National Oilwell Varco 2011 Annual Report Download - page 75

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Index to Financial Statements
Stock-Based Compensation
Compensation expense for the Companys stock-based compensation plans is measured using the fair value method required by ASC Topic 718 Compensation  Stock
Compensation (ASC Topic 718). Under this guidance the fair value of stock option grants and restricted stock is amortized to expense using the straight-line method over
the shorter of the vesting period or the remaining employee service period.
The Company provides compensation benefits to employees and non-employee directors under share-based payment arrangements, including various employee stock option
plans.
Total compensation cost that has been charged against income for all share-based compensation arrangements was $73 million, $66 million and $68 million for 2011, 2010
and 2009, respectively. The total income tax benefit recognized in the income statement for all share-based compensation arrangements was $17 million, $20 million and $21
million for 2011, 2010 and 2009, respectively.
Environmental Liabilities
When environmental assessments or remediations are probable and the costs can be reasonably estimated, remediation liabilities are recorded on an undiscounted basis and are
adjusted as further information develops or circumstances change.
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. Such estimates include but are not limited to, estimated losses on accounts receivable, estimated costs and related margins of projects accounted
for under percentage-of-completion, estimated realizable value on excess and obsolete inventory, contingencies, estimated liabilities for litigation exposures and liquidated
damages, estimated warranty costs, estimates related to pension accounting, estimates related to the fair value of reporting units for purposes of assessing goodwill and other
indefinite-lived intangible assets for impairment and estimates related to deferred tax assets and liabilities, including valuation allowances on deferred tax assets. Actual results
could differ from those estimates.
Contingencies
The Company accrues for costs relating to litigation claims and other contingent matters, including liquidated damage liabilities, when such liabilities become probable and
reasonably estimable. Such estimates may be based on advice from third parties or on managements judgment, as appropriate. Revisions to contingent liabilities are reflected
in income in the period in which different facts or information become known or circumstances change that affect the Companys previous judgments with respect to the
likelihood or amount of loss. Amounts paid upon the ultimate resolution of contingent liabilities may be materially different from previous estimates and could require
adjustments to the estimated reserves to be recognized in the period such new information becomes known.
In circumstances where the most likely outcome of a contingency can be reasonably estimated, we accrue a liability for that amount. Where the most likely outcome cannot be
estimated, a range of potential losses is established and if no one amount in that range is more likely than others, the low end of the range is accrued.
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