National Oilwell Varco 2002 Annual Report Download - page 46

Also in the United States, the Company has $9.1 million of capital loss carryforwards as of
December 31, 2002, which expire at various dates through 2005. The related potential benefit of
$3.5 million has been recorded with a valuation allowance of $3.5 million. These capital losses
are not available to reduce future operating income but are expected to be realized as deductions
against future capital gains. The Company has $ 15.1 million of excess foreign tax credits as of
December 31, 2002, which expire at various dates through 2006. These credits have been allotted
a valuation allowance of $ 14.1 million and would be realized as a reduction of future income tax
expense.
Outside the United States, the company has $67.5 million of net operating loss carryforwards as
of December 31, 2002. Of this amount, $65.3 million will expire at various dates through 2012
and $2.2 million is available indefinitely. The related potential benefit available of $19.7 million
has been recorded with a valuation allowance of $9.6 million. If the Company ultimately realizes
the benefit of these net operating losses, $9.4 million would reduce goodwill and other intangible
assets and $10.3 million would reduce income tax expense.
The deferred tax valuation allowance increased $0.4 million for the period ending December 31,
2002 and $1.2 million for the period ending December 31, 2001. These increases resulted
primarily from the recognition of additional excess foreign tax credits that may not be realized in
the future. National-Oilwell’s deferred tax assets are expected to be realized principally through
future earnings.
Undistributed earnings of the Company’s foreign subsidiaries amounted to $193.4 million and
$149.2 million at December 31, 2002 and December 31, 2001, 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 either 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. Withholding taxes
of approximately $23.4 million would be payable upon remittance of all previously unremitted
earnings at December 31, 2002.
11. Special Charge
During 2000, we recorded a special charge, net of a $0.4 million credit from previous special
charges, of $14.1 million ($11.0 million after tax, or $0.14 per share) related to the merger with
IRI International. Components of the charge were (in millions):
Direct transaction costs $ 6.6
Severance 6.4
Facility closures 1.5
14.5
Prior year reversal (0.4)
$14.1
The cash and non-cash elements of the charge approximated $13 million and $1.1 million,
respectively. All direct cash outlays have been spent. Facility closure costs consisted of lease
cancellation costs and impairment of a closed manufacturing facility that is classified with
“Property held for sale” on our balance sheet. All of this charge is applicable to the Products and
Technology business segment.
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