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Baker Hughes Incorporated51
Baker Hughes Incorporated
Notes to Consolidated Financial Statements
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 for drilling, formation evaluation, completion and production,
pressure pumping, and reservoir development in the worldwide oil and natural gas industry. We also provide
products and services for other businesses, including downstream chemicals, and process and pipeline industries.
Basis of Presentation
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. All significant
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 accounting principles generally accepted in the United
States of America (“U.S.”) requires management to make estimates and judgments that affect the reported amounts
of assets and liabilities, disclosure of contingent assets and 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
and actuarial assumptions to determine costs and liabilities related to employee benefit plans; stock-based
compensation and 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. Our products are produced in a standard manufacturing operation,
even if produced to our customer’s specifications. We recognize revenue for these products upon delivery, when
title passes, when collectability is reasonably assured and there are no further significant obligations for future
performance. Provisions for estimated warranty returns or similar types of items 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 meter, 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.