | 66.86 | | | | 64.70 | | S&P 500 | | | 100.00 | | | | 132.39 | | | | 150.51 | | | | 152.59 | | | | 170.84 | | | | 208.14 | | S&P Oil & Gas Equipment & Services | | | 100.00 | | | | 130.65 | | | | 120.46 | | | | 97.87 | | | | 129.12 | | | | 110.16 | |
This information shall not be deemed to be ‘‘soliciting material’’ or to be ‘‘filed’’ with the Commission or subject to Regulation 14A (17 CFR240.14a-1-240.14a-104), other than as provided in Item 201(e) ofRegulation S-K, or to the liabilities of section 18 of the Exchange Act (15 U.S.C. 78r). Though35
Purchases of Equity Securities by the Company benefited from a high concentration of orders for offshore drilling equipmentIssuer and services in the preceding years, significant contraction in the offshore market during the recent downturn adversely effected the Company’s performance. Offshore market dynamics and equipment oversupply are expected to cause slower recovery there than in our land business, however, it is in NOV’s strategic interest to maintain a leading position in offshore drilling equipment. The Company has intentionally and successfully pivoted towards onshore and non-drilling related activities in recent years, highly responsive to the industry’s increased focus on onshore unconventional developments. Approximately, 65% of consolidated revenues were derived from onshore businesses in 2017 compared to approximately 40% in 2014. Affiliated Purchasers 24
ITEM 6. | SELECTED FINANCIAL DATA | | | | | | | | | | | | | | | | Period | | Total number of shares purchased* | | | Average price paid per share | | | Total number of shares purchased as part of publicly announced plans or programs | | | Approximate dollar value of shares that may yet be purchased under the plans or programs* | | October 1 through October 31, 2020 | | | — | | | | — | | | | — | | | | — | | November 1 through November 30, 2020 | | | — | | | | — | | | | — | | | | — | | December 1 through December 31, 2020 | | | — | | | | — | | | | — | | | | — | | Total (1) | | | — | | | $ | — | | | | — | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | Years Ended December 31, | | | | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 (1) | | | | | (in millions, except per share data) | | Operating Data: | | | | | | | | | | | | | | | | | | | | | Revenue | | $ | 7,304 | | | $ | 7,251 | | | $ | 14,757 | | | $ | 21,440 | | | $ | 19,221 | | Operating profit (loss) | | $ | (277 | ) | | $ | (2,411 | ) | | $ | (390 | ) | | $ | 3,613 | | | $ | 3,199 | | Income (loss) before income taxes | | $ | (392 | ) | | $ | (2,623 | ) | | $ | (589 | ) | | $ | 3,494 | | | $ | 3,124 | | Income (loss) from continuing operations | | $ | (236 | ) | | $ | (2,416 | ) | | $ | (767 | ) | | $ | 2,455 | | | $ | 2,181 | | Income from discontinued operations | | $ | — | | | $ | — | | | $ | — | | | $ | 52 | | | $ | 147 | | Net income (loss) attributable to Company | | $ | (237 | ) | | $ | (2,412 | ) | | $ | (769 | ) | | $ | 2,502 | | | $ | 2,327 | | Per share data: | | | | | | | | | | | | | | | | | | | | | Basic: | | | | | | | | | | | | | | | | | | | | | Income (loss) from continuing operations | | $ | (0.63 | ) | | $ | (6.41 | ) | | $ | (1.99 | ) | | $ | 5.73 | | | $ | 5.11 | | | | | | | | | | | | | | | | | | | | | | | Income from discontinued operations | | $ | — | | | $ | — | | | $ | — | | | $ | 0.12 | | | $ | 0.35 | | | | | | | | | | | | | | | | | | | | | | | Net income (loss) attributable to Company | | $ | (0.63 | ) | | $ | (6.41 | ) | | $ | (1.99 | ) | | $ | 5.85 | | | $ | 5.46 | | | | | | | | | | | | | | | | | | | | | | | Diluted: | | | | | | | | | | | | | | | | | | | | | Income (loss) from continuing operations | | $ | (0.63 | ) | | $ | (6.41 | ) | | $ | (1.99 | ) | | $ | 5.70 | | | $ | 5.09 | | | | | | | | | | | | | | | | | | | | | | | Income from discontinued operations | | $ | — | | | $ | — | | | $ | — | | | $ | 0.12 | | | $ | 0.35 | | | | | | | | | | | | | | | | | | | | | | | Net income (loss) attributable to Company | | $ | (0.63 | ) | | $ | (6.41 | ) | | $ | (1.99 | ) | | $ | 5.82 | | | $ | 5.44 | | | | | | | | | | | | | | | | | | | | | | | Cash dividends per share | | $ | 0.20 | | | $ | 0.61 | | | $ | 1.84 | | | $ | 1.64 | | | $ | 0.91 | | | | | | | | | | | | | | | | | | | | | | | Other Data: | | | | | | | | | | | | | | | | | | | | | Depreciation and amortization | | $ | 698 | | | $ | 703 | | | $ | 747 | | | $ | 778 | | | $ | 738 | | Capital expenditures | | $ | 192 | | | $ | 284 | | | $ | 453 | | | $ | 699 | | | $ | 614 | | Balance Sheet Data: | | | | | | | | | | | | | | | | | | | | | Working capital | | $ | 4,863 | | | $ | 4,829 | | | $ | 7,552 | | | $ | 8,788 | | | $ | 9,745 | | Total assets | | $ | 20,206 | | | $ | 21,140 | | | $ | 26,725 | | | $ | 33,562 | | | $ | 34,812 | | Long-term debt, less current maturities | | $ | 2,706 | | | $ | 2,708 | | | $ | 3,928 | | | $ | 3,014 | | | $ | 3,149 | | Total Company stockholders’ equity | | $ | 14,094 | | | $ | 13,940 | | | $ | 16,383 | | | $ | 20,692 | | | $ | 22,230 | |
(1) | Financial information for prior periods and dates may not be comparable due to the impact of $2.4 billion in business combinations on our financial position and results of operations during 2013. |
*Amounts in thousands 25
(1) | No shares were purchased during the three-month period ended December 31, 2020. |
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ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
General Overview The Company is a leading independent provider of equipment and technology to the upstream oil and gas industry. With operations in approximately 611573 locations across six continents, NOV designs, manufactures and services a comprehensive line of drilling, and well servicing and offshore construction equipment; sells and rents drilling motors, specialized downhole tools, and rig instrumentation; performs inspection and internal coating of oilfield tubular products; provides drill cuttings separation, management and disposal systems and services; and provides expendables and spare parts used in conjunction with the Company’s large installed base of equipment. NOV also manufactures coiled tubing and high-pressure fiberglass and composite tubing and sells and rents advancedin-line inspection equipment to makers of oil country tubular goods. More recently, by applying its deep knowledge in technology, the Company has helped advance the transition toward sustainable energy. The Company has a long tradition of pioneering innovations which improve the cost-effectiveness, efficiency, safety, and environmental impact of oil and gas operations. NOV’s revenue and operating results are principally directly related to the level of worldwide oil and gas drilling and production activities and the profitability and cash flow of oil and gas companies and drilling contractors, which in turn are affected by current and anticipated prices of oil and gas. Oil and gas prices have been and are likely to continue to be volatile. See Item 1A. “Risk Factors”. The Company conducts its operations through three business segments: Wellbore Technologies, Completion & Production Solutions and Rig Technologies. See Item 1. “Business”, for a discussion of each of these business segments. Unless indicated otherwise, results of operations are presented in accordance with accounting principles generally accepted in the United States (“GAAP”). Certain reclassifications have been made to the prior year financial statements in order for them to conform with the 20172020 presentation. The Company discloses Adjusted EBITDA (defined as Operating Profit excluding Depreciation, Amortization and Other Items) in its periodic earnings press releases and other public disclosures to provide investors additional information about the results of ongoing operations. SeeNon-GAAP Financial Measures and Reconciliations in Results of Operations for an explanation of our use ofnon-GAAP financial measures and reconciliations to their corresponding measures calculated in accordance with GAAP. Operating Environment Overview NOV’s results are dependent on, among other things, the level of worldwide oil and gas drilling, well remediation activity, the price of crude oil and natural gas, capital spending by exploration and production companies and drilling contractors, and worldwide oil and gas inventory levels.levels and, to a lesser degree, the level of investment in wind and geothermal energy products . Key industry indicators for the past three years include the following: | | | | | | | | | | | | | | | % increase (decrease) | | | | | | | | | | | | | | | | | | | | | | | | | | 2020 v | | | 2020 v | | | | | 2017* | | | 2016* | | | 2015* | | | %
2017 v
2016 | | %
2017 v
2015 | | | 2020* | | | 2019* | | | 2018* | | | 2019 | | | 2018 | | Active Drilling Rigs: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | U.S. | | | 875 | | | | 510 | | | | 977 | | | | 71.6 | % | | (10.4 | %) | | | 436 | | | | 944 | | | | 1,031 | | | | (53.8 | %) | | | (57.7 | %) | Canada | | | 207 | | | | 128 | | | | 194 | | | | 61.7 | % | | 6.7 | % | | 90 | | | 135 | | | 191 | | | | (33.3 | %) | | | (52.9 | %) | International | | | 947 | | | | 956 | | | | 1,167 | | | | (0.9 | %) | | (18.9 | %) | | | 825 | | | | 1,106 | | | | 988 | | | | (25.4 | %) | | | (16.5 | %) | | | | | | | | | | | | | | | | | | Worldwide | | | 2,029 | | | | 1,594 | | | | 2,338 | | | | 27.3 | % | | (13.2 | %) | | | 1,351 | | | | 2,185 | | | | 2,210 | | | | (38.2 | %) | | | (38.9 | %) | West Texas Intermediate Crude Prices (per barrel) | | $ | 50.88 | | | $ | 43.15 | | | $ | 48.71 | | | | 17.9 | % | | 4.5 | % | | $ | 39.33 | | | $ | 56.98 | | | $ | 64.94 | | | | (31.0 | %) | | | (39.4 | %) | Natural Gas Prices ($/mmbtu) | | $ | 2.96 | | | $ | 2.49 | | | $ | 2.61 | | | | 18.9 | % | | 13.4 | % | | $ | 2.01 | | | $ | 2.52 | | | $ | 3.13 | | | | (20.2 | %) | | | (35.8 | %) |
* | Averages for the years indicated. See sources below. |
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26
The following table details the U.S., Canadian, and international rig activity and West Texas Intermediate Oil prices for the past nine quarters ended December 31, 20172020 on a quarterly basis:  
Source: Rig count: Baker Hughes, Inc. (www.bakerhughes.com); West Texas Intermediate Crude Price, Natural Gas Price: US Department of Energy, Energy Information Administration (www.eia.doe.gov). The average price per barrel of West Texas Intermediate Crude was $50.88$39.33 in 2017, an increase2020, a decrease of 18%31% over the average price for 20162019 of $43.15$56.98 per barrel. The average natural gas price in 20172020 was $2.96$2.01 per mmbtu, an increasea decrease of 19%20% percent compared to the 20162019 average of $2.49$2.52 per mmbtu. Average rig activity worldwide increased 27%decreased 38 percent for the full year in 20172020 compared to 2016.2019. The average crude oil price for the fourth quarter of 20172020 was $55.37$42.46 per barrel, and natural gas was $2.89$2.50 per mmbtu. At February 9, 2018,5, 2021, there were 1,300563 rigs actively drilling in North America, compared to the fourth quarter average of 1,126400 rigs, an increase of 15%.41 percent. The price for West Texas Intermediate Crude Oil was $59.20$56.852 per barrel at February 9, 2018,5, 2021, an increase of 7%34 percent from the fourth quarter of 20172020 average. The price for natural gas was $2.58$2.86 per mmbtu at February 9, 2018, a decrease of 11% from the fourth quarter of 2017 average. 27
EXECUTIVE SUMMARY
National Oilwell Varco, Inc. generated revenue of $7.3 billion in 2017, an increase of 1% from the prior year as improving oil and gas prices resulted in increased drilling activity and demand for certain oilfield equipment and services. Average 2017 worldwide rig count (as measured by Baker Hughes) increased 27% in comparison to 2016. The increase in activity led to increased revenues in the Company’s Wellbore Technologies and Completion & Production Solutions segments, partially offset by declines in Rig Technologies’ revenues.
For the year ended December 31, 2017, the Company reported an operating loss of $277 million compared to an operating loss of $2,411 million in 2016, and a net loss attributable to the Company of $237 million, or $0.63 per share compared to a net loss of $2,412 million or $6.41 per share during 2016.
For the fourth quarter ended December 31, 2017, revenue was $1.97 billion, a $134 million or 7% increase compared to the third quarter of 2017. The Company reported a net loss of $14 million, or $0.04 per fully diluted share, an increase of $12 million, or $0.03 per fully diluted share, from the third quarter of 2017. Compared to the fourth quarter of 2016, revenue increased $277 million or 16%, and net loss decreased $700 million.
During the fourth quarter of 2017, third quarter of 2017, and fourth quarter of 2016,pre-tax other items (severance, facility closures, asset impairments, write-downs, and other) were $133 million, nil, and $694 million, respectively. Excluding the other items from all periods, fourth quarter 2017 Adjusted EBITDA was $197 million, compared to $167 million in the third quarter of 2017 and $102 million in the fourth quarter of 2016.
Segment Performance
Wellbore Technologies
Wellbore Technologies generated revenues of $715 million in the fourth quarter of 2017, an increase of three percent from the third quarter and an increase of 35 percent from the fourth quarter of 2016. Demand for the segment’s products, technologies and services continues to drive growth that outpaced global activity levels during the fourth quarter. Operating loss was $21 million, or 2.9 percent of sales. Adjusted EBITDA was $107 million, or 15.0 percent of sales, an increase of 14 percent sequentially and an increase of $87 million from the prior year. Higher volumes and improved pricing resulted in 59 percent sequential Adjusted EBITDA incrementals (the change in Adjusted EBITDA divided by the change in revenue).
Completion & Production Solutions
Completion & Production Solutions generated revenues of $690 million, an increase of one percent from the third quarter and5, 2021, an increase of 15 percent from the fourth quarter of 2016. Revenues2020 average.
EXECUTIVE SUMMARY NOV Inc. generated revenue of $6.09 billion in 2020, which was lower from growing deliveriesthe prior year as COVID-19 related restrictions decreased economic activity, sharply lowering oil and gas prices, and declining drilling activity worldwide led to a 28 percent decline in revenue. Average 2020 worldwide rig count (as measured by Baker Hughes) decreased significantly when compared to 2019. For the year ended December 31, 2020, the Company reported an operating loss of pressure pumping equipment$2,425 million compared to an operating loss of $6,279 million in 2019, and composite pipe, more than offset lower revenues from offshore products. Operating profit was $19a net loss attributable to the Company of $2,542 million, or 2.8$6.62 per share compared to a net loss of $6,095 million or $15.96 per share during 2019. 38
For the fourth quarter ended December 31, 2020, revenue was $1.33 billion, a $57 million or four percent decrease compared to the third quarter of sales.2020. The Company reported a net loss of $347 million, or $0.90 per fully diluted share, a decrease of $292 million, or $0.76 per fully diluted share, from the third quarter of 2020. Compared to the fourth quarter of 2019, revenue decreased $954 million or 42 percent, and net income increased $38 million. During the fourth quarter of 2020, third quarter of 2020, and fourth quarter of 2019, pre-tax other items: goodwill, intangible and long-lived asset impairment charges, inventory charges, severance accruals, and other charges and credits (collectively “Other Items”), were $236 million, $62 million, and $537 million, respectively. Excluding the Other Items from all periods, fourth quarter 2020 Adjusted EBITDA was $74$17 million, or 10.7compared to $71 million in the third quarter of 2020 and $288 million in the fourth quarter of 2019. Segment Performance Wellbore Technologies Wellbore Technologies generated revenues of $373 million in the fourth quarter of 2020, an increase of three percent from the third quarter of sales,2020 and a decrease of 24 percent sequentially and an increase of seven51 percent from the fourth quarter of 2019. The increase in revenues resulted from increased drilling activity levels in North America partially offset by declines in international and offshore markets. Operating loss, which included $46 million in Other Items, was $78 million. Adjusted EBITDA decreased $9 million sequentially and $131 million from the prior year. Higher costsyear to $12 million, or 3.2 percent of sales. Completion & Production Solutions Completion & Production Solutions generated revenues of $546 million in the fourth quarter of 2020, a decrease of nine percent from the third quarter of 2020 and lower throughputa decrease of 32 percent from the fourth quarter of 2019. Lower backlog and logistical disruptions from COVID-19-related restrictions contributed to the sequential decline. Operating loss, which included $43 million in offshore productsOther Items, was $31 million. Adjusted EBITDA decreased $35 million sequentially and processing equipment adversely impacted EBITDA margins.$68 million from the prior year to $28 million, or 5.1 percent of sales. New orders booked improved 27 percent sequentially to $215 million, representing a book-to-bill of 66 percent when compared to the $328 million of orders shipped from backlog. Backlog for capital equipment orders for Completion & Production Solutions at December 31, 20172020 was $1.07 billion. $696 million. Rig Technologies Rig Technologies generated revenues of $437 million in the fourth quarter of 2020, a decrease of three percent from the third quarter of 2020 and a decrease of 42 percent from the fourth quarter of 2019. Declining offshore drilling activity levels resulting in lower capital equipment backlog contributed to the sequential decline in revenues. Operating loss, which included $132 million in Other Items, was $132 million. Adjusted EBITDA decreased $9 million sequentially and $93 million from the prior year to $19 million, or 4.3 percent of sales. New orders booked during the quarter were $501totaled $190 million, representing abook-to-bill of 125105 percent when compared to the $401$181 million of orders shipped from backlog. The majority of the segment’s business units secured orders in excess of 100 percentbook-to-bill. The order book included topside equipment for an FPSO and strong bookings for coiled tubing equipment. Rig Technologies
Rig Technologies generated revenues of $614 million, an increase of 20 percent from the third quarter and an increase of $1 million from the fourth quarter of 2016. Revenues improved from shipments to customers that deferred deliveries from the third quarter, increased order intake, and a seasonal improvement in service and repair work. Operating loss was $51 million, or 8.3 percent of sales. Adjusted EBITDA was $70 million, or 11.4 percent of sales, an increase of 75 percent sequentially and a decrease of one percent from the prior year. Higher volumes drove the improvement in Adjusted EBITDA.
BacklogAt December 31, 2020, backlog for capital equipment orders for Rig Technologies at December 31, 2017 was $1.89$2.7 billion. New orders during the quarter were $169 million.
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Oil & Gas Equipment and Services Market and Outlook Over the past decade, technological advancementsFollowing approximately two and a half years of steady improvements in the oilfield equipmentoil prices and service space unlocked production from formations that were previously deemed uneconomic, especially in North America. From 2004 to 2014 global oil and liquids supply increased
dramatically from U.S. unconventional resources, deep-water (defined as water depths greater than 400 feet) resources and from other sources. The advances in technology combined with relatively high commodity prices caused by growing demand enabled and sustained an increase in global drilling activity. Global supply startedactivity levels, prices declined sharply during the fourth quarter of 2018 due to catch up to demand, and, in the latter half of 2014, demandstronger than expected growth in areas such as Asia, EuropeU.S. production and concerns regarding the U.S. weakened while drilling activity remained strong and production continued to grow. As a result, global inventories of crude and refined products grew and the price of oil declined significantly during early 2015, remaining depressed throughout the year and undergoing another major reduction toward the end of 2015. In early 2016, the market witnessed oil trading in the high $20 per barrel range, prices not seen since 2003.
In response to rapidly deteriorating market conditions, operators acutely reduced both operating and capital expenditures. Orders for NOV’s equipment and services slowed and rig counts declined rapidly with active U.S. drilling rig counts hitting 70 year lows, and international rig counts reaching decade lows, during the second quarter of 2016.economy. As a result of the sharp cutbackreduced budgets, and despite a modest recovery in activity, production declined in certain areas of the world, global inventories began to decline and commodity prices, started to rebound asdrilling activity levels in the U.S. declined throughout 2019 resulting in the first double digit percentage decrease in the average annual rig count since 2016. While the North American market deteriorated, the new-found capital austerity and fiscal discipline exhibited by U.S. operators along with declining production from underinvestment in overseas markets and rapidly growing demand for LNG inspired greater levels of confidence from international oil markets began tore-balance.and gas companies. The market downturn began to stabilize during the second half of 2016 and showed early signs of improvement as the year ended. During 2017, land drilling in North America continued to increase, whileindustry entered 2020 anticipating higher international markets stabilized
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and offshore activity remained depressed. The pricelevels would mostly offset the ongoing effects of West Texas Intermediate Cushing Crude endedcapital austerity in the year at $60.46 a barrel.North American land marketplace. Outlook
Activity in North AmericaDuring the first quarter of 2020, the coronavirus (COVID-19) outbreak rapidly spread across the world, driving sharp demand destruction for crude oil as countries took measures to curtail activity to slow the spread of the outbreak. In response to declining market share, members of the Organization of the Petroleum Exporting Countries and other producing countries (OPEC+), including Russia, increased sharply off historical lows duringproduction into the last two quarters of 2016 and through 2017. Declines in supply appear to have rebalanced the market; however, commodityalready oversupplied market, decimating oil prices and global activity levels remain relatively low and challenging conditions persist offshore. Consequently, the Company anticipates that its customers will continuerapidly filling worldwide storage facilities. In April 2020, OPEC+ began to moderate capital expendituresreduce production, which had only a muted positive effect on oil prices due to the extent they remain uncertain of a sustainable recovery in commodity prices.
While North America land drilling has increased, activity levels remain well below prior cyclical highs. International activity, which has been slower to fall than North American activity, may have reached the bottom of its cycle during 2017, though strong signs of recovery are not yet apparent. Offshore activity, which has longer project cycle times and, in certain instances, more challenged economics, may continue to decline into 2018.
Low activity levels result in an oversupply of service capacity and capital equipment, creating challenging prospects for many of NOV’s customers and reducing demand for the Company’s products. In this environment, contractors have been hesitant to invest in their existing equipment to conserve as much capital as possible. Equipment has been neglected and idle fleets have been stripped of parts to sustain assets that remains active. Additionally, certain equipment becomes less desirable and obsolete as equipment manufacturers develop new technologies and produce more efficient equipment that improves efficiencies and lowers the marginal cost of supply for oil and gas operating companies. The Company believesmarket concerns that the sharpcuts were significantly less than the demand destruction caused by COVID-19. As a result, companies across the industry responded with severe capital spending budget cuts, cost cuts, personnel layoffs, facility closures and bankruptcy filings. The COVID-19 virus continued to spread throughout 2020, extending depressed demand, uncertainty and additional spending reductions its customers have had in place for an extended period have created pent up demand for NOV’s products that began to show in certain areas duringby the second half of 2017 as industry activity levels began to improve.
NOV’s global customer base includes national oil companies, international oil companies, independent oil and gas companies, onshore and offshore service companies and others whose strategies and reactions to low commodity prices vary. Likewise, the Company expects the timing and slope of revenue stabilization and recovery will be different across its operating regions and its three business segments. NOV’s Wellbore Technologies segment and certain elements of its Completion & Production Solutions and Rig Technologies segments are realizing a faster recovery as drilling of new wells increases, while a strong recovery for the more capital equipment oriented businesses are expected to come later in the cycle.
NOV will continue to adjust the size of its operations to fit anticipated levels of activity while investing in developing and acquiring new products, technologies and operations that advance the Company’s longer term strategic goals. NOV has a history of implementing cost-control measures and downsizing in response to depressed market conditions as well as cost effectively ramping operations to capitalize on rapidly increasing demand. The Company has closed, or is in the process of closing, 385 locations over the past three years. It has reduced its annual expenses relating to salaries, wages, outside services, contractors, travel and entertainment by approximately $3.0 billion. The Company remains optimistic regarding longer-term market fundamentals as existing oil and gas fields continue to deplete and numerous major projects to replenish supply have been deferred or canceled while global demand continues to grow.
Though the Company benefited from a high concentration of orders for offshore drilling equipment and services in the preceding years, significant contraction in the offshore market during the recent downturn adversely effected the Company’s performance. Offshore market dynamics and equipment oversupply are expected to cause slower recovery there than in our land business, however, it is in NOV’s strategic interest to maintain a leading position in offshore drilling equipment. The Company has intentionally and successfully pivoted towards onshore and non-drilling related activities in recent years, highly responsive to the industry’s increased focus on onshore unconventional developments. Approximately 65% of consolidated revenues were derived from onshore businesses in 2017, compared to approximately 40% in 2014.
NOV expects unconventional shale resources to continue to gain a greater share of global production, and the Company will continue to enhance its offering into unconventional resource focused products and technologies, including advanced, automated drilling rigs; premium drillpipe and directional drilling technologies; hydraulic fracture stimulation equipment; and multistage completion tools. NOV expects big data and predictive analytics to improve uptime and operating efficiency, and the Company remains at the forefront of applying this promising technology to oilfield drilling and completion equipment. NOV expects theentire oil and gas industry as the U.S. rig count fell to adopt more efficient supply chain practicesits lowest level since 1940 in August of 2020. In response to the economic destruction caused by the COVID-19 pandemic, many governments implemented stimulus programs to aid individuals and businesses. The size, method and effectiveness of these programs varies greatly and, although generally helpful to the economy, they have not restored prior levels of demand for oil and gas.
During the fourth quarter of 2020 rising activity levels in the U.S. drove higher revenues for NOV’s short-cycle businesses in North America. These modest improvements were offset by a decline in international drilling activity and limited demand for capital equipment. Management expects industry activity levels and spending by customers to remain depressed during the beginning of 2021, as demand destruction from COVID-19 persists, but is optimistic that improving commodity prices, rising activity, and the Companyactions NOV is pioneeringtaking to construct floating production facilitiesposition its business for the future will result in improved profitability over the course of 2021. NOV remains committed to producestreamlining operations and improving organizational efficiencies while focusing on investing in innovative products and services, including environmentally friendly technologies, that are responsive to the immense resources discovered offshore. The Company has usedlonger-term needs of our customers. We believe this strategy will further advance the recent downturn to vigorously advance these strategic initiatives, and is encouraged by its progress.Company’s competitive position, regardless of the market environment. 29
Results of Operations Years Ended December 31, 2017 and December 31, 2016
The following table summarizes the Company’s revenue and operating profit (loss) by operating segment in 2017 and 2016 (in millions): | | | | Years Ended December 31, | | Variance | | | Years Ended December 31, | | | % Change | | | | | 2017 | | 2016 | | $ | | | % | | | 2020 | | | 2019 | | | 2018 | | | 2020 vs. 2019 | | | 2019 vs. 2018 | | Revenue: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Wellbore Technologies | | $ | 2,577 | | | $ | 2,199 | | | $ | 378 | | | | 17.2 | % | | $ | 1,867 | | | $ | 3,214 | | | $ | 3,235 | | | | (41.9 | %) | | | (0.6 | %) | Completion & Production Solutions | | | 2,672 | | | 2,241 | | | 431 | | | | 19.2 | % | | | 2,433 | | | | 2,771 | | | | 2,931 | | | | (12.2 | %) | | | (5.5 | %) | Rig Technologies | | | 2,252 | | | 3,110 | | | (858 | ) | | | (27.6 | %) | | | 1,919 | | | | 2,682 | | | | 2,575 | | | | (28.4 | %) | | | 4.2 | % | Eliminations | | | (197 | ) | | (299 | ) | | 102 | | | | (34.1 | %) | | | (129 | ) | | | (188 | ) | | | (288 | ) | | | (31.4 | %) | | | (34.7 | %) | | | | | | | | | | | | | | | Total Revenue | | $ | 7,304 | | | $ | 7,251 | | | $ | 53 | | | | 0.7 | % | | $ | 6,090 | | | $ | 8,479 | | | $ | 8,453 | | | | (28.2 | %) | | | 0.3 | % | | | | | | | | | | | | | | | Operating Profit (Loss): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Wellbore Technologies | | $ | (102 | ) | | $ | (770 | ) | | $ | 668 | | | | (86.8 | %) | | $ | (858 | ) | | $ | (3,551 | ) | | $ | 131 | | | | (75.8 | %) | | | (2810.7 | %) | Completion & Production Solutions | | | 98 | | | (266 | ) | | 364 | | | | (136.8 | %) | | | (977 | ) | | | (1,934 | ) | | | 166 | | | | (49.5 | %) | | | (1265.1 | %) | Rig Technologies | | | (14 | ) | | (1,033 | ) | | 1,019 | | | | (98.6 | %) | | | (362 | ) | | | (524 | ) | | | 213 | | | | (30.9 | %) | | | (346.0 | %) | Eliminations and corporate costs | | | (259 | ) | | (342 | ) | | 83 | | | | (24.3 | %) | | | (228 | ) | | | (270 | ) | | | (299 | ) | | | (15.6 | %) | | | (9.7 | %) | | | | | | | | | | | | | | | Total Operating Profit (Loss) | | $ | (277 | ) | | $ | (2,411 | ) | | $ | 2,134 | | | | (88.5 | %) | | $ | (2,425 | ) | | $ | (6,279 | ) | | $ | 211 | | | | (61.4 | %) | | | (3075.8 | %) | | | | | | | | | | | | | | | Operating Profit (Loss)%: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Wellbore Technologies | | | (4.0 | %) | | (35.0 | %) | | | | | | | (46.0 | %) | | | (110.5 | %) | | | 4.0 | % | | | | | | | | | Completion & Production Solutions | | | 3.7 | % | | (11.9 | %) | | | | | | | (40.2 | %) | | | (69.8 | %) | | | 5.7 | % | | | | | | | | | Rig Technologies | | | (0.6 | %) | | (33.2 | %) | | | | | | | (18.9 | %) | | | (19.5 | %) | | | 8.3 | % | | | | | | | | | Total Operating Profit (Loss) % | | | (3.8 | %) | | (33.3 | %) | | | | | | | (39.8 | %) | | | (74.1 | %) | | | 2.5 | % | | | | | | | | |
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Years Ended December 31, 2020 and December 31, 2019 Wellbore Technologies Revenue from Wellbore Technologies for the year ended December 31, 20172020 was $2,577$1,867 million, an increasea decrease of $378$1,347 million (17.2%(-42%) compared to the year ended December 31, 2016. The increase was due to higher drilling activity.2019. Operating loss from Wellbore Technologies was $102$858 million for the year ended December 31, 2017, a decrease2020, an increase of $668$2,693 million (86.8%) compared to the year ended December 31, 2016.2019. Operating loss percentage decreasedfor 2020 was -46.0% compared to 4.0% from 35.0%an operating loss percentage of -110.5% percent in 2016. Operating loss decreased due to higher drilling activity in 2017.2019. Included in operating profit are other items related to costs associated with a Voluntary Early Retirement Plan established by the Company during the first quarter of 2016, costs related to severance and facility closures, and asset write-downs. Other itemsItems included in operating profitloss for Wellbore Technologies were $28$849 million for the year ended December 31, 20172020 and $476$3,794 million for the year ended December 31, 2016.2019.
Completion & Production Solutions Revenue from Completion & Production Solutions for the year ended December 31, 20172020 was $2,672$2,433 million, an increasea decrease of $431$338 million (19.2%(-12%) compared to the year ended December 31, 2016. The increase was due to higher market activity.2019. Operating profit (loss)loss from Completion & Production Solutions was $98$977 million for the year ended December 31, 20172020 compared to $(266)an operating loss of $1,934 million for 2016,2019, an increase of $364 million (136.8%).$957 million. Operating profit (loss)loss percentage increasedfor 2020 was -40.2% compared to 3.7% from (11.9)%-69.8% in 2016. This increase was due to an overall increase in market activity.2019. Included in operating profitloss are other itemsOther Items related to costs associated with a Voluntary Early Retirement Plan established by the Company during the first quarter of 2016; costs related toimpairment charges, inventory charges, severance accruals and facility closures; items related to acquisitions, such as transaction costs, the amortization of backlogother charges and inventory that was stepped up to fair value during purchase accounting; and asset write-downs.credits. Other items included in operating profitloss for Completion & Production Solutions were $33was $1,132 million for the year ended December 31, 20172020 and $274$2,042 million for the year ended December 31, 2016.2019. 30
The Completion & ProductionsProduction Solutions segment monitors its capital equipment backlog to plan its business. New orders are added to backlog only when the Company receives a firm written order for major completion and production components or a signed contract related to a construction project. The capital equipment backlog was $1,066$695 million at December 31, 2017, an increase2020, a decrease of $248$610 million, or 30%47 percent from backlog of $818$1,305 million at December 31, 2016.2019. Numerous factors may affect the timing of revenue out of backlog. Considering these factors, the Company reasonably expects approximately $953$621 million of revenue out of backlog in 20182021 and approximately $113$74 million of revenue out of backlog in 20192022 and thereafter. At December 31, 2017,2020, approximately 59%63 percent of the capital equipment backlog was for offshore products and approximately 73%88 percent of the capital equipment backlog was destined for international markets. Rig Technologies Revenue from Rig Technologies for the year ended December 31, 20172020 was $2,252$1,919 million, a decrease of $858$763 million (27.6%(-28%) compared to the year ended December 31, 2016. The decrease was due to lower volumes in all areas.2019. Operating loss from Rig Technologies was $14$362 million for the year ended December 31, 2017, an improvement2020, a decrease of $1,019$162 million (98.6%) compared to 2016.2019. Operating loss percentage decreasedfor 2020 was -18.9% compared to 0.6%, from 33.2%-19.5% in 2016. Operating loss decreased primarily due to a $972 million impairment charge incurred on the carrying value of goodwill during the third quarter of 2016 that did not repeat in 2017, partially offset by lower volumes.2019. Included in operating profitloss are other items related to costs associated with a Voluntary Early Retirement Plan established by the Company during the first quarter of 2016, costsOther Items related to severance and facility closures, and asset write-downs, including the impairment charge mentioned above.write-downs. Other itemsItems included in operating profitloss for Rig Technologies were $129$402 million for the year ended December 31, 20172020 and $1,255$784 million for the year ended December 31, 2016.2019. The Rig Technologies segment monitors its capital equipment backlog to plan its business. New orders are added to backlog only when the Company receives a firm written order for major drilling rig components or a signed contract related to a construction project. The capital equipment backlog was $1.9$2.7 billion at December 31, 2017,2020, a decrease of $0.6 billion,$325 million, or 24%,11 percent, from backlog of $2.5$3.0 billion at December 31, 2016.2019. Numerous factors may affect the timing of revenue out of backlog. Considering these factors, the Company reasonably expects approximately $0.8 billion$556 million of revenue out of backlog in 20182021 and approximately $1.1 billion of revenue out of backlogthe remaining in 20192022 and thereafter. At December 31, 2017,2020, approximately 78%24% of the capital equipment backlog was for offshore products and approximately 81%90 percent of the capital equipment backlog was destined for international markets. 41
Eliminations and corporate costs Eliminations and corporate costs in operating loss were $259$228 million for the year ended December 31, 20172020 compared to $342$270 million for the year ended December 31, 2016. 2019. This change is primarily due to lowera decrease in intersegment sales. Sales from one segment to another generally are priced at estimated equivalent commercial selling prices; however, segments originating an external sale are credited with the full profit to the Company. Eliminations and corporate costs include intercompany transactions conducted between the three reporting segments that are eliminated in consolidation, as well as corporate costs not allocated to the segments. Intercompany transactions within each reporting segment are eliminated within each reporting segment. Other income (expense), net Other income (expense), net were expenseswas income of $33$17 million for the year ended December 31, 20172020 compared to expensesexpense of $101$90 million for the year ended December 31, 2016.2019. The decrease in expense was primarily due to lower asset disposals.foreign exchange losses for 2020. Provision for income taxes The effective tax rate for the year ended December 31, 20172020 was 39.8%8.7%, compared to 7.9%5.7% for 2016.2019. For the year ended December 31, 2017,2020 the revaluationeffective tax rate was negatively impacted by the impairment of net deferrednondeductible goodwill and the establishment of additional valuation allowances for current year losses and other tax liabilities in the U.S. related to 2017 U.S. tax law changes,attributes, partially offset by the release of valuation allowances established onallowance as a result of (a) the carryback of $591 million of US net operating losses from 2019 to 2014 pursuant to the Coronavirus Aid, Relief, and Economy Security Act (CARES Act) and (b) the filing of an amended US tax return to deduct foreign tax credits generated duringand carryback the year, when appliedresulting $287 million US net operating loss from 2016 to losses resulted in a higher effective tax rate than the U.S. statutory rate.2014. For the year ended December 31, 2016,2019, the effective tax rate was negatively impacted by the impairment of nondeductible goodwill not deductible for tax purposes, lower tax rates on losses incurred in foreign jurisdictions, and the establishment of additional valuation allowances, when applied to losses resulted in a lower effective tax rate than the U.S. statutory rate. 31
Years Ended December 31, 2016 and December 31, 2015
The following table summarizes the Company’s revenue and operating profit (loss) by operating segment in 2016 and 2015 (in millions):
| | | | | | | | | | | | | | | | | | | | Years Ended December 31, | | | Variance | | | | | 2016 | | | 2015 | | | $ | | | % | | Revenue: | | | | | | | | | | | | | | | | | Wellbore Technologies | | $ | 2,199 | | | $ | 3,718 | | | $ | (1,519 | ) | | | (40.9 | %) | Completion & Production Solutions | | | 2,241 | | | | 3,365 | | | | (1,124 | ) | | | (33.4 | %) | Rig Technologies | | | 3,110 | | | | 8,279 | | | | (5,169 | ) | | | (62.4 | %) | Eliminations | | | (299 | ) | | | (605 | ) | | | 306 | | | | (50.6 | %) | | | | | | | | | | | | | | | | | | Total Revenue | | $ | 7,251 | | | $ | 14,757 | | | $ | (7,506 | ) | | | (50.9 | %) | | | | | | | | | | | | | | | | | | Operating Profit (Loss): | | | | | | | | | | | | | | | | | Wellbore Technologies | | $ | (770 | ) | | $ | (1,573 | ) | | $ | 803 | | | | (51.0 | %) | Completion & Production Solutions | | | (266 | ) | | | 187 | | | | (453 | ) | | | (242.2 | %) | Rig Technologies | | | (1,033 | ) | | | 1,501 | | | | (2,534 | ) | | | (168.8 | %) | Eliminations and corporate costs | | | (342 | ) | | | (505 | ) | | | 163 | | | | (32.3 | %) | | | | | | | | | | | | | | | | | | Total Operating Profit (Loss) | | $ | (2,411 | ) | | $ | (390 | ) | | $ | (2,021 | ) | | | 518.2 | % | | | | | | | | | | | | | | | | | | Operating Profit (Loss) %: | | | | | | | | | | | | | | | | | Wellbore Technologies | | | (35.0 | %) | | | (42.3 | %) | | | | | | | | | Completion & Production Solutions | | | (11.9 | %) | | | 5.6 | % | | | | | | | | | Rig Technologies | | | (33.2 | %) | | | 18.1 | % | | | | | | | | | Total Operating Profit (Loss) % | | | (33.3 | %) | | | (2.6 | %) | | | | | | | | |
Wellbore Technologies
Revenue from Wellbore Technologies for the year ended December 31, 2016 was $2,199 million, a decrease of $1,519 million (40.9%) compared to the year ended December 31, 2015. The decrease was due to lower drilling activity.
Operating loss from Wellbore Technologies was $770 million for the year ended December 31, 2016, a decrease of $803 million (51.0%) compared to the year ended December 31, 2015. Operating loss percentage decreased to 35.0% from 42.3% in 2015. Operating loss decreased due to $1,658 million in goodwill and intangible asset impairment charges, which occurred in the fourth quarter of 2015 and did not repeat in 2016,allowance partially offset by a decreasethe reduction in drilling activity.
Included in operating profit are other items related to costs associated with a Voluntary Early Retirement Plan established by the Company during the first quarters of 2016 and 2015, costs related to severance and facility closures, and asset write-downs, including the impairment charge mentioned above. Other items included in operating profit for Wellbore Technologies were $476 million for the year ended December 31, 2016 and $1,775 million for the year ended December 31, 2015.
Completion & Production Solutions
Revenue from Completion & Production Solutions for the year ended December 31, 2016 was $2,241 million, a decrease of $1,124 million (33.4%) compared to the year ended December 31, 2015. The decrease wasuncertain tax positions due to lower market activity.
Operating profit (loss) from Completion & Production Solutions was $(266) million for the year ended December 31, 2016 compared to $187 million for 2015, a decrease of $453 million (242.2%). Operating profit (loss) percentage decreased to (11.9)% from 5.6% in 2015. This decrease was due to the overall decline in market activity.
Included in operating profit are other items related to costs associated with a Voluntary Early Retirement Plan established by the Company during the first quarters of 2016 and 2015; costs related to severance and facility closures; items related to acquisitions, such as transaction costs, the amortization of backlog and inventory that was stepped up to fair value during purchase accounting; and asset write-downs. Other items included in operating profit for Completion & Production Solutions were $274 million for the year ended December 31, 2016 and $125 million for the year ended December 31, 2015.
settlements. 32Refer to our 2019 Form 10-K for discussion of 2019 versus 2018.
The Completion & Productions Solutions segment monitors its capital equipment backlog to plan its business. New orders are added to backlog only when the Company receives a firm written order for major completion and production components or a signed contract related to a construction project. The capital equipment backlog was $818 million at December 31, 2016, a decrease of $151 million, or 16% from backlog of $969 million at December 31, 2015. At December 31, 2016, approximately 71% of the capital equipment backlog was for offshore products and approximately 87% of the capital equipment backlog was destined for international markets.
Rig Technologies
Revenue from Rig Technologies for the year ended December 31, 2016 was $3,110 million, a decrease of $5,169 million (62.4%) compared to the year ended December 31, 2015. The decrease was due to lower land rig shipments, delayed delivery dates of certain offshore projects and lower global drilling activity which caused customers to use existing inventories and components from idle and unused rigs to repair better utilized rigs rather than purchase new.
Operating loss from Rig Technologies was $1,033 million for the year ended December 31, 2016, a decrease of $2,534 million (168.8%) compared to 2015. Operating profit (loss) percentage decreased to (33.2)%, from 18.1% in 2015. Operating profit percentage decreased primarily due to lower volumes, pricing pressure and a $972 million impairment charge incurred on the carrying value of goodwill during the third quarter of 2016.
Included in operating profit are other items related to costs associated with a Voluntary Early Retirement Plan established by the Company during the first quarters of 2016 and 2015, costs related to severance and facility closures, and asset write-downs, including the impairment charge mentioned above. Other items included in operating profit for Rig Technologies were $1,255 million for the year ended December 31, 2016 and $124 million for the year ended December 31, 2015.
The Rig Technologies segment monitors its capital equipment backlog to plan its business. New orders are added to backlog only when the Company receives a firm written order for major drilling rig components or a signed contract related to a construction project. In light of the vote by the shareholders of SETE Brasil Participacoes SA to authorize Sete to file for bankruptcy, and a further decline in drilling activity during the first half of 2016 to record lows and the resulting effect on certain other customers, the Company removed $2.1 billion of orders from its backlog in the first quarter of 2016. Some of the contracts for these orders remain in place and are enforceable. If these customers obtain funding to continue their projects, the Company may pursue resumption of construction and update the backlog accordingly. The capital equipment backlog was $2.5 billion at December 31, 2016, a decrease of $3.6 billion, or 59%, from backlog of $6.1 billion at December 31, 2015. At December 31, 2016, approximately 81% of the capital equipment backlog was for offshore products and approximately 82% of the capital equipment backlog was destined for international markets.
Eliminations and corporate costs
Eliminations and corporate costs in operating loss were $342 million for the year ended December 31, 2016 compared to $505 million for the year ended December 31, 2015. This change is primarily due to lower intersegment sales. Sales from one segment to another generally are priced at estimated equivalent commercial selling prices; however, segments originating an external sale are credited with the full profit to the Company. Eliminations and corporate costs include intercompany transactions conducted between the three reporting segments that are eliminated in consolidation, as well as corporate costs not allocated to the segments. Intercompany transactions within each reporting segment are eliminated within each reporting segment.
Other income (expense), net
Other income (expense), net were expenses of $101 million for the year ended December 31, 2016 compared to expenses of $123 million for the year ended December 31, 2015. The decrease was primarily due to lower foreign exchange losses.
Provision for income taxes
The effective tax rate for the year ended December 31, 2016 was 7.9%, compared to (30.2)% for 2015. Impairment of goodwill not deductible for tax purposes, lower tax rates on losses incurred in foreign jurisdictions, and an increase in valuation allowance on deferred taxes, which, when applied to losses generated during the period, resulted in a lower effective tax rate than the U.S. statutory rate.
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Non-GAAP Financial Measures and Reconciliations The Company discloses Adjusted EBITDA (defined as Operating Profit excluding Depreciation, Amortization and, when applicable, Other Items) in its periodic earnings press releases and other public disclosures to provide investors additional information about the results of ongoing operations. The Company uses Adjusted EBITDA internally to evaluate and manage the business. Adjusted EBITDA is not intended to replace GAAP financial measures, such as Net Income. Other items in 2017 consisted primarilyconsist of restructure charges for inventory write-downs, facility closures and severance payments. Other items in 2016 consisted primarily of goodwill impairment expense and restructure charges for inventory write-downs, facility closures and severance payments. Other items in 2015 consisted primarily of goodwill and intangible asset impairment expenses and restructure charges for inventory write-downs, facility closures and severance payments.(in millions): | | Three Months Ended | | | Years Ended | | | | December 31, | | | September 30, | | | December 31, | | | | 2020 | | | 2019 | | | 2020 | | | 2020 | | | 2019 | | Other items by category: | | | | | | | | | | | | | | | | | | | | | Goodwill | | $ | — | | | $ | 410 | | | $ | — | | | $ | 1,295 | | | $ | 3,509 | | Identified intangibles | | | — | | | | 16 | | | | — | | | | 292 | | | | 2,004 | | Inventory charges | | | 174 | | | | 63 | | | | 20 | | | | 326 | | | | 633 | | Long-lived assets | | | — | | | | 10 | | | | — | | | | 304 | | | | 309 | | Voluntary early retirement program | | | — | | | | (3 | ) | | | — | | | | — | | | | 84 | | Severance, facility closures and other | | | 62 | | | | 41 | | | | 42 | | | | 206 | | | | 92 | | Total other items | | $ | 236 | | | $ | 537 | | | $ | 62 | | | $ | 2,423 | | | $ | 6,631 | |
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The following tables set forth the reconciliation of Adjusted EBITDA to its most comparable GAAP financial measure (in millions): | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended | | | | | | | | | | | | | | December 31, | | | September 30, | | | Years Ended December 31, | | | | | 2017 | | | 2016 | | | 2017 | | | 2017 | | | 2016 | | | 2015 | | Operating profit (loss): | | | | | | | | | | | | | | | | | | | | | | | | | Wellbore Technologies | | $ | (21 | ) | | $ | (439 | ) | | $ | — | | | $ | (102 | ) | | $ | (770 | ) | | $ | (1,573 | ) | Completion & Production Solutions | | | 19 | | | | (134 | ) | | | 44 | | | | 98 | | | | (266 | ) | | | 187 | | Rig Technologies | | | (51 | ) | | | (121 | ) | | | 18 | | | | (14 | ) | | | (1,033 | ) | | | 1,501 | | Eliminations and corporate costs | | | (58 | ) | | | (72 | ) | | | (69 | ) | | | (259 | ) | | | (342 | ) | | | (505 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Total operating profit (loss) | | $ | (111 | ) | | $ | (766 | ) | | $ | (7 | ) | | $ | (277 | ) | | $ | (2,411 | ) | | $ | (390 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Other items: | | | | | | | | | | | | | | | | | | | | | | | | | Wellbore Technologies | | $ | 32 | | | $ | 364 | | | $ | — | | | $ | 28 | | | $ | 476 | | | $ | 1,775 | | Completion & Production Solutions | | | 1 | | | | 151 | | | | — | | | | 33 | | | | 274 | | | | 125 | | Rig Technologies | | | 100 | | | | 170 | | | | — | | | | 129 | | | | 1,255 | | | | 124 | | Eliminations and corporate costs | | | — | | | | 9 | | | | — | | | | — | | | | 25 | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | Total other items | | $ | 133 | | | $ | 694 | | | $ | — | | | $ | 190 | | | $ | 2,030 | | | $ | 2,024 | | | | | | | | | | | | | | | | | | | | | | | | | | | Depreciation & amortization: | | | | | | | | | | | | | | | | | | | | | | | | | Wellbore Technologies | | $ | 96 | | | $ | 95 | | | $ | 94 | | | $ | 379 | | | $ | 384 | | | $ | 403 | | Completion & Production Solutions | | | 54 | | | | 52 | | | | 53 | | | | 215 | | | | 209 | | | | 223 | | Rig Technologies | | | 21 | | | | 22 | | | | 22 | | | | 88 | | | | 94 | | | | 107 | | Eliminations and corporate costs | | | 4 | | | | 5 | | | | 5 | | | | 16 | | | | 16 | | | | 14 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total depreciation & amortization | | $ | 175 | | | $ | 174 | | | $ | 174 | | | $ | 698 | | | $ | 703 | | | $ | 747 | | | | | | | | | | | | | | | | | | | | | | | | | | | Adjusted EBITDA: | | | | | | | | | | | | | | | | | | | | | | | | | Wellbore Technologies | | $ | 107 | | | $ | 20 | | | $ | 94 | | | $ | 305 | | | $ | 90 | | | $ | 605 | | Completion & Production Solutions | | | 74 | | | | 69 | | | | 97 | | | | 346 | | | | 217 | | | | 535 | | Rig Technologies | | | 70 | | | | 71 | | | | 40 | | | | 203 | | | | 316 | | | | 1,732 | | Eliminations and corporate costs | | | (54 | ) | | | (58 | ) | | | (64 | ) | | | (243 | ) | | | (301 | ) | | | (491 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Total Adjusted EBITDA | | $ | 197 | | | $ | 102 | | | $ | 167 | | | $ | 611 | | | $ | 322 | | | $ | 2,381 | | | | | | | | | | | | | | | | | | | | | | | | | | | Reconciliation of Adjusted EBITDA: | | | | | | | | | | | | | | | | | | | | | | | | | GAAP net loss attributable to Company | | $ | (14 | ) | | $ | (714 | ) | | $ | (26 | ) | | $ | (237 | ) | | $ | (2,412 | ) | | $ | (769 | ) | Net income (loss) attributable to noncontrolling interest | | | (1 | ) | | | (3 | ) | | | (1 | ) | | | 1 | | | | (4 | ) | | | 2 | | Provision for income taxes | | | (130 | ) | | | (88 | ) | | | (3 | ) | | | (156 | ) | | | (207 | ) | | | 178 | | Interest expense | | | 25 | | | | 25 | | | | 26 | | | | 102 | | | | 105 | | | | 103 | | Interest income | | | (6 | ) | | | (4 | ) | | | (11 | ) | | | (25 | ) | | | (15 | ) | | | (14 | ) | Equity (income) loss in unconsolidated affiliates | | | 1 | | | | 2 | | | | 2 | | | | 5 | | | | 21 | | | | (13 | ) | Other (income) expense, net | | | 14 | | | | 16 | | | | 6 | | | | 33 | | | | 101 | | | | 123 | | Depreciation & amortization | | | 175 | | | | 174 | | | | 174 | | | | 698 | | | | 703 | | | | 747 | | Other items in operating profit | | | 133 | | | | 694 | | | | — | | | | 190 | | | | 2,030 | | | | 2,024 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total Adjusted EBITDA: | | $ | 197 | | | $ | 102 | | | $ | 167 | | | $ | 611 | | | $ | 322 | | | $ | 2,381 | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | Years Ended | | | | December 31, | | | September 30, | | | December 31, | | | | 2020 | | | 2019 | | | 2020 | | | 2020 | | | 2019 | | Operating profit (loss): | | | | | | | | | | | | | | | | | | | | | Wellbore Technologies | | $ | (78 | ) | | $ | (317 | ) | | $ | (50 | ) | | $ | (858 | ) | | $ | (3,551 | ) | Completion & Production Solutions | | | (31 | ) | | | 57 | | | | 25 | | | | (977 | ) | | | (1,934 | ) | Rig Technologies | | | (132 | ) | | | (23 | ) | | | (3 | ) | | | (362 | ) | | | (524 | ) | Eliminations and corporate costs | | | (60 | ) | | | (66 | ) | | | (46 | ) | | | (228 | ) | | | (270 | ) | Total operating profit (loss) | | $ | (301 | ) | | $ | (349 | ) | | $ | (74 | ) | | $ | (2,425 | ) | | $ | (6,279 | ) | | | | | | | | | | | | | | | | | | | | | | Other Items: | | | | | | | | | | | | | | | | | | | | | Wellbore Technologies | | $ | 46 | | | $ | 410 | | | $ | 26 | | | $ | 849 | | | $ | 3,794 | | Completion & Production Solutions | | | 43 | | | | 13 | | | | 23 | | | | 1,132 | | | | 2,042 | | Rig Technologies | | | 132 | | | | 114 | | | | 12 | | | | 402 | | | | 784 | | Corporate | | | 15 | | | | — | | | | 1 | | | | 40 | | | | 11 | | Total Other Items | | $ | 236 | | | $ | 537 | | | $ | 62 | | | $ | 2,423 | | | $ | 6,631 | | | | | | | | | | | | | | | | | | | | | | | Depreciation & amortization: | | | | | | | | | | | | | | | | | | | | | Wellbore Technologies | | $ | 44 | | | $ | 50 | | | $ | 45 | | | $ | 187 | | | $ | 284 | | Completion & Production Solutions | | | 16 | | | | 26 | | | | 15 | | | | 75 | | | | 150 | | Rig Technologies | | | 19 | | | | 21 | | | | 19 | | | | 77 | | | | 87 | | Corporate | | | 3 | | | | 3 | | | | 4 | | | | 13 | | | | 12 | | Total depreciation & amortization | | $ | 82 | | | $ | 100 | | | $ | 83 | | | $ | 352 | | | $ | 533 | | | | | | | | | | | | | | | | | | | | | | | Adjusted EBITDA: | | | | | | | | | | | | | | | | | | | | | Wellbore Technologies | | $ | 12 | | | $ | 143 | | | $ | 21 | | | $ | 178 | | | $ | 527 | | Completion & Production Solutions | | | 28 | | | | 96 | | | | 63 | | | | 230 | | | | 258 | | Rig Technologies | | | 19 | | | | 112 | | | | 28 | | | | 117 | | | | 347 | | Eliminations and corporate costs | | | (42 | ) | | | (63 | ) | | | (41 | ) | | | (175 | ) | | | (247 | ) | Total Adjusted EBITDA | | $ | 17 | | | $ | 288 | | | $ | 71 | | | $ | 350 | | | $ | 885 | | | | | | | | | | | | | | | | | | | | | | | Reconciliation of Adjusted EBITDA: | | | | | | | | | | | | | | | | | | | | | GAAP net income (loss) attributable to Company | | $ | (347 | ) | | $ | (385 | ) | | $ | (55 | ) | | $ | (2,542 | ) | | $ | (6,095 | ) | Noncontrolling interests | | | (1 | ) | | | — | | | | 2 | | | | 5 | | | | 2 | | Provision (benefit) for income taxes | | | 22 | | | | (46 | ) | | | (61 | ) | | | (242 | ) | | | (369 | ) | Interest expense | | | 19 | | | | 25 | | | | 21 | | | | 84 | | | | 100 | | Interest income | | | (2 | ) | | | (4 | ) | | | — | | | | (7 | ) | | | (20 | ) | Equity loss in unconsolidated affiliate | | | 10 | | | | 7 | | | | 11 | | | | 260 | | | | 13 | | Other (income) expense, net | | | (2 | ) | | | 54 | | | | 8 | | | | 17 | | | | 90 | | Depreciation and amortization | | | 82 | | | | 100 | | | | 83 | | | | 352 | | | | 533 | | Other Items | | | 236 | | | | 537 | | | | 62 | | | | 2,423 | | | | 6,631 | | Total Adjusted EBITDA | | $ | 17 | | | $ | 288 | | | $ | 71 | | | $ | 350 | | | $ | 885 | |
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Liquidity and Capital Resources The Company assesses liquidity in terms of its ability to generate cash to fund operating, investing and financing activities. The Company remains in a strong financial position, with resources available to reinvest in existing businesses, strategic acquisitions and capital expenditures to meet short- and long-term objectives. The Company believes that cash on hand, cash generated from expected results of operations and amounts available under its revolving credit facility will be sufficient to fund operations, anticipated working capital needs and other cash requirements including capital expenditures, debt and interest payments and dividend payments for the foreseeable future.
At December 31, 2017,2020, the Company had cash and cash equivalents of $1,437$1,692 million, and total debt of $2,712$1,834 million. At December 31, 2016,2019, cash and cash equivalents were $1,408$1,171 million and total debt was $3,214$1,989 million. As of December 31, 2017,2020, approximately $978$1,037 million of the $1,437$1,692 million of cash and cash equivalents was held by our foreign subsidiaries and the earnings associated with this cash werecould be subject to foreign withholding taxes and incremental U.S. taxation under the Act defined in Note 14 to the Consolidated Financial Statements.taxation. If opportunities to invest in the U.S. are greater than available cash balances that are not subject to income tax, rather than repatriating cash, the Company may choose to borrow against its revolving credit facility or utilize its commercial paper program.facility. On June 27, 2017, theThe Company entered intohas a new $3.0$2.0 billion, credit agreement evidencing a five-year unsecured revolving credit facility, which expires on June 27, 2022, with a syndicate of financial institutions. This new credit facility replaced the Company’s previous $4.5 billion revolving credit facility.October 30, 2024. The Company has the right to increase the aggregate commitments under this new agreement to an aggregate amount of up to $4.0$3.0 billion upon the consent of only those lenders holding any such increase. Interest under the new multicurrency facility is based upon LIBOR, NIBOR or CDOR plus 1.125% subject to a ratings-based grid or the U.S. prime rate. The new credit facility contains a financial covenant regarding maximumdebt-to-capitalization ratio of 60%. As of December 31, 2017,2020, the Company was in compliance with adebt-to-capitalization ratio of 16.1%28.4% and had no outstanding letters of credit issued under the facility, resulting in $2.0 billion of available funds.
The Company also has a $150 million bank line of credit for the construction of a facility in Saudi Arabia. Interest under the bank line of credit is based upon LIBOR plus 1.40%. The bank line of credit contains a financial covenant regarding maximum debt-to-equity ratio of 75%. As of December 31, 2020, the Company was in compliance. On November 29, 2017,August 25, 2020, the Company repaid in its entirety the $500completed a cash tender offer for $217.3 million of its 1.35%2.60% unsecured Senior Notes using available cash balances. The Company paid $226 million, which included a redemption premium of $7.6 million as well as accrued and unpaid interest of $1.3 million. As a result of the redemption, the Company recorded a loss on extinguishment of debt of $8.2 million, which included the redemption premium of $7.6 million and non-cash charges of $0.6 million attributable to the write-off of unamortized discount and debt issuance costs. The Company’s outstanding debt at December 31, 20172020 was $2,712$1,834 million and consisted of $1,392$182 million in 2.60% Senior Notes, $1,088$493 million in 3.60% Senior Notes, $1,089 million in 3.95% Senior Notes, no commercial paper borrowings, and other debt of $232$70 million. The Company was in compliance with all covenants at December 31, 2017. At December 31, 2017, there were no commercial paper borrowings supported by the $3.0 billion credit facility and no outstanding letters of credit issued under the credit facility, resulting in $3.0 billion of funds available under this revolving credit facility.2020.
The Company had $658$446 million of outstanding letters of credit at December 31, 20172020 that are under various bilateral letter of credit facilities. Letters of credit are issued as bid bonds, advanced payment bonds and performance bonds. bonds The following table summarizes our net cash provided by operating activities, net cash used in investing activities and net cash used in financing activities for the periods presented (in millions): | | | | Years Ended December 31, | | | Years Ended December 31, | | | | | 2017 | | | 2016 | | | 2015 | | | 2020 | | | 2019 | | | 2018 | | Net cash provided by operating activities | | $ | 832 | | | $ | 960 | | | $ | 1,332 | | | $ | 926 | | | $ | 714 | | | $ | 521 | | Net cash used in investing activities | | | (245 | ) | | | (488 | ) | | | (514 | ) | | | (144 | ) | | | (315 | ) | | | (457 | ) | Net cash used in financing activities | | | (595 | ) | | | (1,141 | ) | | | (2,163 | ) | | | (259 | ) | | | (647 | ) | | | (30 | ) |
Operating ActivitiesSignificant sources and uses of cash during 2020
| • | Cash flows provided by operating activities was $926 million. This included changes in the primary components of our working capital (receivables, inventories, and accounts payable), primarily related to strong collections on accounts receivable. |
| • | Capital expenditures were $226 million. |
| • | We paid $19 million in dividends to our shareholders. |
Oil and Gas Market Downturn and COVID-19 Pandemic 2017 vs 2016. NetSince the oil and gas market downturn began in late 2014, the Company has maintained a continuous process of actively managing its strategy, structure and resources to the changing market conditions and new realities. The Company has closed or realigned hundreds of facilities, reduced headcount, sharply lowered costs and reviewed all product lines for acceptable returns in the evolved market. Additionally, the Company has proactively reduced the balances and extended the maturity profile of its debt. In the fall of 2019, the Company retired $1 billion of notes
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due 2022 for cash, provided by operating activities was $832 million in 2017 compared to net cash provided by operating activities of $960 million in 2016. Before changes in operating assets and liabilities, net of acquisitions, cash was provided by operations in 2017 primarily from operating activities that generated earnings beforenon-cash charges of $379 million and $5 million in equity loss in unconsolidated affiliates. Net changes in operating assets and liabilities, net of acquisitions, provided $448issued $500 million of cash in 2017 comparednotes due 2029 and extended the maturity of its undrawn credit facility to $1,044 million provided in 2016. The decrease in cash provided in 2017 compared to 2016 was primarily due to declines in cash provided by accounts receivable, inventory and costs in excess of billings, partially offset by declines in cash used by accrued liabilities and billings in excess of costs and by accounts payable providing cash in 2017 compared to using cash in 2016.
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2016 vs 2015. Net cash provided by operating activities was $960 million in 2016 compared to net cash provided by operating activities of $1,332 million in 2015. Before changes in operating assets and liabilities, net of acquisitions, cash was used by operations
primarily through net loss of $2,416 million plusnon-cash charges of $2,305 million, $6 million in2024. In August 2020, the Company completed a dividend received from Voest-Alpine Tubulars, an unconsolidated affiliate, and $21 million in equity loss in unconsolidated affiliates.
Net changes in operating assets and liabilities, net of acquisitions, provided $1,044tender on $217 million of cash in 2016 compared to $466 million used in 2015. The decrease in cash used in 2016 comparedthe remaining 2022 notes, further reducing its amount of debt outstanding. While aggressively matching size and spend to the same period in 2015 was primarily due to declines in accounts receivable, inventorymarket, and costs in excess of billings, partially offset by declines in accounts payable, accrued liabilities and billings in excess of costs.
Investing Activities
2017 vs 2016. Net cash used in investing activities was $245 million in 2017 compared to net cash used in investing activities of $488 million in 2016. The decrease in net cash used in investing activities was primarily the result of decreased acquisitions and capital expenditures in 2017 compared to 2016. The Company used $86 million during 2017 for acquisitions compared to $230 million in 2016 and $192 million for capital expenditures during 2017, compared to $284 million in 2016.
2016 vs 2015. Net cash used in investing activities was $488 million in 2016 compared to net cash used in investing activities of $514 million in 2015. The decrease in net cash used in investing activities was primarily the result of decreased capital expenditures in 2016 compared to 2015, offset by an increase in cash used for acquisitions. The Company used $284 million during 2016 for capital expenditures compared to $453 million in 2015 and $230 million for acquisitions during 2016, compared to $86 million in 2015.
Financing Activities
2017 vs 2016. Net cash used in financing activities was $595 million in 2017 compared to $1,141 million in 2016. This decrease was primarily the result of $506 million of debt payments in 2017 compared to $900 million used to make payments on net commercial paper borrowings in 2016. In addition,protecting its balance sheet, the Company decreasedhas continued investing in new products and technologies that enable its dividendcustomers to $76 million during 2017 compared to $230 millionimprove their operational efficiencies.
When the COVID-19 global pandemic and OPEC+ actions further depressed oil prices and industry activity beginning in 2016. 2016 vs 2015. Net cash used in financing activities was $1,141 million in 2016 compared to $2,163 million in 2015. This decrease was primarily the resultMarch of $900 million used to make payments on net commercial paper borrowings in 2016 compared to $762 million of net commercial paper borrowings in 2015 used to purchase $2,221 million (44.0 million shares) of2020, the Company’s outstanding common shares. In addition,prior prudent actions helped ensure adequate available resources. Management intends to continue managing the Company decreased its dividendbusiness to $230 million during 2016 comparedthe market realities to $710 million in 2015.ensure the Company’s access to capital remains sufficient. See Item 1A Risk Factors.
Other The effect of the change in exchange rates on cash was an increase (decrease)a decrease of $37($2) million, $(3)($8) million and $(111)($44) million for the years ended December 31, 2017, 20162020, 2019 and 2015,2018, respectively. We believe that cash on hand, cash generated from operations and amounts available under our credit facilities and from other sources of debt will be sufficient to fund operations, working capital needs, capital expenditure requirements, dividends and financing obligations. We intend to pursue additional acquisition candidates, but the timing, size or success of any acquisition effort and the related potential capital commitments cannot be predicted. We continue to expect to fund future cash acquisitions primarily with cash flow from operations and borrowings, including the unborrowed portion of the revolving credit facility or new debt issuances, but may also issue additional equity either directly or in connection with acquisitions. There can be no assurance that additional financing for acquisitions will be available at terms acceptable to us. 36
A summary of the Company’s outstanding contractual obligations at December 31, 2017 is as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | Payment Due by Period | | | | | | | | Less | | | | | | | | | | | | | | Total | | | than 1
Year | | | 1-3
Years | | | 4-5
Years | | | After 5
Years | | Contractual Obligations: | | | | | | | | | | | | | | | | | | | | | Total debt | | $ | 2,712 | | | $ | 6 | | | $ | 10 | | | $ | 1,410 | | | $ | 1,286 | | Operating leases | | | 771 | | | | 130 | | | | 180 | | | | 122 | | | | 339 | | | | | | | | | | | | | | | | | | | | | | | Total Contractual Obligations | | $ | 3,483 | | | $ | 136 | | | $ | 190 | | | $ | 1,532 | | | $ | 1,625 | | | | | | | | | | | | | | | | | | | | | | | Commercial Commitments: | | | | | | | | | | | | | | | | | | | | | Standby letters of credit | | $ | 658 | | | $ | 474 | | | $ | 104 | | | $ | 39 | | | $ | 41 | | | | | | | | | | | | | | | | | | | | | | |
As of December 31, 2017,2020, the Company had $132$57 million of unrecognized tax benefits. This represents the tax benefits associated with various tax positions taken, or expected to be taken, on domestic and international tax returns that have not been recognized in our financial statements due to uncertainty regarding their resolution. Due to the uncertainty of the timing of future cash flows associated with these unrecognized tax benefits, we are unable to make reasonably reliable estimates of the period of cash settlement, if any, with the respective taxing authorities. Accordingly, unrecognized tax benefits have been excluded from the contractual obligations table above. For further information related to unrecognized tax benefits, see Note 1415 to the Consolidated Financial Statements. 37
Critical Accounting Policies and Estimates In preparing the financial statements, we make assumptions, estimates and judgmentsjudgements that affect the amounts reported. We periodically evaluate our estimates and judgmentsjudgements that are most critical in nature which are related to revenue recognition under long-term construction contracts; allowance for doubtful accounts; inventory reserves; impairments of long-lived assets (excluding goodwill and other indefinite-lived intangible assets); impairment of goodwill and other indefinite-lived intangible assets; purchase price allocation of acquisitions; service and product warranties and income taxes. Our estimates are based on historical experience and on our future expectations that we believe are reasonable. The combination of these factors forms the basis for making judgmentsjudgements about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results are likely to differ from our current estimates and those differences may be material. 45
Revenue Recognition The majority of the Company’s revenue streams record revenue at a point in time when a performance obligation has been satisfied by transferring control of promised goods or services to a customer. Products and services are sold or rented based upon a fixed or determinable price and do not generally include significant post-delivery obligations. Payment terms and conditions vary by contract type. We have elected to apply the practical expedient that does not require an adjustment for a financing component if, at contract inception, the period between when we transfer the promised goods or service to the customer and when the customer pays for the goods or service is one year or less. Shipping and handling costs are recognized when incurred and are treated as costs to fulfill the original performance obligation. Revenue is often generated from contracts that include multiple performance obligations. Using significant judgement, the Company considers the degree of customization, integration and interdependency of the related products and services when assessing distinct performance obligations within one contract. Stand-alone selling price (“SSP”) for each distinct performance obligation is generally determined using the price at which the products and services would be sold separately to the customer. Discounts, when provided, are allocated based on the relative SSP of the various products and services. For revenue that is not recognized at a point in time, the Company follows accounting guidance for revenue recognized over time, as follows: Revenue Recognition under Long-term Construction Contracts The Company uses thepercentage-of-completion method to accountRevenue is recognized over-time for certain long-term construction contracts in the Completion & Production Solutions and Rig Technologies segments. These long-term construction contracts include the following characteristics:
the contracts include custom designs for customer-specific applications that are unique and require significant engineering efforts. Revenue is recognized as work progresses on each contract. Right to payment is enforceable for performance completed to date, including a reasonable profit.We generally use the cost-to-cost (input) measure of progress for our contracts because it best depicts the transfer of assets to the customer specific applications; which occurs as we incur costs. Under the structural designcost-to-cost measure of progress, progress towards completion of each contract is uniquemeasured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenues, including estimated fees or profits, are recorded proportionally as costs are incurred. These costs include labor, materials, subcontractors’ costs, and other direct costs. Any expected losses on a project are recorded in full in the period in which the loss becomes probable.These long-term construction contracts generally include a significant service of integrating a complex set of tasks and components into a single project or capability, so are accounted for as one performance obligation. Estimating total revenue and cost at completion of long-term construction contracts is complex, subject to many variables and requires significant engineering efforts;judgement. It is common for our long-term contracts to contain late delivery fees, work performance guarantees, and construction projects often have progress payments.
This method requires other provisions that can either increase or decrease the Companytransaction price. We estimate variable consideration as the most likely amount we expect to make estimates regarding the total costs of the project, progress against the project schedule andreceive. We include variable consideration in the estimated completion date, alltransaction price to the extent it is probable that a significant reversal of which impactcumulative revenue recognized will not occur, or when the amountuncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based on an assessment of our anticipated performance and historical, current and forecasted information that is reasonably available to us. Net revenue and gross marginrecognized from performance obligations satisfied in previous periods was $41 million for the Company recognizes in each reporting period. The Company prepares detailed cost to complete estimates at the beginning of each project, taking into account all factors considered likely to affect gross margin. 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 as mentioned in “Risk Factors.” These factors can significantly impact the accuracy of the Company’s estimates and materially impact the Company’s future reported earnings.
Historically, the Company’s estimates have been reasonably dependable regarding the recognition of revenues and gross profits onpercentage-of-completion contracts. For both yearsyear ended December 31, 20172020 primarily due to change orders.
Service and 2016,Repair Work For service and repair contracts, revenue is recognized over time. We generally use the difference betweenoutput method to measure progress on service contracts due to the priormanner in which the customer receives and derives value from the services provided. For repair contracts, we generally use the cost-to-cost measure of progress because it best depicts the transfer of assets to the customer. 46
Remaining Performance Obligations Remaining performance obligations represent the transaction price of firm orders for all revenue streams for which work has not been performed on contracts with an original expected duration of one year estimated margin on openpercentage-of-completionor more. We do not disclose the remaining performance obligations of royalty contracts, service contracts for which there is a right to invoice, and actual results was less than 1%short-term contracts that are expected to have a duration of one year or less. As of December 31, 2020, the aggregate amount of the totaltransaction price allocated to remaining performance obligations was $3,693 million. The Company expects to recognize approximately $905 million in revenue on open contracts. Whilefor the Company believes that its estimates on outstanding contracts atremaining performance obligations in 2021 and $2,788 million in future periods will continue2022 and thereafter. Costs to Obtain and Fulfill a Contract We recognize an asset for the incremental costs of obtaining a contract, such as sales commissions, with a customer when we expect the benefit of those costs to be reasonably dependable underpercentage-of-completion accounting,longer than one year. Costs to fulfill a contract, such as set-up and mobilization costs, are also capitalized when we expect to recover those costs. These contract costs are deferred and amortized over the factors identifiedperiod of contract performance. Total capitalized costs to obtain and fulfill a contract and the related amortization were immaterial during the periods presented and are included in other current and long-term assets on our consolidated balance sheets. We apply the preceding paragraph could result in significant adjustments in future periods. Allowancepractical expedient to expense costs as incurred for Doubtful Accounts
The determination ofcosts to obtain a contract with a customer when the collectability of amounts due from customer accounts requires the Company to make judgments regarding future events and trends. Allowances for doubtful accounts are determined based on a continuous process of assessing the Company’s portfolio on an individual customer basis taking into account current market conditions and trends. This process consists of a thorough review of historical collection experience, current aging status of the customer accounts, and financial condition of the Company’s customers. Based on a review of these factors, the Company will establish or adjust allowances for specific customers. A substantial portion of the Company’s revenue comes from international oil companies, international shipyards, international oilfield service companies, and government-owned or government-controlled oil companies. Therefore, the Company has significant receivables in many foreign jurisdictions. If worldwide oil and gas drilling activity or changes in economic conditions in foreign jurisdictions deteriorate, the creditworthiness of the Company’s customers could also deteriorate and they may be unable to pay these receivables, and additional allowances could be required. At December 31, 2017 and 2016, allowance for bad debts totaled $187 million and $209 million, or 8.5% and 9.1% of gross accounts receivable, respectively.
Historically, the Company’s charge-offs and provisions for the allowance for doubtful accountsamortization period would have been immaterial to the Company’s consolidated financial statements. However, because of the risk factors mentioned above, changes in estimates could become material in future periods.
one year or less.38
Inventory Reserves Inventory is carried at the lower of cost or estimated net realizable value. The Company determines reserves for inventory based onreviews historical usage of inventoryon-hand, assumptions about future demand and market conditions, current cost and estimates about potential alternative uses, which are limited.limited, to estimate net realizable value. The Company’s inventory consists of finished goods, spare parts, work in process, and raw materials to support ongoing manufacturing operations and the Company’s large installed base of highly specialized oilfield equipment. The Company’s estimated carrying value of inventory depends upon demand largely driven by levels of oil and gas well drilling and remediation activity, which depends in turn upon oil and gas prices, the general outlook for economic growth worldwide, available financing for the Company’s customers, political stability and governmental regulation in major oil and gas producing areas, and the potential obsolescence of various types of equipment we sell, among other factors. The Company evaluates inventory quarterly using the best information available at the time to inform our assumptions and estimates about future demand and resulting sales volumes, and recognizes reserves as necessary to properly state inventory. The historically severeoil-industry downturn that started inmid-2014 began to stabilize during the second half of 2016, and showed early signs of improvement in many areas in the fourth quarter of 2016 and the first quarter of 2017, before declining slightly in the second quarter of 2017. The fourth quarter of 2017 saw improvement in oil prices. These signs of improvement, including conversations with customers about their plans, as well as inquiries and orders for products, provided the Company information with which to assess and adjust assumptions about future demand and market conditions. We saw clear evidence that a market recovery will favor newer technology and the most efficient equipment, and that certain products across our portfolio, for both land and offshore environments, were less likely to be successful going forward as our customers find footing in their newly competitive landscape.
Based on an update of our assumptions at each point in time related to estimates of future demand, during 20172020, 2019, and 20162018 we recorded charges for additions to inventory reserves of $114$367 million, $659 million, and $606$49 million, respectively, consisting primarily of obsolete and surplus inventories. At December 31, 20172020 and 2016,2019, inventory reserves totaled $800$577 million and $1,017$843 million, or 21.0%29.1% and 23.4%27.7% of gross inventory, respectively. Throughout the downturn the Company has continued to invest in developing and advancing products and technologies, contributing to the obsolescence of certain older products in a dramatically-shifted and more highly competitive recovering market, but also ensuring that the portfolio of products and services offered by the Company will meet customer needs in 20182021 and beyond. We will continue to assess our inventory levels and inventory offerings for our customers, which could require the Company to record additional allowances to reduce the value of its inventory. Such changes in our estimates or assumptions could be material under weaker market conditions or outlook. Impairment of Long-Lived Assets (Excluding Goodwill and Other Indefinite-Lived Intangible Assets) Long-lived assets, which include property, plant and equipment and identified intangible assets, comprise a significant amount of the Company’s total assets. The Company makes judgmentsjudgements and estimates in conjunction with the carrying value of these assets, including amounts to be capitalized, depreciation and amortization methods and estimated useful lives. The carrying values of these assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. An impairment loss is recorded in the period in which it is determined that the carrying amount is not recoverable based on estimated future undiscounted cash flows. We estimate the fair value of these intangible and fixed assets using an income approach. This requires the Company to 47
make long-term forecasts of its future revenues and costs related to the assets subject to review. These forecasts require assumptions about demand for the Company’s products and services, future market conditions and technological developments. The forecasts are dependent upon assumptions regarding oil and gas prices, the general outlook for economic growth worldwide, available financing for the Company’s customers, political stability in major oil and gas producing areas, and the potential obsolescence of various types of equipment we sell, among other factors. The financial and credit market volatility directly impacts our fair value measurement through our income forecast. Changes to these assumptions, including, but not limited to: sustained declines in worldwide rig counts below current analysts’ forecasts, collapse of spot and futures prices for oil and gas, significant deterioration of external financing for our customers, higher risk premiums or higher cost of equity, or any other significant adverse economic news could require a provision for impairment in a future period. For the year ended December 31, 2020, the Company recorded $513 million in impairment charges related to long-lived assets. See Note 6 – Asset Impairments (Part IV, Item 15 of this Form 10-K) for further discussion. Goodwill and Other Indefinite-Lived Intangible Assets The Company has approximately $6.2$1.5 billion of goodwill and $0.4$0.2 billion of other intangible assets with indefinite lives as of December 31, 2017.2020. Generally accepted accounting principles require the Company to test goodwill and other indefinite-lived intangible assets for impairment at least annually or more frequently whenever events or circumstances occur indicating that goodwill or other indefinite-lived intangible assets might be impaired. Events or circumstances which could indicate a potential impairment include (but are not limited to) a significant sustained reduction in worldwide oil and gas prices or drilling; a significant sustained reduction in profitability or cash flow of oil and gas companies or drilling contractors; a sustained reduction in the market capitalization of the Company; a significant sustained reduction in capital investment by drilling companies and oil and gas companies; or a significant sustained increase in worldwide inventories of oil or gas. 39
The Company performs its goodwill and indefinite-lived intangible asset impairment test based on the Company’s discounted cash flow analysis. The discounted cash flow is based on management’s forecast of operating performance for each reporting unit. The two main assumptions used in measuring goodwill impairment, which bear the risk of change and could impact the Company’s goodwill impairment analysis, include the cash flow from operations from each of the Company’s individual reporting unitsReporting Units and the weighted average cost of capital. The starting point for each of the reporting unit’s cash flow from operations is the detailed annual plan or updated forecast. Cash flows beyond the specific operating plans were estimated using a terminal value calculation, which incorporated historical and forecasted financial cyclical trends for each reporting unit and considered long-term earnings growth rates. The financial and credit market volatility directly impacts our fair value measurement through our weighted average cost of capital that we use to determine our discount rate. During times of volatility, significant judgmentjudgement must be applied to determine whether credit changes are a short-term or long-term trend. While the Company primarily uses the discounted cash flow method to assess fair value, the Company uses the comparable companies and representative transaction methods to validate the discounted cash flow analysis and further support management’s expectations, where possible. 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. DuringFor the review of its 2015 annualyear ended December 31, 2019, the Company recorded $3,509 million in impairment charges to goodwill impairment test, the calculated fair values for all of the Company’s reporting units wereand $103 million in excess of the respective reporting unit’s carrying value, with two exceptions. The Drilling & Intervention and Drill Pipe reporting units within the Company’s Wellbore Technologies segment, had calculated fair values below carrying value, resulting in a $1,485 million write-down in goodwill. Additionally, based on the Company’scharges to indefinite-lived intangible asset impairment analysis performed duringassets. For the fourth quarter of 2015, the fair value for all of the Company’s intangible assets with indefinite lives were in excess of the respective asset carrying values, with one exception. This intangible asset, which represents a trade name within the Company’s Wellbore Technologies segment, had a calculated fair value approximately $149 million below its carrying value. Impairment charges in the fourth quarter of 2015 were primarily the result of the substantial decline in worldwide rig counts through the fourth quarter of 2015, declines in forecasts in rig activity, and a decline in the revenue forecast for the Company for 2016.
During the third quarter of 2016, market factors indicated a more prolonged downturn associated with newbuild offshore drilling rigs, and we reduced our forecast accordingly, which indicated a goodwill impairment in the Rig Offshore reporting unit was possible. Based on the Company’s step one interim goodwill impairment analysis as of July 1, 2016, the Rig Offshore reporting unit had a calculated fair value below its carrying value, and required a step two analysis, which compares the implied fair value of goodwill of a reporting unit to the carrying value of goodwill for the reporting unit. 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. Consistent with the step one analysis, fair value of the assets and liabilities was determined in accordance with ASC Topic 820. Based on the step two analysis performed for the Rig Offshore reporting unit,year ended December 31, 2020, the Company recorded a $972$1,295 million write-downin impairment charges to goodwill and $83 million in charges to indefinite-lived intangible assets. See Note 6 – Asset Impairments (Part IV, Item 15 of goodwill during the third quarter of 2016.this Form 10-K) for further discussion.
On July 1, 2017, the Company’s Wellbore Technologies segment reorganized three of its reporting units, moving various operations between them. The goodwill impairment analyses performed prior to and subsequent to the restructuring of the three reporting units, concluded that the calculated fair values of these reporting units were substantially in excess of their carrying value. The restructuring had no effect on Wellbore Technologies consolidated financial position and results of operations.
The Company combined its Rig Systems and Rig Aftermarket reporting units into two different reporting units, Rig Equipment and Marine Construction, under a segment called Rig Technologies, effective October 1, 2017. The restructuring better aligns operations with the current and anticipated market environments, reduces administrative burden, and eliminates reported intercompany transactions between Rig Technologies’ capital equipment and aftermarket operations. The Company tested the Rig Systems and Rig Aftermarket reporting units for impairment prior to combining, and the two, new reporting units under the Rig Technologies segment for impairment after combining, and concluded all fair values of the reporting units were substantially in excess of their carrying values.
40
During the fourth quarter of 2017, the Company performed its annual impairment test, as described in ASC Topic 350, as of October 1, 2017. Based on the Company’s annual impairment test, the calculated fair values for all of the Company’s reporting units were substantially in excess of the respective reporting unit’s carrying value. Additionally, the fair value for all of the Company’s intangible assets with indefinite lives were substantially in excess of the respective asset carrying values.
Purchase Price Allocation of Acquisitions
The Company allocates the purchase price of an acquired business to its identifiable assets and liabilities based on estimated fair values. The excess of the purchase price over the amount allocated to the assets and liabilities, if any, is recorded as goodwill. The Company uses all available information to estimate fair values including quoted market prices, the carrying value of acquired assets, and widely accepted valuation techniques such as discounted cash flows. The Company engages third-party appraisal firms to assist in fair value determination of inventories, identifiable intangible assets, and any other significant assets or liabilities when appropriate. The judgments made in determining the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, could materially impact the Company’s results of operations.
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 recognizes them when they are incurred. At December 31, 2017 and 2016, service and product warranty accruals totaled $135 million and $172 million, respectively.
Income Taxes The Company is U.S. registered and is subject to income taxes in the U.S. The Company operates through various subsidiaries in a number of countries throughout the world. Income taxes have been recorded based upon the tax laws and rates of the countries in which the Company operates and income is earned. On December 22, 2017, the United States enacted significant changes to the U.S. tax law that affect many aspects of corporate tax. See Note 14 to the Consolidated Financial Statements for the effect on the Company’s 2017 tax provision. 48
The Company’s annual tax provision is based on taxable income, statutory rates and tax planning opportunities available in the various jurisdictions in which it operates. The determination and evaluation of the annual tax provision and tax positions involves the interpretation of the tax laws in the various jurisdictions in which the Company operates. It requires significant judgmentjudgement and the use of estimates and assumptions regarding significant future events such as the amount, timing and character of income, deductions and tax credits. Changes in tax laws, regulations, and treaties, foreign currency exchange restrictions or the Company’s level of operations or profitability in each jurisdiction could impact the tax liability in any given year. The Company also operates in many jurisdictions where the tax laws relating to the pricing of transactions between related parties are open to interpretation, which could potentially result in aggressive tax authorities asserting additional tax liabilities with no offsetting tax recovery in other countries. The Company maintains liabilities for estimated tax exposures in jurisdictions of operation. The annual tax provision includes the impact of income tax provisions and benefits for changes to liabilities that the Company considers appropriate, as well as related interest. Tax exposure items primarily include potential challenges to intercompany pricing and certain operating expenses that may not be deductible in foreign jurisdictions. These exposures are resolved primarily through the settlement of audits within these tax jurisdictions or by judicial means. The Company is subject to audits by federal, state and foreign jurisdictions which may result in proposed assessments. The Company believes that an appropriate liability has been established for estimated exposures under the guidance in ASC Topic 740 “Income Taxes” (“ASC Topic 740”). However, actual results may differ materially from these estimates. The Company reviews these liabilities quarterly and to the extent audits or other events result in an adjustment to the liability accrued for a prior year, the effect will be recognized in the period of the event. The Company currently has recorded valuation allowances that the Company intends to maintain until it is more likely than not the deferred tax assets will be realized. Income tax expense recorded in the future will be reduced to the extent of decreases in the Company’s valuation allowances. The realization of remaining deferred tax assets is primarily dependent on future taxable income. Any reduction in future taxable income including but not limited to any future restructuring activities may require that the Company record an additional valuation allowance against deferred tax assets. An increase in the valuation allowance would result in additional income tax expense in such period and could have a significant impact on future earnings. TheAfter considering the impact of losses incurred in 2020, the Company has not provided for deferred taxes on the unremitteddetermined that it no longer has net undistributed earnings of certain subsidiaries that are permanently reinvested. Should the Company makesubject to a distribution from the unremitted earnings of these subsidiaries, the Company may be required to record additional taxes. Unremitted earnings of these subsidiaries were $5,302 million at December 31, 2017. The Company makes a determination each period whether to permanently reinvest these earnings. If, as a result of these reassessments, the Company distributes these earnings in the future, additional tax liabilities would result.
permanent reinvestment assertion.41
Recently Issued and Recently Adopted Accounting Standards In July 2015, the FASB issuedSee Note 2 – Summary of Significant Accounting Standard UpdateNo. 2015-11 “Simplifying the Measurement of Inventory” (ASU2015-11). This update requires inventory measured using the first in, first out (FIFO) or average cost methods to be subsequently measured at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable cost of completion, disposal and transportation. ASU2015-11 is effective for fiscal years beginning after DecemberPolicies (Part IV, Item 15 2016, and for interim periods within those fiscal years. The Company adopted this update on January 1, 2017 with no material impact.
In March 2016, the FASB issued Accounting Standard UpdateNo. 2016-09 “Improvements to Employee Share-Based Payment Accounting” (ASU2016-09). This update simplifies several aspects of accounting for share-based payment transactions, including the income tax consequences, forfeitures, and the classification on the statement of cash flows. ASU2016-09 is effective for fiscal periods beginning after December 15, 2016, and for interim periods within those fiscal years. The Company adopted this update on January 1, 2017. The cumulative impact of the adoption of this standard was $1 million to retained earnings, and the classification on the statement of cash flows was applied on a prospective basis.
In October 2016, the FASB issued Accounting Standard UpdateNo. 2016-16 “Intra-Entity Transfers of Assets Other Than Inventory” (ASU2016-16). This update requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. ASU2016-16 is effectiveForm 10-K) for fiscal years beginning after December 15, 2017, and for interim reporting periods within those fiscal years. The Company has early adopted this update on January 1, 2017 and recorded a $5 million reduction to retained earnings and receivables. The effect of the change on net income is not significant.
In January 2017, the FASB issued Accounting Standard UpdateNo. 2017-04 “Simplifying the Test for Goodwill Impairment” (ASU2017-04). This update eliminates the requirement to compute the implied fair value of goodwill under Step 2 of the goodwill impairment test. ASU2017-04 is effective for fiscal periods beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company has early adopted this update on July 1, 2017 with no material impact.
Recently Issued Accounting Standards
In August 2017, the FASB issued Accounting Standard UpdateNo. 2017-12 “Derivatives and Hedging – Targeted Improvements to Accounting for Hedging Activities” (ASU2017-12). This update improves the financial reporting of hedging relationships and simplifies the application of the hedge accounting guidance. ASU2017-12 is effective for fiscal periods beginning after December 15, 2018, and for interim periods within those fiscal years. Early adoption is permitted in any interim period after issuance of ASU2017-12. The Company is currently assessing the impact of the adoption of ASUNo. 2017-12 on its consolidated financial position and results of operations.
In March 2017, the FASB issued Accounting Standard UpdateNo. 2017-07 “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” (ASU2017-07). This update requires that an employer report the service cost component in the same line item as other compensation costs and separately from other components of net benefit cost. ASU2017-07 is effective for fiscal periods beginning after December 15, 2017, and for interim periods within those fiscal years. The Company does not expect the impact of the adoption of ASUNo. 2017-07 to have a material impact on its consolidated financial position.
In August 2016, the FASB issued Accounting Standard UpdateNo. 2016-15 “Classification of Certain Cash Receipts and Cash Payments” (ASU2016-15). This update amends Accounting Standard Codification Topic No. 230 “Statement of Cash Flows” and provides guidance and clarification on presentation of certain cash flow issues. ASUNo. 2016-15 is effective for fiscal years beginning after December 15, 2017, and for interim periods within those fiscal years. The Company is currently assessing the impact of the adoption of ASUNo. 2016-15 on its consolidated statement of cash flows.
In March 2016, the FASB issued ASC Topic 842, “Leases” (ASC Topic 842), which supersedes the lease requirements in ASC Topic No. 840 “Leases” and most industry-specific guidance. This update increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. ASC Topic 842 is effective for fiscal years beginning after December 15, 2018, and for interim periods within those fiscal years.
In preparing for the adoption of this new standard, the Company has established an internal team to centralize the implementation process as well as engaged external resources to assist in our approach. We are currently utilizing a software program to consolidate and accumulate leases with documentation as required by the new standard. We have assessed the changes to the Company’s current accounting practices and are investigating the related tax impact and process changes. We are also in the process of quantifying the impact of the new standard on our balance sheet.
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In May 2014, the FASB issued Accounting Standard UpdateNo. 2014-09, “Revenue from Contracts with Customers” (ASU2014-09), which supersedes the revenue recognition requirements in FASB ASC Topic 605, “Revenue Recognition,” and most industry-specific guidance. This ASU proscribes a five-step model for determining when and how revenue is recognized. Under the model, an entity will recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services.
The standard permits either a full retrospective adoption, in which the standard is applied to all the periods presented, or a modified retrospective adoption, in which the standard is applied only to the current period with a cumulative-effect adjustment reflected in retained earnings. ASU2014-09 is effective for fiscal periods beginning after December 15, 2017. The Company will follow the modified retrospective adoption.
In 2015, the Company assembled an internal team to study the provisions of ASU2014-09, began assessing the potential impacts on the Company and educating the organization. In 2016, the Company engaged external resources to complete the assessment of potential changes to current accounting practices related to material revenue streams. Potential impacts were identified based on required changes to current processes to accommodate provisions in the new standard. We have designed and implemented process, system, control and data requirement changes to address the impacts identified in our assessments.
Based on an analysis of revenue streams, customer contracts and transactions, the Company does not expect a material change in the timing or other impacts to revenue recognition across most of our businesses. Certain service and repair revenue will change frompoint-in-time to over-time revenue recognition, and the timing of including uninstalled materials in projects will shift, changing only the timing of revenue recognition and not the total amount. We expect the cumulative-effect adjustment we will record in the first quarter of 2018, as required by the modified retrospective method, to be less than $50 million. The final adjustment is subject to concluding on the available practical expediants.further discussion.
Forward–Looking Statements Some of the information in this document contains, or has incorporated by reference, forward-looking statements. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. Forward-looking statements typically are identified by use of terms such as “may,” “will,” “expect,” “anticipate,” “estimate,” and similar words, although some forward-looking statements are expressed differently. All statements herein regarding expected merger synergies are forward looking statements. You should be aware that our actual results could differ materially from results anticipated in the forward-looking statements due to a number of factors, including but not limited to changes in oil and gas prices, customer demand for our products and worldwide economic activity. You should also consider carefully the statements under “Risk Factors” which address additional factors that could cause our actual results to differ from those set forth in the forward-looking statements. Given these uncertainties, current or prospective investors are cautioned not to place undue reliance on any such forward-looking statements. We undertake no obligation to update any such factors or forward-looking statements to reflect future events or developments. 43
ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
We are exposed to changes in foreign currency exchange rates and interest rates. Additional information concerning each of these matters follows: 49
Foreign Currency Exchange Rates We have extensive operations in foreign countries. The net assets and liabilities of these operations are exposed to changes in foreign currency exchange rates, although such fluctuations generally do not affect income since their functional currency is typically the local currency. These operations also have net assets and liabilities not denominated in the functional currency, which exposes us to changes in foreign currency exchange rates that impact income. During the years ended December 31, 2017, 20162020, 2019 and 2015,2018, the Company reported foreign currency gains (losses)losses of ($3)$2 million, $(10)$36 million and $(47)$52 million, respectively. Gains and losses are primarily due to exchange rate fluctuations related to monetary asset balances denominated in currencies other than the functional currency and adjustments to our hedged positions as a result of changes in foreign currency exchange rates. Strengthening of currencies against the U.S. dollarCurrency fluctuations may create losses in future periods to the extent we maintain net assets and liabilities not denominated in the functional currency of our subsidiaries using the local currency as their functional currency. Some of our revenues in foreign countries are denominated in U.S. dollars, and therefore, changes in foreign currency exchange rates impact our earnings to the extent that costs associated with those U.S. dollar revenues are denominated in the local currency. Similarly, some of our revenues are denominated in foreign currencies, but have associated U.S. dollar costs, which also give rise to foreign currency exchange rate exposure. In order to mitigate that risk, we may utilize foreign currency forward contracts to better match the currency of our revenues and associated costs. We do not use foreign currency forward contracts for trading or speculative purposes. The following table details the Company’s foreign currency exchange risk grouped by functional currency and their expected maturity periods as of December 31, 2017 (in millions except for rates): | | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2017 | | | December 31, | | Functional Currency | | 2018 | | | 2019 | | | 2020 | | | Total | | | 2016 | | CAD | | Buy USD/Sell CAD: | | | | | | | | | | | | | | | | | | | | | | | Notional amount to buy (in Canadian dollars) | | | 40 | | | | 35 | | | | — | | | | 75 | | | | 75 | | | | Average USD to CAD contract rate | | | 1.3286 | | | | 1.3242 | | | | — | | | | 1.3265 | | | | 1.3265 | | | | Fair Value at December 31, 2017 in U.S. dollars | | | (2 | ) | | | (1 | ) | | | — | | | | (3 | ) | | | — | | | | Sell USD/Buy CAD: | | | | | | | | | | | | | | | | | | | | | | | Notional amount to sell (in Canadian dollars) | | | 51 | | | | 24 | | | | 141 | | | | 216 | | | | 260 | | | | Average USD to CAD contract rate | | | 1.2842 | | | | 1.3167 | | | | 1.3147 | | | | 1.3075 | | | | 1.3120 | | | | Fair Value at December 31, 2017 in U.S. dollars | | | 1 | | | | 1 | | | | 5 | | | | 7 | | | | (2 | ) | EUR | | Buy USD/Sell EUR: | | | | | | | | | | | | | | | | | | | | | | | Notional amount to buy (in Euros) | | | 10 | | | | — | | | | — | | | | 10 | | | | 3 | | | | Average USD to EUR contract rate | | | 0.8565 | | | | — | | | | — | | | | 0.8565 | | | | 0.9309 | | | | Fair Value at December 31, 2017 in U.S. dollars | | | — | | | | — | | | | — | | | | — | | | | — | | | | Sell USD/Buy EUR: | | | | | | | | | | | | | | | | | | | | | | | Notional amount to sell (in Euros) | | | 105 | | | | — | | | | — | | | | 105 | | | | 104 | | | | Average USD to EUR contract rate | | | 0.8429 | | | | — | | | | — | | | | 0.8429 | | | | 0.9206 | | | | Fair Value at December 31, 2017 in U.S. dollars | | | 2 | | | | — | | | | — | | | | 2 | | | | (3 | ) | | | Sell ZAR/Buy EUR: | | | | | | | | | | | | | | | | | | | | | | | Notional amount to sell (in Euros) | | | 9 | | | | — | | | | — | | | | 9 | | | | 8 | | | | Average ZAR to EUR contract rate | | | 0.0619 | | | | — | | | | — | | | | 0.0619 | | | | 0.0555 | | | | Fair Value at December 31, 2017 in U.S. dollars | | | — | | | | — | | | | — | | | | — | | | | (2 | ) | KRW | | Sell USD/Buy KRW: | | | | | | | | | | | | | | | | | | | | | | | Notional amount to buy (in South Korean won) | | | — | | | | — | | | | | | | | — | | | | 40,674 | | | | Average USD to KRW contract rate | | | — | | | | — | | | | | | | | — | | | | 1,162 | | | | Fair Value at December 31, 2017 in U.S. dollars | | | — | | | | — | | | | | | | | — | | | | (1 | ) | AUD | | Buy USD/Sell AUD: | | | | | | | | | | | | | | | | | | | | | | | Notional amount to buy (in Australian dollars) | | | 2 | | | | — | | | | — | | | | 2 | | | | — | | | | Average USD to AUD contract rate | | | 1 | | | | — | | | | — | | | | 1.3152 | | | | — | | | | Fair Value at December 31, 2017 in U.S. dollars | | | — | | | | — | | | | — | | | | — | | | | — | | | | Sell USD/Buy AUD: | | | | | | | | | | | | | | | | | | | | | | | Notional amount to sell (in Australian dollars) | | | 5 | | | | — | | | | — | | | | 5 | | | | — | | | | Average USD to AUD contract rate | | | 1.3324 | | | | — | | | | — | | | | 1.3324 | | | | — | | | | Fair Value at December 31, 2017 in U.S. dollars | | | — | | | | — | | | | — | | | | — | | | | — | |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2017 | | | December 31, | | Functional Currency | | 2018 | | | 2019 | | | 2020 | | | Total | | | 2016 | | GBP | | Buy USD/Sell GBP: | | | | | | | | | | | | | | | | | | | | | | | Notional amount to buy (in British Pounds Sterling) | | | — | | | | — | | | | — | | | | — | | | | 1 | | | | Average USD to GBP contract rate | | | 0.7855 | | | | — | | | | — | | | | 0.7855 | | | | 0.8028 | | | | Fair Value at December 31, 2017 in U.S. dollars | | | — | | | | — | | | | — | | | | — | | | | — | | | | Sell USD/Buy GBP: | | | | | | | | | | | | | | | | | | | | | | | Notional amount to sell (in British Pounds Sterling) | | | 156 | | | | — | | | | — | | | | 156 | | | | 169 | | | | Average USD to GBP contract rate | | | 1 | | | | — | | | | — | | | | 0.7438 | | | | 0.7844 | | | | Fair Value at December 31, 2017 in U.S. dollars | | | 1 | | | | — | | | | — | | | | 1 | | | | (6 | ) | | | Sell EUR/Buy GBP: | | | | | | | | | | | | | | | | | | | | | | | Notional amount to sell (in British Pounds Sterling) | | | — | | | | — | | | | — | | | | — | | | | 1 | | | | Average EUR to GBP contract rate | | | — | | | | — | | | | — | | | | — | | | | 0.8604 | | | | Fair Value at December 31, 2017 in U.S. dollars | | | — | | | | — | | | | — | | | | — | | | | — | | USD | | Buy CAD/Sell USD: | | | | | | | | | | | | | | | | | | | | | | | Notional amount to buy (in U.S. dollars) | | | — | | | | — | | | | — | | | | — | | | | 1 | | | | Average CAD to USD contract rate | | | — | | | | — | | | | — | | | | — | | | | 0.7559 | | | | Fair Value at December 31, 2017 in U.S. dollars | | | — | | | | — | | | | — | | | | — | | | | — | | | | Buy DKK/Sell USD: | | | | | | | | | | | | | | | | | | | | | | | Notional amount to buy (in U.S. dollars) | | | 5 | | | | — | | | | — | | | | 5 | | | | 10 | | | | Average DKK to USD contract rate | | | 0.1602 | | | | — | | | | — | | | | 0.1483 | | | | 0.1509 | | | | Fair Value at December 31, 2017 in U.S. dollars | | | — | | | | — | | | | — | | | | — | | | | (1 | ) | | | Buy EUR/Sell USD: | | | | | | | | | | | | | | | | | | | | | | | Notional amount to buy (in U.S. dollars) | | | 58 | | | | — | | | | — | | | | 58 | | | | 81 | | | | Average EUR to USD contract rate | | | 1.1604 | | | | — | | | | — | | | | 1.1604 | | | | 1.1114 | | | | Fair Value at December 31, 2017 in U.S. dollars | | | 2 | | | | — | | | | — | | | | 2 | | | | (4 | ) | | | Buy GBP/Sell USD: | | | | | | | | | | | | | | | | | | | | | | | Notional amount to buy (in U.S. dollars) | | | 4 | | | | — | | | | — | | | | 4 | | | | 3 | | | | Average GBP to USD contract rate | | | 1.2934 | | | | — | | | | — | | | | 1.2934 | | | | 1.2516 | | | | Fair Value at December 31, 2017 in U.S. dollars | | | — | | | | — | | | | — | | | | — | | | | — | | | | Buy NOK/Sell USD: | | | | | | | | | | | | | | | | | | | | | | | Notional amount to buy (in U.S. dollars) | | | 426 | | | | 189 | | | | — | | | | 615 | | | | 737 | | | | Average NOK to USD contract rate | | | 0.1204 | | | | 0.1214 | | | | — | | | | 0.1207 | | | | 0.1231 | | | | Fair Value at December 31, 2017 in U.S. dollars | | | 7 | | | | 4 | | | | — | | | | 11 | | | | (41 | ) | | | Buy SGD/Sell USD: | | | | | | | | | | | | | | | | | | | | | | | Notional amount to buy (in U.S. dollars) | | | — | | | | — | | | | — | | | | — | | | | 5 | | | | Average SGD to USD contract rate | | | — | | | | — | | | | — | | | | — | | | | 0.7262 | | | | Fair Value at December 31, 2017 in U.S. dollars | | | — | | | | — | | | | — | | | | — | | | | — | | | | Sell DKK/Buy USD: | | | | | | | | | | | | | | | | | | | | | | | Notional amount to sell (in U.S. dollars) | | | 2 | | | | — | | | | — | | | | 2 | | | | 2 | | | | Average DKK to USD contract rate | | | 0.1606 | | | | — | | | | — | | | | 0.1606 | | | | 0.1481 | | | | Fair Value at December 31, 2017 in U.S. dollars | | | — | | | | — | | | | — | | | | — | | | | — | | | | Sell EUR/Buy USD: | | | | | | | | | | | | | | | | | | | | | | | Notional amount to sell (in U.S. dollars) | | | 86 | | | | — | | | | — | | | | 86 | | | | 29 | | | | Average EUR to USD contract rate | | | 1.1755 | | | | — | | | | — | | | | 1.1755 | | | | 1.1059 | | | | Fair Value at December 31, 2017 in U.S. dollars | | | (2 | ) | | | — | | | | — | | | | (2 | ) | | | 1 | | | | Sell GBP/Buy USD: | | | | | | | | | | | | | | | | | | | | | | | Notional amount to sell (in U.S. dollars) | | | 1 | | | | — | | | | — | | | | 1 | | | | 1 | | | | Average GBP to USD contract rate | | | 1.3340 | | | | — | | | | — | | | | 1.3340 | | | | 1.2549 | | | | Fair Value at December 31, 2017 in U.S. dollars | | | — | | | | — | | | | — | | | | — | | | | — | | | | Sell NOK/Buy USD: | | | | | | | | | | | | | | | | | | | | | | | Notional amount to sell (in U.S. dollars) | | | 81 | | | | — | | | | — | | | | 81 | | | | 21 | | | | Average NOK to USD contract rate | | | 0.1260 | | | | — | | | | — | | | | 0.1260 | | | | 0.1183 | | | | Fair Value at December 31, 2017 in U.S. dollars | | | 2 | | | | — | | | | — | | | | 2 | | | | — | | | | Sell RUB/Buy USD: | | | | | | | | | | | | | | | | | | | | | | | Notional amount to sell (in U.S. dollars) | | | 45 | | | | — | | | | — | | | | 45 | | | | 30 | | | | Average RUB to USD contract rate | | | 0.0167 | | | | — | | | | — | | | | 0.0167 | | | | 0.0158 | | | | Fair Value at December 31, 2017 in U.S. dollars | | | (1 | ) | | | — | | | | — | | | | (1 | ) | | | — | | | | Sell SGD/Buy USD: | | | | | | | | | | | | | | | | | | | | | | | Notional amount to sell (in U.S. dollars) | | | — | | | | — | | | | — | | | | — | | | | 2 | | | | Average SGD to USD contract rate | | | — | | | | — | | | | — | | | | — | | | | 0.7006 | | | | Fair Value at December 31, 2017 in U.S. dollars | | | — | | | | — | | | | — | | | | — | | | | — | | | | Sell USD/Buy BRL: | | | | | | | | | | | | | | | | | | | | | | | Notional amount to sell (in Brazilian Real) | | | 23 | | | | — | | | | — | | | | 23 | | | | 23 | | | | Average USD to BRL contract rate | | | 3.6378 | | | | — | | | | — | | | | 3.6378 | | | | 3.6378 | | | | Fair Value at December 31, 2017 in U.S. dollars | | | — | | | | — | | | | — | | | | — | | | | — | |
45
| | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2017 | | | December 31, | | Functional Currency | | 2018 | | | 2019 | | | 2020 | | | Total | | | 2016 | | BRL | | Buy EUR/Sell BRL: | | | | | | | | | | | | | | | | | | | | | | | Notional amount to buy (in Brazilian reals) | | | 138 | | | | — | | | | — | | | | 138 | | | | 326 | | | | Average EUR to BRL contract rate | | | 3.8793 | | | | — | | | | — | | | | 3.8793 | | | | 4.1974 | | | | Fair Value at December 31, 2017 in U.S. dollars | | | 2 | | | | — | | | | — | | | | 2 | | | | (13 | ) | | | Buy GBP/Sell BRL: | | | | | | | | | | | | | | | | | | | | | | | Notional amount to buy (in Brazilian reals) | | | 38 | | | | — | | | | — | | | | 38 | | | | — | | | | Average GBP to BRL contract rate | | | 4.3752 | | | | — | | | | — | | | | 4.3752 | | | | — | | | | Fair Value at December 31, 2017 in U.S. dollars | | | 1 | | | | — | | | | — | | | | 1 | | | | — | | | | Buy USD/Sell BRL: | | | | | | | | | | | | | | | | | | | | | | | Notional amount to buy (in Brazilian reals) | | | 43 | | | | — | | | | — | | | | 43 | | | | 27 | | | | Average USD to BRL contract rate | | | 3.2805 | | | | — | | | | — | | | | 3.2805 | | | | 4.0278 | | | | Fair Value at December 31, 2017 in U.S. dollars | | | — | | | | — | | | | — | | | | — | | | | (1 | ) | | | Sell EUR/Buy BRL: | | | | | | | | | | | | | | | | | | | | | | | Notional amount to sell (in Brazilian reals) | | | 125 | | | | — | | | | — | | | | 125 | | | | 1,440 | | | | Average EUR to BRL contract rate | | | 3.9985 | | | | — | | | | — | | | | 3.9985 | | | | 4.2950 | | | | Fair Value at December 31, 2017 in U.S. dollars | | | (1 | ) | | | — | | | | — | | | | (1 | ) | | | 59 | | DKK | | Buy USD/Sell DKK: | | | | | | | | | | | | | | | | | | | | | | | Notional amount to buy (in Danish Krone) | | | — | | | | — | | | | — | | | | — | | | | 22 | | | | Average USD to DKK contract rate | | | — | | | | — | | | | — | | | | — | | | | 7.1140 | | | | Fair Value at December 31, 2017 in U.S. dollars | | | — | | | | — | | | | — | | | | — | | | | — | | | | Sell USD/Buy DKK: | | | | | | | | | | | | | | | | | | | | | | | Notional amount to sell (in Danish Krone) | | | 219 | | | | — | | | | — | | | | 219 | | | | 855 | | | | Average USD to DKK contract rate | | | 6.3500 | | | | — | | | | — | | | | 6.3500 | | | | 6.9660 | | | | Fair Value at December 31, 2017 in U.S. dollars | | | 1 | | | | — | | | | — | | | | 1 | | | | (1 | ) | NOK | | Buy EUR/Sell NOK: | | | | | | | | | | | | | | | | | | | | | | | Notional amount to buy (in Norwegian Kroner) | | | 109 | | | | 5 | | | | — | | | | 114 | | | | 231 | | | | Average EUR to NOK contract rate | | | 9.8244 | | | | 9.8860 | | | | — | | | | 9.8269 | | | | 9.1870 | | | | Fair Value at December 31, 2017 in U.S. dollars | | | — | | | | — | | | | — | | | | — | | | | — | | | | Buy GBP/Sell NOK: | | | | | | | | | | | | | | | | | | | | | | | Notional amount to buy (in Norwegian Kroner) | | | 9 | | | | 9 | | | | — | | | | 18 | | | | 2 | | | | Average GBP to NOK contract rate | | | 11.0466 | | | | 11.0470 | | | | — | | | | 11.0468 | | | | 10.7029 | | | | Fair Value at December 31, 2017 in U.S. dollars | | | — | | | | — | | | | — | | | | — | | | | — | | | | Buy USD/Sell NOK: | | | | | | | | | | | | | | | | | | | | | | | Notional amount to buy (in Norwegian Kroner) | | | 8 | | | | — | | | | — | | | | 8 | | | | 21 | | | | Average USD to NOK contract rate | | | 8.3188 | | | | — | | | | — | | | | 8.3188 | | | | 8.7062 | | | | Fair Value at December 31, 2017 in U.S. dollars | | | — | | | | — | | | | — | | | | — | | | | — | | | | Buy JPY/Sell NOK: | | | | | | | | | | | | | | | | | | | | | | | Notional amount to buy (in Norwegian Kroner) | | | 40 | | | | — | | | | — | | | | 40 | | | | 58 | | | | Average JPY to NOK contract rate | | | 0.0740 | | | | — | | | | — | | | | 0.0740 | | | | 0.0748 | | | | Fair Value at December 31, 2017 in U.S. dollars | | | — | | | | — | | | | — | | | | — | | | | — | | | | Sell EUR/Buy NOK: | | | | | | | | | | | | | | | | | | | | | | | Notional amount to sell (in Norwegian Kroner) | | | 140 | | | | 12 | | | | — | | | | 152 | | | | 120 | | | | Average EUR to NOK contract rate | | | 9.7736 | | | | 9.8952 | | | | — | | | | 9.7832 | | | | 9.2144 | | | | Fair Value at December 31, 2017 in U.S. dollars | | | — | | | | — | | | | — | | | | — | | | | — | | | | Sell USD/Buy NOK: | | | | | | | | | | | | | | | | | | | | | | | Notional amount to sell (in Norwegian Kroner) | | | 44 | | | | — | | | | — | | | | 44 | | | | 126 | | | | Average USD to NOK contract rate | | | 8.3339 | | | | — | | | | — | | | | 8.3339 | | | | 8.7030 | | | | Fair Value at December 31, 2017 in U.S. dollars | | | — | | | | — | | | | — | | | | — | | | | — | | | | Sell JPY/Buy NOK: | | | | | | | | | | | | | | | | | | | | | | | Notional amount to sell (in Norwegian Kroner) | | | 33 | | | | — | | | | — | | | | 33 | | | | 51 | | | | Average JPY to NOK contract rate | | | 0.0743 | | | | — | | | | — | | | | 0.0743 | | | | 0.0750 | | | | Fair Value at December 31, 2017 in U.S. dollars | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | | �� | | | | | | | | | | | | | | | | Total Fair Value at December 31, 2017 in U.S. dollars | | | 13 | | | | 4 | | | | 5 | | | | 22 | | | | (15 | ) | | | | | | | | | | | | | | | | | | | | | |
46
The Company had other financial market risk sensitive instruments (cash balances, overdraft facilities, accounts receivable and accounts payable) denominated in foreign currencies forwith transactional exposures totaling $55$509 million and translation exposures totaling $193$291 million as of December 31, 2017, excluding trade receivables and payables, which approximate fair value. These market risk sensitive instruments consisted of cash balances and overdraft facilities.2020. The Company estimates that a hypothetical 10% movement of all applicable foreign currency exchange rates on the transactional exposures financial market risk sensitive instruments could affect net income by $4$40 million and the translational exposures financial market risk sensitive instruments could affect the future fair valueOther Comprehensive Income by $19$29 million.
The counterparties to forward contracts are major financial institutions. The credit ratings and concentration of risk of these financial institutions are monitored on a continuing basis. In the event that the counterparties fail to meet the terms of a foreign currency contract, our exposure is limited to the foreign currency rate differential. Historically, the Venezuelan government has devalued the country’s currency. During the first quarter of 2015, the Venezuelan government officially devalued the Venezuelan bolivar against the U.S. dollar. As a result, the Company incurred approximately $9 million in devaluation charges in the first quarter of 2015. The reporting currency of all of the Company’s Venezuelan entities is the U.S. dollar. The Company’s remaining net investment in Venezuela, which is largely U.S. dollar, was nil at December 31, 2017.
During the fourth quarter of 2015, the Argentinian government officially devalued the Argentine peso against the U.S. dollar. As a result, the Company incurred approximately $7 million of devaluation charges in the fourth quarter of 2015. The reporting currency of all of the Company’s Argentinian entities is the Argentine peso.
Interest Rate Risk At December 31, 2017,2020, long term borrowings consisted of $1,392$1,089 million in 2.60%3.95% Senior Notes, $493 million in 3.60% Senior Notes and $1,088$182 million in 3.95%2.60% Senior Notes, no commercial paper borrowings and no borrowings against our revolving credit facility. Occasionally a portion of borrowings under our credit facility could be denominated in multiple currencies which could expose us to market risk with exchange rate movements. These instruments carry interest at apre-agreed upon percentage point spread from either LIBOR, NIBOR or CDOR, or at the U.S. prime rate. Under our credit facility, we may, at our option, fix the interest rate for certain borrowings based on a spread over LIBOR, NIBOR or CDOR for 30 days to six months. Our objective is to maintain a portion of our debt in variable rate borrowings for the flexibility obtained regarding early repayment without penalties and lower overall cost as compared with fixed-rate borrowings. 47
ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
Attached hereto and a part of this report are financial statements and supplementary data listed in Item 15. “Exhibits and Financial Statement Schedules.” ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. |
None. 50
ITEM 9A. | CONTROLS AND PROCEDURES |
(i) Evaluation of disclosure controls and procedures As required by SECRule 13a-15(b), we have evaluated, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined inRules 13a-15(e) and15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by the Company in reports that it files under the Exchange Act is accumulated and communicated to the Company’s management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Our principal executive officer and principal financial officer have concluded that our current disclosure controls and procedures were effective as of December 31, 20172020 at the reasonable assurance level. Pursuant to section 302 of the Sarbanes-Oxley Act of 2002, our Chief Executive Officer and Chief Financial Officer have provided certain certifications to the Securities and Exchange Commission. These certifications are included herein as Exhibits 31.1 and 31.2. (ii) Internal Control Over Financial Reporting (a) Management’s annual report on internal control over financial reporting. The Company’s management report on internal control over financial reporting is set forth in this annual report on Page 5356 and is incorporated herein by reference. (b) Changes in internal control There were no changes in the Company’s internal control over financial reporting that occurred during the Company’s last fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. ITEM 9B. | OTHER INFORMATION |
None. 51 48
PART III ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
Incorporated by reference to the definitive Proxy Statement for the 20182020 Annual Meeting of Stockholders. ITEM 11. | EXECUTIVE COMPENSATION |
Incorporated by reference to the definitive Proxy Statement for the 20182020 Annual Meeting of Stockholders. ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
Incorporated by reference to the definitive Proxy Statement for the 20182020 Annual Meeting of Stockholders. Securities Authorized for Issuance Under Equity Compensation Plans. The following table sets forth information as of our fiscal year ended December 31, 2017,2020, with respect to compensation plans under which our common stock may be issued: | | | | | | | | Number of securities | | | Weighted-average | | | Number of securities | | Plan Category | | Number of securities
to be issued upon
exercise of warrants
and rights
( a ) | | | Weighted-average
exercise price of
outstanding
rights
( b ) | | | Number of securities
remaining available for equity
compensation plans (excluding
securities reflected in column (a)) (c)
(1) | | | | | | | | | | | | | | | | | to be issued upon | | | exercise price of | | | remaining available for equity | | | | | exercise of warrants | | | outstanding | | | compensation plans (excluding | | | | | and rights | | | rights | | | securities reflected in column (a)) ('c') | | Plan Category | | Number of securities
to be issued upon
exercise of warrants
and rights
( a ) | | | Weighted-average
exercise price of
outstanding
rights
( b ) | | | Number of securities
remaining available for equity
compensation plans (excluding
securities reflected in column (a)) (c)
(1) | | | (a) | | | (b) | | | (1) | | | | | | 21,005,502 | | | $ | 49.25 | | | | 10,521,344 | | | | | | — | | | | — | | | | — | | | | | | | | | 21,005,502 | | | $ | 49.25 | | | | 10,521,344 | | | | | | | | | | | | |
(1) | Shares could be issued through equity instruments other than stock options, warrants or rights. |
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
Incorporated by reference to the definitive Proxy Statement for the 20182020 Annual Meeting of Stockholders. ITEM 14. | PRINCIPAL ACCOUNTANTACCOUNTING FEES AND SERVICES |
Incorporated by reference to the definitive Proxy Statement for the 20182020 Annual Meeting of Stockholders. 52 49
PART IV ITEM 15. | ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
|
Financial Statements and Exhibits The following financial statements are presented in response to Part II, Item 8: (2) | Financial Statement Schedule |
All schedules, other than Schedule II, are omitted because they are not applicable, not required or the information is included in the financial statements or notes thereto. | | | | | 3.1 | | FifthSixth Amended and Restated Certificate of Incorporation of National Oilwell Varco,NOV Inc. (Exhibit 3.1) (1)
| | | | 3.2 | | Amended and RestatedBy-laws of National Oilwell Varco,NOV Inc. (Exhibit 3.1) (2)3.2) (1) | | | | 10.1 4.1 | | Description of Securities | | | | 10.1 | | Credit Agreement, dated as of June 27, 2017, among National Oilwell Varco, Inc., the financial institutions signatory thereto, including Wells Fargo Bank, N.A., in its capacity, among others, as Administrative Agent,Co-Lead Arranger and Joint Book Runner.Runner (Exhibit 10.1) (3)3.1)(2) | | | | 10.2 | | Amendment No. 1 to Credit Agreement, dated as of October 30, 2019 (3) | | | | 10.3 | | National Oilwell Varco, Inc. 2018 Long-Term Incentive Plan, as amended and restated. (4)* | | | | 10.310.4 | | Form of Employee Stock Option Agreement. (Exhibit 10.1) (5) | | | | 10.410.5 | | Form ofNon-Employee Director Stock Option Agreement. (Exhibit 10.2) (5) | | | | 10.510.6 | | Form of Performance-Based Restricted Stock. (18 Month) Agreement (Exhibit 10.1) (6) | | | | 10.610.7 | | Form of Performance-Based Restricted Stock. (36 Month) Agreement (Exhibit 10.2) (6) | | | | 10.710.8 | | Form of Performance Award Agreement (Exhibit 10.1) (7) | | | | 10.810.9 | | Form of Executive Employment Agreement. (Exhibit 10.1) (8) | | | | 10.910.10 | | Form of Executive Severance Agreement. (Exhibit 10.2) (8)(9) | | | | 10.1010.11 | | Form of Employee Nonqualified Stock Option Grant Agreement (9)(10) | | | | 10.1110.12 | | Form of Restricted Stock Agreement (9)(10) | | | | 10.1210.13 | | Form of Performance Award Agreement (9)(10) | | | | 21.1 | | | 10.14 | | Form of Employee Nonqualified Stock Option Grant Agreement (2019) (11) | | | | 10.15 | | Form on Restricted Stock Agreement (2019) (11) |
53
* | Compensatory plan or arrangement for management or others. |
(1) | Filed as an Exhibit to our Quarterly Report on Form10-Q filed on August 5, 2011. |
(2) | Filed as an Exhibit to our Current Report on Form8-K filed on August 17, 2011.December 22, 2020. |
(3)(2) | Filed as an Exhibit to our Current Report on Form8-K filed on June 28, 2017 |
(4)(3) | Filed as an Exhibit to our Current Report on Form 8-K filed on November 4, 2019. |
(4) | Filed as Appendix I to our Proxy Statement filed on April 11, 2016.9, 2020. |
(5) | Filed as an Exhibit to our Current Report on Form8-K filed on February 23, 2006. |
(6) | Filed as an Exhibit to our Current Report on Form8-K filed on March 27, 2007. |
(7) | Filed as an Exhibit to our Current Report on Form8-K filed on March 27, 2013. |
(8) | Filed as an Exhibit to our Current Report on Form8-K filed on November 24, 2014.December 4, 2020. |
(9) | Filed as an Exhibit to our Current Report on Form S-K filed on November 21, 2014. |
(10) | Filed as an Exhibit to our Current Report on Form 8-K filed on February 26, 2016. |
(10)(11) | As provided in Rule 406T of RegulationS-T, this information is furnished and notFiled as an Exhibit to our Quarterly Report on Form 10-Q filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.on April 26, 2019. |
(12) | Filed as an Exhibit to our Quarterly Report on Form 10-Q filed on April 28, 2020. |
We hereby undertake, pursuant toRegulation S-K, Item 601(b), paragraph (4) (iii), to furnish to the U.S. Securities and Exchange Commission, upon request, all constituent instruments defining the rights of holders of our long-term debt not filed herewith. 5154
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. | | | | | | NOV INC. | | | | | NATIONAL OILWELL VARCO, INC. | | | | | Dated: February 16, 201812, 2021 | | By: | | By: | | /s/ CLAY C. WILLIAMS | | | | | | | Clay C. Williams | | | | | | | Chairman, President and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Each person whose signature appears below in so signing, constitutes and appoints Clay C. Williams and Jose A. Bayardo, and each of them acting alone, his/her true and lawfulattorney-in-fact and agent, with full power of substitution, for him/her and in his/her name, place and stead, in any and all capacities, to execute and cause to be filed with the Securities and Exchange Commission any and all amendments to this report, and in each case to file the same, with all exhibits thereto and other documents in connection therewith, and hereby ratifies and confirms all that saidattorney-in-fact or his/her substitute or substitutes may do or cause to be done by virtue hereof. | | | | | Signature | | Title | | Date | | | | | | /s/ CLAY C. WILLIAMS Clay C. Williams | | Chairman, President and Chief Executive Officer | | February 16, 201812, 2021 | | | | | | /s/ JOSE A. BAYARDO Jose A. Bayardo | | Senior Vice President and Chief Financial Officer | | February 16, 201812, 2021 | | | | | | /s/ SCOTT K. DUFF Scott K. Duff | | Vice President, Corporate Controller and Chief Accounting Officer | | February 16, 201812, 2021 | | | | | | /s/ GREG L. ARMSTRONG | | Director | | February 12, 2021 | Greg L. Armstrong | | Director
| | February 16, 2018 | | | | | | /s/ MARCELA E. DONADIO | | Director | | February 12, 2021 | Marcela E. Donadio | | Director
| | February 16, 2018 | | | | | | /s/ BEN A. GUILL | | Director | | February 12, 2021 | Ben A. Guill | | Director
| | February 16, 2018 | | | | | | | | | | | /s/ JAMES T. HACKETT | | Director | | February 12, 2021 | James T. Hackett | | Director
| | February 16, 2018 | | | | | | /s/ DAVID D. HARRISON | | Director | | February 12, 2021 | David D. Harrison | | Director
| | February 16, 2018 | | | | | | | | | | | /s/ ERIC L. MATTSON | | Director | | February 12, 2021 | Eric L. Mattson | | Director
| | February 16, 2018 | | | | | | | | | | | /s/ MELODY B. MEYER | | Director | | February 12, 2021 | Melody B. Meyer | | Director
| | February 16, 2018 | | | | | | | | | | | /s/ WILLIAM R. THOMAS | | Director | | February 12, 2021 | William R. Thomas | | Director
| | February 16, 2018 |
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MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING National Oilwell Varco,NOV Inc.’s management is responsible for establishing and maintaining adequate internal control over financial reporting. National Oilwell Varco,NOV Inc.’s internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgmentjudgement and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk. Management has used the 2013 framework set forth in the report entitled “Internal Control – Control—Integrated Framework” published by the Committee of Sponsoring Organizations (“COSO”) of the Treadway Commission to evaluate the effectiveness of the Company’s internal control over financial reporting. Management has concluded that the Company’s internal control over financial reporting was effective as of December 31, 2017.2020. The effectiveness of our internal control over financial reporting as of December 31, 2017,2020, has been audited by Ernst & Young LLP, the independent registered public accounting firm which also has audited the Company’s Consolidated Financial Statements included in this Annual Report onForm 10-K. | /s/ Clay C. Williams | | Clay C. Williams | | Chairman, President and Chief Executive Officer | | | | | | | | /s/ Jose A. Bayardo | | Jose A. Bayardo | | Senior Vice President and Chief Financial Officer | | Houston, Texas | February 16, 2018 |
Houston, Texas February 12, 2021 5356
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of National Oilwell Varco,NOV Inc. Opinion on Internal Control over Financial Reporting We have audited National Oilwell Varco,NOV Inc.’s internal control over financial reporting as of December 31, 2017,2020, based on criteria established in Internal Control – Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, National Oilwell Varco,NOV Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2020, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 20172020 consolidated financial statements of the Company and our report dated February 16, 2018,12, 2021, expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP Houston, Texas February 16, 2018 12, 202157 54
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of National Oilwell Varco,NOV Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of National Oilwell Varco,NOV Inc. (the Company) as of December 31, 20172020 and 2016, and2019, the related consolidated statements of income (loss), comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2017,2020, and the related notes and financial statement schedule listed in the Index at Item 15(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 20172020 and 2016,2019, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2020, in conformity with U.S. generally accepted accounting principles. We also have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2017,2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 16, 2018,12, 2021, expressed an unqualified opinion thereon. Basis offor Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters Thecritical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective or complex judgements. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. 58
Valuation of Goodwill and Indefinite lived intangibles | | Description of the Matter | At December 31, 2020, the Company’s goodwill was $1,493 million and tradenames with indefinite lives was $196 million. As discussed in Note 6 to the consolidated financial statements, goodwill and indefinite lived intangibles are tested by the Company’s management for impairment at least annually, in the fourth quarter, unless there are indications of impairment at other points throughout the year. Goodwill is tested for impairment at the reporting unit level. During 2020, the Company recorded $1,295 million of impairment charges to goodwill and $83 million of impairment charges to indefinite-lived intangible assets. Auditing management’s impairment tests for goodwill and tradenames with indefinite lives is complex and involved subjective auditor judgment and the involvement of a valuation specialist due to the significant estimation required to determine the fair value of the reporting units and tradenames with indefinite lives. In particular, the fair value estimates of reporting units with fair values that do not significantly exceed their carrying values are sensitive to assumptions such as changes in projected cash flows, weighted average cost of capital, and terminal growth rates. The fair value estimates of tradenames with indefinite lives are sensitive to assumptions such as projected cash flows, discount rates and royalty rates. All of these assumptions are sensitive to and affected by expected future market or economic conditions, and industry and company-specific qualitative factors. | | | How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s goodwill and tradenames with indefinite lives impairment review process, including controls over management’s review of the significant assumptions described above. This included evaluating controls over the Company’s budgetary and forecasting process used to develop the estimated future cash flows. We also tested controls over management’s review of the data used in their valuation models and review of the significant assumptions such as estimation of weighted average cost of capital, discount rates, and royalty rates, and terminal growth rates. To test the estimated fair value of the Company’s reporting units and tradenames with indefinite lives, we performed audit procedures that included, among others, evaluating the Company’s valuation methodologies, testing the significant assumptions discussed above and testing the underlying data used by the Company in its analysis. We compared the projected cash flows to the Company’s historical cash flows and other available industry and market forecast information. We involved our valuation specialists to assist in reviewing the valuation methodology and testing certain significant assumptions. We assessed the historical accuracy of management’s estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of the reporting units and tradenames with indefinite lives that would result from changes in the assumptions. In addition, for goodwill we also tested management’s reconciliation of the fair value of the reporting units to the market capitalization of the Company. For tradenames with indefinite lives, we also assessed whether the assumptions used were consistent with those used in the goodwill impairment review process. | | Inventory Reserves | | | Description of the Matter | The Company's inventories totaled $1,408 million, net of inventory reserves of $577 million, as of December 31, 2020. As explained in Note 2 to the consolidated financial statements, the Company assesses the value of all inventories including raw materials, work-in-process and finished goods in each reporting period. Obsolete inventory or inventory in excess of management's estimated usage requirement is written down to its estimated market value if those amounts are determined to be less than cost. Auditing management's estimates for obsolete and excess inventory involved subjective auditor judgement because the estimates rely on a number of factors that are affected by market and economic conditions outside the Company's control. | | |
59
How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design, and tested the operating effectiveness of internal controls over the Company's obsolete and excess inventory reserve process. This included management's assessment of the assumptions and data underlying the obsolete and excess inventory valuation. Our audit procedures included, among others, evaluating the significant assumptions and the accuracy and completeness of the underlying data management used to value obsolete and excess inventory. We compared inventories on-hand to historical usage, analytical trends, and evaluated specific product considerations. We performed sensitivity analyses over the significant assumptions to evaluate the changes in the obsolete and excess inventory estimates that would result from changes in the underlying assumptions. | | Revenue recognition under long-term construction contracts | | | Description of the Matter | As discussed in Note 2 to the consolidated financial statements, the Company recognizes revenue over time for certain long-term construction contracts using an input method described as the cost-to-cost approach to determine the extent of progress towards completion of performance obligations. Under the cost-to-cost approach, the determination of the progress towards completion requires management to prepare estimates of the costs to complete. For material fixed price contracts, estimates are subject to considerable judgement and could be impacted by such items as changes to the project schedule and the cost of labor and material. Auditing management’s estimate of the progress towards completion of its projects involved subjectivity as the costs to complete forecasts of fixed price contracts are subject to considerable judgement. | | | How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s process to recognize long-term contract revenue, including key controls related to monitoring projected project costs. Our audit procedures included, among others, evaluating the appropriate application of the cost-to-cost method to ensure it accurately depicts the Company’s performance in transferring control of the performance obligation; testing the significant assumptions discussed above to develop the estimated cost to complete; and testing the completeness and accuracy of the underlying data. To assess management’s estimated costs, we performed audit procedures that included, among others, agreeing the estimates to supporting documentation; conducting interviews with project personnel; attending selected project review meetings; performing observations of select projects to observe progress; and performing lookback analyses to historical actual costs to assess management’s ability to estimate. | | Measurement of Long-lived Assets | | | Description of the Matter | As more fully described in Note 6 to the consolidated financial statements, during 2020, the Company identified a triggering event, which resulted in the Company assessing its asset groups for recoverability and determined that certain long-lived assets, including finite-lived intangibles, plant, property and equipment, and right-of-use assets, were not recoverable. As a result, the Company recognized $513 million of impairment charges. Auditing management’s impairment analysis involved subjectivity as estimates underlying the recoverability assessment and the determination of the asset groups’ fair value were based on assumptions that are sensitive to and affected by expected future market or economic conditions, and industry and company-specific qualitative factors. Significant assumptions used in the Company’s recoverability assessment and fair value estimate included projected cash flows, discount rates and terminal values. | | |
60
How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company's recoverability assessment and its processes to determine the fair value of the asset groups. This included evaluating controls over the Company’s budgetary and forecasting process used to develop the estimated future cash flows. We also tested controls over management’s review of the data used in their impairment analysis and review of the significant assumptions such as estimation of discount rates and terminal values. To test the recoverability assessment and estimated fair value of the Company’s asset groups, we performed audit procedures that included, among others, assessing methodologies and testing the significant assumptions discussed above and the underlying data used by the Company in its analysis. We compared the projected cash flows to the Company’s historical cash flows and other available industry and market forecast information. We involved our valuation specialists to assist in reviewing the valuation methodology and testing the discount rates and terminal values. We assessed the historical accuracy of management’s estimates and where appropriate, assessed whether the assumptions used were consistent with those used in the goodwill impairment analysis. |
/s/ Ernst & Young LLP We have served as the Company’s auditor since at least 1995, but we are unable to determine the specific year. Houston, Texas February 16, 2018 12, 202161 55
NATIONAL OILWELL VARCO,NOV INC.
CONSOLIDATED BALANCE SHEETS (In millions, except share data) | | | | December 31, | | | December 31, | | | | | 2017 | | 2016 | | | 2020 | | | 2019 | | | ASSETS | | | | | | | | | | | | | Current assets: | | | | | | | | | | | | | Cash and cash equivalents | | $ | 1,437 | | | $ | 1,408 | | | $ | 1,692 | | | $ | 1,171 | | Receivables, net | | | 2,015 | | | 2,083 | | | | 1,274 | | | | 1,855 | | Inventories, net | | | 3,003 | | | 3,325 | | | | 1,408 | | | | 2,197 | | Costs in excess of billings | | | 495 | | | 665 | | | Contract assets | | | | 611 | | | | 643 | | Prepaid and other current assets | | | 267 | | | 395 | | | | 224 | | | | 247 | | | | | | | | | | Total current assets | | | 7,217 | | | 7,876 | | | | 5,209 | | | | 6,113 | | | Property, plant and equipment, net | | | 3,002 | | | 3,150 | | | | 1,927 | | | | 2,354 | | Lease right-of-use assets, operating | | | | 371 | | | | 444 | | Lease right-of-use assets, financing | | | | 195 | | | | 230 | | Deferred income taxes | | | 13 | | | 86 | | | | — | | | | — | | Goodwill | | | 6,227 | | | 6,067 | | | | 1,493 | | | | 2,807 | | Intangibles, net | | | 3,301 | | | 3,530 | | | | 527 | | | | 852 | | Investment in unconsolidated affiliates | | | 309 | | | 307 | | | | 51 | | | | 282 | | Other assets | | | 137 | | | 124 | | | | 156 | | | | 67 | | | | | | | | | | Total assets | | $ | 20,206 | | | $ | 21,140 | | | $ | 9,929 | | | $ | 13,149 | | | | | | | | | | | LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | | | | Current liabilities: | | | | | | | | | | | | | Accounts payable | | $ | 510 | | | $ | 414 | | | $ | 489 | | | $ | 715 | | Accrued liabilities | | | 1,478 | | | 1,568 | | | | 863 | | | | 949 | | Billings in excess of costs | | | 279 | | | 440 | | | Current portion of long-term debt and short-term borrowings | | | 6 | | | 506 | | | Contract liabilities | | | | 354 | | | | 427 | | Current portion of lease liabilities | | | | 110 | | | | 114 | | Accrued income taxes | | | 81 | | | 119 | | | | 51 | | | | 42 | | | | | | | | | | Total current liabilities | | | 2,354 | | | 3,047 | | | | 1,867 | | | | 2,247 | | | Long-term debt | | | 2,706 | | | 2,708 | | | | 1,834 | | | | 1,989 | | Lease liabilities | | | | 612 | | | | 674 | | Deferred income taxes | | | 677 | | | 1,064 | | | | 78 | | | | 140 | | Other liabilities | | | 309 | | | 318 | | | | 259 | | | | 253 | | | | | | | | | | Total liabilities | | | 6,046 | | | 7,137 | | | | 4,650 | | | | 5,303 | | | | | | | | | | Commitments and contingencies | | | | | | | | | | | | | | Stockholders’ equity: | | | | | | | | | | | | | Common stock – par value $.01; 1 billion shares authorized; 380,104,970 and 378,637,403 shares issued and outstanding at December 31, 2017 and December 31, 2016 | | | 4 | | | 4 | | | Common stock - par value $.01; 1 billion shares authorized; 388,255,374 and 385,886,682 shares issued and outstanding at December 31, 2020 and December 31, 2019 | | | | 4 | | | | 4 | | | Additionalpaid-in capital | | | 8,234 | | | 8,103 | | | | 8,591 | | | | 8,507 | | Accumulated other comprehensive loss | | | (1,110 | ) | | (1,452 | ) | | | (1,509 | ) | | | (1,423 | ) | Retained earnings | | | 6,966 | | | 7,285 | | | | (1,876 | ) | | | 690 | | | | | | | | | | Total Company stockholders’ equity | | | 14,094 | | | 13,940 | | | Total Company stockholders' equity | | | | 5,210 | | | | 7,778 | | Noncontrolling interests | | | 66 | | | 63 | | | | 69 | | | | 68 | | | | | | | | | | Total stockholders’ equity | | | 14,160 | | | 14,003 | | | | 5,279 | | | | 7,846 | | | | | | | | | | Total liabilities and stockholders’ equity | | $ | 20,206 | | | $ | 21,140 | | | $ | 9,929 | | | $ | 13,149 | | | | | | | | | |
The accompanying notes are an integral part of these statements. 62 56
NATIONAL OILWELL VARCO,NOV INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS) (In millions, except per share data) | | | | Years Ended December 31, | | | Years Ended December 31, | | | | | 2017 | | 2016 | | 2015 | | | 2020 | | | 2019 | | | 2018 | | Revenue | | | | | | | | | | | | | | | | | | | Sales | | $ | 4,948 | | | $ | 5,351 | | | $ | 11,707 | | | $ | 4,409 | | | $ | 5,862 | | | $ | 5,699 | | Services | | | 2,356 | | | 1,900 | | | 3,050 | | | | 1,091 | | | | 1,517 | | | | 1,612 | | | | | | | | | | | | | Rental | | | | 590 | | | | 1,100 | | | | 1,142 | | Total | | | 7,304 | | | 7,251 | | | 14,757 | | | | 6,090 | | | | 8,479 | | | | 8,453 | | | | | | | | | | | | | Cost of revenue | | | | | | | | | | | | | | | | | | | Cost of sales | | | 4,499 | | | 5,671 | | | 9,362 | | | Cost of services | | | 1,913 | | | 1,681 | | | 2,332 | | | | | | | | | | | | | | Sales | | | | 4,313 | | | | 5,696 | | | | 4,883 | | Services | | | | 929 | | | | 1,188 | | | | 1,257 | | Rental | | | | 414 | | | | 750 | | | | 869 | | Total | | | 6,412 | | | 7,352 | | | 11,694 | | | | 5,656 | | | | 7,634 | | | | 7,009 | | | | | | | | | | | | | Gross profit (loss) | | | 892 | | | (101 | ) | | 3,063 | | | Gross profit | | | | 434 | | | | 845 | | | | 1,444 | | Selling, general and administrative | | | 1,169 | | | 1,338 | | | 1,764 | | | | 968 | | | | 1,303 | | | | 1,233 | | Goodwill and intangible asset impairment | | | — | | | 972 | | | 1,689 | | | | | | | | | | | | | | Operating loss | | | (277 | ) | | (2,411 | ) | | (390 | ) | | | Goodwill and indefinite-lived intangible asset impairment | | | | 1,378 | | | | 3,612 | | | | — | | Long-lived asset impairment | | | | 513 | | | | 2,209 | | | | — | | Operating profit (loss) | | | | (2,425 | ) | | | (6,279 | ) | | | 211 | | Interest and financial costs | | | (102 | ) | | (105 | ) | | (103 | ) | | | (84 | ) | | | (100 | ) | | | (93 | ) | Interest income | | | 25 | | | 15 | | | 14 | | | | 7 | | | | 20 | | | | 25 | | Equity income (loss) in unconsolidated affiliates | | | (5 | ) | | (21 | ) | | 13 | | | Equity loss in unconsolidated affiliates | | | | (260 | ) | | | (13 | ) | | | (3 | ) | Other income (expense), net | | | (33 | ) | | (101 | ) | | (123 | ) | | | (17 | ) | | | (90 | ) | | | (99 | ) | | | | | | | | | | | | Loss before income taxes | | | (392 | ) | | (2,623 | ) | | (589 | ) | | Provision for income taxes | | | (156 | ) | | (207 | ) | | 178 | | | | | | | | | | | | | | Income (loss) before income taxes | | | | (2,779 | ) | | | (6,462 | ) | | | 41 | | Provision (benefit) for income taxes | | | | (242 | ) | | | (369 | ) | | | 63 | | Net loss | | | (236 | ) | | (2,416 | ) | | (767 | ) | | | (2,537 | ) | | | (6,093 | ) | | | (22 | ) | Net income (loss) attributable to noncontrolling interests | | | 1 | | | (4 | ) | | 2 | | | | | | | | | | | | | | Net income attributable to noncontrolling interests | | | | 5 | | | | 2 | | | | 9 | | Net loss attributable to Company | | $ | (237 | ) | | $ | (2,412 | ) | | $ | (769 | ) | | $ | (2,542 | ) | | $ | (6,095 | ) | | $ | (31 | ) | | | | | | | | | | | | Net loss attributable to Company per share: | | | | | | | | | | | | | | | | | | | Basic | | $ | (0.63 | ) | | $ | (6.41 | ) | | $ | (1.99 | ) | | $ | (6.62 | ) | | $ | (15.96 | ) | | $ | (0.08 | ) | | | | | | | | | | | | Diluted | | $ | (0.63 | ) | | $ | (6.41 | ) | | $ | (1.99 | ) | | $ | (6.62 | ) | | $ | (15.96 | ) | | $ | (0.08 | ) | | | | | | | | | | | | Cash dividends per share | | $ | 0.20 | | | $ | 0.61 | | | $ | 1.84 | | | $ | 0.05 | | | $ | 0.20 | | | $ | 0.20 | | | | | | | | | | | | | Weighted average shares outstanding: | | | | | | | | | | | | | | | | | | | Basic | | | 377 | | | 376 | | | 387 | | | | 384 | | | | 382 | | | | 378 | | | | | | | | | | | | | Diluted | | | 377 | | | 376 | | | 387 | | | | 384 | | | | 382 | | | | 378 | | | | | | | | | | | | |
The accompanying notes are an integral part of these statements. 63 57
NATIONAL OILWELL VARCO,NOV INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (In millions) | | | | Years Ended December 31, | | | Years Ended December 31, | | | | | 2017 | | 2016 | | 2015 | | | 2020 | | | 2019 | | | 2018 | | Net loss | | $ | (236 | ) | | $ | (2,416 | ) | | $ | (767 | ) | | $ | (2,537 | ) | | $ | (6,093 | ) | | $ | (22 | ) | | Other comprehensive income (loss): | | | | | | | | | | | | | | | | | | | Currency translation adjustments | | | 272 | | | (97 | ) | | (764 | ) | | | (78 | ) | | | (7 | ) | | | (292 | ) | Derivative financial instruments, net of tax | | | 46 | | | 166 | | | 23 | | | | 23 | | | | 10 | | | | (21 | ) | Change in defined benefit plans, net of tax | | | 24 | | | 32 | | | 22 | | | | (31 | ) | | | 11 | | | | (14 | ) | | | | | | | | | | | | Comprehensive income (loss) | | | 106 | | | (2,315 | ) | | (1,486 | ) | | | Net income (loss) attributable to noncontrolling interests | | | 1 | | | (4 | ) | | 2 | | | | | | | | | | | | | | Comprehensive income (loss) attributable to Company | | $ | 105 | | | $ | (2,311 | ) | | $ | (1,488 | ) | | | | | | | | | | | | | Comprehensive loss | | | | (2,623 | ) | | | (6,079 | ) | | | (349 | ) | Net income attributable to noncontrolling interests | | | | 5 | | | | 2 | | | | 9 | | Comprehensive loss attributable to Company | | | $ | (2,628 | ) | | $ | (6,081 | ) | | $ | (358 | ) |
The accompanying notes are an integral part of these statements. 64 58
NATIONAL OILWELL VARCO,NOV INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions) | | | | Years Ended December 31, | | | Years Ended December 31, | | | | | 2017 | | 2016 | | 2015 | | | 2020 | | | 2019 | | | 2018 | | Cash flows from operating activities: | | | | | | | | | | | | | | Net loss | | $ | (236 | ) | | $ | (2,416 | ) | | $ | (767 | ) | | $ | (2,537 | ) | | $ | (6,093 | ) | | $ | (22 | ) | Adjustments to reconcile net loss to net cash provided by operating activities: | | | | | | | | | | | | | | | | | | | Depreciation and amortization | | | 698 | | | 703 | | | 747 | | | | 352 | | | | 533 | | | | 690 | | Deferred income taxes | | | (341 | ) | | (198 | ) | | (258 | ) | | | (65 | ) | | | (426 | ) | | | (63 | ) | Stock-based compensation | | | 124 | | | 107 | | | 109 | | | | 105 | | | | 130 | | | | 110 | | Excess tax benefit from stock-based compensation | | | — | | | 7 | | | 1 | | | Equity (income) loss in unconsolidated affiliates | | | 5 | | | 21 | | | (13 | ) | | Dividend from unconsolidated affiliate | | | — | | | 6 | | | 34 | | | Goodwill and intangible asset impairment | | | — | | | 972 | | | 1,689 | | | Loss on extinguishment of debt | | | | 8 | | | | 26 | | | | — | | Equity loss in unconsolidated affiliates | | | | 260 | | | | 13 | | | | 3 | | Goodwill and indefinite-lived intangible asset impairment | | | | 1,378 | | | | 3,612 | | | | — | | Long-lived asset impairment | | | | 513 | | | | 2,209 | | | | — | | Provision for inventory losses | | | 114 | | | 606 | | | 186 | | | | 367 | | | | 659 | | | | 49 | | Other, net | | | 20 | | | 108 | | | 70 | | | | 16 | | | | 16 | | | | (7 | ) | | Change in operating assets and liabilities, net of acquisitions: | | | | | | | | | | | | | | | | | | | Receivables | | | 72 | | | 845 | | | 1,091 | | | | 574 | | | | 275 | | | | (72 | ) | Inventories | | | 229 | | | 782 | | | 410 | | | | 429 | | | | 104 | | | | (7 | ) | Costs in excess of billings | | | 170 | | | 646 | | | 548 | | | Contract assets | | | | 30 | | | | (70 | ) | | | (68 | ) | Prepaid and other current assets | | | 130 | | | 102 | | | 112 | | | | 22 | | | | (45 | ) | | | 67 | | Accounts payable | | | 86 | | | (243 | ) | | (570 | ) | | | (226 | ) | | | (19 | ) | | | 196 | | Accrued liabilities | | | (130 | ) | | (773 | ) | | (1,137 | ) | | | (110 | ) | | | (194 | ) | | | (186 | ) | Billings in excess of costs | | | (160 | ) | | (366 | ) | | (686 | ) | | Contract liabilities | | | | (74 | ) | | | (34 | ) | | | (62 | ) | Income taxes payable | | | (44 | ) | | (146 | ) | | (167 | ) | | | 9 | | | | (25 | ) | | | (15 | ) | Other assets/liabilities, net | | | 95 | | | 197 | | | (67 | ) | | | (125 | ) | | | 43 | | | | (92 | ) | | | | | | | | | | | | Net cash provided by operating activities | | | 832 | | | 960 | | | 1,332 | | | | 926 | | | | 714 | | | | 521 | | | | | | | | | | | | | Cash flows from investing activities: | | | | | | | | | | | | | | | | | | | Purchases of property, plant and equipment | | | (192 | ) | | (284 | ) | | (453 | ) | | | (226 | ) | | | (233 | ) | | | (244 | ) | Business acquisitions, net of cash acquired | | | (86 | ) | | (230 | ) | | (86 | ) | | | (14 | ) | | | (180 | ) | | | (280 | ) | Other, net | | | 33 | | | 26 | | | 25 | | | | 96 | | | | 98 | | | | 67 | | | | | | | | | | | | | Net cash used in investing activities | | | (245 | ) | | (488 | ) | | (514 | ) | | | (144 | ) | | | (315 | ) | | | (457 | ) | | | | | | | | | | | | Cash flows from financing activities: | | | | | | | | | | | | | | | | | | | Borrowings against lines of credit and other debt | | | — | | | 3,972 | | | 11,377 | | | | 36 | | | | 511 | | | | — | | Payments against lines of credit and other debt | | | (506 | ) | | (4,872 | ) | | (10,615 | ) | | | (217 | ) | | | (1,000 | ) | | | — | | Financing leases | | | | (31 | ) | | | (32 | ) | | | (8 | ) | Cash dividends paid | | | (76 | ) | | (230 | ) | | (710 | ) | | | (19 | ) | | | (77 | ) | | | (76 | ) | Share repurchases | | | — | | | | — | | | (2,221 | ) | | Activity under stock incentive plans | | | (3 | ) | | 4 | | | 7 | | | Excess tax benefit from stock-based compensation | | | — | | | (7 | ) | | (1 | ) | | Debt issuance and extinguishment costs | | | | (8 | ) | | | (36 | ) | | | — | | Other | | | (10 | ) | | (8 | ) | | | — | | | | (20 | ) | | | (13 | ) | | | 54 | | | | | | | | | | | | | Net cash used in financing activities | | | (595 | ) | | (1,141 | ) | | (2,163 | ) | | | (259 | ) | | | (647 | ) | | | (30 | ) | | | | | | | | | | | | Effect of exchange rates on cash | | | 37 | | | (3 | ) | | (111 | ) | | | (2 | ) | | | (8 | ) | | | (44 | ) | | | | | | | | | | | | Increase (decrease) in cash and cash equivalents | | | 29 | | | (672 | ) | | (1,456 | ) | | | 521 | | | | (256 | ) | | | (10 | ) | Cash and cash equivalents, beginning of period | | | 1,408 | | | 2,080 | | | 3,536 | | | | 1,171 | | | | 1,427 | | | | 1,437 | | | | | | | | | | | | | Cash and cash equivalents, end of period | | $ | 1,437 | | | $ | 1,408 | | | $ | 2,080 | | | $ | 1,692 | | | $ | 1,171 | | | $ | 1,427 | | | | | | | | | | | | | Supplemental disclosures of cash flow information: | | | | | | | | | | | | | | | | | | | Cash payments during the period for: | | | | | | | | | | | | | | | | | | | Interest | | $ | 97 | | | $ | 101 | | | $ | 103 | | | $ | 83 | | | $ | 85 | | | $ | 90 | | Income taxes | | $ | 50 | | | $ | 181 | | | $ | 782 | | | $ | (9 | ) | | $ | 144 | | | $ | 64 | |
The accompanying notes are an integral part of these statements. 5965
NATIONAL OILWELL VARCO,NOV INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In millions) | | | | | | | | | | | | | | | | | | Shares Outstanding | | | Common Stock | | | Additional Paid in Capital | | | Accumulated Other Comprehensive Income (Loss) | | | Retained Earnings (Loss) | | | Total Company Stockholders' Equity | | | Noncontrolling Interests | | | Total Stockholders' Equity | | | | | Shares
Outstanding | | Common
Stock | | | Additional
Paid in
Capital | | Accumulated
Other
Comprehensive
Income (Loss) | | Retained
Earnings
(Loss) | | Total
Company
Stockholders’
Equity | | Noncontrolling
Interests | | Total
Stockholders’
Equity | | | Balance at December 31, 2014 | | | 419 | | | $ | 4 | | | $ | 8,341 | | | $ | (834 | ) | | $ | 13,181 | | | $ | 20,692 | | | $ | 80 | | | $ | 20,772 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at December 31, 2017 | | | | 380 | | | $ | 4 | | | $ | 8,234 | | | $ | (1,110 | ) | | $ | 6,966 | | | $ | 14,094 | | | $ | 66 | | | $ | 14,160 | | Net income (loss) | | | — | | | | — | | | | — | | | | — | | | (769 | ) | | (769 | ) | | 2 | | | (767 | ) | | | — | | | | — | | | | — | | | | — | | | | (31 | ) | | | (31 | ) | | | 9 | | | | (22 | ) | Other comprehensive income (loss), net | | | — | | | | — | | | | — | | | (719 | ) | | | — | | | (719 | ) | | | — | | | (719 | ) | | | — | | | | — | | | | — | | | | (327 | ) | | | — | | | | (327 | ) | | | — | | | | (327 | ) | Cash dividends, $1.84 per common share | | | — | | | | — | | | | — | | | | — | | | (710 | ) | | (710 | ) | | | — | | | (710 | ) | | Cash dividends, $0.20 per common share | | | | — | | | | — | | | | — | | | | — | | | | (76 | ) | | | (76 | ) | | | — | | | | (76 | ) | Noncontrolling interest | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (5 | ) | | | (5 | ) | Adoption of new accounting standards | | | | — | | | | — | | | | — | | | | — | | | | 3 | | | | 3 | | | | — | | | | 3 | | Stock-based compensation | | | | — | | | | — | | | | 110 | | | | — | | | | — | | | | 110 | | | | — | | | | 110 | | Common stock issued | | | | 3 | | | | — | | | | 54 | | | | — | | | | — | | | | 54 | | | | — | | | | 54 | | Withholding taxes | | | | — | | | | — | | | | (8 | ) | | | — | | | | — | | | | (8 | ) | | | — | | | | (8 | ) | Balance at December 31, 2018 | | | | 383 | | | $ | 4 | | | $ | 8,390 | | | $ | (1,437 | ) | | $ | 6,862 | | | $ | 13,819 | | | $ | 70 | | | $ | 13,889 | | Net income (loss) | | | | — | | | | — | | | | — | | | | — | | | | (6,095 | ) | | | (6,095 | ) | | | 2 | | | | (6,093 | ) | Other comprehensive income (loss), net | | | | — | | | | — | | | | — | | | | 14 | | | | — | | | | 14 | | | | — | | | | 14 | | Cash dividends, $0.20 per common share | | | | — | | | | — | | | | — | | | | — | | | | (77 | ) | | | (77 | ) | | | — | | | | (77 | ) | Noncontrolling interest | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | (5 | ) | | (5 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (4 | ) | | | (4 | ) | Stock-based compensation | | | — | | | | — | | | | 109 | | | | — | | | | — | | | 109 | | | | — | | | 109 | | | | — | | | | — | | | | 130 | | | | — | | | | — | | | | 130 | | | | — | | | | 130 | | Common stock issued | | | 1 | | | | — | | | | 7 | | | | — | | | | — | | | 7 | | | | — | | | 7 | | | | 3 | | | | — | | | | 7 | | | | — | | | | — | | | | 7 | | | | — | | | | 7 | | Withholding taxes | | | — | | | | — | | | | (5 | ) | | | — | | | | — | | | (5 | ) | | | — | | | (5 | ) | | | — | | | | — | | | | (20 | ) | | | — | | | | — | | | | (20 | ) | | | — | | | | (20 | ) | Share repurchases | | | (44 | ) | | | — | | | | (446 | ) | | | — | | | (1,775 | ) | | (2,221 | ) | | | — | | | (2,221 | ) | | Excess tax benefit from stock-based compensation | | | — | | | | — | | | | (1 | ) | | | — | | | | — | | | (1 | ) | | | — | | | (1 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at December 31, 2015 | | | 376 | | | $ | 4 | | | $ | 8,005 | | | $ | (1,553 | ) | | $ | 9,927 | | | $ | 16,383 | | | $ | 77 | | | $ | 16,460 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net income (loss) | | | — | | | | — | | | | — | | | | — | | | (2,412 | ) | | (2,412 | ) | | (4 | ) | | (2,416 | ) | | Other comprehensive income (loss), net | | | — | | | | — | | | | — | | | 101 | | | | — | | | 101 | | | | — | | | 101 | | | Cash dividends, $0.61 per common share | | | — | | | | — | | | | — | | | | — | | | (230 | ) | | (230 | ) | | | — | | | (230 | ) | | Balance at December 31, 2019 | | | | 386 | | | $ | 4 | | | $ | 8,507 | | | $ | (1,423 | ) | | $ | 690 | | | $ | 7,778 | | | $ | 68 | | | $ | 7,846 | | Net loss | | | | — | | | | — | | | | — | | | | — | | | | (2,542 | ) | | | (2,542 | ) | | | 5 | | | | (2,537 | ) | Other comprehensive loss, net | | | | — | | | | — | | | | — | | | | (86 | ) | | | — | | | | (86 | ) | | | — | | | | (86 | ) | Cash dividends, $0.05 per common share | | | | — | | | | — | | | | — | | | | — | | | | (19 | ) | | | (19 | ) | | | — | | | | (19 | ) | Adoption of new accounting standards | | | | — | | | | — | | | | — | | | | — | | | | (5 | ) | | | (5 | ) | | | — | | | | (5 | ) | Noncontrolling interest | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | (10 | ) | | (10 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (4 | ) | | | (4 | ) | Stock-based compensation | | | — | | | | — | | | | 87 | | | | — | | | | — | | | 87 | | | | — | | | 87 | | | | — | | | | — | | | | 104 | | | | — | | | | — | | | | 104 | | | | — | | | | 104 | | Common stock issued | | | 2 | | | | — | | | | 4 | | | | — | | | | — | | | 4 | | | | — | | | 4 | | | | 2 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | Stock issued in acquisition | | | 1 | | | | — | | | | 18 | | | | — | | | | — | | | 18 | | | | — | | | 18 | | | Withholding taxes | | | — | | | | — | | | | (4 | ) | | | — | | | | — | | | (4 | ) | | | — | | | (4 | ) | | | — | | | | — | | | | (20 | ) | | | — | | | | — | | | | (20 | ) | | | — | | | | (20 | ) | Excess tax benefit from stock-based compensation | | | — | | | | — | | | | (7 | ) | | | — | | | | — | | | (7 | ) | | | — | | | (7 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at December 31, 2016 | | | 379 | | | $ | 4 | | | $ | 8,103 | | | $ | (1,452 | ) | | $ | 7,285 | | | $ | 13,940 | | | $ | 63 | | | $ | 14,003 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net loss | | | — | | | | — | | | | — | | | | — | | | (237 | ) | | (237 | ) | | 1 | | | (236 | ) | | Other comprehensive income (loss), net | | | — | | | | — | | | | — | | | 342 | | | | — | | | 342 | | | | — | | | 342 | | | Cash dividends, $0.20 per common share | | | — | | | | — | | | | — | | | | — | | | (76 | ) | | (76 | ) | | | — | | | (76 | ) | | Adoption of new accounting standards | | | — | | | | — | | | | 1 | | | | — | | | (6 | ) | | (5 | ) | | | — | | | (5 | ) | | Noncontrolling interest | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | 2 | | | 2 | | | Stock-based compensation on tender offer | | | — | | | | — | | | | 20 | | | | — | | | | — | | | 20 | | | | — | | | 20 | | | Stock-based compensation | | | — | | | | — | | | | 105 | | | | — | | | | — | | | 105 | | | | — | | | 105 | | | Common stock issued | | | 1 | | | | — | | | | 13 | | | | — | | | | — | | | 13 | | | | — | | | 13 | | | Withholding taxes | | | — | | | | — | | | | (8 | ) | | | — | | | | — | | | (8 | ) | | | — | | | (8 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at December 31, 2017 | | | 380 | | | $ | 4 | | | $ | 8,234 | | | $ | (1,110 | ) | | $ | 6,966 | | | $ | 14,094 | | | $ | 66 | | | $ | 14,160 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at December 31, 2020 | | | | 388 | | | $ | 4 | | | $ | 8,591 | | | $ | (1,509 | ) | | $ | (1,876 | ) | | $ | 5,210 | | | $ | 69 | | | $ | 5,279 | |
The accompanying notes are an integral part of these statements. 6066
NATIONAL OILWELL VARCO,NOV INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization and Basis of Presentation Nature of Business We design, construct, manufacture and sell comprehensive systems, components, and products used in oil and gas drilling and production and certain industrial and renewable energy sectors. We also provide technology, oilfield services and supplies, and distribute products and provide supply chain integration services to the upstream oil and gas industry. Our revenues and operating results are directly related to the level of worldwide oil and gas drilling and production activities and the profitability and cash flow of oil and gas companies, drilling contractors and oilfield service companies, which in turn are affected by current and anticipated prices of oil and gas. Oil and gas prices have been, and are likely to continue to be, volatile. Basis of Consolidation The accompanying Consolidated Financial Statements include the accounts of National Oilwell Varco,NOV Inc. and its consolidated subsidiaries. Certain reclassifications have been made to the prior year financial statements in order for them to conform with the 20172020 presentation. All significant intercompany transactions and balances have been eliminated in consolidation. Investments that are not wholly-owned, but where we exercise control, are fully consolidated with the equity held by minority owners and their portion of net income (loss) reflected as noncontrolling interests in the accompanying consolidated financial statements. Investments in unconsolidated affiliates, over which we exercise significant influence, but not control, are accounted for by the equity method. The Company combined its Rig Systems and Rig Aftermarket reporting segments into a single segment called Rig Technologies, effective October 1, 2017. The restructuring better aligns operations with the current and anticipated market environments, reduces administrative burden, and eliminates reported intercompany transactions between Rig Technologies’ capital equipment and aftermarket operations. The Company’s reporting segments are Wellbore Technologies, Completion & Production Solutions, and Rig Technologies. As a result of the reorganization, all prior periods are presented on this basis.
2. Summary of Significant Accounting Policies Fair Value of Financial Instruments The carrying amounts of financial instruments including cash and cash equivalents, receivables, and payables approximated fair value because of the relatively short maturity of these instruments. Cash equivalents include only those investments having a maturity date of three months or less at the time of purchase. Derivative Financial Instruments Accounting Standards Codification (“ASC”) Topic 815, “Derivatives and Hedging” (“ASC Topic 815”) requires companies to recognize all derivative instruments as either assets or liabilities in the Consolidated Balance Sheet at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, cash flow hedge, or a hedge of a net investment in a foreign operation.
The Company records all derivative financial instruments at their fair value in its Consolidated Balance Sheet. Except for certainnon-designated hedges discussed below, all derivative financial instruments that the Company holds are designated as cash flow hedges and are highly effective in offsetting movements in the underlying risks. Such arrangements typically have terms between two and 24 months, but may have longer terms depending on the underlying cash flows being hedged, typically related to the projects in our backlog. Inventories Inventories consist of raw materials,work-in-process and oilfield and industrial finished products, manufactured equipment and spare parts. Inventories are stated at the lower of cost or estimated net realizable value using thefirst-in,first-out or average cost methods. Inventories consist of raw materials and supplies, work-in-process and finished goods and purchased products. The Company determines reserves for inventory based onreviews historical usage of inventoryon-hand, assumptions about future demand and market conditions, and estimates about potential alternative uses, which are limited. The Company’s inventory consists of spare parts, work in process, and raw materialslimited, to support ongoing manufacturing operations and the Company’s large installed base of highly specialized oilfield equipment. The Company’s estimated carrying value of inventory depends upon demand largely driven by levels of oil and gas well drilling and remediation activity, which depends in turn upon oil and gas prices, the general outlook for economic growth worldwide, available financing for the Company’s customers, political stability and governmental regulation in major oil and gas producing areas, and the potential obsolescence of various types of equipment we sell, among other factors.
61
estimate net realizable value. The Company evaluates inventory quarterly using the best information available at the time to inform our assumptions and estimates about future demand and resulting sales volumes, and recognizes reserves as necessary to properly state inventory. The historically severeoil-industry downturn that started inmid-2014 began to stabilize during the second half of 2016, and showed early signs of improvement in many areas in the fourth quarter of 2016 and the first quarter of 2017, before declining slightly in the second quarter of 2017. The fourth quarter of 2017 saw improvement in oil prices. These signs of improvement, including conversations with customers about their plans, as well as inquiries and orders for products, provided the Company information with which to assess and adjust assumptions about future demand and market conditions. We saw clear evidence that a market recovery will favor newer technology and the most efficient equipment, and that certain products across our portfolio, for both land and offshore environments, were less likely to be successful going forward as our customers find footing in their newly competitive landscape. Based on an update of our assumptions at each point in time related to estimates of future demand, during 2017 and 2016 we recorded charges for additions to inventory reserves of $114$356 million, $659 million, and $606$49 million for the years ended December 31, 2020, 2019, and 2018, respectively, consisting primarily of obsolete and surplus inventories. At December 31, 20172020 and 2016,2019, inventory reserves totaled $800$577 million and $1,017$843 million, or 21.0%29.0% and 23.4%27.7% of gross inventory, respectively. 67
Property, Plant and Equipment Property, plant and equipment are recorded at cost. Expenditures for major improvements that extend the lives of property and equipment are capitalized while minor replacements, maintenance and repairs are charged to operations as incurred. Disposals are removed at cost less accumulated depreciation with any resulting gain or loss reflected in operations. Depreciation is provided using the straight-line method over the estimated useful lives of individual items. Depreciation expense which includes the amortization of assets recorded under capital leases, was $359$302 million, $370$355 million and $391$349 million for the years ended December 31, 2017, 20162020, 2019 and 2015,2018, respectively. Accumulated depreciation of $2,559 million as of December 31, 2017 included accumulated depreciation of $18 million for capital leases. The estimated useful lives of the major classes of property, plant and equipment are included in Note 65 to the consolidated financial statements. We record impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets are impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. The carrying value of assets used in operations that are not recoverable is reduced to fair value if lower than carrying value. In determining the fair market value of the assets, we consider market trends and recent transactions involving sales of similar assets, or when not available, discounted cash flow analysis. ThereImpairments of plant, property and equipment were $10$262 million, $252 million and $54$21 million in impairments of long-lived assets for the years ended December 31, 20172020, 2019 and 2016, respectively,2018, respectively. Lease Right-of-Use Assets The Company leases certain facilities and nilequipment to support its operations around the world. These leases generally require the Company to pay maintenance, insurance, taxes and other operating costs in addition to rent. Renewal options are common in longer term leases; however, it is rare that the Company intends to exercise a lease option at inception due to the cyclical nature of the Company’s business. Residual value guarantees are not typically part of the Company’s leases. Occasionally, the Company sub-leases excess facility space, generally at terms similar to the source lease. The Company reviews new agreements to determine if they include a lease and, when they do, uses its incremental borrowing rate to determine the present value of the future lease payments as most do not include implicit interest rates. The Company recorded impairment charges of $42 million, $56 million and 0 for the yearyears ended December 31, 2015.2020, 2019 and 2018, respectively. Intangible AssetsAcquisitions and Investments
Acquisitions of businesses are accounted for using the acquisition method of accounting, and the financial statements include the results of the acquired operations from the respective dates of acquisition. The Company has approximately $6.2 billionpurchase price of goodwillthe acquired entities is preliminarily allocated to the net assets acquired and $3.3 billion of identified intangible assets at December 31, 2017. Goodwill is identified by segment as follows (in millions): | | | | | | | | | | | | | | | | | | | | Wellbore
Technologies | | | Completion &
Production
Solutions | | | Rig
Technologies | | | Total | | Balance at December 31, 2015 | | $ | 2,874 | | | $ | 1,997 | | | $ | 2,109 | | | $ | 6,980 | | | | | | | Goodwill acquired and adjusted during period | | | 4 | | | | 70 | | | | — | | | | 74 | | Impairment | | | — | | | | — | | | | (972 | ) | | | (972 | ) | Currency translation adjustments | | | (4 | ) | | | (9 | ) | | | (2 | ) | | | (15 | ) | | | | | | | | | | | | | | | | | | Balance at December 31, 2016 | | $ | 2,874 | | | $ | 2,058 | | | $ | 1,135 | | | $ | 6,067 | | | | | | | Goodwill acquired and adjusted during period | | | 37 | | | | 41 | | | | 11 | | | | 89 | | Currency translation adjustments | | | 45 | | | | 23 | | | | 3 | | | | 71 | | | | | | | | | | | | | | | | | | | Balance at December 31, 2017 (1) | | $ | 2,956 | | | $ | 2,122 | | | $ | 1,149 | | | $ | 6,227 | | | | | | | | | | | | | | | | | | |
(1) | Accumulated goodwill impairment was $2,457 million as of December 31, 2017. |
Identified intangible assets with determinable lives consist primarily of customer relationships, trademarks, trade names, patents, and technical drawings acquired in acquisitions, and are being amortizedliabilities assumed based on a straight-line basis over the estimated useful lives of2-30 years. Amortization expense of identified intangibles is expected to be approximately $320 million in each of the next five years. Included in intangible assets are $384 million of indefinite-lived trade names.
62
The net book values of identified intangible assets are identified by segment as follows (in millions):
| | | | | | | | | | | | | | | | | | | | Wellbore
Technologies | | | Completion &
Production
Solutions | | | Rig
Technologies | | | Total | | Balance at December 31, 2015 | | $ | 2,254 | | | $ | 1,296 | | | $ | 299 | | | $ | 3,849 | | | | | | | Additions to intangible assets | | | 15 | | | | 9 | | | | — | | | | 24 | | Amortization | | | (205 | ) | | | (106 | ) | | | (22 | ) | | | (333 | ) | Currency translation adjustments | | | — | | | | (8 | ) | | | (2 | ) | | | (10 | ) | | | | | | | | | | | | | | | | | | Balance at December 31, 2016 | | $ | 2,064 | | | $ | 1,191 | | | $ | 275 | | | $ | 3,530 | | | | | | | Additions to intangible assets | | | 18 | | | | 41 | | | | 2 | | | | 61 | | Amortization | | | (208 | ) | | | (108 | ) | | | (23 | ) | | | (339 | ) | Currency translation adjustments | | | 9 | | | | 36 | | | | 4 | | | | 49 | | | | | | | | | | | | | | | | | | | Balance at December 31, 2017 | | $ | 1,883 | | | $ | 1,160 | | | $ | 258 | | | $ | 3,301 | | | | | | | | | | | | | | | | | | |
Identified intangible assets by major classification consist of the following (in millions):
| | | | | | | | | | | | | | | | Gross | | | Accumulated
Amortization | | | Net Book
Value | | December 31, 2016: | | | | | | | | | | | | | | | | | Customer relationships | | $ | 4,024 | | | $ | (1,874 | ) | | $ | 2,150 | | Trademarks | | | 878 | | | | (290 | ) | | | 588 | | Patents | | | 585 | | | | (345 | ) | | | 240 | | Indefinite-lived trade names | | | 384 | | | | — | | | | 384 | | Other | | | 463 | | | | (295 | ) | | | 168 | | | | | | | | | | | | | | | Total identified intangibles | | $ | 6,334 | | | $ | (2,804 | ) | | $ | 3,530 | | | | | | | | | | | | | | | December 31, 2017: | | | | | | | | | | | | | | | | | Customer relationships | | $ | 4,074 | | | $ | (2,118 | ) | | $ | 1,956 | | Trademarks | | | 885 | | | | (317 | ) | | | 568 | | Patents | | | 602 | | | | (384 | ) | | | 218 | | Indefinite-lived trade names | | | 384 | | | | — | | | | 384 | | Other | | | 499 | | | | (324 | ) | | | 175 | | | | | | | | | | | | | | | Total identified intangibles | | $ | 6,444 | | | $ | (3,143 | ) | | $ | 3,301 | | | | | | | | | | | | | | |
Asset Impairment
Generally Accepted Accounting Principles require the Company test goodwill and other indefinite-lived intangible assets for impairment at least annually or more frequently whenever events or circumstances occur indicating that those assets might be impaired. Prior to 2017, the impairment analysis was a two-step process as the Company early adopted Accounting Standard Update No. 2017-04 “Simplifying the Test for Goodwill Impairment,” which eliminates step two effective July 1, 2017.
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The impairment analysis compares the reporting unit’s carrying value to the respective fair value. Fair value of the reporting unit is determined in accordance with ASC Topic 820 “Fair Value Measurements and Disclosures” using significant unobservable inputs, or level 3 in the fair value hierarchy. These inputs are based on internal management estimates, forecasts and judgments, using discounted cash flow.
The discounted cash flow is based on management’s forecastat the dates of operating performance for the reporting unit. The two main assumptions used in measuring goodwill impairment, which bear the riskacquisition, with any excess of change and could impact the Company’s goodwill impairment analysis, include the cash flow from operations from each reporting unit and its weighted average cost of capital. The starting point for each of the reporting unit’s cash flow from operations is the detailed annual plan or updated forecast. Cash flows beyond the updated forecasted operating plans were estimated using a terminal value calculation, which incorporated historical and forecasted financial cyclical trends for each reporting unit and considered long-term earnings growth rates. The financial and credit market volatility directly impacts our fair value measurement through our weighted average cost of capital that we use to determine our discount rate. During times of volatility, significant judgment must be applied to determine whether credit changes are a short-term or long-term trend.
Based on the Company’s step one impairment analysis, as of July 1, 2016, completed as a result of market indicators identified in the third quarter, the Rig Offshore reporting unit had a calculated fair value below its carrying value, and required a step two analysis, which compares the implied fair value of goodwill of a reporting unit to the carrying value of goodwill for the reporting unit. The implied fair value of goodwill is determined by deductingover the fair value of a reporting unit’s identifiablenet assets and liabilities from the fair value of that reporting unitacquired, including intangibles, recognized as a whole. Consistent with the step one analysis, fair value of the assets and liabilities was determined in accordance with ASC Topic 820. Based on the step two analysis performed for the Rig Offshore reporting unit, the Company recorded a $972 million write-down of goodwill during the third quarter.
On July 1, 2017, the Company’s Wellbore Technologies segment reorganized three of its reporting units, moving various operations between them. The goodwill impairment analyses performed priorgoodwill. Subsequent changes to and subsequent to the restructuring of the three reporting units, concluded that the calculated fair values of these reporting units were substantially in excess of their carrying value. The restructuring had no effect on Wellbore Technologies consolidated financial position and results of operations.preliminary amounts are made prospectively.
The Company combined its Rig Systemspaid cash of $14 million, $180 million and Rig Aftermarket reporting units into two different reporting units, Rig Equipment$280 million for acquisitions for the years ended December 31, 2020, 2019 and Marine Construction, under2018, respectively. These acquisitions did not have a segment called Rig Technologies, effective October 1, 2017. The restructuring better aligns operations with the current and anticipated market environments, reduces administrative burden, and eliminates reported intercompany transactions between Rig Technologies’ capital equipment and aftermarket operations. The Company tested the Rig Systems and Rig Aftermarket reporting units for impairment prior to combining, and the two, new reporting units under the Rig Technologies segment for impairment after combining, and concluded all fair values of the reporting units were substantially in excess of their carrying values. During the fourth quarter of 2017, the Company performed its annual impairment test, as described in ASC Topic 350, as of October 1, 2017. Basedmaterial effect on the Company’s annual impairment test,operating results, cash flows or financial position
Foreign Currency The functional currency for most of our foreign operations is the calculated fair values for all of the Company’s reporting units were substantially in excess of the respective reporting unit’s carrying value. Additionally, the fair value for all of the Company’s intangible assets with indefinite lives were substantially in excess of the respective asset carrying values. Foreign Currency
Certainlocal currency. However, certain foreign operations, including our operations in Norway, use the U.S. dollar as the functional 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. 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 gains (losses)losses were $(3)$2 million, $(10)$36 million and $(47)$52 million for the years ending December 31, 2017, 20162020, 2019 and 2015,2018, respectively, and are included in other income (expense) in the accompanying statement of income.
income (loss).68
Revenue Recognition 64
Historically, the Venezuelan government has devalued the country’s currency. During the first quarter of 2015, the Venezuelan government officially devalued the Venezuelan bolivar against the U.S. dollar. As a result, the Company incurred approximately $9 million in devaluation charges in the first quarter of 2015. The reporting currency of allmajority of the Company’s Venezuelan entities is the U.S. dollar. The Company’s net remaining investmentrevenue streams record revenue at a point in Venezuela, which is largely U.S. dollar, was nil at December 31, 2017.
During the fourth quartertime when a performance obligation has been satisfied by transferring control of 2015, the Argentinian government officially devalued the Argentine peso against the U.S. dollar. Aspromised goods or services to a result, the Company incurred approximately $7 million devaluation charges in the fourth quarter of 2015. The reporting currency of all of the Company’s Argentinian entities is the Argentine peso.
Revenue Recognition
The Company’s productscustomer. Products are sold or rented and services are soldprovided based upon purchase orders or contracts with the customer that includea fixed or determinable pricesprice and that do not generally include right of return or other similar provisionssignificant post-delivery obligations. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities. Payment terms and conditions vary by contract type. We have elected to apply the practical expedient that does not require an adjustment for a financing component if, at contract inception, the period between when we transfer the promised goods 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 passedservice 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 tocustomer pays for the sale. The Company also recognizes revenue as services are performed. The amounts billed for shippinggoods or service is one year or less. Shipping and handling costs are includedrecognized when incurred and are treated as costs to fulfill the original performance obligation instead of as a separate performance obligation.
Revenue is generated from contracts that may include multiple performance obligations. Using significant judgement, the Company considers the degree of customization, integration and interdependency of the related products and services when assessing distinct performance obligations within one contract. Stand-alone selling price (“SSP”) for each distinct performance obligation is generally determined using the price at which the products and services would be sold separately to the customer. Discounts, when provided, are allocated based on the relative SSP of the various products and services. For revenue that is not recognized at a point in time, the Company follows accounting guidance for revenue and related costs are included in cost of sales.recognized over time, as follows: Revenue Recognition under Long-term Construction Contracts The Company uses the percentage-of-completion method to accountRevenue is recognized over-time for certain long-term construction contracts in the Completion & Production Solutions and Rig Technologies segments. These long-term construction contracts include the following characteristics:
the contracts include custom designs for customer-specific applications that are unique and require significant engineering efforts. Revenue is recognized as work progresses on each contract. Right to payment is enforceable for performance completed to date, including a reasonable profit.Because of control transferring over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. We generally use the cost-to-cost (input) measure of progress for our contracts because it best depicts the transfer of assets to the customer specific applications; which occurs as we incur costs. Under the structural designcost-to-cost measure of progress, progress towards completion of each contract is uniquemeasured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenues, including estimated fees or profits, are recorded proportionally as costs are incurred. These costs include labor, materials, subcontractors’ costs, and other direct costs. Any expected losses on a project are recorded in full in the period in which the loss becomes probable.These long-term construction contracts generally include a significant service of integrating a complex set of tasks and components into a single project or capability, so are accounted for as one performance obligation. Estimating total revenue and cost at completion of long-term construction contracts is complex, subject to many variables and requires significant engineering efforts;judgement. It is common for our long-term contracts to contain late delivery fees, work performance guarantees, and other provisions that can either increase or decrease the transaction price. We estimate variable consideration as the most likely amount we expect to receive. We include variable consideration in the estimated transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur, or when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based on an assessment of our anticipated performance and historical, current and forecasted information that is reasonably available to us. Net revenue recognized from performance obligations satisfied in previous periods was $41 million and $62 million for the years ended December 31, 2020 and 2019, respectively, primarily due to change orders.Service and Repair Work construction projects oftenFor service and repair contracts, revenue is recognized over time. We generally use the output method to measure progress on service contracts due to the manner in which the customer receives and derives value from the services provided. For repair contracts, we generally use the cost-to-cost measure of progress because it best depicts the transfer of assets to the customer. 69
Remaining Performance Obligations Remaining performance obligations represent the transaction price of firm orders for all revenue streams for which work has not been performed on contracts with an original expected duration of one year or more. We do not disclose the remaining performance obligations of royalty contracts, service contracts for which there is a right to invoice, and short-term contracts that are expected to have progress payments. This method requiresAs of December 31, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations was $3,693 million. The Company expects to make estimates regardingrecognize approximately $905 million in revenue for the totalremaining performance obligations in 2021 and $2,787 million in 2022 and thereafter.
Costs to Obtain and Fulfill a Contract We recognize an asset for the incremental costs of obtaining a contract, such as sales commissions, with a customer when we expect the project, progress againstbenefit of those costs to be longer than one year. Costs to fulfill a contract, such as set-up and mobilization costs, are also capitalized when we expect to recover those costs. These contract costs are deferred and amortized over the project scheduleperiod of contract performance. Total capitalized costs to obtain and fulfill a contract and the estimated completion date, all of which impactrelated amortization were immaterial during the amount of revenueperiods presented and gross margin the Company recognizesare included 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.long-term assets on our consolidated balance sheets. We apply the practical expedient to expense costs as incurred for costs to obtain a contract with a customer when the amortization period would have been one year or less. 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”).experience. 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. 65
The changes in the carrying amount of service and product warranties are as follows (in millions): | | | | | Balance at December 31, 2015 | | $ | 244 | | | | | | | Net provisions for warranties issued during the year | | | 50 | | Amounts incurred | | | (127 | ) | Currency translation adjustments and other | | | 5 | | | | | | | Balance at December 31, 2016 | | $ | 172 | | | | | | | Net provisions for warranties issued during the year | | | 46 | | Amounts incurred | | | (86 | ) | Currency translation adjustments and other | | | 3 | | | | | | | Balance at December 31, 2017 | | $ | 135 | | | | | | |
Balance at December 31, 2018 | | $ | 105 | | Net provisions for warranties issued during the year | | | 41 | | Amounts incurred | | | (56 | ) | Currency translation adjustments | | | — | | Balance at December 31, 2019 | | $ | 90 | | Net provisions for warranties issued during the year | | | 22 | | Amounts incurred | | | (26 | ) | Currency translation adjustments | | | 1 | | Balance at December 31, 2020 | | $ | 87 | |
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 risk. We control credit risk through 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. Allowances for doubtful accounts are determined based on a continuous process of assessing the Company’s portfolio on an individual customer basis taking into account current market conditions and trends. This process consists of a thorough review of historical collection experience, current aging status of the customer accounts, and financial condition of the Company’s customers. Based on a review of these factors, the Company will establish or adjust allowances for specific customers. Accounts receivable are net of allowances for doubtful accounts of approximately $187$100 million and $209$132 million at December 31, 20172020 and 2016,2019, respectively. 70
Stock-Based Compensation Compensation expense for the Company’s stock-based compensation plans is measured using the fair value method required by ASC Topic 718 “Compensation – Stock Compensation” (“ASC Topic 718”). Under this guidance themethod. The fair value of stock option grants and restricted stock is amortized to expense using the straight-line method over the shorter of the vesting period or the remaining employee service period. The Company provides compensation benefits to employees andnon-employee directors under share-based payment arrangements, including various employee stock option plans. 66
Environmental Liabilities When environmental assessments or remediations are probable and the costs can be reasonably estimated, remediation liabilities are recorded on an undiscounted basis and are adjusted as further information develops or circumstances change. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect reported and contingent amounts of assets and liabilities as of the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Such estimates include but are not limited to, estimated losses on accounts receivable, estimated costs and related margins of projects accounted for underpercentage-of-completion,over time, estimated realizable value on excess and obsolete inventory, contingencies, estimated liabilities for litigation exposures and liquidated damages, estimated warranty costs, estimates related to pension accounting, estimates related to the fair value of reporting unitsReporting Units for purposes of assessing goodwill and other indefinite-lived intangible assets for impairment and estimates related to deferred tax assets and liabilities, including valuation allowances on deferred tax assets. Actual results could differ from those estimates. Contingencies The Company accrues for costs relating to litigation claims and other contingent matters, including liquidated damage liabilities, when such liabilities become probable and reasonably estimable. In circumstances where the most likely outcome of a contingency can be reasonably estimated, we accrue a liability for that amount. Where the most likely outcome cannot be estimated, a range of potential losses is established and if no one amount in that range is more likely than others, the low end of the range is accrued. Such estimates may be based on advice from third parties or on management’s judgment,judgement, as appropriate. Revisions to contingent liabilities are reflected in income in the period in which different facts or information become known or circumstances change that affect the Company’s previous judgmentsjudgements with respect to the likelihood or amount of loss. Amounts paid upon the ultimate resolution of contingent liabilities may be materially different from previous estimates and could require adjustments to the estimated reserves to be recognized in the period such new information becomes known. 71
Net Loss Attributable to Company Per Share The following table sets forth the computation of weighted average basic and diluted shares outstanding (in millions, except per share data): | | | | Years Ended December 31, | | | Years Ended December 31, | | | | | 2017 | | | 2016 | | | 2015 | | | 2020 | | | 2019 | | | 2018 | | Numerator: | | | | | | | | | | | | | | | | | | | Net loss attributable to Company | | $ | (237 | ) | | $ | (2,412 | ) | | $ | (769 | ) | | $ | (2,542 | ) | | $ | (6,095 | ) | | $ | (31 | ) | | | | | | | | | | | | Denominator: | | | | | | | | | | | | | | | | | | | Basic—weighted average common shares outstanding | | | 377 | | | | 376 | | | | 387 | | | | 384 | | | | 382 | | | | 378 | | Dilutive effect of employee stock options and other unvested stock awards | | | — | | | | — | | | | — | | | | 0 | | | | 0 | | | | 0 | | | | | | | | | | | | | Diluted outstanding shares | | | 377 | | | | 376 | | | | 387 | | | | 384 | | | | 382 | | | | 378 | | | | | | | | | | | | | Basic loss attributable to Company per share | | $ | (0.63 | ) | | $ | (6.41 | ) | | $ | (1.99 | ) | | $ | (6.62 | ) | | $ | (15.96 | ) | | $ | (0.08 | ) | | | | | | | | | | | | Diluted loss attributable to Company per share | | $ | (0.63 | ) | | $ | (6.41 | ) | | $ | (1.99 | ) | | $ | (6.62 | ) | | $ | (15.96 | ) | | $ | (0.08 | ) | | | | | | | | | | | | Cash dividends per share | | $ | 0.20 | | | $ | 0.61 | | | $ | 1.84 | | | $ | 0.05 | | | $ | 0.20 | | | $ | 0.20 | | | | | | | | | | | | |
ASC Topic 260, “Earnings Per Share” (“ASC Topic 260”) requires companies with unvested participating securities to utilize atwo-class method for the computation of net income attributable to Company per share. Thetwo-class method requires a portion of net income attributable to Company to be allocated to participating securities, which are unvested awards of share-based payments withnon-forfeitable rights to receive dividends or dividend equivalents, if declared.
Net incomeloss attributable to Company allocated to these participating securities was immaterial for the years ended December 31, 2017, 20162020, 2019 and 20152018 and therefore not excluded from net incomeloss attributable to Company per share calculation. The Company had stock options outstanding that were anti-dilutive totaling 1226 million, 1420 million, and 1320 million at December 31, 2017, 20162020, 2019 and 2015,2018, respectively. 67
Recently Adopted Accounting Standards In July 2015,June 2016, the FASB issued Accounting Standard UpdateNo. 2015-11 “Simplifying theASU 2016-13, Financial Instruments – Credit Losses (ASC Topic 326): Measurement of Inventory” (ASU2015-11).Credit Losses on Financial Instruments. This update requires inventory measured using the firstimproves financial reporting by requiring earlier recognition of forecast credit losses on financing receivables and other financial assets in first out (FIFO) or average cost methods to be subsequently measured at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable cost of completion, disposal and transportation.scope. ASU2015-11 2016-13 is effective for fiscal yearsperiods beginning after December 15, 2016, and for2019, including interim periods within those fiscal years. The Company adopted this update on January 1, 20172020, with no material impact. The Company estimates its reserves using information about past events, current conditions and risk characteristics of each customer, and reasonable and supportable forecasts relevant to assessing risk associated with the collectability of Trade Accounts Receivables, Contract Assets, Unbilled Accounts Receivables, and Long-Term Receivables. The Company’s customer base, mostly in the oil and gas industry, have generally similar collectability risk characteristics, although larger and state-owned customers may have lower risk than smaller independent customers. As of December 31, 2020, allowance for bad debts and contract assets totaled $102 million. Recently Issued Accounting Standards In March 2016,December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting Standard UpdateNo. 2016-09 “Improvementsfor Income Taxes.” This ASU eliminates certain exceptions related to Employee Share-Based Payment Accounting” (ASU2016-09). This updatethe approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies severalother aspects of accounting for share-based payment transactions, including the income tax consequences, forfeitures, and the classification on the statement of cash flows.taxes. ASU2016-09 2019-12 is effective for fiscalinterim and annual reporting periods beginning after December 15, 2016, and for interim periods within those fiscal years. The Company adopted this update on January 1, 2017. The cumulative impact of the2020, with early adoption of this standard was $1 million to retained earnings, and the classification on the statement of cash flows was applied on a prospective basis. In October 2016, the FASB issued Accounting Standard UpdateNo. 2016-16 “Intra-Entity Transfers of Assets Other Than Inventory” (ASU2016-16). This update requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. ASU2016-16 is effective for fiscal years beginning after December 15, 2017, and for interim reporting periods within those fiscal years. The Company has early adopted this update on January 1, 2017 and recorded a $5 million reduction to retained earnings and receivables. The effect of the change on net income is not significant.
In January 2017, the FASB issued Accounting Standard UpdateNo. 2017-04 “Simplifying the Test for Goodwill Impairment” (ASU2017-04). This update eliminates the requirement to compute the implied fair value of goodwill under Step 2 of the goodwill impairment test. ASU2017-04 is effective for fiscal periods beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company has early adopted this update on July 1, 2017 with no material impact.
Recently Issued Accounting Standards
In August 2017, the FASB issued Accounting Standard UpdateNo. 2017-12 “Derivatives and Hedging – Targeted Improvements to Accounting for Hedging Activities” (ASU2017-12). This update improves the financial reporting of hedging relationships and simplifies the application of the hedge accounting guidance. ASU2017-12 is effective for fiscal periods beginning after December 15, 2018, and for interim periods within those fiscal years. Early adoption is permitted in any interim period after issuance of ASU2017-12. The Companypermitted. Management is currently assessing the impact of adopting ASU 2019-12 on the adoption of ASUNo. 2017-12 on its consolidatedCompany’s financial position, and results of operations.operations and cash flows.
In March 2017,2020, the FASB issued Accounting Standard UpdateNo. 2017-07 “ImprovingASU 2020-04, “Reference Rate Reform (Topic 848)” This ASU applies only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the Presentationamendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” (ASU2017-07). This update requiresDecember 31, 2022, that an employer reportentity has elected certain optional expedients for and that are retained through the service cost component in the same line item as other compensation costs and separately from other components of net benefit cost. ASU2017-07 is effective for fiscal periods beginning after December 15, 2017, and for interim periods within those fiscal years. The Company does not expect the impactend of the adoption of ASUNo. 2017-07 to have a material impact on its consolidated financial position. In August 2016, the FASB issued Accounting Standard UpdateNo. 2016-15 “Classification of Certain Cash Receipts and Cash Payments” (ASU2016-15). This update amends Accounting Standard Codification Topic No. 230 “Statement of Cash Flows” and provides guidance and clarification on presentation of certain cash flow issues. ASUNo. 2016-15 is effective for fiscal years beginning after December 15, 2017, and for interim periods within those fiscal years. The Companyhedging relationship. Management is currently assessing the impact of the adoption ofadopting ASUNo. 2016-15 on its consolidated statement of cash flows.
In March 2016, the FASB issued ASC Topic 842, “Leases” (ASC Topic 842), which supersedes the lease requirements in ASC Topic No. 840 “Leases” and most industry-specific guidance. This update increases transparency and comparability among organizations by recognizing lease assets and lease liabilities 2020-04 on the balance sheetcompany’s financial position, results of operations and disclosing key information about leasing arrangements. ASC Topic 842 is effective for fiscal years beginning after December 15, 2018, and for interim periods within those fiscal years.cash flows.
72 In preparing for the adoption of this new standard, the Company has established an internal team to centralize the implementation process as well as engaged external resources to assist in our approach. We are currently utilizing a software program to consolidate and accumulate leases with documentation as required by the new standard. We have assessed the changes to the Company’s current accounting practices and are currently investigating the related tax impact and process changes. We are also in the process of quantifying the impact of the new standard on our balance sheet.
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In May 2014, the FASB issued Accounting Standard UpdateNo. 2014-09, “Revenue from Contracts with Customers” (ASU2014-09), which supersedes the revenue recognition requirements in FASB ASC Topic 605, “Revenue Recognition,” and most industry-specific guidance. This ASU proscribes a five-step model for determining when and how revenue is recognized. Under the model, an entity will recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services.
The standard permits either a full retrospective adoption, in which the standard is applied to all the periods presented, or a modified retrospective adoption, in which the standard is applied only to the current period with a cumulative-effect adjustment reflected in retained earnings. ASU2014-09 is effective for fiscal periods beginning after December 15, 2017. The Company will follow the modified retrospective adoption.
In 2015, the Company assembled an internal team to study the provisions of ASU2014-09, began assessing the potential impacts on the Company and educating the organization. In 2016, the Company engaged external resources to complete the assessment of potential changes to current accounting practices related to material revenue streams. Potential impacts were identified based on required changes to current processes to accommodate provisions in the new standard. We have designed and implemented process, system, control and data requirement changes to address the impacts identified in our assessments.
Based on an analysis of revenue streams, customer contracts and transactions, the Company does not expect a material change in the timing or other impacts to revenue recognition across most of our businesses. Certain service and repair revenue will change from point-in-time to over-time revenue recognition, and the timing of including uninstalled materials in projects will shift, changing only the timing of revenue recognition and not the total amount. We expect the cumulative-effect adjustment we will record in the first quarter of 2018, as required by the modified retrospective method, to be less than $50 million. The final adjustment is subject to concluding on the available practical expediants.
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3. Derivative Financial Instruments The Company is exposeduses derivative financial instruments to certain risks relating tomanage its ongoing business operations. The primary risk managed by using derivative instruments is foreign currency exchange rate risk. Forward currency contracts against various foreign currencies are entered intoexecuted to manage the foreign currency exchange rate risk on forecasted revenues and expenses denominated in currencies other than the functional currency of the operating unit (cash flow hedge). OtherThe Company also executes forward exchangecurrency contracts against various foreign currencies are entered into to manage the foreign currency exchange rate risk associated with certain firm commitments denominated in currencies other than the functional currency of the operating unit (fair value hedge). In addition, the Company will enter intonon-designated forward contracts against various foreign currencies to manage the foreign currency exchange rate risk on recognized nonfunctional currency monetary accounts(non-designated (non-designated hedge). At December 31, 2017, the Company has determined that the fair valueForward currency contracts consist of its derivative financial instruments representing assets of $33 million and liabilities of $11 million (primarily currency related derivatives) are determined using level 2 inputs (inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly for substantially the full term of the asset or liability) in the fair value hierarchy as the fair value is based on publicly available foreign exchange and interest rates at each financial reporting date. At December 31, 2017, the net fair value of the Company’s foreign currency forward contracts totaled a net asset of $22 million.(in millions):
At December 31, 2017, the Company’s financial instruments do not contain any credit-risk-related or other contingent features that could cause accelerated payments when the Company’s financial instruments are in net liability positions. We do not use derivative financial instruments for trading or speculative purposes.
| | Currency Denomination | | Currency | | December 31, 2020 | | | December 31, 2019 | | South Korean Won | | KRW | | | 17,600 | | | KRW | | | 17,600 | | Norwegian Krone | | NOK | | | 3,817 | | | NOK | | | 5,377 | | Russian Ruble | | RUB | | | 1,118 | | | RUB | | | 1,012 | | Danish Krone | | DKK | | | 875 | | | DKK | | | 21 | | Brazilian Real | | BRL | | | 768 | | | BRL | | | — | | Mexican Peso | | MXN | | | 402 | | | MXN | | | 115 | | U.S. Dollar | | USD | | | 367 | | | USD | | | 686 | | Japanese Yen | | JPY | | | 340 | | | JPY | | | 36 | | South African Rand | | ZAR | | | 124 | | | ZAR | | | 124 | | Euro | | EUR | | | 116 | | | EUR | | | 188 | | Singapore Dollar | | SGD | | | 31 | | | SGD | | | 42 | | British Pound Sterling | | GBP | | | 18 | | | GBP | | | 20 | | Canadian Dollar | | CAD | | | 1 | | | CAD | | | 3 | |
Cash Flow Hedging Strategy To protect against the volatility of forecasted foreign currency cash flows resulting from forecasted revenues and expenses, the Company has institutedmaintains a cash flow hedging program. The Company hedges portions of its forecasted revenues and expenses denominated in nonfunctional currencies with forward contracts. When the U.S. dollar strengthens against the foreign currencies, the decrease in present value of future foreign currency revenues and expenses is offset by gains in the fair value of the forward contracts designated as hedges. Conversely, when the U.S. dollar weakens, the increase in the present value of future foreign currency cash flows is offset by losses in the fair value of the forward contracts. For derivative instruments that are designated and qualify as a cash flow hedge, (i.e., hedging the exposure to variability in expected future cash flows that is subject to a particular currency risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of Other Comprehensive Income (Loss)recorded in accumulated other comprehensive income (loss) and reclassified into earnings in the same line item associated with the forecasted transaction and in the same period or periods during which the hedged transaction affects earnings (e.g., in “revenues” when the hedged transactions are cash flows associated with forecasted revenues). The remaining gain or loss on the derivative instrumentCompany includes time value in excess of the cumulative change in the present value of future cash flows of the hedged item, if any (i.e., the ineffective portion), or hedge components excluded from the assessment of effectiveness, is recognized in the Consolidated Statements of Income (Loss) during the current period.relationships. The Company hadexpects accumulated other comprehensive loss of $10 million will be reclassified into earnings within the following outstanding foreign currency forward contracts that were entered into to hedge nonfunctional currency cash flows from forecasted revenues and expenses (in millions):next twelve months. | | | | | | | | | | | | Currency Denomination | | Foreign Currency | | December 31,
2017 | | | December 31,
2016 | | Norwegian Krone | | NOK | 4,013 | | | NOK | 5,621 | | Japanese Yen | | JPY | 982 | | | JPY | 1,462 | | U.S. Dollar | | USD | 163 | | | USD | 321 | | Euro | | EUR | 120 | | | EUR | 279 | | Danish Krone | | DKK | 30 | | | DKK | 29 | | British Pound Sterling | | GBP | 11 | | | GBP | 1 | | Singapore Dollar | | SGD | — | | | SGD | 2 | |
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Non-designated Hedging Strategy The Company enters into forward exchange contracts to hedge certain nonfunctional currency monetary accounts. The purpose of the Company’s foreign currency hedging activities is to protect the Company from risk that the eventual U.S. dollar equivalent cash flows from the nonfunctional currency monetary accounts will be adversely affected by changes in the exchange rates. For derivative instruments that arenon-designated, the gain or loss on the derivative instrument subject tois recognized in earnings in other income (expense), together with the changes in the hedged risk (i.e., nonfunctional currency monetary accounts) isaccounts.
The amount of gain (loss) recognized in other income (expense), net inwas ($3) million, ($12) million and $2 million for the Consolidated Statement of Income (Loss).years ended 2020, 2019 and 2018, respectively. The Company had the following outstanding foreign currency forward contracts that hedge the fair value of nonfunctional currency monetary accounts (in millions):73
| | | | | | | | | | | | Currency Denomination | | Foreign Currency | | December 31,
2017 | | | December 31,
2016 | | Russian Ruble | | RUB | 2,699 | | | RUB | 1,893 | | Norwegian Krone | | NOK | 1,734 | | | NOK | 538 | | U.S. Dollar | | USD | 463 | | | USD | 457 | | South African Rand | | ZAR | 150 | | | ZAR | 150 | | Euro | | EUR | 99 | | | EUR | 272 | | Danish Krone | | DKK | 15 | | | DKK | 49 | | British Pound Sterling | | GBP | 3 | | | GBP | 3 | | Singapore Dollar | | SGD | — | | | SGD | 7 | | Canadian Dollar | | CAD | — | | | CAD | 1 | |
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The Company has the following fair values of its derivative instruments and their balance sheet classifications (in millions): | | | | | | | | | | | | | | | | | | | | | | Fair Values of Derivative Instruments | | | (In millions) | | | | | Asset Derivatives | | | Liability Derivatives | | | | | Balance Sheet | | Fair Value
December 31, | | | Balance Sheet | | Fair Value
December 31, | | | | | Location | | 2017 | | | 2016 | | | Location | | 2017 | | | 2016 | | Derivatives designated as hedging instruments under ASC Topic 815 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Foreign exchange contracts | | Prepaid and other current assets | | $ | 13 | | | $ | 24 | | | Accrued liabilities | | $ | 3 | | | $ | 37 | | Foreign exchange contracts | | Other Assets | | | 8 | | | | 6 | | | Other Liabilities | | | 2 | | | | 11 | | | | | | | | | | | | | | | | | | | | | | | Total derivatives designated as hedging instruments under ASC Topic 815 | | | | $ | 21 | | | $ | 30 | | | | | $ | 5 | | | $ | 48 | | | | | | | | | | | | | | | | | | | | | | | Derivatives not designated as hedging instruments under ASC Topic 815 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Foreign exchange contracts | | Prepaid and other current assets | | $ | 10 | | | $ | 32 | | | Accrued liabilities | | $ | 5 | | | $ | 29 | | Foreign exchange contracts | | Other Assets | | | 2 | | | | — | | | Other Liabilities | | | 1 | | | | — | | | | | | | | | | | | | | | | | | | | | | | Total derivatives not designated as hedging instruments under ASC Topic 815 | | | | $ | 12 | | | $ | 32 | | | | | $ | 6 | | | $ | 29 | | | | | | | | | | | | | | | | | | | | | | | Total derivatives | | | | $ | 33 | | | $ | 62 | | | | | $ | 11 | | | $ | 77 | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Values of Derivative Instruments (In millions) | | | | Asset Derivatives | | | Liability Derivatives | | | | | | Fair Value | | | | | Fair Value | | | | Balance Sheet | | December 31, | | | Balance Sheet | | December 31, | | | | Location | | 2020 | | | 2019 | | | Location | | 2020 | | | 2019 | | Derivatives designated as hedging instruments under ASC Topic 815 | | | | | | | | | | | | | | | | | | | | | Foreign exchange contracts | | Prepaid and other current assets | | $ | 17 | | | $ | 5 | | | Accrued liabilities | | $ | 11 | | | $ | 18 | | Foreign exchange contracts | | Other Assets | | | 12 | | | | 4 | | | Other Liabilities | | | — | | | | 2 | | Total derivatives designated as hedging instruments under ASC Topic 815 | | | | $ | 29 | | | $ | 9 | | | | | $ | 11 | | | $ | 20 | | Derivatives not designated as hedging instruments under ASC Topic 815 | | | | | | | | | | | | | | | | | | | | | Foreign exchange contracts | | Prepaid and other current assets | | $ | 17 | | | $ | 8 | | | Accrued liabilities | | $ | 4 | | | $ | 6 | | Foreign exchange contracts | | Other Assets | | | — | | | | 1 | | | Other Liabilities | | | — | | | | — | | Total derivatives not designated as hedging instruments under ASC Topic 815 | | | | $ | 17 | | | $ | 9 | | | | | $ | 4 | | | $ | 6 | | Total derivatives | | | | $ | 46 | | | $ | 18 | | | | | $ | 15 | | | $ | 26 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | The Effect of Derivative Instruments on the Consolidated Statements of Income (Loss) ($ in millions) | | Derivatives Designated as Hedging Instruments under ASC Topic 815 | | Amount of Gain (Loss)
Recognized in OCI on
Derivatives (Effective Portion) (a) | | | Location of Gain (Loss)
Reclassified from
Accumulated OCI into
Income
(Effective Portion) | | Amount of Gain (Loss)
Reclassified from
Accumulated OCI into
Income (Effective Portion) | | | Location of Gain (Loss)
Recognized in Income on
Derivatives (Ineffective
Portion and Amount
Excluded from
Effectiveness
Testing) | | Amount of Gain (Loss)
Recognized in Income on
Derivatives (Ineffective
Portion and Amount
Excluded from
Effectiveness Testing) (b) | | | | | Years Ended
December 31, | | | | | Years Ended
December 31, | | | | | Years Ended
December 31, | | | | | 2017 | | | 2016 | | | | | 2017 | | | 2016 | | | | | 2017 | | | 2016 | | | | | | | | | | | | Revenue | | | 8 | | | | 5 | | | Cost of revenue | | | 7 | | | | (21 | ) | Foreign exchange contracts | | | 56 | | | | 45 | | | Cost of
revenue | | | (19 | ) | | | (170 | ) | | Other income
(expense), net | | | 2 | | | | 8 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | 56 | | | | 45 | | | | | | (11 | ) | | | (165 | ) | | | | | 9 | | | | (13 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Derivatives Not Designated as | | Location of Gain (Loss) | | | Amount of Gain (Loss) | | | Hedging Instruments under | | Recognized in Income | | | Recognized in Income on | | ASC Topic 815 | | on Derivatives | | | Derivatives | | | | | | | | Years Ended
December 31, | | | | | | | | 2017 | | | 2016 | | Foreign exchange contracts | | | Other income (expense), net | | | | 58 | | | | (33 | ) | | | | | | | | | | | | | | Total | | | | | | | 58 | | | | (33 | ) | | | | | | | | | | | | | |
(a) | The Company expects that $5 million of the Accumulated Other Comprehensive Income (Loss) will be reclassified into earnings within the next twelve months with an offset by losses from the underlying transactions resulting in no impact to earnings or cash flow. |
(b) | The amount of gain (loss) recognized in income represents $7 million and $(21) million related to the ineffective portion of the hedging relationships for the years ended December 31, 2017 and 2016, respectively, and $2 million and $8 million related to the amount excluded from the assessment of the hedge effectiveness for the years ended December 31, 2017 and 2016, respectively. |
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4. Acquisitions and Investments 2017
In the year ended December 31, 2017, the Company completed a total of eight acquisitions and other investments for an aggregate cash investment of $86 million, net of cash acquired. The Company has preliminarily allocated $61 million to identifiable intangible assets and $89 million to goodwill for current and prior year acquisitions.
2016
In the year ended December 31, 2016, the Company completed a total of 10 acquisitions and other investments for an aggregate cash investment of $230 million, net of cash acquired and $18 million of NOV stock. The Company allocated $24 million to identifiable intangible assets and $74 million to goodwill.
2015
In the year ended December 31, 2015, the Company completed seven acquisitions and other investments for an aggregate purchase price of $86 million, net of cash acquired. The Company allocated $13 million to identifiable intangible assets and $51 million to goodwill.
The amount allocated to goodwill represents the excess of the purchase price over the fair value of the net assets acquired. Goodwill specifically includes the expected synergies and other benefits that the Company believes will result from combining its operations with those of businesses acquired and other intangible assets that do not qualify for separate recognition, such as assembled workforce in place at the date of acquisition. Goodwill resulting from the acquisitions is not deductible for tax purposes. Each of the acquisitions was accounted for using the purchase method of accounting and, accordingly, the results of operations of each business are included in the Consolidated Statements of Income (Loss) from the date of acquisition. A summary of the acquisitions follows (in millions):
| | | | | | | | | | | | | | | | Years Ended December 31, | | | | | 2017 | | | 2016 | | | 2015 | | Fair value of assets acquired, net of cash acquired | | $ | 154 | | | $ | 357 | | | $ | 116 | | Cash paid, net of cash acquired | | | (86 | ) | | | (230 | ) | | | (86 | ) | | | | | | | | | | | | | | Liabilities assumed, debt issued and noncontrolling interest | | $ | 68 | | | $ | 127 | | | $ | 30 | | | | | | | | | | | | | | | Excess purchase price over fair value of net assets acquired | | $ | 89 | | | $ | 74 | | | $ | 51 | | | | | | | | | | | | | | |
5. Inventories, net
Inventories consist of (in millions): | | | | | | | | | | | | December 31, | | | | | 2017 | | | 2016 | | Raw materials and supplies | | $ | 656 | | | $ | 961 | | Work in process | | | 513 | | | | 561 | | Finished goods and purchased products | | | 1,834 | | | | 1,803 | | | | | | | | | | | Total | | $ | 3,003 | | | $ | 3,325 | | | | | | | | | | |
| | December 31, | | | | 2020 | | | 2019 | | Raw materials and supplies | | $ | 373 | | | $ | 577 | | Work in process | | | 189 | | | | 364 | | Finished goods and purchased products | | | 1,423 | | | | 2,099 | | | | | 1,985 | | | | 3,040 | | Less: Inventory reserve | | | (577 | ) | | | (843 | ) | Total | | $ | 1,408 | | | $ | 2,197 | |
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6.5. Property, Plant and Equipment, net
Property, plant and equipment consist of (in millions): | | | | | | | | Estimated | | December 31, | | | | | Estimated
Useful Lives | | December 31, | | | Useful Lives | | 2020 | | | 2019 | | | | | 2017 | | | 2016 | | | Land and buildings | | 5-35 Years | | $ | 1,592 | | | $ | 1,570 | | | Land | | | | | $ | 175 | | | $ | 231 | | Buildings and improvements | | | 5-35 Years | | | 1,343 | | | | 1,309 | | Operating equipment | | 3-15 Years | | | 3,169 | | | | 3,102 | | | 2-20 Years | | | 2,660 | | | | 2,946 | | Rental equipment | | 3-12 Years | | | 581 | | | | 557 | | | 2-15 Years | | | 799 | | | | 851 | | Capital leases | | 20-24 Years | | | 219 | | | | 219 | | | | | | | | | | | | | | | | | | 5,561 | | | | 5,448 | | | | | | 4,977 | | | | 5,337 | | Less: Accumulated Depreciation | | | | | (2,559 | ) | | | (2,298 | ) | | | | | (3,050 | ) | | | (2,983 | ) | | | | | | | | | | | | | $ | 1,927 | | | $ | 2,354 | | | | | | $ | 3,002 | | | $ | 3,150 | | | | | | | | | | | | |
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6. Asset Impairments Goodwill and Other Indefinite-Lived Intangible Assets The Company tests intangible assets for impairment annually, or more frequently if events or circumstances indicate they could be impaired. Potential impairment indicators include, but are not limited to: a sustained increase in worldwide inventories of oil or gas, sustained reductions in: worldwide oil and gas prices or drilling activity; the profitability or cash flow of oil and gas companies or drilling contractors; available financing or other capital for oil and gas companies or drilling contractors; the market capitalization of the Company or its customers; or, capital investments by drilling companies and oil and gas companies. During the first quarter of 2020 the coronavirus (COVID-19) outbreak rapidly spread across the world, driving sharp demand destruction for crude oil as whole economies ordered curtailed activity. Members of the Organization of the Petroleum Exporting Countries and other producing countries (OPEC+), including Russia, increased production into the already oversupplied market, decimating oil prices. The result was the Company’s stock price reaching a new low during the quarter and its market capitalization falling below its carrying value. West Texas Intermediate (WTI), a key benchmark for the U.S. oil market, fell more than $40 per barrel from January 1, 2020, to March 31, 2020, (losing two thirds of its value in 90 days) to its lowest level in nearly two decades. As travel restrictions and government directives to shut down businesses increased, demand was expected to continue declining in the second quarter of 2020. Management reduced its forecast accordingly. In the Company’s view, falling rig count levels in the first quarter and a depressed outlook provided evidence to the equity markets that oil and gas producers were committed to reduced levels of capital investment in drilling, further reducing levels of demand for capital equipment and oilfield services that the Company sells to its customers. Also, due to these prolonged poor market conditions, capital availability to many of the Company’s customers became even more limited and was unlikely to improve near-term. In management’s judgement the facts and circumstances including those described above constituted a triggering event in the first quarter which indicated the Company’s goodwill and other long-lived assets may be impaired. The Company performed a detailed analysis under ASC 350, incorporating this updated outlook, which determined that the fair values were less than the respective carrying values for all of the Company’s business units (“Reporting Units”). The Company primarily uses the discounted cash flow method to estimate the fair value of its Reporting Units when conducting the impairment test but also considers the comparable companies and representative transaction methods to validate the test result and management’s forecast and other expectations, where possible. The valuation techniques used in the test were consistent with those used during previous testing. Fair value of the Reporting Unit is determined using significant unobservable inputs, or Level 3 in the fair value hierarchy. These inputs are based on internal management estimates, forecasts and judgements, using discounted cash flows. The inputs used in the test were updated to reflect management’s judgement, current market conditions and forecasts. The discounted cash flow was based on management’s forecast of operating performance for each Reporting Unit. The two main assumptions used, which bear the risk of change and could impact the test result, include the forecast cash flow from operations from each of the Company’s Reporting Units and their respective weighted average cost of capital. The starting point for each of the Reporting Unit’s cash flow from operations was the detailed forecast, modified to incorporate our revised outlook, as appropriate. The Reporting Unit carrying values were adjusted based on the long-lived asset impairment assessment noted below. Cash flows beyond the plan or forecast were estimated using a terminal value calculation which incorporated historical and forecasted financial cyclical trends for each Reporting Unit and considered long-term earnings growth rates. Financial and credit market volatility directly impacts our fair value measurement through the weighted average cost of capital used to determine a discount rate. During times of volatility, significant judgement must be applied to determine whether credit changes are a short-term or long-term trend. For the first quarter of 2020, the Company recorded $1,295 million in impairment charges to goodwill and $83 million in charges to indefinite-lived intangible assets. During the fourth quarter, the Company’s Completion & Production Solutions segment reorganized its Reporting Units. The Company performed a goodwill impairment analysis prior and subsequent to the restructuring and concluded no impairment charges were necessary. The restructuring did not affect Completion & Production Solutions’ consolidated financial position and results of operations. 75
The Company conducted its annual impairment test during the fourth quarter of 2020 and concluded 0 impairment charges were necessary. Further deterioration of market conditions, in management’s judgement, beyond those incorporated into the extended forecast by management, could result in additional impairment charges. The remaining goodwill balance for the Company’s Reporting Units at December 31, 2020 is as follows: Rig Equipment, $661 million; Marine Construction, $51 million; ReedHycalog, $124 million; Wellsite Services, $174 million; XL Systems, $64 million; M/D Totco, $10 million; PFT, $41 million; Fiberglass Systems, $346 million; and Industrial, $22 million. Of these, Rig Equipment, Marine Construction, MD Totco, Wellsite Services, Industrial and XL Systems did not have a fair value substantially in excess of their carrying value at December 31, 2020, making them more susceptible to additional impairment charges if market conditions fall further. The Company has approximately $1,493 million of goodwill, by segment as follows (in millions): | | Wellbore Technologies | | | Completion & Production Solutions | | | Rig Technologies | | | Total | | Balance at December 31, 2018 | | $ | 3,011 | | | $ | 2,041 | | | $ | 1,212 | | | $ | 6,264 | | Goodwill acquired and adjusted during period | | | 9 | | | | 40 | | | | 13 | | | | 62 | | Impairment | | | (2,178 | ) | | | (1,019 | ) | | | (312 | ) | | | (3,509 | ) | Currency translation adjustments | | | 1 | | | | (8 | ) | | | (3 | ) | | | (10 | ) | Balance at December 31, 2019 | | | 843 | | | | 1,054 | | | | 910 | | | | 2,807 | | Goodwill acquired and adjusted during period | | | 4 | | | | — | | | | — | | | | 4 | | Impairment | | | (517 | ) | | | (580 | ) | | | (198 | ) | | | (1,295 | ) | Currency translation adjustments and other | | | (22 | ) | | | (1 | ) | | | — | | | | (23 | ) | Balance at December 31, 2020 (1) | | $ | 308 | | | $ | 473 | | | $ | 712 | | | $ | 1,493 | |
(1) | Accumulated goodwill impairment was $7,261 million as of December 31, 2020. |
Impairment of Long-Lived Assets (Excluding Goodwill and Other Indefinite-Lived Intangible Assets) Long-lived assets, which include property, plant and equipment, right of use, and finite-lived intangible assets, comprise a significant amount of the Company’s total assets. The Company makes judgements and estimates in conjunction with the carrying value of these assets, including amounts to be capitalized, depreciation and amortization methods and estimated useful lives. The Company identified its Reporting Units as individual asset groups. The carrying values of these asset groups are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. An impairment loss is recorded in the period in which it is determined that the carrying amount of the asset is not recoverable based on estimated future undiscounted cash flows. We estimate the fair value of these intangible and fixed assets using an income approach that requires the Company to make long-term forecasts of its future revenues and costs related to the assets subject to review. These forecasts require assumptions about demand for the Company’s products and services, future market conditions and technological developments. The forecasts are dependent upon assumptions including those regarding oil and gas prices, the general outlook for the global oil and gas industry, available financing for the Company’s customers, political stability in major oil and gas producing areas, and the potential obsolescence of various types of equipment we sell, among other factors. Financial and credit market volatility directly impacts our fair value measurement through our income forecast. Changes to these assumptions, including, but not limited to: sustained declines in worldwide rig counts below current analysts’ forecasts; collapse of spot and futures prices for oil and gas; significant deterioration of external financing for our customers; higher risk premiums or higher cost of equity; or any other significant adverse economic news could require a provision for impairment. During the first quarter of 2020, the results of the Company's test for impairment of goodwill and indefinite-lived intangible assets, and the other negative market indicators described above, were a triggering event that indicated that its long-lived tangible assets and finite-lived intangible assets were impaired. Impairment testing performed in the first quarter resulted in the determination that certain long-lived assets associated with most of the Company’s asset groups were not recoverable. The estimated fair value of these asset groups was below the carrying value and as a result, during the first quarter of 2020, the Company recorded impairment charges of $209 million to customer relationships, patents, trademarks, tradenames, and other finite- 76
lived intangible assets, $262 million to property, plant and equipment, and $42 million for right-of-use assets. Additionally, the Company recorded a $224 million impairment on its equity investment in unconsolidated affiliates. Remaining identified intangible assets with determinable lives consist primarily of customer relationships, trademarks, trade names, patents, and technical drawings acquired in acquisitions, and are being amortized in a manner consistent with the underlying cash flows over the estimated useful lives of 2-30 years. Amortization expense of identified intangibles is expected to be approximately $43 million, $40 million, $33 million, $28 million, and $25 million for the next five years. The Company has approximately $527 million of identified intangible assets, by segment as follows (in millions): | | Wellbore Technologies | | | Completion & Production Solutions | | | Rig Technologies | | | Total | | Balance at December 31, 2018 | | $ | 1,735 | | | $ | 1,005 | | | $ | 280 | | | $ | 3,020 | | Additions to intangible assets | | | 6 | | | | 11 | | | | — | | | | 17 | | Impairment | | | (1,314 | ) | | | (690 | ) | | | — | | | | (2,004 | ) | Amortization | | | (94 | ) | | | (56 | ) | | | (28 | ) | | | (178 | ) | Currency translation adjustments | | | (7 | ) | | | 5 | | | | (1 | ) | | | (3 | ) | Balance at December 31, 2019 | | $ | 326 | | | $ | 275 | | | $ | 251 | | | $ | 852 | | Additions to intangible assets | | | 20 | | | | — | | | | — | | | | 20 | | Impairment | | | (78 | ) | | | (214 | ) | | | — | | | | (292 | ) | Amortization | | | (12 | ) | | | (9 | ) | | | (28 | ) | | | (49 | ) | Currency translation adjustments | | | (3 | ) | | | (5 | ) | | | 4 | | | | (4 | ) | Balance at December 31, 2020 | | $ | 253 | | | $ | 47 | | | $ | 227 | | | $ | 527 | |
Identified intangible assets by major classification consist of the following (in millions): | | Gross | | | Accumulated Amortization | | | Net Book Value | | December 31, 2019: | | | | | | | | | | | | | Customer relationships | | $ | 598 | | | $ | (305 | ) | | $ | 293 | | Trademarks | | | 190 | | | | (123 | ) | | | 67 | | Patents | | | 121 | | | | (47 | ) | | | 74 | | Indefinite-lived trade names | | | 280 | | | | — | | | | 280 | | Other | | | 283 | | | | (145 | ) | | | 138 | | Total identified intangibles | | $ | 1,472 | | | $ | (620 | ) | | $ | 852 | | December 31, 2020: | | | | | | | | | | | | | Customer relationships | | $ | 475 | | | $ | (300 | ) | | $ | 175 | | Trademarks | | | 175 | | | | (116 | ) | | | 59 | | Patents | | | 115 | | | | (53 | ) | | | 62 | | Indefinite-lived trade names | | | 196 | | | | — | | | | 196 | | Other | | | 94 | | | | (59 | ) | | | 35 | | Total identified intangibles | | $ | 1,055 | | | $ | (528 | ) | | $ | 527 | |
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7. Accrued Liabilities Accrued liabilities consist of (in millions): | | | | December 31, | | | December 31, | | | | | 2017 | | | 2016 | | | 2020 | | | 2019 | | Vendor costs | | $ | 150 | | | $ | 235 | | | $ | 118 | | | $ | 121 | | Customer prepayments and billings | | | 240 | | | | 222 | | | Compensation | | | 345 | | | | 181 | | | | 196 | | | | 270 | | Taxes (non income) | | | 152 | | | | 176 | | | | 158 | | | | 112 | | Warranty | | | 135 | | | | 172 | | | | 87 | | | | 90 | | Insurance | | | 74 | | | | 103 | | | | 48 | | | | 57 | | Fair value of derivatives | | | 8 | | | | 66 | | | | 15 | | | | 24 | | Commissions | | | 58 | | | | 57 | | | | 19 | | | | 31 | | Interest | | | 7 | | | | 8 | | | | 7 | | | | 8 | | Other | | | 309 | | | | 348 | | | | 215 | | | | 236 | | | | | | | | | | Total | | $ | 1,478 | | | $ | 1,568 | | | $ | 863 | | | $ | 949 | | | | | | | | | |
8. CostsLeases The Company leases certain facilities and Estimated Earnings on Uncompleted Contractsequipment to support its operations around the world. These leases generally require the Company to pay maintenance, insurance, taxes and other operating costs in addition to rent. Renewal options are common in longer term leases; however, it is rare that the Company intends to exercise a lease option at inception due to the cyclical nature of the Company’s business. Residual value guarantees are not typically part of the Company’s leases. Occasionally, the Company sub-leases excess facility space, generally at terms similar to the source lease. The Company reviews new agreements to determine if they include a lease and, when they do, uses its incremental borrowing rate to determine the present value of the future lease payments as most do not include implicit interest rates. Costs and estimated earnings on uncompleted contracts consistComponents of leases are as follows (in millions):
| | | | | | | | | | | | December 31, | | | | | 2017 | | | 2016 | | Costs incurred on uncompleted contracts | | $ | 6,395 | | | $ | 8,132 | | Estimated earnings | | | 3,023 | | | | 3,869 | | | | | | | | | | | | | | 9,418 | | | | 12,001 | | Less: Billings to date on uncompleted contracts | | | 9,202 | | | | 11,776 | | | | | | | | | | | | | $ | 216 | | | $ | 225 | | | | | | | | | | | Costs and estimated earnings in excess of billings on uncompleted contracts | | $ | 495 | | | $ | 665 | | Billings in excess of costs and estimated earnings on uncompleted contracts | | | (279 | ) | | | (440 | ) | | | | | | | | | | | | $ | 216 | | | $ | 225 | | | | | | | | | | |
| | December 31, | | | | 2020 | | | 2019 | | Current portion of lease liabilities: | | | | | | | | | Operating | | $ | 82 | | | $ | 84 | | Financing | | | 28 | | | | 30 | | Total | | $ | 110 | | | $ | 114 | | | | | | | | | | | | | December 31, | | | | 2020 | | | 2019 | | Long-term portion of lease liability: | | | | | | | | | Operating | | $ | 376 | | | $ | 424 | | Financing | | | 236 | | | | 250 | | Total | | $ | 612 | | | $ | 674 | |
78
Components of lease expense were as follows (in millions): | | Years Ended | | | | December 31, 2020 | | | December 31, 2019 | | Lease cost | | | | | | | | | Finance lease cost | | | | | | | | | Amortization of right-of-use assets | | $ | 31 | | | $ | 32 | | Interest on lease liabilities | | | 11 | | | | 13 | | Operating lease cost | | | 96 | | | | 115 | | Short-term lease cost | | | 64 | | | | 68 | | Sub-lease income | | | (10 | ) | | | (11 | ) | Total | | $ | 192 | | | $ | 217 | |
74
Supplemental information related to the Company’s leases is as follows (in millions): | | Years Ended | | | | December 31, 2020 | | | December 31, 2019 | | Other information: | | | | | | | | | Cash paid for amounts included in the measurement of lease liabilities: | | | | | | | | | Operating cash flows - finance leases | | $ | 11 | | | $ | 13 | | Operating cash flows - operating leases | | | 96 | | | | 115 | | Financing cash flows - finance leases | | | 31 | | | | 32 | | Right-of-use assets obtained in exchange for new: | | | | | | | | | Operating lease liabilities | | | 47 | | | | 53 | | Finance lease liabilities | | $ | 16 | | | $ | 12 | | | | | | | | | | | Weighted average remaining lease term at December 31, 2020: | | | | | | | | | Operating leases | | 11 years | | | 10 years | | Finance leases | | 18 years | | | 16 years | | Weighted average discount rate at December 31, 2020: | | | | | | | | | Operating leases | | | 4.93 | % | | | 4.48 | % | Finance leases | | | 3.92 | % | | | 4.58 | % |
Future minimum lease commitments for leases with initial or remaining terms of one year or more at December 31, 2020, are payable as follows (in millions): | | Operating | | | Finance | | 2021 | | $ | 101 | | | $ | 36 | | 2022 | | | 81 | | | | 30 | | 2023 | | | 64 | | | | 23 | | 2024 | | | 55 | | | | 19 | | 2025 | | | 44 | | | | 18 | | Thereafter | | | 245 | | | | 228 | | Total lease payments | | | 590 | | | | 354 | | Less: Interest | | | (132 | ) | | | (90 | ) | Present value of lease liabilities | | $ | 458 | | | $ | 264 | |
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9. Debt Debt consists of (in millions): | | | | | | | | | | | | December 31, | | | | | 2017 | | | 2016 | | $500 million in Senior Notes, interest at 1.35% payable semiannually, principal due on December 1, 2017 | | | — | | | | 499 | | | | | $1.4 billion in Senior Notes, interest at 2.60% payable semiannually, principal due on December 1, 2022 | | | 1,392 | | | | 1,391 | | | | | $1.1 billion in Senior Notes, interest at 3.95% payable semiannually, principal due on December 1, 2042 | | | 1,088 | | | | 1,087 | | | | | Capital Leases and other debt | | | 232 | | | | 237 | | | | | | | | | | | Total debt | | | 2,712 | | | | 3,214 | | Less current portion | | | 6 | | | | 506 | | | | | | | | | | | Long-term debt | | $ | 2,706 | | | $ | 2,708 | | | | | | | | | | |
| | December 31, | | | | 2020 | | | 2019 | | $1.1 billion in Senior Notes, interest at 3.95% payable semiannually, principal due on December 1, 2042 | | | 1,089 | | | | 1,088 | | $0.5 billion in Senior Notes, interest at 3.60% payable semiannually, principal due on December 1, 2029 | | | 493 | | | | 493 | | $0.2 billion in Senior Notes, interest at 2.60% payable semiannually, principal due on December 1, 2022 | | | 182 | | | | 399 | | Other debt | | | 70 | | | | 9 | | Long-term debt | | $ | 1,834 | | | $ | 1,989 | |
Principal payments of debt and capital leases for years subsequent to 20172020 are as follows (in millions): | 2018 | | $ | 6 | | | 2019 | | | 5 | | | 2020 | | | 5 | | | 2021 | | | 5 | | | | — | | 2022 | | | 1,405 | | | | 183 | | 2023 | | | | 13 | | 2024 | | | | 4 | | 2025 | | | | 14 | | Thereafter | | | 1,286 | | | | 1,620 | | | | | | | $ | 1,834 | | | | $ | 2,712 | | | | | | | |
See Note 12 for additional details on future lease payments specific to capital leases.
On June 27, 2017, theThe Company entered intohas a new $3.0$2.0 billion, credit agreement evidencing a five-year unsecured revolving credit facility, which expires on June 27, 2022, with a syndicate of financial institutions. This new credit facility replaced the Company’s previous $4.5 billion revolving credit facility.October 30, 2024. The Company has the right to increase the aggregate commitments under this new agreement to an aggregate amount of up to $4.0$3.0 billion upon the consent of only those lenders holding any such increase. Interest under the new multicurrency facility is based upon LIBOR, NIBOR or CDOR plus 1.125% subject to a ratings-based grid or the U.S. prime rate. The new credit facility contains a financial covenant regarding maximumdebt-to-capitalization ratio of 60%. As of December 31, 2017,2020, the Company was in compliance with adebt-to-capitalization ratio of 16.1%28.4% and had 0 outstanding letters of credit issued under the facility, resulting in $2.0 billion of available funds.
Additionally, the Company has a $150 million bank line of credit for the construction of a facility in Saudi Arabia. Interest under the bank line of credit is based upon LIBOR plus 1.40%. The bank line of credit contains a financial covenant regarding maximum debt-to-equity ratio of 75%. As of December 31, 2020, the Company was in compliance. Other debt at December 31, 2020, included $24 million on the books of consolidated joint ventures due to the minority interest partner. On November 29, 2017,August 25, 2020, the Company repaid in its entirety the $500completed a cash tender offer for $217.3 million of its 1.35%2.60% unsecured Senior Notes using available cash balances. The Company haspaid $226 million, which included a commercial paper program underredemption premium of $7.6 million as well as accrued and unpaid interest of $1.3 million. As a result of the redemption, the Company recorded a loss on extinguishment of debt of $8.2 million, which borrowings are classified as long-term sinceincluded the program is supported by the $3.0 billion, five-year credit facility. At December 31, 2017, there were no commercial paper borrowings,redemption premium of $7.6 million and there were no outstanding lettersnon-cash charges of credit issued under the credit facility, resulting in $3.0 billion of funds available under this credit facility.$0.6 million attributable to write-off unamortized discount and debt issuance costs. The Company had $658$446 million of outstanding letters of credit at December 31, 2017,2020, primarily in the U.S. and Norway, that are under various bilateral committed letter of credit facilities. Letters of credit are issued as bid bonds, advanced payment bonds and performance bonds. At December 31, 20172020 and 2016,2019, the fair value of the Company’s unsecured Senior Notes approximated $2,346$1,833 million and $2,669$1,947 million, respectively. The fair value of the Company’s debt is estimated using Level 2 inputs in the fair value hierarchy and is based on quoted prices for those or similar instruments. At December 31, 20172020 and 2016, 2019, 80
the carrying value of the Company’s unsecured Senior Notes approximated $2,480$1,764 million and $2,977$1,980 million, respectively. 75
10. Employee Benefit Plans We have benefit plans covering substantially all of our employees. Defined-contribution benefit plans cover most of the U.S. and Canadian employees, and benefits are based on years of service, a percentage of current earnings and matching of employee contributions. We also have defined contribution plans in Norway and the United Kingdom. For the years ended December 31, 2017, 20162020, 2019 and 2015,2018, expenses for defined-contribution plans were $64$51 million, $66$70 million, and $95$68 million, respectively, and all funding is current. Certain retired or terminated employees of predecessor or acquired companies participate in a defined benefit plan in the United States. Approximately 4021 employees represented by certain collective bargaining agreements continue to accrue benefits under the plan. In addition, approximately 1,9501,594 U.S. retirees and spouses participate in defined benefit health care plans of predecessor or acquired companies that provide postretirement medical andand/or life insurance benefits. Except for two locations represented by certain collective bargaining agreements, active employees are ineligible to participate in any of these U.S. defined benefit plans. Active employees based in the United Kingdom are ineligible to participate in any defined benefit plans. During 2016, the Company settled its Norway defined benefit plan and transferred all participants to the defined-contribution plan. The impact on the defined benefit plans is reflected in the table below.
Net periodic benefit costincome (cost) for our defined benefit plans aggregated $1$3 million, $5$2 million and $5$3 million for the years ended December 31, 2017, 20162020, 2019 and 2015,2018, respectively. The change in benefit obligation, plan assets and the funded status of the defined benefit pension plans in the United States, United Kingdom, Norway, Germany and the Netherlands and defined postretirement plans in the United States, using a measurement date of December 31, 20172020 and 2016,2019, is as follows (in millions): | | | | Pension benefits | | | Postretirement benefits | | | Pension benefits | | | Postretirement benefits | | At year end | | 2017 | | | 2016 | | | 2017 | | | 2016 | | | 2020 | | | 2019 | | | 2020 | | | 2019 | | Benefit obligation at beginning of year | | $ | 622 | | | $ | 703 | | | $ | 92 | | | $ | 90 | | | $ | 600 | | | $ | 575 | | | $ | 53 | | | $ | 45 | | Service cost | | | 1 | | | | 5 | | | | — | | | | — | | | | 1 | | | | 1 | | | | — | | | | — | | Interest cost | | | 20 | | | | 25 | | | | 3 | | | | 3 | | | | 14 | | | | 18 | | | | — | | | | 2 | | Actuarial loss (gain) | | | 6 | | | | 42 | | | | (17 | ) | | | (29 | ) | | | 54 | | | | 42 | | | | 5 | | | | (15 | ) | Benefits paid | | | (31 | ) | | | (30 | ) | | | (14 | ) | | | (16 | ) | | | (29 | ) | | | (29 | ) | | | (17 | ) | | | (11 | ) | Participants contributions | | | — | | | | — | | | | 2 | | | | 2 | | | | — | | | | — | | | | 2 | | | | 2 | | Exchange rate loss (gain) | | | 30 | | | | (37 | ) | | | — | | | | — | | | | 17 | | | | 5 | | | | — | | | | — | | Acquisitions (disposals) | | | — | | | | 2 | | | | — | | | | — | | | Curtailments | | | — | | | | (17 | ) | | | (4 | ) | | | — | | | Special events | | | | — | | | | — | | | | — | | | | 30 | | Plan amendments | | | | — | | | | — | | | | — | | | | — | | Settlements | | | (15 | ) | | | (71 | ) | | | — | | | | — | | | | (16 | ) | | | (12 | ) | | | — | | | | — | | Other | | | — | | | | — | | | | — | | | | 42 | | | | | | | | | | | | | | | | | Benefit obligation at end of year | | $ | 633 | | | $ | 622 | | | $ | 62 | | | $ | 92 | | | $ | 641 | | | $ | 600 | | | $ | 43 | | | $ | 53 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fair value of plan assets at beginning of year | | $ | 543 | | | $ | 601 | | | $ | — | | | $ | — | | | $ | 568 | | | $ | 517 | | | $ | — | | | $ | — | | Actual return | | | 57 | | | | 60 | | | | — | | | | — | | | | 43 | | | | 80 | | | | — | | | | — | | Benefits paid | | | (31 | ) | | | (30 | ) | | | (14 | ) | | | (16 | ) | | | (29 | ) | | | (29 | ) | | | (17 | ) | | | (11 | ) | Company contributions | | | 11 | | | | 16 | | | | 12 | | | | 14 | | | | 5 | | | | 5 | | | | 15 | | | | 9 | | Participants contributions | | | — | | | | — | | | | 2 | | | | 2 | | | | — | | | | — | | | | 2 | | | | 2 | | Exchange rate gain (loss) | | | 24 | | | | (34 | ) | | | — | | | | — | | | | 13 | | | | 6 | | | | — | | | | — | | Settlements | | | (15 | ) | | | (71 | ) | | | — | | | | — | | | | (16 | ) | | | (11 | ) | | | — | | | | — | | Acquisitions (disposals) | | | — | | | | 1 | | | | — | | | | — | | | Other | | | (1 | ) | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | Fair value of plan assets at end of year | | $ | 588 | | | $ | 543 | | | $ | — | | | $ | — | | | $ | 584 | | | $ | 568 | | | $ | — | | | $ | — | | | | | | | | | | | | | | | | Funded status | | $ | (45 | ) | | $ | (79 | ) | | $ | (62 | ) | | $ | (92 | ) | | $ | (57 | ) | | $ | (32 | ) | | $ | (43 | ) | | $ | (53 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Accumulated benefit obligation at end of year | | $ | 630 | | | $ | 617 | | | | | | | $ | 637 | | | $ | 597 | | | | | | | | | | | | | | | | | | | | | |
Liabilities associated with the funded status of the defined benefit pension plans are included in the balances of accrued liabilities and other liabilities in the Consolidated Balance Sheet. 81 76
Defined Benefit Pension Plans Assumed long-term rates of return on plan assets, discount rates and rates of compensation increases vary for the different plans according to the local economic conditions. The assumption rates used for benefit obligations are as follows: | | | | Years Ended December 31, | | Years Ended December 31, | | | | 2017 | | 2016 | | 2020 | | 2019 | Discount rate: | | | | | | | | | United States plan | | 3.00% - 3.60% | | 3.10% - 4.00% | | 1.20% - 2.40% | | 2.50% - 3.20% | International plans | | 1.80% - 2.40% | | 1.80% - 2.80% | | 0.70% - 1.80% | | 0.90% - 2.30% | | Salary increase: | | | | | | | | | United States plan | | N/A | | N/A | | N/A | | N/A | International plans | | 1.80% - 3.30% | | 1.80% - 3.50% | | 1.75% - 2.90% | | 1.80% - 3.10% |
The assumption rates used for net periodic benefit costs are as follows: | | | | Years Ended December 31, | | | Years Ended December 31, | | | | | 2017 | | 2016 | | | 2015 | | | 2020 | | | 2019 | | | 2018 | | Discount rate: | | | | | | | | | | | | | | | | | | | United States plan | | | 3.10% - 4.00% | | | 3.20% - 4.20% | | | | 3.70% - 4.20% | | | 2.50% - 3.20% | | | 3.90% - 4.20% | | | 3.00% - 3.60% | | International plans | | | 1.80% - 2.80% | | | 2.20% - 3.70% | | | | 2.20% - 3.70% | | | 0.00% - 2.30% | | | 1.80% - 2.90% | | | 1.80% - 2.40% | | | Salary increase: | | | | | | | | | | | | | | | | | | | United States plan | | | N/A | | | N/A | | | | N/A | | | N/A | | | N/A | | | N/A | | International plans | | | 1.80% - 3.50% | | | 2.00% - 4.20% | | | | 2.00% - 4.20% | | | 1.80% - 3.10% | | | 1.80% - 3.40% | | | 1.80% - 3.30% | | | Expected return on assets: | | | | | | | | | | | | | | | | | | | United States plan | | | 5.60% | | | 5.60% | | | | 5.50% | | | 4.80% | | | 5.70% | | | 5.60% | | International plans | | | 1.80% - 3.00% | | | 1.80% - 3.00% | | | | 2.30% - 5.12% | | | 0.00% - 4.50% | | | 1.90% - 4.30% | | | 1.80% - 4.00% | |
In determining the overall expected long-term rate of return for plan assets, the Company takes into consideration the historical experience as well as future expectations of the asset mix involved. As different investments yield different returns, each asset category is reviewed individually and then weighted for significance in relation to the total portfolio. The majority of our plans have projected benefit obligations in excess of plan assets. The Company expects to pay future benefit amounts on its defined benefit plans of approximately $33$34 million for each of the next five years and aggregate payments of $324$325 million. Plan Assets The Company and its investment advisers collaboratively reviewed market opportunities using historic and statistical data, as well as the actuarial valuation reports for the plans, to ensure that the levels of acceptable return and risk are well-defined and monitored. Currently, the Company’s management believes that there are no significant concentrations of risk associated with plan assets. Our pension investment strategy worldwide prohibits a direct investment in our own stock. 82 77
The following table sets forth by level, within the fair value hierarchy, the Plan’s assets carried at fair value (in millions): | | | | | | | | | | Fair Value Measurements | | | | | Fair Value Measurements | | | Total | | | Level 1 | | | Level 2 | | | Level 3 | | | | | Total | | | Level 1 | | | Level 2 | | | Level 3 | | | December 31, 2016: | | | | | | | | | | | December 31, 2019: | | | | | | | | | | | | | | | | | | Equity securities | | $ | 181 | | | $ | — | | | $ | 181 | | | $ | — | | | $ | 157 | | | $ | — | | | $ | 157 | | | $ | — | | Bonds | | | 262 | | | | — | | | | 262 | | | | — | | | | 227 | | | | — | | | | 227 | | | | — | | Other (insurance contracts) | | | 100 | | | | — | | | | 47 | | | | 53 | | | | 184 | | | | — | | | | 121 | | | | 63 | | | | | | | | | | | | | | | | Total Fair Value Measurements | | $ | 543 | | | $ | — | | | $ | 490 | | | $ | 53 | | | $ | 568 | | | $ | — | | | $ | 505 | | | $ | 63 | | | | | | | | | | | | | | | | December 31, 2017: | | | | | | | | | | | December 31, 2020: | | | | | | | | | | | | | | | | | | Equity securities | | $ | 161 | | | $ | — | | | $ | 161 | | | $ | — | | | $ | 108 | | | $ | — | | | $ | 108 | | | $ | — | | Bonds | | | 284 | | | | — | | | | 284 | | | | — | | | | 253 | | | | — | | | | 253 | | | | — | | Other (insurance contracts) | | | 143 | | | | — | | | | 82 | | | | 61 | | | | 221 | | | | — | | | | 155 | | | | 66 | | | | | | | | | | | | | | | | Total Fair Value Measurements | | $ | 588 | | | $ | — | | | $ | 527 | | | $ | 61 | | | $ | 582 | | | $ | — | | | $ | 516 | | | $ | 66 | | | | | | | | | | | | | | | |
Level 3 inputs are unobservable (i.e., supported by little or no market activity). Level 3 inputs include management’s own judgement about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk). The following table sets forth a summary of changes in the fair value of the Plan’s Level 3 assets (in millions): | | | | | | | | Level 3
Plan
Assets | | Balance at December 31, 2015 | | $ | 99 | | | | | | | Actual return on plan assets still held at reporting date | | | 5 | | Purchases, sales and settlements | | | (50 | ) | Currency translation adjustments | | | (1 | ) | | | | | | Balance at December 31, 2016 | | $ | 53 | | | | | | | Actual return on plan assets still held at reporting date | | | 2 | | Purchases, sales and settlements | | | (1 | ) | Currency translation adjustments | | | 7 | | | | | | | Balance at December 31, 2017 | | $ | 61 | | | | | | |
| | Level 3 Plan Assets | | Balance at December 31, 2018 | | $ | 55 | | Actual return on plan assets still held at reporting date | | | 10 | | Purchases, sales and settlements | | | (1 | ) | Currency translation adjustments | | | (1 | ) | Balance at December 31, 2019 | | $ | 63 | | Actual return on plan assets still held at reporting date | | | — | | Purchases, sales and settlements | | | (3 | ) | Currency translation adjustments | | | 6 | | Balance at December 31, 2020 | | $ | 66 | |
7883
11. Accumulated Other Comprehensive Income (Loss) The components of accumulated other comprehensive income (loss) are as follows (in millions): | | | | | | | | | | | | | | | | | | | | Currency
Translation
Adjustments | | | Derivative
Financial
Instruments,
Net of Tax | | | Defined
Benefit
Plans,
Net of Tax | | | Total | | Balance at December 31, 2014 | | $ | (515 | ) | | $ | (228 | ) | | $ | (91 | ) | | $ | (834 | ) | | | | | | | | | | | | | | | | | | Accumulated other comprehensive income (loss) before reclassifications | | | (764 | ) | | | (176 | ) | | | 26 | | | | (914 | ) | Amounts reclassified from accumulated other comprehensive income (loss) | | | — | | | | 199 | | | | (4 | ) | | | 195 | | | | | | | | | | | | | | | | | | | Balance at December 31, 2015 | | $ | (1,279 | ) | | $ | (205 | ) | | $ | (69 | ) | | $ | (1,553 | ) | | | | | | | | | | | | | | | | | | Accumulated other comprehensive income (loss) before reclassifications | | | (97 | ) | | | 32 | | | | 35 | | | | (30 | ) | Amounts reclassified from accumulated other comprehensive income (loss) | | | — | | | | 134 | | | | (3 | ) | | | 131 | | | | | | | | | | | | | | | | | | | Balance at December 31, 2016 | | $ | (1,376 | ) | | $ | (39 | ) | | $ | (37 | ) | | $ | (1,452 | ) | | | | | | | | | | | | | | | | | | Accumulated other comprehensive income (loss) before reclassifications | | | 272 | | | | 41 | | | | 25 | | | | 338 | | Amounts reclassified from accumulated other comprehensive income (loss) | | | — | | | | 5 | | | | (1 | ) | | | 4 | | | | | | | | | | | | | | | | | | | Balance at December 31, 2017 | | $ | (1,104 | ) | | $ | 7 | | | $ | (13 | ) | | $ | (1,110 | ) | | | | | | | | | | | | | | | | | |
| | | | | | Derivative | | | Defined | | | | | | | | Currency | | | Financial | | | Benefit | | | | | | | | Translation | | | Instruments, | | | Plans, | | | | | | | | Adjustments | | | Net of Tax | | | Net of Tax | | | Total | | Balance at December 31, 2017 | | $ | (1,104 | ) | | $ | 7 | | | $ | (13 | ) | | $ | (1,110 | ) | Accumulated other comprehensive income (loss) before reclassifications | | | (298 | ) | | | (19 | ) | | | (13 | ) | | | (330 | ) | Amounts reclassified from accumulated other comprehensive income (loss) | | | 6 | | | | (2 | ) | | | (1 | ) | | | 3 | | Balance at December 31, 2018 | | $ | (1,396 | ) | | $ | (14 | ) | | $ | (27 | ) | | $ | (1,437 | ) | Accumulated other comprehensive income (loss) before reclassifications | | | (7 | ) | | | (2 | ) | | | 12 | | | | 3 | | Amounts reclassified from accumulated other comprehensive income (loss) | | | — | | | | 12 | | | | (1 | ) | | | 11 | | Balance at December 31, 2019 | | $ | (1,403 | ) | | $ | (4 | ) | | $ | (16 | ) | | $ | (1,423 | ) | Accumulated other comprehensive income (loss) before reclassifications | | | (78 | ) | | | 4 | | | | (30 | ) | | | (104 | ) | Amounts reclassified from accumulated other comprehensive income (loss) | | | — | | | | 19 | | | | (1 | ) | | | 18 | | Balance at December 31, 2020 | | $ | (1,481 | ) | | $ | 19 | | | $ | (47 | ) | | $ | (1,509 | ) |
The components of amounts reclassified from accumulated other comprehensive income (loss) are as follows (in millions): | | | Years Ended December 31, | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2020 | | | 2019 | | | 2018 | | | | | Years Ended December 31, | | | Currency | | | Derivative | | | Defined | | | | | | | Currency | | | Derivative | | | Defined | | | | | | | Currency | | | Derivative | | | Defined | | | | | | | | | 2017 | | 2016 | | 2015 | | | Translation | | | Financial | | | Benefit | | | | | | | Translation | | | Financial | | | Benefit | | | | | | | Translation | | | Financial | | | Benefit | | | | | | | | | Currency
Translation
Adjustments | | Derivative
Financial
Instruments | | Defined
Benefit
Plans | | Total | | Currency
Translation
Adjustments | | Derivative
Financial
Instruments | | Defined
Benefit
Plans | | Total | | Currency
Translation
Adjustments | | Derivative
Financial
Instruments | | Defined
Benefit
Plans | | Total | | | Adjustments | | | Instruments | | | Plans | | | Total | | | Adjustments | | | Instruments | | | Plans | | | Total | | | Adjustments | | | Instruments | | | Plans | | | Total | | Revenue | | $ | — | | | $ | (8 | ) | | $ | — | | | $ | (8 | ) | | $ | — | | | $ | (5 | ) | | $ | — | | | $ | (5 | ) | | $ | — | | | $ | (19 | ) | | $ | — | | | $ | (19 | ) | | $ | — | | | $ | 17 | | | $ | — | | | $ | 17 | | | $ | — | | | $ | 1 | | | $ | — | | | | 1 | | | $ | — | | | $ | 2 | | | $ | — | | | $ | 2 | | Cost of revenue | | | — | | | 12 | | | | — | | | 12 | | | | — | | | 191 | | | | — | | | 191 | | | | — | | | 295 | | | | — | | | 295 | | | | — | | | | 6 | | | | — | | | | 6 | | | | — | | | | 14 | | | | — | | | | 14 | | | | — | | | | (6 | ) | | | — | | | | (6 | ) | Selling, general, and administrative | | | — | | | | — | | | (1 | ) | | (1 | ) | | | — | | | | — | | | (5 | ) | | (5 | ) | | | — | | | | — | | | (6 | ) | | (6 | ) | | | — | | | | — | | | | (1 | ) | | | (1 | ) | | | — | | | | — | | | | (1 | ) | | | (1 | ) | | | — | | | | — | | | | (1 | ) | | | (1 | ) | Other income (expense), net | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 6 | | | | — | | | | — | | | | 6 | | Tax effect | | | — | | | 1 | | | | — | | | 1 | | | | — | | | (52 | ) | | 2 | | | (50 | ) | | | — | | | (77 | ) | | 2 | | | (75 | ) | | | — | | | | (4 | ) | | | — | | | | (4 | ) | | | — | | | | (3 | ) | | | — | | | | (3 | ) | | | — | | | | 2 | | | | — | | | | 2 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | — | | | $ | 19 | | | $ | (1 | ) | | $ | 18 | | | $ | — | | | $ | 12 | | | $ | (1 | ) | | $ | 11 | | | $ | 6 | | | $ | (2 | ) | | $ | (1 | ) | | $ | 3 | | | | $ | — | | | $ | 5 | | | $ | (1 | ) | | $ | 4 | | | $ | — | | | $ | 134 | | | $ | (3 | ) | | $ | 131 | | | $ | — | | | $ | 199 | | | $ | (4 | ) | | $ | 195 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The Company’s reporting currency is the U.S. dollar. A majority of the Company’s international entities in which there is a substantial investment have the local currency as their functional currency. As a result, currency translation adjustments resulting from the process of translating the entities’ financial statements into the reporting currency are reported in other comprehensive income or loss in accordance with ASC Topic 830 “Foreign Currency Matters” (“ASC Topic 830”)(loss). For the year ended December 31, 2017, a majority of these local currencies strengthened against the U.S. dollar, resulting in netThe Company recorded other comprehensive income (loss) of $272($78) million, upon the translation from local currencies to the U.S. dollar. For$(7) million and $(292) million for the years ended December 31, 20162020, 2019 and 2015, a majority of these local currencies weakened against the U.S. dollar, resulting in a net other comprehensive loss of $97 million and $764 million, respectively, upon the translation from local currencies to the U.S. dollar.2018, respectively. The effect of changes in the fair values of derivatives designated as cash flow hedges are accumulated in other comprehensive income (loss), net of tax, until the underlying transactions to which they are designed to hedge are realized. The movement in other comprehensive income (loss) from period to period will be the result of the combination of changes in fair value forof open derivatives and the outflow of other comprehensive income (loss) related to cumulative changes in the fair value of derivatives that have settled in the current or prior periods.period. The accumulated effect was other comprehensive income of $46 million (net of tax of $13 million) for the year ended December 31, 2017, other comprehensive income of $166 million (net of tax of $65 million) for the year ended December 31, 2016 and other comprehensive incomeloss of $23 million (net of tax$5 million tax), $10 million (net of $14 million)$4 million tax) and $21 million (net of $2 million tax) for the yearyears ended December 31, 2015. 2020, 2019 and 2018.84 79
12. Commitments and Contingencies Our business is affected both directly and indirectlygoverned by governmental laws and regulations relatingpromulgated by U.S. federal and state governments and regulatory agencies, as well as international governmental authorities in the many countries in which we conduct business, including those related to the oilfield service industry in general, as well as byindustry. In the United States these governmental authorities include: the U.S. Department of Labor, the Occupational Safety and Health Administration, the Environmental Protection Agency, the Bureau of Land Management, the Department of Treasury, Office of Foreign Asset Controls, state and international environmental agencies and safety regulations that specifically apply to our business. Although we have not incurredmany others. We are unaware of any material costsunreserved liabilities in connection with our compliance with such laws, there can be no assurance that other developments, such as new environmentallaws. New laws, regulations and enforcement policies may not result in additional, presently unquantifiable or unknown, costs or liabilities to us. In November 2016, the Company executed documents following a 2009-2010 internal investigation settling with U.S. governmental agencies related to our compliance with U.S. export trade laws and regulations. As anticipated, the administrative fines and penalties agreed to as part of a resolution were within established accruals, and had no material effect on our financial position or results of operations. The investigation and settlement are now closed.liabilities.
The Company is involved in various other claims, internal investigations, regulatory agency audits and pending or threatened legal actions involving a variety of matters. In many instances, theThe Company maintains insurance that covers many of the 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 sufficientenough to cover any such material risks. See Item 1A. Risk Factors. The Company is also a party to claims, threatened and actual litigation, and private arbitration, arisinginternal investigations of potential regulatory and compliance matters which arise from legacy businesses that the Company has acquired over many years and from the Company’s current ordinary day to dayday-to-day business activities, inactivities. These regulatory matters and disputes involve private parties and/or government authorities, which parties assert claims against the Company for a broad spectrum of potential liabilities,claims including: individual employment law claims, collective actions or class action claims under federal employment laws, intellectual property claims, including(such as alleged patent infringement, and/or misappropriation of trade secrets,secrets), premises liability claims, environmental claims, product liability claims, warranty claims, personal injuriesinjury claims arising from exposure to or use of allegedly defective products, alleged improper payments underregulatory violations, alleged violations of anti-corruption and anti-bribery laws and other commercial claims seeking recovery for alleged actual or exemplary damages.damages or fines and penalties. Such claims involve various theories of liability which include: negligence, strict liability, product liability, and other theories of liability. For many suchsome of these contingent claims, the Company’s insurance coverage is inapplicable or an exclusion to coverage may apply. In such instances, settlement or other resolution of such contingent claims, individually or collectively, could have a material financial or reputational impact on the Company. As of December 31, 2017,2020, the Company recorded reserves in an amount believed to be sufficient, given the range of potential outcomes, for contingent liabilities representing all contingencies believed to be probable to cover liabilities. probable. These reserves include all costs expected for reclamation of a closed barite mine and product liability claims, as well as other circumstances involving material claims. 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 litigation process as well as the outcome of regulatory oversight is inherently uncertain, and our best judgement concerning the probable outcome of litigation or regulatory enforcement matters may prove to be incorrect in some instances. 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. 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 intentionexperience. Of course, because of uncertainty and experience.risk inherent to litigation and arbitration, the actual liabilities incurred may exceed our estimated liabilities and reserves, which could have a material financial or reputational impact on the Company. In many instances, the Company’s products and services embody or incorporate trade secrets or patented inventions. From time to time, we are engaged in disputes concerning protection of trade secrets and confidential information, patents and other intellectual property rights. Such disputes frequently involve complex, factual, technical and/or legal issues which result in high costs to adjudicate our rights and difficulty in predicting the ultimate outcome. Because of the importance of the Company’s intellectual property to the Company’s performance, an adverse result in such disputes could result in the loss of revenue from royalties or a decline in sales of products protected by patents, which could materially and adversely impact our financial performance. 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 have become involved in governmental investigations, internal investigations, political or other enforcement matters. In such 85
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. We may, alsofrom time to time, become involved in these investigations, at substantial cost to the Company. We also are subject to trade regulations, supply chain regulations, and other regulatory compliance in which the laws and regulations of different jurisdictions conflict or these regulations may conflict with contractual terms. In such circumstances, our compliance with U.S. laws and regulations may subject us to risk of fines, penalties or contractual liability in other jurisdictions. Our efforts to actively manage such risks may not always be successful which could lead to negative impacts on revenue or earnings. The on-going, publicly disclosed investigationsCompany is exposed to customs and regulatory risk in Brazilthe countries in which we do business or to which we transport goods. For example, the effects of the United Kingdom’s withdrawal from the European Union, known as Brexit, may continuehave a negative impact on our results from operations. Uncertainty concerning the legal and regulatory risks of Brexit, include: (i) supply chain risks resulting from lack of trade agreements, the implementation of new trade agreements, and other potential changes in customs administrations or tariffs; (ii) revenue risk, loss of customers or increased costs; (iii) delays in delivery of materials to the Company or delay in delivery by the Company; and (iv) the need for renegotiation of agreements; and other business disruptions. In addition, trade regulations, export controls, and other laws may adversely impact our shipyard customers, their customers, entities providing financing for our shipyard customers and/or entitiesability to do business in the supply chain. We have executed settlements with several shipyard customers since December 28, 2015 concerning contracts for the supply of drilling equipment packages for 16 drillship construction projectscertain countries, e.g.: Iran, Syria, Russia, China and Venezuela. Such trade regulations can be complex and present compliance challenges which could result in Brazil (collectively the “Supply Contracts”). Pursuant to the terms of the settlements, the Supply Contracts have been terminated. We did not take a charge asfuture liabilities. As a result of the settlementrecent COVID-19 pandemic, the Company may be exposed to additional liabilities and risks. COVID-19 illnesses or deaths could lead to claims against the Company. In addition, “Shelter-in-Place” and other governmental orders and restrictions in response to the COVID-19 pandemic have resulted in a severe slowdown in economic activity, and a sharp reduction in oil activity and a corresponding decline in demand for oil. This has and will lead to a sharp reduction in drilling activity in North America and reduction of activity internationally. The persistence of this supply/demand imbalance caused oil prices to drop precipitously, to the lowest prices in decades. The COVID-19 pandemic continues to adversely impact many jurisdictions and continues to disrupt normal economic activities. As a result, the demand for energy continues to be constrained with continued adverse consequences for our customers and for the Company. As a result of these market conditions, demand for our products and services has declined. Our customers may attempt to cancel or delay projects, cancel contracts or may invoke force majure clauses. Our customers may also seek to delay or may default on a net basis, there was no changetheir payments to our prior estimatesus. Further, we have seen, and expect to see, an increasing number of energy companies filing bankruptcy. Our collection of receivables could be materially delayed and/or impaired. The Company also may be exposed to liabilities resulting from operational delays due to supply chain disruption and closure or limitations imposed on our Brazil contracts impacting income.facilities and work force, from “shelter in place” orders around the world. The investigationsCompany’s ability to perform services could also be impaired and the Company could be exposed to liabilities resulting from interruption in Brazil have ledits ability to perform due to limited manpower and are expected to continue to lead to,travel restrictions. These potential operational and service delays in deliveries to our shipyard customers in Brazil, along with temporary suspension of performance under our remaining supply contracts, andresulting from the COVID-19 pandemic could result in additional cancellationscontractual or other breacheslegal claims from our customers. At this time, it is not possible to quantify these risks, but the combination 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. In 2016, in light of the vote by the shareholders of SETE Brasil Participacoes SA to authorize Sete to file for bankruptcy, andthese factors could have a further decline in drilling activity during the first half of the year to record lows and the resulting effectmaterial impact on certain other customers, the Company removed $2.1 billion (unaudited) of orders from its backlog in the first quarter of 2016. Some of the contracts for these orders remain in place and are enforceable. If these customers obtain funding to continue their projects, the Company will pursue resumption of construction and update the backlog accordingly. In other instances, 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. To the extent our shipyard customers and their customers become engaged in disputes or litigation related to any such suspensions, delays or cancellations, we may also become involved, either directly or indirectly, in such disputes or litigation, as we enforce the terms of our contracts with our shipyard customers. While we manage equipment deliveries and collection of payment to mitigate our financial risk, such delays, suspensions, attempted cancellations, breaches of contract or other similar circumstances, could adversely affect our operating results and could reduce our backlog.results.
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The Company leases certain facilities and equipment under operating leases that expire at various dates through 2041. These leases generally contain renewal options and require the lessee to pay maintenance, insurance, taxes and other operating expenses in addition to the minimum annual rentals. Rental expense related to operating leases approximated $209 million, $246 million, and $327 million in 2017, 2016 and 2015, respectively.
Future minimum lease commitments under capital leases and noncancellable operating leases with initial or remaining terms of one year or more at December 31, 2017, are payable as follows (in millions):
| | | | | | | | | | | | Capital Lease
Payments | | | Operating Lease
Payments | | 2018 | | $ | 15 | | | $ | 130 | | 2019 | | | 15 | | | | 98 | | 2020 | | | 15 | | | | 82 | | 2021 | | | 15 | | | | 67 | | 2022 | | | 15 | | | | 55 | | Thereafter | | | 273 | | | | 339 | | | | | | | | | | | Total future lease commitments | | $ | 348 | | | $ | 771 | | | | | | | | | | |
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13. Common Stock National Oilwell VarcoNOV has authorized 1 billion shares of $0.01 par value common stock. The Company also has authorized 10 million shares of $0.01 par value preferred stock, noneNaN of which is issued or outstanding.
Cash dividends aggregated $76$19 million and $230$77 million for the years ended December 31, 20172020 and 2016,2019, respectively. The declaration and payment of future dividends is at the discretion of the Company’s Board of Directors and will be dependent upon the Company’s results of operations, financial condition, capital requirements and other factors deemed relevant by the Company’s Board of Directors. 86
Total compensation cost that has been charged against income for all share-based compensation arrangements was $124$105 million, $107$130 million and $109$110 million for 2017, 20162020, 2019 and 2015,2018, respectively. The total income tax benefit recognized before consideration of valuation allowance in the consolidated statements of income for all share-based compensation arrangements was $24$3 million, $30$14 million and $32$16 million for 2017, 20162020, 2019 and 2015,2018, respectively. UnderThe Company’s stock-based compensation plan, known as the terms of National Oilwell Varco’sVarco, Inc. 2018 Long-Term Incentive Plan as amended during(the “2018 Plan”), was approved by shareholders on May 11, 2018. The 2018 Plan provides for the second quartergranting of 2016, 69.4stock options, restricted stock, restricted stock units, performance awards, phantom shares, stock appreciation rights, stock payments and substitute awards. The number of shares authorized under the 2018 Plan is 42.7 million. The 2018 Plan is also subject to a fungible ratio concept, such that the issuance of stock options and stock appreciation rights reduces the number of available shares under the 2018 Plan on a 1-for-1 basis, and the issuance of other awards reduces the number of available shares under the 2018 Plan on a 2.5-for-1 basis. At December 31, 2020, approximately 24.0 million shares of common stock are authorizedwere available for future grants.
The Company also has outstanding awards under its other stock-based compensation plan known as the grant of options to officers, key employees,non-employee directors and other persons.National Oilwell Varco, Inc. Long-Term Incentive Plan (the “Plan”), however the Company is no longer granting new awards under the Plan. The Plan provides for the granting of stock options, performance-based share awards, restricted stock, phantom shares, stock payments and stock appreciation rights (“SARs”). The number of shares authorized under the Plan is now69.4 million. The Plan is subject to a fungible ratio concept, such that the issuance of stock options and SARs reduces the number of available shares under the Plan on a1-for-1 basis, and the issuance of other awards reduces the number of available shares under the Plan on a3-for-1 basis. At December 31, 2017, approximately 17.8 million shares were available for future grants. Stock Options Options granted under our stock option planstock-based compensation plans generally vest over a three-year period starting one year from the date of grant and expire ten years from the date of grant. The purchase price of options granted may not be less than the closing market price of National Oilwell VarcoNOV common stock on the date of grant. We also have an inactive stock option plan that was acquired in connection with the acquisition of Grant Prideco in 2008. We converted the outstanding stock options under this plan to options to acquire our common stock and no further options are being issued under this plan. Stock option information summarized below includes amounts for the National Oilwell Varco Long-Term Incentive PlanPlans and stock plans of acquired companies. Options outstanding at December 31, 20172020 under the stock option plans have exercise prices between $23.94$20.23 and $77.99 per share, and expire at various dates from February 8, 201823, 2021 to April 1, 2027.February 26, 2030.
The following summarizes options activity: | | | | | | | | | | | | | | | | | | | | | | | | | | | | Years Ended December 31, | | | | | 2017 | | | 2016 | | | 2015 | | | | | Number | | | Average | | | Number | | | Average | | | Number | | | Average | | | | | of | | | Exercise | | | of | | | Exercise | | | of | | | Exercise | | | | | Shares | | | Price | | | Shares | | | Price | | | Shares | | | Price | | Shares under option at beginning of year | | | 17,439,060 | | | $ | 54.08 | | | | 15,430,307 | | | $ | 59.50 | | | | 10,881,133 | | | $ | 61.22 | | Granted | | | 6,961,041 | | | | 36.51 | | | | 3,672,411 | | | | 28.26 | | | | 5,746,153 | | | | 54.74 | | Forfeited | | | (1,482,531 | ) | | | 55.22 | | | | (1,517,065 | ) | | | 49.95 | | | | (886,356 | ) | | | 62.73 | | Exercised | | | (445,523 | ) | | | 29.83 | | | | (146,593 | ) | | | 28.53 | | | | (310,623 | ) | | | 22.56 | | | | | | | | | | | | | | | | | | | | | | | | | | | Shares under option at end of year | | | 22,472,047 | | | $ | 48.99 | | | | 17,439,060 | | | $ | 54.08 | | | | 15,430,307 | | | $ | 59.50 | | | | | | | | | | | | | | | | | | | | | | | | | | | Exercisable at end of year | | | 14,309,944 | | | $ | 55.00 | | | | 9,828,897 | | | $ | 61.56 | | | | 7,498,414 | | | $ | 60.30 | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, | | | | 2020 | | | 2019 | | | 2018 | | | | Number | | | Average | | | Number | | | Average | | | Number | | | Average | | | | of | | | Exercise | | | of | | | Exercise | | | of | | | Exercise | | | | Shares | | | Price | | | Shares | | | Price | | | Shares | | | Price | | Shares under option at beginning of year | | | 21,310,099 | | | $ | 47.68 | | | | 21,009,508 | | | $ | 48.88 | | | | 22,472,047 | | | $ | 48.99 | | Granted | | | 1,650,262 | | | | 20.23 | | | | 1,493,576 | | | | 28.72 | | | | 1,610,599 | | | | 35.09 | | Forfeited | | | (1,954,859 | ) | | | 45.75 | | | | (944,917 | ) | | | 50.57 | | | | (1,318,380 | ) | | | 57.56 | | Exercised | | | — | | | | — | | | | (248,068 | ) | | | 29.70 | | | | (1,754,758 | ) | | | 44.12 | | Shares under option at end of year | | | 21,005,502 | | | $ | 45.70 | | | | 21,310,099 | | | $ | 47.68 | | | | 21,009,508 | | | $ | 48.88 | | Exercisable at end of year | | | 17,893,434 | | | $ | 49.25 | | | | 17,796,607 | | | $ | 50.49 | | | | 15,223,029 | | | $ | 54.13 | |
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The following summarizes information about stock options outstanding at December 31, 2017:2020: | | | | Weighted-Avg | | | Options Outstanding | | | Options Exercisable | | | Weighted-Avg | | | Options Outstanding | | | Options Exercisable | | | | | Remaining | | | | | | Weighted-Avg | | | | | | Weighted-Avg | | | Remaining | | | | | | | Weighted-Avg | | | | | | | Weighted-Avg | | Range of Exercise Price | | Contractual Life | | | Shares | | | Exercise Price | | | Shares | | | Exercise Price | | | Contractual Life | | | Shares | | | Exercise Price | | | Shares | | | Exercise Price | | $23.94 - $55.00 | | | 7.55 | | | | 15,797,683 | | | $ | 40.25 | | | | 7,635,580 | | | $ | 42.19 | | | $20.23 - $55.00 | | | | 5.85 | | | | 15,816,183 | | | $ | 37.65 | | | | 12,704,115 | | | $ | 40.68 | | $55.01 - $70.00 | | | 5.09 | | | | 4,301,953 | | | | 66.20 | | | | 4,301,953 | | | | 66.20 | | | | 2.68 | | | | 3,252,338 | | | | 66.82 | | | | 3,252,338 | | | | 66.82 | | $70.01 - $77.99 | | | 3.59 | | | | 2,372,411 | | | | 75.94 | | | | 2,372,411 | | | | 75.94 | | | | 0.70 | | | | 1,936,981 | | | | 75.96 | | | | 1,936,981 | | | | 75.96 | | | | | | | | | | | | | | | | | | | Total | | | 6.66 | | | | 22,472,047 | | | $ | 48.99 | | | | 14,309,944 | | | $ | 55.00 | | | | 4.89 | | | | 21,005,502 | | | $ | 45.70 | | | | 17,893,434 | | | $ | 49.25 | | | | | | | | | | | | | | | | | | |
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The weighted-average fair value of options granted during 2017, 20162020, 2019 and 2015,2018, was approximately $9.68, $6.44$5.83, $9.06 and $15.41$10.01 per share, respectively, as determined using the Black-Scholes option-pricing model. The total intrinsic value of options exercised during 20172020 and 20162019 was $13 million0 and $4$6 million, respectively. The determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise activity. The use of the Black Scholes model requires the use of actual employee exercise activity data and the use of a number of complex assumptions including expected volatility, risk-free interest rate, expected dividends and expected term. | | | | Years Ended December 31, | | | | | | 2017 | | 2016 | | 2015 | | | Years Ended December 31, | | Valuation Assumptions: | | | | | | | | 2020 | | | 2019 | | | 2018 | | Expected volatility | | | 36.1 | % | | 48.6 | % | | 49.1 | % | | | 35.0 | % | | | 35.9 | % | | | 31.8 | % | Risk-free interest rate | | | 2.2 | % | | 1.2 | % | | 1.5 | % | | | 1.2 | % | | | 2.5 | % | | | 2.7 | % | Expected dividend yield | | | 0.6 | % | | 6.5 | % | | 3.4 | % | | | 1.0 | % | | | 0.7 | % | | | 0.6 | % | Expected term (in years) | | | 3.0 | | | 3.0 | | | 3.0 | | | | 4.8 | | | | 4.5 | | | | 4.3 | |
The Company used the actual volatility for traded options for the past 10 years prior to option date as the expected volatility assumption required in the Black Scholes model. The risk-free interest rate assumption is based upon observed interest rates appropriate for the term of our employee stock options. The dividend yield assumption is based on the history and expectation of dividend payouts. The estimated expected term is based on actual employee exercise activity for the past ten years. Forfeitures are accounted for as they occur. The following summary presents information regarding outstanding options at December 31, 20172020 and changes during 20172020 with regard to options under all stock option plans: | | | | | | | | | | | | | | | | | | | | | | | | | | Weighted | | | | | | | | | | | Weighted-
Average | | | Remaining
Contractual | | | | | | | | Shares | | | Exercise
Price | | | Term
(years) | | | Aggregate
Intrinsic Value | | Outstanding at December 31, 2016 | | | 17,439,060 | | | $ | 54.08 | | | | 5.42 | | | $ | 6,700,856 | | Granted | | | 6,961,041 | | | $ | 36.51 | | | | | | | | | | Forfeited | | | (1,482,531 | ) | | $ | 55.22 | | | | | | | | | | Exercised | | | (445,523 | ) | | $ | 29.83 | | | | | | | | | | | | | | | | | | | | | | | | | | | Outstanding at December 31, 2017 | | | 22,472,047 | | | $ | 48.99 | | | | 6.66 | | | $ | 34,186,368 | | | | | | | | | | | | | | | | | | | Exercisable at December 31, 2017 | | | 14,309,944 | | | $ | 55.00 | | | | 5.70 | | | $ | 15,557,324 | | | | | | | | | | | | | | | | | | |
| | | | | | Weighted- Average | | | Weighted Average Remaining Contractual | | | Aggregate | | | | Shares | | | Exercise Price | | | Term (years) | | | Intrinsic Value | | Outstanding at December 31, 2019 | | | 21,310,099 | | | $ | 47.68 | | | | 5.36 | | | $ | — | | Granted | | | 1,650,262 | | | $ | 20.23 | | | | | | | | | | Forfeited | | | (1,954,859 | ) | | $ | 45.75 | | | | | | | | | | Exercised | | | — | | | $ | — | | | | | | | | | | Outstanding at December 31, 2020 | | | 21,005,502 | | | $ | 45.70 | | | | 4.89 | | | $ | — | | Exercisable at December 31, 2020 | | | 17,893,434 | | | $ | 49.25 | | | | 4.28 | | | $ | — | |
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At December 31, 2017,2020, total unrecognized compensation cost related to nonvested stock options was $36$12 million. This cost is expected to be recognized over a weighted-average period of two years.three years. The total fair value of stock options vested in 2017, 20162020, 2019 and 20152018 was approximately $70$18 million, $61$32 million and $72$26 million, respectively. Cash received from option exercises for 2017, 20162020, 2019 and 20152018 was $13 million, $40, $7 million and $7$54 million, respectively. The actual tax benefit (expense) realized for the tax deductions from option exercises totaled 0, $(2) million, nil and $3$2 million for 2017, 20162020, 2019 and 2015,2018, respectively. Stock Appreciation Rights On December 20, 2017, the Company made a tender offer to exchange SARs issued to certain employees on February 24, 2016 (“2016 SARs”) for cash, amended SARs, and new stock options. The transaction was structured to provide the employees an equal long-term incentive compensation value, while alleviating volatility in the Company’s earnings caused by required mark-to-market accounting on outstanding SARS. Of the outstanding 2016 SARs, 94.75% were exchanged resulting in a total cash payment of $14 million and granting of 3,613,707 new stock options on the exchange date with an exercise price of $34.32 and a fair value of $8.47, with vesting matched to the exchanged 2016 SARs. As a result of exchanging the 2016 SARs for cash and new stock options, the Company recorded $11 million of compensation expense and an increase of $20 million to additional paid-in capital in the fourth quarter of 2017. 88
The following summary presents information regarding outstanding SARs: | | | | Year Ended December 31, | | | Year Ended December 31, | | | | | 2017 | | | 2016 | | | 2020 | | | 2019 | | | | | Number | | | Average | | | Number | | | Average | | | Number | | | Average | | | Number | | | Average | | | | | of | | | Exercise | | | of | | | Exercise | | | of | | | Exercise | | | of | | | Exercise | | | | | Shares | | | Price | | | Shares | | | Price | | | Shares | | | Price | | | Shares | | | Price | | Shares under SARs at beginning of year | | | 4,341,740 | | | $ | 28.32 | | | | — | | | $ | — | | | | 1,330,257 | | | $ | 28.45 | | | | 1,399,302 | | | $ | 28.49 | | Granted | | | 14,400 | | | | 38.86 | | | | 4,618,400 | | | | 28.32 | | | | 7,912 | | | | 20.23 | | | | 7,088 | | | | 28.72 | | Forfeited | | | (283,822 | ) | | | 28.35 | | | | (276,660 | ) | | | 28.24 | | | | (103,604 | ) | | | 28.38 | | | | (76,133 | ) | | | 29.18 | | Exercised | | | (2,578,629 | ) | | | 34.72 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | Shares under SARs at end of year | | | 1,493,689 | | | $ | 28.41 | | | | 4,341,740 | | | $ | 28.32 | | | | 1,234,565 | | | $ | 28.40 | | | | 1,330,257 | | | $ | 28.45 | | | | | | | | | | | | | | | | Exercisable at end of year | | | 75,102 | | | $ | 28.33 | | | | — | | | $ | — | | | | 1,219,555 | | | $ | 28.44 | | | | 1,315,701 | | | $ | 28.40 | | | | | | | | | | | | | | | |
As of December 31, 2017, there
The Company recognized 0 expense in 2020, 2019, or 2018. There was $16 million of unrecognized compensation expense related to nonvested SARs, which is expected to be recognized over a weighted-average period of approximately two years. The expense recognized in 2017 and 2016 was $8 million and $20 million, respectively. The0 liability for cash-settled SARs was $2 million at December 31, 2017.2020. Restricted Shares The Company issues restricted stock awards and restricted stock units to officers and key employees in addition to stock options. On February 22, 2017,25, 2020, the Company granted 1,504,4502,535,174 shares of restricted stock and restricted stock units with a fair value of $38.86$20.23 per share; and performance share awards to senior management employees with potential payouts varying from zero0 to 388,3801,063,274 shares. The restricted stock and restricted stock units vest on the third anniversary of the date of grant or in three3 equal annual installments commencing on the first anniversary of the date of grant. The performance share awards can be earned based on performance against established goals over a three-year performance period. The 2018 performance share awards are based entirely on a TSR (total shareholder return) goal. Performance against the TSR goal is determined by comparing the performance of the Company’s TSR with the TSR performance of the members of the OSX (Oil Service Sector) index for the three-year performance period. The 2019 and 2020 performance share awards are divided into two independent parts that are subject to two separate performance metrics: 85% with a TSR (total shareholder return) goal and 15% with an internal NVA (“National Oilwell Varco Value Added”) (return on capital metric) goal. Performance against the TSR goal is determined by comparing the performance of the Company’s TSR with the TSR performance of the members of the OSX index for the three-year performance period. The NVA goal is based on the Company’s improvement in NVA from the beginning of the performance period until the end of the performance period. NVA shall be calculated as an amount equal to the Company’s (a) gross cash earnings less (b) average gross operating assets times an amount equal to a required return on assets. On May 17, 2017,20, 2020, the Company granted 36,70199,696 restricted stock awards with a fair value of $33.38$13.00 per share. The awards were granted tonon-employee members of the board of directors and vest on the first anniversary of the grant date. 84
The following summary presents information regarding outstanding restricted shares: | | | | Years Ended December 31, | | Years Ended December 31, | | | | | 2017 | | | 2016 | | | 2015 | | 2020 | | | 2019 | | | 2018 | | | | | | | Weighted- | | | | | Weighted- | | | | | Weighted- | | | | | | Weighted- | | | | | | | Weighted- | | | | | | | Weighted- | | | | | Number | | Average | | | Number | | Average | | | Number | | Average | | Number | | | Average | | | Number | | | Average | | | Number | | | Average | | | | | of | | Grant Date | | | of | | Grant Date | | | of | | Grant Date | | of | | | Grant Date | | | of | | | Grant Date | | | of | | | Grant Date | | | | | Units | | Fair Value | | | Units | | Fair Value | | | Units | | Fair Value | | Units | | | Fair Value | | | Units | | | Fair Value | | | Units | | | Fair Value | | Nonvested at beginning of year | | | 4,563,983 | | | $ | 41.10 | | | | 1,969,250 | | | $ | 61.53 | | | | 1,569,141 | | | $ | 73.73 | | | 6,274,308 | | | $ | 33.10 | | | | 5,914,860 | | | $ | 34.41 | | | | 4,889,678 | | | $ | 37.04 | | Granted | | | 1,738,589 | | | 38.74 | | | | 3,384,325 | | | 31.59 | | | | 954,075 | | | 53.27 | | | 3,166,402 | | | $ | 19.98 | | | | 3,335,315 | | | $ | 28.52 | | | | 2,657,115 | | | $ | 35.17 | | Vested | | | (1,018,206 | ) | | 34.84 | | | | (565,202 | ) | | 29.32 | | | | (405,327 | ) | | 54.30 | | | (3,229,624 | ) | | $ | 20.09 | | | | (2,901,945 | ) | | $ | 25.67 | | | | (1,242,682 | ) | | $ | 34.86 | | Forfeited | | | (394,688 | ) | | 55.22 | | | | (224,390 | ) | | 49.95 | | | | (148,639 | ) | | 62.73 | | | (137,123 | ) | | $ | 45.75 | | | | (73,922 | ) | | $ | 50.57 | | | | (389,251 | ) | | $ | 57.56 | | | | | | | | | | | | | | | | | | | | | | Nonvested at end of year | | | 4,889,678 | | | $ | 37.04 | | | | 4,563,983 | | | $ | 41.10 | | | | 1,969,250 | | | $ | 61.53 | | | 6,073,963 | | | $ | 31.85 | | | | 6,274,308 | | | $ | 33.10 | | | | 5,914,860 | | | $ | 34.41 | | | | | | | | | | | | | | | | | | | | | |
The weighted-average grant day fair value of restricted stock awards and restricted stock units granted during the years ended 2017, 2016 and 2015 was $38.74, $31.59 and $53.27 per share, respectively. There were 1,018,206; 565,202 and 405,327 restricted stock awards that vested during 2017, 2016 and 2015, respectively.
At December 31, 2017,2020, there was approximately $99$80 million of unrecognized compensation cost related to nonvested restricted stock awards and restricted stock units, which is expected to be recognized over a weighted-average period of two years. 89
Disaggregation of Revenue 85The following tables disaggregate our revenue by destinations, as we believe it best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. In the tables below, North America includes only the U.S. and Canada (in millions):
| | Year Ended December 31, 2020 | | | | | | | | Completion | | | | | | | | | | | | | | | | Wellbore | | | & Production | | | Rig | | | | | | | | | | | | Technologies | | | Solutions | | | Technologies | | | Eliminations | | | Total | | North America | | $ | 824 | | | $ | 751 | | | $ | 227 | | | $ | — | | | $ | 1,802 | | International | | | 988 | | | | 1,639 | | | | 1,661 | | | | — | | | | 4,288 | | Eliminations | | | 55 | | | | 43 | | | | 31 | | | | (129 | ) | | | — | | | | $ | 1,867 | | | $ | 2,433 | | | $ | 1,919 | | | $ | (129 | ) | | $ | 6,090 | | | | | | | | | | | | | | | | | | | | | | | Land | | $ | 1,308 | | | $ | 1,426 | | | $ | 473 | | | $ | — | | | $ | 3,207 | | Offshore | | | 504 | | | | 964 | | | | 1,415 | | | | — | | | | 2,883 | | Eliminations | | | 55 | | | | 43 | | | | 31 | | | | (129 | ) | | | — | | | | $ | 1,867 | | | $ | 2,433 | | | $ | 1,919 | | | $ | (129 | ) | | $ | 6,090 | |
| | Year Ended December 31, 2019 | | | | | | | | Completion | | | | | | | | | | | | | | | | Wellbore | | | & Production | | | Rig | | | | | | | | | | | | Technologies | | | Solutions | | | Technologies | | | Eliminations | | | Total | | North America | | $ | 1,710 | | | $ | 1,122 | | | $ | 529 | | | $ | — | | | $ | 3,361 | | International | | | 1,441 | | | | 1,590 | | | | 2,087 | | | | — | | | | 5,118 | | Eliminations | | | 63 | | | | 59 | | | | 66 | | | | (188 | ) | | | — | | | | $ | 3,214 | | | $ | 2,771 | | | $ | 2,682 | | | $ | (188 | ) | | $ | 8,479 | | | | | | | | | | | | | | | | | | | | | | | Land | | $ | 2,531 | | | $ | 1,808 | | | $ | 758 | | | $ | — | | | $ | 5,097 | | Offshore | | | 620 | | | | 904 | | | | 1,858 | | | | — | | | | 3,382 | | Eliminations | | | 63 | | | | 59 | | | | 66 | | | | (188 | ) | | | — | | | | $ | 3,214 | | | $ | 2,771 | | | $ | 2,682 | | | $ | (188 | ) | | $ | 8,479 | |
| | Year Ended December 31, 2018 | | | | | | | | Completion | | | | | | | | | | | | | | | | Wellbore | | | & Production | | | Rig | | | | | | | | | | | | Technologies | | | Solutions | | | Technologies | | | Eliminations | | | Total | | North America | | $ | 1,817 | | | $ | 1,302 | | | $ | 663 | | | $ | — | | | $ | 3,782 | | International | | | 1,345 | | | | 1,543 | | | | 1,783 | | | | — | | | | 4,671 | | Eliminations | | | 73 | | | | 86 | | | | 129 | | | | (288 | ) | | | — | | | | $ | 3,235 | | | $ | 2,931 | | | $ | 2,575 | | | $ | (288 | ) | | $ | 8,453 | | | | | | | | | | | | | | | | | | | | | | | Land | | $ | 2,683 | | | $ | 1,985 | | | $ | 854 | | | $ | — | | | $ | 5,522 | | Offshore | | | 479 | | | | 860 | | | | 1,592 | | | | — | | | | 2,931 | | Eliminations | | | 73 | | | | 86 | | | | 129 | | | | (288 | ) | | | — | | | | $ | 3,235 | | | $ | 2,931 | | | $ | 2,575 | | | $ | (288 | ) | | $ | 8,453 | |
The Company did 0t have any customers with revenues greater than 10% of total revenue for the years ended December 31, 2020, 2019, or 2018. 90
14. Income TaxesContract Assets and Liabilities
On December 22, 2017Contract assets include unbilled amounts when revenue recognized exceeds the United States enacted significant changesamount billed to the U.S. tax law followingcustomer under contracts where revenue is recognized over-time. There were 0 impairment losses recorded on contract assets for the passageyears ending December 31, 2020, 2019 and signing2018.
Contract liabilities consist of H.R.1, “An Act to Provide the Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018” (the “Act”) (previously known as “The Tax Cuts and Jobs Act”). The Act reduces the U.S. federal corporate tax rate from 35% to 21% and requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred. The Act includes new anti-deferral provisions on Global Intangible Low Taxed Income (“GILTI”). Beginning in 2018 these provisions result in incremental taxability of our foreign subsidiaries incomeadvance payments, billings in excess of an allowed return on certain tangible property. revenue recognized and deferred revenue. The FASB has determined that filers have a policy choice to account for this tax on either a period basis or a deferred tax basis. We are still evaluating the impacts of GILTI on our business model and have not yet made any accounting adjustments or policy decisions regarding this new source of incremental US taxable income. Due to the timing of the enactment and the complexity involved in applying the provision of the Act, we have made reasonable estimates of the effects and recorded provisional amounts in our financial statement as of December 31, 2017. As we collect and prepare necessary data, and interpret the Act and any additional guidance issued by the U.S. Treasury Department, the IRS, and other standard-setting bodies, we may make adjustments to the provisional amounts. We recognized an income tax benefit of $242 millionchanges in the year ended December 31, 2017 associated with the revaluationcarrying amount of our net deferred tax liability. Our provisional estimate of the one-time transition tax resulted in no additional tax expensecontract assets and has been considered in our disclosure of undistributed earnings. The accounting for the tax effects of the Act will be completed in 2018.contract liabilities are as follows (in millions): | | Contract Assets | | | Contract Liabilities | | Balance at December 31, 2019 | | $ | 643 | | | $ | 427 | | Provision | | | (2 | ) | | | — | | Billings | | | (945 | ) | | | 1,130 | | Revenue recognized | | | 953 | | | | (1,185 | ) | Currency translation adjustments and other | | | (38 | ) | | | (18 | ) | Balance at December 31, 2020 | | $ | 611 | | | $ | 354 | |
15. Income Taxes The domestic and foreign components of income (loss) before income taxes were as follows (in millions): | | | | Years Ended December 31, | | | Years Ended December 31, | | | | | 2017 | | | 2016 | | | 2015 | | | 2020 | | | 2019 | | | 2018 | | Domestic | | $ | (470 | ) | | $ | (2,095 | ) | | $ | (1,577 | ) | | $ | (2,169 | ) | | $ | (4,501 | ) | | $ | (168 | ) | Foreign | | | 78 | | | | (528 | ) | | | 988 | | | | (610 | ) | | | (1,961 | ) | | | 209 | | | | | | | | | | | | | $ | (2,779 | ) | | $ | (6,462 | ) | | $ | 41 | | | | $ | (392 | ) | | $ | (2,623 | ) | | $ | (589 | ) | | | | | | | | | | | | |
The components of the provision for income taxes consisted of (in millions): | | | | | | | | | | | | | | | | Years Ended December 31, | | | | | 2017 | | | 2016 | | | 2015 | | Current: | | | | | | | | | | | | | Federal | | $ | 23 | | | $ | (79 | ) | | $ | 30 | | State | | | 1 | | | | (4 | ) | | | (58 | ) | Foreign | | | 161 | | | | 74 | | | | 464 | | | | | | | | | | | | | | | Total current income tax provision | | | 185 | | | | (9 | ) | | | 436 | | | | | | | | | | | | | | | Deferred: | | | | | | | | | | | | | Federal | | | (332 | ) | | | (132 | ) | | | (41 | ) | State | | | (2 | ) | | | (7 | ) | | | (38 | ) | Foreign | | | (7 | ) | | | (59 | ) | | | (179 | ) | | | | | | | | | | | | | | Total deferred income tax provision | | | (341 | ) | | | (198 | ) | | | (258 | ) | | | | | | | | | | | | | | Total income tax provision | | $ | (156 | ) | | $ | (207 | ) | | $ | 178 | | | | | | | | | | | | | | |
| | Years Ended December 31, | | | | 2020 | | | 2019 | | | 2018 | | Current: | | | | | | | | | | | | | Federal | | $ | (279 | ) | | $ | (7 | ) | | $ | (5 | ) | State | | | (4 | ) | | | 4 | | | | (3 | ) | Foreign | | | 106 | | | | 60 | | | | 134 | | Total current income tax provision | | | (177 | ) | | | 57 | | | | 126 | | Deferred: | | | | | | | | | | | | | Federal | | | 7 | | | | (344 | ) | | | 11 | | State | | | — | | | | (18 | ) | | | — | | Foreign | | | (72 | ) | | | (64 | ) | | | (74 | ) | Total deferred income tax provision | | | (65 | ) | | | (426 | ) | | | (63 | ) | Total income tax provision | | $ | (242 | ) | | $ | (369 | ) | | $ | 63 | |
8691
The difference between the effective tax rate reflected in the provision for income taxes and the U.S. federal statutory rate was as follows (in millions): | | | | Years Ended December 31, | | | Years Ended December 31, | | | | | 2017 | | | 2016 | | | 2015 | | | 2020 | | | 2019 | | | 2018 | | Federal income tax at U.S. statutory rate | | $ | (137 | ) | | $ | (918 | ) | | $ | (206 | ) | | $ | (584 | ) | | $ | (1,357 | ) | | $ | 9 | | Foreign income tax rate differential | | | (21 | ) | | | 32 | | | | (110 | ) | | | (30 | ) | | | (40 | ) | | | (3 | ) | Goodwill impairment | | | — | | | | 271 | | | | 462 | | | | 271 | | | | 666 | | | | — | | Reduction of FTC carryforwards | | | | 184 | | | | — | | | | — | | Tax Benefit from CARES Act | | | | (83 | ) | | | — | | | | — | | Change in deferred tax valuation allowance | | | | (83 | ) | | | 218 | | | | 49 | | Nondeductible expenses | | | 38 | | | | 30 | | | | 66 | | | | 44 | | | | 61 | | | | 20 | | Foreign dividends, net of foreign tax credits | | | (132 | ) | | | (25 | ) | | | 28 | | | | 28 | | | | 163 | | | | 27 | | Tax rate change on timing differences | | | (245 | ) | | | (8 | ) | | | (45 | ) | | Change in uncertain tax positions | | | 81 | | | | 11 | | | | 69 | | | | 20 | | | | (60 | ) | | | (5 | ) | Prior years taxes | | | (26 | ) | | | (29 | ) | | | (47 | ) | | | (6 | ) | | | 3 | | | | (13 | ) | Tax impact on foreign exchange | | | 5 | | | | (4 | ) | | | (46 | ) | | Change in deferred tax valuation allowance | | | 280 | | | | 476 | | | | 15 | | | State income taxes - net of federal benefit | | | | (4 | ) | | | (16 | ) | | | (3 | ) | Other | | | 1 | | | | (43 | ) | | | (8 | ) | | | 1 | | | | (7 | ) | | | (18 | ) | | | | | | | | | | | | Total income tax provision | | $ | (156 | ) | | $ | (207 | ) | | $ | 178 | | | $ | (242 | ) | | $ | (369 | ) | | $ | 63 | | | | | | | | | | | | |
The effective tax rate for the year ended December 31, 20172020 was 39.8%8.7%, compared to 7.9%5.7% for 2016.2019. For the year ended December 31, 2017,2020 the revaluationeffective tax rate was negatively impacted by the impairment of net deferrednondeductible goodwill and the establishment of additional valuation allowances for current year losses and other tax liabilities in the U.S.attributes, partially offset by the release of valuation allowances established onallowance as a result of (a) the carryback of $591 million of US net operating losses from 2019 to 2014 as a result of the CARES Act and (b) the filing of an amended US tax return to deduct foreign tax credits generated duringand carryback the year, when appliedresulting $287 million US net operating loss from 2016 to losses resulted in a higher effective tax rate than the U.S. statutory rate.2014. For the year ended December 31, 2016,2019, the effective tax rate was negatively impacted by the impairment of nondeductible goodwill not deductible for tax purposes, lower tax rates on losses incurred in foreign jurisdictions, and the establishment of additional valuation allowances, when appliedallowance partially offset by the reduction in uncertain tax positions due to losses resulted in a lower effective tax rate than the U.S. statutory rate.settlements. Significant components of our deferred tax assets and liabilities were as follows (in millions): | | | | | | | | | | | | December 31, | | | | | 2017 | | | 2016 | | Deferred tax assets: | | | | | | | | | Allowances and operating liabilities | | $ | 355 | | | $ | 534 | | Net operating loss carryforwards | | | 182 | | | | 153 | | Postretirement benefits | | | 31 | | | | 60 | | Tax credit carryforwards | | | 1,002 | | | | 405 | | Other | | | 78 | | | | 164 | | Valuation allowance | | | (1,202 | ) | | | (544 | ) | | | | | | | | | | Total deferred tax assets | | | 446 | | | | 772 | | | | | | | | | | | Deferred tax liabilities: | | | | | | | | | Tax over book depreciation | | | 174 | | | | 267 | | Intangible assets | | | 716 | | | | 1,148 | | Deferred income | | | 111 | | | | 185 | | Accrued tax on unremitted earnings | | | 17 | | | | 53 | | Other | | | 92 | | | | 97 | | | | | | | | | | | Total deferred tax liabilities | | | 1,110 | | | | 1,750 | | | | | | | | | | | Net deferred tax liability | | $ | 664 | | | $ | 978 | | | | | | | | | | |
| | December 31, | | | | 2020 | | | 2019 | | Deferred tax assets: | | | | | | | | | Allowances and operating liabilities | | $ | 318 | | | $ | 395 | | Net operating loss carryforwards | | | 387 | | | | 270 | | Stock Compensation | | | 61 | | | | 69 | | Tax credit carryforwards | | | 411 | | | | 702 | | Other | | | 122 | | | | 60 | | Valuation allowance | | | (1,093 | ) | | | (1,175 | ) | Total deferred tax assets | | | 206 | | | | 321 | | Deferred tax liabilities: | | | | | | | | | Tax over book depreciation | | | 60 | | | | 115 | | Capital leases | | | 80 | | | | 86 | | Intangible assets | | | 49 | | | | 110 | | Deferred income | | | 47 | | | | 65 | | Accrued tax on unremitted earnings | | | 33 | | | | 33 | | Other | | | 15 | | | | 52 | | Total deferred tax liabilities | | | 284 | | | | 461 | | Net deferred tax liability | | $ | 78 | | | $ | 140 | |
8792
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in millions): | | | | 2017 | | | 2016 | | | 2015 | | | 2020 | | | 2019 | | | 2018 | | Unrecognized tax benefit at beginning of year | | $ | 78 | | | $ | 46 | | | $ | 115 | | | $ | 38 | | | $ | 98 | | | $ | 132 | | Gross increase for current period tax positions | | | 10 | | | | 3 | | | | 8 | | | | — | | | | — | | | | 15 | | Gross increase for tax positions in prior years | | | 64 | | | | 65 | | | | 75 | | | | 25 | | | | 10 | | | | 31 | | Gross decrease for tax positions in prior years | | | (14 | ) | | | (21 | ) | | | (75 | ) | | | (2 | ) | | | (60 | ) | | | (10 | ) | Settlements | | | — | | | | (3 | ) | | | (69 | ) | | Cash Settlements | | | | (1 | ) | | | (3 | ) | | | (69 | ) | Lapse of statute of limitations | | | (6 | ) | | | (12 | ) | | | (8 | ) | | | (3 | ) | | | (7 | ) | | | (1 | ) | | | | | | | | | | | | Unrecognized tax benefit at end of year | | $ | 132 | | | $ | 78 | | | $ | 46 | | | $ | 57 | | | $ | 38 | | | $ | 98 | | | | | | | | | | | | |
The balance of unrecognized tax benefits at December 31, 2017, 20162020, 2019 and 20152018 was $132$57 million, $78$38 million and $46$98 million, respectively. Accruals related to prior year domestic and foreign jurisdiction audits of prior years’issues resulted in uncertain tax position increases of $64 million and $65$25 million in 20172020. Resolutions of domestic and 2016, respectively. For the year ended December 31, 2015 a $69 million uncertain tax position was identified in a foreign jurisdiction that was included as an increase and settlement during the year and the completion of audits in foreign jurisdictions resulted in a $75$4 million and $60 million decrease in uncertain tax positions.provisions for the years ended December 31, 2020 and 2019, respectively. Substantially all of the unrecognized tax benefits, if ultimately realized, would be recorded as a benefit to the effective tax rate. The Company anticipates that it is reasonably possible that the amount of unrecognized tax benefits may decrease by up to $75 million indoes not anticipate any material change within the next twelve months due to settlements and conclusions of tax examinations. To the extent penalties and interest would be assessed on any underpayment of income tax, such accrued amounts have been classified as a component of income tax expense in the financial statements consistent with the Company’s policy. For the years ended December 31, 2017, 20162020, 2019 and 2015,2018, we recorded income tax expense of $17$2 million, $10 millionnil and $1 million,nil, respectively, for interest and penalty related to unrecognized tax benefits. As of December 31, 20172020 and 2016,2019, the Company had accrued $32$11 million and $15$12 million, respectively, of interest and penalty relating to unrecognized tax benefits. The Company is subject to taxation in the United States as well as various states and foreign jurisdictions. The Company has significant operations in the United States, Norway, Canada, the United Kingdom, the Netherlands, France and Denmark. Tax years that remain subject to examination by major tax jurisdictions vary by legal entity, but are generally open in the U.S. for tax years ending after 20122013 and outside the U.S. for tax years ending after 2010.2015. Net operating loss carryforwards by jurisdiction and expiration as of December 31, 20172020 were as follows (in millions): | | | | | | | | | | Federal | | | State | | | Foreign | | | Total | | | | | Federal | | | State | | | Foreign | | | Total | | | 2018 - 2021 Expiration | | $ | 6 | | | $ | 2 | | | $ | 57 | | | $ | 65 | | | 2022 - 2033 Expiration | | | 16 | | | | 16 | | | | 123 | | | | 155 | | | 2034 - 2037 Expiration | | | — | | | | 127 | | | | 97 | | | | 224 | | | 2020 - 2024 Expiration | | | $ | 6 | | | $ | 2 | | | $ | 148 | | | $ | 156 | | 2025 - 2039 Expiration | | | | 45 | | | | 303 | | | | 428 | | | | 776 | | Unlimited Expiration | | | — | | | | — | | | | 372 | | | | 372 | | | | 368 | | | | — | | | | 557 | | | | 925 | | | | | | | | | | | | | | | | Total Net Operating Loss (NOL) | | $ | 22 | | | $ | 145 | | | $ | 649 | | | $ | 816 | | | $ | 419 | | | $ | 305 | | | $ | 1,133 | | | $ | 1,857 | | | | | | | | | | | | | | | | Tax Effected NOL | | $ | 5 | | | $ | 8 | | | $ | 169 | | | $ | 182 | | | $ | 88 | | | $ | 17 | | | $ | 282 | | | $ | 387 | | Valuation Allowance (VA) | | | (4 | ) | | | (8 | ) | | | (145 | ) | | | (157 | ) | | | (88 | ) | | | (17 | ) | | | (279 | ) | | | (384 | ) | | | | | | | | | | | | | | | NOL Net of VA | | $ | 1 | | | $ | — | | | $ | 24 | | | $ | 25 | | | | | | | | | | | | | | | | | Tax Effected NOL Net of VA | | | $ | — | | | $ | — | | | $ | 3 | | | $ | 3 | |
The Company has $658$404 million of excess foreign tax credits in the United States as of December 31, 2017,2020, of which $11 million, $141 million, $287$145 million, $95 million, and $219$23 million will expire in 2020, 2022, 20262027, 2028 and 2027,2030 respectively. As of December 31, 2017,2020, the Company has remaining tax-deductible goodwill of $153$118 million, resulting from acquisitions. The amortization of this goodwill is deductible over various periods ranging up to 1310 years. Undistributed earnings of certain of the Company’s foreign subsidiaries amounted to $5,302 million at December 31, 2017. These earnings are considered to be indefinitely reinvested and no provision for U.S. federal and state income taxes has been made. Distribution of these earnings in the form of dividends or otherwise could result in incremental U.S. federal and state taxes at statutory rates and withholding taxes payable in various foreign countries.
88After considering the impact of losses incurred in 2020, the Company has determined that it 0 longer has net undistributed earnings subject to a permanent reinvestment assertion.
93
15.
16. Business SegmentsSegments. and Geographic Areas The Company’s operations are organized into three reportable3 operating segments: Wellbore Technologies, Completion & Production Solutions and Rig Technologies. Within the three reporting segments, the Company has six business units under Wellbore Technologies nine business units under Completion & Production Solutions and two under Rig Technologies, for a total of 17 business units. The Company has aggregated each of its business units in one of the three reporting segments based on the guidelines of ASC Topic 280, “Segment Reporting” (“ASC Topic 280”). Wellbore Technologies
The Company’s Wellbore Technologies segment designs, manufactures, rents, and sells a variety of equipment and technologies used to perform drilling operations, and offers services that optimize their performance, including: solids control and waste management equipment and services; drilling fluids; portable power generation; premium drill pipe; wired pipe; drilling optimization and automation services; tubular inspection, repair and coating services; rope access inspection; instrumentation; measuring and monitoring; downhole and fishing tools; steerable technologies; hole openers; and drill bits. Wellbore Technologies focuses on oil and gas companies and supports drilling contractors, oilfield service companies, and oilfield equipment rental companies. Demand for the segment’s products and services depends on the level of oilfield drilling activity by oil and gas companies, drilling contractors, and oilfield service companies. Completion & Production Solutions The Company’s Completion & Production Solutions segment integrates technologies for well completions and oil and gas production. The segment designs, manufactures, and sells equipment and technologies needed for hydraulic fracture stimulation, including pressure pumping trucks, blenders, sanders, hydration units, injection units, flowline, and manifolds; well intervention, including coiled tubing units, coiled tubing, and wireline units, BOPs, and tools; onshore production, including fluid processing systems, composite pipe, surface transfer and progressive cavity pumps, and artificial lift systems; and, offshore production, including fluid processing systems, floating production systems, and subsea production technologies.technologies, and connectors for conductor pipe. Completion & Production Solutions supports service companies and oil and gas companies. Demand for the segment’s products depends on the level of oilfield completions and workover activity by oilfield service companies and drilling contractors, and capital spending plans by oil and gas companies and oilfield service companies. Rig Technologies To achieve higher efficiencies and reduce costs in the current market, the Company combined the Rig Systems and Rig Aftermarket segments during the fourth quarter of 2017. See Note 2.
The Company’s Rig Technologies segment makes and supports the capital equipment and integrated systems needed to drill oil and gas wells on land and offshore.offshore as well as other marine-based markets, including offshore wind vessels. The segment designs, manufactures and sells land rigs, offshore drilling equipment packages, including installation and commissioning services, and drilling rig components that mechanize and automate the drilling process and rig functionality. Equipment and technologies in Rig Technologies include: substructures, derricks, and masts; cranes; jacking systems; pipe lifting, racking, rotating, and assembly systems; fluid transfer technologies, such as mud pumps; pressure control equipment, including blowout preventers; power transmission systems, including drives and generators; and rig instrumentation and control systems; mooring, anchor, and deck handling machinery; major equipment components for offshore wind construction vessels; and pipelay and construction systems. The segment also provides spare parts, repair, and rentals as well as comprehensive remote equipment monitoring, technical support, field service, and customer training through an extensive network of aftermarket service and repair facilities strategically located in major areas of drilling operations around the world. Rig Technologies supports land and offshore drillers. Demand for the segment’s products depends on drilling contractors’ and oil and gas companies’ capital spending plans, specifically capital expenditures on rig construction and refurbishment; and secondarily on the overall level of oilfield drilling activity, which drives demand for spare parts, service, and repair for the segment’s large installed base of equipment. The Company did not have any customers with revenues greater than 10% of total revenue for the years ended December 31, 2017, 2016, or 2015.94
The Company’s revenue from rentals for 2017, 2016 and 2015 was 12%, 8% and 7%, respectively, of total revenue.
89
Geographic Areas: The following table presents consolidated revenues by country based on sales destination of the products or services (in millions): | | | | Years Ended December 31, | | | Years Ended December 31, | | | | | 2017 | | | 2016 | | | 2015 | | | 2020 | | | 2019 | | | 2018 | | United States | | $ | 2,760 | | | $ | 1,961 | | | $ | 3,640 | | | $ | 1,634 | | | $ | 3,112 | | | $ | 3,480 | | Brazil | | | 498 | | | | 242 | | | | 605 | | | Norway | | | | 464 | | | | 512 | | | | 368 | | Saudi Arabia | | | 310 | | | | 258 | | | | 416 | | | | 343 | | | | 436 | | | | 444 | | China | | | 298 | | | | 557 | | | | 1,623 | | | | 288 | | | | 285 | | | | 231 | | Norway | | | 295 | | | | 339 | | | | 555 | | | Singapore | | | | 242 | | | | 473 | | | | 321 | | Brazil | | | | 224 | | | | 269 | | | | 415 | | United Kingdom | | | | 222 | | | | 333 | | | | 309 | | United Arab Emirates | | | | 221 | | | | 224 | | | | 248 | | Canada | | | 286 | | | | 217 | | | | 365 | | | | 168 | | | | 247 | | | | 302 | | United Kingdom | | | 279 | | | | 299 | | | | 634 | | | South Korea | | | 261 | | | | 495 | | | | 1,835 | | | | 33 | | | | 69 | | | | 169 | | United Arab Emirates | | | 223 | | | | 334 | | | | 532 | | | Singapore | | | 188 | | | | 340 | | | | 1,035 | | | Other Countries | | | 1,906 | | | | 2,209 | | | | 3,517 | | | | 2,251 | | | | 2,519 | | | | 2,166 | | | | | | | | | | | | | Total | | $ | 7,304 | | | $ | 7,251 | | | $ | 14,757 | | | $ | 6,090 | | | $ | 8,479 | | | $ | 8,453 | | | | | | | | | | | | |
The following table presents long-lived assetsplant, property and equipment by country based on the location (in millions): | | | | | | | | | | | | December 31, | | | | | 2017 | | | 2016 | | United States | | $ | 1,675 | | | $ | 1,810 | | Brazil | | | 269 | | | | 281 | | United Kingdom | | | 140 | | | | 137 | | Denmark | | | 128 | | | | 120 | | South Korea | | | 97 | | | | 94 | | Russia | | | 90 | | | | 88 | | Canada | | | 84 | | | | 82 | | Mexico | | | 71 | | | | 77 | | United Arab Emirates | | | 65 | | | | 90 | | Singapore | | | 59 | | | | 63 | | Other Countries | | | 324 | | | | 308 | | | | | | | | | | | Total | | $ | 3,002 | | | $ | 3,150 | | | | | | | | | | |
| | December 31, | | | | 2020 | | | 2019 | | United States | | $ | 1,011 | | | $ | 1,257 | | Saudi Arabia | | | 176 | | | | 87 | | Brazil | | | 92 | | | | 194 | | United Kingdom | | | 86 | | | | 112 | | Denmark | | | 76 | | | | 111 | | Canada | | | 73 | | | | 77 | | United Arab Emirates | | | 68 | | | | 52 | | South Korea | | | 51 | | | | 77 | | Mexico | | | 30 | | | | 43 | | Singapore | | | 15 | | | | 28 | | Russia | | | 13 | | | | 16 | | Other Countries | | | 236 | | | | 300 | | Total | | $ | 1,927 | | | $ | 2,354 | |
9095
Business Segments: The following table presents selected financial data by business segment (in millions): | | | | | | | | | | | | Wellbore Technologies | | | Completion & Production Solutions | | | Rig Technologies | | | Eliminations and corporate costs (1) | | | Total | | | | | Wellbore
Technologies | | Completion
& Production
Solutions | | Rig
Technologies | | Eliminations and
corporate costs (1) | | Total | | | December 31, 2017 | | | | | | | | | | | | December 31, 2020 | | | | | | | | | | | | | | | | | | | | | | Revenue | | $ | 2,577 | | | $ | 2,672 | | | $ | 2,252 | | | $ | (197 | ) | | $ | 7,304 | | | $ | 1,867 | | | $ | 2,433 | | | $ | 1,919 | | | $ | (129 | ) | | $ | 6,090 | | Operating profit (loss) | | | (102 | ) | | 98 | | | (14 | ) | | (259 | ) | | (277 | ) | | Operating profit (loss)(2) | | | | (858 | ) | | | (977 | ) | | | (362 | ) | | | (228 | ) | | | (2,425 | ) | Capital expenditures | | | 99 | | | 69 | | | 16 | | | 8 | | | 192 | | | | 87 | | | | 48 | | | | 80 | | | | 11 | | | | 226 | | Depreciation and amortization | | | 379 | | | 215 | | | 88 | | | 16 | | | 698 | | | | 187 | | | | 75 | | | | 77 | | | | 13 | | | | 352 | | Goodwill | | | 2,956 | | | 2,122 | | | 1,149 | | | | — | | | 6,227 | | | | 308 | | | | 473 | | | | 712 | | | | — | | | | 1,493 | | Total assets | | | 7,848 | | | 5,782 | | | 4,625 | | | 1,951 | | | 20,206 | | | | 2,665 | | | | 2,472 | | | | 2,923 | | | | 1,869 | | | | 9,929 | | | December 31, 2016 | | | | | | | | | | | | December 31, 2019 | | | | | | | | | | | | | | | | | | | | | | Revenue | | $ | 2,199 | | | $ | 2,241 | | | $ | 3,110 | | | $ | (299 | ) | | $ | 7,251 | | | $ | 3,214 | | | $ | 2,771 | | | $ | 2,682 | | | $ | (188 | ) | | $ | 8,479 | | Operating profit | | | (770 | ) | | (266 | ) | | (1,033 | ) | | (342 | ) | | (2,411 | ) | | Operating profit (loss)(2) | | | | (3,551 | ) | | | (1,934 | ) | | | (524 | ) | | | (270 | ) | | | (6,279 | ) | Capital expenditures | | | 124 | | | 61 | | | 24 | | | 75 | | | 284 | | | | 123 | | | | 64 | | | | 31 | | | | 15 | | | | 233 | | Depreciation and amortization | | | 384 | | | 209 | | | 94 | | | 16 | | | 703 | | | | 284 | | | | 150 | | | | 87 | | | | 12 | | | | 533 | | Goodwill | | | 2,874 | | | 2,058 | | | 1,135 | | | | — | | | 6,067 | | | | 843 | | | | 1,054 | | | | 910 | | | | — | | | | 2,807 | | Total assets | | | 7,911 | | | 5,765 | | | 5,327 | | | 2,137 | | | 21,140 | | | | 4,078 | | | | 3,826 | | | | 3,758 | | | | 1,487 | | | | 13,149 | | | December 31, 2015 | | | | | | | | | | | | December 31, 2018 | | | | | | | | | | | | | | | | | | | | | | Revenue | | $ | 3,718 | | | $ | 3,365 | | | $ | 8,279 | | | $ | (605 | ) | | $ | 14,757 | | | $ | 3,235 | | | $ | 2,931 | | | $ | 2,575 | | | $ | (288 | ) | | $ | 8,453 | | Operating profit | | | (1,573 | ) | | 187 | | | 1,501 | | | (505 | ) | | (390 | ) | | Operating profit (loss)(2) | | | | 131 | | | | 166 | | | | 213 | | | | (299 | ) | | | 211 | | Capital expenditures | | | 180 | | | 87 | | | 91 | | | 95 | | | 453 | | | | 135 | | | | 87 | | | | 17 | | | | 5 | | | | 244 | | Depreciation and amortization | | | 403 | | | 223 | | | 107 | | | 14 | | | 747 | | | | 374 | | | | 212 | | | | 90 | | | | 14 | | | | 690 | | Goodwill | | | 2,874 | | | 1,997 | | | 2,109 | | | | — | | | 6,980 | | | | 3,011 | | | | 2,041 | | | | 1,212 | | | | — | | | | 6,264 | | Total assets | | | 8,766 | | | 5,916 | | | 9,227 | | | 2,061 | | | 25,970 | | | | 7,929 | | | | 6,233 | | | | 3,906 | | | | 1,728 | | | | 19,796 | |
(1) | Sales from one segment to another generally are priced at estimated equivalent commercial selling prices; however, segments originating an external sale are credited with the full profit to the Company. Eliminations and corporate costs include intercompany transactions conducted between the three reporting segments that are eliminated in consolidation, as well as corporate costs not allocated to the segments. Intercompany transactions within each reporting segment are eliminated within each reporting segment. Also included in the eliminations and corporate costs column are capital expenditures and total assets related to corporate. Corporate assets consist primarily of cash and fixed assets. |
16. Quarterly Financial Data (Unaudited)
Summarized quarterly results, were as follows (in millions, except per share data):
| | | | | | | | | | | | | | | | | | | | First | | | Second | | | Third | | | Fourth | | | | | Quarter | | | Quarter | | | Quarter | | | Quarter | | Year ended December 31, 2017 | | | | | | | | | | | | | | | | | Revenue | | $ | 1,741 | | | $ | 1,759 | | | $ | 1,835 | | | $ | 1,969 | | Gross profit | | | 209 | | | | 231 | | | | 285 | | | | 167 | | Net loss attributable to Company | | | (122 | ) | | | (75 | ) | | | (26 | ) | | | (14 | ) | Net loss attributable to Company per basic share | | | (0.32 | ) | | | (0.20 | ) | | | (0.07 | ) | | | (0.04 | ) | Net loss attributable to Company per diluted share | | | (0.32 | ) | | | (0.20 | ) | | | (0.07 | ) | | | (0.04 | ) | Cash dividends per share | | | 0.05 | | | | 0.05 | | | | 0.05 | | | | 0.05 | | | | | | | Year ended December 31, 2016 | | | | | | | | | | | | | | | | | Revenue | | $ | 2,189 | | | $ | 1,724 | | | $ | 1,646 | | | $ | 1,692 | | Gross profit (loss) | | | 244 | | | | 35 | | | | 79 | | | | (459 | ) | Net loss attributable to Company | | | (119 | ) | | | (217 | ) | | | (1,362 | ) | | | (714 | ) | Net loss attributable to Company per basic share | | | (0.32 | ) | | | (0.58 | ) | | | (3.62 | ) | | | (1.90 | ) | Net loss attributable to Company per diluted share | | | (0.32 | ) | | | (0.58 | ) | | | (3.62 | ) | | | (1.90 | ) | Cash dividends per share | | | 0.46 | | | | 0.05 | | | | 0.05 | | | | 0.05 | |
(2) | Segment operating loss for 2020 includes charges for: goodwill, other intangible asset and other long lived asset impairments (Wellbore Technologies $665 million; Completion and Production Solutions $1,010 million; and, Rig Technologies $198 million); inventory write-downs (Wellbore Technologies $50 million; Completion and Production Solutions $101 million; and, Rig Technologies $175 million); and severance and other restructuring costs (Wellbore Technologies $134 million; Completion and Production Solutions $21 million; and, Rig Technologies $29 million). Segment operating loss for 2019 includes charges for: goodwill, other intangible asset and other long lived asset impairments (Wellbore Technologies $3,565 million; Completion and Production Solutions $1,865 million; and, Rig Technologies $389 million); inventory write-downs (Wellbore Technologies $130 million; Completion and Production Solutions $148 million; and, Rig Technologies $355 million); and a voluntary early retirement program (VERP), other severance and facility closure costs (Wellbore Technologies $64 million; Completion and Production Solutions $30 million; and, Rig Technologies $37 million). |
9196
SCHEDULE II NATIONAL OILWELL VARCO,NOV INC.
VALUATION AND QUALIFYING ACCOUNTS Years Ended December 31, 2016, 20152020, 2019 and 20142018 (in millions) | | | | | | | | | | | | | | | | | | | | Balance
beginning of
year | | | Additions
(Deductions)
charged to
costs and
expenses | | | Charge off’s
and other | | | Balance
end of
year | | Allowance for doubtful accounts: | | | | | | | | | | | | | | | | | 2017 | | $ | 209 | | | $ | 6 | | | $ | (28 | ) | | $ | 187 | | 2016 | | | 159 | | | | 52 | | | | (2 | ) | | | 209 | | 2015 | | | 125 | | | | 77 | | | | (43 | ) | | | 159 | | | | | | | Reserve for excess and obsolete inventories: | | | | | | | | | | | | | | | | | 2017 | | $ | 1,017 | | | $ | 114 | | | $ | (331 | ) | | $ | 800 | | 2016 | | | 500 | | | | 606 | | | | (89 | ) | | | 1,017 | | 2015 | | | 370 | | | | 186 | | | | (56 | ) | | | 500 | | | | | | | Valuation allowance for deferred tax assets: | | | | | | | | | | | | | | | | | 2017 | | $ | 544 | | | $ | 280 | | | $ | 378 | | | $ | 1,202 | | 2016 | | | 63 | | | | 476 | | | | 5 | | | | 544 | | 2015 | | | 48 | | | | 15 | | | | — | | | | 63 | | | | | | | Warranty reserve: | | | | | | | | | | | | | | | | | 2017 | | $ | 172 | | | $ | 46 | | | $ | (83 | ) | | $ | 135 | | 2016 | | | 244 | | | | 50 | | | | (122 | ) | | | 172 | | 2015 | | | 272 | | | | 92 | | | | (120 | ) | | | 244 | |
| | Balance beginning of year | | | Additions (Deductions) charged to costs and expenses | | | Charge off's and other | | | Balance end of year | | Allowance for doubtful accounts: | | | | | | | | | | | | | | | | | 2020 | | $ | 132 | | | $ | 7 | | | $ | (39 | ) | | $ | 100 | | 2019 | | | 161 | | | | 21 | | | | (50 | ) | | | 132 | | 2018 | | | 187 | | | | 17 | | | | (43 | ) | | | 161 | | Reserve for excess and obsolete inventories: | | | | | | | | | | | | | | | | | 2020 | | $ | 843 | | | $ | 356 | | | $ | (622 | ) | | $ | 577 | | 2019 | | | 644 | | | | 659 | | | | (460 | ) | | | 843 | | 2018 | | | 800 | | | | 49 | | | | (205 | ) | | | 644 | | Valuation allowance for deferred tax assets: | | | | | | | | | | | | | | | | | 2020 | | $ | 1,175 | | | $ | (82 | ) | | $ | - | | | $ | 1,093 | | 2019 | | | 955 | | | | 218 | | | | 2 | | | | 1,175 | | 2018 | | | 1,202 | | | | 49 | | | | (296 | ) | | | 955 | | Environmental accruals | | | | | | | | | | | | | | | | | 2020 | | $ | 104 | | | $ | 13 | | | $ | (27 | ) | | $ | 90 | | 2019 | | | 66 | | | | 57 | | | | (19 | ) | | | 104 | | 2018 | | | 38 | | | | 37 | | | | (9 | ) | | | 66 | | Warranty reserve: | | | | | | | | | | | | | | | | | 2020 | | $ | 90 | | | $ | 22 | | | $ | (25 | ) | | $ | 87 | | 2019 | | | 105 | | | | 41 | | | | (56 | ) | | | 90 | | 2018 | | | 135 | | | | 38 | | | | (68 | ) | | | 105 | |
9297
|
