National Oilwell Varco 2011 Annual Report Download - page 96

Index to Financial Statements
To the extent penalties and interest would be assessed on any underpayment of income tax, such accrued amounts have been classified as a component of income tax expense
in the financial statements consistent with the Companys policy. During the year ended December 31, 2011, the Company recorded as a reduction of income tax expense a
$1 million release of accrued interest and penalties related to uncertain tax positions, and as an increase in Goodwill a $1 million accrual of accrued interest and penalties
associated with the uncertain tax positions of Ameron. At December 31, 2011, the Company has accrued approximately $8 million of interest and penalties relating to
unrecognized tax benefits. These interest and penalties are included in the balance of other liabilities in the Consolidated Balance Sheet at December 31, 2011.
The Company is subject to taxation in the United States, various states and foreign jurisdictions. The Company has significant operations in the United States, Canada, the
United Kingdom, the Netherlands and Norway. Tax years that remain subject to examination by major tax jurisdictions vary by legal entity, but are generally open in the U.S.
for the tax years ending after 2007 and outside the U.S. for the tax years ending after 2005.
In the United States, the Company has $20 million of net operating loss carryforwards as of December 31, 2011, which expire at various dates through 2030. The potential
benefit of $7 million has been reduced by a $7 million valuation allowance. Future income tax payments will be reduced in the event the Company ultimately realizes the
benefit of these net operating losses. If the Company ultimately realizes the benefit of these net operating loss carryforwards, the valuation allowance of $7 million would
reduce future income tax expense.
Outside the United States, the Company has $34 million of net operating loss carryforwards as of December 31, 2011, which expire in the year 2021. The potential benefit of
$7 million has been reduced by a $5 million valuation allowance. Future income tax payments will be reduced in the event the Company ultimately realizes the benefit of
these net operating losses. If the Company ultimately realizes the benefit of these net operating loss carryforwards, the valuation allowance of $6 million would reduce future
income tax expense.
Also in the United States, the Company has $106 million of excess foreign tax credits as of December 31, 2011, which expire at various dates through 2021. These credits
have been allotted a valuation allowance of $1 million and would be realized as a reduction of future income tax payments.
During 2011, the Company recorded $88 million in net deferred tax liabilities with a corresponding increase in goodwill related to the acquisition of Conner Steel Products
Holding Company and Ameron.
Undistributed earnings of certain of the Companys foreign subsidiaries amounted to $3,789 million and $2,503 million at December 31, 2011 and 2010, 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 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.
Because of the number of tax jurisdictions in which the Company operates, its effective tax rate can fluctuate as operations and the local country tax rates fluctuate. The
Company is also subject to audits by federal, state and foreign jurisdictions which may result in proposed assessments. The Companys future tax provision will reflect any
favorable or unfavorable adjustments to its estimated tax liabilities when resolved. The Company is unable to predict the outcome of these matters. However, the Company
believes that none of these matters will have a material adverse effect on the results of operations or financial condition of the Company.
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