National Oilwell Varco 2010 Annual Report Download - page 93

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in millions):
2010 2009 2008
Unrecognized tax benefit at beginning of year $ 58 $ 61 $ 47
Additions based on tax positions related to the current year 1 10 9
Additions for tax positions of prior years 82  9
Reductions for tax positions of prior years (5) (12) (4)
Reductions for lapse of applicable statutes of limitations (18) (1) 
Unrecognized tax benefit at end of year $ 118 $ 58 $ 61
The Company does not anticipate that the total unrecognized tax benefits will significantly change due to the settlement of audits or the
expiration of statutes of limitation within 12 months of this reporting date.
To the extent penalties and interest would be assessed on any underpayment of income tax, such accrued amounts have been classified as a
component of income tax expense in the financial statements consistent with the Companys policy. During the year ended December 31, 2010,
the Company recorded as a reduction of income tax expense a $3 million net release of accrued interest and penalties related to uncertain tax
positions. As of December 31, 2010, the Company has accrued approximately $8 million of interest and penalties relating to unrecognized tax
benefits. These interest and penalties are included in the balance of other liabilities in the Consolidated Balance Sheet as of December 31, 2010.
The Company is subject to taxation in the United States, various states and foreign jurisdictions. The Company has significant operations in the
United States, Canada, the United Kingdom, the Netherlands and Norway. Tax years that remain subject to examination by major tax
jurisdictions vary by legal entity, but are generally open in the U.S. for the tax years ending after 2006 and outside the U.S. for the tax years
ending after 2004.
In the United States, the Company has $20 million of net operating loss carryforwards as of December 31, 2010, which expire at various dates
through 2030. The potential benefit of $7 million has been recorded with a $7 million valuation allowance. Future income tax payments will be
reduced when the Company ultimately realizes the benefit of these net operating losses. If the Company ultimately realizes the benefit of these
net operating loss carryforwards, the valuation allowance of $7 million would reduce future income tax expense.
Outside the United States, the Company has $10 million of net operating loss carryforwards as of December 31, 2010, which expire in the year
2020. The potential benefit of $3 million has been recorded with a $1 million valuation allowance. Future income tax payments will be reduced
when the Company ultimately realizes the benefit of these net operating losses. If the Company ultimately realizes the benefit of these net
operating loss carryforwards, the valuation allowance of $1 million would reduce future income tax expense.
Also in the United States, the Company has $220 million of excess foreign tax credits as of December 31, 2010, which expire at various dates
through 2020. The majority of these credits resulted from an internal restructuring completed during 2010. These credits have been allotted a
valuation allowance of $1 million and would be realized as a reduction of future income tax payments.
During 2010, the Company recorded $98 million in net deferred tax liabilities with a corresponding increase in goodwill related to purchase
accounting adjustments recorded for the acquisition of Advanced Production and Loading PLC and ASEP Group Holding B.V.
Undistributed earnings of certain of the Companys foreign subsidiaries amounted to $2,503 million and $2,764 million at December 31, 2010
and 2009, respectively. Those earnings are considered to be permanently reinvested and no provision for U.S. federal and state income taxes has
been made. Distribution of these earnings in the form of dividends or otherwise could result in U.S. federal taxes (subject to an adjustment for
foreign tax credits) and withholding taxes payable in various foreign countries. Determination of the amount of unrecognized deferred U.S.
income tax liability is not practical; however, unrecognized foreign tax credit carryforwards would be available to reduce some portion of the
U.S. liability.
Because of the number of tax jurisdictions in which the Company operates, its effective tax rate can fluctuate as operations and the local country
tax rates fluctuate. The Company is also subject to audits by federal, state and foreign jurisdictions which may result in proposed assessments.
The Companys future tax provision will reflect any favorable or unfavorable adjustments to its estimated tax liabilities when resolved. The
Company is unable to predict the outcome of these matters. However, we believe that none of these matters will have a material adverse effect on
the results of operations or financial condition of the Company. 90