National Oilwell Varco 2010 Annual Report Download - page 76

The changes in the carrying amount of service and product warranties are as follows (in millions):
Balance at December 31, 2008 $ 114
Net provisions for warranties issued during the year 144
Amounts incurred (62)
Foreign currency translation 21
Balance at December 31, 2009 $ 217
Net provisions for warranties issued during the year 52
Amounts incurred (45)
Foreign currency translation and other (9)
Balance at December 31, 2010 $ 215
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 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 and
$95 million at December 31, 2010 and 2009, respectively.
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 $66 million, $68 million and
$61 million for 2010, 2009 and 2008, respectively. The total income tax benefit recognized in the income statement for all share-based
compensation arrangements was $20 million, $21 million and $19 million for 2010, 2009 and 2008, respectively.
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.
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