Baker Hughes 2015 Annual Report Download - page 49

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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, including 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
or through the courts. We believe these assessments may occasionally be based on erroneous and even arbitrary
interpretations of local tax law. Resolution of these situations inevitably includes some degree of uncertainty;
accordingly, we provide taxes only for the amounts we believe will ultimately result from these proceedings. The
resulting change to our tax liability, if any, is dependent on numerous factors including, among others, the amount
and nature of additional taxes potentially asserted by local tax authorities; the willingness of local tax authorities to
negotiate a fair settlement through an administrative process; the impartiality of the local courts; the number of
countries in which we do business; and the potential for changes in the tax paid to one country to either produce, or
fail to produce, an offsetting tax change in other countries. Our experience has been that the estimates and
assumptions we have used to provide for future tax assessments have proven to be appropriate. However, past
experience is only a guide, and the potential exists that the tax resulting from the resolution of current and potential
future tax controversies may differ materially from the amount accrued.
In addition to the aforementioned 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. The determination
of these liabilities requires the use of estimates and assumptions regarding future events. Once established, we
adjust these amounts only when more information is available or when a future event occurs necessitating a change
to the reserves such as changes in the facts or law, judicial decisions regarding the application of existing law or a
favorable audit outcome. We believe that the resolution of tax matters will not have a material effect on the
consolidated financial condition of the Company, although a resolution could have a material impact on our