National Oilwell Varco 2010 Annual Report Download - page 21

The results of our operations are subject to market risk from changes in foreign currency exchange rates.
We earn revenues, pay expenses and incur liabilities in countries using currencies other than the U.S. dollar, including, but not limited to, the
Canadian dollar, the Euro, the British pound sterling, the Norwegian krone and the South Korean won. Approximately 66% of our 2010 revenue
was derived from sales outside the United States. Because our Consolidated Financial Statements are presented in U.S. dollars, we must translate
revenues and expenses into U.S. dollars at exchange rates in effect during or at the end of each reporting period. Thus, increases or decreases in
the value of the U.S. dollar against other currencies in which our operations are conducted will affect our revenues and operating income.
Because of the geographic diversity of our operations, weaknesses in some currencies might be offset by strengths in others over time. We use
derivative financial instruments to mitigate our net exposure to currency exchange fluctuations. We had forward contracts with a notional amount
of $1,976 million (with a fair value of $24 million) as of December 31, 2010 to reduce the impact of foreign currency exchange rate movements.
We are also subject to risks that the counterparties to these contracts fail to meet the terms of our foreign currency contracts. We cannot assure
you that fluctuations in foreign currency exchange rates would not affect our financial results.
An impairment of goodwill or other indefinite lived intangible assets could reduce our earnings.
The Company has approximately $5.8 billion of goodwill and $0.6 billion of other intangible assets with indefinite lives as of December 31,
2010. Generally accepted accounting principles require the Company to test goodwill and other indefinite lived intangible assets for impairment
on an annual basis or whenever events or circumstances occur indicating that goodwill might be impaired. Events or circumstances which could
indicate a potential impairment include (but are not limited to) a significant reduction in worldwide oil and gas prices or drilling; a significant
reduction in profitability or cash flow of oil and gas companies or drilling contractors; a significant reduction in worldwide well remediation
activity; a significant reduction in capital investment by other oilfield service companies; or a significant increase in worldwide inventories of oil
or gas. The timing and magnitude of any goodwill impairment charge, which could be material, would depend on the timing and severity of the
event or events triggering the charge and would require a high degree of management judgment. If we were to determine that any of our
remaining balance of goodwill or other indefinite lived intangible assets was impaired, we would record an immediate charge to earnings with a
corresponding reduction in stockholders equity; resulting in an increase in balance sheet leverage as measured by debt to total capitalization.
See additional discussion on Goodwill and Other Indefinite  Lived Intangible Assets in Critical Accounting Estimates of Item 7.
Managements Discussion and Analysis of Financial Condition and Results of Operations.
We could be adversely affected if we fail to comply with any of the numerous federal, state and local laws, regulations and policies that
govern environmental protection, zoning and other matters applicable to our businesses.
Our businesses are subject to numerous federal, state and local laws, regulations and policies governing environmental protection, zoning and
other matters. These laws and regulations have changed frequently in the past and it is reasonable to expect additional changes in the future. If
existing regulatory requirements change, we may be required to make significant unanticipated capital and operating expenditures. We cannot
assure you that our operations will continue to comply with future laws and regulations. Governmental authorities may seek to impose fines and
penalties on us or to revoke or deny the issuance or renewal of operating permits for failure to comply with applicable laws and regulations.
Under these circumstances, we might be required to reduce or cease operations or conduct site remediation or other corrective action which could
adversely impact our operations and financial condition.
Our businesses expose us to potential environmental liability.
Our businesses expose us to the risk that harmful substances may escape into the environment, which could result in:
personal injury or loss of life;
severe damage to or destruction of property; or
environmental damage and suspension of operations. 21