Baker Hughes 2014 Annual Report Download - page 67

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reporting unit is less than its carrying amount, then we would be required to perform a quantitative impairment test
for goodwill. In 2014, we performed a qualitative assessment for our annual goodwill impairment test. In 2013 and
2012, a quantitative assessment for the determination of impairment was made by comparing the carrying amount
of each reporting unit with its fair value. There were no impairments of goodwill in any of the three years ended
December 31, 2014.
In determining the carrying amount of reporting units, corporate and other assets and liabilities are allocated to
the extent that they relate to the operations of those reporting units. Our impairment tests include both qualitative
and quantitative factors. When necessary, we calculate the fair value of a reporting unit using various valuation
techniques, including a market approach, a comparable transactions approach and discounted cash flow ("DCF")
methodology. The market approach and comparable transactions approach provide value indications for a
company through a comparison with guideline public companies or guideline transactions, respectively. Both entail
selecting relevant financial information of the subject company, and capitalizing those amounts using valuation
multiples that are based on empirical market observations. The DCF methodology includes, but is not limited to,
assumptions regarding matters such as discount rates, anticipated growth rates, expected profitability rates and the
timing of expected future cash flows. Unanticipated changes, including even small revisions, to these assumptions
could require a provision for impairment in a future period. Given the nature of these evaluations and their
application to specific assets and time-frames, it is not possible to reasonably quantify the impact of changes in
these assumptions.
Long-lived assets, which include property and equipment, intangible assets other than goodwill, and certain
other assets, comprise a significant amount of our total assets. We review the carrying values of these assets for
impairment periodically, and at least annually for certain intangible assets or whenever events or changes in
circumstances indicate that the carrying amounts may not be recoverable. An impairment loss is recorded in the
period in which it is determined that the carrying amount is not recoverable. This requires us to make judgments
regarding long-term forecasts of future revenue and costs and cash flows related to the assets subject to review.
These forecasts are uncertain in that they require assumptions about demand for our products and services, future
market conditions and technological developments.
Income Taxes
The liability method is used for determining our income tax provisions, under which current and deferred tax
liabilities and assets are recorded in accordance with enacted tax laws and rates. Under this method, the amounts
of deferred tax liabilities and assets at the end of each period are determined using the tax rate expected to be in
effect when taxes are actually paid or recovered. Valuation allowances are established to reduce deferred tax
assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized. In
determining the need for valuation allowances, we have considered and made judgments and estimates regarding
estimated future taxable income and ongoing prudent and feasible tax planning strategies. These estimates and
judgments include some degree of uncertainty and changes in these estimates and assumptions could require us to
adjust the valuation allowances for our deferred tax assets. Historically, changes to valuation allowances have been
caused by major changes in the business cycle in certain countries and changes in local country law. The ultimate
realization of the deferred tax assets depends on the generation of sufficient taxable income in the applicable taxing
jurisdictions.
We operate in more than 80 countries under many legal forms. As a result, we are subject to the jurisdiction of
numerous domestic and foreign tax authorities, as well as to tax agreements and treaties among these
governments. Our operations in these different jurisdictions are taxed on various bases: actual income before
taxes, deemed profits (which are generally determined using a percentage of revenue rather than profits) and
withholding taxes based on revenue. Determination of taxable income in any jurisdiction requires the interpretation
of the related tax laws and regulations and the use of estimates and assumptions regarding significant future events
such as the amount, timing and character of deductions, permissible revenue recognition methods under the tax law
and the sources and character of income and tax credits. Changes in tax laws, regulations, agreements and
treaties, foreign currency exchange restrictions or our level of operations or profitability in each taxing jurisdiction
could have an impact on the amount of income taxes that we provide during any given year.
Our tax filings for various periods are subject to audit by the tax authorities in most jurisdictions where we
conduct business. These audits may result in assessments of additional taxes that are resolved with the authorities