Baker Hughes 2014 Annual Report Download - page 80

Baker Hughes Incorporated
Notes to Consolidated Financial Statements
55
Goodwill, Intangible Assets and Amortization
Goodwill is the excess of the consideration transferred over the fair value of the tangible and identifiable
intangible assets and liabilities recognized in acquisitions. Goodwill and intangible assets with indefinite lives are
not amortized. Intangible assets with finite useful lives are amortized on a basis that reflects the pattern in which
the economic benefits of the intangible assets are realized, which is generally on a straight-line basis over the
asset’s estimated useful life.
Impairment of PP&E, Intangibles, Other Long-lived Assets and Goodwill
We review PP&E, intangible assets and certain other long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be recoverable and at least annually for certain
intangible assets. The determination of recoverability is made based upon the estimated undiscounted future net
cash flows. The amount of impairment loss, if any, is determined by comparing the fair value, as determined by a
discounted cash flow analysis, with the carrying value of the related assets.
We perform an annual impairment test of goodwill for each of our reporting units as of October 1, or more
frequently if circumstances indicate that an impairment may exist. Our reporting units are based on our
organizational and reporting structure and are the same as our five reportable segments. Corporate and other
assets and liabilities are allocated to the reporting units to the extent that they relate to the operations of those
reporting units in determining their carrying amount. We have the option of first performing a qualitative assessment
to determine the existence of events and circumstances that would lead to a determination that it is more likely than
not that the fair value of a reporting unit is less than its carrying amount. If such a conclusion is reached, then we
would be required to perform a quantitative impairment assessment of goodwill. However, if the assessment leads
to a determination that it is more likely than not that the fair value of a reporting unit is greater than its carrying
amount, then no further assessments are required. 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, which is generally calculated using
a combination of market, comparable transaction and discounted cash flow approaches.
Income Taxes
We use the liability method in determining our provision and liabilities for our income taxes, under which current
and deferred tax liabilities and assets are recorded in accordance with enacted tax laws and rates. Deferred tax
liabilities and assets, which are computed on the estimated income tax effect of temporary differences between
financial and tax bases in assets and liabilities, are determined using the tax rate expected to be in effect when
taxes are actually paid or recovered. A valuation allowance to reduce deferred tax assets is established when it is
more likely than not that some portion or all of the deferred tax assets will not be realized.
We intend to indefinitely reinvest certain earnings of our foreign subsidiaries in operations outside the U.S., and
accordingly, we have not provided for U.S. income taxes on such earnings. We do provide for the U.S. and
additional non-U.S. taxes on earnings anticipated to be repatriated from our non-U.S. subsidiaries.
Our tax filings for various periods are subject to audit by tax authorities in most jurisdictions where we conduct
business. These audits may result in assessments of additional taxes that are resolved with the authorities or
through the courts. We have provided for the amounts we believe will ultimately result from these proceedings. In
addition to the assessments that have been received from various tax authorities, we also provide for taxes for
uncertain tax positions where formal assessments have not been received. We classify interest and penalties
related to uncertain tax positions as income taxes in our financial statements.
Environmental Matters
Estimated remediation costs are accrued using currently available facts, existing environmental permits,
technology and enacted laws and regulations. Our cost estimates are developed based on internal evaluations and
are not discounted. Accruals are recorded when it is probable that we will be obligated to pay for environmental site
evaluation, remediation or related activities, and such costs can be reasonably estimated. As additional information