National Oilwell Varco 2010 Annual Report Download - page 77

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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
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
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,
2010 2009 2008
Numerator:
Net income attributable to Company $ 1,667 $ 1,469 $ 1,952
Denominator:
Basicweighted average common shares outstanding 417 416 397
Dilutive effect of employee stock options and other unvested stock awards 2 1 2
Diluted outstanding shares 419 417 399
Basic earnings attributable to Company per share $ 3.99 $ 3.53 $ 4.91
Diluted earnings attributable to Company per share $ 3.98 $ 3.52 $ 4.90
Cash dividends per share $ 0.41 $ 1.10 $
In addition, we had stock options outstanding that were anti-dilutive totaling 7.7 million, 4.0 million, and 0.4 million at December 31, 2010, 2009
and 2008, respectively.
Recently Issued Accounting Standards
In January 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2010-06 Improving
Disclosures about Fair Value Measurements (ASU No. 2010-06) as an update to Accounting Standards Codification Topic 820, Fair Value
Measurements and Disclosures (ASC Topic 820). ASU No. 2010-06 requires additional disclosures about transfers between Levels 1 and 2
of the fair value hierarchy and disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value
measurements. ASU No. 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009, except for the
disclosures about purchases, sales, issuances, and settlements in the rollforward of activity in Level 3 fair value measurements. Those disclosures
are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The Company adopted the
required provisions of ASU No. 2010-06 in the first quarter of 2010. There was no significant impact to the Companys Consolidated Financial
Statements from the adopted provisions of ASU No. 2010-06. 74