Halliburton 2013 Annual Report Download - page 65

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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:
- the change in fair value of the hedged assets, liabilities, or firm commitments through earnings; or
- 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 11 for additional information related to stock-based compensation.