Halliburton 2011 Annual Report Download - page 94

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Income taxes
We recognize the amount of taxes payable or refundable for the year. In addition, deferred tax
assets and liabilities are recognized for the expected future tax consequences of events that have been
recognized in the financial statements or tax returns. A valuation allowance is provided for deferred tax
assets if it is more likely than not that these items will not be realized.
In assessing the realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making
this assessment. Based upon the level of historical taxable income and projections for future taxable income
over the periods in which the deferred tax assets are deductible, management believes it is more likely than
not that we will realize the benefits of these deductible differences, net of the existing valuation allowances.
We recognize interest and penalties related to unrecognized tax benefits within the provision for
income taxes on continuing operations in our consolidated statements of operations.
We generally do not provide income taxes on the undistributed earnings of non-United States
subsidiaries because such earnings are intended to be reinvested indefinitely to finance foreign activities.
These additional foreign earnings could be subject to additional tax if remitted, or deemed remitted, as a
dividend; however, it is not practicable to estimate the additional amount, if any, of taxes payable. Taxes
are provided as necessary with respect to earnings that are not permanently reinvested.
Derivative instruments
At times, we enter into derivative financial transactions to hedge existing or projected exposures to
changing foreign currency exchange rates and interest rates. We do not enter into derivative transactions for
speculative or trading purposes. We recognize all derivatives on the balance sheet at fair value. Derivatives
that are not hedges are adjusted to fair value and reflected through the results of operations. If the derivative
is designated as a hedge, depending on the nature of the hedge, changes in the fair value of derivatives are
either offset against:
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the change in fair value of the hedged assets, liabilities, or firm commitments through
earnings; or
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recognized in other comprehensive income until the hedged item is recognized in earnings.
The ineffective portion of a derivative’ s change in fair value is recognized in earnings. Recognized
gains or losses on derivatives entered into to manage foreign currency exchange risk are included in “Other,
net” on the consolidated statements of operations. Gains or losses on interest rate derivatives are included
in “Interest expense, net.”
Foreign currency translation
Foreign entities whose functional currency is the United States dollar translate monetary assets
and liabilities at year-end exchange rates, and nonmonetary items are translated at historical rates. Income
and expense accounts are translated at the average rates in effect during the year, except for depreciation,
cost of product sales and revenue, and expenses associated with nonmonetary balance sheet accounts,
which are translated at historical rates. Gains or losses from changes in exchange rates are recognized in
our consolidated statements of operations in “Other, net” in the year of occurrence.
Stock-based compensation
Stock-based compensation cost is measured at the date of grant, based on the calculated fair value
of the award, and is recognized as expense over the employee’ s service period, which is generally the
vesting period of the equity grant. Additionally, compensation cost is recognized based on awards
ultimately expected to vest, therefore, we have reduced the cost for estimated forfeitures based on historical
forfeiture rates. Forfeitures are estimated at the time of grant and revised in subsequent periods to reflect
actual forfeitures. See Note 10 for additional information related to stock-based compensation.