Baker Hughes 2015 Annual Report Download - page 47

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options; however, we have excluded renewal options from the table above unless it is anticipated that we
will exercise such renewals.
(4) Purchase obligations include capital improvements as well as agreements to purchase goods or services
that are enforceable and legally binding and that specify all significant terms, including: fixed or minimum
quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the
transaction.
(5) The estimated income tax liabilities for uncertain tax positions will be settled as a result of expiring statutes,
audit activity, competent authority proceedings related to transfer pricing, or final decisions in matters that
are the subject of litigation in various taxing jurisdictions in which we operate. The timing of any particular
settlement will depend on the length of the tax audit and related appeals process, if any, or an expiration of
a statute. If a liability is settled due to a statute expiring or a favorable audit result, the settlement of the tax
liability would not result in a cash payment.
(6) Amounts do not include expected contributions to our pension and other postretirement defined benefit
plans of between $80 million to $95 million in 2016 as the majority of these contributions are amounts in
excess of minimum funding requirements and as such would not be considered a contractual obligation.
Off-Balance Sheet Arrangements
In the normal course of business with customers, vendors and others, we have entered into off-balance sheet
arrangements, such as surety bonds for performance, letters of credit and other bank issued guarantees, which
totaled approximately $1.2 billion at December 31, 2015. It is not practicable to estimate the fair value of these
financial instruments. None of the off-balance sheet arrangements either has, or is likely to have, a material effect
on our consolidated financial statements.
As of December 31, 2015, we had no material off-balance sheet financing arrangements other than normal
operating leases, as discussed above. As such, we are not materially exposed to any financing, liquidity, market or
credit risk that could arise if we had engaged in such financing arrangements.
CRITICAL ACCOUNTING ESTIMATES
The preparation of our consolidated financial statements requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenue and expenses and related disclosures as well as
disclosures about any contingent assets and liabilities. We base these estimates and judgments on historical
experience and other assumptions and information that are believed to be reasonable under the circumstances.
Estimates and assumptions about future events and their effects are subject to uncertainty and, accordingly, these
estimates may change as new events occur, as more experience is acquired, as additional information is obtained
and as the business environment in which we operate changes.
We have defined a critical accounting estimate as one that is both important to the portrayal of either our
financial condition or results of operations and requires us to make difficult, subjective or complex judgments or
estimates about matters that are uncertain. The Audit/Ethics Committee of our Board of Directors has reviewed our
critical accounting estimates and the disclosure presented below. During the past three fiscal years, we have not
made any material changes in the methodology used to establish the critical accounting estimates, and we believe
that the following are the critical accounting estimates used in the preparation of our consolidated financial
statements. There are other items within our consolidated financial statements that require estimation and
judgment but they are not deemed critical as defined above.
Allowance for Doubtful Accounts
The determination of the collectability of amounts due from our customers requires us to make judgments and
estimates regarding our customers’ ability to pay amounts due us in order to determine the amount of valuation
allowances required for doubtful accounts. We monitor our customers’ payment history and current credit
worthiness to determine that collectability is reasonably assured. We also consider the overall business climate in
which our customers operate. Provisions for doubtful accounts are recorded based on the aging status of the
customer accounts or when it becomes evident that the customer will not make the required payments at either
contractual due dates or in the future. At December 31, 2015 and 2014, the allowance for doubtful accounts totaled
$383 million, or 11%, and $224 million, or 4%, of total gross accounts receivable, respectively. We believe that our