National Oilwell Varco 2000 Annual Report Download - page 29

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27
Revenue Recognition
Revenue from the sale and rental of products and delivery of services is recognized upon passage
of title, incurrance of rental charges or delivery of services to the customer. Revenue is
recognized on certain significant contracts in the Products and Technology segment using the
percentage of completion method based on the percentage of total costs incurred to total costs
expected. Provision for estimated losses, if any, is made in the period such losses are estimable.
Income Taxes
The liability method is used to account for income taxes. Deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws 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
National Oilwell grants credit to its customers, which operate primarily in the oil and gas
industry. National Oilwell performs periodic credit evaluations of its customers’ financial
condition and generally does not require collateral, but may require letters of credit for certain
international sales. Reserves are maintained for potential credit losses and such credit losses have
historically been within management’s expectations.
Stock-Based Compensation
National Oilwell uses the intrinsic value method in accounting for its stock-based employee
compensation plans. Compensation costs for stock options would be recognized over the vesting
period if options were granted with an exercise price below market on the date of grant.
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement No. 133, Accounting
for Derivative Instruments and Hedging Activities. We will adopt the new Statement effective
January 1, 2001. The Statement will require us to recognize all derivatives on the balance sheet at
fair value. We do not anticipate that the adoption of this Statement will have a significant effect
on our results of operations or financial position.