Halliburton 2011 Annual Report Download - page 80

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Allowance for bad debts
We evaluate our accounts receivable through a continuous process of assessing our portfolio on an
individual customer and overall basis. This process consists of a thorough review of historical collection
experience, current aging status of the customer accounts, financial condition of our customers, and
whether the receivables involve retainages. We also consider the economic environment of our customers,
both from a marketplace and geographic perspective, in evaluating the need for an allowance. Based on our
review of these factors, we establish or adjust allowances for specific customers and the accounts
receivable portfolio as a whole. This process involves a high degree of judgment and estimation, and
frequently involves significant dollar amounts. Accordingly, our results of operations can be affected by
adjustments to the allowance due to actual write-offs that differ from estimated amounts. Our estimates of
allowances for bad debts have historically been accurate. Over the last five years, our estimates of
allowances for bad debts, as a percentage of notes and accounts receivable before the allowance, have
ranged from 1.6% to 3.0%. At December 31, 2011, allowance for bad debts totaled $137 million, or 2.7%
of notes and accounts receivable before the allowance, and at December 31, 2010, allowance for bad debts
totaled $91 million, or 2.3% of notes and accounts receivable before the allowance. A hypothetical 100
basis point change in our estimate of the collectability of our notes and accounts receivable balance as of
December 31, 2011 would have resulted in a $52 million adjustment to 2011 total operating costs and
expenses. See Note 3 to the consolidated financial statements for further information.
Percentage of completion
Revenue from certain long-term, integrated project management contracts to provide well
construction and completion services is reported on the percentage-of-completion method of accounting.
Progress is generally based upon physical progress related to contractually defined units of work. At the
outset of each contract, we prepare a detailed analysis of our estimated cost to complete the project. Risks
related to service delivery, usage, productivity, and other factors are considered in the estimation process.
The recording of profits and losses on long-term contracts requires an estimate of the total profit or loss
over the life of each contract. This estimate requires consideration of total contract value, change orders,
and claims, less costs incurred and estimated costs to complete. Anticipated losses on contracts are
recorded in full in the period in which they become evident. Profits are recorded based upon the total
estimated contract profit times the current percentage complete for the contract.
At least quarterly, significant projects are reviewed in detail by senior management. There are
many factors that impact future costs, including but not limited to weather, inflation, labor and community
disruptions, timely availability of materials, productivity, and other factors as outlined in our Item 1(a),
“Risk Factors.” These factors can affect the accuracy of our estimates and materially impact our future
reported earnings. Currently, long-term contracts accounted for under the percentage-of-completion method
of accounting do not comprise a significant portion of our business. See Note 1 to the consolidated
financial statements for further information.
OFF BALANCE SHEET ARRANGEMENTS
At December 31, 2011, we had no material off balance sheet arrangements, except for operating
leases. For information on our contractual obligations related to operating leases, see “Management’ s
Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital
Resources – Future uses of cash.”