SEC Filing - Halliburton

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edmarch200910q_final.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X] Quarterly Report Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

For the quarterly period ended March 31, 2009

[ ] Transition Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the transition period from _____ to _____

Commission File Number 001-03492

HALLIBURTON COMPANY

(a Delaware Corporation)

75-2677995

5 Houston Center

1401 McKinney, Suite 2400

Houston, Texas 77010

(Address of Principal Executive Offices)

Telephone Number – Area Code (713) 759-2600

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes X No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ______ No ______

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [X]

Non-accelerated filer [ ]

Accelerated filer [ ]

Smaller reporting company [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes No X

As of April 17, 2009, 897,113,234 shares of Halliburton Company common stock, $2.50 par value per share, were outstanding.

HALLIBURTON COMPANY

Index

		Page No.
PART I.	FINANCIAL INFORMATION	3

Item 1.	Financial Statements	3

	- Condensed Consolidated Statements of Operations	3
	- Condensed Consolidated Balance Sheets	4
	- Condensed Consolidated Statements of Cash Flows	5
	- Notes to Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and
	Results of Operations	17

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	33

Item 4.	Controls and Procedures	33

PART II.	OTHER INFORMATION	34

Item 1.	Legal Proceedings	34

Item 1(a).	Risk Factors	34

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34

Item 3.	Defaults Upon Senior Securities	34

Item 4.	Submission of Matters to a Vote of Security Holders	34

Item 5.	Other Information	34

Item 6.	Exhibits	35

Signatures		36

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

HALLIBURTON COMPANY

Condensed Consolidated Statements of Operations

(Unaudited)


	Three Months Ended March 31
Millions of dollars and shares except per share data	2009			2008
Revenue:
Services	$	2,950		$	2,964
Product sales		957			1,065
Total revenue		3,907			4,029
Operating costs and expenses:
Cost of services		2,411			2,273
Cost of sales		828			873
General and administrative		52			72
Gain on sale of business assets, net		–			(36	)
Total operating costs and expenses		3,291			3,182
Operating income		616			847
Interest expense		(53	)		(42	)
Interest income		2			20
Other, net		(5	)		(1	)
Income from continuing operations before income taxes
and noncontrolling interest		560			824
Provision for income taxes		(179	)		(238	)
Income from continuing operations		381			586
Income (loss) from discontinued operations, net of income tax
benefit (provision) of $0 and $(1)		(1	)		1
Net income	$	380		$	587
Noncontrolling interest in net income of subsidiaries		(2	)		(7	)
Net income attributable to company	$	378		$	580
Amounts attributable to company shareholders:
Income from continuing operations	$	379		$	579
Income (loss) from discontinued operations, net		(1	)		1
Net income attributable to company	$	378		$	580
Basic income per share attributable to company shareholders:
Income from continuing operations	$	0.42		$	0.66
Income from discontinued operations, net		–			–
Net income per share	$	0.42		$	0.66
Diluted income per share attributable to company shareholders:
Income from continuing operations	$	0.42		$	0.63
Income from discontinued operations, net		–			–
Net income per share	$	0.42		$	0.63

Cash dividends per share	$	0.09		$	0.09
Basic weighted average common shares outstanding		897			879
Diluted weighted average common shares outstanding		899			914

See notes to condensed consolidated financial statements.

HALLIBURTON COMPANY

Condensed Consolidated Balance Sheets

(Unaudited)

	March 31,			December 31,
Millions of dollars and shares except per share data	2009			2008
Assets
Current assets:
Cash and equivalents	$	2,967		$	1,124
Receivables (less allowance for bad debts of $68 and $60)		3,395			3,795
Inventories		1,895			1,828
Current deferred income taxes		212			246
Other current assets		440			418
Total current assets		8,909			7,411
Property, plant, and equipment, net of accumulated depreciation of $4,783 and $4,566		5,157			4,782
Goodwill		1,076			1,072
Noncurrent deferred income taxes		130			157
Other assets		952			963
Total assets	$	16,224		$	14,385
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	874		$	898
Accrued employee compensation and benefits		450			643
Department of Justice (DOJ) and Securities and Exchange Commission (SEC) settlement
and indemnity, current		190			373
Deferred revenue		237			231
Income tax payable		48			67
Current maturities of long-term debt		29			26
Other current liabilities		503			543
Total current liabilities		2,331			2,781
Long-term debt		4,578			2,586
Employee compensation and benefits		534			539
Other liabilities		686			735
Total liabilities		8,129			6,641
Shareholders’ equity:
Common shares, par value $2.50 per share – authorized 2,000 shares, issued
1,067 shares		2,667			2,666
Paid-in capital in excess of par value		468			484
Accumulated other comprehensive loss		(224	)		(215	)
Retained earnings		10,340			10,041
Treasury stock, at cost – 170 and 172 shares		(5,177	)		(5,251	)
Company shareholders’ equity		8,074			7,725
Noncontrolling interest in consolidated subsidiaries		21			19
Total shareholders’ equity		8,095			7,744
Total liabilities and shareholders’ equity	$	16,224		$	14,385

See notes to condensed consolidated financial statements.

HALLIBURTON COMPANY

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Three Months Ended
	March 31
Millions of dollars	2009			2008
Cash flows from operating activities:
Net income attributable to company	$	378		$	580
Adjustments to reconcile net income attributable to company to net cash from operations:
Payments of DOJ and SEC settlement and indemnity		(274	)		–
Depreciation, depletion, and amortization		215			164
Provision for deferred income taxes, continuing operations		52			174
Gain on sale of business assets, net		–			(36	)
Impairment of assets		–			23
Other changes:
Receivables		372			(114	)
Inventories		(65	)		(197	)
Accounts payable		(18	)		137
Other		(279	)		(206	)
Total cash flows from operating activities		381			525
Cash flows from investing activities:
Capital expenditures		(518	)		(392	)
Sales of property, plant, and equipment		53			43
Sales of short-term investments in marketable securities, net		–			388
Other investing activities		–			(16	)
Total cash flows from investing activities		(465	)		23
Cash flows from financing activities:
Proceeds from long-term borrowings, net of offering costs		1,976			–
Payments of dividends to shareholders		(81	)		(80	)
Proceeds from exercises of stock options		30			35
Payments to reacquire common stock		(3	)		(368	)
Other financing activities		15			8
Total cash flows from financing activities		1,937			(405	)
Effect of exchange rate changes on cash		(10	)		4
Increase in cash and equivalents		1,843			147
Cash and equivalents at beginning of period		1,124			1,847
Cash and equivalents at end of period	$	2,967		$	1,994
Supplemental disclosure of cash flow information:
Cash payments during the period for:
Interest from continuing operations	$	66		$	46
Income taxes from continuing operations	$	128		$	95

See notes to condensed consolidated financial statements.

HALLIBURTON COMPANY

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements were prepared using generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Regulation S-X. Accordingly, these financial statements do not include all information or notes required by generally accepted accounting principles for annual financial statements and should be read together with our 2008 Annual Report on Form 10-K.

Our accounting policies are in accordance with generally accepted accounting principles in the United States of America. The preparation of financial statements in conformity with these accounting principles requires us to make estimates and assumptions that affect:

the reported amounts of assets and liabilities and 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.

Ultimate results could differ from our estimates.

In our opinion, the condensed consolidated financial statements included herein contain all adjustments necessary to present fairly our financial position as of March 31, 2009, the results of our operations for the three months ended March 31, 2009 and 2008, and our cash flows for the three months ended March 31, 2009 and 2008. Such adjustments are of a normal recurring nature. The results of operations for the three months ended March 31, 2009 may not be indicative of results for the full year.

In the first quarter of 2009, we reclassified certain services between our operating segments to reestablish a new service offering and adopted the provisions of new accounting standards. See Notes 3, 8, and 10 for further information. All prior periods presented have been restated to reflect these changes.

Note 2. KBR Separation

During 2007, we completed the separation of KBR, Inc. (KBR) from us by exchanging KBR common stock owned by us for our common stock. In addition, we recorded a liability reflecting the estimated fair value of the indemnities and guarantees provided to KBR as described below. Since the separation, we have recorded adjustments to our liability for indemnities and guarantees to reflect changes to our estimation of our remaining obligation. All such adjustments are recorded in “Income (loss) from discontinued operations, net of income tax.”

We entered into various agreements relating to the separation of KBR, including, among others, a master separation agreement, a registration rights agreement, a tax sharing agreement, transition services agreements, and an employee matters agreement. The master separation agreement provides for, among other things, KBR’s responsibility for liabilities related to its business and our responsibility for liabilities unrelated to KBR’s business. We provide indemnification in favor of KBR under the master separation agreement for certain contingent liabilities, including our indemnification of KBR and any of its greater than 50%-owned subsidiaries as of November 20, 2006, the date of the master separation agreement, for:

fines or other monetary penalties or direct monetary damages, including disgorgement, as a result of a claim made or assessed by a governmental authority in the United States, the United Kingdom, France, Nigeria, Switzerland, and/or Algeria, or a settlement thereof, related to alleged or actual violations occurring prior to November 20, 2006 of the United States Foreign Corrupt Practices Act (FCPA) or particular, analogous applicable foreign statutes, laws, rules, and regulations in connection with investigations pending as of that date, including with respect to the construction and subsequent expansion by a consortium of engineering firms comprised of Technip SA of France, Snamprogetti Netherlands B.V., JGC Corporation of Japan, and Kellogg Brown & Root LLC (TSKJ) of a natural gas liquefaction complex and related facilities at Bonny Island in Rivers State, Nigeria; and

all out-of-pocket cash costs and expenses, or cash settlements or cash arbitration awards in lieu thereof, KBR may incur after the effective date of the master separation agreement as a result of the replacement of the subsea flowline bolts installed in connection with the Barracuda-Caratinga project.

Additionally, we provide indemnities, performance guarantees, surety bond guarantees, and letter of credit guarantees that are currently in place in favor of KBR’s customers or lenders under project contracts, credit agreements, letters of credit, and other KBR credit instruments. These indemnities and guarantees will continue until they expire at the earlier of: (1) the termination of the underlying project contract or KBR obligations thereunder; (2) the expiration of the relevant credit support instrument in accordance with its terms or release of such instrument by the customer; or (3) the expiration of the credit agreements. Further, KBR and we have agreed that, until December 31, 2009, we will issue additional guarantees, indemnification, and reimbursement commitments for KBR’s benefit in connection with: (a) letters of credit necessary to comply with KBR’s Egypt Basic Industries Corporation ammonia plant contract, KBR’s Allenby & Connaught project, and all other KBR project contracts that were in place as of December 15, 2005; (b) surety bonds issued to support new task orders pursuant to the Allenby & Connaught project, two job order contracts for KBR’s Government and Infrastructure segment, and all other KBR project contracts that were in place as of December 15, 2005; and (c) performance guarantees in support of these contracts. KBR is compensating us for these guarantees. We have also provided a limited indemnity, with respect to FCPA and anti-trust governmental and third-party claims, to the lender parties under KBR’s revolving credit agreement expiring in December 2010. KBR has agreed to indemnify us, other than for the FCPA and Barracuda-Caratinga bolts matter, if we are required to perform under any of the indemnities or guarantees related to KBR’s revolving credit agreement, letters of credit, surety bonds, or performance guarantees described above.

In February 2009, the United States Department of Justice (DOJ) and Securities and Exchange Commission (SEC) FCPA investigations were resolved. The total of fines and disgorgement was $579 million, of which KBR consented to pay $20 million. As of March 31, 2009, we had paid $274 million, consisting of $97 million as a result of the DOJ settlement and the indemnity we provided to KBR upon separation and $177 million as a result of the SEC settlement. Our KBR indemnities and guarantees are primarily included in “Department of Justice (DOJ) and Securities and Exchange Commission (SEC) settlement and indemnity, current” and “Other liabilities” on the condensed consolidated balance sheets and totaled $357 million at March 31, 2009 and $631 million at December 31, 2008. Excluding the amounts necessary to resolve the DOJ and SEC investigations and under the indemnity we provided to KBR, our estimation of the remaining obligation for other indemnities and guarantees provided to KBR upon separation was $72 million at March 31, 2009. See Note 7 for further discussion of the FCPA and Barracuda-Caratinga matters.

The tax sharing agreement provides for allocations of United States and certain other jurisdiction tax liabilities between us and KBR.

Note 3. Business Segment and Geographic Information

We operate under two divisions, which form the basis for the two operating segments we report: the Completion and Production segment and the Drilling and Evaluation segment. In the first quarter of 2009, we moved a portion of our completion tools and services from the Completion and Production segment to the Drilling and Evaluation segment to re-establish our testing and subsea services offering, which resulted in a change to our operating segments. Testing and subsea services provide acquisition and analysis of dynamic reservoir information and reservoir optimization solutions to the oil and gas industry utilizing downhole test tools, data acquisition services using telemetry and electronic memory recording, fluid sampling, surface well testing, subsea safety systems, and reservoir engineering services. All periods presented reflect reclassifications related to the change in operating segments.

The following table presents information on our business segments. “Corporate and other” includes expenses related to support functions and corporate executives. Also included are certain gains and losses not attributable to a particular business segment.

Intersegment revenue was immaterial. Our equity in earnings and losses of unconsolidated affiliates that are accounted for by the equity method are included in revenue and operating income of the applicable segment.

	Three Months Ended March 31
Millions of dollars	2009			2008
Revenue:
Completion and Production	$	2,028		$	2,122
Drilling and Evaluation		1,879			1,907
Total revenue	$	3,907		$	4,029

Operating income:
Completion and Production	$	363		$	504
Drilling and Evaluation		304			409
Total operations		667			913
Corporate and other		(51	)		(66	)
Total operating income	$	616		$	847
Interest expense		(53	)		(42	)
Interest income		2			20
Other, net		(5	)		(1	)
Income from continuing operations before income taxes and
noncontrolling interest	$	560		$	824

Receivables

As of March 31, 2009, 27% of our gross trade receivables were from customers in the United States. As of December 31, 2008, 34% of our gross trade receivables were from customers in the United States. No other country accounted for more than 10% of our gross trade receivables at these dates.

Note 4. Inventories

Inventories are stated at the lower of cost or market. In the United States, we manufacture certain finished products and have parts inventories for drill bits, completion products, bulk materials, and other tools that are recorded using the last-in, first-out method totaling $88 million at March 31, 2009 and $92 million at December 31, 2008. If the average cost method was used, total inventories would have been $34 million higher than reported at March 31, 2009 and $31 million higher than reported at December 31, 2008. The cost of the remaining inventory was recorded on the average cost method. Inventories consisted of the following:

	March 31,		December 31,
Millions of dollars	2009		2008
Finished products and parts	$	1,301	$	1,312
Raw materials and supplies		544		446
Work in process		50		70
Total	$	1,895	$	1,828

Finished products and parts are reported net of obsolescence reserves of $87 million at March 31, 2009 and $81 million at December 31, 2008.

Note 5. Debt

Senior unsecured indebtedness

In the first quarter of 2009, we issued $1 billion aggregate principal amount of senior notes due September 2039 bearing interest at a fixed rate of 7.45% and $1 billion aggregate principal amount of senior notes due September 2019 bearing interest at a fixed rate of 6.15%. We may redeem some of the notes of each series from time to time or all of the notes of each series at any time at the redemption prices, plus accrued and unpaid interest. The notes are general, senior unsecured indebtedness and rank equally with all of our existing and future senior unsecured indebtedness.

Revolving credit facility

On March 27, 2009, we terminated the $400 million unsecured, six-month revolving credit facility established in October 2008 to provide additional liquidity and for other general corporate purposes.

Note 6. Shareholders’ Equity

The following tables summarize our shareholders’ equity activity for the periods presented.

Millions of dollars	Total shareholders’ equity			Company shareholders’ equity			Noncontrolling interest in consolidated subsidiaries
Balance at December 31, 2008	$	7,744		$	7,725		$	19
Transactions with shareholders		61			61			–
Comprehensive income:
Net income		380			378			2
Other comprehensive loss		(9	)		(9	)		–
Total comprehensive income		371			369			2
Dividends paid on common stock		(81	)		(81	)		–
Balance at March 31, 2009	$	8,095		$	8,074		$	21

Millions of dollars	Total shareholders’ equity			Company shareholders’ equity			Noncontrolling interest in consolidated subsidiaries
Balance at December 31, 2007	$	6,966		$	6,873		$	93
Share repurchases		(360	)		(360	)		–
Other transactions with shareholders		49			49			–
Comprehensive income:
Net income		587			580			7
Other comprehensive income		2			2			–
Total comprehensive income		589			582			7
Dividends paid on common stock		(80	)		(80	)		–
Balance at March 31, 2008	$	7,164		$	7,064		$	100

Accumulated other comprehensive loss consisted of the following:

	March 31,			December 31,
Millions of dollars	2009			2008
Defined benefit and other postretirement liability adjustments	$	(156	)	$	(151	)
Cumulative translation adjustments		(63	)		(60	)
Unrealized losses on investments		(5	)		(4	)
Total accumulated other comprehensive loss	$	(224	)	$	(215	)

Note 7. Commitments and Contingencies

Foreign Corrupt Practices Act investigations

Background. As a result of an ongoing FCPA investigation at the time of the KBR separation, we provided indemnification in favor of KBR under the master separation agreement for certain contingent liabilities, including our indemnification of KBR and any of its greater than 50%-owned subsidiaries as of November 20, 2006, the date of the master separation agreement, for fines or other monetary penalties or direct monetary damages, including disgorgement, as a result of a claim made or assessed by a governmental authority in the United States, the United Kingdom, France, Nigeria, Switzerland, and/or Algeria, or a settlement thereof, related to alleged or actual violations occurring prior to November 20, 2006 of the FCPA or particular, analogous applicable foreign statutes, laws, rules, and regulations in connection with investigations pending as of that date, including with respect to the construction and subsequent expansion by TSKJ of the Bonny Island project.

TSKJ is a private limited liability company registered in Madeira, Portugal whose members are Technip SA of France, Snamprogetti Netherlands B.V. (a subsidiary of Saipem SpA of Italy), JGC Corporation of Japan, and Kellogg Brown & Root LLC (a subsidiary of KBR), each of which had an approximate 25% interest in the venture. TSKJ and other similarly owned entities entered into various contracts to build and expand the liquefied natural gas project for Nigeria LNG Limited, which is owned by the Nigerian National Petroleum Corporation, Shell Gas B.V., Cleag Limited (an affiliate of Total), and Agip International B.V. (an affiliate of ENI SpA of Italy).

DOJ and SEC investigations resolved. In February 2009, the FCPA investigations by the DOJ and the SEC were resolved with respect to KBR and us. The DOJ and SEC investigations resulted from allegations of improper payments to government officials in Nigeria in connection with the construction and subsequent expansion by TSKJ of a multibillion dollar natural gas liquefaction complex and related facilities at Bonny Island in Rivers State, Nigeria.

The DOJ investigation was resolved with respect to us with a non-prosecution agreement in which the DOJ agreed not to bring FCPA or bid coordination-related charges against us with respect to the matters under investigation, and in which we agreed to continue to cooperate with the DOJ’s ongoing investigation and to refrain from and self-report certain FCPA violations. The DOJ agreement does not provide a monitor for us.

As part of the resolution of the SEC investigation, we have retained an independent consultant to conduct a 60-day review and evaluation of our internal controls and record-keeping policies as they relate to the FCPA, and we will adopt any necessary anti-bribery and foreign agent internal controls and record-keeping procedures recommended by or agreed upon with the independent consultant. In 2010, the independent consultant will perform a 30-day, follow-up review to confirm that we have implemented the recommendations and continued the application of our current policies and procedures.

KBR has agreed that our indemnification obligations with respect to the DOJ and SEC FCPA investigations have been fully satisfied.

Other matters. In addition to the DOJ and the SEC investigations, we are aware of other investigations in France, Nigeria, United Kingdom, and Switzerland regarding the Bonny Island project.

The settlements and the other ongoing investigations could result in third-party claims against us, which may include claims for special, indirect, derivative or consequential damages, damage to our business or reputation, loss of, or adverse effect on, cash flow, assets, goodwill, results of operations, business prospects, profits or business value or claims by directors, officers, employees, affiliates, advisors, attorneys, agents, debt holders, or other interest holders or constituents of us or our current or former subsidiaries.

Our indemnity of KBR continues with respect to other investigations within the scope of our indemnity. Our indemnification obligation to KBR does not include losses resulting from third-party claims against KBR, including claims for special, indirect, derivative or consequential damages, nor does our indemnification apply to damage to KBR’s business or reputation, loss of, or adverse effect on, cash flow, assets, goodwill, results of operations, business prospects, profits or business value or claims by directors, officers, employees, affiliates, advisors, attorneys, agents, debt holders, or other interest holders or constituents of KBR or KBR’s current or former subsidiaries.

At this time, no claims by governmental authorities in foreign jurisdictions have been asserted against KBR. Therefore, we are unable to estimate the maximum potential amount of future payments that could be required to be made under our indemnity to KBR related to these matters. See Note 2 for additional information.

Barracuda-Caratinga arbitration

We also provided indemnification in favor of KBR under the master separation agreement for all out-of-pocket cash costs and expenses (except for legal fees and other expenses of the arbitration so long as KBR controls and directs it), or cash settlements or cash arbitration awards, KBR may incur after November 20, 2006 as a result of the replacement of certain subsea flowline bolts installed in connection with the Barracuda-Caratinga project. Under the master separation agreement, KBR currently controls the defense, counterclaim, and settlement of the subsea flowline bolts matter. As a condition of our indemnity, for any settlement to be binding upon us, KBR must secure our prior written consent to such settlement’s terms. We have the right to terminate the indemnity in the event KBR enters into any settlement without our prior written consent. Our estimation of the indemnity obligation regarding the Barracuda-Caratinga arbitration is recorded as a liability in our condensed consolidated financial statements as of March 31, 2009 and December 31, 2008. See Note 2 for additional information regarding the KBR indemnification.

At Petrobras’ direction, KBR replaced certain bolts located on the subsea flowlines that failed through mid-November 2005, and KBR has informed us that additional bolts have failed thereafter, which were replaced by Petrobras. These failed bolts were identified by Petrobras when it conducted inspections of the bolts. A key issue in the arbitration is which party is responsible for the designation of the material to be used for the bolts. We understand that KBR believes that an instruction to use the particular bolts was issued by Petrobras, and as such, KBR believes the cost resulting from any replacement is not KBR’s responsibility. We understand Petrobras disagrees. We understand KBR believes several possible solutions may exist, including replacement of the bolts. Estimates indicate that costs of these various solutions range up to $148 million. In March 2006, Petrobras commenced arbitration against KBR claiming $220 million plus interest for the cost of monitoring and replacing the defective bolts and all related costs and expenses of the arbitration, including the cost of attorneys’ fees. We understand KBR is vigorously defending and pursuing recovery of the costs incurred to date through the arbitration process and to that end has submitted a counterclaim in the arbitration seeking the recovery of $22 million. The arbitration panel held an evidentiary hearing in March 2008 and took evidence and arguments under advisement. We understand that the arbitration panel anticipates issuing a decision during the second quarter of 2009 regarding the issues presented at the evidentiary hearing in March 2008.

Securities and related litigation

In June 2002, a class action lawsuit was filed against us in federal court alleging violations of the federal securities laws after the SEC initiated an investigation in connection with our change in accounting for revenue on long-term construction projects and related disclosures. In the weeks that followed, approximately twenty similar class actions were filed against us. Several of those lawsuits also named as defendants several of our present or former officers and directors. The class action cases were later consolidated, and the amended consolidated class action complaint, styled Richard Moore, et al. v. Halliburton Company, et al., was filed and served upon us in April 2003. As a result of a substitution of lead plaintiffs, the case is now styled Archdiocese of Milwaukee Supporting Fund (AMSF) v. Halliburton Company, et al. We settled with the SEC in the second quarter of 2004.

In June 2003, the lead plaintiffs filed a motion for leave to file a second amended consolidated complaint, which was granted by the court. In addition to restating the original accounting and disclosure claims, the second amended consolidated complaint included claims arising out of the 1998 acquisition of Dresser Industries, Inc. by Halliburton, including that we failed to timely disclose the resulting asbestos liability exposure.

In April 2005, the court appointed new co-lead counsel and named AMSF the new lead plaintiff, directing that it file a third consolidated amended complaint and that we file our motion to dismiss. The court held oral arguments on that motion in August 2005, at which time the court took the motion under advisement. In March 2006, the court entered an order in which it granted the motion to dismiss with respect to claims arising prior to June 1999 and granted the motion with respect to certain other claims while permitting AMSF to re-plead some of those claims to correct deficiencies in its earlier complaint. In April 2006, AMSF filed its fourth amended consolidated complaint. We filed a motion to dismiss those portions of the complaint that had been re-pled. A hearing was held on that motion in July 2006, and in March 2007 the court ordered dismissal of the claims against all individual defendants other than our Chief Executive Officer (CEO). The court ordered that the case proceed against our CEO and Halliburton.

In September 2007, AMSF filed a motion for class certification, and our response was filed in November 2007. The court held a hearing in March 2008, and issued an order November 3, 2008 denying AMSF’s motion for class certification. AMSF then filed a motion with the Fifth Circuit Court of Appeals requesting permission to appeal the district court’s order denying class certification. The Fifth Circuit granted AMSF’s motion and the order denying class certification is currently on appeal. The case will remain stayed in the district court pending the outcome of the appeal. As of March 31, 2009, we had not accrued any amounts related to this matter because we do not believe that a loss is probable. Further, an estimate of possible loss or range of loss related to this matter cannot be made.

Asbestos insurance settlements

At December 31, 2004, we resolved all open and future asbestos- and silica-related claims in the prepackaged Chapter 11 proceedings of DII Industries LLC, Kellogg Brown & Root LLC, and our other affected subsidiaries that had previously been named as defendants in a large number of asbestos- and silica-related lawsuits. During 2004, we settled insurance disputes with substantially all the insurance companies for asbestos- and silica-related claims and all other claims under the applicable insurance policies and terminated all the applicable insurance policies.

Under the insurance settlements entered into as part of the resolution of our Chapter 11 proceedings, we have agreed to indemnify our insurers under certain historic general liability insurance policies in certain situations. We have concluded that the likelihood of any claims triggering the indemnity obligations is remote, and we believe any potential liability for these indemnifications will be immaterial. Further, an estimate of possible loss or range of loss related to this matter cannot be made. At March 31, 2009, we had not recorded any liability associated with these indemnifications.

Environmental

We are subject to numerous environmental, legal, and regulatory requirements related to our operations worldwide. In the United States, these laws and regulations include, among others:

the Comprehensive Environmental Response, Compensation, and Liability Act;

the Resource Conservation and Recovery Act;

the Clean Air Act;

the Federal Water Pollution Control Act; and

the Toxic Substances Control Act.

In addition to the federal laws and regulations, states and other countries where we do business often have numerous environmental, legal, and regulatory requirements by which we must abide. We evaluate and address the environmental impact of our operations by assessing and remediating contaminated properties in order to avoid future liabilities and comply with environmental, legal, and regulatory requirements. On occasion, we are involved in specific environmental litigation and claims, including the remediation of properties we own or have operated, as well as efforts to meet or correct compliance-related matters. Our Health, Safety and Environment group has several programs in place to maintain environmental leadership and to prevent the occurrence of environmental contamination.

We do not expect costs related to these remediation requirements to have a material adverse effect on our consolidated financial position or our results of operations. Our accrued liabilities for environmental matters were $51 million as of March 31, 2009 and $64 million as of December 31, 2008. Our total liability related to environmental matters covers numerous properties.

We have subsidiaries that have been named as potentially responsible parties along with other third parties for 8 federal and state superfund sites for which we have established a liability. As of March 31, 2009, those 8 sites accounted for approximately $10 million of our total $51 million liability. For any particular federal or state superfund site, since our estimated liability is typically within a range and our accrued liability may be the amount on the low end of that range, our actual liability could eventually be well in excess of the amount accrued. Despite attempts to resolve these superfund matters, the relevant regulatory agency may at any time bring suit against us for amounts in excess of the amount accrued. With respect to some superfund sites, we have been named a potentially responsible party by a regulatory agency; however, in each of those cases, we do not believe we have any material liability. We also could be subject to third-party claims with respect to environmental matters for which we have been named as a potentially responsible party.

Letters of credit

In the normal course of business, we have agreements with banks under which approximately $2 billion of letters of credit, surety bonds, or bank guarantees were outstanding as of March 31, 2009, including $657 million that relate to KBR. These KBR letters of credit, surety bonds, or bank guarantees are being guaranteed by us in favor of KBR’s customers and lenders. KBR has agreed to compensate us for these guarantees and indemnify us if we are required to perform under any of these guarantees. Some of the outstanding letters of credit have triggering events that would entitle a bank to require cash collateralization.

Note 8. Income per Share

Basic income per share is based on the weighted average number of common shares outstanding during the period. Diluted income per share includes additional common shares that would have been outstanding if potential common shares with a dilutive effect had been issued.

On January 1, 2009, we adopted Financial Accounting Standards Board (FASB) Staff Position (FSP) Emerging Issues Task Force (EITF) 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” This FSP provides that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents, whether paid or unpaid, are participating securities and shall be included in the computation of both basic and diluted earnings per share. According to the provisions of FSP EITF 03-6-1, we restated prior periods’ basic and diluted earnings per share to include such outstanding unvested restricted shares of our common stock in the basic weighted average shares outstanding calculation. Upon adoption, both basic and diluted income per share for the first quarter of 2008 and full year 2008 decreased by $0.01 for continuing operations and net income attributable to company shareholders.

A reconciliation of the number of shares used for the basic and diluted income per share calculations is as follows:

	Three Months Ended March 31
Millions of shares	2009		2008
Basic weighted average common shares outstanding		897		879
Dilutive effect of:
Convertible senior notes premium		–		31
Stock options		2		4
Diluted weighted average common shares outstanding		899		914

Excluded from the computation of diluted income per share are options to purchase nine million shares of common stock that were outstanding during the three months ended March 31, 2009 and options to purchase four million shares that were outstanding during the three months ended March 31, 2008. These options were outstanding during these quarters but were excluded because they were antidilutive, as the option exercise price was greater than the average market price of the common shares.

Note 9. Retirement Plans

The components of net periodic benefit cost related to pension benefits for the three months ended March 31, 2009 and March 31, 2008 were as follows:

	Three Months Ended March 31
	2009						2008
Millions of dollars	United States			International			United States			International
Service cost	$	–		$	6		$	–		$	7
Interest cost		2			10			2			13
Expected return on plan assets		(2	)		(8	)		(2	)		(11	)
Amortization of unrecognized loss		–			1			1			1
Net periodic benefit cost	$	–		$	9		$	1		$	10

During the three months ended March 31, 2009, we contributed $8 million to our international pension plans. We currently expect to contribute an additional $74 million to our international pension plans in 2009, of which $65 million represents discretionary contributions to our United Kingdom pension plan. We expect to make discretionary contributions of approximately $13 million to our United States pension plans in 2009.

Note 10. New Accounting Standards

On January 1, 2009, we adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 160, “Noncontrolling Interests in Consolidated Financial Statements – An Amendment of ARB No. 51.” SFAS No. 160 establishes new accounting, reporting, and disclosure standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. This statement requires the recognition of a noncontrolling interest as equity in the condensed consolidated financial statements and separate from the parent’s equity. Noncontrolling interest has been presented as a separate component of shareholders’ equity for the current reporting period and prior comparative period in our condensed consolidated financial statements.

On January 1, 2009, we adopted the provisions of SFAS No. 141 (Revised 2007), “Business Combinations” (SFAS No. 141(R)), which retains the underlying concepts of SFAS No. 141 in that all business combinations are still required to be accounted for at fair value under the acquisition method of accounting, but changes the method of applying the acquisition method in a number of ways. Acquisition costs are no longer considered part of the fair value of an acquisition and will generally be expensed as incurred, noncontrolling interests are valued at fair value at the acquisition date, in-process research and development is recorded at fair value as an indefinite-lived intangible asset at the acquisition date, restructuring costs associated with a business combination are generally expensed subsequent to the acquisition date, and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense. In April 2009, the FASB issued FSP SFAS 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies,” which amends the guidance in SFAS No. 141(R) to require contingent assets acquired and liabilities assumed in a business combination to be recognized at fair value on the acquisition date if fair value can be reasonably estimated during the measurement period. If fair value cannot be reasonably estimated during the measurement period, the contingent asset or liability would be recognized in accordance with SFAS No. 5, “Accounting for Contingencies,” and FASB Interpretation (FIN) No. 14, “Reasonable Estimation of the Amount of a Loss.” Further, this FSP eliminated the specific subsequent accounting guidance for contingent assets and liabilities from Statement 141(R), without significantly revising the guidance in SFAS No. 141. However, contingent consideration arrangements of an acquiree assumed by the acquirer in a business combination would still be initially and subsequently measured at fair value in accordance with SFAS No. 141(R). This FSP is effective for all business acquisitions occurring on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. We adopted the provisions of SFAS No. 141(R) and FSP SFAS 141(R)-1 for business combinations with an acquisition date on or after January 1, 2009.

On January 1, 2009, we adopted FSP Accounting Principles Board (APB) 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement).” This FSP clarifies that convertible debt instruments that may be settled in cash upon conversion, including partial cash settlement, should separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. Upon adopting the provisions of FSP APB 14-1, we retroactively applied its provisions and restated our condensed consolidated financial statements for prior periods.

In applying this FSP, $63 million of the carrying value of our 3.125% convertible senior notes due July 2023 was reclassified to equity as of the July 2003 issuance date. This amount represents the equity component of the proceeds from the notes, calculated assuming a 4.3% non-convertible borrowing rate. The discount was accreted to interest expense over the five-year term of the notes. Accordingly, $14 million of additional non-cash interest expense, or $0.01 per diluted share, was recorded in 2006 and 2007 and $7 million of additional non-cash interest expense was recorded in 2008, with $4 million recorded during the first quarter of 2008. Furthermore, under this FSP, the $693 million loss to settle our convertible debt recorded in the third quarter of 2008 was reversed and recorded to additional paid-in capital. This resulted in a decrease of $4 million to income from continuing operations and net income attributable to company in the first quarter of 2008, an increase of $686 million to income from continuing operations and net income attributable to company in 2008, and a net increase of $630 million to beginning retained earnings as of January 1, 2009. Diluted income per share for 2008 increased by $0.76 as a result of the adoption of FSP APB 14-1. These notes were converted and settled during the third quarter of 2008.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which is intended to increase consistency and comparability in fair value measurements by defining fair value, establishing a framework for measuring fair value, and expanding disclosures about fair value measurements. SFAS No. 157 applies to other accounting pronouncements that require or permit fair value measurements and is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. In February 2008, the FASB issued FSP SFAS 157-1, “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13,” which removes certain leasing transactions from the scope of SFAS No. 157, and FSP SFAS 157-2, “Effective Date of FASB Statement No. 157,” which defers the effective date of SFAS No. 157 for one year for certain nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis. In October 2008, the FASB also issued FSP SFAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active,” which clarifies the application of SFAS No. 157 in an inactive market and illustrates how an entity would determine fair value when the market for a financial asset is not active. On January 1, 2008, we adopted without material impact on our condensed consolidated financial statements the provisions of SFAS No. 157 related to financial assets and liabilities and to nonfinancial assets and liabilities measured at fair value on a recurring basis. On January 1, 2009, we adopted without material impact on our condensed consolidated financial statements the provisions of SFAS No. 157 related to nonfinancial assets and nonfinancial liabilities that are not required or permitted to be measured at fair value on a recurring basis, which include those measured at fair value in goodwill impairment testing, indefinite-lived intangible assets measured at fair value for impairment assessment, nonfinancial long-lived assets measured at fair value for impairment assessment, asset retirement obligations initially measured at fair value, and those initially measured at fair value in a business combination.

In April 2009, the FASB issued FSP SFAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly,” which provides additional guidance for estimating fair value in accordance with SFAS No. 157 when the volume and level of activity for the asset or liability have significantly decreased. This FSP re-emphasizes that regardless of market conditions the fair value measurement is an exit price concept as defined in SFAS No. 157. This FSP clarifies and includes additional factors to consider in determining whether there has been a significant decrease in market activity for an asset or liability and provides additional clarification on estimating fair value when the market activity for an asset or liability has declined significantly. The scope of this FSP does not include assets and liabilities measured under level 1 inputs. FSP SFAS 157-4 is applied prospectively to all fair value measurements where appropriate and will be effective for interim and annual periods ending after June 15, 2009. We will adopt the provisions of FSP SFAS 157-4 effective April 1, 2009, which we do not expect to have a material impact on our condensed consolidated financial statements.

In April 2009, the FASB issued FSP SFAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments.” This FSP which amends SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” to require publicly-traded companies, as defined in APB Opinion No. 28, “Interim Financial Reporting,” to provide disclosures on the fair value of financial instruments in interim financial statements. FSP SFAS 107-1 and APB 28-1 is effective for interim periods ending after June 15, 2009. We will adopt the new disclosure requirements in our June 30, 2009 financial statements.

In December 2008, the FASB issued FSP SFAS 132(R)-1 “Employers’ Disclosures about Postretirement Benefit Plan Assets.” This FSP amends the disclosure requirements for employer’s disclosure of plan assets for defined benefit pensions and other postretirement plans. The objective of this FSP is to provide users of financial statements with an understanding of how investment allocation decisions are made, the major categories of plan assets held by the plans, the inputs and valuation techniques used to measure the fair value of plan assets, significant concentration of risk within the company’s plan assets, and for fair value measurements determined using significant unobservable inputs a reconciliation of changes between the beginning and ending balances. FSP SFAS 132(R)-1 is effective for fiscal years ending after December 15, 2009. We will adopt the new disclosure requirements in the 2009 annual reporting period.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

EXECUTIVE OVERVIEW

Organization

We are a leading provider of products and services to the energy industry. We serve the upstream oil and gas industry throughout the lifecycle of the reservoir, from locating hydrocarbons and managing geological data, to drilling and formation evaluation, well construction and completion, and optimizing production through the life of the field. Activity levels within our operations are significantly impacted by spending on upstream exploration, development, and production programs by major, national, and independent oil and natural gas companies. We report our results under two segments, Completion and Production and Drilling and Evaluation:

our Completion and Production segment delivers cementing, stimulation, intervention, and completion services. The segment consists of production enhancement services, completion tools and services, and cementing services; and

our Drilling and Evaluation segment provides field and reservoir modeling, drilling, evaluation, and precise wellbore placement solutions that enable customers to model, measure, and optimize their well construction activities. The segment consists of fluid services, drilling services, drill bits, wireline and perforating services, testing and subsea, software and asset solutions, and integrated project management services.

The business operations of our segments are organized around four primary geographic regions: North America, Latin America, Europe/Africa/CIS, and Middle East/Asia. We have significant manufacturing operations in various locations, including, but not limited to, the United States, Canada, the United Kingdom, Continental Europe, Malaysia, Mexico, Brazil, and Singapore. With approximately 54,000 employees, we operate in approximately 70 countries around the world, and our corporate headquarters are in Houston, Texas and Dubai, United Arab Emirates.

Financial results

During the first quarter of 2009, we produced revenue of $3.9 billion and operating income of $616 million, reflecting an operating margin of 16%. Revenue decreased $122 million or 3% from the first quarter of 2008, while operating income decreased $231 million or 27% from the first quarter of 2008. These decreases were caused by a decline in our customers’ capital spending as a result of the global recession and its impact on commodity prices, which resulted in severe margin contraction compared to the first quarter of 2008.

Business outlook

We continue to believe in the strength of the long-term fundamentals of our business. However, due to the financial crisis that developed in mid-2008, the ensuing negative impact on credit availability, and the current excess supply of oil and natural gas, the near- and mid-term outlook for our business and the industry remains uncertain. Forecasting the depth and length of the current cycle is challenging as it is different from past cycles due to the overlay of the global credit crisis in combination with broad demand weakness.

In North America, the industry experienced an unprecedented decline in drilling activity during the first quarter of 2009. United States rig counts have continued to fall and as of April 17, 2009 are approximately 50% below 2008 highs, with no certainty as to when the decline in activity will bottom out. We have also seen pricing erosion and severe margin contraction in all of our service offerings in North America, and we believe that pricing for our services will remain under pressure until drilling activity stabilizes. As noted, when this stabilization may occur is uncertain, and we expect our customers to continue to adjust their spending plans until natural gas supply-demand fundamentals improve.

Outside of North America, rig count has declined approximately 10% from 2008 highs, and there is a risk of a further decline in activity. This is in line with the behavior of past cycles, where international cycles tend to be shallower and longer in duration and follow North America cycles by one to two quarters. Our business has started to see the deferral of several projects, and certain markets are already exhibiting particular weakness in activity due to the lack of access to external financing to fund development projects. In addition, operators are focusing their efforts on removing service cost inflation on their projects by seeking to secure cost concessions from their supply chain. Although international margin pressure was modest during the first quarter of 2009, we expect pressure to intensify in coming quarters.

In 2009, we will focus on:

minimizing discretionary spending;

lowering our costs from vendors by negotiating price reductions;

negotiating with our customers to trade an expansion of scope and a lengthening of duration with contract renegotiation milestones for price concessions;

reducing headcount in locations experiencing significant activity declines;

improving working capital, operating within our cash flow, and managing our balance sheet to maximize our financial flexibility;

leveraging our technologies to provide our customers with the ability to more efficiently drill and complete their wells, especially in service intensive environments such as deepwater and shale plays;

continuing to deploy our packaged services strategy while creating an efficiency model for our customers in the development of their assets;

continuing the globalization of our manufacturing and supply chain processes, preserving work at our lower-cost manufacturing centers, and utilizing our international infrastructure to lower costs from our supply chain through delivery;

expanding our business with national oil companies; and

protecting our market share by enhancing our technological position and our product and service portfolio in key areas.

Our operating performance is described in more detail in “Business Environment and Results of Operations.”

Financial markets, liquidity, and capital resources

So far in 2009, the equity, credit, and commodity markets continue to be volatile. While this has created additional risks for our business, we believe we have invested our cash balances conservatively and secured sufficient financing to help mitigate any near- and mid-term negative impact on our operations. To provide additional liquidity and flexibility in the current environment, we issued $2 billion in senior notes during the first quarter of 2009. For additional information, see “Liquidity and Capital Resources”, “Risk Factors”, “Business Environment and Results of Operations”, and Note 5 to the condensed consolidated financial statements.

LIQUIDITY AND CAPITAL RESOURCES

We ended the first quarter of 2009 with cash and equivalents of $3 billion compared to $1.1 billion at December 31, 2008.

Significant sources of cash

Cash flows from operating activities contributed $381 million to cash in the first quarter of 2009.

In March 2009, we issued senior notes due 2039 totaling $1 billion and senior notes due 2019 totaling $1 billion. We intend to use the net proceeds of this offering for general corporate purposes.

Further available sources of cash. We have an unsecured $1.2 billion five-year revolving credit facility expiring in 2012 to provide commercial paper support, general working capital, and credit for other corporate purposes. There were no cash drawings under the facility as of March 31, 2009.

Future sources of cash. We expect to receive payment of approximately $85 million in insurance recoveries for our asbestos-related insurance settlements during the second half of 2009.

Significant uses of cash

Capital expenditures were $518 million in the first quarter of 2009 and were predominantly made in the production enhancement, drilling services, cementing, and wireline and perforating product service lines.

We paid $274 million to the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) in the first quarter of 2009 related to the settlements with them and under the indemnity provided to KBR upon separation.

We paid $81 million in dividends to our shareholders in the first quarter of 2009.

Future uses of cash. We have approximately $1.8 billion remaining available under our share repurchase authorization, which may be used for open market share purchases.

In 2009, we believe we will maintain our capital expenditures up to 2008 levels but will monitor our customers’ activity and make reductions as necessary. The capital expenditures plan for 2009 is primarily directed toward our production enhancement, drilling services, wireline and perforating, and cementing product service lines and toward retiring old equipment to replace it with new equipment to improve our fleet reliability and efficiency. We are currently exploring opportunities for acquisitions that will enhance or augment our current portfolio of products and services, including those with unique technologies or distribution networks in areas where we do not already have large operations.

As a result of the resolution of the DOJ and SEC Foreign Corrupt Practices Act (FCPA) investigations, we will pay $285 million in equal installments over the next six quarters for the settlement with the DOJ and under the indemnity provided to KBR upon separation. See Notes 2 and 7 to our condensed consolidated financial statements for more information.

We currently expect to contribute an additional $87 million to our pension plans in 2009.

Subject to Board of Directors approval, we expect to pay dividends of approximately $80 million per quarter in 2009.

Other factors affecting liquidity

Letters of credit. In the normal course of business, we have agreements with banks under which approximately $2 billion of letters of credit, surety bonds, or bank guarantees were outstanding as of March 31, 2009, including $657 million that relate to KBR. These KBR letters of credit, surety bonds, or bank guarantees are being guaranteed by us in favor of KBR’s customers and lenders. KBR has agreed to compensate us for these guarantees and indemnify us if we are required to perform under any of these guarantees. Some of the outstanding letters of credit have triggering events that would entitle a bank to require cash collateralization.

Financial position in current market. Our recent $2 billion long-term debt offering provides sufficient liquidity and flexibility, given the current market environment. Our debt maturities extend over a long period of time. We currently have a total of $1.2 billion of committed bank credit under revolving credit facilities to support our operations and any commercial paper we may issue in the future. We have no financial covenants or material adverse change provisions in our bank agreements. Currently, there are no borrowings under the revolving credit facility.

In addition, we manage our cash investments by investing principally in United States Treasury securities and repurchase agreements collateralized by United States Treasury securities.

Credit ratings. Credit ratings for our long-term debt remain A2 with Moody’s Investors Service and A with Standard & Poor’s. The credit ratings on our short-term debt remain P-1 with Moody’s Investors Service and A-1 with Standard & Poor’s.

Customer receivables. In line with industry practice, we bill our customers for our services in arrears and are, therefore, subject to our customers delaying or failing to pay our invoices. In weak economic environments, we may experience increased delays and failures due to, among other reasons, a reduction in our customer’s cash flow from operations and their access to the credit markets. For example, we have seen an increased delay in receiving payment on our receivables from one of our significant national oil company customers in Latin America due to the economic recession and decrease in commodity prices. If our customers delay in paying or fail to pay us a significant amount of our outstanding receivables, it could have a material adverse effect on our liquidity, consolidated results of operations, and consolidated financial condition.

BUSINESS ENVIRONMENT AND RESULTS OF OPERATIONS

We operate in approximately 70 countries throughout the world to provide a comprehensive range of discrete and integrated services and products to the energy industry. The majority of our consolidated revenue is derived from the sale of services and products to major, national, and independent oil and gas companies worldwide. We serve the upstream oil and natural gas industry throughout the lifecycle of the reservoir, from locating hydrocarbons and managing geological data, to drilling and formation evaluation, well construction and completion, and optimizing production throughout the life of the field. Our two business segments are the Completion and Production segment and the Drilling and Evaluation segment. The industries we serve are highly competitive with many substantial competitors in each segment. In the first quarter of 2009, based upon the location of the services provided and products sold, 40% of our consolidated revenue was from the United States. In the first quarter of 2008, 42% of our consolidated revenue was from the United States. No other country accounted for more than 10% of our revenue during these periods.

Operations in some countries may be adversely affected by unsettled political conditions, acts of terrorism, civil unrest, force majeure, war or other armed conflict, expropriation or other governmental actions, inflation, exchange control problems, and highly inflationary currencies. We believe the geographic diversification of our business activities reduces the risk that loss of operations in any one country would be material to our consolidated results of operations.

Activity levels within our business segments are significantly impacted by spending on upstream exploration, development, and production programs by major, national, and independent oil and gas companies. Also impacting our activity is the status of the global economy, which impacts oil and natural gas consumption. See “Risk Factors—Worldwide recession and effect on exploration and production activity” for further information related to the effect of the current recession.

Some of the more significant barometers of current and future spending levels of oil and natural gas companies are oil and natural gas prices, the world economy, the availability of credit, and global stability, which together drive worldwide drilling activity. Our financial performance is significantly affected by oil and natural gas prices and worldwide rig activity, which are summarized in the following tables.

This table shows the average oil and natural gas prices for West Texas Intermediate (WTI), United Kingdom Brent crude oil, and Henry Hub natural gas:

	Three Months Ended				Year Ended
	March 31				December 31
Average Oil Prices (dollars per barrel)	2009		2008		2008
West Texas Intermediate	$	42.91	$	97.94	$	99.57
United Kingdom Brent		44.43		96.94		96.85

Average United States Natural Gas Prices (dollars per
thousand cubic feet, or mcf)
Henry Hub	$	4.71	$	8.92	$	9.13

The quarterly and yearly average rig counts based on the Baker Hughes Incorporated rig count information were as follows:

	Three Months Ended				Year Ended
	March 31				December 31
Land vs. Offshore	2009		2008		2008
United States:
Land		1,270		1,711		1,812
Offshore		56		59		65
Total		1,326		1,770		1,877
Canada:
Land		327		506		378
Offshore		1		1		1
Total		328		507		379
International (excluding Canada):
Land		743		763		784
Offshore		282		284		295
Total		1,025		1,047		1,079
Worldwide total		2,679		3,324		3,335
Land total		2,340		2,980		2,974
Offshore total		339		344		361

	Three Months Ended				Year Ended
	March 31				December 31
Oil vs. Natural Gas	2009		2008		2008
United States:
Oil		281		332		384
Natural gas		1,045		1,438		1,493
Total		1,326		1,770		1,877
Canada:
Oil		125		213		160
Natural gas		203		294		219
Total		328		507		379
International (excluding Canada):
Oil		807		803		825
Natural gas		218		244		254
Total		1,025		1,047		1,079
Worldwide total		2,679		3,324		3,335
Oil total		1,213		1,348		1,369
Natural gas total		1,466		1,976		1,966

Our customers’ cash flows, in many instances, depend upon the revenue they generate from the sale of oil and natural gas. Lower oil and natural gas prices usually translate into lower exploration and production budgets. The opposite is true for higher oil and natural gas prices.

WTI oil spot prices have fallen from an average of $100 per barrel in 2008 to an average of $48 per barrel in the month of March 2009. As of April 21, 2009 the WTI oil spot price was $46.65 per barrel. According to the International Energy Agency’s (IEA) April 2009 “Oil Market Report,” the pace of global demand contraction is approaching rates last seen in the 1980s. Amid weaker than expected global economic indicators, the IEA revised its world petroleum demand forecast for 2009 downward from 1% less than 2008 demand levels to approximately 3% less than 2008 demand levels. WTI and United Kingdom Brent crude oil prices exceeded $50 per barrel in late March for the first time in four months, but the IEA warned that pervasively weak supply-demand fundamentals could limit a sustained recovery from materializing until 2010. Despite the decline in oil and gas prices and reduction in our customers’ capital spending, we believe that, over the long term, any major macroeconomic disruptions may ultimately correct themselves as the underlying trends of smaller and more complex reservoirs, high depletion rates, and the need for continual reserve replacement should drive the long-term need for our services.

North America operations. Volatility in natural gas prices can impact our customers' drilling and production activities, particularly in North America. In the first quarter of 2009, we experienced an unprecedented decline in drilling activity as the United States rig count, as of April 17, 2009, dropped approximately 50% from 2008 highs. Correlating with this decline, the Henry Hub spot price decreased from an average of $9.13 per mcf in 2008 to $4.08 per mcf in March 2009. As of April 21, 2009, the Henry Hub spot price had fallen to $3.54 per mcf. We have also seen pricing erosion and severe margin contraction in all of our service offerings in North America, and we anticipate that pricing for our services will remain under pressure until drilling activity stabilizes. When this stabilization may occur is uncertain, and we expect our customers to continue to adjust their spending plans until natural gas supply-demand fundamentals improve.

Focus on international operations. Consistent with our long-term strategy to grow our operations outside of North America, we expect to continue to invest capital related to our international operations. However, rig count has declined approximately 10% from 2008 highs and there is a risk of a further decline in activity. This is in line with the behavior of past cycles, where international cycles tend to be shallower and longer in duration and follow North America cycles by one to two quarters. Our business has started to see the deferral of several projects, and certain markets are already exhibiting particular weakness in activity due to the lack of access to external financing to fund development projects. In addition, operators are focusing their efforts on removing service cost inflation on their projects by seeking to secure cost concessions from their supply chain. Although international margin pressure was modest in the first quarter of 2009, we expect pressure to intensify in coming quarters.

Following is a brief discussion of some of our recent and current initiatives:

minimizing discretionary spending;

lowering our costs from vendors by negotiating price reductions;

negotiating with our customers to trade an expansion of scope and a lengthening of duration with contract renegotiation milestones for price concessions;

reducing headcount in locations experiencing significant activity declines;

improving working capital, operating within our cash flow, and managing our balance sheet to maximize our financial flexibility;

continuing to deploy our packaged services strategy while creating an efficiency model for our customers in the development of their assets;

expanding our business with national oil companies; and

protecting our market share by enhancing our technological position and our product and service portfolio in key areas.

Recent contract wins positioning us to grow our international operations over the long term include:

a four-year contract to provide directional-drilling, measurement-while-drilling, and logging-while-drilling, along with drilling fluids and cementing services in Russia; and

a multi-year contract scheduled to commence in 2010 to provide completion products and services and drilling and completion fluids in the deepwater, offshore fields of Angola.

RESULTS OF OPERATIONS IN 2009 COMPARED TO 2008

Three Months Ended March 31, 2009 Compared with Three Months Ended March 31, 2008

	Three Months Ended
REVENUE:	March 31				Increase			Percentage
Millions of dollars	2009		2008		(Decrease)			Change
Completion and Production	$	2,028	$	2,122	$	(94	)		(4	)%
Drilling and Evaluation		1,879		1,907		(28	)		(1	)
Total revenue	$	3,907	$	4,029	$	(122	)		(3	)%

By geographic region:
Completion and Production:
North America	$	1,071	$	1,164	$	(93	)	(8	)%
Latin America		232		217		15		7
Europe/Africa/CIS		426		413		13		3
Middle East/Asia		299		328		(29	)	(9	)
Total		2,028		2,122		(94	)	(4	)
Drilling and Evaluation:
North America		612		698		(86	)	(12	)
Latin America		324		292		32		11
Europe/Africa/CIS		542		545		(3	)	(1	)
Middle East/Asia		401		372		29		8
Total		1,879		1,907		(28	)	(1	)
Total revenue by region:
North America		1,683		1,862		(179	)	(10	)
Latin America		556		509		47		9
Europe/Africa/CIS		968		958		10		1
Middle East/Asia		700		700		–		–

	Three Months Ended
OPERATING INCOME:	March 31						Increase			Percentage
Millions of dollars	2009			2008			(Decrease)			Change
Completion and Production	$	363		$	504		$	(141	)		(28	)%
Drilling and Evaluation		304			409			(105	)		(26	)
Corporate and other		(51	)		(66	)		15			23
Total operating income	$	616		$	847		$	(231	)		(27	)%

By geographic region:
Completion and Production:
North America	$	166	$	321	$	(155	)	(48	)%
Latin America		54		53		1		2
Europe/Africa/CIS		77		64		13		20
Middle East/Asia		66		66		–		–
Total		363		504		(141	)	(28	)
Drilling and Evaluation:
North America		64		170		(106	)	(62	)
Latin America		54		54		–		–
Europe/Africa/CIS		91		111		(20	)	(18	)
Middle East/Asia		95		74		21		28
Total		304		409		(105	)	(26	)
Total operating income by region
(excluding Corporate and other):
North America		230		491		(261	)	(53	)
Latin America		108		107		1		1
Europe/Africa/CIS		168		175		(7	)	(4	)
Middle East/Asia		161		140		21		15

Note - All periods presented reflect the movement of certain operations from the Completion and Production segment to the

Drilling and Evaluation segment.

The 3% decline in consolidated revenue in the first quarter of 2009 compared to the first quarter of 2008 was primarily due to pricing declines and lower demand for our products and services in North America due to a significant reduction in rig count. Despite an approximate 30% reduction in average rig count in North America during the first quarter of 2009 compared to the first quarter of 2008, we experienced only a 10% decline in North America revenue from the first quarter of 2008. International revenue was 60% of consolidated revenue in the first quarter of 2009 and 58% of consolidated revenue in the first quarter of 2008.

The decrease in consolidated operating income compared to the first quarter of 2008 primarily stemmed from a 53% decrease in North America due to a decline in rig count and severe margin contraction and a $28 million charge associated with employee separation costs partially offset by savings from cost reductions. Operating income in the first quarter of 2008 was positively impacted by a $35 million gain on the sale of a joint venture interest in the United States partially offset by a $23 million impairment charge related to an oil and gas property in Bangladesh.

Following is a discussion of our results of operations by reportable segment.

Completion and Production decrease in revenue compared to the first quarter of 2008 was a result of pricing declines in North America and lower demand for our products and services in North America and Middle East/Asia. North America revenue fell 8% on a drop in demand for production enhancement services, cementing services, and intelligent completion systems in the United States land market. In addition, Canada experienced declines in demand for completion tools sales and cementing services. Latin America revenue increased 7% driven by increased activity from cementing and production enhancement services in Mexico, Brazil, and Colombia. Europe/Africa/CIS revenue grew 3% on increased activity from cementing services in Africa and production enhancement services in Europe. Middle East/Asia revenue decreased 9% largely due to a decrease in demand for all products and services except production enhancement services in the Middle East. International revenue was 51% of total segment revenue in the first quarter of 2009 and 49% of total segment revenue in the first quarter of 2008.

The Completion and Production segment operating income decrease compared to the first quarter of 2008 was led by the North America region, where operating income fell 48% largely due to significant reductions in rig count resulting in lower demand for our products and services and pricing declines. North America benefited from a $35 million gain on the sale of a joint venture interest in the first quarter of 2008. Latin America operating income increased 2% due to higher demand and lower costs for completion tools and services in Brazil and Mexico. Europe/Africa/CIS operating income improved 20% from increased demand for cementing services combined with lower associated costs in Africa and production enhancement services in Europe. Middle East/Asia operating income was flat despite improved activity in production enhancement services and intelligent completion system sales in Asia Pacific.

Drilling and Evaluation revenue was essentially flat compared to the first quarter of 2008 despite increased demand for our products and services in Latin America and Middle East/Asia. North America revenue fell 12% on pricing declines and a reduction in rig count. Latin America revenue grew 11% primarily due to increased project management services and software sales activity in Mexico and Colombia and higher demand as a result of new contracts for drilling services throughout the region. Europe/Africa/CIS revenue remained essentially flat primarily due to increased activity in testing and subsea and wireline and perforating services in Africa offset by pricing declines and decreased demand for drilling services and direct sales in Europe. Middle East/Asia revenue grew 8% from increased drilling services activity in Asia Pacific and higher demand and new contracts for fluid services throughout the region. International revenue was 71% of total segment revenue in the first quarter of 2009 and 68% of total segment revenue in the first quarter of 2008.

The decrease in segment operating income compared to the first quarter of 2008 was primarily derived from pricing declines and rig count reductions in North America and Europe. North America operating income decreased 62% from pricing declines and rig count reductions. Latin America operating income was flat with higher demand for well construction technologies offset by higher costs in wireline and perforating services and declines in testing and subsea services. The Europe/Africa/CIS region operating income fell 18% on lower direct sales and decreased demand for drilling services in Europe and Russia. Middle East/Asia operating income increased 28% over the first quarter of 2008 partially related to higher drilling activity in Asia. The first quarter of 2008 was negatively impacted by the impairment charge related to an oil and gas property in Bangladesh.

Corporate and other expenses were $51 million in the first quarter of 2009 compared to $66 million in the first quarter of 2008. The 23% reduction was primarily related to lower legal costs in the first quarter of 2009.

NONOPERATING ITEMS

Interest expense increased $11 million in the first quarter of 2009 compared to the first quarter of 2008 primarily due to the issuance of $2 billion in senior notes during the first quarter of 2009.

Interest income decreased $18 million in the first quarter of 2009 compared to the first quarter of 2008 due to a general decline in market interest rates and lower investment balances for most of the first quarter of 2009.

Provision for income taxes on continuing operations in the first quarter of 2009 of $179 million resulted in an effective tax rate of 32% compared to an effective tax rate on continuing operations of 29% in the first quarter of 2008. The lower effective tax rate in the first quarter of 2008 was driven primarily by favorable settlements with foreign tax jurisdictions and the ability to recognize additional foreign tax credits that had been substantiated.

ENVIRONMENTAL MATTERS

We are subject to numerous environmental, legal, and regulatory requirements related to our operations worldwide. In the United States, these laws and regulations include, among others:

the Comprehensive Environmental Response, Compensation, and Liability Act;

the Resource Conservation and Recovery Act;

the Clean Air Act;

the Federal Water Pollution Control Act; and

the Toxic Substances Control Act.

NEW ACCOUNTING STANDARDS

On January 1, 2009, we adopted the provisions of Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 160, “Noncontrolling Interests in Consolidated Financial Statements – An Amendment of ARB No. 51.” SFAS No. 160 establishes new accounting, reporting, and disclosure standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. This statement requires the recognition of a noncontrolling interest as equity in the condensed consolidated financial statements and separate from the parent’s equity. Noncontrolling interest has been presented as a separate component of shareholders’ equity for the current reporting period and prior comparative period in our condensed consolidated financial statements.

On January 1, 2009, we adopted the provisions of SFAS No. 141 (Revised 2007), “Business Combinations” (SFAS No. 141(R)), which retains the underlying concepts of SFAS No. 141 in that all business combinations are still required to be accounted for at fair value under the acquisition method of accounting, but changes the method of applying the acquisition method in a number of ways. Acquisition costs are no longer considered part of the fair value of an acquisition and will generally be expensed as incurred, noncontrolling interests are valued at fair value at the acquisition date, in-process research and development is recorded at fair value as an indefinite-lived intangible asset at the acquisition date, restructuring costs associated with a business combination are generally expensed subsequent to the acquisition date, and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense. In April 2009, the FASB issued FASB Staff Position (FSP) SFAS 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies,” which amends the guidance in SFAS No. 141(R) to require contingent assets acquired and liabilities assumed in a business combination to be recognized at fair value on the acquisition date if fair value can be reasonably estimated during the measurement period. If fair value cannot be reasonably estimated during the measurement period, the contingent asset or liability would be recognized in accordance with SFAS No. 5, “Accounting for Contingencies,” and FASB Interpretation (FIN) No. 14, “Reasonable Estimation of the Amount of a Loss.” Further, this FSP eliminated the specific subsequent accounting guidance for contingent assets and liabilities from Statement 141(R), without significantly revising the guidance in SFAS No. 141. However, contingent consideration arrangements of an acquiree assumed by the acquirer in a business combination would still be initially and subsequently measured at fair value in accordance with SFAS No. 141(R). This FSP is effective for all business acquisitions occurring on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. We adopted the provisions of SFAS No. 141(R) and FSP SFAS 141(R)-1 for business combinations with an acquisition date on or after January 1, 2009.

On January 1, 2009, we adopted FSP Emerging Issues Task Force (EITF) 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” This FSP provides that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents, whether paid or unpaid, are participating securities and shall be included in the computation of both basic and diluted earnings per share. According to the provisions of FSP EITF 03-6-1, we restated prior periods’ basic and diluted earnings per share to include such outstanding unvested restricted shares of our common stock in the basic weighted average shares outstanding calculation. Upon adoption, both basic and diluted income per share for the first quarter of 2008 and full year 2008 decreased by $0.01 for continuing operations and net income attributable to company shareholders.

FORWARD-LOOKING INFORMATION

The Private Securities Litigation Reform Act of 1995 provides safe harbor provisions for forward-looking information. Forward-looking information is based on projections and estimates, not historical information. Some statements in this Form 10-Q are forward-looking and use words like “may,” “may not,” “believes,” “do not believe,” “expects,” “do not expect,” “anticipates,” “do not anticipate,” and other expressions. We may also provide oral or written forward-looking information in other materials we release to the public. Forward-looking information involves risk and uncertainties and reflects our best judgment based on current information. Our results of operations can be affected by inaccurate assumptions we make or by known or unknown risks and uncertainties. In addition, other factors may affect the accuracy of our forward-looking information. As a result, no forward-looking information can be guaranteed. Actual events and the results of operations may vary materially.

We do not assume any responsibility to publicly update any of our forward-looking statements regardless of whether factors change as a result of new information, future events, or for any other reason. You should review any additional disclosures we make in our press releases and Forms 10-K, 10-Q, and 8-K filed with or furnished to the SEC. We also suggest that you listen to our quarterly earnings release conference calls with financial analysts.

While it is not possible to identify all factors, we continue to face many risks and uncertainties that could cause actual results to differ from our forward-looking statements and potentially materially and adversely affect our financial condition and results of operations.

The risk factors discussed below update the risk factors previously disclosed in our 2008 annual report on Form 10-K.

RISK FACTORS

Foreign Corrupt Practices Act Investigations

KBR has agreed that our indemnification obligations with respect to the DOJ and SEC FCPA investigations have been fully satisfied.

Other matters. In addition to the DOJ and the SEC investigations, we are aware of other investigations in France, Nigeria, United Kingdom, and Switzerland regarding the Bonny Island project.

Barracuda-Caratinga Arbitration

We also provided indemnification in favor of KBR under the master separation agreement for all out-of-pocket cash costs and expenses (except for legal fees and other expenses of the arbitration so long as KBR controls and directs it), or cash settlements or cash arbitration awards, KBR may incur after November 20, 2006 as a result of the replacement of certain subsea flowline bolts installed in connection with the Barracuda-Caratinga project. Under the master separation agreement, KBR currently controls the defense, counterclaim, and settlement of the subsea flowline bolts matter. As a condition of our indemnity, for any settlement to be binding upon us, KBR must secure our prior written consent to such settlement’s terms. We have the right to terminate the indemnity in the event KBR enters into any settlement without our prior written consent. Our estimation of the indemnity obligation regarding the Barracuda-Caratinga arbitration is recorded as a liability in our condensed consolidated financial statements as of March 31, 2009 and December 31, 2008. See Note 2 to the condensed consolidated financial statements for additional information regarding the KBR indemnification.

Worldwide recession and effect on exploration and production activity

The recent worldwide financial and credit crisis has reduced the availability of liquidity and credit to fund the continuation and expansion of industrial business operations worldwide. The shortage of liquidity and credit combined with recent substantial losses in worldwide equity markets have led to a worldwide economic recession that could continue for an extended period of time. The slowdown in economic activity caused by the recession has reduced worldwide demand for energy and resulted in lower oil and natural gas prices. This reduction in demand could continue through 2009 and beyond. Crude oil prices declined from record levels in July 2008 of approximately $145 per barrel to levels as low as $30 per barrel toward the end of 2008. As of April 21, 2009, crude oil prices were $46.65 per barrel. Natural gas spot prices peaked at $13.72 per mcf in 2008 and then fell to an average of $6.02 per mcf toward the end of 2008. As of April 21, 2009, natural gas spot prices had fallen even further to $3.54 per mcf. Demand for our services and products depends on oil and natural gas industry activity and expenditure levels that are directly affected by trends in oil and natural gas prices. Demand for our services and products is particularly sensitive to the level of exploration, development, and production activity of, and the corresponding capital spending by, oil and natural gas companies, including national oil companies. Any prolonged reduction in oil and natural gas prices will depress the immediate levels of exploration, development, and production activity. Perceptions of longer-term lower oil and natural gas prices by oil and gas companies can similarly reduce or defer major expenditures given the long-term nature of many large-scale development projects. Lower levels of activity result in a corresponding decline in the demand for our oil and natural gas well services and products, which could have a material adverse effect on our revenue and profitability.

Customer receivables

In line with industry practice, we bill our customers for our services in arrears and are, therefore, subject to our customers delaying or failing to pay our invoices. In weak economic environments, we may experience increased delays and failures due to, among other reasons, a reduction in our customer’s cash flow from operations and their access to the credit markets. For example, we have seen an increased delay in receiving payment on our receivables from one of our significant national oil company customers in Latin America due to the economic recession and decrease in commodity prices. If our customers delay in paying or fail to pay us a significant amount of our outstanding receivables, it could have a material adverse effect on our liquidity, consolidated results of operations, and consolidated financial condition.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risk from changes in foreign currency exchange rates, interest rates, and commodity prices. We selectively manage these exposures through the use of derivative instruments to mitigate our market risk from these exposures. The objective of our risk management strategy is to minimize the volatility from fluctuations in foreign currency rates. Our use of derivative instruments entails the following types of market risk:

volatility of the currency rates;

counterparty credit risk;

time horizon of the derivative instruments; and

the type of derivative instruments used.

We do not use derivative instruments for trading purposes. We do not consider any of these risk management activities to be material.

Item 4. Controls and Procedures

In accordance with the Securities Exchange Act of 1934 Rules 13a-15 and 15d-15, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2009 to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Our disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

There has been no change in our internal control over financial reporting that occurred during the three months ended March 31, 2009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Information related to various commitments and contingencies is described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations---Forward-Looking Information and Risk Factors,” and in Notes 2 and 7 to the condensed consolidated financial statements.

Item 1(a). Risk Factors

Information related to risk factors is described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations---Forward-Looking Information and Risk Factors.”

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Following is a summary of our repurchases of our common stock during the three-month period ended March 31, 2009.

Total Number

of Shares

Purchased as

Total Number

Average

Part of Publicly

of Shares

Price Paid

Announced Plans

Period

Purchased (a)

per Share

or Programs

January 1-31

101,832

18.76

–

February 1-28

11,568

17.98

–

March 1-31

48,930

16.36

–

Total

162,330

17.98

–

(a) All of the 162,330 shares purchased during the three-month period ended March 31, 2009 were acquired

from employees in connection with the settlement of income tax and related benefit withholding obligations

arising from vesting in restricted stock grants. These shares were not part of a publicly announced program

to purchase common shares.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 5. Other Information

None.

Item 6. Exhibits

4.1	Fifth Supplemental Indenture, dated as of March 13, 2009, between Halliburton and The Bank of New York Mellon Trust Company, N.A., as successor trustee to JPMorgan Chase Bank, to the Senior Indenture dated as of October 17, 2003 (incorporated by reference to Exhibit 4.2 to Halliburton’s Form 8-K filed March 13, 2009, File No. 1-3492).

4.2	Form of Global Note for Halliburton’s 6.15% Senior Notes due 2019 (included as part of Exhibit 4.1).

4.3	Form of Global Note for Halliburton’s 7.45% Senior Notes due 2039 (included as part of Exhibit 4.1).

10.1	Underwriting Agreement, dated March 10, 2009, among Halliburton and Citigroup Global Markets Inc., Deutsche Bank Securities Inc., HSBC Securities (USA) Inc. and Greenwich Capital Markets, Inc., as representatives of the several underwriters identified therein (incorporated by reference to Exhibit 1.1 to Halliburton’s Form 8-K filed March 13, 2009, File No. 1-3492).

* 10.2	Resignation, General Release and Settlement Agreement (C. Christopher Gaut).

* 12.1	Computation of Ratio of Earnings to Fixed Charges.

* 31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

* 31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

** 32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

** 32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*	Filed with this Form 10-Q
**	Furnished with this Form 10-Q

SIGNATURES

As required by the Securities Exchange Act of 1934, the registrant has authorized this report to be signed on behalf of the registrant by the undersigned authorized individuals.

HALLIBURTON COMPANY

/s/ Mark A. McCollum	/s/ Evelyn M. Angelle
Mark A. McCollum	Evelyn M. Angelle
Executive Vice President and	Vice President, Corporate Controller, and
Chief Financial Officer	Principal Accounting Officer

Date: April 24, 2009

exhibit_10-2.htm

RESIGNATION, GENERAL RELEASE AND SETTLEMENT AGREEMENT

Supplementing and Amending the Executive Employment Agreement

This Resignation, General Release and Settlement Agreement (“Supplement”), is made and entered into as of the Effective Date (as defined in Section 13 hereof), by and among C. Christopher Gaut (“Employee”) and Halliburton Company (“Employer” or “Halliburton”), for and on behalf of itself, its subsidiaries, and its affiliated companies (collectively, the “Halliburton Entities”).

WHEREAS, Employee is currently employed by Employer pursuant to that certain Executive Employment Agreement, dated as of March 3, 2003, and as amended as of December 31, 2008 (the “Employment Agreement”), copies of which are attached hereto; and

WHEREAS, the parties hereto contemplate that Employee will voluntarily resign as an officer and director of, and from all positions, posts, offices and assignments with Employer and any other Halliburton Entity effective as of March 31, 2009, and that Employee’s employment as a regular employee will terminate on August 1, 2009 (the “Termination Date”), and Employee will take early retirement, following which termination Employee will be entitled to receive the benefits provided under (i) Section 3.3 of the Employment Agreement, and (ii) Section 10 of this Supplement, subject to Employee’s compliance with the conditions set forth in Sections 8 and 9 of this Supplement relating to protection of Employer’s legitimate business interests and goodwill; and

WHEREAS, the Employment Agreement also provides that the severance benefits provided under Section 3.3 thereof are in consideration of Employee’s continuing obligations under the Employment Agreement following termination of employment, including obligations under Article 4 relating to ownership and protection of Halliburton intellectual property and confidential information; and

WHEREAS, the parties desire to amend and supplement the Employment Agreement by means of this Supplement to, among other things, provide for a release of any claims or causes of action Employee may have arising from or relating to his employment or service with Employer and set forth the terms of Employee’s continuing obligations relating to the treatment of confidential information and protection of Employer’s legitimate business interests and goodwill; and

WHEREAS, the parties wish to affirm that the terms of the Employment Agreement remain in full force and effect except as amended and supplemented hereby; and

NOW, THEREFORE, in consideration of the mutual promises, covenants and obligations contained in this Supplement, the parties agree as follows:

1. Resignation. Employee shall continue to be employed by Employer through the Termination Date, at which time he shall voluntarily resign from employment and simultaneously elect early retirement. Notwithstanding Employee’s voluntary resignation from employment and voluntary election to take early retirement, Employee shall be entitled to receive the severance benefits provided under Section 3.3 of the Employment Agreement and such other benefits and amounts provided in this Supplement. On March 31, 2009, Employee shall become a regular employee and he shall voluntarily resign as an officer and director of, and from all other positions, posts, offices and assignments with, Employer and any other Halliburton Entity. Employee agrees to sign letters of resignation not inconsistent with the terms of this Supplement, if requested by Employer, effective as of March 31, 2009. Employee acknowledges that from March 31, 2009 through the Termination Date he shall continue as a regular employee, but that he shall have no authority to, and shall not act as an officer, director, or in any other capacity for Employer or any Halliburton Entity.

2. Obligations of Employee.

(a)

Employee agrees that the events (including negotiations) leading up to the execution of this Supplement shall remain confidential as between the parties and he shall not disclose them to any other person. The parties acknowledge that Employer will be required to provide a copy of this Supplement with a filing of an SEC Form 8-K. Without limiting the generality of the foregoing, Employee will not respond to or in any way participate in or contribute to any public discussion, notice or other publicity concerning, or in any way relating to, execution of this Supplement or the events (including any negotiations) which led to its execution. Employee further agrees that he shall not make, directly or indirectly, whether in writing, orally or electronically, any negative, derogatory or other comment that could reasonably be expected to be detrimental to the Halliburton Entities, their business or operations or any of their current or former employees, officers or directors.

(b)

Employee agrees to an orderly transition of duties and will provide appropriate details to Employer concerning all of his current business activities and duties. Employee agrees this transition period will end on the Termination Date.

(c)

Employee reaffirms and acknowledges his existing and continuing obligations under the Employment Agreement, including, without limitation, the obligations set forth in Article 4 thereof relating to ownership and protection of intellectual property and confidential information. Except as may be required by law, Employee also agrees to maintain in confidence any proprietary and confidential information of customers, vendors, or other third parties received or of which he has knowledge as a result of his employment. The prohibitions of this subsection shall not apply, however,

to information in the public domain (but only if the same becomes part of the public domain through means other than a disclosure prohibited hereunder or under the Employment Agreement).

(d)

Employee agrees to leave in his office or deliver to Employer on or before the Termination Date all correspondence, memoranda, notes, records, data or information, analyses, drawings, photographs or other documents (including, without limitation, any computer-generated, computer-stored or electronically-stored materials) made, composed or received by Employee, solely or jointly with others, and which as of the Termination Date are in his possession, custody or control and which are related in any manner to the past, present or anticipated business of any of the Halliburton Entities (collectively, the “Company Information”) without retaining any copies thereof. It is the intent of the parties that the foregoing covenant is applicable to all Company Information and all copies thereof, whether in writing or in electronic format, wherever located, including Company Information located on or in Employee’s personally-owned property. Employee hereby grants and conveys to Employer all right, title and interest in and to, including, without limitation, the right to possess, print, copy and sell or otherwise dispose of, all Company Information, and copies, abstracts or summaries thereof, which may have been prepared by Employee or under his direction or which may have come into his possession in any way during the term of his employment with any of the Halliburton Entities and which relate in any manner to the past, present or anticipated business of any of the Halliburton Entities.

(e)

Employee represents and acknowledges that he has no claim or right, title or interest in the property or assets of any of the Halliburton Entities. On or before the Termination Date, Employee shall deliver any such property in his possession or control, including, without limitation, any computers, cellular telephones, any wireless devices such as a “BlackBerry,” credit cards, telephone cards, office keys and security badges furnished by any of the Halliburton Entities for his use.

3. Obligations of Employer. In addition to Employer’s obligations under Article 3 of the Employment Agreement, Employer agrees as follows:

(a)

Employee shall be entitled to receive his regular monthly salary through the Termination Date, but acknowledges and agrees that he will not be entitled to any payment for any 2009 vacation time.

(b)

Effective with the later of the Termination Date or the Effective Date, the parties agree that in accordance with Section 3.3(i)(b) of the Employment Agreement all shares of stock issued to Employee under the 1993 Stock and Incentive Plan as to which restrictions have not lapsed as of the Termination

Date will be retained by Employee and all restrictions of any shares thus retained will lapse, all pursuant to the terms of Employee’s underlying restricted stock agreements.

(c)

Effective on the later of the Termination Date or the Effective Date, Employee’s rights to the stock options granted to him under the 1993 Stock and Incentive Plan shall be treated in accordance with the terms of the underlying stock option agreements applicable to approved retention of stock options upon early retirement, after which Employee may exercise such options, if at all, as permitted by such stock option agreements and for the length of time permitted thereby.

(d)

Upon approval of the administrative committee appointed to administer the Supplemental Executive Retirement Plan (the “SERP”) and Benefit Restoration Plan, Employee will receive the aggregate balance of his accounts under such plans, including applicable interest, in a single lump sum payment, as soon as administratively feasible after the 2009 plan year for such plans; provided, however, that Employee will not receive an allocation under the SERP for 2009 other than applicable interest. Employee recognizes that a portion of such payments may be subject to a six month waiting period under such plans in accordance with Internal Revenue Code Section 409A.

(e)

Employer acknowledges that Employee is a participant in certain retirement and welfare benefit plans and programs of Employer and Halliburton. Upon termination of Employee’s employment, he shall receive the benefits to which he is entitled in accordance with such plans’ respective terms; provided, however, that, since the severance benefits provided under the Employment Agreement and this Supplement are in excess of any severance benefits under Employer’s severance benefit plan or program, Employee waives any right to severance benefits under such plan or program.

_____

(f)

Employer will provide Employee with ten (10) months of outplacement services or pay him a lump sum payment of $15,000 at his election (please initial for lump sum payment).

_____

(g)

Employer will reimburse Employee for financial planning assistance during 2009 up to $10,000 or pay him a lump sum payment of $10,000 at his election (please initial for lump sum payment).

_____

(h)

Employer will reimburse Employee for or pay for an executive physical on or before December 31, 2009 or pay him a lump sum payment of $2,650 (please initial for lump sum payment).

(i)

Applicable withholding taxes will be deducted from all payments and other compensation due Employee under this Supplement or under the Employment Agreement when, as and if paid to Employee.

4. Prior Rights and Obligations. Employee and Employer acknowledge that all rights and obligations of the parties relating to the employment or termination of employment of Employee with Employer or any of the Halliburton Entities are embodied in this Supplement and the Employment Agreement. Except as set forth herein and therein, the parties shall have no further employment or contractual relationship; provided, however, that the foregoing provision shall not be interpreted or construed in such a manner as to limit, extinguish or otherwise adversely affect Employee’s rights and the obligations of any of the Halliburton Entities under any employee retirement or welfare benefit plans, except severance plans, of Employer or the other Halliburton Entities in accordance with such plans’ respective terms.

5. No Admissions. Employee expressly understands and agrees that the terms of this Supplement and the release contained herein are contractual and not merely recitals and that the agreements herein and the consideration paid pursuant to Section 3.3 of the Employment Agreement and Section 3 of this Supplement is to compromise doubtful and disputed claims, avoid litigation, and buy peace, having the force of res judicata accorded to settlements under certain laws applicable to any of the Halliburton Entities, and that no statement or consideration given shall be construed as an admission of any claim by any of the Halliburton Entities or their respective employees, officers, directors, shareholders, trustees, insurers, agents and representatives (collectively, including Employer, the “Halliburton Parties”), all such admissions being expressly denied. Moreover, neither the Employment Agreement, this Supplement nor anything in the Employment Agreement or this Supplement shall be construed to be or shall be admissible in any proceeding as evidence of an admission by Employer or Halliburton of any violation of their policies, procedures, state or federal laws or regulations. The Employment Agreement and this Supplement may be admitted into evidence, however, in any proceeding to enforce such agreements. In such event, such admission shall be pursuant to an order protecting its confidentiality.

6. Employee’s Representation. (a) Employee represents, warrants and agrees that he has not filed any claims, appeals, complaints, charges or lawsuits against any of the Halliburton Parties with any governmental agency or court and that he will not file or permit to be filed or accept any benefit from any claim, complaint or petition filed with any court by him or on his behalf at any time hereafter; provided, however, that this shall not limit Employee from enforcing his rights under the Employment Agreement and this Supplement. Further, Employee represents and warrants that no other person or entity has any interest in, or assignment of, any claims or causes of action he may have against any Halliburton Party and which he now releases in their entirety; (b) Additionally, Employee specifically acknowledges that he understands that he is not waiving any right, claim, or legal matter through this Supplement that cannot be waived, under law, by private agreement. Employee also understands that this Supplement is not intended to waive or interfere with his right to institute a proceeding with any government agency where such waiver would be contrary to law. However, in connection with any such proceeding, Employee waives any

right or entitlement to additional compensation or other individual relief except to the extent, if any, such waiver is prohibited by law.

7. General Release and Discharge. Except for those obligations created or acknowledged by this Supplement and the Employment Agreement, and in consideration of the payments and other benefits to be made or provided to Employee under this Supplement and the Employment Agreement, and as a material inducement to Employer to enter into this Supplement, Employee, on behalf of himself and his heirs, executors, administrators, assigns, and successors, hereby agrees to release, acquit and discharge and does hereby release, acquit and discharge Employer, all Halliburton Entities and all Halliburton Parties (both in their official and individual capacities), collectively and individually, with respect to and from any and all claims and any and all causes of action, of any kind or character, whether now known or unknown, he may have against any of them which exist as of the Termination Date, including, but not limited to, any claim for benefits, compensation, stock, stock options, costs, damages, expenses, remuneration, salary or wages; and all claims or causes of action arising from his employment, termination of employment, or any alleged discriminatory employment practices, including but not limited to, any and all claims and causes of action arising under the Age Discrimination in Employment Act, as amended, 29 U.S.C. § 621, et seq. (“ADEA”) and any and all claims and causes of action arising under any other federal, state or local laws pertaining to discrimination in employment or equal employment opportunity; except that the parties agree that Employee’s release, acquittal and discharge shall not relieve Employer from its obligations under the Employment Agreement and this Supplement. This release also applies to any claims brought by any person or agency or class action under which Employee may have a right or benefit.

8. Proprietary and Confidential Information/Non-Disclosure. In accordance with Employee's existing and continuing obligations, Employee agrees and acknowledges that the various Halliburton Entities have developed and own valuable information which is confidential, unique, with material pecuniary value on the open market, and specific to the Halliburton Entities ("Proprietary and Confidential Information") and which includes, without limitation, trade secrets; financial information, projections and forecasts; marketing plans and strategies; business and implementation plans; engineering plans; prospect lists; technical information concerning products, equipment, services and processes; procurement procedures and pricing techniques; names and other information (such as credit and financial data) concerning customers and business affiliates; and all other concepts, ideas, plans, strategies, analyses, surveys, and proprietary information related to the past, present or anticipated business of various of the Halliburton Entities. Except as may be required by law, Employee agrees that he will not at any time disclose to others, permit to be disclosed, use, permit to be used, copy or permit to be copied, any such Proprietary and Confidential Information (whether or not developed by Employee and whether or not received as an employee) without prior written consent of the Chief Executive Officer of Halliburton. Except as may be required by law, Employee further agrees to maintain in confidence any proprietary and confidential information of third parties received or of which he has knowledge as a result of his employment. Employee further acknowledges and agrees that if he is required by law, pursuant to a validly issued subpoena or other governmental or legal process to disclose any Proprietary and Confidential Information, Employee will immediately advise the Halliburton Entities that a subpoena or other governmental order has been served, so that the Halliburton Entities may have an

opportunity to object or move to quash the subpoena or governmental order in question. The prohibitions of this Section 8 shall not apply, however, to information in the public domain (but only if the same becomes part of the public domain through a means other than a disclosure prohibited hereunder).

9. Restrictive Covenants: Protection of Employer’s Interests and Goodwill.

(a)

Halliburton is one of the world’s largest oilfield services companies, providing a comprehensive range of services and products for the exploration, development, and production of oil and gas, to major national, international, and independent oil and gas companies throughout the world; and

(b)

Employee acknowledges that in his role as President, Drilling and Evaluation Division, he obtained, possessed and otherwise had substantial access to significant portions of Halliburton’s Proprietary and Confidential Information as defined herein, including strategies and business plans; supervised and managed key employees, and was responsible for key customer and supplier relationships on a worldwide basis; and

(c)

Employee and Employer agree and acknowledge that the Halliburton Entities have developed and own and will develop and own valuable Proprietary and Confidential Information and that the Halliburton Entities have goodwill and will continue to enjoy substantial goodwill unless disturbed by Employee. Employee and Employer further agree and acknowledge that the Halliburton Entities, and Employer on their behalf, have a substantial and legitimate business interest in protecting their Proprietary and Confidential Information and goodwill.

(d)

Non-Competition Period: For a three (3) year period beginning on the first business day following the later of the Termination Date or the Effective Date of this Supplement (the “Non-Competition Period”), Employee agrees to the following covenants:

(i) Non-Competition : Employee will not engage, directly or indirectly, either as proprietor, stockholder, partner, officer, member, employee, consultant, or otherwise, in any existing or future business or in any existing or future division or unit of a commercially diverse business enterprise, that is owned in whole or in part or effectively controlled by any of the following companies: Baker Hughes Inc.; BJ Services Company; Cameron International Corporation; Exterran Holdings; National Oilwell Varco; Paradigm B.V.; Schlumberger Ltd.; Smith International, Inc.; or Weatherford International New (collectively, the “Competitive Businesses”) in competing with any of the Halliburton Entities or any of the activities relating to, arising under, or included within

the business activities of the Halliburton Entities, including those described in Section 9(a) above, anywhere in the world in accordance with Section 9(d)(iii) below. The parties acknowledge and agree that Employee may associate with or work for an investment banking, financial or consulting organization without violating this Section 9 provided such organization does not fall into the definition of the Competitive Businesses.

(ii) (A) Non-Solicitation of Former or Current Employees: Employee agrees that Employee will not, during the Non-Competition Period, solicit, directly or indirectly, or cause or permit others to solicit, directly or indirectly, any person (i) formerly employed by Employer as an employee, contractor, consultant or otherwise during the one-year period immediately preceding Employee’s termination of employment or during the Non-Competition Period (“Former Employee”) or (ii) employed by Employer as an employee, contractor, consultant or otherwise during the Non-Competition Period (“Current Employee”). The term “solicit” includes, but is not limited to, the following (regardless of whether done directly or indirectly): (a) requesting that a Former or Current Employee change employment; (b) informing a Former or Current Employee that an opening exists elsewhere; (c) assisting a Former or Current Employee in finding employment elsewhere; (d) inquiring if a Former or Current Employee “knows of anyone who might be interested” in a position elsewhere; (e) inquiring if a Former or Current Employee might have an interest in employment elsewhere in any capacity; (f) informing others of the name or status of, or other information about, a Former or Current Employee; or (g) any other similar conduct, the intended or actual effect of which is that a Former Employee affiliates with another employer in any capacity or a Current Employee leaves the employment of Employer. (B) Non-Solicitation or Diversion of Commercial Relationships: Employee further agrees that he will not directly or indirectly, for his own purposes or for the purposes of others, attempt to divert or take away, or induce another person to attempt to divert or take away, any customer, consultant, franchisee or vendor of any of the Halliburton Entities with whom Employee dealt, directly or indirectly, during his employment with Employer or any of the Halliburton Entities.

(iii) Geographic Scope of Restriction: The obligations of this Section 9 shall apply to any geographic area in which any of the Halliburton Entities:

Has engaged in business by providing services and/or products for the exploration, development, and production of oil and gas, to major national, international, and independent oil and gas companies, including both United States and international locations; or

Has otherwise established its goodwill, business reputation or any customer or supplier relations.

The above notwithstanding, nothing in this Section 9 shall prohibit Employee and his affiliates from owning, as passive investors, in the aggregate not more than five percent of equity securities of any publicly held Competitive Business.

(e)

Employee represents and warrants that the time, scope and geographic area restricted by the provisions of this Section are reasonable, that the enforcement of the restrictions contained herein will not be unduly burdensome on Employee, and that Employee will be able to earn a reasonable living while abiding by the terms imposed herein. Employee agrees that the restraints created by the covenants of this Section 9 are no greater than necessary to protect the legitimate interests of the Halliburton Entities, including their Proprietary and Confidential Information and goodwill. In addition, Employee agrees that the need of the Halliburton Entities for the protection afforded by such covenants is not outweighed by the hardship to Employee, nor is any injury to the public likely to result from such restraints. Employee agrees that his breach or violation of the covenants contained in Sections 8 and/or 9(d)(ii), or any threatened breach or violation thereof, shall entitle Employer, on its own behalf or on behalf of any of the Halliburton Entities, to seek injunctive relief issued by any court of competent jurisdiction, without the requirement to post a bond, restraining any further or continued breach or violation of any such covenants. Such remedies shall not be deemed the exclusive remedies for breach of Sections 8 and/or 9(d)(ii), but shall be in addition to all remedies available at law or in equity to Employer from Employee and his agents involved in such breach. In addition, Employee agrees that any breach by him of any of the covenants contained in Sections 8 and 9 will entitle Employer, for and on behalf of the other Halliburton Entities, to recover the payments or other consideration paid to Employee under Section 10 hereof. Further, Employee agrees that the Halliburton Entities are entitled to insist on full compliance by Employee with the full terms, including time periods, set forth in this Section 9.

(f)

It is expressly understood and agreed that Employer and Employee consider the restrictions contained in this Section 9 to be reasonable and necessary to protect the Proprietary and Confidential Information and/or goodwill and that Employee’s obligations to keep such information confidential shall survive termination of the Non-Competition Period. Nevertheless, if any of the aforesaid restrictions are found by a court having jurisdiction to be unreasonable, or overly broad as to geographic area or time, or otherwise unenforceable, the parties intend for the restrictions therein set forth to be modified by such courts so as to be reasonable and enforceable and, as so modified by the court, to be fully enforced, it being expressly understood and agreed by Employee that the provisions of this Section are reasonably necessary to protect the Halliburton Entities’ legitimate business interests

and are designed particularly to protect their Proprietary and Confidential Information and goodwill.

10. Non-Competition and Non-Solicitation Consideration.

(a)

In consideration of Employee's covenants and promises as set forth in Sections 8 and 9 hereof, but expressly subject to the provisions of Section 9(e), Employer will (i) continue Employee’s monthly base salary through the Termination Date and (ii) make a cash payment to Employee for the prorated amount earned, if any, under the Performance Unit Program for the 2007, 2008 and 2009 performance cycles, which if due will be paid without interest on the later of the date payments are made to other participants under the Program or July 1, 2012, in accordance with the terms of such Program. Employee shall not participate in the Performance Unit Program for any performance cycles other than the 2007, 2008 and 2009 cycles.

(b)

Payment of the amounts set forth in Section 10(a) will be made only if Employee’s obligations set forth in Sections 8 and 9 are fully satisfied at all times during the Non-Competition Period and at the time such amounts are payable. Employee understands and agrees that his right to all or any portion of the payments provided for herein, and Company's obligation to make payment of the entire amount or any portion thereof, are dependent and conditioned on Employee's compliance in full with all provisions contained in Sections 8 and 9. Employer agrees to provide written notice to Employee, as provided in Section 18 hereof, of any circumstances Employer has knowledge of that Employer claims constitute a breach of Sections 8 or 9 within ninety (90) calendar days of its knowledge of such breach and allow Employee to correct or cure any such breach, if possible, during the thirty (30) calendar days following such written notice by Employer. Any failure on the part of Employee to comply with each such provision, including any attempt by or on behalf of Employee to have any such provision declared unenforceable in whole or in part by an arbitrator or court, shall excuse Employer forever from the obligation to make the payments, in whole or in part, provided for in Section 10(a).

11. ADEA Rights. Employee expressly acknowledges and agrees that by entering into this Supplement, he is waiving any and all rights or claims that he may have arising under ADEA. Employee further expressly acknowledges and agrees that:

(a)

In return for the release contained in this Supplement, he will receive consideration beyond that which he would have been entitled to receive but for the Employment Agreement and this Supplement;

(b)

He was given a copy of this Supplement on March 17, 2009, and he has twenty-one (21) days from such date to review it before accepting, and that subsequent changes to this Supplement, whether material or immaterial, shall not restart such 21-day review period;

(c)

He is hereby advised in writing by Employer to consult with an attorney before signing this Supplement; and

(d)

If he accepts this Supplement, he will have seven (7) days following the date of execution of this Supplement to revoke this Supplement.

12. Agreement Voluntary. Employee acknowledges and agrees that he has carefully read this Supplement and understands that, except as expressly reserved herein, it is a release of all claims, known and unknown, past or present, including all claims under the ADEA. He further agrees that he has entered into this Supplement for the above stated consideration. He warrants that he is fully competent to execute this Supplement which he understands to be contractual. He further acknowledges that he executes this Supplement of his own free will, after having a reasonable period of time to review, study and deliberate regarding its meaning and effect, and after being advised to consult with an attorney, and without reliance on any representation of any kind or character not expressly set forth herein. Finally, he executes this Supplement fully knowing its effect and voluntarily for the consideration stated above.

13. Effective Date. The Effective Date shall be eight (8) days after the execution of this Supplement by Employee and Employer, provided Employee has not exercised his right of revocation pursuant to Section 11(d) above. This Supplement will become binding in its entirety upon Employee and Employer, and all of its provisions will be irrevocable on the Effective Date.

14. Payment of Taxes. Employee agrees that he shall be exclusively liable for the payment of all employee federal and state taxes which may be due as a result of the consideration received herein and Employee represents that he shall make payments of such taxes at the time and in the amount required.

15. Dispute Resolution. Each of the parties affirm that Section 5.6 of the Employment Agreement pertaining to resolution of disputes likewise controls with respect to the resolution of disputes hereunder; provided, however, that Employer, for and on behalf of itself and the other Halliburton Entities, shall be entitled to seek a restraining order or injunction in any court of competent jurisdiction to prevent any breach or a continuation of any breach of the provisions of Sections 8 and/or 9(d)(ii) and Employee hereby consents that such restraining order or injunction may be granted without the necessity of Employer posting any bond.

16. Further Executions. The parties agree to cooperate fully and to execute any and all supplementary documents and to take all additional actions that may be necessary or appropriate to give full force to the basic terms and intent of this Supplement and which are not inconsistent with its terms or the terms of the Employment Agreement.

17. Entire Agreement. This Supplement amends and supplements the Employment Agreement to the extent set forth herein. The parties hereto expressly affirm that, except as amended and supplemented hereby, the provisions of the Employment Agreement remain in full force and effect. This Supplement and the Employment Agreement constitute the entire agreement and understanding of the parties with regard to the terms of Employee’s employment, termination of employment and severance benefits and contain all of the covenants, promises, representations, warranties and agreements between the parties with respect to such matters. Each party to this Supplement acknowledges that no representation, inducement, promise, or agreement, oral or written, has been made by either party with respect to the foregoing matters which is not embodied in the aforementioned agreements, and that no agreement, statement, or promise relating to the employment or termination of employment of Employee that is not contained in such agreements shall be valid and binding. No amendment to or modification of this Supplement shall be effective unless reduced to writing and signed by the parties.

18. Notice. For purposes of this Supplement and the Employment Agreement, notices and all other communications provided for herein shall be in writing and shall be deemed to have been duly given when received by or tendered to Employee or Employer, as applicable, by pre-paid courier or by United States registered or certified mail, return receipt requested, postage pre-paid, addressed as follows:

If to Employer, to Halliburton Company at Five Houston Center, 1401 McKinney, Suite 2400, Houston, Texas 77010, to the attention of the General Counsel of Halliburton Company; or to such other address of which Employee has been duly notified.

If to Employee, to his last known personal address.

19. Section 409A of the Code. Notwithstanding any provision of this Supplement to the contrary, the following provisions shall apply for purposes of complying with Section 409A of the Internal Revenue Code and applicable Treasury authorities (“Section 409A”):

(a)

If Employee is a “specified employee,” as such term is defined in Section 409A and determined as described below in this Section 19, any payments or benefits payable or provided as a result of Employee’s termination of employment shall not be payable before the earlier of (i) the date that is six months after Employee’s termination, (ii) the date of Employee’s death, or (iii) the date that otherwise complies with the requirements of Section 409A.

(b)

If any provision of this Supplement would result in the imposition of an applicable tax under Section 409A, Employee and Employer agree that such provision will be reformed to avoid imposition of the applicable tax in a manner that will result in the least adverse economic impact on Employee.

IN WITNESS WHEREOF, Employer and Employee have duly executed this Supplement in multiple originals to be effective on the Effective Date.

HALLIBURTON COMPANY

/s/ Lawrence J. Pope /s/ C. Christopher Gaut

Name: Lawrence J. Pope C. Christopher Gaut

Title: Executive Vice President, Date: March 19, 2009

Administration & Chief Human

Resources Officer

Date: March 31, 2009

Unassociated Document

EXHIBIT 12.1

HALLIBURTON COMPANY

Computation of Ratio of Earnings to Fixed Charges

(Unaudited)

(Millions of dollars, except ratios)

	Three Months Ended March 31,		Year Ended December 31
	2009		2008		2007		2006		2005		2004
Earnings available for fixed charges:
Income from continuing operations
before income taxes and noncontrolling interest	$	560	$	3,849	$	3,447	$	3,185	$	1,985	$	978
Add:
Distributed earnings from equity in
unconsolidated affiliates		—		30		43		28		34		30
Fixed charges		69		232		222		238		260		278
Subtotal		629		4,111		3,712		3,451		2,279		1,286
Less:
Equity in earnings of unconsolidated
affiliates		1		50		57		65		42		47
Total earnings available for fixed charges	$	628	$	4,061	$	3,655	$	3,386	$	2,237	$	1,239

Fixed charges:
Interest expense	$	53	$	167	$	168	$	179	$	208	$	232
Rental expense representative of interest		16		65		54		59		52		46
Total fixed charges	$	69	$	232	$	222	$	238	$	260	$	278

Ratio of earnings to fixed charges		9.1		17.5		16.5		14.2		8.6		4.5

All periods presented reflect the adoption of new accounting standards and the reclassification of KBR, Inc. to discontinued operations.

exhibit_31-1.htm

Exhibit 31.1

Section 302 Certification

I, David J. Lesar, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the quarter ended March 31, 2009 of Halliburton Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 24, 2009

/s/ David J. Lesar

David J. Lesar

Chief Executive Officer

Halliburton Company

exhibit_31-2.htm

Exhibit 31.2

Section 302 Certification

I, Mark A. McCollum, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the quarter ended March 31, 2009 of Halliburton Company;

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 24, 2009

/s/ Mark A. McCollum

Mark A. McCollum

Chief Financial Officer

Halliburton Company

exhibit_32-1.htm

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

This certification is provided pursuant to § 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. § 1350, and accompanies the Quarterly Report on Form 10-Q for the period ended March 31, 2009 of Halliburton Company (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”).

I, David J. Lesar, Chief Executive Officer of the Company, certify that:

(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ David J. Lesar

David J. Lesar

Chief Executive Officer

Date: April 24, 2009

exhibit_32-2.htm

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Mark A. McCollum, Chief Financial Officer of the Company, certify that:

(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Mark A. McCollum

Mark A. McCollum

Chief Financial Officer

Date: April 24, 2009