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Receivables
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| Receivables |
Receivables
As of December 31, 2017, 42% of our net trade receivables were from customers in the United States. As of December 31, 2016, 27% of our net trade receivables were from customers in the United States and 15% were from customers in Venezuela. Other than the United States and Venezuela, no other country or single customer accounted for more than 10% of our trade receivables at these dates.
We routinely monitor the financial stability of our customers, and employ an extensive process to evaluate the collectability of outstanding receivables. This process, which involves a high degree of judgment utilizing significant assumptions, includes analysis of our customers’ historical time to pay, financial condition and various financial metrics, debt structure, credit agency ratings and production profile, as well as political and economic factors in countries of operations and other customer-specific factors.
Venezuela. We continue to experience delays in collecting payments on our receivables from our primary customer in Venezuela. These outstanding receivables are not disputed, and we have not historically had material write-offs relating to this customer. We are actively managing our strategic relationship with this customer, with ongoing dialogue between key executives of both companies, including discussions regarding this customer's intention to pay outstanding receivables. We will continue to vigorously pursue collection as we do business going forward in accordance with applicable U.S. sanctions. During 2016, we exchanged $200 million of accounts receivables with our primary customer in Venezuela for an interest-bearing promissory note with a par value of the same amount. We recognized a pre-tax loss on the exchange of $148 million at that time and had been accreting the carrying amount of the note to its par value from the third quarter of 2016 through the fourth quarter of 2017. We received our first principal payment in November 2017 and received five scheduled interest payments since the note’s inception, but have not received the principal and interest payments scheduled in December 2017. In November 2017, several credit rating agencies downgraded this customer’s credit rating, some as low as a default level.
As a result of this credit downgrade, delayed payments, and deteriorating market conditions in Venezuela, we changed our accounting for our promissory note from held-to-maturity to available-for-sale, will no longer accrete the value of the note going forward, and will mark the note to its fair market value on a quarterly basis with any unrealized gains and losses included as a component of accumulated other comprehensive loss. Accordingly, we recognized an aggregate charge of $385 million during the fourth quarter of 2017, consisting of $77 million for a fair market value adjustment of the note and $308 million for a full reserve against our other accounts receivable with this customer. During the second quarter of 2017, we recognized a charge of $262 million in anticipation of completing an additional note exchange with this customer. However, based on recent executive management changes at, and recent conversations with, this customer, we no longer expect this transaction to take place. The aggregate charges of $647 million during 2017 relating to Venezuela are included within "Impairments and other charges" in our consolidated statements of operations.
As of December 31, 2017, we had $117 million in total outstanding net trade receivables in Venezuela, compared to $610 million as of December 31, 2016. The majority of these receivables are United States dollar-denominated. Additionally, the carrying amount of our existing promissory note was $32 million as of December 31, 2017 and classified as “Other assets” on our consolidated balance sheets, compared to its par value of $175 million. We still intend to hold this promissory note to maturity and will continue to vigorously pursue collection on this note and other accounts receivable with this customer.
On January 29, 2018, the Venezuelan government announced that it has changed the existing dual-rate foreign exchange system by eliminating the DIPRO foreign exchange rate. All future currency transactions will now be carried out at the DICOM floating rate. We are currently evaluating the impact that this change in foreign exchange system will have on our business, consolidated results of operations and consolidated financial condition. This includes potential further write-downs of our net investment in Venezuela, which was approximately $202 million as of December 31, 2017. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Business Environment and Results of Operations” for additional information about the foreign currency exchange system in Venezuela, Note 12 for additional information about the promissory note and Part I, Item 1(a), “Risk Factors” for additional information on risks associated with our operations in Venezuela, including recent sanctions imposed in the country.
The following table presents a rollforward of our global allowance for bad debts for 2015, 2016 and 2017. | | | | | | | | | | | | | | Millions of dollars | Balance at Beginning of Period | Charged to Costs and Expenses | Write-Offs | Balance at End of Period | | $ | 137 |
| $ | 44 |
| $ | (36 | ) | $ | 145 |
| | 145 |
| 50 |
| (20 | ) | 175 |
| | 175 |
| 568 |
| (18 | ) | 725 |
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