National Oilwell Varco 2003 Annual Report Download - page 21

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fair value, with the excess allocated to goodwill. On at least an annual basis, we assess whether
goodwill is impaired. Our annual impairment tests are performed at the beginning of the 4th
quarter of each year. If we determine that goodwill is impaired, we measure that impairment
based on the amount by which the book value of goodwill exceeds its implied fair value. The
implied fair value of goodwill is determined by deducting the fair value of a reporting unit's
identifiable assets and liabilities from the fair value of that reporting unit as a whole. Additional
impairment assessments may be performed on an interim basis if we encounter events or changes
in circumstances that would indicate that, more likely than not, the carrying amount of goodwill
has been impaired. The fair value of the reporting units is determined based on internal
management estimates which consider multiple valuation techniques.
Our net deferred tax assets and liabilities are recorded at the amount that is more likely than not to
be realized or paid. Should we determine that we would not be able to realize all or part of the net
deferred tax asset in the future, an adjustment to the deferred tax assets would be charged to
income in the period of such determination.
Recently Issued Accounting Standards
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest
Entities," ("FIN 46"), which is effective January 31, 2003 for any new interests in VIEs
created after that date. In December 2003, the FASB made certain modifications and technical
corrections to FIN 46 that are required to be applied to all entities no later than March 31,
2004. This statement addresses the consolidation of variable interest entities ("VIEs") by
business enterprises that are the primary beneficiaries. A VIE is an entity that does not have
sufficient equity investment at risk to permit it to finance its activities without additional
subordinated financial support, or whose equity investors lack the characteristics of a
controlling financial interest. The primary beneficiary of a VIE is the enterprise that has the
majority of the expected losses or expected residual returns associated with the VIE. We do
not have any material interests in VIEs created prior to February 1, 2003 that will require
consolidation when FIN 46 is applied to all entities in the first quarter of 2004.
On December 8, 2003, the President signed into law the Medicare Prescription Drug,
Improvement and Modernization Act of 2003. This Act introduces a Medicare prescription drug
benefit as well as a federal subsidy to sponsors of retiree healthcare benefit plans that provide a
benefit that is at least actuarially equivalent to the Medicare benefit. As allowed by FASB Staff
Position 106-1, Accounting and Disclosure Requirements Related to the Medicare Prescription
Drug, Improvement and Modernization Act of 2003, we have elected to defer recognizing the
effects of the Act on our accumulated postretirement benefit obligation and net periodic
postretirement benefit cost in the consolidated financial statements and notes to consolidated
financial statements until authoritative guidance on the accounting for the federal subsidy is
issued. The FASB plans to issue authoritative guidance on the accounting for subsidies later in
2004. When the authoritative guidance is issued, we may be required to change previously
reported information.
Forward–Looking Statements
Some of the information in this document contains, or has incorporated by reference, forward-
looking statements. Statements that are not historical facts, including statements about our beliefs
and expectations, are forward-looking statements. Forward-looking statements typically are
identified by use of terms such as "may," "will," "expect," "anticipate," "estimate," and similar
words, although some forward-looking statements are expressed differently. You should be aware
that our actual results could differ materially from results anticipated in the forward-looking
statements due to a number of factors, including but not limited to changes in oil and gas prices,