National Oilwell Varco 2002 Annual Report Download - page 45

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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 thousands):
December 31,
2002
December 31,
2001
December 31,
2000
Federal income tax at statutory rate 39,363$ 58,806$ 9,462$
Foreign income tax rate differential (2,990) 1,405 781
State income tax, net of federal benefit 556 299 336
Tax benefit of foreign sales income (1,580) (1,575) (1,492)
Nondeductible expenses 1,053 2,423 4,626
Foreign dividends net of FTCs 1,176 (1,967) (1,046)
Net operating loss carryforwards - 2,948 1,744
Change in deferred tax valuation allowance 400 1,223 (606)
Prior year taxes 1,126 - -
Other 292 392 96
39,396$ 63,954$ 13,901$
Significant components of National Oilwell’s deferred tax assets and liabilities were as
follows (in thousands):
December 31, December 31,
2002 2001
Deferred tax assets:
Allowances and operating liabilities 29,047$ 9,408$
Net operating loss carryforwards 23,891 16,107
Foreign tax credit carryforwards 15,082 13,580
Capital loss carryforward 3,527 3,527
Other 22,012 20,378
Total deferred tax assets 93,559 63,000
Valuation allowance for deferred tax assets (29,912) (29,512)
63,647 33,488
Deferred tax liabilities:
Tax over book depreciation 14,168 10,366
Operating and other assets 31,688 -
Other 8,756 10,014
Total deferred tax liabilities 54,612 20,380
Net deferred tax assets 9,035$ 13,108$
43
In the United States, the Company has $12.0 million of net operating loss carryforwards as of
December 31, 2002, which expire at various dates through 2017. These operating losses were
acquired primarily in the combination with Dreco Energy Services, Ltd. and are associated with
Dreco’s US subsidiary. As a result of share exchanges occurring since the date of the combination
resulting in a more than 50% aggregate change in the beneficial ownership of Dreco, the
availability of these loss carryforwards to reduce future United States federal taxable income may
have become subject to various limitations under Section 382 of the Internal Revenue Code of
1986, as amended. In addition, these net operating losses can only be used to offset separate
company taxable income of Dreco’s US subsidiary. Since the ultimate realization of these net
operating losses is uncertain, the related potential benefit of $4.2 million has been recorded with a
$2.8 million valuation allowance. Future income tax expense will be reduced if the Company
ultimately realizes the benefit of these net operating losses.