National Oilwell Varco 2010 Annual Report Download - page 92

The difference between the effective tax rate reflected in the provision for income taxes and the U.S. federal statutory rate was as follows (in
millions):
Years Ended December 31,
2010 2009 2008
Federal income tax at U.S. statutory rate $ 839 $ 773 $ 1,037
Foreign income tax rate differential (117) (120) (125)
State income tax, net of federal benefit 17 18 34
Nondeductible expenses 40 30 12
Tax benefit of manufacturing deduction (19) (17) (17)
Foreign dividends, net of foreign tax credits 15 10 46
Change in contingency reserve and other (37) 41 6
Total income tax provision $ 738 $ 735 $ 993
Significant components of our deferred tax assets and liabilities were as follows (in millions):
December 31,
2010 2009 2008
Deferred tax assets:
Allowances and operating liabilities $ 344 $ 343 $ 364
Net operating loss carryforwards 10 7 6
Postretirement benefits 17 12 12
Capital loss carryforwards   3
Foreign tax credit carryforwards 220  
Other 75 28 22
666 390 407
Valuation allowance for deferred tax assets (9) (8) (10)
Total deferred tax assets 657 382 397
Deferred tax liabilities:
Tax over book depreciation 213 168 146
Intangible assets 1,307 1,413 1,542
Deferred income 456 363 215
Accrued U.S. tax on unremitted earnings 149 49 49
Other 211 98 182
Total deferred tax liabilities 2,336 2,091 2,134
Net deferred tax liability $ 1,679 $ 1,709 $ 1,737
The balance of unrecognized tax benefits at December 31, 2010 and 2009 was $118 million and $58 million, respectively. Included in the change
in the balance of unrecognized tax benefits for the period ended December 31, 2010 was an increase of $73 million associated with a foreign tax
position previously evaluated as more-likely-than-not to be sustained upon audit. Based on new information obtained in the first quarter of 2010,
we now believe it is more-likely-than-not this foreign tax position may not be sustained. Tax payments for this liability can be claimed as a U.S.
foreign tax credit due to sufficient excess limitation in prior years to cover the potential exposure. Accordingly, the Company has recorded a
corresponding deferred tax asset of $73 million, resulting in no impact to earnings. Also included in the change in the balance of unrecognized
tax benefits for the period ended December 31, 2010 was an increase of $10 million of unrecognized tax benefits associated with reductions in
tax that are dependent on the achievement of certain operational milestones that may not be achieved plus unreported withholding taxes in
foreign jurisdictions, and a $23 million reduction in the balance of unrecognized tax benefits resulting primarily from the completion of prior year
audits and appeals plus the lapse of applicable statutes of limitations in foreign jurisdictions. Of the net increase of $60 million in the balance of
unrecognized tax benefits, $10 million was recorded as an increase in Goodwill, $73 million was recorded as an increase in deferred tax assets
and $23 million was recorded as a reduction of income tax expense in the current year and is reflected in the other category in the income tax
rate schedule above. These unrecognized tax benefits are included in the balance of other liabilities in the Consolidated Balance Sheet as of
December 31, 2010. If the $118 million of unrecognized tax benefits accrued as of December 31, 2010 are ultimately realized, $39 million would
be recorded as a reduction of income tax expense. 89