Baker Hughes 2004 Annual Report Download - page 94
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Please find page 94 of the 2004 Baker Hughes annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.Goodwill,IntangibleAssetsandAmortization
Goodwill,includinggoodwillassociatedwithequity
methodinvestments,andintangibleassetswithindefinitelives
arenotamortized.Intangibleassetswithfiniteusefullivesare
amortizedeitheronastraight-linebasisovertheasset’sesti-
matedusefullifeoronabasisthatreflectsthepatterninwhich
theeconomicbenefitsoftheintangibleassetsarerealized.
ImpairmentofLong-LivedAssets
Wereviewproperty,intangibleassetsandcertainother
assetsforimpairmentwhenevereventsorchangesincircum-
stancesindicatethatthecarryingamountmaynotberecover-
able.Thedeterminationofrecoverabilityismadebasedupon
theestimatedundiscountedfuturenetcashflows,excluding
interestexpense.Theamountofimpairmentloss,ifany,is
determinedbycomparingthefairvalue,asdeterminedbya
discountedcashflowsanalysis,withthecarryingvalueofthe
relatedassets.
Weperformanannualimpairmenttestofgoodwillas
ofOctober1,ormorefrequentlyifcircumstancesindicate
thatimpairmentmayexist.Investmentsinaffiliatesarealso
reviewedforimpairmentwhenevereventsorchangesincir-
cumstancesindicatethatimpairmentmayexist.Thedetermina-
tionofimpairmentismadebycomparingthecarryingamount
withitsfairvalue,whichiscalculatedusingacombinationofa
marketcapitalizationanddiscountedcashflowsapproach.
IncomeTaxes
Weusetheliabilitymethodfordeterminingourincome
taxes,underwhichcurrentanddeferredtaxliabilitiesand
assetsarerecordedinaccordancewithenactedtaxlawsand
rates.Underthismethod,theamountsofdeferredtaxliabili-
tiesandassetsattheendofeachperiodaredeterminedusing
thetaxrateexpectedtobeineffectwhentaxesareactually
paidorrecovered.Futuretaxbenefitsarerecognizedtothe
extentthatrealizationofsuchbenefitsismorelikelythannot.
Deferredincometaxesareprovidedfortheestimated
incometaxeffectoftemporarydifferencesbetweenfinancial
andtaxbasesinassetsandliabilities.Deferredtaxassetsare
alsoprovidedforcertaintaxcreditcarryforwards.Avaluation
allowancetoreducedeferredtaxassetsisestablishedwhenit
ismorelikelythannotthatsomeportionorallofthedeferred
taxassetswillnotberealized.
Weintendtoindefinitelyreinvestcertainearningsofour
foreignsubsidiariesinoperationsoutsidetheU.S.,andaccord-
ingly,wehavenotprovidedforU.S.incometaxesonsuch
earnings.WedoprovidefortheU.S.andadditionalnon-U.S.
taxesonearningsanticipatedtoberepatriatedfromournon-
U.S.subsidiaries.
Weoperateinmorethan90countriesundermanylegal
forms.Asaresult,wearesubjecttothejurisdictionofnumer-
ousdomesticandforeigntaxauthorities,aswellastotax
agreementsandtreatiesamongthesegovernments.Ouroper-
ationsinthesedifferentjurisdictionsaretaxedonvarious
bases:actualincomebeforetaxes,deemedprofits(whichare
generallydeterminedusingapercentageofrevenuesrather
thanprofits)andwithholdingtaxesbasedonrevenue.Deter-
minationoftaxableincomeinanyjurisdictionrequiresthe
interpretationoftherelatedtaxlawsandregulationsandthe
useofestimatesandassumptionsregardingsignificantfuture
events,suchastheamount,timingandcharacterofdeduc-
tions,permissiblerevenuerecognitionmethodsunderthetax
lawandthesourcesandcharacterofincomeandtaxcredits.
Changesintaxlaws,regulations,agreementsandtreaties,for-
eigncurrencyexchangerestrictionsorourlevelofoperations
orprofitabilityineachtaxingjurisdictioncouldhaveanimpact
upontheamountofincometaxesthatweprovideduringany
givenyear.
Ourtaxfilingsforvariousperiodsaresubjectedtoauditby
taxauthoritiesinmostjurisdictionswhereweconductbusi-
ness.Theseauditsmayresultinassessmentsofadditional
taxesthatareresolvedwiththeauthoritiesorpotentially
throughthecourts.Webelievethattheseassessmentsmay
occasionallybebasedonerroneousandevenarbitraryinter-
pretationsoflocaltaxlaw.Wehavereceivedtaxassessments
fromvarioustaxingauthoritiesandarecurrentlyatvarying
stagesofappealsand/orlitigationregardingthesematters.
Wehaveprovidedfortheamountswebelievewillulti-
matelyresultfromtheseproceedings.Webelievewehave
substantialdefensestothequestionsbeingraisedandwill
pursuealllegalremediesshouldanunfavorableoutcome
result.However,resolutionofthesemattersinvolvesuncer-
taintiesandtherearenoassurancesthattheoutcomeswill
befavorable.
ProductWarranties
Wesellcertainproductswithaproductwarrantythatpro-
videsthatcustomerscanreturnadefectiveproductduringa
specifiedwarrantyperiodfollowingthepurchaseinexchange
forareplacementproduct,repairatnocosttothecustomer
ortheissuanceofacredittothecustomer.Weaccrue
amountsforestimatedwarrantyclaimsbaseduponcurrent
andhistoricalproductsalesdata,warrantycostsincurredand
anyotherrelatedinformationknowntous.
EnvironmentalMatters
Remediationcostsareaccruedbasedonestimatesofprob-
ableenvironmentalexposureusingcurrentlyavailablefacts,
existingenvironmentalpermits,technologyandpresently
enactedlawsandregulations.Forsiteswhereweareprimarily
responsiblefortheremediation,ourcostestimatesaredevel-
opedbasedoninternalevaluationsandarenotdiscounted.
Suchaccrualsarerecordedwhenitisprobablethatwewill
beobligatedtopayamountsforenvironmentalsiteevaluation,
remediationorrelatedactivities,andsuchamountscanberea-
sonablyestimated.Iftheobligationcanonlybeestimated
withinarange,weaccruetheminimumamountintherange.
Suchaccrualsarerecordedevenifsignificantuncertainties
existovertheultimatecostoftheremediation.Asadditional
ormoreaccurateinformationbecomesavailable,weadjust
suchaccrualstoreflectcurrentcostestimates.Ongoingenvi-
ronmentalcompliancecosts,suchasobtainingenvironmental
44BakerHughesIncorporated