Baker Hughes 2015 Annual Report Download - page 60

Baker Hughes Incorporated
Notes to Consolidated Financial Statements
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NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Baker Hughes Incorporated (“Baker Hughes,” “Company,” “we,” “our,” or “us,”) is a leading supplier of oilfield
services, products, technology and systems used in the worldwide oil and natural gas industry. We also provide
products and services for other businesses including downstream chemicals, and process and pipeline services.
Basis of Presentation
Our consolidated financial statements are prepared in conformity with United States generally accepted
accounting principles ("GAAP"). The consolidated financial statements include the accounts of Baker Hughes and
all of our subsidiaries where we exercise control. For investments in subsidiaries that are not wholly-owned, but
where we exercise control, the equity held by the minority owners and their portions of net income (loss) are
reflected as noncontrolling interests. Investments over which we have the ability to exercise significant influence
over operating and financial policies, but do not hold a controlling interest, are accounted for using the equity
method of accounting. Intercompany accounts and transactions have been eliminated in consolidation. In the
Notes to Consolidated Financial Statements, all dollar and share amounts in tabulations are in millions of dollars
and shares, respectively, unless otherwise indicated.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and
judgments that affect the reported amounts of assets and liabilities, disclosure of any contingent assets or liabilities
at the date of the financial statements and the reported amounts of revenue and expenses during the reporting
period. We base our estimates and judgments on historical experience and on various other assumptions and
information that are believed to be reasonable under the circumstances. Estimates and assumptions about future
events and their effects cannot be perceived with certainty, and accordingly, these estimates may change as new
events occur, as more experience is acquired, as additional information is obtained and as our operating
environment changes. While we believe that the estimates and assumptions used in the preparation of the
consolidated financial statements are appropriate, actual results could differ from those estimates. Estimates are
used for, but are not limited to, determining the following: allowance for doubtful accounts and inventory valuation
reserves; recoverability of long-lived assets; useful lives used in depreciation and amortization; income taxes and
related valuation allowances; accruals for contingencies; actuarial assumptions to determine costs and liabilities
related to employee benefit plans; stock-based compensation expense and the fair value of assets acquired and
liabilities assumed in acquisitions.
Revenue Recognition
Our products and services are sold based upon purchase orders, contracts or other agreements with the
customer that include fixed or determinable prices and that do not include right of return or other similar provisions
or other significant post-delivery obligations. We recognize revenue for products sold upon delivery, when title
passes, when collectability is reasonably assured and when there are no further significant obligations for future
performance. Provisions for estimated warranty returns or similar arrangements are made at the time the related
revenue is recognized. Revenue for services is recognized as the services are rendered and when collectability is
reasonably assured. Rates for services are typically priced on a per day, per distance drilled, per man hour or
similar basis. In certain situations, revenue is generated from transactions that may include multiple products and
services under one contract or agreement and which may be delivered to the customer over an extended period of
time. Revenue from these arrangements is recognized in accordance with the above criteria and as each item or
service is delivered based on their relative fair value.
Research and Engineering
Research and engineering expenses are expensed as incurred and include costs associated with the research
and development of new products and services and costs associated with sustaining engineering of existing