Halliburton 2013 Annual Report Download - page 53

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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 weather, inflation, labor and community disruptions, timely availability of materials, productivity, and
other factors as outlined in Item 1(a), “Risk Factors.” These factors can affect the accuracy of our estimates and materially
impact our future reported earnings. See Note 1 to the consolidated financial statements for further information.
OFF BALANCE SHEET ARRANGEMENTS
At December 31, 2013, 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 – Contractual obligations.”
FINANCIAL INSTRUMENT MARKET RISK
We are exposed to market risk from changes in foreign currency exchange rates and interest rates. We selectively
manage these exposures through the use of derivative instruments, including forward foreign exchange contracts, foreign
exchange options, and interest rate swaps. The objective of our risk management strategy is to minimize the volatility from
fluctuations in foreign currency and interest rates. We do not use derivative instruments for trading purposes. The counterparties
to our forward contracts, options, and interest rate swaps are global commercial and investment banks.
We use a sensitivity analysis model to measure the impact of a 10% adverse movement of foreign currency exchange
rates against the United States dollar. A hypothetical 10% adverse change in the value of all our foreign currency positions
relative to the United States dollar as of December 31, 2013 would result in an $89 million, pre-tax, loss for our net monetary
assets denominated in currencies other than United States dollars.
With respect to interest rates sensitivity, after consideration of the impact from the interest rate swaps, a hypothetical
100 basis point increase in the LIBOR rate would result in approximately an additional $10 million of interest charges for the
year ended December 31, 2013.
There are certain limitations inherent in the sensitivity analyses presented, primarily due to the assumption that interest
rates and exchange rates change instantaneously in an equally adverse fashion. In addition, the analyses are unable to reflect the
complex market reactions that normally would arise from the market shifts modeled. While this is our best estimate of the
impact of the various scenarios, these estimates should not be viewed as forecasts.
For further information regarding foreign currency exchange risk, interest rate risk, and credit risk, see Note 13 to the
consolidated financial statements.
ENVIRONMENTAL MATTERS
We are subject to numerous environmental, legal, and regulatory requirements related to our operations worldwide.
For information related to environmental matters, see Note 8 to the consolidated financial statements and Part I, Item 1(a),
“Risk Factors.”
FORWARD-LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995 provides safe harbor provisions for forward-looking information.
Forward-looking information is based on projections and estimates, not historical information. Some statements in this Form
10-K are forward-looking and use words like “may,” “may not,” “believes,” “do not believe,” “plans,” “estimates,” “intends,”
“expects,” “do not expect,” “anticipates,” “do not anticipate,” “should,” “likely,” and other expressions. We may also provide
oral or written forward-looking information in other materials we release to the public. Forward-looking information involves
risk and uncertainties and reflects our best judgment based on current information. Our results of operations can be affected by
inaccurate assumptions we make or by known or unknown risks and uncertainties. In addition, other factors may affect the
accuracy of our forward-looking information. As a result, no forward-looking information can be guaranteed. Actual events and
results of operations may vary materially.