Halliburton 2011 Annual Report Download - page 100

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85
Note 7. 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 provided to KBR as described below. Since the separation, we have
recorded adjustments 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 (provision) benefit.”
We entered into various agreements relating to the separation of KBR, including, among others, a
master separation agreement and a tax sharing agreement. We agreed to provide indemnification in favor of
KBR under the master separation agreement for 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. During the third quarter of 2011, an arbitration award of $201 million was
issued against KBR. Also, under the master separation agreement, we have indemnified KBR for certain
losses arising from investigations and charges brought under the United States Foreign Corrupt Practices
Act (FCPA) or similar foreign statutes, laws, rules, or regulations in each case related to the construction of
a natural gas liquefaction complex and related facilities at Bonny Island in Rivers State, Nigeria 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), each of which had an approximate 25%
beneficial interest in the venture. Part of KBR’ s ownership in TSKJ was held through M.W. Kellogg
Limited, a United Kingdom joint venture and subcontractor on the Bonny Island project in which KBR
beneficially owned a 55% interest at the time of the execution of the master separation agreement. The
TSKJ investigations and charges have been resolved. At this time, no other claims by governmental
authorities in any jurisdictions have been asserted against the indemnified parties.
The tax sharing agreement provides for allocations of United States and certain other jurisdiction
tax liabilities between us and KBR. The tax sharing agreement is complex, and finalization of amounts
owed between KBR and us under the tax sharing agreement can occur only after income tax audits are
completed by the taxing authorities and both parties have had time to analyze the results. Substantially all
income tax audits are now complete, and we are in the process of providing relevant documents to KBR
and discussing the amounts due under the agreement. There can be no guarantee that the parties will agree
on the allocations of tax liabilities, and the process may take several quarters or more to complete.
Amounts accrued relating to our remaining KBR liabilities are primarily included in “Other
liabilities” on the consolidated balance sheets and totaled $201 million as of December 31, 2011 and $63
million as of December 31, 2010. See Note 8 for further discussion of the Barracuda-Caratinga matter.