National Oilwell Varco 2002 Annual Report Download - page 33

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Income Taxes
The liability method is used to account for income taxes. Deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws 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. 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. We maintain an
allowance for doubtful accounts for accounts receivables by providing for specifically identified
accounts where collectibility is doubtful and an additional allowance based on the aging of the
receivables compared to past experience and current trends. Accounts receivable are net of
allowances for doubtful accounts of approximately $12.6 million and $9.1 million at December
31, 2002 and December 31, 2001, respectively.
Stock-Based Compensation
We use the intrinsic value method in accounting for our stock-based employee compensation
plans.
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. Actual results could
differ from those estimates.
Recently Issued Accounting Standards
The Financial Accounting Standards Board issued Statement on Financial Accounting Standards
(SFAS) No. 143, “Accounting for Asset Retirement Obligations”, which sets forth the accounting
and reporting to be followed for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs and SFAS No. 146, “Accounting for Costs
Associated with Exit or Disposal Activities”, addresses disposal activities and termination costs
in exiting an activity. These pronouncements are generally effective January 1, 2003. The
Company believes the adoption of these new accounting pronouncements will not have a
significant impact on its results of operations or financial position.
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