Baker Hughes 2015 Annual Report Download - page 62

Baker Hughes Incorporated
Notes to Consolidated Financial Statements
53
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 an event occurs or circumstances change to indicate that it is more likely than not 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. When performing the
annual impairment test 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, we would then 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 2015 and 2014, we performed a qualitative assessment for our annual goodwill
impairment test. In 2013, 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.
In performing our annual goodwill impairment analysis for 2015, our qualitative assessment included
consideration of current industry and market conditions and circumstances as well as any mitigating factors that
would most affect the fair value of the Company and its reporting units. Among those mitigating factors, we
considered the value of the consideration to be received at closing of the Merger (as defined below), based on the
terms of the Merger Agreement (as defined below), compared to the carrying value of the Company and its
reporting units. Based on our assessment and consideration of the totality of the facts and circumstances, including
our business environment in the fourth quarter of 2015, we determined that it is not more likely than not that the fair
value of the Company or any of its reporting units is less than their respective carrying amounts; however, a decline
in our stock price could require an impairment in future periods. As such, no impairments of goodwill were recorded
for the year ended December 31, 2015, or any of the prior years included in the accompanying financial statements.
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.