Halliburton 2013 Annual Report Download - page 63

Download and view the complete annual report

Please find page 63 of the 2013 Halliburton annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 102

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102

47
HALLIBURTON COMPANY
Notes to Consolidated Financial Statements
Note 1. Description of Company and Significant Accounting Policies
Description of Company
Halliburton Company’s predecessor was established in 1919 and incorporated under the laws of the State of Delaware
in 1924. We are one of the world’s largest oilfield services companies. Our two business segments are the Completion and
Production segment and the Drilling and Evaluation segment. We provide a comprehensive range of services and products for
the exploration, development, and production of oil and natural gas around the world.
Use of estimates
Our financial statements are prepared in conformity with United States generally accepted accounting principles,
requiring us to make estimates and assumptions that affect:
- the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements; and
- the reported amounts of revenue and expenses during the reporting period.
We believe the most significant estimates and assumptions are associated with the forecasting of our effective income
tax rate and the valuation of deferred taxes, legal and environmental reserves, long-lived asset valuations, purchase price
allocations, pensions, allowance for bad debts, and percentage-of-completion accounting for long-term contracts. Ultimate
results could differ from our estimates.
Basis of presentation
The consolidated financial statements include the accounts of our company and all of our subsidiaries that we control
or variable interest entities for which we have determined that we are the primary beneficiary. All material intercompany
accounts and transactions are eliminated. Investments in companies in which we have significant influence are accounted for
using the equity method of accounting. If we do not have significant influence, we use the cost method of accounting.
In 2013, we adopted the provisions of a new accounting standard. See Note 15 for further information. All periods
presented reflect these changes.
Revenue recognition
Overall. Our services and products are generally sold based upon purchase orders or contracts with our customers that
include fixed or determinable prices but do not include right of return provisions or other significant post-delivery obligations.
Our products are produced in a standard manufacturing operation, even if produced to our customer’s specifications. We
recognize revenue from product sales when title passes to the customer, the customer assumes risks and rewards of ownership,
collectability is reasonably assured, and delivery occurs as directed by our customer. Service revenue, including training and
consulting services, is recognized when the services are rendered and collectability is reasonably assured. Rates for services are
typically priced on a per day, per meter, per man-hour, or similar basis.
Software sales. Sales of perpetual software licenses, net of any deferred maintenance and support fees, are recognized
as revenue upon shipment. Sales of time-based licenses are recognized as revenue over the license period. Maintenance and
support fees are recognized as revenue ratably over the contract period, usually a one-year duration.
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. Physical percent complete is determined as a
combination of input and output measures as deemed appropriate by the circumstances. All known or anticipated losses on
contracts are provided for when they become evident. Cost adjustments that are in the process of being negotiated with
customers for extra work or changes in the scope of work are included in revenue when collection is deemed probable.
Research and development
Research and development costs are expensed as incurred. Research and development costs were $588 million in
2013, $460 million in 2012, and $401 million in 2011.
Cash equivalents
We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market. Cost represents invoice or production cost for new items and
original cost less allowance for condition for used material returned to stock. Production cost includes material, labor, and
manufacturing overhead. Some domestic manufacturing and field service finished products and parts inventories for drill bits,
completion products, and bulk materials are recorded using the last-in, first-out method. The remaining inventory is recorded on
the average cost method. We regularly review inventory quantities on hand and record provisions for excess or obsolete
inventory based primarily on historical usage, estimated product demand, and technological developments.