Halliburton 2013 Annual Report Download - page 51

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Tax filings of our subsidiaries, unconsolidated affiliates, and related entities are routinely examined in the normal
course of business by tax authorities. These examinations may result in assessments of additional taxes, which we work to
resolve with the tax authorities and through the judicial process. Predicting the outcome of disputed assessments involves some
uncertainty. Factors such as the availability of settlement procedures, willingness of tax authorities to negotiate, and the
operation and impartiality of judicial systems vary across the different tax jurisdictions and may significantly influence the
ultimate outcome. We review the facts for each assessment, and then utilize assumptions and estimates to determine the most
likely outcome and provide taxes, interest, and penalties as needed based on this outcome. We provide for uncertain tax
positions pursuant to current accounting standards, which prescribe a minimum recognition threshold and measurement
methodology that a tax position taken or expected to be taken in a tax return is required to meet before being recognized in the
financial statements. The standards also provide guidance for derecognition classification, interest and penalties, accounting in
interim periods, disclosure, and transition.
Legal, environmental, and investigation matters
As discussed in Note 8 of our consolidated financial statements, as of December 31, 2013, we have accrued an
estimate of the probable and estimable costs for the resolution of some of our legal, environmental, and investigation matters.
For other matters for which the liability is not probable and reasonably estimable, we have not accrued any amounts. Attorneys
in our legal department monitor and manage all claims filed against us and review all pending investigations. Generally, the
estimate of probable costs related to these matters is developed in consultation with internal and outside legal counsel
representing us. Our estimates are based upon an analysis of potential results, assuming a combination of litigation and
settlement strategies. The accuracy of these estimates is impacted by, among other things, the complexity of the issues and the
amount of due diligence we have been able to perform. We attempt to resolve these matters through settlements, mediation, and
arbitration proceedings when possible. If the actual settlement costs, final judgments, or fines, after appeals, differ from our
estimates, our future financial results may be adversely affected. We have in the past recorded significant adjustments to our
initial estimates of these types of contingencies.
Value of long-lived assets, including intangible assets and goodwill
We carry a variety of long-lived assets on our balance sheet including property, plant and equipment, goodwill, and
other intangibles. We conduct impairment tests on long-lived assets whenever events or changes in circumstances indicate that
the carrying value may not be recoverable and on intangible assets quarterly. Impairment is the condition that exists when the
carrying amount of a long-lived asset exceeds its fair value, and any impairment charge that we record reduces our earnings.
We review the carrying value of these assets based upon estimated future cash flows while taking into consideration
assumptions and estimates including the future use of the asset, remaining useful life of the asset, and service potential of the
asset.
Goodwill is the excess of the cost of an acquired entity over the net of the amounts assigned to assets acquired and
liabilities assumed. We test goodwill for impairment annually, during the third quarter, or if an event occurs or circumstances
change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. For purposes of
performing the goodwill impairment test our reporting units are the same as our reportable segments, the Completion and
Production division and the Drilling and Evaluation division. See Note 1 to the consolidated financial statements for our
accounting policies related to long-lived assets and intangible assets, as well as the results of our goodwill impairment test.
Acquisitions-purchase price allocation
We allocate the purchase price of an acquired business to its identifiable assets and liabilities based on estimated fair
values. The excess of the purchase price over the amount allocated to the assets and liabilities, if any, is recorded as goodwill.
We use all available information to estimate fair values, including quoted market prices, the carrying value of acquired assets,
and widely accepted valuation techniques such as discounted cash flows. We engage third-party appraisal firms to assist in fair
value determination of inventories, identifiable intangible assets, and any other significant assets or liabilities when appropriate.
The judgments made in determining the estimated fair value assigned to each class of assets acquired and liabilities assumed, as
well as asset lives, can materially impact our results of operations. Our acquisitions may also include contingent consideration,
or earn-out provisions, which provide for additional consideration to be paid to the seller if certain future conditions are met.
These earn-out provisions are estimated and recognized at fair value at the acquisition date based on projected earnings or other
financial metrics over specified periods after the acquisition date. These estimates are reviewed during the specified period and
adjusted based on actual results.
Pensions
Our pension benefit obligations and expenses are calculated using actuarial models and methods. Two of the more
critical assumptions and estimates used in the actuarial calculations are the discount rate for determining the current value of
benefit obligations and the expected long-term rate of return on plan assets used in determining net periodic benefit cost. Other
critical assumptions and estimates used in determining benefit obligations and cost, including demographic factors such as
retirement age, mortality, and turnover, are also evaluated periodically and updated accordingly to reflect our actual experience.
Discount rates are determined annually and are based on the prevailing market rate of a portfolio of high-quality debt
instruments with maturities matching the expected timing of the payment of the benefit obligations. Expected long-term rates of
return on plan assets are determined annually and are based on an evaluation of our plan assets and historical trends and
experience, taking into account current and expected market conditions. Plan assets are comprised primarily of equity and debt