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Summary of Significant Accounting Policies (Policies)
 12 Months Ended
Dec. 31, 2011
Accounting Policies [Abstract]  
Fair Value of Financial Instruments

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. The carrying values of other financial instruments approximate their respective fair values.

Derivative Financial Instruments

Derivative Financial Instruments

Accounting Standards Codification (“ASC”) Topic 815, “Derivatives and Hedging” (“ASC Topic 815”) requires companies to recognize all of its 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 either cash flow or fair value 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. The Company may also use interest rate contracts to mitigate its exposure to changes in interest rates on anticipated long-term debt issuances.

At December 31, 2011, the Company has determined that its derivative financial instruments representing assets of $26 million and liabilities of $96 million (primarily currency related derivatives) are level 2 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, 2011, the net fair value of the Company’s foreign currency forward contracts totaled a net liability of $70 million.

Inventories

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. Allowances for excess and obsolete inventories are determined based on our historical usage of inventory on-hand as well as our future expectations related to our installed base and the development of new products. The allowance, which totaled $281 million and $270 million at December 31, 2011 and 2010, respectively, is the amount necessary to reduce the cost of the inventory to its estimated realizable value.

Property, Plant and Equipment

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 was $279 million, $262 million and $249 million for the years ended December 31, 2011, 2010 and 2009, respectively. The estimated useful lives of the major classes of property, plant and equipment are included in Note 6 to the consolidated financial statements.

Long-lived Assets

Long-lived Assets

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 no impairments of long-lived assets for the years ended December 31, 2011, 2010 and 2009.

Intangible Assets

Intangible Assets

The Company has approximately $6.2 billion of goodwill and $0.6 billion of identified intangible assets at December 31, 2011. Generally accepted accounting principles require the Company to test goodwill and other indefinite-lived intangible assets for impairment at least annually or more frequently whenever events or circumstances occur indicating that such assets might be impaired.

Goodwill is identified by segment as follows (in millions):

 

      $000,00.00       $000,00.00       $000,00.00       $000,00.00  
    Rig
Technology		     Petroleum
Services &
Supplies		     Distribution &
Transmission		     Total  

Balance at December 31, 2009

   $ 1,567     $ 3,855     $ 67     $ 5,489  

Goodwill acquired during period

     287       2       9       298  

Currency translation adjustments

     —         2       1       3  
   

 

 

    

 

 

    

 

 

    

 

 

  

Balance at December 31, 2010

     1,854       3,859       77       5,790  

Goodwill acquired during period

     117       233       27       377  

Currency translation adjustments and other

     (12 )      (3 )      (1 )      (16 ) 
   

 

 

    

 

 

    

 

 

    

 

 

  

Balance at December 31, 2011

   $ 1,959     $ 4,089     $ 103     $ 6,151  
   

 

 

    

 

 

    

 

 

    

 

 

  

 

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 $280 million in each of the next five years. Included in intangible assets are approximately $643 million of indefinite-lived trade names.

The net book value of identified intangible assets are identified by segment as follows (in millions):

 

 

                                 
    Rig
Technology		     Petroleum
Services &
Supplies		     Distribution &
Transmission		     Total  

Balance at December 31, 2009

   $ 416     $ 3,630     $ 6     $ 4,052  
         

Additions to intangible assets

     291       8       —         299  

Amortization

     (38 )      (206 )      (1 )      (245 ) 

Currency translation adjustments

     (3 )      —         —         (3 ) 
   

 

 

    

 

 

    

 

 

    

 

 

  

Balance at December 31, 2010

     666       3,432       5       4,103  

Additions to intangible assets

     70       176       27       273  

Amortization

     (60 )      (213 )      (3 )      (276 ) 

Currency translation adjustments and other

     (22 )      (4 )      (1 )      (27 ) 
   

 

 

    

 

 

    

 

 

    

 

 

  

Balance at December 31, 2011

   $ 654     $ 3,391     $ 28     $ 4,073  
   

 

 

    

 

 

    

 

 

    

 

 

  

Identified intangible assets by major classification consist of the following (in millions):

 

 

                         
    Gross     Accumulated
Amortization		     Net Book
Value		  

December 31, 2010:

                        
       

Customer relationships

   $ 2,933     $ (536 )    $ 2,397  

Trademarks

     677       (95 )      582  

Indefinite-lived trade names

     643       —         643  

Other

     655       (174 )      481  
   

 

 

    

 

 

    

 

 

  

Total identified intangibles

   $ 4,908     $ (805 )    $ 4,103  
   

 

 

    

 

 

    

 

 

  

December 31, 2011:

                        

Customer relationships

   $ 3,044     $ (717 )    $ 2,327  

Trademarks

     716       (122 )      594  

Indefinite-lived trade names

     643       —         643  

Other

     751       (242 )      509  
   

 

 

    

 

 

    

 

 

  

Total identified intangibles

   $ 5,154     $ (1,081 )    $ 4,073  
   

 

 

    

 

 

    

 

 

  
2009 Asset Impairment

2009 Asset Impairment

During the second quarter of 2009, the worldwide average rig count was 2,009 rigs, down 41% from the fourth quarter 2008 average of 3,395 and down 25% from the first quarter 2009 average of 2,681. The second quarter 2009 average rig count represented the lowest quarterly average in the past six years. In addition, the Company’s updated forecast was behind the Company’s previous forecast completed at the beginning of 2009. While operating profit for the first quarter of 2009 was in line with the Company’s first quarter 2009 operating profit forecast, the Company’s consolidated operating profit for the second quarter of 2009 was below its second quarter 2009 forecast. As a result of the substantial decline in the worldwide rig count, and the decline in actual/forecasted results compared to the original 2009 forecast, the Company concluded that events or circumstances had occurred indicating that goodwill and other indefinite-lived intangible assets might be impaired as described in ASC Topic 350, “Intangibles – Goodwill and Other” (“ASC Topic 350”).

 

Therefore, the Company performed its interim impairment test of goodwill for its reporting units and its indefinite-lived intangible assets at the end of the second quarter of 2009. Projections for the remainder of 2009 also reflected declines compared to the original 2009 annual forecast. The Company updated its 2009 operating forecast, long-term forecast, and discounted cash flows based on this information.

The goodwill impairment analysis that the Company performed during the second quarter of 2009 did not result in goodwill impairment as of June 30, 2009. However, based on the Company’s indefinite-lived intangible asset impairment analysis performed during the second quarter of 2009, the Company incurred an impairment charge of $147 million in the Petroleum Services & Supplies segment related to a partial impairment of the Company’s Grant Prideco trade name. The impairment charge was primarily the result of the substantial decline in worldwide rig counts through June 2009, declines in forecasts in rig activity for the remainder of 2009, 2010, and 2011 compared to rig count forecast at the beginning of 2009, and a decline in the revenue forecast for the drill pipe business unit for the remainder of 2009, 2010, and 2011.

The Company performed its annual impairment analysis for its goodwill and indefinite-lived intangible assets during the fourth quarter of 2009, 2010 and 2011 each resulting in no further impairment. The valuation techniques used in the annual test were consistent with those used during previous testing. The inputs used in the annual test were updated for current market conditions and forecasts.

Foreign Currency

Foreign Currency

The functional currency for most of our foreign operations is the local currency. The cumulative effects of translating the balance sheet accounts from the functional currency into the U.S. dollar at current exchange rates are included in accumulated other comprehensive income (loss). Revenues and expenses are translated at average exchange rates in effect during the period. Certain other foreign operations, including our operations in Norway, use the U.S. dollar as the functional currency. Accordingly, financial statements of these foreign subsidiaries are remeasured to U.S. dollars for consolidation purposes using current rates of exchange for monetary assets and liabilities and historical rates of exchange for nonmonetary assets and related elements of expense. Revenue and expense elements are remeasured at rates that approximate the rates in effect on the transaction dates. For all operations, gains or losses from remeasuring foreign currency transactions into the functional currency are included in income. Net foreign currency transaction losses were $10 million, $30 million and $79 million for the years ending December 31, 2011, 2010 and 2009, respectively, and are included in other income (expense) in the accompanying statement of operations.

During the first quarter of 2010, the Venezuelan government officially devalued the Venezuelan bolivar against the U.S. dollar. As a result the Company converted its Venezuela ledgers to U.S. dollar functional currency, devalued monetary assets resulting in a $27 million charge, and wrote-down certain accounts receivable in view of deteriorating business conditions in Venezuela, resulting in an additional $11 million charge. The Company’s net investment in Venezuela was $27 million at December 31, 2011.

Revenue Recognition

Revenue Recognition

The Company’s products and services are sold based upon purchase orders or contracts with the customer that include fixed or determinable prices and that do not generally include right of return or other similar provisions or other significant post delivery obligations. Except for certain construction contracts and drill pipe sales described below, the Company records revenue at the time its manufacturing process is complete, the customer has been provided with all proper inspection and other required documentation, title and risk of loss has passed to the customer, collectability is reasonably assured and the product has been delivered. Customer advances or deposits are deferred and recognized as revenue when the Company has completed all of its performance obligations related to the sale. The Company also recognizes revenue as services are performed. The amounts billed for shipping and handling cost are included in revenue and related costs are included in cost of sales.

Revenue Recognition under Long-term Construction Contracts

The Company uses the percentage-of-completion method to account for certain long-term construction contracts in the Rig Technology segment. These long-term construction contracts include the following characteristics:

 

  •  

the contracts include custom designs for customer specific applications;

 

  •  

the structural design is unique and requires significant engineering efforts; and

 

  •  

construction projects often have progress payments.

This method requires the Company to make estimates regarding the total costs of the project, progress against the project schedule and the estimated completion date, all of which impact the amount of revenue and gross margin the Company recognizes in each reporting period. The Company prepares detailed cost estimates at the beginning of each project. Significant projects and their related costs and profit margins are updated and reviewed at least quarterly by senior management. Factors that may affect future project costs and margins include shipyard access, weather, production efficiencies, availability and costs of labor, materials and subcomponents and other factors. These factors can impact the accuracy of the Company’s estimates and materially impact the Company’s current and future reported earnings.

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

Drill Pipe Sales

For drill pipe sales, if requested in writing by the customer, delivery may be satisfied through delivery to the Company’s customer storage location or to a third-party storage facility. For sales transactions where title and risk of loss have transferred to the customer but the supporting documentation does not meet the criteria for revenue recognition prior to the products being in the physical possession of the customer, the recognition of the revenues and related inventory costs from these transactions are deferred until the customer takes physical possession.

Service and Product Warranties

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.

The changes in the carrying amount of service and product warranties are as follows (in millions):

 

 

         

Balance at December 31, 2009

   $ 217  
   

 

 

  

Net provisions for warranties issued during the year

     52  

Amounts incurred

     (45 ) 

Currency translation adjustments

     (9 ) 
   

 

 

  

Balance at December 31, 2010

   $ 215  
   

 

 

  

Net provisions for warranties issued during the year

     40  

Amounts incurred

     (47 ) 

Currency translation adjustments and other

     3  
   

 

 

  

Balance at December 31, 2011

   $ 211  
   

 

 

  
Income Taxes

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

Concentration of Credit Risk

We grant credit to our customers, which operate primarily in the oil and gas industry. Concentrations of credit risk are limited because we have a large number of geographically diverse customers, thus spreading trade credit risk. We control credit risk through credit evaluations, credit limits and monitoring procedures. We perform periodic credit evaluations of our customers’ financial condition and generally do not require collateral, but may require letters of credit for certain international sales. Credit losses are provided for in the financial statements. Allowances for doubtful accounts are determined based on a continuous process of assessing the Company’s portfolio on an individual customer basis taking into account current market conditions and trends. This process consists of a thorough review of historical collection experience, current aging status of the customer accounts, and financial condition of the Company’s customers. Based on a review of these factors, the Company will establish or adjust allowances for specific customers. Accounts receivable are net of allowances for doubtful accounts of approximately $107 million at both December 31, 2011 and 2010.

Stock-Based Compensation

Stock-Based Compensation

Compensation expense for the Company’s stock-based compensation plans is measured using the fair value method required by ASC Topic 718 “Compensation – Stock Compensation” (“ASC Topic 718”). Under this guidance 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.

Total compensation cost that has been charged against income for all share-based compensation arrangements was $73 million, $66 million and $68 million for 2011, 2010 and 2009, respectively. The total income tax benefit recognized in the income statement for all share-based compensation arrangements was $17 million, $20 million and $21 million for 2011, 2010 and 2009, respectively.

Environmental Liabilities

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

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect reported and contingent amounts of assets and liabilities as of the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Such estimates include but are not limited to, estimated losses on accounts receivable, estimated costs and related margins of projects accounted for 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

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. Such estimates may be based on advice from third parties or on management’s 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 Company’s 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.

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.

Net Income Attributable to Company Per Share

Net Income 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,  
    2011     2010     2009  

Numerator:

                        

Net income attributable to Company

   $ 1,994     $ 1,667     $ 1,469  
   

 

 

    

 

 

    

 

 

  

Denominator:

                        

Basic—weighted average common shares outstanding

     422       417       416  

Dilutive effect of employee stock options and other unvested stock awards

     2       2       1  
   

 

 

    

 

 

    

 

 

  

Diluted outstanding shares

     424       419       417  
   

 

 

    

 

 

    

 

 

  

Basic earnings attributable to Company per share

   $ 4.73     $ 3.99     $ 3.53  
   

 

 

    

 

 

    

 

 

  

Diluted earnings attributable to Company per share

   $ 4.70     $ 3.98     $ 3.52  
   

 

 

    

 

 

    

 

 

  

Cash dividends per share

   $ 0.45     $ 0.41     $ 1.10  
   

 

 

    

 

 

    

 

 

  

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, 2011, 2010 and 2009 and therefore not excluded from Net income attributable to Company per share calculation.

The Company had stock options outstanding that were anti-dilutive totaling 3 million, 8 million, and 4 million at December 31, 2011, 2010 and 2009, respectively.

Recently Issued Accounting Standards

Recently Issued Accounting Standards

In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” (“ASU No. 2011-04”), which provides guidance about how fair value should be applied where it is already required or permitted under U.S. GAAP. The ASU does not extend the use of fair value or require additional fair value measurements, but rather provides explanations about how to measure fair value. ASU No. 2011-04 requires prospective application and will be effective for interim and annual reporting periods beginning after December 15, 2011. The Company is currently assessing the impact ASU No. 2011-04 will have on its financial statements, but does not expect a significant impact from adoption of the pronouncement.

In June 2011, the FASB issued ASU No. 2011-05 “Presentation of Comprehensive Income” (“ASU No. 2011-05”), which eliminates the option to present components of other comprehensive income as part of the statement of changes in equity and requires that all nonowner changes in equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. ASU No. 2011-05 requires retrospective application. The Company early adopted ASU No. 2011-05 and added the Consolidated Statements of Comprehensive Income retrospectively for all reporting periods presented.

In September 2011, the FASB issued ASU No. 2011-8 “Intangibles—Goodwill and Other” (“ASU No. 2011-08”), which amends its guidance on the testing of goodwill for impairment allowing entities to perform a qualitative assessment on goodwill impairment to determine whether it is more likely than not (defined as having a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. This guidance is effective for goodwill impairment tests performed in interim and annual periods for fiscal years beginning after December 15, 2011, with early adoption permitted. The Company is currently assessing the impact ASU No. 2011-08 will have on its financial statements, but does not expect a significant impact from adoption of the pronouncement.

In December 2011, the FASB issued ASU No. 2011-11 “Balance Sheet—Disclosures about Offsetting Assets and Liabilities” (ASU No. 2011-11”), which requires an entity to disclose both gross and net information about financial instruments, such as sales and repurchase agreements and reverse sale and repurchase agreements and securities borrowing/lending arrangements, and derivative instruments that are eligible for offset in the statement of financial position and/or subject to a master netting arrangement or similar agreement. ASU No. 2011-11 is effective for annual and interim periods beginning on January 1, 2013. The Company is currently assessing the impact ASU No. 2011-11 will have on its financial statements, but does not expect a significant impact from adoption of the pronouncement.

 

In December 2011, the FASB issued ASU No. 2011-12 “Comprehensive Income—Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05” (“ASU No. 2011-12”), which defers changes in ASU No. 2011-05 that relate to the presentation of reclassification adjustments to allow the FASB time to redeliberate whether to require presentation of such adjustments on the face of the financial statements to show the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income. ASU No. 2011-12 allows entities to continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before ASU No. 2011-05. All other requirements in ASU No. 2011-05 are not affected by ASU No. 2011-12. ASU No. 2011-12 is effective for annual and interim periods beginning after December 15, 2011. The Company is currently assessing the impact ASU No. 2011-12 will have on its financial statements, but does not expect a significant impact from adoption of the pronouncement.