0000045012 2009-06-30 0000045012 2008-06-30 0000045012 2008-01-01 2008-06-30 0000045012 2008-12-31 0000045012 2009-01-01 2009-06-30 0000045012 2007-12-31 0000045012 2009-04-01 2009-06-30 0000045012 2008-04-01 2008-06-30 0000045012 2009-07-17 iso4217:USD xbrli:shares iso4217:USD xbrli:shares 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 In March 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 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 $79 million at June 30, 2009 and $92 million at December 31, 2008. If the average cost method was used, total inventories would have been $33 million higher than reported at June 30, 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: June 30, December 31, Millions of dollars 2009 2008 Finished products and parts $ 1,227 $ 1,312Raw materials and supplies 568 446Work in process 37 70Total $ 1,832 $ 1,828 Finished products and parts are reported net of obsolescence reserves of $95 million at June 30, 2009 and $81 million at December 31, 2008. No 91000000 72000000 444000000 33000000 521000000 539000000 900000000 918000000 899000000 916000000 0 -0.13 0 -0.13 3018000000 3538000000 6309000000 6720000000 false 1975000000 0 5357000000 4782000000 0.29 0.55 0.71 1.18 -117000000 -288000000 -296000000 -526000000 807000000 1012000000 1635000000 1885000000 Yes 11000000 381000000 -2000000 -277000000 753000000 0 46371000000 10-Q 2000000000 2000000000 1568000000 1124000000 1880000000 1847000000 898000000 875000000 898000000 877000000 Yes 0000045012 1860000000 -415000000 179000000 246000000 -1000000 -116000000 -2000000 -115000000 3000000 6000000 5000000 13000000 --12-31 Halliburton Company 439000000 342000000 8301000000 7725000000 7891000000 6641000000 226000000 231000000 755000000 898000000 0.09 0.09 0.18 0.18 -14000000 -2000000 -19000000 -3000000 476000000 949000000 1092000000 1796000000 48000000 71000000 100000000 143000000 Note 7. Commitments and Contingencies Foreign Corrupt Practices Act investigations Background. As a result of an ongoing FCPA investigation at the time of the KBRseparation, we provided indemnification in favor of KBR under the masterseparation agreement for certain contingent liabilities, including ourindemnification of KBR and any of its greater than 50%-owned subsidiaries as ofNovember 20, 2006, the date of the master separation agreement, for fines orother monetary penalties or direct monetary damages, including disgorgement, asa result of a claim made or assessed by a governmental authority in the UnitedStates, the United Kingdom, France, Nigeria, Switzerland, and/or Algeria, or asettlement thereof, related to alleged or actual violations occurring prior toNovember 20, 2006 of the FCPA or particular, analogous applicable foreignstatutes, laws, rules, and regulations in connection with investigations pendingas of that date, including with respect to the construction and subsequentexpansion by TSKJ of a multibillion dollar natural gas liquefaction complex andrelated facilities at Bonny Island in Rivers State, Nigeria. TSKJ is a private limited liability company registered in Madeira, Portugalwhose members are Technip SA of France, Snamprogetti Netherlands B.V. (asubsidiary 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% interestin the venture. TSKJ and other similarly owned entities entered into variouscontracts to build and expand the liquefied natural gas project for Nigeria LNGLimited, which is owned by the Nigerian National Petroleum Corporation, ShellGas B.V., Cleag Limited (an affiliate of Total), and Agip International B.V. (anaffiliate of ENI SpA of Italy). DOJ and SEC investigations resolved. In February 2009, the FCPA investigationsby the DOJ and the SEC were resolved with respect to KBR and us. The DOJ andSEC investigations resulted from allegations of improper payments to governmentofficials in Nigeria in connection with the construction and subsequentexpansion by TSKJ of the Bonny Island project. The DOJ investigation was resolved with respect to us with a non-prosecutionagreement 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 whichwe agreed to continue to cooperate with the DOJ's ongoing investigation and torefrain from and self-report certain FCPA violations. The DOJ agreement doesnot provide a monitor for us. As part of the resolution of the SEC investigation, we retained an independentconsultant to conduct a 60-day review and evaluation of our internal controlsand record-keeping policies as they relate to the FCPA, and we agreed to adoptany necessary anti-bribery and foreign agent internal controls andrecord-keeping procedures recommended by or agreed upon with the independentconsultant. The review and evaluation were completed during the second quarterof 2009, and we have implemented the consultant's immediate recommendations andwill implement the remaining long-term recommendations over the next year. As aresult of the substantial enhancement of our anti-bribery and foreign agentinternal controls and record-keeping procedures prior to the review of theindependent consultant, we do not expect the implementation of the consultant'srecommendations to materially impact our long-term strategy to grow ourinternational operations. In 2010, the independent consultant will perform a30-day, follow-up review to confir m that we have implemented the recommendationsand continued the application of our current policies and procedures, and torecommend any additional improvements. KBR has agreed that our indemnification obligations with respect to the DOJ andSEC FCPA investigations have been fully satisfied. Other matters. In addition to the DOJ and the SEC investigations, we are awareof other investigations in France, Nigeria, the United Kingdom, and Switzerlandregarding the Bonny Island project. The settlements and the other ongoing investigations could result in third-partyclaims against us, which may include claims for special, indirect, derivative orconsequential damages, damage to our business or reputation, loss of, or adverseeffect on, cash flow, assets, goodwill, results of operations, businessprospects, profits or business value or claims by directors, officers,employees, affiliates, advisors, attorneys, agents, debt holders, or otherinterest holders or constituents of us or our current or former subsidiaries. Our indemnity of KBR continues with respect to other investigations within thescope of our indemnity. Our indemnification obligation to KBR does not includelosses resulting from third-party claims against KBR, including claims forspecial, indirect, derivative or consequential damages, nor does ourindemnification apply to damage to KBR's business or reputation, loss of, oradverse effect on, cash flow, assets, goodwill, results of operations, businessprospects, profits or business value or claims by directors, officers,employees, affiliates, advisors, attorneys, agents, debt holders, or otherinterest holders or constituents of KBR or KBR's current or former subsidiaries. At this time, no claims by governmental authorities in foreign jurisdictionshave been asserted against KBR. Therefore, we are unable to estimate themaximum potential amount of future payments that could be required to be madeunder our indemnity to KBR related to these matters. See Note 2 for additionalinformation. Barracuda-Caratinga arbitration We also provided indemnification in favor of KBR under the master separationagreement for all out-of-pocket cash costs and expenses (except for legal feesand 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 installedin connection with the Barracuda-Caratinga project. Under the master separationagreement, KBR currently controls the defense, counterclaim, and settlement ofthe subsea flowline bolts matter. As a condition of our indemnity, for anysettlement to be binding upon us, KBR must secure our prior written consent tosuch settlement's terms. We have the right to terminate the indemnity in theevent KBR enters into any settlement without our prior written consent. At Petrobras' direction, KBR replaced certain bolts located on the subseaflowlines that failed through mid-November 2005, and KBR has informed us thatadditional bolts have failed thereafter, which were replaced by Petrobras.These failed bolts were identified by Petrobras when it conducted inspections ofthe bolts. We understand KBR believes several possible solutions may exist,including replacement of the bolts. Estimates indicate that costs of thesevarious solutions range up to $148 million. In March 2006, Petrobras commencedarbitration against KBR claiming $220 million plus interest for the cost ofmonitoring and replacing the defective bolts and all related costs and expensesof the arbitration, including the cost of attorneys' fees. We understand KBR isvigorously defending and pursuing recovery of the costs incurred to date throughthe arbitration process and to that end has submitted a counterclaim in thearbitration seeking the recovery of $22 million. The arbitration panel held anevidentiary hearing i n March 2008 to determine which party is responsible forthe designation of the material used for the bolts. On May 13, 2009, thearbitration panel held that KBR and not Petrobras selected the material to beused for the bolts. Accordingly, the arbitration panel held that there is noimplied warranty by Petrobras to KBR as to the suitability of the bolt materialand that the parties' rights are to be governed by the express terms of theircontract. The parties and the arbitration panel are now in discussion regardingthe future course of the arbitration proceedings with respect to the issues ofliability and damages. Our estimation of the indemnity obligation regarding theBarracuda-Caratinga arbitration is recorded as a liability in our condensedconsolidated financial statements as of June 30, 2009 and December 31, 2008.See Note 2 for additional information regarding the KBR indemnification. Securities and related litigation In June 2002, a class action lawsuit was filed against us in federal courtalleging violations of the federal securities laws after the SEC initiated aninvestigation in connection with our change in accounting for revenue onlong-term construction projects and related disclosures. In the weeks thatfollowed, approximately twenty similar class actions were filed against us.Several of those lawsuits also named as defendants several of our present orformer officers and directors. The class action cases were later consolidated,and the amended consolidated class action complaint, styled Richard Moore, etal. 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 styledArchdiocese 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 secondamended consolidated complaint, which was granted by the court. In addition torestating the original accounting and disclosure claims, the second amendedconsolidated complaint included claims arising out of the 1998 acquisition ofDresser Industries, Inc. by Halliburton, including that we failed to timelydisclose the resulting asbestos liability exposure. In April 2005, the court appointed new co-lead counsel and named AMSF the newlead plaintiff, directing that it file a third consolidated amended complaintand that we file our motion to dismiss. The court held oral arguments on thatmotion 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 todismiss with respect to claims arising prior to June 1999 and granted the motionwith respect to certain other claims while permitting AMSF to re-plead some ofthose claims to correct deficiencies in its earlier complaint. In April 2006,AMSF filed its fourth amended consolidated complaint. We filed a motion todismiss those portions of the complaint that had been re-pled. A hearing washeld on that motion in July 2006, and in March 2007 the court ordered dismissalof the claims against all individual defendants other than our Chief ExecutiveOfficer (CEO). The court ordered that the case proceed against our CEO andHalliburton. In September 2007, AMSF filed a motion for class certification, and our responsewas filed in November 2007. The court held a hearing in March 2008, and issuedan order November 3, 2008 denying AMSF's motion for class certification. AMSFthen 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 classcertification is currently on appeal. The case will remain stayed in thedistrict court pending the outcome of the appeal. As of June 30, 2009, we hadnot accrued any amounts related to this matter because we do not believe that aloss is probable. Further, an estimate of possible loss or range of lossrelated to this matter cannot be made. Shareholder derivative cases In May 2009, two shareholder derivative lawsuits involving us and KBR were filedin Harris County, Texas naming as defendants various current and retiredHalliburton directors and officers and current KBR directors. These casesallege that the individual Halliburton defendants violated their fiduciaryduties of good faith and loyalty to the detriment of Halliburton and itsshareholders by failing to properly exercise oversight responsibilities andestablish adequate internal controls. The petitions contain various allegationsof resulting wrongdoing, including violations of the FCPA and claimed KBRoffenses under United States government contracts. As of June 30, 2009, we hadnot accrued any amounts related to this matter because we do not believe that aloss is probable. Further, an estimate of possible loss or range of lossrelated to this matter cannot be made. Asbestos insurance settlements At December 31, 2004, we resolved all open and future asbestos- andsilica-related claims in the prepackaged Chapter 11 proceedings of DIIIndustries LLC, Kellogg Brown & Root LLC, and our other affected subsidiariesthat had previously been named as defendants in a large number of asbestos- andsilica-related lawsuits. During 2004, we settled insurance disputes withsubstantially all the insurance companies for asbestos- and silica-related claims and all other claims under the applicable insurance policies andterminated all the applicable insurance policies. Under the insurance settlements entered into as part of the resolution of ourChapter 11 proceedings, we have agreed to indemnify our insurers under certainhistoric general liability insurance policies in certain situations. We haveconcluded that the likelihood of any claims triggering the indemnity obligationsis remote, and we believe any potential liability for these indemnifications will be immaterial. Further, an estimate of possible loss or range of lossrelated to this matter cannot be made. At June 30, 2009, we had not recordedany liability associated with these indemnifications. Environmental We are subject to numerous environmental, legal, and regulatory requirementsrelated to our operations worldwide. In the United States, these laws andregulations 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 countrieswhere we do business often have numerous environmental, legal, and regulatoryrequirements by which we must abide. We evaluate and address the environmentalimpact of our operations by assessing and remediating contaminated properties inorder to avoid future liabilities and comply with environmental, legal, andregulatory requirements. On occasion, we are involved in specific environmentallitigation and claims, including the remediation of properties we own or haveoperated, as well as efforts to meet or correct compliance-related matters. OurHealth, Safety and Environment group has several programs in place to maintainenvironmental leadership and to prevent the occurrence of environmental contamination. We do not expect costs related to these remediation requirements to have amaterial adverse effect on our consolidated financial position or our results ofoperations. Our accrued liabilities for environmental matters were $53 millionas of June 30, 2009 and $64 million as of December 31, 2008. Our totalliability related to environmental matters covers numerous properties. We have subsidiaries that have been named as potentially responsible partiesalong with other third parties for 9 federal and state superfund sites for whichwe have established a liability. As of June 30, 2009, those 9 sites accountedfor approximately $14 million of our total $53 million liability. For anyparticular federal or state superfund site, since our estimated liability istypically within a range and our accrued liability may be the amount on the lowend of that range, our actual liability could eventually be well in excess ofthe amount accrued. Despite attempts to resolve these superfund matters, therelevant regulatory agency may at any time bring suit against us for amounts inexcess of the amount accrued. With respect to some superfund sites, we havebeen named a potentially responsible party by a regulatory agency; however, ineach of those cases, we do not believe we have any material liability. We alsocould be subject to third-party claims with respect to environmental matters forwhich we have been named as a potentially responsible party. Letters of credit In the normal course of business, we have agreements with banks under whichapproximately $2 billion of letters of credit, surety bonds, or bank guaranteeswere outstanding as of June 30, 2009, including approximately $400 million ofsurety bonds related to Venezuela. In addition, $627 million of the total $2billion relates to KBR letters of credit, surety bonds, or bank guarantees thatare being guaranteed by us in favor of KBR's customers and lenders. KBR hasagreed to compensate us for these guarantees and indemnify us if we are requiredto perform under any of these guarantees. Some of the outstanding letters ofcredit have triggering events that would entitle a bank to require cash collateralization. 344000000 473000000 58000000 124000000 -1518000000 388000000 -384000000 -102000000 153000000 155000000 8324000000 7744000000 -198000000 -215000000 1068000000 1072000000 76000000 60000000 0.29 0.71 0.71 1.37 1000000 1000000 1000000 0 162000000 158000000 1018000000 985000000 639000000 -410000000 577000000 735000000 -1000000 -116000000 -2000000 -115000000 266000000 626000000 647000000 1212000000 3000000 9000000 5000000 29000000 27000000 26000000 454000000 643000000 8008000000 7411000000 Note 8. Income per Share Basic income per share is based on the weighted average number of common sharesoutstanding during the period. Diluted income per share includes additionalcommon shares that would have been outstanding if potential common shares with adilutive effect had been issued. On January 1, 2009, we adopted Financial Accounting Standards Board (FASB) StaffPosition (FSP) Emerging Issues Task Force (EITF) 03-6-1, "Determining WhetherInstruments Granted in Share-Based Payment Transactions Are Participating Securities." This FSP provides that unvested share-based payment awards thatcontain nonforfeitable rights to dividends or dividend equivalents, whether paidor unpaid, are participating securities and shall be included in the computationof both basic and diluted earnings per share. According to the provisions ofFSP EITF 03-6-1, we restated prior periods' basic and diluted earnings per shareto include such outstanding unvested restricted shares of our common stock inthe basic weighted average shares outstanding calculation. Upon adoption, bothbasic and diluted income per share for the first six months of 2008 and fullyear 2008 decreased by $0.01 for continuing operations and net incomeattributable to company shareholders. A reconciliation of the number of shares used for the basic and dilutedincome per share calculations is as follows: Three Months Ended Six Months Ended June 30 June 30Millions of shares 2009 2008 2009 2008Basic weighted average common shares outstanding 898 875 898 877Dilutive effect of: Convertible senior notes premium - 38 - 34 Stock options 2 5 1 5Diluted weighted average common shares outstanding 900 918 899916 Excluded from the computation of diluted income per share are options topurchase eight million and nine million shares of common stock that wereoutstanding during the three and six months ended June 30, 2009 and one millionshares during both the three and six months ended June 30, 2008. These optionswere outstanding during these periods but were excluded because they wereantidilutive, as the option exercise price was greater than the average market price of the common shares. 0.29 0.68 0.71 1.31 0.29 0.58 0.71 1.24 2164000000 2480000000 4575000000 4753000000 2542000000 3292000000 5492000000 6256000000 Note 3. Business Segment and Geographic Information We operate under two divisions, which form the basis for the two operatingsegments we report: the Completion and Production segment and the Drilling andEvaluation segment. In the first quarter of 2009, we moved a portion of ourcompletion tools and services from the Completion and Production segment to theDrilling and Evaluation segment to re-establish our testing and subsea servicesoffering, which resulted in a change to our operating segments. Testing andsubsea services provide acquisition and analysis of dynamic reservoir information and reservoir optimization solutions to the oil and gas industryutilizing downhole test tools, data acquisition services using telemetry andelectronic memory recording, fluid sampling, surface well testing, subsea safetysystems, and reservoir engineering services. All periods presented reflectreclassifications related to the change in operating segments. The following table presents information on our business segments. "Corporateand other" includes expenses related to support functions and corporateexecutives. Also included are certain gains and losses not attributable to aparticular business segment. Intersegment revenue was immaterial. Our equity in earnings and losses ofunconsolidated affiliates that are accounted for by the equity method areincluded in revenue and operating income of the applicable segment. Three Months Ended Six Months Ended June 30 June 30Millions of dollars 2009 2008 2009 2008Revenue:Completion and Production $ 1,752 $ 2,357 $3,780 $ 4,479Drilling and Evaluation 1,742 2,130 3,621 4,037Total revenue $ 3,494 $ 4,487 $ 7,401$ 8,516 Operating income: Completion and Production $ 243 $ 537 $606 $ 1,041Drilling and Evaluation 284 504 588913 Total operations 527 1,041 1,1941,954Corporate and other (51) (92) (102)(158)Total operating income $ 476 $ 949 $1,092 $ 1,796Interest expense (82) (42) (135)(84)Interest income 3 9 5 29Other, net (14) (2) (19)(3)Income from continuing operations before income taxes and noncontrolling interest $ 383 $914 $ 943 $ 1,738 Receivables As of June 30, 2009, 24% of our gross trade receivables were from customers inthe United States. As of December 31, 2008, 34% of our gross trade receivableswere from customers in the United States. 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 June 30, 2009, the results of our operations for the three and six months ended June 30, 2009 and 2008, and our cash flows for the six months ended June 30, 2009 and 2008. Such adjustments are of a normal recurring nature. The results of operations for the three and six months ended June 30, 2009 may not be indicative of results for the full year.We have evaluated subsequent events through July 24, 2009, the date of issuance of the condensed consolidated financial statements. In the first quarter of 2009, we reclassified certain services between our operating segments to re-establish a new service offering. In addition, during the first six months of 2009, we adopted the provisions of new accounting standards. See Notes 3, 8, and 11 for further information. All prior periods presented have been restated to reflect these changes. 2009-06-30 -14000000 4000000 -2420000000 -541000000 395000000 484000000 2667000000 2666000000 4573000000 2586000000 263000000 620000000 642000000 1199000000 383000000 914000000 943000000 1738000000 3494000000 4487000000 7401000000 8516000000 Note 11. New Accounting Standards In May 2009, the FASB issued Statement of Financial Accounting Standards (SFAS)No. 165 "Subsequent Events," which establishes general standards of accountingfor and disclosures of events that occur after the balance sheet date but beforethe financial statements are issued or are available to be issued. It requiresthe disclosure of the date through which an entity has evaluated subsequentevents. SFAS No. 165 is effective for interim and annual reporting periodsending after June 15, 2009. We adopted the new disclosure requirements in ourJune 30, 2009 condensed consolidated financial statements. On June 30, 2009, we adopted FSP SFAS 107-1 and Accounting Principles Board(APB) 28-1, "Interim Disclosures about Fair Value of Financial Instruments."This FSP, which amends SFAS No. 107, "Disclosures about Fair Value of FinancialInstruments," requires publicly-traded companies, as defined in APB Opinion No.28, "Interim Financial Reporting," to provide disclosures on the fair value offinancial instruments in interim financial statements. On January 1, 2009, we adopted the provisions of SFAS No. 160, "NoncontrollingInterests in Consolidated Financial Statements - An Amendment of ARB No. 51."SFAS No. 160 establishes new accounting, reporting, and disclosure standards forthe noncontrolling interest in a subsidiary and for the deconsolidation of asubsidiary. This statement requires the recognition of a noncontrolling interest as equity in the condensed consolidated financial statements andseparate from the parent's equity. Noncontrolling interest has been presentedas a separate component of shareholders' equity for the current reporting periodand 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 conceptsof SFAS No. 141 in that all business combinations are still required to beaccounted for at fair value under the acquisition method of accounting, butchanges the method of applying the acquisition method in a number of ways.Acquisition costs are no longer considered part of the fair value of anacquisition and will generally be expensed as incurred, noncontrolling interestsare valued at fair value at the acquisition date, in-process research anddevelopment is recorded at fair value as an indefinite-lived intangible asset atthe acquisition date, restructuring costs associated with a business combinationare generally expensed subsequent to the acquisition date, and changes indeferred tax asset valuation allowances and income tax uncertainties after theacquisition date generally will affect income tax expense. In April 2009, theFASB issued FSP SFAS 141(R)-1, "Accounting for Assets Acquired and LiabilitiesAssumed in a Business Combination That Arise from Contingencies," which amendsthe guidance in SFAS No. 141(R) to require contingent assets acquired andliabilities assumed in a business combination to be recognized at fair value onthe acquisition date if fair value can be reasonably estimated during themeasurement period. If fair value cannot be reasonably estimated during themeasurement period, the contingent asset or liability would be recognized inaccordance with SFAS No. 5, "Accounting for Contingencies," and FASBInterpretation (FIN) No. 14, "Reasonable Estimation of the Amount of a Loss."Further, this FSP eliminated the specific subsequent accounting guidance forcontingent assets and liabilities from Statement 141(R), without significantlyrevising the guidance in SFAS No. 141. However, contingent consideration arrangements of an acquiree assumed by the acquirer in a business combinationwould still be initially and subsequently measured at fair value in accordancewith SFAS No. 141(R). This FSP is effective for all business acquisitionsoccurring on or after the beginning of the first annual reporting periodbeginning 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 dateon or after January 1, 2009. On January 1, 2009, we adopted FSP APB 14-1, "Accounting for Convertible DebtInstruments That May Be Settled in Cash upon Conversion (Including Partial CashSettlement)." This FSP clarifies that convertible debt instruments that may besettled in cash upon conversion, including partial cash settlement, shouldseparately account for the liability and equity components in a manner that willreflect the entity's nonconvertible debt borrowing rate when interest cost isrecognized in subsequent periods. Upon adopting the provisions of FSP APB 14-1,we retroactively applied its provisions and restated our condensed consolidatedfinancial 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 July2003 issuance date. This amount represents the equity component of the proceedsfrom the notes, calculated assuming a 4.3% non-convertible borrowing rate. Thediscount 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 perdiluted share, was recorded in 2006 and 2007 and $7 million of additionalnon-cash interest expense was recorded in 2008, all during the first six monthsof the year. Furthermore, under this FSP, the $693 million loss to settle ourconvertible debt recorded in the third quarter of 2008 was reversed and recordedto additional paid-in capital. This resulted in a decrease of $7 million toincome from continuing operations and net income attributable to company in thefirst six months of 2008, an increase of $686 million to income from continuingoperations and net income attributable to company in 2008, and a net increase of$630 million to beginning retained earnings as of January 1, 2009. Dilutedincome per share for 2008 increased by $0.76 as a result of the adoption of FSPAPB 14-1. These notes were converted and settled during the third quarter of2008. In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements,"which is intended to increase consistency and comparability in fair valuemeasurements by defining fair value, establishing a framework for measuring fairvalue, and expanding disclosures about fair value measurements. SFAS No. 157applies to other accounting pronouncements that require or permit fair valuemeasurements and is effective for financial statements issued for fiscal yearsbeginning after November 15, 2007 and interim periods within those fiscal years.In February 2008, the FASB issued FSP SFAS 157-1, "Application of FASB StatementNo. 157 to FASB Statement No. 13 and Other Accounting Pronouncements ThatAddress Fair Value Measurements for Purposes of Lease Classification orMeasurement under Statement 13," which removes certain leasing transactions fromthe scope of SFAS No. 157, and FSP SFAS 157-2, "Effective Date of FASB StatementNo. 157," which defers the effective date of SFAS No. 157 for one year forcertain nonfinancial asset s and nonfinancial liabilities, except those that arerecognized or disclosed at fair value in the financial statements on a recurringbasis. In October 2008, the FASB also issued FSP SFAS 157-3, "Determining theFair 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 andillustrates how an entity would determine fair value when the market for afinancial asset is not active. On January 1, 2008, we adopted without materialimpact on our condensed consolidated financial statements the provisions of SFASNo. 157 related to financial assets and liabilities and to nonfinancial assetsand liabilities measured at fair value on a recurring basis. On January 1,2009, we adopted without material impact on our condensed consolidated financialstatements the provisions of SFAS No. 157 related to nonfinancial assets andnonfinancial liabilities that are not required or permitted to be measured atfair value on a recurring basis, which inc lude those measured at fair value ingoodwill impairment testing, indefinite-lived intangible assets measured at fairvalue for impairment assessment, nonfinancial long-lived assets measured at fairvalue for impairment assessment, asset retirement obligations initially measuredat fair value, and those initially measured at fair value in a businesscombination. In April 2009, the FASB issued FSP SFAS 157-4, "Determining Fair Value When theVolume and Level of Activity for the Asset or Liability Have SignificantlyDecreased and Identifying Transactions That Are Not Orderly," which providesadditional guidance for estimating fair value in accordance with SFAS No. 157when the volume and level of activity for the asset or liability havesignificantly decreased. This FSP re-emphasizes that regardless of marketconditions the fair value measurement is an exit price concept as defined inSFAS No. 157. This FSP clarifies and includes additional factors to consider indetermining whether there has been a significant decrease in market activity foran asset or liability and provides additional clarification on estimating fairvalue when the market activity for an asset or liability has declinedsignificantly. The scope of this FSP does not include assets and liabilitiesmeasured under level 1 inputs. We adopted FSP SFAS 157-4 on June 30, 2009 andwill apply it prospectively to all f air value measurements where appropriate. In June 2009, the FASB issued SFAS No. 167, "Amendments to FASB InterpretationNo. 46(R) Consolidation of Variable Interest Entities." This statement clarifiesthe characteristics that identify a variable interest entity (VIE) and changeshow a reporting entity identifies a primary beneficiary that would consolidatethe VIE from a quantitative risk and rewards calculation to a qualitativeapproach based on which variable interest holder has controlling financialinterest and the ability to direct the most significant activities that impactthe VIE's economic performance. This statement requires the primary beneficiaryassessment to be performed on a continuous basis. It also requires additionaldisclosures about an entity's involvement with VIE, restrictions on the VIE'sassets and liabilities that are included in the reporting entity's consolidatedbalance sheet, significant risk exposures due to the entity's involvement withthe VIE, and how its involvement with a VIE impacts the reporting entity'sconsolidated finan cial statements. SFAS No.167 is effective for fiscal yearsbeginning after November 15, 2009. We will adopt SFAS No. 167 on January 1,2010 and have not yet determined the impact on our condensed consolidatedfinancial statements. In December 2008, the FASB issued FSP SFAS 132(R)-1 "Employers' Disclosuresabout Postretirement Benefit Plan Assets." This FSP amends the disclosurerequirements for employer's disclosure of plan assets for defined benefitpensions and other postretirement plans. The objective of this FSP is toprovide users of financial statements with an understanding of how investmentallocation decisions are made, the major categories of plan assets held by theplans, the inputs and valuation techniques used to measure the fair value ofplan assets, significant concentration of risk within the company's plan assets,and for fair value measurements determined using significant unobservable inputsa reconciliation of changes between the beginning and ending balances. FSP SFAS132(R)-1 is effective for fiscal years ending after December 15, 2009. We willadopt the new disclosure requirements in the 2009 annual reporting period. 14000000 150000000 23000000 19000000 568000000 610000000 1019000000 1120000000 1000000 25000000 1000000 61000000 952000000 1195000000 1909000000 2260000000 Note 2. KBR Separation During 2007, we completed the separation of KBR, Inc. (KBR) from us byexchanging KBR common stock owned by us for our common stock. In addition, werecorded a liability reflecting the estimated fair value of the indemnities andguarantees provided to KBR as described below. Since the separation, we haverecorded adjustments to our liability for indemnities and guarantees to reflectchanges to our estimation of our remaining obligation. All such adjustments arerecorded in "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, atax sharing agreement, transition services agreements, and an employee mattersagreement. The master separation agreement provides for, among other things,KBR's responsibility for liabilities related to its business and ourresponsibility for liabilities unrelated to KBR's business. We provideindemnification in favor of KBR under the master separation agreement forcertain contingent liabilities, including our indemnification of KBR and any ofits greater than 50%-owned subsidiaries as of November 20, 2006, the date of themaster separation agreement, for: - fines or other monetary penalties or direct monetary damages,including disgorgement, as a result of a claim made or assessed by agovernmental authority in the United States, the United Kingdom, France,Nigeria, Switzerland, and/or Algeria, or a settlement thereof, related toalleged or actual vi olations occurring prior to November 20, 2006 of the UnitedStates Foreign Corrupt Practices Act (FCPA) or particular, analogous applicableforeign statutes, laws, rules, and regulations in connection with investigationspending as of that date, including with respect to the construction andsubsequent expansion by a consortium of engineering firms comprised of TechnipSA of France, Snamprogetti Netherlands B.V., JGC Corporation of Japan, andKellogg Brown & Root LLC (TSKJ) of a natural gas liquefaction complex andrelated facilities at Bonny Island in Rivers State, Nigeria; and - all out-of-pocket cash costs and expenses, or cash settlements orcash arbitration awards in lieu thereof, KBR may incur after the effective dateof the master separation agreement as a result of the replacement of the subseaflowline bolts installed in connection with the Barracuda-Caratinga project. Additionally, we provide indemnities, performance guarantees, surety bondguarantees, and letter of credit guarantees that are currently in place in favorof KBR's customers or lenders under project contracts, credit agreements,letters of credit, and other KBR credit instruments. These indemnities andguarantees will continue until they expire at the earlier of: (1) thetermination of the underlying project contract or KBR obligations thereunder;(2) the expiration of the relevant credit support instrument in accordance withits terms or release of such instrument by the customer; or (3) the expirationof the credit agreements. Further, KBR and we have agreed that, until December31, 2009, we will issue additional guarantees, indemnification, andreimbursement commitments for KBR's benefit in connection with: (a) letters ofcredit necessary to comply with KBR's Egypt Basic Industries Corporation ammoniaplant contract, KBR's Allenby & Connaught project, and all other KBR projectcontracts that were in place as o f December 15, 2005; (b) surety bonds issued tosupport new task orders pursuant to the Allenby & Connaught project, two joborder contracts for KBR's Government and Infrastructure segment, and all otherKBR project contracts that were in place as of December 15, 2005; and (c)performance guarantees in support of these contracts. KBR is compensating usfor these guarantees. We have also provided a limited indemnity, with respectto FCPA and anti-trust governmental and third-party claims, to the lenderparties under KBR's revolving credit agreement expiring in December 2010. KBRhas 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 orguarantees 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 Securitiesand Exchange Commission (SEC) FCPA investigations were resolved. The total offines and disgorgement was $579 million, of which KBR consented to pay $20million. As of June 30, 2009, we had paid $322 million, consisting of $145million as a result of the DOJ settlement and the indemnity we provided to KBRupon separation and $177 million as a result of the SEC settlement. Our KBRindemnities 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 sheetsand totaled $309 million at June 30, 2009 and $631 million at December 31, 2008.Excluding the remaining amounts necessary to resolve the DOJ and SECinvestigations and under the indemnity we provided to KBR, our estimation of theremaining obligation for other indemnities and guarantees provided to KBR uponseparation was $72 million at June 30, 2009. See Note 7 for further discussionof the FCPA and Barracuda-Caratinga matters. The tax sharing agreement provides for allocations of United States and certainother jurisdiction tax liabilities between us and KBR. -150000000 180000000 5084000000 5251000000 10521000000 10041000000 1067000000 1067000000 2.50 2.50 -82000000 -42000000 -135000000 -84000000 167000000 172000000 262000000 504000000 640000000 1084000000 Note 10. Retirement Plans The components of net periodic benefit cost related to pension benefits for thethree and six months ended June 30, 2009 and June 30, 2008 were as follows: Three Months Ended June 30 2009 2008 Millions of dollars United States International United States InternationalService cost $ - $ 7 $ - $ 6Interest cost 1 11 1 13Expected return on plan assets (2) (9)(2) (12)Settlements/curtailments 1 1 --Recognized actuarial loss 1 1 12Net periodic benefit cost $ 1 $ 11 $ -$ 9 Six Months Ended June 30 2009 2008 Millions of dollars United States International United States InternationalService cost $ - $ 13 $ - $13Interest cost 3 21 3 26Expected return on plan assets (4) (17)(4) (23)Settlements/curtailments 1 1 --Recognized actuarial loss 1 2 23Net periodic benefit cost $ 1 $ 20 $ 1$ 19 During the six months ended June 30, 2009, we contributed $9 million to ourinternational pension plans. We currently expect to contribute an additional$82 million to our international pension plans in 2009, of which $66 millionrepresents discretionary contributions to our United Kingdom pension plan madein July 2009. We expect to make discretionary contributions of approximately$11 million to our United States pension plans in 2009. Effective June 30, 2009, we amended our United Kingdom pension plan to ceasebenefit accruals related to service thereafter, resulting in a $32 milliondecrease in the projected benefit obligation and a $24 million decrease, net of tax, in other comprehensive loss. Note 9. Fair Value of Financial Instruments During the second quarter of 2009, we purchased $1.5 billion in United StatesTreasury securities with maturities that extend through September 2010. Thesesecurities are accounted for as available-for-sale and recorded at fair valueand classified by maturity date in "Investments in marketable securities" on thecondensed consolidated balance sheet at June 30, 2009. The fair value of $399 million and $412 million of our long-term debt at June30, 2009 and December 31, 2008 was calculated based on the fair value of otheractively-traded, Halliburton debt. The carrying amount of cash and equivalents,receivables, short-term notes payable, and accounts payable, as reflected in thecondensed consolidated balance sheets, approximates fair market value due to theshort maturities of these instruments. The following table presents the fairvalues of our other financial assets and liabilities and the basis fordetermining their fair values: Quoted prices in active Significant markets for observable inputs Carrying identical assets for similar assets orMillions of dollars Value Fair value or liabilities liabilitiesJune 30, 2009 Marketable securities $ 1,516 $ 1,516 $ 1,516 $- Long-term debt 4,600 5,044 4,645 399December 31, 2008 Long-term debt $ 2,612 $ 2,826 $ 2,414 $ 412 16215000000 14385000000 763000000 0 3152000000 3795000000 265000000 510000000 645000000 1097000000 Note 6. Shareholders' Equity The following tables summarize our shareholders' equity activity. Noncontrolling Total Company interest in shareholders' shareholders' consolidatedMillions of dollars equity equity subsidiariesBalance at December 31, 2008 $ 7,744 $ 7,725$ 19Transactions with shareholders 80 81 (1)Comprehensive income: Net income 645 640 5 Other comprehensive income 17 17 -Total comprehensive income 662 657 5Dividends paid on common stock (162) (162) -Balance at June 30, 2009 $ 8,324 $ 8,301 $23 Noncontrolling Total Company interest in shareholders' shareholders' consolidatedMillions of dollars equity equity subsidiariesBalance at December 31, 2007 $ 6,966 $ 6,873$ 93Share repurchases (360) (360) -Other transactions with shareholders 136 142 (6)Comprehensive income: Net income 1,097 1,084 13 Other comprehensive income 4 4 -Total comprehensive income 1,101 1,088 13Dividends paid on common stock (158) (158) -Balance at June 30, 2008 $ 7,685 $ 7,585 $100 The following table summarizes comprehensive income for the quarterly periodspresented. Three Months Ended June 30 Millions of dollars 2009 2008 Net income $ 265 $ 510 Other comprehensive income 26 2Total comprehensive income $ 291 $ 512 Comprehensive income attributable to noncontrolling interest 3 6 Comprehensive income attributable to company 288506 Accumulated other comprehensive loss consisted of the following: June 30, December 31,Millions of dollars 2009 2008Defined benefit and other postretirement liability adjustments $(132) $ (151)Cumulative translation adjustments (63) (60)Unrealized losses on investments (3) (4)Total accumulated other comprehensive loss $ (198) $ (215) 950000000 837000000 -322000000 0 16215000000 14385000000 4935000000 4566000000 524000000 418000000 1832000000 1828000000 901714840 Large Accelerated Filer -62000000 -58000000 2220000000 2781000000 190000000 373000000 0 -0.13 0 -0.13