The following financial statements are presented in response to Part II,
Item 8:
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.
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,
provide 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, Inc. and its consolidated subsidiaries. Certain
reclassifications have been made to the prior year financial statements in order for them to conform with the 2016 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.
On
May 30, 2014, the Company completed the
spin-off
of its distribution business into an independent public company named NOW Inc. In conjunction with the
spin-off
of
NOW Inc. the Company reviewed its reporting and management structure, and effective April 1, 2014, reorganized the Rig Technology, Petroleum Services & Supplies and remaining operations of Distribution & Transmission reporting
segments into four new reporting segments. The new reporting segments are Rig Systems, Rig Aftermarket, Wellbore Technologies and Completion & Production Solutions. As a result of the reorganization, all prior periods are presented on this
basis. Results of operations related to NOW Inc. have been classified as discontinued operations in all periods presented on
Form 10-K.
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 certain
non-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 market using the
first-in,
first-out
or average cost methods. The Company determines reserves for inventory based on historical usage of inventory
on-hand,
assumptions about future demand and market conditions, and estimates about potential alternative uses, which are limited. The Companys inventory consists of spare parts, work in process, and raw
materials to support ongoing manufacturing operations and the Companys large installed base of highly specialized oilfield equipment. The Companys estimated carrying value of inventory depends upon demand largely driven by levels of oil
and
68
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 Companys 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 severe
oil-industry
downturn that started in
mid-2014
began
to stabilize during the second half of 2016, and showed early signs of improvement in many areas in the fourth quarter. These signs of improvement, including conversations with customers about their plans for 2017 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 related to estimates of future demand, during the fourth quarter we recorded a charge for additions to inventory
reserves of $582 million, consisting primarily of obsolete and surplus inventories. At December 31, 2016 and 2015, inventory reserves totaled $1,017 million and $500 million, or 23.4% and 9.7% of gross inventory,
respectively.
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 $370 million, $391 million and $413 million for the years ended
December 31, 2016, 2015 and 2014, respectively. Accumulated depreciation of $2,298 million as of December 31, 2016 included accumulated depreciation of $6 million for capital leases. The estimated useful lives of the major classes of property,
plant and equipment are included in Note 6 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. There have been $54 million in impairments of long-lived assets for the year ended December 31, 2016, and nil for the each of the years ended December 31, 2015 and 2014.
Intangible Assets
The Company has approximately
$6.1 billion of goodwill and $3.5 billion of identified intangible assets at December 31, 2016.
Goodwill is identified by segment as
follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rig
Systems
|
|
|
Rig
Aftermarket
|
|
|
Wellbore
Technologies
|
|
|
Completion &
Production
Solutions
|
|
|
Total
|
|
Balance at December 31, 2014
|
|
$
|
1,236
|
|
|
$
|
877
|
|
|
$
|
4,357
|
|
|
$
|
2,069
|
|
|
$
|
8,539
|
|
|
|
|
|
|
|
Goodwill acquired and adjusted during period
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
(8
|
)
|
|
|
|
|
Impairment (1)
|
|
|
|
|
|
|
|
|
|
|
(1,485
|
)
|
|
|
|
|
|
|
(1,485
|
)
|
Currency translation adjustments and other
|
|
|
(4
|
)
|
|
|
|
|
|
|
(6
|
)
|
|
|
(64
|
)
|
|
|
(74
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
$
|
1,232
|
|
|
$
|
877
|
|
|
$
|
2,874
|
|
|
$
|
1,997
|
|
|
$
|
6,980
|
|
|
|
|
|
|
|
Goodwill acquired and adjusted during period
|
|
|
|
|
|
|
|
|
|
|
24
|
|
|
|
126
|
|
|
|
150
|
|
Impairment (1)
|
|
|
(972
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(972
|
)
|
Currency translation adjustments and other
|
|
|
(2
|
)
|
|
|
|
|
|
|
(24
|
)
|
|
|
(65
|
)
|
|
|
(91
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
$
|
258
|
|
|
$
|
877
|
|
|
$
|
2,874
|
|
|
$
|
2,058
|
|
|
$
|
6,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Accumulated goodwill impairment was $2,457 million as of December 31, 2016.
|
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 on a straight-line basis over the estimated useful lives of
2-30 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.
69
The net book values of identified intangible assets are identified by segment as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rig Systems
|
|
|
Rig
Aftermarket
|
|
|
Wellbore
Technologies
|
|
|
Completion &
Production
Solutions
|
|
|
Total
|
|
Balance at December 31, 2014
|
|
$
|
208
|
|
|
$
|
133
|
|
|
$
|
2,666
|
|
|
$
|
1,437
|
|
|
$
|
4,444
|
|
|
|
|
|
|
|
Additions to intangible assets
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
57
|
|
|
|
59
|
|
Asset impairment
|
|
|
(7
|
)
|
|
|
|
|
|
|
(173
|
)
|
|
|
(24
|
)
|
|
|
(204
|
)
|
Amortization
|
|
|
(22
|
)
|
|
|
(6
|
)
|
|
|
(214
|
)
|
|
|
(114
|
)
|
|
|
(356
|
)
|
Currency translation adjustments and other
|
|
|
(3
|
)
|
|
|
(4
|
)
|
|
|
(27
|
)
|
|
|
(60
|
)
|
|
|
(94
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
$
|
176
|
|
|
$
|
123
|
|
|
$
|
2,254
|
|
|
$
|
1,296
|
|
|
$
|
3,849
|
|
|
|
|
|
|
|
Additions to intangible assets
|
|
|
|
|
|
|
|
|
|
|
15
|
|
|
|
9
|
|
|
|
24
|
|
Amortization
|
|
|
(15
|
)
|
|
|
(7
|
)
|
|
|
(205
|
)
|
|
|
(106
|
)
|
|
|
(333
|
)
|
Currency translation adjustments and other
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
(8
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
$
|
160
|
|
|
$
|
115
|
|
|
$
|
2,064
|
|
|
$
|
1,191
|
|
|
$
|
3,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identified intangible assets by major classification consist of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Accumulated
Amortization
|
|
|
Net Book
Value
|
|
December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
4,016
|
|
|
$
|
(1,630
|
)
|
|
$
|
2,386
|
|
Trademarks
|
|
|
880
|
|
|
|
(265
|
)
|
|
|
615
|
|
Indefinite-lived trade names
|
|
|
384
|
|
|
|
|
|
|
|
384
|
|
Other
|
|
|
1,040
|
|
|
|
(576
|
)
|
|
|
464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total identified intangibles
|
|
$
|
6,320
|
|
|
$
|
(2,471
|
)
|
|
$
|
3,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
4,024
|
|
|
$
|
(1,874
|
)
|
|
$
|
2,150
|
|
Trademarks
|
|
|
878
|
|
|
|
(290
|
)
|
|
|
588
|
|
Indefinite-lived trade names
|
|
|
384
|
|
|
|
|
|
|
|
384
|
|
Other
|
|
|
1,048
|
|
|
|
(640
|
)
|
|
|
408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total identified intangibles
|
|
$
|
6,334
|
|
|
$
|
(2,804
|
)
|
|
$
|
3,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Impairment
The
steep worldwide oil and gas industry downturn that started in 2014 stabilized somewhat during the third quarter of 2016, though at very low levels of activity. Operators have improved their cost structures and achieved operational efficiencies,
reducing the industrys marginal cost of supply, primarily in the North American land market. While some improvements in offshore operations have been made, many deepwater projects will not be able to achieve an economically competitive cost
structure under the current commodity pricing outlook. As a result, the market shift from offshore drilling to land drilling in North America intensified. Announced cancellations of major offshore projects during the third quarter, releases of
contracted offshore rigs, the number of idle offshore rigs and the number of current newbuilds still to be completed and enter the market all indicate a large over-supply of offshore equipment that may take years to absorb, even as offshore drilling
activity recovers. During the third quarter of 2016, these 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.
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.
70
The first step of the impairment analysis is to compare the reporting units 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 managements
forecast of operating performance for the reporting unit. The two main assumptions used in measuring goodwill impairment, which bear the risk of change and could impact the Companys 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 units 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 Companys step one impairment analysis, as of July 1, 2016, completed as a result of
the 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 deducting the fair value of a reporting units 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, the Company recorded a $972 million
write-down of goodwill during the third quarter.
Also, to achieve higher efficiencies and reduce costs, the Company combined the operations of the Rig
Offshore and Rig Land reporting units during the third quarter of 2016. Generally accepted accounting principles require the Company to test the value of goodwill assets for impairment before and after combining reporting units. As a result we also
tested Rig Land before the combination as well as the combined reporting unit, Rig Systems, as of July 1, 2016 for goodwill impairment, in accordance with ASC Topic 350.
Based on the Companys step one impairment analysis, the calculated fair value of the Rig Land reporting unit was substantially in excess of its carrying
value. Additionally, the goodwill impairment analysis performed subsequent to the combination of the two reporting units into the Rig Systems reporting unit, concluded that the calculated fair value of the Rig Systems reporting unit was
substantially in excess of its carrying value. We also considered whether impairment indicators existed that would suggest the goodwill of our other reporting units was more likely than not impaired and concluded there were none. While the outlook
for offshore
new-builds
has declined sharply, higher activity levels in land drilling will benefit our other businesses.
During the fourth quarter of 2016, the Company performed its annual impairment test, as described in ASC Topic 350, as of October 1, 2016. Based on the
Companys annual impairment test, the calculated fair values for all of the Companys reporting units were substantially in excess of the respective reporting units carrying value. Additionally, the fair value for all of the
Companys intangible assets with indefinite lives were substantially in excess of the respective asset carrying values.
Foreign Currency
The functional currency for most of our foreign operations is the local currency. The cumulative effects of translating the balance sheet accounts from the
functional currency into the U.S. dollar at current exchange rates are included in accumulated other comprehensive income (loss). Revenues and expenses are translated at average exchange rates in effect during the period. Certain other foreign
operations, including our operations in Norway, use the U.S. dollar as the functional currency. Accordingly, financial statements of these foreign subsidiaries are remeasured to U.S. dollars for consolidation purposes using current rates of exchange
for monetary assets and liabilities and historical rates of exchange for nonmonetary assets and related elements of expense. Revenue and expense elements are remeasured at rates that approximate the rates in effect on the transaction dates. For all
operations, gains or losses from remeasuring foreign currency transactions into the functional currency are included in income. Net foreign currency transaction gains (losses) were $(10) million, $(47) million and $20 million for the years
ending December 31, 2016, 2015 and 2014, respectively, and are included in other income (expense) in the accompanying statement of income.
Historically, the Venezuelan government has devalued the countrys 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 Companys Venezuelan entities is
the U.S. dollar. The Companys net remaining investment in Venezuela, which is largely U.S. dollar, was nil at December 31, 2016.
71
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 devaluation charges in the fourth quarter of 2015. The reporting currency of all of the Companys Argentinian entities is the Argentine peso.
Revenue Recognition
The Companys products and
services are sold based upon purchase orders or contracts with the customer that include fixed or determinable prices and that do not generally include right of return or other similar provisions or other significant post delivery obligations.
Except for certain construction contracts and drill pipe sales described below, the Company records revenue at the time its manufacturing process is complete, the customer has been provided with all proper inspection and other required
documentation, title and risk of loss has passed to the customer, collectability is reasonably assured and the product has been delivered. Customer advances or deposits are deferred and recognized as revenue when the Company has completed all of its
performance obligations related to the sale. The Company also recognizes revenue as services are performed. The amounts billed for shipping and handling costs are included in revenue and related costs are included in cost of sales.
Revenue Recognition under Long-term Construction Contracts
The Company uses the
percentage-of-completion
method to account for certain
long-term construction contracts in the Rig Systems and Completion & Production Solutions segments. These long-term construction contracts include the following characteristics:
|
|
|
the contracts include custom designs for customer specific applications;
|
|
|
|
the structural design is unique and requires significant engineering efforts; and
|
|
|
|
construction projects often have progress payments.
|
This method requires the Company
to make estimates regarding the total costs of the project, progress against the project schedule and the estimated completion date, all of which impact the amount of revenue and gross margin the Company recognizes in each reporting period. The
Company prepares detailed cost estimates at the beginning of each project. Significant projects and their related costs and 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 Companys estimates and materially impact the
Companys current and future reported earnings.
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 Companys 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). 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.
72
The changes in the carrying amount of service and product warranties are as follows (in millions):
|
|
|
|
|
Balance at December 31, 2014
|
|
$
|
272
|
|
|
|
|
|
|
Net provisions for warranties issued during the year
|
|
|
92
|
|
Amounts incurred
|
|
|
(117
|
)
|
Currency translation adjustments and other
|
|
|
(3
|
)
|
|
|
|
|
|
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
|
|
|
|
|
|
|
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 Companys 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 Companys 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 $209 million and $159 million at December 31, 2016 and 2015.
Stock-Based Compensation
Compensation expense for the
Companys 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 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 and
non-employee
directors under share-based payment
arrangements, including various employee stock option plans.
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
73
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 under
percentage-of-completion,
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 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 managements judgment, 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 Companys previous judgments 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.
Net Income (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,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
(2,412
|
)
|
|
$
|
(769
|
)
|
|
$
|
2,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations
|
|
$
|
|
|
|
$
|
|
|
|
$
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Company
|
|
$
|
(2,412
|
)
|
|
$
|
(769
|
)
|
|
$
|
2,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basicweighted average common shares outstanding
|
|
|
376
|
|
|
|
387
|
|
|
|
428
|
|
Dilutive effect of employee stock options and other
unvested stock awards
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted outstanding shares
|
|
|
376
|
|
|
|
387
|
|
|
|
430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
(6.41
|
)
|
|
$
|
(1.99
|
)
|
|
$
|
5.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations
|
|
$
|
|
|
|
$
|
|
|
|
$
|
0.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Company
|
|
$
|
(6.41
|
)
|
|
$
|
(1.99
|
)
|
|
$
|
5.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
(6.41
|
)
|
|
$
|
(1.99
|
)
|
|
$
|
5.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations
|
|
$
|
|
|
|
$
|
|
|
|
$
|
0.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Company
|
|
$
|
(6.41
|
)
|
|
$
|
(1.99
|
)
|
|
$
|
5.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends per share
|
|
$
|
0.61
|
|
|
$
|
1.84
|
|
|
$
|
1.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASC Topic 260, Earnings Per Share (ASC Topic 260) requires companies with unvested participating
securities to utilize a
two-class
method for the computation of net income attributable to Company per share. The
two-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 with
non-forfeitable
rights to receive dividends or dividend equivalents, if declared. Net
income attributable to Company allocated to these participating securities was immaterial for the years ended December 31, 2016, 2015 and 2014 and therefore not excluded from net income attributable to Company per share calculation. The Company
had stock options outstanding that were anti-dilutive totaling 14 million, 13 million, and 8 million at December 31, 2016, 2015 and 2014, respectively.
74
Recently Adopted Accounting Standards
In November 2015, the FASB issued Accounting Standard Update
No. 2015-17
Balance Sheet Classification of
Deferred Taxes (ASU
2015-17). This
update requires companies to classify all deferred tax assets and liabilities as
non-current
on its consolidated financial
position. The Company has early adopted ASU
2015-17
on a retrospective basis, resulting in a reclassification of current deferred tax assets and liabilities to
non-current
deferred tax assets and liabilities. The Company adopted this update on January 1, 2016, and prior periods have been retrospectively adjusted. See Note 8 for further information on the
presentation of deferred taxes.
In April 2015, the FASB issued Accounting Standard Update
No. 2015-03
Simplifying the Presentation of Debt Issuance Costs (ASU
2015-03)
to simplify the presentation of debt issuance costs. This update requires that debt issuance costs related to a recognized debt
liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts, as opposed to historical presentation as an asset on the balance sheet. ASU
No. 2015-03
is effective for fiscal years beginning after December 15, 2015, and for interim periods within those fiscal years. The Company adopted this update on January 1, 2016, and has applied the
change retrospectively to prior periods for unamortized debt issuance costs. See Note 7 for further information on the presentation of debt issuance costs.
In August 2014, the FASB issued Accounting Standard Update
No. 2014-15
Disclosure of Uncertainties about an
Entitys Ability to Continue as a Going Concern (ASU
No. 2014-15),
which amends FASB Accounting Standards Codification 205 Presentation of Financial Statements. This update requires
management to assess an entitys ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. ASU
No. 2014-15
is
effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. The Company adopted ASU
No. 2014-15
as of December 31, 2016.
Recently Issued Accounting Standards
In August 2016, the
FASB issued Accounting Standard Update
No. 2016-15
Classification of Certain Cash Receipts and Cash Payments (ASU
2016-15).
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. ASU
No. 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 ASU
No. 2016-15
on its
consolidated financial position and results of operations.
In March 2016, the FASB issued Accounting Standard Update
No. 2016-09
Improvements to Employee Share-Based Payment Accounting (ASU
2016-09).
This update requires that entities record all of the tax effects
related to share-based payments at settlement (or expiration) through the income statement. ASU
No. 2016-09
is effective for fiscal years beginning after December 15, 2016, and for interim periods
within those fiscal years. The Company will adopt ASU
No. 2016-09
on January 1, 2017.
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 our existing leases with documentation as required by the new standard. We have
assessed the changes to the Companys current accounting practices and are currently investigating the related tax impact and process changes. We are also in process of quantifying the impact of the new standard on our balance sheet.
In May 2014, the FASB issued Accounting Standard Update
No. 2014-09,
Revenue from Contracts with
Customers (ASU
2014-09),
which outlines a single comprehensive model for entities to use in accounting for revenue. This ASU supersedes the revenue recognition requirements in FASB ASC Topic 605,
Revenue Recognition, and most industry-specific guidance. This ASU sets forth a five-step model for determining when and how revenue is recognized. Under the model, an entity will be required to 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.
In 2015, the
FASB issued guidance to defer the effective date to fiscal years beginning after December 15, 2017 with optional early adoption for fiscal periods beginning after December 15, 2016. The Company does not plan to early adopt ASU
2014-09.
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. The Company currently anticipates following the modified
retrospective adoption, but will not make a final decision on the adoption method until later in 2017.
75
In 2015, the Company assembled an internal team to study the provisions of ASU
2014-09,
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. During 2017, we will quantify the potential impacts
as well as design and implement required process, system, control and data requirements to address the impacts identified in the assessments.
The Company
has not quantified and is not currently able to reasonably estimate the effect of the potential timing or other impacts to revenue recognition caused by the new standard, nor the amount of contract assets and liabilities which will be added to our
balance sheet.
76
3. Derivative Financial Instruments
The Company is exposed to certain risks relating to its ongoing business operations. The primary risk managed by using derivative instruments is foreign
currency exchange rate risk. Forward contracts against various foreign currencies are entered into 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). Other forward exchange 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 into
non-designated
forward contracts against various foreign currencies to manage the foreign
currency exchange rate risk on recognized nonfunctional currency monetary accounts
(non-designated
hedge).
At
December 31, 2016, the Company has determined that the fair value of its derivative financial instruments representing assets of $62 million and liabilities of $77 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, 2016, the net fair value of the Companys foreign currency forward contracts totaled a net liability of
$15 million.
At December 31, 2016, the Companys financial instruments do not contain any credit-risk-related or other contingent features
that could cause accelerated payments when the Companys financial instruments are in net liability positions. We do not use derivative financial instruments for trading or speculative purposes.
Cash Flow Hedging Strategy
To protect against the
volatility of forecasted foreign currency cash flows resulting from forecasted revenues and expenses, the Company has instituted 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) 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 instrument 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.
The Company had the following outstanding foreign currency forward
contracts that were entered into to hedge nonfunctional currency cash flows from forecasted revenues and expenses (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency Denomination
|
|
Foreign Currency
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
Norwegian Krone
|
|
NOK
|
|
|
5,621
|
|
|
NOK
|
|
|
9,655
|
|
Japanese Yen
|
|
JPY
|
|
|
1,462
|
|
|
JPY
|
|
|
|
|
U.S. Dollar
|
|
USD
|
|
|
321
|
|
|
USD
|
|
|
321
|
|
Euro
|
|
EUR
|
|
|
279
|
|
|
EUR
|
|
|
78
|
|
Danish Krone
|
|
DKK
|
|
|
29
|
|
|
DKK
|
|
|
57
|
|
Singapore Dollar
|
|
SGD
|
|
|
2
|
|
|
SGD
|
|
|
14
|
|
British Pound Sterling
|
|
GBP
|
|
|
1
|
|
|
GBP
|
|
|
4
|
|
Canadian Dollar
|
|
CAD
|
|
|
|
|
|
CAD
|
|
|
2
|
|
77
Non-designated
Hedging Strategy
The Company enters into forward exchange contracts to hedge certain nonfunctional currency monetary accounts. The purpose of the Companys 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 are
non-designated,
the gain or loss on the derivative instrument subject to the
hedged risk (i.e., nonfunctional currency monetary accounts) is recognized in other income (expense), net in the Consolidated Statement of Income (Loss).
The Company had the following outstanding foreign currency forward contracts that hedge the fair value of nonfunctional currency monetary accounts (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency Denomination
|
|
Foreign Currency
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
Russian Ruble
|
|
RUB
|
|
|
1,893
|
|
|
RUB
|
|
|
2,164
|
|
Norwegian Krone
|
|
NOK
|
|
|
538
|
|
|
NOK
|
|
|
2,265
|
|
U.S. Dollar
|
|
USD
|
|
|
457
|
|
|
USD
|
|
|
515
|
|
Euro
|
|
EUR
|
|
|
272
|
|
|
EUR
|
|
|
371
|
|
South African Rand
|
|
ZAR
|
|
|
150
|
|
|
ZAR
|
|
|
|
|
Danish Krone
|
|
DKK
|
|
|
49
|
|
|
DKK
|
|
|
153
|
|
Singapore Dollar
|
|
SGD
|
|
|
7
|
|
|
SGD
|
|
|
5
|
|
British Pound Sterling
|
|
GBP
|
|
|
3
|
|
|
GBP
|
|
|
11
|
|
Canadian Dollar
|
|
CAD
|
|
|
1
|
|
|
CAD
|
|
|
7
|
|
78
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
|
|
|
2016
|
|
|
2015
|
|
|
Location
|
|
|
2016
|
|
|
2015
|
|
Derivatives designated as hedging instruments under ASC Topic 815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
|
Prepaid and other current assets
|
|
|
$
|
24
|
|
|
$
|
5
|
|
|
|
Accrued liabilities
|
|
|
$
|
37
|
|
|
$
|
212
|
|
Foreign exchange contracts
|
|
|
Other Assets
|
|
|
|
6
|
|
|
|
|
|
|
|
Other Liabilities
|
|
|
|
11
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging instruments under ASC Topic 815
|
|
|
|
|
|
$
|
30
|
|
|
$
|
5
|
|
|
|
|
|
|
$
|
48
|
|
|
$
|
237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments under ASC Topic 815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
|
Prepaid and other current assets
|
|
|
$
|
32
|
|
|
$
|
21
|
|
|
|
Accrued liabilities
|
|
|
$
|
29
|
|
|
$
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedging instruments under ASC Topic 815
|
|
|
|
|
|
$
|
32
|
|
|
$
|
21
|
|
|
|
|
|
|
$
|
29
|
|
|
$
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives
|
|
|
|
|
|
$
|
62
|
|
|
$
|
26
|
|
|
|
|
|
|
$
|
77
|
|
|
$
|
286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
5
|
|
|
|
19
|
|
|
Cost of revenue
|
|
|
(21
|
)
|
|
|
(33
|
)
|
Foreign exchange contracts
|
|
|
45
|
|
|
|
(243
|
)
|
|
Cost of revenue
|
|
|
(170
|
)
|
|
|
(262
|
)
|
|
Other income (expense), net
|
|
|
8
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
45
|
|
|
|
(243
|
)
|
|
|
|
|
(165
|
)
|
|
|
(243
|
)
|
|
|
|
|
(13
|
)
|
|
|
(29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Not Designated as
Hedging Instruments under
ASC Topic 815
|
|
Location of Gain (Loss)
Recognized in Income
on Derivatives
|
|
|
Amount of Gain (Loss)
Recognized in Income
on Derivatives
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Foreign exchange contracts
|
|
|
Other income (expense), net
|
|
|
|
(33
|
)
|
|
|
(97
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
(33
|
)
|
|
|
(97
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
The Company expects that $20 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 $(21) million and $(33) million related to the ineffective portion of the hedging relationships for the years ended December 31, 2016 and 2015,
respectively, and $8 million and $4 million related to the amount excluded from the assessment of the hedge effectiveness for the years ended December 31, 2016 and 2015, respectively.
|
79
4. Acquisitions and Investments
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 has preliminarily allocated $24 million to identifiable
intangible assets and $152 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.
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 has 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.
2014
In the year ended December 31, 2014, the
Company completed 10 acquisitions for an aggregate purchase price of $291 million, net of cash acquired. The Company has allocated $59 million to identifiable intangible assets and $167 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,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Fair value of assets acquired, net of cash acquired
|
|
$
|
357
|
|
|
$
|
116
|
|
|
$
|
406
|
|
Cash paid, net of cash acquired
|
|
|
(230
|
)
|
|
|
(86
|
)
|
|
|
(291
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities assumed, debt issued and noncontrolling interest
|
|
$
|
127
|
|
|
$
|
30
|
|
|
$
|
115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess purchase price over fair value of net assets acquired
|
|
$
|
152
|
|
|
$
|
51
|
|
|
$
|
167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5. Inventories, net
Inventories consist of (in millions):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Raw materials and supplies
|
|
$
|
961
|
|
|
$
|
1,069
|
|
Work in process
|
|
|
561
|
|
|
|
632
|
|
Finished goods and purchased products
|
|
|
1,803
|
|
|
|
2,977
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,325
|
|
|
$
|
4,678
|
|
|
|
|
|
|
|
|
|
|
80
6. Property, Plant and Equipment
Property, plant and equipment consist of (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
December 31,
|
|
|
|
Useful Lives
|
|
|
2016
|
|
|
2015
|
|
Land and buildings
|
|
|
5-35 Years
|
|
|
$
|
1,570
|
|
|
$
|
1,565
|
|
Operating equipment
|
|
|
3-15
Years
|
|
|
|
3,102
|
|
|
|
3,055
|
|
Rental equipment
|
|
|
3-12
Years
|
|
|
|
557
|
|
|
|
639
|
|
Capital leases
|
|
|
20-24 Years
|
|
|
|
219
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,448
|
|
|
|
5,276
|
|
Less: Accumulated Depreciation
|
|
|
|
|
|
|
(2,298
|
)
|
|
|
(2,152
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,150
|
|
|
$
|
3,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7. Accrued Liabilities
Accrued liabilities consist of (in millions):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Vendor costs
|
|
$
|
235
|
|
|
$
|
449
|
|
Customer prepayments and billings
|
|
|
222
|
|
|
|
426
|
|
Compensation
|
|
|
181
|
|
|
|
241
|
|
Taxes (non income)
|
|
|
176
|
|
|
|
175
|
|
Warranty
|
|
|
172
|
|
|
|
244
|
|
Insurance
|
|
|
103
|
|
|
|
113
|
|
Fair value of derivatives
|
|
|
66
|
|
|
|
261
|
|
Commissions
|
|
|
57
|
|
|
|
73
|
|
Interest
|
|
|
8
|
|
|
|
8
|
|
Other
|
|
|
348
|
|
|
|
294
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,568
|
|
|
$
|
2,284
|
|
|
|
|
|
|
|
|
|
|
8. Costs and Estimated Earnings on Uncompleted Contracts
Costs and estimated earnings on uncompleted contracts consist of (in millions):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Costs incurred on uncompleted contracts
|
|
$
|
8,132
|
|
|
$
|
9,082
|
|
Estimated earnings
|
|
|
3,869
|
|
|
|
4,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,001
|
|
|
|
13,162
|
|
Less: Billings to date on uncompleted contracts
|
|
|
11,776
|
|
|
|
12,697
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
225
|
|
|
$
|
465
|
|
|
|
|
|
|
|
|
|
|
Costs and estimated earnings in excess of billings on uncompleted contracts
|
|
$
|
665
|
|
|
$
|
1,250
|
|
Billings in excess of costs and estimated earnings on uncompleted contracts
|
|
|
(440
|
)
|
|
|
(785
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
225
|
|
|
$
|
465
|
|
|
|
|
|
|
|
|
|
|
81
9. Debt
Debt consists of (in millions):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
$500 million in Senior Notes, interest at 1.35% payable semiannually, principal due on
December 1, 2017
|
|
|
499
|
|
|
|
498
|
|
$1.4 billion in Senior Notes, interest at 2.60% payable semiannually, principal due on
December 1, 2022
|
|
|
1,391
|
|
|
|
1,389
|
|
$1.1 billion in Senior Notes, interest at 3.95% payable semiannually, principal due on
December 1, 2042
|
|
|
1,087
|
|
|
|
1,087
|
|
Commercial paper
|
|
|
|
|
|
|
890
|
|
Capital Leases and other debt
|
|
|
237
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
3,214
|
|
|
|
3,909
|
|
Less current portion
|
|
|
506
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
2,708
|
|
|
$
|
3,907
|
|
|
|
|
|
|
|
|
|
|
Principal payments of debt and capital leases for years subsequent to 2016 are as follows (in millions):
|
|
|
|
|
2017
|
|
$
|
506
|
|
2018
|
|
|
3
|
|
2019
|
|
|
4
|
|
2020
|
|
|
5
|
|
2021
|
|
|
5
|
|
Thereafter
|
|
|
2,691
|
|
|
|
|
|
|
|
|
$
|
3,214
|
|
|
|
|
|
|
See Note 12 for additional details on future lease payments specific to capital leases.
On January 1, 2016, the Company adopted Accounting Standards Update
No. 2015-03
Simplifying the
Presentation of Debt Issuance Costs. This update requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with
debt discounts. We have applied the change retrospectively for prior period balances of unamortized debt issuance costs, resulting in a $21 million reduction in other assets and long-term debt on our consolidated balance sheet as of
December 31, 2015. The table above now presents our debt liability net of the related debt discount and debt issuance costs.
The Company has a
$4.5 billion, five-year credit facility which expires September 28, 2018. The Company also has a commercial paper program under which borrowings are classified as long-term since the program is supported by the $4.5 billion, five-year
unsecured revolving credit facility. At December 31, 2016, there were no commercial paper borrowings, and there were no outstanding letters of credit issued under the credit facility, resulting in $4,500 million of funds available under
this revolving credit facility. Interest under this multicurrency facility is based upon LIBOR, NIBOR or EURIBOR plus 1.125% subject to a ratings-based grid, or the U.S. prime rate. The credit facility contains a financial covenant regarding maximum
debt-to-capitalization
ratio of 60%. As of December 31, 2016, the Company was in compliance with a
debt-to-capitalization
ratio of 18.7%.
The Company had
$1,196 million of outstanding letters of credit at December 31, 2016, 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, 2016 and 2015, the fair value of the Companys unsecured Senior Notes approximated
$2,669 million and $2,551 million, respectively. The fair value of the Companys 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, 2016 and 2015, the carrying value of the Companys unsecured Senior Notes approximated $2,977 million and $2,974 million, respectively.
82
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, 2016, 2015 and 2014,
expenses for defined-contribution plans were $66 million, $95 million, and $115 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 75 employees represented by certain collective bargaining agreements continue to accrue benefits under the
plan. In addition, approximately 1,900 U.S. retirees and spouses participate in defined benefit health care plans of predecessor or acquired companies that provide postretirement medical and 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 2014, the Company sold certain industrial assets of which the impact on the defined benefit plans is reflected in the table below.
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 cost for our defined benefit plans aggregated $5 million, $5 million and
$7 million for the years ended December 31, 2016, 2015 and 2014, 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, 2016 and 2015, is as
follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension benefits
|
|
|
Postretirement benefits
|
|
At year end
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Benefit obligation at beginning of year
|
|
$
|
703
|
|
|
$
|
792
|
|
|
$
|
90
|
|
|
$
|
53
|
|
Service cost
|
|
|
5
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
Interest cost
|
|
|
25
|
|
|
|
26
|
|
|
|
3
|
|
|
|
3
|
|
Actuarial loss (gain)
|
|
|
42
|
|
|
|
(38
|
)
|
|
|
(29
|
)
|
|
|
(7
|
)
|
Benefits paid
|
|
|
(30
|
)
|
|
|
(34
|
)
|
|
|
(16
|
)
|
|
|
(5
|
)
|
Participants contributions
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
1
|
|
Exchange rate loss (gain)
|
|
|
(37
|
)
|
|
|
(33
|
)
|
|
|
|
|
|
|
|
|
Acquisitions (disposals)
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Curtailments
|
|
|
(71
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlements
|
|
|
(17
|
)
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
42
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
$
|
622
|
|
|
$
|
703
|
|
|
$
|
92
|
|
|
$
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
601
|
|
|
$
|
660
|
|
|
$
|
|
|
|
$
|
|
|
Actual return
|
|
|
60
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
Benefits paid
|
|
|
(30
|
)
|
|
|
(34
|
)
|
|
|
(16
|
)
|
|
|
(5
|
)
|
Company contributions
|
|
|
16
|
|
|
|
12
|
|
|
|
14
|
|
|
|
4
|
|
Participants contributions
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
1
|
|
Exchange rate gain (loss)
|
|
|
(34
|
)
|
|
|
(23
|
)
|
|
|
|
|
|
|
|
|
Curtailments
|
|
|
(71
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions (disposals)
|
|
|
1
|
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
$
|
543
|
|
|
$
|
601
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status
|
|
$
|
(79
|
)
|
|
$
|
(102
|
)
|
|
$
|
(92
|
)
|
|
$
|
(90
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation at end of year
|
|
$
|
617
|
|
|
$
|
685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
83
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,
|
|
|
|
2016
|
|
|
2015
|
|
Discount rate:
|
|
|
|
|
|
|
|
|
United States plan
|
|
|
3.10% - 4.00
|
%
|
|
|
3.40% - 3.90
|
%
|
International plans
|
|
|
1.80% - 2.80
|
%
|
|
|
2.10% - 3.60
|
%
|
Salary increase:
|
|
|
|
|
|
|
|
|
United States plan
|
|
|
N/A
|
|
|
|
N/A
|
|
International plans
|
|
|
1.80% - 3.50
|
%
|
|
|
2.00% - 4.20
|
%
|
The assumption rates used for net periodic benefit costs are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Discount rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States plan
|
|
|
3.20% - 4.20
|
%
|
|
|
3.70% - 4.20
|
%
|
|
|
3.99% - 4.67
|
%
|
International plans
|
|
|
2.20% - 3.70
|
%
|
|
|
2.20% - 3.70
|
%
|
|
|
3.50% - 4.40
|
%
|
Salary increase:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States plan
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
International plans
|
|
|
2.00% - 4.20
|
%
|
|
|
2.00% - 4.20
|
%
|
|
|
2.00% - 4.40
|
%
|
Expected return on assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States plan
|
|
|
5.60
|
%
|
|
|
5.50
|
%
|
|
|
6.50
|
%
|
International plans
|
|
|
1.80% - 3.00
|
%
|
|
|
2.30% - 5.12
|
%
|
|
|
3.50% - 5.53
|
%
|
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 $35 million for each of the next five years and aggregate
payments of $338 million over the next five years thereafter.
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 Companys 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.
84
The following table sets forth by level, within the fair value hierarchy, the Plans assets carried at fair
value (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
$
|
186
|
|
|
$
|
|
|
|
$
|
186
|
|
|
$
|
|
|
Bonds
|
|
|
259
|
|
|
|
|
|
|
|
259
|
|
|
|
|
|
Other (insurance contracts)
|
|
|
156
|
|
|
|
|
|
|
|
57
|
|
|
|
99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fair Value Measurements
|
|
$
|
601
|
|
|
$
|
|
|
|
$
|
502
|
|
|
$
|
99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
$
|
181
|
|
|
$
|
|
|
|
$
|
181
|
|
|
$
|
|
|
Bonds
|
|
|
262
|
|
|
|
|
|
|
|
262
|
|
|
|
|
|
Other (insurance contracts)
|
|
|
100
|
|
|
|
|
|
|
|
47
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fair Value Measurements
|
|
$
|
543
|
|
|
$
|
|
|
|
$
|
490
|
|
|
$
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 inputs are unobservable (i.e., supported by little or no market activity). Level 3 inputs include
managements 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 Plans
Level 3 assets (in millions):
|
|
|
|
|
|
|
Level 3
Plan
Assets
|
|
Balance at December 31, 2014
|
|
$
|
108
|
|
|
|
|
|
|
Actual return on plan assets still held at reporting date
|
|
|
3
|
|
Purchases, sales and settlements
|
|
|
2
|
|
Currency translation adjustments
|
|
|
(14
|
)
|
|
|
|
|
|
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
|
|
|
|
|
|
|
85
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, 2013
|
|
$
|
17
|
|
|
$
|
5
|
|
|
$
|
(26
|
)
|
|
$
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss) before reclassifications
|
|
|
(543
|
)
|
|
|
(245
|
)
|
|
|
(59
|
)
|
|
|
(847
|
)
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
|
11
|
|
|
|
12
|
|
|
|
(6
|
)
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of amounts reclassified from accumulated other comprehensive income (loss) are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
Currency
|
|
|
Derivative
|
|
|
Defined
|
|
|
|
|
|
Currency
|
|
|
Derivative
|
|
|
Defined
|
|
|
|
|
|
Currency
|
|
|
Derivative
|
|
|
Defined
|
|
|
|
|
|
|
Translation
|
|
|
Financial
|
|
|
Benefit
|
|
|
|
|
|
Translation
|
|
|
Financial
|
|
|
Benefit
|
|
|
|
|
|
Translation
|
|
|
Financial
|
|
|
Benefit
|
|
|
|
|
|
|
Adjustments
|
|
|
Instruments
|
|
|
Plans
|
|
|
Total
|
|
|
Adjustments
|
|
|
Instruments
|
|
|
Plans
|
|
|
Total
|
|
|
Adjustments
|
|
|
Instruments
|
|
|
Plans
|
|
|
Total
|
|
Revenue
|
|
$
|
|
|
|
$
|
(5
|
)
|
|
$
|
|
|
|
$
|
(5
|
)
|
|
$
|
|
|
|
$
|
(19
|
)
|
|
$
|
|
|
|
$
|
(19
|
)
|
|
$
|
|
|
|
$
|
(26
|
)
|
|
$
|
|
|
|
$
|
(26
|
)
|
Cost of revenue
|
|
|
|
|
|
|
191
|
|
|
|
|
|
|
|
191
|
|
|
|
|
|
|
|
295
|
|
|
|
|
|
|
|
295
|
|
|
|
|
|
|
|
43
|
|
|
|
|
|
|
|
43
|
|
Selling, general, and administrative
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
(8
|
)
|
Other income (expense), net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
Tax effect
|
|
|
|
|
|
|
(52
|
)
|
|
|
2
|
|
|
|
(50
|
)
|
|
|
|
|
|
|
(77
|
)
|
|
|
2
|
|
|
|
(75
|
)
|
|
|
|
|
|
|
(5
|
)
|
|
|
2
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
134
|
|
|
$
|
(3
|
)
|
|
$
|
131
|
|
|
$
|
|
|
|
$
|
199
|
|
|
$
|
(4
|
)
|
|
$
|
195
|
|
|
$
|
11
|
|
|
$
|
12
|
|
|
$
|
(6
|
)
|
|
$
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys reporting currency is the U.S. dollar. A majority of the Companys 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). For the years ended December 31, 2016, 2015 and 2014, a majority of these local currencies
weakened against the U.S. dollar, resulting in a net other comprehensive loss of $97 million, $764 million, and $543 million, respectively, upon the translation from local currencies to the U.S. dollar. Due to the sale of
non-core
industrial businesses, $11 million of currency translation losses were reclassified from accumulated other comprehensive income (loss) into other income (expense), net in the Consolidated Statements of
Income for the year ended December 31, 2014.
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 for 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. The accumulated effect was other
comprehensive income of $166 million (net of tax of $65 million) for the year ended December 31, 2016, other comprehensive income of $23 million (net of tax of $14 million) for the year ended December 31, 2015 and other
comprehensive loss of $233 million (net of tax of $89 million) for the year ended December 31, 2014.
86
12. Commitments and Contingencies
In November 2016, the Company executed settlement documents settling an internal investigation related to a U.S. federal grand jury subpoenas issued in 2009
and subsequent inquiries from U.S. governmental agencies requesting records related to our compliance with U.S. export trade laws and regulations. We cooperated with agents from the Department of Justice, the Bureau of Industry and Security, the
Office of Foreign Assets Control, and U.S. Immigration and Customs Enforcement in responding to the inquiries. At the conclusion of our internal review in the fourth quarter of 2009, we identified possible areas of concern and discussed these areas
of concern with the relevant agencies. 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.
In addition, we are involved in various other claims, internal investigations, regulatory agency audits and pending or threatened legal actions involving a
variety of matters. In many instances, the Company maintains insurance that covers claims arising from risks associated with the business activities of the Company, including claims for premises liability, product liability and other such claims.
The Company carries substantial insurance to cover such risks above a self-insured retention. The Company believes and the Companys experience has been that such insurance has been sufficient to cover such risks. See Item 1A. Risk
Factors.
As of December 31, 2016, the Company recorded reserves in an amount believed to be sufficient for contingent liabilities representing
all contingencies believed to be probable to cover liabilities. The Company has also assessed the potential for additional losses above the amounts accrued as well as potential losses for matters that are not probable but are reasonably possible.
The total potential loss on these matters cannot be determined; however, in our opinion, any ultimate liability, to the extent not otherwise provided for and except for the specific cases referred to above, will not materially affect our financial
position, cash flow or results of operations. As it relates to the specific cases referred to above we currently anticipate that any administrative fine or penalty agreed to as part of a resolution would be within established accruals, and would not
have a material effect on our financial position or results of operations. To the extent a resolution is not negotiated as anticipated, we cannot predict the timing or effect that any resulting government actions may have on our financial position,
cash flow or results of operations. These estimated liabilities are based on the Companys assessment of the nature of these matters, their progress toward resolution, the advice of legal counsel and outside experts as well as managements
intention and experience.
Our business is affected both directly and indirectly by governmental laws and regulations relating to the oilfield service
industry in general, as well as by environmental and safety regulations that specifically apply to our business. Although we have not incurred material costs in connection with our compliance with such laws, there can be no assurance that other
developments, such as new environmental laws, regulations and enforcement policies may not result in additional, presently unquantifiable, costs or liabilities to us.
Further, in some instances, direct or indirect consumers of our products and services, entities providing financing for purchases of our products and services
or members of the supply chain for our products and services may become involved in governmental investigations, internal investigations, political or other enforcement matters. In such circumstances, such investigations may adversely impact the
ability of consumers of our products, entities providing financial support to such consumers or entities in the supply chain to timely perform their business plans or to timely perform under agreements with us.
The
on-going,
publicly disclosed investigations in Brazil may continue to adversely impact our shipyard customers,
their customers, entities providing financing for our shipyard customers and/or entities in the supply chain. We have executed settlements with several shipyard customers since December 28, 2015 concerning contracts for the supply of drilling
equipment packages for 16 drillship construction projects 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 as a result of the
settlement and, on a net basis, there was no change to our prior estimates on our Brazil contracts impacting income. The investigations in Brazil have led to, and are expected to continue to lead to, delays in deliveries to our shipyard customers in
Brazil, along with temporary suspension of performance under our remaining supply contracts, and could result in additional cancellations or other breaches of our contracts by our shipyard customers. Our shipyard customers customer in Brazil
has stated its intent to build some of the drillships it originally contracted for with our shipyard customers. In 2016, 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 the year to record lows and the resulting effect 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.
87
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.
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 $246 million, $327 million, and $390 million in 2016, 2015 and 2014, 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, 2016, are payable as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
Capital Lease
|
|
|
Operating Lease
|
|
|
|
Payments
|
|
|
Payments
|
|
2017
|
|
$
|
15
|
|
|
$
|
150
|
|
2018
|
|
|
15
|
|
|
|
111
|
|
2019
|
|
|
15
|
|
|
|
90
|
|
2020
|
|
|
15
|
|
|
|
76
|
|
2021
|
|
|
15
|
|
|
|
68
|
|
Thereafter
|
|
|
287
|
|
|
|
371
|
|
|
|
|
|
|
|
|
|
|
Total future lease commitments
|
|
$
|
362
|
|
|
$
|
866
|
|
|
|
|
|
|
|
|
|
|
88
13. Common Stock
National Oilwell Varco 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, none of which is issued or outstanding.
Cash dividends aggregated $230 million and $710 million for the years ended
December 31, 2016 and 2015, respectively. The declaration and payment of future dividends is at the discretion of the Companys Board of Directors and will be dependent upon the Companys results of operations, financial condition,
capital requirements and other factors deemed relevant by the Companys Board of Directors.
Total compensation cost that has been charged against
income for all share-based compensation arrangements was $107 million, $109 million and $101 million for 2016, 2015 and 2014, respectively. The total income tax benefit recognized in the consolidated statements of income for all
share-based compensation arrangements was $30 million, $32 million and $29 million for 2016, 2015 and 2014, respectively.
Under the terms
of National Oilwell Varcos Long-Term Incentive Plan, as amended during the second quarter of 2016, 69.4 million shares of common stock are authorized for the grant of options to officers, key employees,
non-employee
directors and other persons. 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 Plan is now 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 a
1-for-1
basis, and the issuance of other awards reduces the number of available shares under the Plan on a
3-for-1
basis. At December 31, 2016, approximately 27.8 million shares were available for future grants.
Stock Options
Options granted under our stock option
plan 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 Varco 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 Plan and stock plans of acquired companies. Options outstanding at December 31, 2016 under the stock option plans have exercise prices between $23.94 and $77.99 per share, and expire at various dates from March 2, 2017
to February 25, 2026.
On June 2, 2014, as a result of the
spin-off
and pursuant to the terms of the
Employee Matters Agreement and the Plan, outstanding NOV stock-based awards held by continuing NOV employees were adjusted to generally preserve the intrinsic value of the original award. Outstanding NOV stock-based awards held by employees of NOW
were converted into similar NOW stock-based awards, each appropriately adjusted to generally preserve the intrinsic value of the original award. Adjustments to the awards are reflected in the following tables and did not have a material impact to
compensation expense.
The following summarizes options activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
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
|
|
|
15,430,307
|
|
|
$
|
59.50
|
|
|
|
10,881,133
|
|
|
$
|
61.22
|
|
|
|
11,535,566
|
|
|
$
|
58.36
|
|
Granted
|
|
|
3,672,411
|
|
|
|
28.26
|
|
|
|
5,746,153
|
|
|
|
54.74
|
|
|
|
3,389,547
|
|
|
|
69.00
|
|
Spun-off
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,567,348
|
)
|
|
|
70.56
|
|
Cancelled
|
|
|
(1,517,065
|
)
|
|
|
49.95
|
|
|
|
(886,356
|
)
|
|
|
62.73
|
|
|
|
(498,967
|
)
|
|
|
70.32
|
|
Exercised
|
|
|
(146,593
|
)
|
|
|
28.53
|
|
|
|
(310,623
|
)
|
|
|
22.56
|
|
|
|
(1,977,665
|
)
|
|
|
53.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares under option at end of year
|
|
|
17,439,060
|
|
|
$
|
54.08
|
|
|
|
15,430,307
|
|
|
$
|
59.50
|
|
|
|
10,881,133
|
|
|
$
|
61.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year
|
|
|
9,828,897
|
|
|
$
|
61.56
|
|
|
|
7,498,414
|
|
|
$
|
60.30
|
|
|
|
5,903,712
|
|
|
$
|
55.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89
The following summarizes information about stock options outstanding at December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Avg
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
Remaining
|
|
|
|
|
|
Weighted-Avg
|
|
|
|
|
|
Weighted-Avg
|
|
Range of Exercise Price
|
|
Contractual Life
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Shares
|
|
|
Exercise Price
|
|
$12.15 - $55.00
|
|
|
7.56
|
|
|
|
10,108,458
|
|
|
$
|
42.77
|
|
|
|
3,312,182
|
|
|
$
|
45.43
|
|
$55.01 - $70.00
|
|
|
6.21
|
|
|
|
4,720,781
|
|
|
|
66.21
|
|
|
|
3,906,894
|
|
|
|
65.63
|
|
$70.01 - $77.99
|
|
|
4.66
|
|
|
|
2,609,821
|
|
|
|
75.95
|
|
|
|
2,609,821
|
|
|
|
75.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
6.76
|
|
|
|
17,439,060
|
|
|
$
|
54.08
|
|
|
|
9,828,897
|
|
|
$
|
61.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average fair value of options granted during 2016, 2015 and 2014, was approximately $6.44, $15.41 and $25.60 per
share, respectively, as determined using the Black-Scholes option-pricing model. The total intrinsic value of options exercised during 2016 and 2015, was $4 million and $9 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,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Valuation Assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected volatility
|
|
|
48.6
|
%
|
|
|
49.1
|
%
|
|
|
49.4
|
%
|
Risk-free interest rate
|
|
|
1.2
|
%
|
|
|
1.5
|
%
|
|
|
1.5
|
%
|
Expected dividends
|
|
$
|
6.52
|
|
|
$
|
3.36
|
|
|
$
|
1.39
|
|
Expected term (in years)
|
|
|
3.0
|
|
|
|
3.0
|
|
|
|
3.7
|
|
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.
As stock-based compensation expense recognized in the Consolidated Statement of Income in 2016 is based on awards ultimately expected to vest, it has been
reduced for estimated forfeitures. ASC Topic 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on
historical experience.
The following summary presents information regarding outstanding options at December 31, 2016 and changes during 2016 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, 2015
|
|
|
15,430,307
|
|
|
$
|
59.50
|
|
|
|
5.16
|
|
|
$
|
5,894,977
|
|
Granted
|
|
|
3,672,411
|
|
|
$
|
28.26
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(1,517,065
|
)
|
|
$
|
49.95
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(146,593
|
)
|
|
$
|
28.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2016
|
|
|
17,439,060
|
|
|
$
|
54.08
|
|
|
|
6.76
|
|
|
$
|
37,928,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest
|
|
|
17,212,352
|
|
|
$
|
54.08
|
|
|
|
6.76
|
|
|
$
|
37,408,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2016
|
|
|
9,828,897
|
|
|
$
|
61.56
|
|
|
|
5.42
|
|
|
$
|
6,700,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90
At December 31, 2016, total unrecognized compensation cost related to nonvested stock options was
$45 million. This cost is expected to be recognized over a weighted-average period of two years. The total fair value of stock options vested in 2016, 2015 and 2014 was approximately $61 million, $72 million and $67 million,
respectively. Cash received from option exercises for 2016, 2015 and 2014 was $4 million, $7 million and $108 million, respectively. The actual tax benefit realized for the tax deductions from option exercises totaled nil,
$3 million and $16 million for 2016, 2015 and 2014, respectively. Cash used to settle equity instruments granted under all share-based payment arrangements for 2016, 2015 and 2014 was not material for any period.
Stock Appreciation Rights
On February 24, 2016, the
Company also granted 4,618,400 SARs with an exercise price of $28.24 and a fair value of $6.44 per SAR. The SARs are cash-settled awards and vest over a three-year period from the grant date. Upon exercise of the SARs, the employee is entitled to
receive cash payment for the appreciation in the value of our common stock over the exercise price. We account for the cash-settled SARs as liability awards, which require the awards to be revalued at each reporting period.
The following summary presents information regarding outstanding SARs at December 31, 2016 and changes during 2016 with regard to SARs:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
|
Number
|
|
|
Average
|
|
|
|
of
|
|
|
Exercise
|
|
|
|
Shares
|
|
|
Price
|
|
Shares under SARs at beginning of year
|
|
|
|
|
|
$
|
|
|
Granted
|
|
|
4,618,400
|
|
|
|
28.32
|
|
Cancelled
|
|
|
(276,660
|
)
|
|
|
28.24
|
|
|
|
|
|
|
|
|
|
|
Shares under SARs at end of year
|
|
|
4,341,740
|
|
|
$
|
28.32
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016, there was $49 million of unrecognized compensation expense related to nonvested SARs, which
is expected to be recognized over a weighted-average period of two years. The expense recognized in 2016 and the liability for cash-settled SARs was $20 million at December 31, 2016.
Restricted Shares
The Company issues restricted stock
awards and restricted stock units to officers and key employees in addition to stock options. On February 24, 2016, the Company granted 1,732,095 shares of restricted stock and restricted stock units with a fair value of $28.24 per share; and
performance share awards to senior management employees with potential payouts varying from zero to 341,780 shares. The restricted stock and restricted stock units vest on the third anniversary of the date of grant or in three 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 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 Companys TSR with the TSR performance of the members of the OSX index for the three-year performance period.
On May 18, 2016, the Company granted 44,520 restricted stock awards with a fair value of $31.45 per share. The awards were granted to
non-employee
members of the board of directors and vest on the first anniversary of the grant date.
On
November 15, 2016, the Company granted 1,435,450 shares of restricted stock and restricted stock units with a fair value of $36.04. The restricted stock and restricted stock units were granted to key employees and vest over a three-year period
from the date of grant.
91
The following summary presents information regarding outstanding restricted shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
Number
|
|
|
Average
|
|
|
Number
|
|
|
Average
|
|
|
Number
|
|
|
Average
|
|
|
|
of
|
|
|
Grant Date
|
|
|
of
|
|
|
Grant Date
|
|
|
of
|
|
|
Grant Date
|
|
|
|
Units
|
|
|
Fair Value
|
|
|
Units
|
|
|
Fair Value
|
|
|
Units
|
|
|
Fair Value
|
|
Nonvested at beginning of year
|
|
|
1,969,250
|
|
|
$
|
61.53
|
|
|
|
1,569,141
|
|
|
$
|
73.73
|
|
|
|
1,643,193
|
|
|
$
|
67.98
|
|
Granted
|
|
|
3,384,325
|
|
|
|
31.59
|
|
|
|
954,075
|
|
|
|
53.27
|
|
|
|
708,821
|
|
|
|
70.14
|
|
Spin-off
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(319,949
|
)
|
|
|
70.56
|
|
Vested
|
|
|
(565,202
|
)
|
|
|
29.32
|
|
|
|
(405,327
|
)
|
|
|
54.30
|
|
|
|
(348,981
|
)
|
|
|
74.97
|
|
Cancelled
|
|
|
(224,390
|
)
|
|
|
49.95
|
|
|
|
(148,639
|
)
|
|
|
62.73
|
|
|
|
(113,943
|
)
|
|
|
70.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested at end of year
|
|
|
4,563,983
|
|
|
$
|
41.10
|
|
|
|
1,969,250
|
|
|
$
|
61.53
|
|
|
|
1,569,141
|
|
|
$
|
73.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average grant day fair value of restricted stock awards and restricted stock units granted during the years ended
2016, 2015 and 2014 was $31.59, $53.27 and $70.14 per share, respectively. There were 565,202; 405,327 and 348,981 restricted stock awards that vested during 2016, 2015 and 2014, respectively. At December 31, 2016, there was approximately
$101 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.
92
14. Income Taxes
The domestic and foreign components of income before income taxes were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Domestic
|
|
$
|
(2,095
|
)
|
|
$
|
(1,577
|
)
|
|
$
|
1,415
|
|
Foreign
|
|
|
(528
|
)
|
|
|
988
|
|
|
|
2,079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(2,623
|
)
|
|
$
|
(589
|
)
|
|
$
|
3,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of the provision for income taxes consisted of (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(79
|
)
|
|
$
|
30
|
|
|
$
|
681
|
|
State
|
|
|
(4
|
)
|
|
|
(58
|
)
|
|
|
43
|
|
Foreign
|
|
|
74
|
|
|
|
464
|
|
|
|
615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current income tax provision
|
|
|
(9
|
)
|
|
|
436
|
|
|
|
1,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(132
|
)
|
|
|
(41
|
)
|
|
|
(309
|
)
|
State
|
|
|
(7
|
)
|
|
|
(38
|
)
|
|
|
(5
|
)
|
Foreign
|
|
|
(59
|
)
|
|
|
(179
|
)
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax benefit
|
|
|
(198
|
)
|
|
|
(258
|
)
|
|
|
(300
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax provision
|
|
$
|
(207
|
)
|
|
$
|
178
|
|
|
$
|
1,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Federal income tax at U.S. statutory rate
|
|
$
|
(918
|
)
|
|
$
|
(206
|
)
|
|
$
|
1,223
|
|
Foreign income tax rate differential
|
|
|
32
|
|
|
|
(110
|
)
|
|
|
(261
|
)
|
Goodwill impairment
|
|
|
271
|
|
|
|
462
|
|
|
|
|
|
Nondeductible expenses
|
|
|
30
|
|
|
|
66
|
|
|
|
24
|
|
Foreign dividends, net of foreign tax credits
|
|
|
(25
|
)
|
|
|
28
|
|
|
|
132
|
|
Tax rate change on timing differences
|
|
|
(8
|
)
|
|
|
(45
|
)
|
|
|
(2
|
)
|
Change in tax reserve
|
|
|
11
|
|
|
|
69
|
|
|
|
(11
|
)
|
Prior years taxes
|
|
|
(29
|
)
|
|
|
(47
|
)
|
|
|
(11
|
)
|
Tax impact on foreign exchange
|
|
|
(4
|
)
|
|
|
(46
|
)
|
|
|
28
|
|
Change in deferred tax valuation allowance
|
|
|
476
|
|
|
|
15
|
|
|
|
(83
|
)
|
Other
|
|
|
(43
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax provision
|
|
$
|
(207
|
)
|
|
$
|
178
|
|
|
$
|
1,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. Included in the increase in valuation allowance is $404 million recorded against excess foreign tax credits that are not expected to be realized before expiration in the current depressed market conditions.
93
Significant components of our deferred tax assets and liabilities were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Allowances and operating liabilities
|
|
$
|
534
|
|
|
$
|
491
|
|
Net operating loss carryforwards
|
|
|
153
|
|
|
|
170
|
|
Postretirement benefits
|
|
|
60
|
|
|
|
79
|
|
Tax credit carryforwards
|
|
|
405
|
|
|
|
166
|
|
Other
|
|
|
164
|
|
|
|
21
|
|
Valuation allowance
|
|
|
(544
|
)
|
|
|
(63
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
772
|
|
|
|
864
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Tax over book depreciation
|
|
|
267
|
|
|
|
277
|
|
Intangible assets
|
|
|
1,148
|
|
|
|
1,323
|
|
Deferred income
|
|
|
185
|
|
|
|
232
|
|
Accrued U.S. tax on unremitted earnings
|
|
|
53
|
|
|
|
55
|
|
Other
|
|
|
97
|
|
|
|
209
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
1,750
|
|
|
|
2,096
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
978
|
|
|
$
|
1,232
|
|
|
|
|
|
|
|
|
|
|
On January 1, 2016, the Company adopted Accounting Standard Update
No. 2015-17,
Balance Sheet Classification of Deferred Taxes on a retrospective basis. Rather than classify deferred tax assets and liabilities as current and
non-current,
this update requires that deferred tax assets and liabilities be classified as
non-current
in the Consolidated Balance Sheet. Adoption of this standard
resulted in a reclassification of our current deferred tax assets and liabilities to
non-current
deferred tax assets and liabilities in our Consolidated Balance Sheet. Prior periods have been retrospectively
adjusted. At December 31, 2015, $376 million of current deferred tax assets have been reclassified to
non-current
deferred tax liabilities, $358 million of
non-current
deferred tax assets have been reclassified to
non-current
deferred tax liabilities, and $291 million of current deferred tax liabilities have been
reclassified to
non-current
deferred tax liabilities.
The balance of unrecognized tax benefits at
December 31, 2016 and 2015 was $78 million and $46 million, 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 million decrease in uncertain tax positions.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Unrecognized tax benefit at beginning of year
|
|
$
|
46
|
|
|
$
|
115
|
|
|
$
|
127
|
|
Gross increase for current period tax positions
|
|
|
3
|
|
|
|
8
|
|
|
|
3
|
|
Gross increase for tax positions in prior years
|
|
|
65
|
|
|
|
75
|
|
|
|
|
|
Gross decrease for tax positions in prior years
|
|
|
(21
|
)
|
|
|
(75
|
)
|
|
|
|
|
Settlements
|
|
|
(3
|
)
|
|
|
(69
|
)
|
|
|
|
|
Lapse of statute of limitations
|
|
|
(12
|
)
|
|
|
(8
|
)
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized tax benefit at end of year
|
|
$
|
78
|
|
|
$
|
46
|
|
|
$
|
115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $15 million in 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 Companys policy. For the years ended
December 31, 2016, 2015 and 2014, we recorded income tax expense of $10 million, $1 million and $1 million, respectively, for interest and penalty related to unrecognized tax benefits. As of December 31, 2016 and 2015, the
Company had accrued $15 million and $5 million, respectively, of interest and penalty relating to unrecognized tax benefits.
94
The Company is subject to taxation in the United States, 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 2012 and outside the U.S. for tax years ending after 2010.
Net operating loss carryforwards by jurisdiction and
expiration as of December 31, 2016 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
State
|
|
|
Foreign
|
|
|
Total
|
|
2017 - 2021 Expiration
|
|
$
|
8
|
|
|
$
|
1
|
|
|
$
|
78
|
|
|
$
|
87
|
|
2022 - 2033 Expiration
|
|
|
16
|
|
|
|
14
|
|
|
|
102
|
|
|
|
132
|
|
2034 - 2036 Expiration
|
|
|
|
|
|
|
154
|
|
|
|
65
|
|
|
|
219
|
|
Unlimited Expiration
|
|
|
|
|
|
|
|
|
|
|
261
|
|
|
|
261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Operating Loss (NOL)
|
|
$
|
24
|
|
|
$
|
169
|
|
|
$
|
506
|
|
|
$
|
699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax Effected NOL
|
|
$
|
8
|
|
|
$
|
9
|
|
|
$
|
136
|
|
|
$
|
153
|
|
Valuation Allowance (VA)
|
|
|
(7
|
)
|
|
|
(1
|
)
|
|
|
(112
|
)
|
|
|
(120
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOL Net of VA
|
|
$
|
1
|
|
|
$
|
8
|
|
|
$
|
24
|
|
|
$
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has $404 million of excess foreign tax credits in the United States as of December 31, 2016, of which
$11 million, $141 million and $252 million will expire in 2020, 2022 and 2026, respectively. As of December 31, 2016 the Company has remaining tax deductible goodwill of $175 million, resulting from acquisitions. The
amortization of this goodwill is deductible over various periods ranging up to 15 years.
Undistributed earnings of certain of the Companys foreign
subsidiaries amounted to $5,673 million at December 31, 2016. Those 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 U.S. federal taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable in various foreign countries. Determination of the amount of unrecognized deferred U.S. income tax liability
is not practical; however, unrecognized foreign tax credit carryforwards would be available to reduce some portion of the U.S. liability.
95
15. Business Segments and Geographic Areas
The Companys operations are organized into four reportable segments: Rig Systems, Rig Aftermarket, Wellbore Technologies and Completion &
Production Solutions. Within the four reporting segments, the Company has one business unit under Rig Systems, one business unit under Rig Aftermarket, and aggregated six business units under Wellbore Technologies and nine business units under
Completion & Production Solutions, for a total of 17 business units. The Company has aggregated each of its business units in one of the four reporting segments based on the guidelines of ASC Topic 280, Segment Reporting
(ASC Topic 280).
Rig Systems
The
Companys Rig Systems segment makes and supports the capital equipment and integrated systems needed to drill oil and gas wells on land and offshore. 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 Systems include: substructures, derricks, and masts; cranes; 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.
Rig Systems supports land and offshore drillers. Demand for the segments products depends on drilling contractors and oil and gas companies
capital spending plans, specifically capital expenditures on rig construction and refurbishment.
To achieve higher efficiencies and reduce costs in the
current market, the Company combined the Rig Offshore and Rig Land reporting units during the third quarter of 2016. See Note 2.
Rig Aftermarket
The Companys Rig Aftermarket segment provides comprehensive aftermarket products and services to support land and offshore rigs, and drilling
rig components manufactured by the Companys Rig Systems segment.
The segment provides spare parts, repair, and rentals as well as technical
support, field service and first well support, field engineering, and customer training through a network of aftermarket service and repair facilities strategically located in major areas of drilling operations.
Rig Aftermarket supports land and offshore drillers. Demand for the segments products and services depends on overall levels of oilfield drilling
activity, which drives demand for spare parts, service, and repair for Rig Systems large installed base of equipment; and secondarily on drilling contractors and oil and gas companies capital spending plans, specifically capital
expenditures on rig refurbishment and
re-certification.
Wellbore Technologies
The Companys 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 segments 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
Companys 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, manifolds and wellheads; well intervention, including coiled tubing units, coiled tubing, and wireline units and tools; onshore
production, including composite pipe, surface transfer and progressive cavity pumps, and artificial lift systems; and, offshore production, including floating production systems and subsea production technologies.
Completion & Production Solutions supports service companies and oil and gas companies. Demand for the segments 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.
The Company did not have any customers with revenues greater than 10% of total revenue for the years ended December 31, 2016, 2015, or 2014.
96
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,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
United States
|
|
$
|
1,961
|
|
|
$
|
3,640
|
|
|
$
|
6,097
|
|
China
|
|
|
557
|
|
|
|
1,623
|
|
|
|
1,905
|
|
South Korea
|
|
|
495
|
|
|
|
1,835
|
|
|
|
3,472
|
|
Singapore
|
|
|
340
|
|
|
|
1,035
|
|
|
|
1,157
|
|
Norway
|
|
|
339
|
|
|
|
555
|
|
|
|
881
|
|
United Arab Emirates
|
|
|
334
|
|
|
|
532
|
|
|
|
459
|
|
United Kingdom
|
|
|
299
|
|
|
|
634
|
|
|
|
715
|
|
Saudi Arabia
|
|
|
258
|
|
|
|
416
|
|
|
|
444
|
|
Brazil
|
|
|
242
|
|
|
|
605
|
|
|
|
1,299
|
|
Canada
|
|
|
217
|
|
|
|
365
|
|
|
|
645
|
|
Other Countries
|
|
|
2,209
|
|
|
|
3,517
|
|
|
|
4,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,251
|
|
|
$
|
14,757
|
|
|
$
|
21,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents long-lived assets by country based on the location (in millions):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
United States
|
|
$
|
1,810
|
|
|
$
|
1,735
|
|
Brazil
|
|
|
281
|
|
|
|
226
|
|
United Kingdom
|
|
|
137
|
|
|
|
163
|
|
Denmark
|
|
|
120
|
|
|
|
128
|
|
South Korea
|
|
|
94
|
|
|
|
102
|
|
United Arab Emirates
|
|
|
90
|
|
|
|
58
|
|
Russia
|
|
|
88
|
|
|
|
68
|
|
Canada
|
|
|
82
|
|
|
|
78
|
|
Mexico
|
|
|
77
|
|
|
|
93
|
|
Singapore
|
|
|
63
|
|
|
|
78
|
|
Other Countries
|
|
|
308
|
|
|
|
395
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,150
|
|
|
$
|
3,124
|
|
|
|
|
|
|
|
|
|
|
97
Business Segments:
The following table presents selected financial data by business segment (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rig Systems
|
|
|
Rig
Aftermarket
|
|
|
Wellbore
Technologies
|
|
|
Completion &
Production
Solutions
|
|
|
Eliminations
and
Corporate
Costs (1)
|
|
|
Total
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
2,386
|
|
|
$
|
1,416
|
|
|
$
|
2,199
|
|
|
$
|
2,241
|
|
|
$
|
(991
|
)
|
|
$
|
7,251
|
|
Operating profit (loss)
|
|
|
(969
|
)
|
|
|
229
|
|
|
|
(770
|
)
|
|
|
(266
|
)
|
|
|
(635
|
)
|
|
|
(2,411
|
)
|
Capital expenditures
|
|
|
20
|
|
|
|
4
|
|
|
|
124
|
|
|
|
61
|
|
|
|
75
|
|
|
|
284
|
|
Depreciation and amortization
|
|
|
72
|
|
|
|
22
|
|
|
|
384
|
|
|
|
209
|
|
|
|
16
|
|
|
|
703
|
|
Goodwill
|
|
|
258
|
|
|
|
877
|
|
|
|
2,874
|
|
|
|
2,058
|
|
|
|
|
|
|
|
6,067
|
|
Total assets
|
|
|
3,255
|
|
|
|
2,072
|
|
|
|
7,911
|
|
|
|
5,765
|
|
|
|
2,137
|
|
|
|
21,140
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
6,964
|
|
|
$
|
2,515
|
|
|
$
|
3,718
|
|
|
$
|
3,365
|
|
|
$
|
(1,805
|
)
|
|
$
|
14,757
|
|
Operating profit
|
|
|
1,322
|
|
|
|
652
|
|
|
|
(1,573
|
)
|
|
|
187
|
|
|
|
(978
|
)
|
|
|
(390
|
)
|
Capital expenditures
|
|
|
81
|
|
|
|
10
|
|
|
|
180
|
|
|
|
87
|
|
|
|
95
|
|
|
|
453
|
|
Depreciation and amortization
|
|
|
84
|
|
|
|
23
|
|
|
|
403
|
|
|
|
223
|
|
|
|
14
|
|
|
|
747
|
|
Goodwill
|
|
|
1,232
|
|
|
|
877
|
|
|
|
2,874
|
|
|
|
1,997
|
|
|
|
|
|
|
|
6,980
|
|
Total assets
|
|
|
6,772
|
|
|
|
2,455
|
|
|
|
8,766
|
|
|
|
5,916
|
|
|
|
2,061
|
|
|
|
25,970
|
|
|
|
|
|
|
|
|
December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
9,848
|
|
|
$
|
3,222
|
|
|
$
|
5,722
|
|
|
$
|
4,645
|
|
|
$
|
(1,997
|
)
|
|
$
|
21,440
|
|
Operating profit
|
|
|
2,118
|
|
|
|
935
|
|
|
|
1,000
|
|
|
|
730
|
|
|
|
(1,170
|
)
|
|
|
3,613
|
|
Capital expenditures
|
|
|
133
|
|
|
|
12
|
|
|
|
262
|
|
|
|
184
|
|
|
|
108
|
|
|
|
699
|
|
Depreciation and amortization
|
|
|
86
|
|
|
|
26
|
|
|
|
438
|
|
|
|
223
|
|
|
|
5
|
|
|
|
778
|
|
Goodwill
|
|
|
1,236
|
|
|
|
877
|
|
|
|
4,357
|
|
|
|
2,069
|
|
|
|
|
|
|
|
8,539
|
|
Total assets
|
|
|
8,052
|
|
|
|
2,789
|
|
|
|
11,687
|
|
|
|
7,072
|
|
|
|
3,962
|
|
|
|
33,562
|
|
(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
include intercompany transactions conducted between the four reporting segments that are eliminated in consolidation. Intercompany transactions within each reporting segment are eliminated within each reporting segment. Also included in the
eliminations column are capital expenditures and total assets related to corporate. Corporate assets consist primarily of cash and fixed assets.
|
98
16.
Spin-off
of distribution business
On May 30, 2014, the Company completed the previously announced
spin-off
of its distribution business into an
independent public company named NOW Inc., which trades on the New York Stock Exchange under the symbol DNOW. After the close of the New York Stock Exchange on May 30, 2014, the stockholders of record as of May 22, 2014
(the Record Date) received one share of NOW Inc. common stock for every four shares of NOV common stock held on the Record Date. No fractional shares of NOW Inc. common stock were distributed. Instead, the transfer agent aggregated any
fractional shares into whole shares, sold those whole shares in the open market at prevailing rates and distributed the net cash proceeds, after deducting any taxes required to be withheld and any amount equal to all brokerage charges and
commissions, pro rata to each holder who would otherwise have been entitled to receive fractional shares in the distribution.
Other items incurred as a
result of the
spin-off
were $36 million for the year ended December 31, 2014 and are included in continuing operations. The following table presents selected financial information, through
May 30, 2014, regarding the results of operations of our distribution business, which is reported as discontinued operations (in millions):
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31, 2014
|
|
Revenue from discontinued operations
|
|
$
|
1,701
|
|
|
|
|
|
|
Income from discontinued operations before income taxes
|
|
|
83
|
|
|
|
|
|
|
Income tax expense
|
|
|
31
|
|
|
|
|
|
|
Income from discontinued operations
|
|
$
|
52
|
|
|
|
|
|
|
Prior to the
spin-off,
sales to NOW were $231 million for the period ended
May 30, 2014 and purchases from NOW were $82 million for the period ended May 30, 2014. Prior to May 30, 2014, the
spin-off
date, revenue and related cost of revenue were eliminated in
consolidation between NOV and NOW. Beginning May 31, 2014, this revenue and cost of revenue represent third-party transactions with NOW.
17.
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, 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
|
|
|
|
|
|
|
Year ended December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
4,820
|
|
|
$
|
3,909
|
|
|
$
|
3,306
|
|
|
$
|
2,722
|
|
Gross profit
|
|
|
1,177
|
|
|
|
855
|
|
|
|
672
|
|
|
|
359
|
|
Net income (loss) attributable to Company
|
|
|
310
|
|
|
|
289
|
|
|
|
155
|
|
|
|
(1,523
|
)
|
Net income (loss) attributable to Company per basic share
|
|
|
0.76
|
|
|
|
0.75
|
|
|
|
0.41
|
|
|
|
(4.06
|
)
|
Net income (loss) attributable to Company per diluted share
|
|
|
0.76
|
|
|
|
0.74
|
|
|
|
0.41
|
|
|
|
(4.06
|
)
|
Cash dividends per share
|
|
|
0.46
|
|
|
|
0.46
|
|
|
|
0.46
|
|
|
|
0.46
|
|
99