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Note฀10.฀Goodwill฀and฀Intangible฀Assets
On฀January฀1,฀2002,฀we฀adopted฀SFAS฀No.฀142,฀Goodwill฀
and฀Other฀Intangible฀Assets.฀SFAS฀No.฀142฀required฀us฀to฀฀
cease฀amortizing฀goodwill฀and฀to฀perform฀a฀transitional฀
impairment฀test฀of฀goodwill฀in฀each฀of฀our฀reporting฀units฀
as฀of฀January฀1,฀2002.฀Our฀reporting฀units฀were฀based฀on฀
our฀organizational฀and฀reporting฀structure.฀Corporate฀and฀
other฀assets฀and฀liabilities฀were฀allocated฀to฀the฀reporting฀
units฀to฀the฀extent฀that฀they฀related฀to฀the฀operations฀of฀those฀
reporting฀units.฀We฀were฀assisted฀in฀the฀determination฀of฀the฀
fair฀value฀of฀the฀reporting฀units฀by฀a฀third฀party.฀We฀used฀a฀
combination฀of฀a฀market฀capitalization฀and฀discounted฀cash฀
flows฀approach฀to฀estimate฀the฀fair฀values฀of฀the฀฀reporting฀
units฀and฀determined฀that฀the฀goodwill฀in฀both฀the฀EIMCO฀
and฀BIRD฀operating฀divisions฀of฀our฀former฀Process฀segment฀
was฀impaired.฀Accordingly,฀we฀recorded฀transitional฀impair-
ment฀losses฀of฀$42.5฀million,฀net฀of฀taxes฀of฀$20.4฀million,฀
in฀the฀first฀quarter฀of฀2002฀as฀the฀cumulative฀effect฀of฀
accounting฀change฀in฀our฀consolidated฀statement฀of฀operations.
SFAS฀No.฀142฀also฀requires฀us฀to฀perform฀an฀annual฀impair-
ment฀test฀of฀goodwill.฀We฀perform฀this฀test฀as฀of฀October฀1.฀
There฀were฀no฀impairments฀in฀2004฀or฀2003฀at฀our฀reporting฀
units฀related฀to฀the฀annual฀impairment฀test.
The฀adoption฀of฀SFAS฀No.฀142฀also฀required฀us฀to฀re-evaluate฀
the฀remaining฀useful฀lives฀of฀our฀intangible฀assets฀to฀determine฀
whether฀the฀remaining฀useful฀lives฀were฀appropriate.฀We฀also฀
re-evaluated฀the฀amortization฀methods฀of฀our฀intangible฀assets฀
to฀determine฀whether฀the฀amortization฀reflects฀the฀pattern฀in฀
which฀the฀economic฀benefits฀of฀the฀intangible฀assets฀are฀con-
sumed.฀In฀performing฀these฀evaluations,฀we฀reduced฀the฀
remaining฀life฀of฀one฀of฀our฀marketing฀related฀intangibles฀and฀
changed฀the฀method฀of฀amortization฀of฀one฀of฀our฀technology฀
based฀intangibles.
The฀changes฀in฀the฀carrying฀amount฀of฀goodwill,฀all฀of฀
which฀is฀in฀the฀Oilfield฀segment,฀are฀as฀follows:
Balance฀as฀of฀December฀31,฀2002฀ $฀ 1,226.6฀
Goodwill฀acquired฀during฀the฀period฀ ฀ 3.9฀
Translation฀adjustments฀and฀other฀ ฀ 8.9
Balance฀as฀of฀December฀31,฀2003฀ ฀ 1,239.4฀
Goodwill฀acquired฀during฀the฀period฀ ฀ 24.6฀
Translation฀adjustments฀and฀other฀ ฀ 3.0
Balance฀as฀of฀December฀31,฀2004฀ $฀ 1,267.0
Intangible฀assets฀are฀amortized฀either฀on฀a฀straight-line฀
basis฀with฀estimated฀useful฀lives฀ranging฀from฀1฀to฀20฀฀
years,฀or฀on฀a฀basis฀that฀reflects฀the฀pattern฀in฀which฀the฀฀
economic฀benefits฀of฀the฀intangible฀assets฀are฀consumed,฀฀
which฀range฀from฀15฀to฀30฀years.
In฀2003,฀a฀joint฀venture฀that฀we฀had฀been฀accounting฀
for฀using฀the฀equity฀method฀of฀accounting฀was฀dissolved฀
by฀mutual฀agreement฀between฀the฀venture฀partner฀and฀us.฀
Included฀in฀the฀carrying฀value฀of฀our฀investment฀in฀this฀joint฀
venture฀was฀$21.2฀million฀of฀goodwill฀resulting฀from฀prior฀฀
purchase฀accounting.฀We฀reclassified฀this฀equity฀method฀good-
will฀to฀contract฀based,฀technology฀based฀and฀marketing฀
related฀intangibles฀as฀we฀received฀the฀rights฀to฀market฀certain฀
products฀previously฀held฀by฀the฀joint฀venture฀upon฀the฀dissolu-
tion฀of฀the฀joint฀venture.
Amortization฀expense฀included฀in฀net฀income฀for฀the฀years฀
ended฀December฀31,฀2004,฀2003฀and฀2002฀was฀$14.9฀million,฀
$13.5฀million฀and฀$10.9฀million,฀respectively.฀Estimated฀amorti-
zation฀expense฀for฀each฀of฀the฀subsequent฀five฀fiscal฀years฀is฀
expected฀to฀be฀within฀the฀range฀of฀$12.5฀million฀to฀$16.2฀million.
฀
Intangible฀assets฀are฀comprised฀of฀the฀following฀at฀December฀31:
฀ 2004฀ 2003
฀ Gross฀ ฀ ฀ Gross฀
฀ Carrying฀ Accumulated฀ ฀ Carrying฀ Accumulated฀
฀ Amount฀ Amortization฀ Net฀ Amount฀ Amortization฀ Net
Technology฀based฀ $฀ 190.2฀ $฀ (58.8)฀ $฀ 131.4฀ $฀ 183.5฀ $฀ (46.8)฀ $฀ 136.7
Contract฀based฀ ฀ 11.0฀ ฀ (4.8)฀ ฀ 6.2฀ ฀ 11.2฀ ฀ (2.9)฀ ฀ 8.3
Marketing฀related฀ ฀ 6.1฀ ฀ (5.6)฀ ฀ 0.5฀ ฀ 5.7฀ ฀ (5.0)฀ ฀ 0.7
Customer฀based฀ ฀ 0.6฀ ฀ (0.2)฀ ฀ 0.4฀ ฀ 0.6฀ ฀ (0.1)฀ ฀ 0.5
Other฀ ฀ 1.2฀ ฀ (0.8)฀ ฀ 0.4฀ ฀ 2.0฀ ฀ (1.0)฀ ฀ 1.0
Total฀amortizable฀intangible฀assets฀ ฀ 209.1฀ ฀ (70.2)฀ ฀ 138.9฀ ฀ 203.0฀ ฀ (55.8)฀ ฀ 147.2฀
Marketing฀related฀intangible฀asset฀฀
฀ with฀an฀indefinite฀useful฀life฀ ฀ 16.2฀ ฀ –฀ ฀ 16.2฀ ฀ 16.2฀ ฀ –฀ ฀ 16.2
Total฀ $฀ 225.3฀ $฀ (70.2)฀ $฀ 155.1฀ $฀ 219.2฀ $฀ (55.8)฀ $฀ 163.4
52฀฀฀฀฀Baker฀Hughes฀Incorporated