Halliburton Company Annual Report 2008

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FY2008 Annual Report · Halliburton Company

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713.759.2600

www.halliburton.com

Printed in the USA

H06778

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2008 Annual Report

Halliburton serves the upstream oil and gas industry throughout
the life cycle of the reservoir – from locating hydrocarbons and managing
geological data, to drilling and formation evaluation, well construction
and completion, and optimizing production through the life of the ﬁ eld.

Increased service intensity driven by the exploitation of more complex
reservoirs, accelerated investments in our people and infrastructure
for international growth, and a well-integrated technology strategy
will continue to set us apart in the industry.

AT A GLANCE

Revenue grew 20 percent year-over-year to $18.3 billion, as all of our product service lines
posted double-digit growth. In 2008, international revenue (outside North America) was
54 percent of the total; in 2007, it was 53 percent.

In 2008, our operating income grew 15 percent to $4 billion, led by a very strong 26 percent
international growth. International regions accounted for 51 percent of our operating income
(excluding corporate and other); in 2007, that ﬁ gure was 47 percent.

BOARD OF DIRECTORS

CORPORATE OFFICERS

David J. Lesar
Chairman of the Board, President
and Chief Executive Ofﬁ cer

Albert O. Cornelison, Jr.
Executive Vice President
and General Counsel

Mark A. McCollum
Executive Vice President
and Chief Financial Ofﬁ cer

Lawrence J. Pope
Executive Vice President
of Administration and
Chief Human Resources Ofﬁ cer

Timothy J. Probert
Executive Vice President, Strategy
and Corporate Development

James S. Brown
President, Western Hemisphere

C. Christopher Gaut*
President, Drilling
and Evaluation Division

David S. King
President, Completion
and Production Division

Ahmed H. M. Lotfy
President, Eastern Hemisphere

Craig W. Nunez
Senior Vice President
and Treasurer

Evelyn M. Angelle
Vice President,
Corporate Controller
and Principal Accounting Ofﬁ cer

Christian A. Garcia
Vice President,
Investor Relations

Sherry D. Williams
Vice President,
Corporate Secretary

David J. Lesar
Chairman of the Board, President
and Chief Executive Ofﬁ cer,
Halliburton Company
Houston, Texas (2000)

Alan M. Bennett
Retired Chief Executive Ofﬁ cer,
H&R Block,
Kansas City, Missouri
(2006) (A)(D)

James R. Boyd
Retired Chairman of the Board,
Arch Coal, Inc.,
St. Louis, Missouri
(2006) (B)(C)

Milton Carroll
Chairman of the Board,
CenterPoint Energy, Inc.,
Houston, Texas
(2006) (B)(C)

Kenneth T. Derr
Retired Chairman of the Board,
Chevron Corporation,
San Francisco, California
(2001) (B)(D)

S. Malcolm Gillis
University Professor,
Rice University,
Houston, Texas
(2005) (A)(D)

James T. Hackett
Chairman of the Board,
President and Chief Executive Ofﬁ cer,
Anadarko Petroleum Corp.,
The Woodlands, Texas
(2008) (A)(B)

J. Landis Martin
Founder and Managing Director,
Platte River Ventures, L.L.C.,
Denver, Colorado
(1998) (C)(D)

Jay A. Precourt
Chairman of the Board,
Hermes Consolidated, Inc.,
Vail, Colorado
(1998) (A)(C)

Debra L. Reed
President and Chief Executive Ofﬁ cer,
Southern California Gas Company and
San Diego Gas & Electric Company,
San Diego, California
(2001) (B)(D)

SHAREHOLDER INFORMATION

Shares Listed
New York Stock Exchange
Symbol: HAL

Transfer Agent and Registrar
BNY Mellon Shareowner Services
480 Washington Boulevard
Jersey City, New Jersey 07310-1900
Telephone: 800.279.1227
www.bnymellon.com/shareowner/isd

To contact Halliburton Investor
Relations, shareholders may call
the Company at 888.669.3920 or
713.759.2688, or via e-mail at
investors@halliburton.com.

The CEO and CFO certiﬁ cations
required by Section 302 of the
Sarbanes-Oxley Act of 2002 have
been ﬁ led as exhibits to Halliburton’s
Form 10-K. Halliburton has also
submitted the Annual CEO
Certiﬁ cation to the New York
Stock Exchange.

(A) Member of the Audit Committee
(B) Member of the Compensation
Committee
(C) Member of the Health, Safety and

Environment Committee

(D) Member of the Nominating and
Corporate Governance Committee

* Retired, April 2009

COMPARATIVE HIGHLIGHTS

( M I L L I O N S O F D O L L A R S A N D S H A R E S , E X C E P T P E R S H A R E D ATA ) 2008

2007

2006

Revenue

Operating income

Income from continuing operations

Net income

Diluted income per share from

continuing operations

Diluted net income per share

Cash dividends per share

Diluted weighted average common

shares outstanding

Working capital (1)

$ 18,279

$ 15,264

$ 12,955

$ 4,010

$ 3,498

$ 3,245

$ 1,961

$ 2,524

$ 2,177

$ 1,538

$ 3,499

$ 2,348

$ 2.17

$ 2.66

$ 2.07

$ 1.70

$ 3.68

$ 2.23

$ 0.36

$ 0.345

$ 0.30

904

950

1,054

$ 4,630

$ 5,162

$ 6,456

Long-term debt (including current maturities)

$ 2,612

$ 2,786

$ 2,809

Debt to total capitalization (2)

Capital expenditures

25%

29%

28%

$ 1,824

$ 1,583

$ 834

Depreciation, depletion and amortization

738

$ 583

$ 480

(1) Calculated as current assets minus current liabilities.
(2) Calculated as total debt divided by total debt plus shareholders’ equity.

REVENUE in millions

OPERATING INCOME in millions

RETURN ON EQUITY

$20,000

$17,500

$15,000

$12,500

$10,000

$7,500

$5,000

$2,500

$4,500

$4,000

$3,500

$3,000

$2,500

$2,000

$1,500

$1,000

$500

50%

40%

30%

20%

10%

05 06 07 08

Return on equity is calculated as income from continuing operations divided by average shareholders’ equity.

2005 return on equity includes a tax beneﬁ t of $805 million for favorable adjustments to valuation allowances related to asbestos
and silica liabilities; without this beneﬁ t, income from continuing operations and return on equity for 2005 would have been
$1,302 million and 27%, respectively.

2008 return on equity includes a non-tax deductible loss of $693 million for the portion of the premium paid in cash on the settlement of our
convertible debt; without this loss, income from continuing operations and return on equity for 2008 would have been $2,654 and 35%, respectively.

The preceding two paragraphs above include non-GAAP ﬁ nancial measures. Reconciliations of the differences between the non-GAAP ﬁ nancial
measures and GAAP ﬁ nancial measures are available on our Web site at www.halliburton.com.

HALLIBURTON 2008 ANNUAL REPORT 1

DEAR FELLOW SHAREHOLDERS:

UNCOMPROMISING FOCUS

In 2008, we achieved the highest oilﬁ eld revenues in our history as customers turned to Halliburton
to help them meet their project challenges and production goals. Halliburton technologies enabled
operators to develop complex reservoirs in areas such as deep water, tight gas, shale and heavy oil.
As a result, both of our operating divisions experienced double-digit growth.

The Drilling and Evaluation Division continued to expand its product portfolio, fueled by commercialization
of key technologies that help customers drill more efﬁ ciently and evaluate the potential of their reservoirs
more effectively. Division revenue grew 21 percent in 2008 and now represents 46 percent of Halliburton’s
total revenue, performance that was led by the increased success in international markets of our suite of
rotary steerable tools and measurement solutions used in directional and horizontal drilling applications.

Leadership market positions helped Halliburton’s Completion and Production Division deliver 18 percent
revenue growth year-over-year. The development of unconventional gas remained the most signiﬁ cant
onshore growth trend in North America and, increasingly, in international markets. Furthermore, in
deepwater, our customers valued Halliburton’s innovative completion and stimulation technologies for
their ability to increase productivity and efﬁ ciency in these challenging environments.

At the center of Halliburton’s growth is a focus on aggressively expanding international business while
strengthening our successful North American franchise. Halliburton is bringing solutions to the most
challenging projects, from the remote corners of Siberia to the deep waters off the coast of Brazil.
Halliburton grew its international business 22 percent year-over-year, led by signiﬁ cant growth across
Africa, the Middle East and Latin America.

We continued to develop responsive supply-chain and manufacturing networks to support our
growing international business. In 2008, we opened additional manufacturing centers in Malaysia,
Brazil and Mexico. We also opened a new technology center in Singapore and an improved research
and development laboratory in Norway. Collectively, these investments enhance our ability to respond
quickly to our customers’ needs in their areas of operation.

Halliburton increased its level of technology investment in 2008 and today leads the industry with
a portfolio of more than 7,000 patents. We also strengthened our platform of technologies and
services through complementary acquisitions such as WellDynamics, Pinnacle Technologies Inc.,
KSI and Protech Centerform.

Our 2008 results are evidence of our uncompromising focus on delivering solid performance and
innovative solutions to our global customers. For the past four years, Halliburton has posted record
oilﬁ eld revenue and earnings, yet has remained disciplined in its ﬁ scal approach. We closed 2008 with a
strong balance sheet and liquidity position, giving us a ﬁ nancial platform that will allow us the ﬂ exibility to
meet the challenges and opportunities of the years ahead.

2 HALLIBURTON 2008 ANNUAL REPORT

NAVIGATING TURBULENT WATERS

Since 1981, the oil and gas markets have experienced ﬁ ve unique cycles that varied in depth and
duration. 2009 brings a new set of challenges as the downturn in the global economy negatively
impacts the short-term outlook for the industry. The tightening of capital markets and ensuing global
recession has depressed commodity prices and forced customers to constrict their capital expenditures
to enable them to operate within their cash ﬂ ows. This has created a more pronounced weakening in
industry fundamentals than we have experienced in past cycles.

Drawing on experience gained in previous downturns, we are responding to temper the impact of the
activity decline on our ﬁ nancial performance by taking the following actions:

(cid:129) Protect market position – Halliburton is committed to protecting our strong North American
franchise while expanding our international position. Halliburton remains well aligned with
primary integrated, national oil companies and large independent customers in key geologic
basins around the globe.

(cid:129) Maintain technology differentiation – Halliburton’s portfolio of technologies and services is
uniquely positioned to drive efﬁ ciency through innovation throughout the well life cycle.
We will invest in technologies that will strengthen our competitive position.

(cid:129) Create competitive advantage – The comprehensive breadth of our portfolio enables us

to provide integrated solutions, from well planning through production, that drive technical,
logistical and cost efﬁ ciencies within large projects.

(cid:129) Reduce input costs – Nearly two-thirds of our overall costs are in the materials that support
our daily business. We will leverage our supply-chain structure to improve global sourcing
availability and lower supplier costs across our global network. Though headcount

reductions will be made in locations experiencing signiﬁ cant activity declines, our goal
is to minimize the number of employees affected to avoid high recruitment and training

costs when industry fundamentals improve.

These actions, along with our strong ﬁ nancial position, will provide Halliburton with the ﬂ exibility to help
position us for the market’s eventual recovery.

HALLIBURTON 2008 ANNUAL REPORT 3

Despite the short-term obstacles, the long-term prospects for
the industry are robust. For example, the International Energy
Agency forecasts a 45 percent increase in energy demand by
2030 fueled by accelerated growth in China, India and the
Middle East. Meanwhile, many of the world’s largest ﬁ elds
have passed their production peak and are in decline. Globally,
decline curves for oil wells are estimated to be over 5 percent,
with decline curves for gas ﬁ elds in North America estimated to
be over 25 percent annually. While these natural decline curves
pose a signiﬁ cant challenge to our customers, Halliburton is
well placed to provide the technology and expertise to support
them in this endeavor.

INNOVATION AND INTEGRATION

With employees working in over 70 countries, Halliburton people
continue to gain experience from working in the most challenging
reservoirs and environments around the globe. Our technology
focus draws on this experience and that of our customers in
solving the most signiﬁ cant challenges in the economic
exploitation of oil and gas resources.

Reducing uncertainty and increasing precision
in complex reservoirs
Reservoirs are becoming smaller and more complex.
Reducing geologic and economic uncertainty is a key priority
for our customers, especially in areas such as deep water.
Our modeling and interpretation expertise, coupled with new
developments to improve evaluation of prospective reservoirs,
will help our customers better exploit their portfolios.

Improving net recovery factors from old and new ﬁ elds
In the average reservoir, our customers typically recover only
35 percent of oil in place. Halliburton is working to develop new
technologies, including nano-scale materials, that help better
illuminate the reservoir and enable improved oil recovery.

Making the unconventional conventional
Unconventional resources will be a crucial component of the
energy mix of the future. Recent technology developments have
enabled unconventional gas to take a signiﬁ cant role in global gas
development. Halliburton’s leading solutions in data gathering,
fracture mapping and completion systems assist operators in
economically unlocking the value of these reservoirs.

Reliably accessing deeply buried reservoirs
Signiﬁ cant resources are located in deeply buried reservoirs,
characterized by high-temperature and high-pressure regimes,
which to this point have been challenging to exploit economically.
In close association with our customers, we are developing
important technologies that can provide the needed insight to make
drilling and evaluating these hostile environments more productive.

Integrating capabilities to drive efﬁ ciency
Increasing efﬁ ciency is a key business driver in challenging
economic environments. Building on Halliburton’s market-leading,
real-time expertise, the Digital Asset™ helps us to integrate
the right technologies with the most relevant real-time data to
create a customized asset solution. Digital Asset solutions
often involve the delivery of multiple products and services as
a total system solution.

4 HALLIBURTON 2008 ANNUAL REPORT

To customers looking for a step change in well performance and
cost efﬁ ciency for large projects, we leverage our broad array
of services to offer an integrated solution from well planning to
completion, fostering an asset-speciﬁ c approach. At present,
nearly 30 percent of our total revenues are generated by multi-
service contracts. We believe that this percentage will grow and
will be an important source of competitive advantage as customers
turn to robust solutions to exploit more complex assets.

DELIVERING LONG-TERM VALUE

Today we stand on a platform of solid ﬁ nancial performance,
a balanced portfolio of industry-leading products and services,
and a global infrastructure. We will continue our focus on
expanding our geographic footprint, bringing superior service
delivery and technical expertise to our customers around the globe.

Incorporating sustainable processes and technologies into our daily
operational activities is a key priority in addressing the vital issues
we face in the global communities where we work. For example,
in many parts of the world, fresh water is becoming an increasingly
precious resource. In 2008, Halliburton introduced a new ﬂ uid
system that can function with a wide variety of produced water,
eliminating the need for fresh water. You can learn more about
how Halliburton is dedicated to the innovations needed to bring
sustainable solutions to locations around the world in our 2008
Sustainability Report published as a companion document to
our Annual Report.

While Halliburton has good insight into the supply dynamics
of the global energy industry, the timing of the recovery of the
global economy and resulting demand for hydrocarbons in the
short term is less clear. Regardless of this challenge, Halliburton’s
strengths are evident. Halliburton has the unique ability to foster
integration and innovation across our technology portfolio to
deliver robust solutions that help our customers reduce costs
and improve production.

Our leadership in technology, the breadth of our offerings,
and our relentless focus on quality make us conﬁ dent that
customers around the world will continue to depend on
Halliburton for the ingenuity and expertise to help them meet
their most difﬁ cult challenges.

David J. Lesar
Chairman of the Board,
President and Chief Executive Ofﬁ cer

Albert O. Cornelison, Jr.
Executive Vice President and
General Counsel

Mark A. McCollum
Executive Vice President and
Chief Financial Ofﬁ cer

Timothy J. Probert
Executive Vice President, Strategy
and Corporate Development

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K

(Mark One)
[X]

Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2008

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

[ ]
For the transition period from ______ to ______
Commission File Number 001-03492

HALLIBURTON COMPANY
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)

75-2677995
(I.R.S. Employer
Identification No.)

5 Houston Center
1401 McKinney, Suite 2400
Houston, Texas 77010
(Address of principal executive offices)
Telephone Number – Area code (713) 759-2600

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Common Stock par value $2.50 per share

Name of each exchange on
which registered
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes X No ______

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes No X___

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes X No ______

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.:

Large accelerated filer
Non-accelerated filer

[X]
[ ]

Accelerated filer
Smaller reporting company

[ ]
[ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No X__

The aggregate market value of Common Stock held by nonaffiliates on June 30, 2008, determined using the per share closing price on the New
York Stock Exchange Composite tape of $53.07 on that date was approximately $46,371,000,000.

As of February 13, 2009, there were 897,174,201 shares of Halliburton Company Common Stock, $2.50 par value per share, outstanding.

Portions of the Halliburton Company Proxy Statement for our 2009 Annual Meeting of Stockholders (File No. 001-03492) are incorporated by
reference into Part III of this report.

5
HALLIBURTON 2008 ANNUAL REPORT 5
HALLIBURTON 2008 ANNUAL REPORT

6
6 HALLIBURTON 2008 ANNUAL REPORT
HALLIBURTON 2008 ANNUAL REPORT

HALLIBURTON COMPANY
Index to Form 10-K
For the Year Ended December 31, 2008

Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Submission of Matters to a Vote of Security Holders

PART I
PAGE
9
Item 1.
14
Item 1(a).
14
Item 1(b).
14
Item 2.
14
Item 3.
Item 4.
14
EXECUTIVE OFFICERS OF THE REGISTRANT 15
PART II
Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters,

Item 6.
Item 7.

Item 7(a).
Item 8.
Item 9.

and Issuer Purchases of Equity Securities

Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and
Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Controls and Procedures
Other Information

20
20
20

18
19

19
19
20

Item 9(a).
Item 9(b).
MD&A AND FINANCIAL STATEMENTS
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Report on Internal Control Over Financial Reporting
Reports of Independent Registered Public Accounting Firm
Consolidated Statements of Operations
Consolidated Balance Sheets
Consolidated Statements of Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Selected Financial Data (Unaudited)
Quarterly Data and Market Price Information (Unaudited)
PART III
Item 10.
Item 11.
Item 12(a).
Item 12(b).
Item 12(c).
Item 12(d).
Item 13.

Directors, Executive Officers, and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners
Security Ownership of Management
Changes in Control
Securities Authorized for Issuance Under Equity Compensation Plans
Certain Relationships and Related Transactions, and Director

21
(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (cid:3)(cid:4)
(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:3)(cid:5)
(cid:3)(cid:6)
(cid:3)(cid:7)
65
66
67
101
102

103
103
103
103
104
104

Item 14.
PART IV
Item 15.
SIGNATURES

Independence

Principal Accounting Fees and Services

104
104

Exhibits and Financial Statement Schedules

105
115

HALLIBURTON 2008 ANNUAL REPORT

PART I

Item 1. Business.

General description of business
Halliburton Company’s predecessor was established in 1919 and incorporated under the laws of

the State of Delaware in 1924. Halliburton Company provides a variety of services and products to
customers in the energy industry. We operate under two divisions, which form the basis for the two
operating segments we report: the Completion and Production segment and the Drilling and Evaluation
segment. See Note 4 to the consolidated financial statements for financial information about our business
segments.

In November 2006, KBR, Inc. (KBR), which at the time was our wholly-owned subsidiary,

completed an initial public offering. During the second quarter of 2007, we completed the separation of
KBR from us and recorded a gain on the disposition of KBR of approximately $933 million, net of tax and
the estimated fair value of the indemnities and guarantees provided to KBR, which is included in income
from discontinued operations in the consolidated statements of operations for prior years. See Note 2 to the
consolidated financial statements for further information relating to the specific indemnities and guarantees
provided to KBR upon separation. During 2008, we recorded $420 million, net of tax, as a loss from
discontinued operations to reflect the resolution of the Department of Justice (DOJ) and Securities and
Exchange Commission (SEC) investigations related to the Foreign Corrupt Practices Act (FCPA) and our
most recent assumptions regarding the value of other indemnities and guarantees provided to KBR. See
Note 10 to the consolidated financial statements for further information related to the FCPA investigations.

Description of services and products
We offer a broad suite of services and products to customers through our two business segments

for the exploration, development, and production of oil and gas. We serve major, national, and independent
oil and gas companies throughout the world. The following summarizes our services and products for each
business segment.

Completion and Production
Our Completion and Production segment delivers cementing, stimulation, intervention, and

completion services. This segment consists of production enhancement services, completion tools and
services, and cementing services.

Production enhancement services include stimulation services, pipeline process services, sand

control services, and well intervention services. Stimulation services optimize oil and gas reservoir
production through a variety of pressure pumping services, nitrogen services, and chemical processes,
commonly known as hydraulic fracturing and acidizing. Pipeline process services include pipeline and
facility testing, commissioning, and cleaning via pressure pumping, chemical systems, specialty equipment,
and nitrogen, which are provided to the midstream and downstream sectors of the energy business. Sand
control services include fluid and chemical systems and pumping services for the prevention of formation
sand production. Well intervention services enable live well intervention and continuous pipe deployment
capabilities through the use of hydraulic workover systems and coiled tubing tools and services.

Completion tools and services include subsurface safety valves and flow control equipment,
surface safety systems, packers and specialty completion equipment, intelligent completion systems,
expandable liner hanger systems, sand control systems, well servicing tools, and reservoir performance
services. Reservoir performance services include testing tools, real-time reservoir analysis, and data
acquisition services.

Cementing services involve bonding the well and well casing while isolating fluid zones and

maximizing wellbore stability. Our cementing service line also provides casing equipment.

HALLIBURTON 2008 ANNUAL REPORT

Drilling and Evaluation
Our Drilling and Evaluation segment provides field and reservoir modeling, drilling, evaluation,

and well construction solutions that enable customers to model, measure, and optimize their well
placement, stability, and reservoir evaluation activities. This segment consists of fluid services, drilling
services, drill bits, wireline and perforating services, software and asset solutions, and project management
services.

Fluid services provides drilling fluid systems, performance additives, completion fluids, solids

control, specialized testing equipment, and waste management services for oil and gas drilling, completion,
and workover operations.

Drilling services provides drilling systems and services. These services include directional and
horizontal drilling, measurement-while-drilling, logging-while-drilling, surface data logging, multilateral
systems, underbalanced applications, and rig site information systems. Our drilling systems offer
directional control for precise wellbore placement while providing important measurements about the
characteristics of the drill string and geological formations while drilling wells. Real-time operating
capabilities enable the monitoring of well progress and aid decision-making processes.

Drill bits provides roller cone rock bits, fixed cutter bits, hole enlargement and related downhole

tools and services used in drilling oil and gas wells. In addition, coring equipment and services are
provided to acquire cores of the formation drilled for evaluation.

Wireline and perforating services include open-hole wireline services that provide information on

formation evaluation, including resistivity, porosity, density, rock mechanics, and fluid sampling. Also
offered are cased-hole and slickline services, which provide cement bond evaluation, reservoir monitoring,
pipe evaluation, pipe recovery, mechanical services, well intervention, perforating, and borehole seismic
services. Perforating services include tubing-conveyed perforating services and products. Borehole
seismic services include fracture analysis and mapping.

Software and asset solutions is a supplier of integrated exploration, drilling, and production
software information systems, as well as consulting and data management services for the upstream oil and
gas industry.

The Drilling and Evaluation segment also provides oilfield project management and integrated
solutions to independent, integrated, and national oil companies. These offerings make use of all of our
oilfield services, products, technologies, and project management capabilities to assist our customers in
optimizing the value of their oil and gas assets.
Acquisitions and dispositions
In July 2008, we acquired the remaining 49% equity interest in WellDynamics from Shell

Technology Ventures Fund 1 B.V. (STV Fund), resulting in our 100% ownership of WellDynamics.
WellDynamics is a provider of intelligent well completion technology and its results of operations are
included in our Completion and Production segment.

In July 2007, we acquired the entire share capital of PSL Energy Services Limited (PSLES), a

leading eastern hemisphere provider of process, pipeline, and well intervention services. PSLES has
operational bases in the United Kingdom, Norway, the Middle East, Azerbaijan, Algeria, and Asia Pacific.
We paid $335 million for PSLES, consisting of $331 million in cash and $4 million in debt assumed. We
have recorded goodwill of $158 million and intangible assets of $61 million associated with the acquisition.
Beginning in August 2007, PSLES’s results of operations are included in our Completion and Production
segment.

HALLIBURTON 2008 ANNUAL REPORT

As a part of our sale of Dresser Equipment Group in 2001, we retained a small equity interest in

Dresser Inc.’s Class A common stock. Dresser Inc. was later reorganized as Dresser, Ltd., and we
exchanged our shares for shares of Dresser, Ltd. In May 2007, we sold our remaining interest in Dresser,
Ltd. We received $70 million in cash from the sale and recorded a $49 million gain.

In January 2007, we acquired all intellectual property, current assets, and existing business

associated with Calgary-based Ultraline Services Corporation (Ultraline), a division of Savanna Energy
Services Corp. Ultraline is a provider of wireline services in Canada. We paid approximately $178 million
for Ultraline and recorded goodwill of $124 million and intangible assets of $41 million. Beginning in
February 2007, Ultraline’s results of operations are included in our Drilling and Evaluation segment.

Business strategy
Our business strategy is to secure a distinct and sustainable competitive position as a pure-play

oilfield service company by delivering products and services to our customers that maximize their
production and recovery and realize proven reserves from difficult environments. Our objectives are to:
create a balanced portfolio of products and services supported by global infrastructure
and anchored by technology innovation with a well-integrated digital strategy to further
differentiate our company;
reach a distinguished level of operational excellence that reduces costs and creates real
value from everything we do;
preserve a dynamic workforce by being a preferred employer to attract, develop, and
retain the best global talent; and
uphold the ethical and business standards of the company and maintain the highest
standards of health, safety, and environmental performance.

Markets and competition
We are one of the world’s largest diversified energy services companies. Our services and
products are sold in highly competitive markets throughout the world. Competitive factors impacting sales
of our services and products include:

-
-

price;
service delivery (including the ability to deliver services and products on an “as needed,
where needed” basis);
health, safety, and environmental standards and practices;
service quality;
global talent retention;
knowledge of the reservoir;
product quality;

-
-
-
-
-
- warranty; and
-

technical proficiency.

We conduct business worldwide in approximately 70 countries. The business operations of our

divisions are organized around four primary geographic regions: North America, Latin America,
Europe/Africa/CIS, and Middle East/Asia. In 2008, based on the location of services provided and
products sold, 43% of our consolidated revenue was from the United States. In 2007 and 2006, 44% and
45% of our consolidated revenue was from the United States. No other country accounted for more than
10% of our consolidated revenue during these periods. See “Management’s Discussion and Analysis of
Financial Condition and Results of Operations – Business Environment and Results of Operations” and
Note 4 to the consolidated financial statements for additional financial information about geographic
operations in the last three years. Because the markets for our services and products are vast and cross
numerous geographic lines, a meaningful estimate of the total number of competitors cannot be made. The
industries we serve are highly competitive, and we have many substantial competitors. Largely all of our
services and products are marketed through our servicing and sales organizations.

HALLIBURTON 2008 ANNUAL REPORT

Operations in some countries may be adversely affected by unsettled political conditions, acts of

terrorism, civil unrest, expropriation or other governmental actions, exchange control problems, and highly
inflationary currencies. We believe the geographic diversification of our business activities reduces the risk
that loss of operations in any one country would be material to the conduct of our operations taken as a
whole.

Information regarding our exposure to foreign currency fluctuations, risk concentration, and
financial instruments used to minimize risk is included in “Management’s Discussion and Analysis of
Financial Condition and Results of Operations – Financial Instrument Market Risk” and in Note 14 to the
consolidated financial statements.

Customers
Our revenue from continuing operations during the past three years was derived from the sale of

services and products to the energy industry. No customer represented more than 10% of consolidated
revenue in any period presented.
Raw materials
Raw materials essential to our business are normally readily available. Market conditions can

trigger constraints in the supply of certain raw materials, such as sand, cement, and specialty metals. We
are always seeking ways to ensure the availability of resources, as well as manage costs of raw materials.
Our procurement department is using our size and buying power through several programs designed to
ensure that we have access to key materials at competitive prices.

Research and development costs
We maintain an active research and development program. The program improves existing

products and processes, develops new products and processes, and improves engineering standards and
practices that serve the changing needs of our customers. Our expenditures for research and development
activities were $326 million in 2008, $301 million in 2007, and $254 million in 2006, of which over 96%
was company-sponsored in each year.

Patents
We own a large number of patents and have pending a substantial number of patent applications
covering various products and processes. We are also licensed to utilize patents owned by others. We do
not consider any particular patent to be material to our business operations.

Seasonality
On an overall basis, our operations are not generally affected by seasonality. Weather and natural

phenomena can temporarily affect the performance of our services, but the widespread geographical
locations of our operations serve to mitigate those effects. Examples of how weather can impact our
business include:

-
-

the severity and duration of the winter in North America can have a significant impact on
gas storage levels and drilling activity for natural gas;
the timing and duration of the spring thaw in Canada directly affects activity levels due to
road restrictions;
typhoons and hurricanes can disrupt coastal and offshore operations; and
severe weather during the winter months normally results in reduced activity levels in the
North Sea and Russia.

In addition, due to higher spending near the end of the year by customers for software and

completion tools and services, software and asset solutions and completion tools results of operations are
generally stronger in the fourth quarter of the year than at the beginning of the year.

HALLIBURTON 2008 ANNUAL REPORT

Employees
At December 31, 2008, we employed approximately 57,000 people worldwide compared to

approximately 51,000 at December 31, 2007. At December 31, 2008, approximately 14% of our
employees were subject to collective bargaining agreements. Based upon the geographic diversification of
these employees, we believe any risk of loss from employee strikes or other collective actions would not be
material to the conduct of our operations taken as a whole.

Environmental regulation
We are subject to numerous environmental, legal, and regulatory requirements related to our

operations worldwide. In the United States, these laws and regulations include, among others:

-
-
-
-
-

the Comprehensive Environmental Response, Compensation, and Liability Act;
the Resource Conservation and Recovery Act;
the Clean Air Act;
the Federal Water Pollution Control Act; and
the Toxic Substances Control Act.

In addition to the federal laws and regulations, states and other countries where we do business

may have numerous environmental, legal, and regulatory requirements by which we must abide. We
evaluate and address the environmental impact of our operations by assessing and remediating
contaminated properties in order to avoid future liabilities and comply with environmental, legal, and
regulatory requirements. On occasion, we are involved in specific environmental litigation and claims,
including the remediation of properties we own or have operated, as well as efforts to meet or correct
compliance-related matters. Our Health, Safety, and Environment group has several programs in place to
maintain environmental leadership and to prevent the occurrence of environmental contamination.

We do not expect costs related to these remediation requirements to have a material adverse effect

on our consolidated financial position or our results of operations.

Working capital
We fund our business operations through a combination of available cash and equivalents, short-
term investments, and cash flow generated from operations. In addition, our revolving credit facilities are
available for additional working capital needs.

Web site access
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K,
and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act
of 1934 are made available free of charge on our internet web site at www.halliburton.com as soon as
reasonably practicable after we have electronically filed the material with, or furnished it to, the SEC. The
public may read and copy any materials we have filed with the SEC at the SEC’s Public Reference Room at
100 F Street, NE, Room 1580, Washington, DC 20549. Information on the operation of the Public
Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains an internet
site that contains our reports, proxy and information statements, and our other SEC filings. The address of
that site is www.sec.gov. We have posted on our web site our Code of Business Conduct, which applies to
all of our employees and Directors and serves as a code of ethics for our principal executive officer,
principal financial officer, principal accounting officer, and other persons performing similar functions.
Any amendments to our Code of Business Conduct or any waivers from provisions of our Code of Business
Conduct granted to the specified officers above are disclosed on our web site within four business days
after the date of any amendment or waiver pertaining to these officers. There have been no waivers from
provisions of our Code of Business Conduct for the years presented, 2008, 2007, or 2006. The CEO and
CFO certifications required by Section 302 of the Sarbanes-Oxley Act of 2002 have been filed as exhibits
to our Form 10-K. We have also submitted the Annual CEO Certification to the New York Stock
Exchange.

HALLIBURTON 2008 ANNUAL REPORT

Item 1(a). Risk Factors.

Information related to risk factors is described in “Management’s Discussion and Analysis of

Financial Condition and Results of Operations—Forward-Looking Information and Risk Factors.”

Item 1(b). Unresolved Staff Comments.

None.

Item 2. Properties.

We own or lease numerous properties in domestic and foreign locations. The following locations

represent our major facilities and corporate offices.

Location

Operations:

Owned/Leased Description

Completion and Production segment:

Johor, Malaysia
Monterrey, Mexico

Sao Jose dos Campos, Brazil
Stavanger, Norway

Leased
Leased
Leased
Leased

Manufacturing facility
Manufacturing facility
Manufacturing facility
Research and development laboratory

Drilling and Evaluation segment:
Alvarado, Texas
Houston, Texas
Singapore
The Woodlands, Texas

Shared facilities:

Owned/Leased Manufacturing facility
Owned
Leased
Leased

Manufacturing, technology, and campus facilities
Manufacturing and technology facility
Manufacturing facility

Carrollton, Texas
Duncan, Oklahoma
Houston, Texas
Houston, Texas
Pune, India

Owned
Owned
Owned
Leased
Leased

Manufacturing facility
Manufacturing, technology, and campus facilities
Campus facility
Campus facility
Technology facility

Corporate:

Houston, Texas
Dubai, United Arab Emirates

Leased
Leased

Corporate executive offices
Corporate executive offices

All of our owned properties are unencumbered.
In addition, we have 133 international and 103 United States field camps from which we deliver

our services and products. We also have numerous small facilities that include sales offices, project
offices, and bulk storage facilities throughout the world.

We believe all properties that we currently occupy are suitable for their intended use.

Item 3. Legal Proceedings.

Information related to various commitments and contingencies is described in “Management’s

Discussion and Analysis of Financial Condition and Results of Operations—Forward-Looking Information
and Risk Factors” and in Note 10 to the consolidated financial statements.

Item 4. Submission of Matters to a Vote of Security Holders.

There were no matters submitted to a vote of security holders during the fourth quarter of 2008.

HALLIBURTON 2008 ANNUAL REPORT

Executive Officers of the Registrant

The following table indicates the names and ages of the executive officers of Halliburton
Company as of February 13, 2009, including all offices and positions held by each in the past five years:

Name and Age

Evelyn M. Angelle
(Age 41)

Offices Held and Term of Office
Vice President, Corporate Controller, and Principal Accounting Officer of
Halliburton Company, since January 2008
Vice President, Operations Finance of Halliburton Company,
December 2007 to January 2008
Vice President, Investor Relations of Halliburton Company,
April 2005 to November 2007
Assistant Controller of Halliburton Company, April 2003 to March 2005

James S. Brown
(Age 54)

President, Western Hemisphere of Halliburton Company, since January 2008
Senior Vice President, Western Hemisphere of Halliburton Company,

June 2006 to December 2007

Senior Vice President, United States Region of Halliburton Company,
December 2003 to June 2006
Vice President, Western Area of Halliburton Company, November 2003

to December 2003

* Albert O. Cornelison, Jr. Executive Vice President and General Counsel of Halliburton Company,

(Age 59)

since December 2002

Director of KBR, Inc., June 2006 to April 2007

C. Christopher Gaut
(Age 52)

President, Drilling and Evaluation Division of Halliburton Company,

since January 2008

Director of KBR, Inc., March 2006 to April 2007
Executive Vice President and Chief Financial Officer of Halliburton Company,
March 2003 to December 2007

HALLIBURTON 2008 ANNUAL REPORT

Name and Age

David S. King
(Age 52)

Offices Held and Term of Office
President, Completion and Production Division of Halliburton Company,

since January 2008

Senior Vice President, Completion and Production Division of Halliburton
Company, July 2007 to December 2007
Senior Vice President, Production Optimization of Halliburton Company,

January 2007 to July 2007

Senior Vice President, Eastern Hemisphere of Halliburton Energy Services
Group, July 2006 to December 2006
Senior Vice President, Global Operations of Halliburton Energy Services
Group, July 2004 to July 2006
Vice President, Production Optimization of Halliburton Energy Services
Group, May 2003 to July 2004

* David J. Lesar
(Age 55)

Chairman of the Board, President, and Chief Executive Officer of Halliburton
Company, since August 2000

Ahmed H. M. Lotfy
(Age 54)

President, Eastern Hemisphere of Halliburton Company, since January 2008
Senior Vice President, Eastern Hemisphere of Halliburton Company,

January 2007 to December 2007

Vice President, Africa Region of Halliburton Company, January 2005 to
December 2006
Vice President, North Africa Region of Halliburton Company,

June 2002 to December 2004

* Mark A. McCollum

Executive Vice President and Chief Financial Officer of Halliburton Company,

(Age 49)

since January 2008

Director of KBR, Inc., June 2006 to April 2007
Senior Vice President and Chief Accounting Officer of Halliburton Company,
August 2003 to December 2007

Craig W. Nunez
(Age 47)

Senior Vice President and Treasurer of Halliburton Company,

since January 2007

Vice President and Treasurer of Halliburton Company, February 2006

to January 2007

Treasurer of Colonial Pipeline Company, November 1999 to January 2006

HALLIBURTON 2008 ANNUAL REPORT

Name and Age
* Lawrence J. Pope

Offices Held and Term of Office
Executive Vice President of Administration and Chief Human Resources Officer

(Age 40)

of Halliburton Company, since January 2008

Vice President, Human Resources and Administration of Halliburton Company,

January 2006 to December 2007

Senior Vice President, Administration of Kellogg Brown & Root, Inc.,
August 2004 to January 2006
Director, Finance and Administration for Drilling and Formation Evaluation
Division of Halliburton Energy Services Group, July 2003 to August 2004

* Timothy J. Probert

(Age 57)

Executive Vice President, Strategy and Corporate Development of Halliburton
Company, since January 2008
Senior Vice President, Drilling and Evaluation of Halliburton Company,

July 2007 to December 2007

Senior Vice President, Drilling Evaluation and Digital Solutions of Halliburton
Company, May 2006 to July 2007
Vice President, Drilling and Formation Evaluation of Halliburton Company,

January 2003 to May 2006

* Members of the Policy Committee of the registrant.

There are no family relationships between the executive officers of the registrant or between any

director and any executive officer of the registrant.

HALLIBURTON 2008 ANNUAL REPORT

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer
Purchases of Equity Securities.

Halliburton Company’s common stock is traded on the New York Stock Exchange. Information

related to the high and low market prices of common stock and quarterly dividend payments is included
under the caption “Quarterly Data and Market Price Information” on page (cid:5)(cid:4)(cid:8) of this annual report. Cash
dividends on common stock in the amount of $0.09 per share were paid in March, June, September, and
December of 2008 and June, September, and December of 2007. Cash dividends on common stock in the
amount of $0.075 per share were paid in March of 2007. Our Board of Directors intends to consider the
payment of quarterly dividends on the outstanding shares of our common stock in the future. The
declaration and payment of future dividends, however, will be at the discretion of the Board of Directors
and will depend upon, among other things, future earnings, general financial condition and liquidity,
success in business activities, capital requirements, and general business conditions.

The following graph and table compare total shareholder return on our common stock for the five-

year period ended December 31, 2008, with the Standard & Poor’s 500 Stock Index and the Standard &
Poor’s Energy Composite Index over the same period. This comparison assumes the investment of $100 on
December 31, 2003, and the reinvestment of all dividends. The shareholder return set forth is not
necessarily indicative of future performance.

Halliburton

S&P 500

S&P Energy

350

300

250

200

150

100

0
12/03

12/04

12/05

12/06

12/07

12/08

2003

2004

2005

2006

2007

2008

December 31

Halliburton
Standard & Poor’s 500 Stock Index
Standard & Poor’s Energy Composite Index

$100.00
100.00
100.00

$153.28
110.88
131.54

$244.43
116.33
172.80

$247.14
134.70
214.63

$304.79
142.10
288.47

$147.95
89.53
187.88

At February 13, 2009, there were 18,585 shareholders of record. In calculating the number of

shareholders, we consider clearing agencies and security position listings as one shareholder for each
agency or listing.

HALLIBURTON 2008 ANNUAL REPORT

Following is a summary of repurchases of our common stock during the three-month period ended

December 31, 2008.

Total Number of Shares Average Price Paid per

Period
October 1-31
November 1-30
December 1-31
Total

Purchased (a)
36,642
12,264
66,986
115,892

Share
$ 26.20
$ 18.46
$ 15.32
$ 19.09

Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs

–
–
–
–

(a) All of the 115,892 shares purchased during the three-month period ended December 31, 2008 were acquired

from employees in connection with the settlement of income tax and related benefit withholding obligations

arising from vesting in restricted stock grants. These shares were not part of a publicly announced program

to purchase common shares.

Item 6. Selected Financial Data.

Information related to selected financial data is included on page (cid:5)(cid:4)(cid:5) of this annual report.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation.

Information related to Management’s Discussion and Analysis of Financial Condition and Results

of Operations is included on pages (cid:8)(cid:5) through (cid:9)(cid:10) of this annual report.

Item 7(a). Quantitative and Qualitative Disclosures About Market Risk.

Information related to market risk is included in Management’s Discussion and Analysis of

Financial Condition and Results of Operations under the caption “Financial Instrument Market Risk” on
page (cid:7)(cid:9) of this annual report.

HALLIBURTON 2008 ANNUAL REPORT

Item 8. Financial Statements and Supplementary Data.

Management’s Report on Internal Control Over Financial Reporting
Reports of Independent Registered Public Accounting Firm
Consolidated Statements of Operations for the years ended December 31, 2008, 2007, and

2006

Consolidated Balance Sheets at December 31, 2008 and 2007
Consolidated Statements of Shareholders’ Equity for the years ended

December 31, 2008, 2007, and 2006

Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2007, and

2006

Page No.
60
61
63

64
65

Notes to Consolidated Financial Statements
Selected Financial Data (Unaudited)
Quarterly Data and Market Price Information (Unaudited)

67
101
102

The related financial statement schedules are included under Part IV, Item 15 of this annual report.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9(a). Controls and Procedures.

In accordance with the Securities Exchange Act of 1934 Rules 13a-15 and 15d-15, we carried out

an evaluation, under the supervision and with the participation of management, including our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and
procedures as of the end of the period covered by this report. Based on that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were
effective as of December 31, 2008 to provide reasonable assurance that information required to be
disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized, and
reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
Our disclosure controls and procedures include controls and procedures designed to ensure that information
required to be disclosed in reports filed or submitted under the Exchange Act is accumulated and
communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure.

There has been no change in our internal control over financial reporting that occurred during the

three months ended December 31, 2008 that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.

See page 60 for Management’s Report on Internal Control Over Financial Reporting and page 62

for Report of Independent Registered Public Accounting Firm on its assessment of our internal control over
financial reporting.

Item 9(b). Other Information.

None.

HALLIBURTON 2008 ANNUAL REPORT

HALLIBURTON COMPANY
Management’s Discussion and Analysis of Financial Condition and Results of Operations

EXECUTIVE OVERVIEW

Organization
We are a leading provider of products and services to the energy industry. We serve the upstream

oil and gas industry throughout the lifecycle of the reservoir, from locating hydrocarbons and managing
geological data, to drilling and formation evaluation, well construction and completion, and optimizing
production through the life of the field. Activity levels within our operations are significantly impacted by
spending on upstream exploration, development, and production programs by major, national, and
independent oil and natural gas companies. We report our results under two segments, Completion and
Production and Drilling and Evaluation:

our Completion and Production segment delivers cementing, stimulation, intervention,
and completion services. The segment consists of production enhancement services,
completion tools and services, and cementing services; and
our Drilling and Evaluation segment provides field and reservoir modeling, drilling,
evaluation, and precise wellbore placement solutions that enable customers to model,
measure, and optimize their well construction activities. The segment consists of fluid
services, drilling services, drill bits, wireline and perforating services, software and asset
solutions, and project management services.

The business operations of our segments are organized around four primary geographic regions:

North America, Latin America, Europe/Africa/CIS, and Middle East/Asia. We have significant
manufacturing operations in various locations, including, but not limited to, the United States, Canada, the
United Kingdom, Continental Europe, Malaysia, Mexico, Brazil, and Singapore. With approximately
57,000 employees, we operate in approximately 70 countries around the world, and our corporate
headquarters are in Houston, Texas and Dubai, United Arab Emirates.

Financial results
During 2008, we produced revenue of $18.3 billion and operating income of $4.0 billion,
reflecting an operating margin of 22%. Revenue increased $3.0 billion or 20% over 2007, while operating
income improved $512 million or 15% over 2007. Consistent with our initiative to grow our non-North
America operations, we experienced 22% revenue growth and 26% operating income growth outside of
North America in 2008 compared to 2007. Revenue from our Latin America region increased 35% to $2.4
billion, and operating income increased 49% to $521 million in 2008 compared to 2007. Our Middle
East/Asia region also returned revenue and operating income growth in excess of 20% in 2008 compared to
2007.

Business outlook
We continue to believe in the strength of the long-term fundamentals of our business. However,
due to the financial crisis that developed in mid-2008, the ensuing negative impact on credit availability,
and the current excess supply of oil and natural gas, the near- and mid-term outlook for our business and
the industry remains uncertain. Forecasting the depth and length of the current recession and its impact on
the declining demand for energy is challenging due to the many factors involved.

HALLIBURTON 2008 ANNUAL REPORT

Although prices and margins had started to stabilize in North America during the first nine months
of 2008, a significant reduction in activity beginning in December of 2008 and a corresponding drop in the
United States rig count from the end of the third quarter of 2008 have reversed this trend. Pricing declines
are now occurring due to excess equipment and customer requests for discounts on existing work. In 2009,
rig counts have continued to fall and as of February 13, 2009 are approximately 34% below 2008 highs.
Capital expenditure adjustments from our customers remain fluid as they adjust their spending in response
to a continued drop in commodity price fundamentals and lack of readily available credit. As a result, we
are seeing activity declines intensify and expect activity declines for North America land to accelerate in
the first quarter of 2009. We also anticipate severe margin contraction to occur worldwide throughout
2009. Outside of North America, declining oil prices have caused our customers to defer many of their
new projects. Operators have announced a decline in spending in 2009. Several areas have been affected
by capital access issues that have constrained the ability of some of our independent, upstream customers to
fund their programs. Our larger customers are deferring several platform-based projects until they see
commodity price stabilization.

In 2009, we will focus on:

-
-

- minimizing discretionary spending;
lowering our costs from vendors;
-
reducing headcount in locations experiencing significant activity declines;
-
focusing on working capital management and managing our balance sheet to maximize
-
our financial flexibility;
continuing the globalization of our manufacturing and supply chain processes;
leveraging our technologies to provide our customers with the ability to more efficiently
drill and complete their wells. To that end, we opened one international research and
development center with global technology and training missions in 2007 and two in
2008;
continuing to deploy our packaged services strategy that creates an efficiency model for
our customers in the development of their assets;
expanding our business with national oil companies, including preparing for a shift to
increased use of our integrated project management services;
continuing to pursue strategic acquisitions that enhance our technological position and
our product and service portfolio in key areas, such as the following acquisitions in 2008:
in October 2008, we acquired the assets of Pinnacle Technologies, Inc. (Pinnacle),
-
including the Pinnacle brand from CARBO Ceramics Inc. Pinnacle is a provider
of microseismic fracture mapping services and tiltmeter mapping services;
in July 2008, we acquired the remaining 49% equity interest in WellDynamics
B.V. (WellDynamics) from Shell Technology Ventures Fund 1 B.V. (STV Fund).
We now own 100% of WellDynamics, a provider of intelligent well completion
technology;
in June 2008, we acquired all the intellectual property and assets of Protech
Centerform, a provider of casing centralization services; and
in May 2008, we acquired all intellectual property, assets, and existing business
of Knowledge Systems Inc. (KSI), a leading provider of combined geopressure
and geomechanical analysis software and services.

Our operating performance is described in more detail in “Business Environment and Results of

Operations.”

HALLIBURTON 2008 ANNUAL REPORT

Financial markets, liquidity, and capital resources
In the latter half of 2008 and so far in 2009, the equity, credit, and commodity markets have seen

unprecedented volatility. While this has created certain additional risks for our business, we believe we
have invested our cash balances conservatively, reduced our leverage, and secured sufficient short-term
credit capacity to help mitigate any near-term, negative impact on our operations. During the third quarter
of 2008, we issued an aggregate amount of $1.2 billion in senior notes and settled the principal and
conversion premium on our 3.125% convertible senior notes. For additional information, see “Liquidity
and Capital Resources”, “Risk Factors”, Note 9 to our consolidated financial statements, and “Business
Environment and Results of Operations.”

Foreign Corrupt Practices Act (FCPA) investigations
Resolution of the DOJ and SEC FCPA investigations has resulted in additional charges in 2008 to

discontinued operations. See Note 10 to our consolidated financial statements and “Risk Factors” for
further information.

HALLIBURTON 2008 ANNUAL REPORT

LIQUIDITY AND CAPITAL RESOURCES

We ended 2008 with cash and equivalents of $1.1 billion compared to $1.8 billion at December

31, 2007.

Significant sources of cash
Cash flows from operating activities contributed $2.7 billion to cash in 2008. Growth in revenue
and operating income was attributable to higher customer demand and increased service intensity due to a
trend toward exploration and exploitation of more complex reservoirs.

In September 2008, we issued senior notes due 2038 totaling $800 million and senior notes due

2018 totaling $400 million, which were used to pay the principal amount of our 3.125% convertible senior
notes.

Early in 2008, we sold approximately $388 million of marketable securities, consisting of auction-

rate securities and variable-rate demand notes.

Further available sources of cash. We have an unsecured $1.2 billion five-year revolving credit

facility expiring in 2012 to provide commercial paper support, general working capital, and credit for other
corporate purposes. There were no cash drawings under the facility as of December 31, 2008.

In October of 2008, we entered into an additional unsecured, six-month revolving credit facility,

with current commitments of $400 million, in order to give us additional liquidity and for other general
corporate purposes. There were no cash drawings under the facility as of December 31, 2008.

Significant uses of cash
Our 3.125% convertible senior notes due July 2023 became redeemable at our option on July 15,
2008. On July 30, 2008, we gave notice of redemption on the convertible notes. In lieu of redemption, the
holders of the convertible notes could convert each $1,000 principal amount of convertible notes into
53.4069 shares of our common stock. Substantially all of the holders timely elected to convert during the
third quarter of 2008. Upon conversion, we settled the principal amount of our convertible notes in cash
and the premium on our notes with a combination of $693 million in cash and approximately $840 million,
or 20 million shares, of our treasury stock.

Capital expenditures were $1.8 billion in 2008, with increased focus toward building infrastructure

and adding service equipment in support of our expanding operations outside of North America. Capital
expenditures were predominantly made in the drilling services, production enhancement, cementing, and
wireline and perforating product service lines.

During 2008, we repurchased approximately 13 million shares of our common stock under our

share repurchase program at a cost of approximately $481 million at an average price of $36.61 per share.

We paid $319 million in dividends to our shareholders in 2008.
We repaid $150 million of medium term notes, which matured in December 2008.
Future uses of cash. We have approximately $1.8 billion remaining available under our share

repurchase authorization, which may be used for open market share purchases.

In 2009, we believe we will maintain our capital expenditures up to 2008 levels but will monitor

our customers’ activity and make reductions as necessary. The capital expenditures plan for 2009 is
primarily directed toward our production enhancement, drilling services, wireline and perforating, and
cementing product service lines and toward retiring old equipment to replace it with new equipment to
improve our fleet reliability. We are currently exploring opportunities for acquisitions that will enhance or
augment our current portfolio of products and services, including those with unique technologies or
distribution networks in areas where we do not already have large operations.

As a result of the resolution of the DOJ and SEC FCPA investigations, we will pay a total of $559

million over the next two years under the settlements and indemnities provided to KBR upon separation.
See Notes 2 and 10 to our consolidated financial statements for more information.

Subject to Board of Directors approval, we expect to pay dividends of approximately $80 million

per quarter in 2009.

HALLIBURTON 2008 ANNUAL REPORT

The following table summarizes our significant contractual obligations and other long-term

liabilities as of December 31, 2008:

Millions of dollars
Long-term debt
Interest on debt (a)
Operating leases
Purchase obligations
Pension funding obligations (b)
DOJ and SEC settlement and
indemnity
Other long-term liabilities
Total

2009

26
168
183
1,501
48

2010
$ 749
168
161
65
–

Payments Due
2011
–
127
130
32
–

2012
$
–
127
84
16
–

373
9
$ 2,308

186
9
$1,338

–
9
$ 298

–
9
$ 236

2013
$
–
126
66
5
–

–
9
$ 206

Thereafter
$ 1,837
3,578
175
8
–

–
–
$ 5,598

Total
$ 2,612
4,294
799
1,627
48

559
45
$ 9,984

(a)

Interest on debt includes 88 years of interest on $300 million of debentures at 7.6% interest that become due in

2096.

(b) Amount based on assumptions that are subject to change. Also, we may choose to make additional discretionary

contributions. We are currently not able to reasonably estimate our contributions for years after 2009. See Note

15 to the consolidated financial statements for further information regarding pension contributions.

We had $343 million of gross unrecognized tax benefits at December 31, 2008, of which we

estimate $79 million may require a cash payment. We estimate that $38 million may be settled within the
next 12 months, although the amounts are not agreed with tax authorities. We are not able to reasonably
estimate in which future periods the remaining amounts will ultimately be settled and paid.

Other factors affecting liquidity
Letters of credit. In the normal course of business, we have agreements with banks under which

approximately $2.2 billion of letters of credit, surety bonds, or bank guarantees were outstanding as of
December 31, 2008, including approximately $828 million that relate to KBR. These KBR letters of credit,
surety bonds, or bank guarantees are being guaranteed by us in favor of KBR’s customers and lenders.
KBR has agreed to compensate us for these guarantees and indemnify us if we are required to perform
under any of these guarantees. Some of the outstanding letters of credit have triggering events that would
entitle a bank to require cash collateralization.

Financial position in current market. In recent years, we have reduced our leverage and improved

our liquidity by focusing on debt reduction and improvement to our credit profile. Our debt maturities
extend over a long period of time. We have no financial covenants or material adverse change provisions
in our bank agreements, and we are working to continue to improve our short-term credit capacity. We
currently have a total of $1.6 billion of committed bank credit under revolving credit facilities to support
our operations and any commercial paper we may issue in the future. Currently, there are no borrowings
under these revolving credit facilities.

In addition, we manage our cash investments by investing principally in United States Treasury

securities and repurchase agreements collateralized by United States Treasury securities.

Credit ratings. Credit ratings for our long-term debt remain A2 with Moody’s Investors Service

and A with Standard & Poor’s. The credit ratings on our short-term debt remain P-1 with Moody’s
Investors Service and A-1 with Standard & Poor’s.

Customer receivables. In most cases, we bill our customers for our services in arrears and are,

therefore, subject to our customers delaying or failing to pay our invoices. In weak economic
environments, we may experience increased delays and failures due to, among other reasons, a reduction in
our customer’s cash flow from operations and their access to the credit markets. If our customers delay in
paying or fail to pay us a significant amount of our outstanding receivables, it could have a material adverse
effect on our liquidity, consolidated results of operations, and consolidated financial condition.

HALLIBURTON 2008 ANNUAL REPORT

BUSINESS ENVIRONMENT AND RESULTS OF OPERATIONS

We operate in approximately 70 countries throughout the world to provide a comprehensive range

of discrete and integrated services and products to the energy industry. The majority of our consolidated
revenue is derived from the sale of services and products to major, national, and independent oil and gas
companies worldwide. We serve the upstream oil and natural gas industry throughout the lifecycle of the
reservoir: from locating hydrocarbons and managing geological data, to drilling and formation evaluation,
well construction and completion, and optimizing production throughout the life of the field. Our two
business segments are the Completion and Production segment and the Drilling and Evaluation segment.
The industries we serve are highly competitive with many substantial competitors in each segment. In
2008, based upon the location of the services provided and products sold, 43% of our consolidated revenue
was from the United States. In 2007 and 2006, 44% and 45% of our consolidated revenue was from the
United States. No other country accounted for more than 10% of our revenue during these periods.

Operations in some countries may be adversely affected by unsettled political conditions, acts of

terrorism, civil unrest, force majeure, war or other armed conflict, expropriation or other governmental
actions, inflation, exchange control problems, economic recessions, and highly inflationary currencies. We
believe the geographic diversification of our business activities reduces the risk that loss of operations in
any one country would be material to our consolidated results of operations.

Activity levels within our business segments are significantly impacted by spending on upstream

exploration, development, and production programs by major, national, and independent oil and gas
companies. Also impacting our activity is the status of the global economy, which impacts oil and natural
gas consumption. See “Risk Factors—Worldwide recession and effect on exploration and production
activity” for further information related to the effect of the current recession.

Some of the more significant barometers of current and future spending levels of oil and gas

companies are oil and natural gas prices, the world economy, and global stability, which together drive
worldwide drilling activity. Our financial performance is significantly affected by oil and natural gas
prices and worldwide rig activity, which are summarized in the following tables.

This table shows the historical average prices for West Texas Intermediate (WTI) and United

Kingdom Brent crude oil and Henry Hub natural gas:

Average Oil Prices (dollars per barrel)
West Texas Intermediate
United Kingdom Brent

2008
$ 99.37
$ 96.86

2007
$ 71.91
$ 72.21

2006
$ 66.17
$ 65.35

Average United States Gas Prices (dollars per million British

thermal units, or mmBtu)

Henry Hub

$ 8.79

$ 6.97

$ 6.81

HALLIBURTON 2008 ANNUAL REPORT

The historical yearly average rig counts based on the Baker Hughes Incorporated rig count

information were as follows:

Land vs. Offshore
United States:
Land
Offshore (incl. Gulf of Mexico)
Total

Canada:

Land
Offshore
Total

International (excluding Canada):

Land
Offshore
Total
Worldwide total
Land total
Offshore total

2008

2007

2006

1,812
128
1,940

378
1
379

784
295
1,079
3,398
2,974
424

1,694
144
1,838

341
3
344

719
287
1,006
3,188
2,754
434

1,558
176
1,734

467
3
470

656
269
925
3,129
2,681
448

Oil vs. Natural Gas
United States (incl. Gulf of Mexico):

2008

2007

2006

Oil
Natural Gas
Total

Canada:
Oil
Natural Gas
Total

International (excluding Canada):

Oil
Natural Gas
Total
Worldwide total
Oil total
Natural Gas total

381
1,559
1,940

160
219
379

825
254
1,079
3,398
1,366
2,032

300
1,538
1,838

128
216
344

784
222
1,006
3,188
1,212
1,976

278
1,456
1,734

110
360
470

709
216
925
3,129
1,097
2,032

Our customers’ cash flows, in most instances, depend upon the revenue they generate from the
sale of oil and natural gas. Lower oil and natural gas prices usually translate into lower exploration and
production budgets. The opposite is true for higher oil and natural gas prices.

HALLIBURTON 2008 ANNUAL REPORT

WTI oil spot prices have fallen from a high of $145 per barrel in July to an average of $41 per

barrel in the month of December, according to the Energy Information Administration (EIA). As of
February 10, 2009, the WTI oil spot price was $37.54 per barrel. According to the International Energy
Agency’s (IEA) February 2009 “Oil Market Report,” the outlook for world petroleum demand is expected
to contract for the first time since the 1980s, with the decrease in demand of North America and the Pacific
only partially offset by the increase in demand in Asia, the Middle East, and Latin America. The IEA
forecasts world petroleum demand in 2009 to decrease approximately 1% over 2008, but there are other
forecasts that indicate that demand contraction could be more severe. Despite the decline in oil and gas
prices and reduction in our customers’ capital spending, we believe that, over the long-term, any major
macroeconomic disruptions may ultimately correct themselves as the underlying trends of smaller and more
complex reservoirs, high depletion rates, and the need for continual reserve replacement should drive the
long-term need for our services.

North America operations. Volatility in natural gas prices can impact our customers' drilling and

production activities, particularly in North America. As we enter 2009, capital expenditure adjustments
from our customers remain fluid as they adjust their spending in response to a continued drop in
commodity price fundamentals and lack of readily available credit. In 2009, rig counts have fallen sharply
and as of February 13, 2009 are approximately 34% below 2008 highs. Our customers’ capital expenditure
cuts have intensified especially related to conventional and shallower drilling activity.

As noted in the table above, the Henry Hub spot price averaged $8.79 per mmBtu in 2008.
However, as of February 11, 2009, the Henry Hub spot price had fallen to $4.68 per mmBtu. We began to
see signs of pricing weakness in our services beginning in December of 2008 due to excess equipment and
customer requests for discounts on existing work. We expect activity declines in United States land to
accelerate in the first quarter of 2009. In addition, due to these volume declines and pricing adjustments,
we expect severe margin contraction to occur worldwide starting in the first quarter of 2009.

Focus on international operations. Consistent with our long-term strategy to grow our operations

outside of North America, we expect to continue to invest capital and increase manufacturing capacity to
bring new tools online to serve the need for our services. However, operators have announced a decline in
spending in 2009, and we expect to see contraction of our business, at least in the near term. Declining oil
prices have caused customers to defer several of their new and platform-based projects and slowdown their
existing projects. Several areas have also been affected by capital access issues that have constrained the
ability of some of our independent, upstream customers to fund their programs. We continue to believe in
the long-term prospects of the international market and will align our business accordingly.

HALLIBURTON 2008 ANNUAL REPORT

As our customers award work in this environment of declining commodity prices, pricing
competition in the international arena has intensified. Following is a brief discussion of some of our recent
and current initiatives:

- making our research and development efforts more geographically diverse in order to

continue to supply our customers with leading-edge services and products and to provide
our customers with the ability to more efficiently drill and complete their wells. To that
end, we opened a technology center in India in 2007 and in Singapore in the first quarter
of 2008 and a research and development laboratory in Norway in the third quarter of
2008;
continuing to deploy our packaged services strategy that creates an efficiency model for
our customers in the development of their assets;
continuing the globalization of our manufacturing and supply chain processes. In 2007
and 2008, we opened four new regional manufacturing facilities in Asia and Latin
America. These new centers will enable us to be more responsive to our international
customers while building regional supply networks that support local economies;
as our workforce becomes more global, the need for regional training centers increases.
As a result, we have expanded our number of regional training centers to meet this need.
We now have 12 training centers worldwide that integrate new workers and advance the
technical skills of our workforce;
expanding our business with national oil companies, including preparing for a shift to
increased use of our integrated project management services; and
continuing to pursue strategic acquisitions that enhance our technological position and
our product and service portfolio in key areas, such as the following acquisitions in 2008:
in October 2008, we acquired the assets of Pinnacle, including the Pinnacle brand
-
from CARBO Ceramics Inc. Pinnacle is a leading provider of microseismic
fracture mapping services and tiltmeter mapping services;
in July 2008, we acquired the remaining 49% equity interest of WellDynamics
from STV Fund. We now own 100% of WellDynamics, a provider of intelligent
well completion technology;
in June 2008, we acquired all the intellectual property and assets of Protech
Centerform in Houston, Ravenna, Italy, and Aberdeen, Scotland. Protech
Centerform is a provider of casing centralization service;
in May 2008, we acquired all intellectual property, assets, and existing business
of KSI, a leading provider of combined geopressure and geomechanical analysis
software and services;

HALLIBURTON 2008 ANNUAL REPORT

-
-

Contract wins positioning us to grow our international operations over the long term include:
a contract to manage the drilling and completion of 58 onshore wells in the southern
region of Mexico;
a contract to perform workover and sidetrack services in the United Kingdom;
a contract to provide completion equipment and services, tubing conveyed perforating
services and SmartWell® completion technology for numerous oil and natural gas fields
on the Norwegian continental shelf. The contract also allows for the provision of other
products and services;
a three-year contract to provide directional drilling, logging-while-drilling, cementing,
wireline and perforating, coiled tubing, and stimulation services in support of the offshore
portion of the Manifa mega-project in Saudi Arabia;
a three-year contract to provide a range of completion equipment for onshore oil and gas
wells in Abu Dhabi; and
a three-year contract to provide special cased-hole services in support of our work in
Indonesia’s Mahakam Delta.

HALLIBURTON 2008 ANNUAL REPORT

RESULTS OF OPERATIONS IN 2008 COMPARED TO 2007

REVENUE:
Millions of dollars
Completion and Production
Drilling and Evaluation
Total revenue

By geographic region:
Completion and Production:
North America
Latin America
Europe/Africa/CIS
Middle East/Asia

Total
Drilling and Evaluation:
North America
Latin America
Europe/Africa/CIS
Middle East/Asia

Total
Total revenue by region:
North America
Latin America
Europe/Africa/CIS
Middle East/Asia

2008
$ 9,935
8,344
$ 18,279

2007
$ 8,386
6,878
$ 15,264

Increase
$ 1,549
1,466
$ 3,015

Percentage
Change
18%
21
20%

$ 5,348
1,084
2,065
1,438
9,935

$ 4,655
756
1,767
1,208
8,386

2,992
1,341
2,281
1,730
8,344

8,340
2,425
4,346
3,168

2,478
1,042
1,933
1,425
6,878

7,133
1,798
3,700
2,633

693
328
298
230
1,549

514
299
348
305
1,466

1,207
627
646
535

15%
43
17
19
18

21
29
18
21
21

17
35
17
20

HALLIBURTON 2008 ANNUAL REPORT

OPERATING INCOME:
Millions of dollars
Completion and Production
Drilling and Evaluation
Corporate and other
Total operating income

By geographic region:
Completion and Production:
North America
Latin America
Europe/Africa/CIS
Middle East/Asia

Total
Drilling and Evaluation:
North America
Latin America
Europe/Africa/CIS
Middle East/Asia

Total

Total operating income by region

(excluding Corporate and other):
North America
Latin America
Europe/Africa/CIS
Middle East/Asia

2008
$ 2,409
1,865
(264)
$ 4,010

2007
$ 2,199
1,485
(186)
$ 3,498

Increase
(Decrease)
210
$
380
(78)
512

Percentage
Change
10%
26
(42)
15%

$ 1,404
260
409
336
2,409

$ 1,404
170
330
295
2,199

$ —
90
79
41
210

701
261
448
455
1,865

2,105
521
857
791

552
179
414
340
1,485

1,956
349
744
635

149
82
34
115
380

149
172
113
156

— %
53
24
14
10

27
46
8
34
26

8
49
15
25

The increase in consolidated revenue in 2008 compared to 2007 spanned all four regions and was

attributable to higher worldwide activity, particularly in North America, Asia, and Latin America.
Approximately $74 million in revenue was lost during 2008 due to Gulf of Mexico hurricanes.
International revenue was 57% of consolidated revenue in 2008 and 56% of consolidated revenue in 2007.
The increase in consolidated operating income in 2008 compared to 2007 was primarily due to a
49% increase in Latin America and a 25% increase in Middle East/Asia resulting from increased customer
activity, new contracts, and improved pricing. Operating income in 2008 was positively impacted by a $35
million gain on the sale of a joint venture interest in the United States, a combined $25 million gain related
to the sale of two investments in the United States, and a net $5 million gain on the settlement of two patent
disputes. Operating income in 2008 was adversely impacted by $52 million due to Gulf of Mexico
hurricanes, a $23 million impairment charge related to an oil and gas property in Bangladesh, and a $22
million acquisition-related charge for WellDynamics related to employee incentive compensation awards.
Operating income in 2007 was positively impacted by a $49 million gain recorded on the sale of our
remaining interest in Dresser, Ltd. and negatively impacted by $34 million in charges related to the
impairment of an oil and gas property in Bangladesh and $32 million in charges for environmental reserves.

HALLIBURTON 2008 ANNUAL REPORT

Following is a discussion of our results of operations by reportable segments.
Completion and Production increase in revenue compared to 2007 was derived from all regions.
Europe/Africa/CIS revenue grew 17% primarily from increased production enhancement services activity,
largely related to the acquisition of PSL Energy Services Limited. Additionally, completion tools revenue
benefited from increased sales and service in Africa. Middle East/Asia revenue grew 19% from increased
completion tools sales and deliveries and new contracts for production enhancement services in the region.
Increased demand for cementing products and services in the Middle East and Australia also contributed to
the increase. North America revenue grew 15% from improved demand for production enhancement
services and cementing products and services largely driven by increased capacity and rig count in the
United States. Partially offsetting the improvement in the United States was $34 million in lost revenue
due to Gulf of Mexico hurricanes. Latin America revenue grew 43% as a result of higher activity for all
product service lines, particularly in Mexico and Brazil. Higher demand for production enhancement
services, new cementing contracts with more favorable pricing, and improved completion tools sales were
large contributors to the increase in revenue. International revenue was 49% of total segment revenue in
2008 and 47% in 2007.

The increase in segment operating income in 2008 compared to 2007 spanned all regions except

North America. Europe/Africa/CIS operating income increased 24% from increased completion tools sales
and services in Africa and higher production enhancement activity in Europe. Middle East/Asia operating
income increased 14% primarily due to increased sales and service revenue from completion tools and
increased production enhancement activity in the region. North America operating income was flat
primarily due to a $25 million negative impact from Gulf of Mexico hurricanes and pricing declines and
cost increases in the United States for production enhancement, offset by improved completion tools sales
and services and a $35 million gain on the sale of a joint venture interest in the United States. Latin
America operating income increased 53% with improved cementing and production enhancement
performance primarily in Mexico and Brazil.

Drilling and Evaluation revenue increase compared to 2007 was derived from all regions.
Europe/Africa/CIS revenue grew 18% from increased drilling services activity and higher customer
demand for fluid and wireline and perforating services throughout the region. Middle East/Asia revenue
grew 21% primarily due to increased fluid services activity throughout the region and higher customer
demand for drilling services in Asia. North America revenue grew 21% from higher activity across all
product service lines in the United States primarily due to increased land rig count and higher demand for
new technology. The region also benefited from higher activity for fluid services in Canada. Partially
offsetting the improvement in the United States was $40 million in lost revenue due to Gulf of Mexico
hurricanes. Latin America revenue grew 29% as a result of increased customer demand for drilling
services, increased activity and new contracts for wireline and perforating services, and increased project
management services. International revenue was 68% of total segment revenue in both 2008 and 2007.

HALLIBURTON 2008 ANNUAL REPORT

The increase in segment operating income in 2008 compared to 2007 was derived from all regions
led by growth in North America, Latin America and Asia. Europe/Africa/CIS operating income increased
8% benefiting from higher customer demand for wireline and perforating services in Africa. Higher
demand for software sales and consulting services in Europe also contributed to the increase. Middle
East/Asia operating income grew 34% primarily due to increased fluid services results in the Middle East
as well as higher demand for drilling services and improved wireline and perforating services and software
sales and consulting services in Asia. Operating income was impacted by a $23 million impairment charge
related to an oil and gas property in Bangladesh. North America operating income increased 27% primarily
from increased activity in most of the product service lines including higher demand for fluid services and
increased drilling activity. Negatively impacting the region was a loss of $27 million due to Gulf of
Mexico hurricanes. This region’s results also reflect $25 million of gains related to the sale of two
investments in the United States. Latin America operating income increased 46% primarily due to
increased activity in drilling services and wireline and perforating services and improvements in software
sales and consulting services.

Corporate and other expenses were $264 million in 2008 compared to $186 million in 2007.

2008 included a $35 million gain in the fourth quarter and a $30 million charge in the second quarter
related to patent dispute settlements, a $22 million acquisition-related charge for WellDynamics related to
employee incentive compensation awards, higher legal costs, and increased corporate development costs.
2007 was impacted by a $49 million gain on the sale of our remaining interest in Dresser, Ltd. and a $12
million charge for executive separation costs.

NONOPERATING ITEMS

Interest income decreased $85 million in 2008 compared to 2007 due to a decrease of cash and

equivalents and marketable securities balances and a general decline in market interest rates.

Other, net in 2008 included the loss of $693 million for the portion of the premium paid in cash on

the settlement of our convertible senior notes in the third quarter and a $31 million loss on foreign
exchange.

Provision for income taxes from continuing operations of $1.2 billion in 2008 resulted in an

effective tax rate of 38% compared to an effective tax rate of 26% in 2007. The increase in the effective
tax rate from 2007 to 2008 is primarily related to the non-tax deductibility of the $693 million loss on the
portion of the premium on our convertible debt that we settled in cash. The provision for income taxes in
2007 included a $205 million favorable income tax impact from the ability to recognize foreign tax credits
previously estimated not to be fully utilizable.

Minority interest in net income of subsidiaries decreased $38 million compared to 2007, primarily

related to a change in effective ownership of a joint venture in 2008.

Income (loss) from discontinued operations, net of income tax in 2008 included $420 million in

charges reflecting the resolution of the DOJ and SEC FCPA investigations and the impact of our most
recent assumptions regarding the resolution of the Barracuda-Caratinga bolt arbitration matter under the
indemnities and guarantees provided to KBR upon separation. 2007 included a $933 million net gain on
the disposition of KBR, which included the estimated fair value of the indemnities and guarantees provided
to KBR and our 81% share of KBR’s $28 million in net income in the first quarter of 2007.

HALLIBURTON 2008 ANNUAL REPORT

RESULTS OF OPERATIONS IN 2007 COMPARED TO 2006

REVENUE:
Millions of dollars
Completion and Production
Drilling and Evaluation
Total revenue

By geographic region:
Completion and Production:
North America
Latin America
Europe/Africa/CIS
Middle East/Asia

Total
Drilling and Evaluation:
North America
Latin America
Europe/Africa/CIS
Middle East/Asia

Total
Total revenue by region:
North America
Latin America
Europe/Africa/CIS
Middle East/Asia

2007
$ 8,386
6,878
$ 15,264

2006
$ 7,221
5,734
$ 12,955

Increase
$ 1,165
1,144
$ 2,309

Percentage
Change
16%
20
18%

$ 4,655
756
1,767
1,208
8,386

$ 4,275
583
1,436
927
7,221

2,478
1,042
1,933
1,425
6,878

7,133
1,798
3,700
2,633

2,183
931
1,424
1,196
5,734

6,458
1,514
2,860
2,123

380
173
331
281
1,165

295
111
509
229
1,144

675
284
840
510

9%
30
23
30
16

14
12
36
19
20

10
19
29
24

HALLIBURTON 2008 ANNUAL REPORT

OPERATING INCOME:
Millions of dollars
Completion and Production
Drilling and Evaluation
Corporate and other
Total operating income

By geographic region:
Completion and Production:
North America
Latin America
Europe/Africa/CIS
Middle East/Asia

Total
Drilling and Evaluation:
North America
Latin America
Europe/Africa/CIS
Middle East/Asia

Total

Total operating income by region

(excluding Corporate and other):
North America
Latin America
Europe/Africa/CIS
Middle East/Asia

2007
$ 2,199
1,485
(186)
$ 3,498

2006
$ 2,140
1,328
(223)
$ 3,245

Increase
(Decrease)
59
$
157
37
253

Percentage
Change
3%

12
17

$ 1,404
170
330
295
2,199

$ 1,476
130
324
210
2,140

552
179
414
340
1,485

1,956
349
744
635

595
170
263
300
1,328

2,071
300
587
510

(72)
40
6
85
59

(43)
9
151
40
157

(115)
49
157
125

(5)%
31
2
40
3

(7)
5
57
13
12

(6)
16
27
25

The increase in consolidated revenue in 2007 compared to 2006 spanned all four regions in both
segments and was attributable to higher worldwide activity, particularly in Europe, Africa, and the United
States. Revenue derived from the eastern hemisphere contributed 58% to the total revenue increase.
International revenue was 56% of consolidated revenue in 2007 and 55% of consolidated revenue in 2006.

The increase in consolidated operating income was primarily derived from the eastern hemisphere,

which increased 26% compared to 2006. Operating income for 2007 was positively impacted by a $49
million gain recorded on the sale of our remaining interest in Dresser, Ltd. and negatively impacted by $34
million in charges related to the impairment of an oil and gas property in Bangladesh and $32 million in
charges for environmental reserves. Operating income for 2006 included a $48 million gain on the sale of
lift boats in West Africa and the North Sea and $47 million of insurance proceeds for business interruptions
resulting from the 2005 Gulf of Mexico hurricanes.

HALLIBURTON 2008 ANNUAL REPORT

Following is a discussion of our results of operations by reportable segment.
Completion and Production increase in revenue compared to 2006 was derived from all regions.

Europe/Africa/CIS revenue grew 23% on increased activity from production enhancement services in
Europe and Africa. The region also benefited from increased activity in our intelligent well completions
sales and increased completion product sales in Africa and improved cementing services pricing in the
North Sea and Russia. Middle East/Asia revenue grew 30% from increased completion product sales in
Asia, improved completion tools sales in the Middle East, and new cementing services contracts in the
Middle East. North America revenue improved 9% largely driven by increased production enhancement
services and cementing services activity in the United States. The North America revenue increase was
partially offset by lower pricing, particularly in fracturing, and decreased production enhancement services
activity in Canada. Latin America revenue increased 30% largely driven by cementing services revenue
increasing on new contracts and improved pricing, increased production enhancement activity in Mexico,
and increased completion product sales and services activity in Brazil. International revenue was 47% of
total segment revenue in 2007 compared to 45% in 2006.

The Completion and Production segment operating income improvement spanned all regions

except North America. Europe/Africa/CIS operating income grew 2% from increased activity and
improved pricing for cementing services in the North Sea. Europe/Africa/CIS segment operating income in
2006 included a $48 million gain on the sale of lift boats in west Africa and the North Sea. Middle
East/Asia operating income grew 40% from improved completion product deliveries in Asia and the
Middle East and additional cementing service projects in the Middle East. North America operating
income decreased 5% largely because the segment received hurricane insurance proceeds of $21 million in
2006 and due to a decline in production enhancement services pricing. Latin America operating income
increased 31% due to new technology and improved pricing for cementing services.

Drilling and Evaluation revenue increase in 2007 compared to 2006 was derived from all four

regions. Europe/Africa/CIS revenue improved 36% from increased drilling services activity throughout the
region, new fluid services contracts in the North Sea, and increased wireline and perforating services in
Africa. Middle East/Asia revenue increased 19% from additional drilling service contract awards and
activity in the region, new wireline and perforating services contracts in Asia, and increased fluid sales in
the Middle East. North America revenue grew 14% from improvements in all product service lines,
particularly wireline and perforating services and drilling services. The United States benefited from
increased land rig activity, particularly for horizontally and directionally drilled wells. Latin America
revenue improved 12% primarily on increased activity in drilling services, fluid services, and wireline and
perforating services. International revenue was 68% of total segment revenue in 2007 compared to 67% in
2006.

Drilling and Evaluation operating income increase compared to 2006 was led by the eastern
hemisphere. Europe/Africa/CIS Drilling and Evaluation operating income grew 57% from increased
drilling services activity in Europe and Africa. Africa also benefited from improved fluid service product
mix and new wireline and perforating projects. Middle East/Asia operating income grew 13% from
additional drilling service and wireline and perforating activity in the Middle East and Asia. Included in
the region in 2007 was a $34 million charge related to the impairment of an oil and gas property in
Bangladesh. Latin America operating income increased 5% from increased wireline and perforating
activity. Partially offsetting the improvement was decreased fluid service activity. North America
operating income fell 7% largely because the segment received hurricane insurance proceeds of $26 million
in 2006 and recorded a $24 million environmental exposure charge in the third quarter of 2007.

Corporate and other expenses were $186 million in 2007 compared to $223 million in 2006.

2007 included a $49 million gain recorded on the sale of our remaining interest in Dresser, Ltd. and a $12
million charge for executive separation costs.

HALLIBURTON 2008 ANNUAL REPORT

NONOPERATING ITEMS

Interest expense decreased $11 million in 2007 compared to 2006, primarily due to the repayment

in August 2006 of $275 million of our medium-term notes.

Interest income decreased $5 million in 2007 compared to 2006 due to lower average cash

balances.

Provision for income taxes from continuing operations in 2007 of $907 million resulted in an

effective tax rate of 26% compared to an effective tax rate of 31% in 2006. The provision for income taxes
in 2007 included a $205 million favorable income tax impact from the ability to recognize foreign tax
credits previously estimated not to be fully utilizable.

Minority interest in net income of subsidiaries increased $10 million compared to 2006, primarily

related to our joint venture in Saudi Arabia.

Income (loss) from discontinued operations, net of income tax in 2007 included a $933 million net

gain on the disposition of KBR, which included the estimated fair value of the indemnities and guarantees
provided to KBR and our 81% share of KBR’s $28 million in net income in the first quarter of 2007.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements requires the use of judgments and estimates. Our critical

accounting policies are described below to provide a better understanding of how we develop our
assumptions and judgments about future events and related estimations and how they can impact our
financial statements. A critical accounting estimate is one that requires our most difficult, subjective, or
complex estimates and assessments and is fundamental to our results of operations. We identified our most
critical accounting estimates to be:

-
-
-
-
-
-
-

forecasting our effective income tax rate, including our future ability to utilize foreign tax
credits and the realizability of deferred tax assets, and providing for uncertain tax
positions;
percentage-of-completion accounting for long-term, construction-type contracts;
legal and investigation matters;
valuations of indemnities;
valuations of long-lived assets, including intangible assets;
purchase price allocation for acquired businesses;
pensions; and
allowance for bad debts.

We base our estimates on historical experience and on various other assumptions we believe to be
reasonable according to the current facts and circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not readily apparent from other
sources. We believe the following are the critical accounting policies used in the preparation of our
consolidated financial statements, as well as the significant estimates and judgments affecting the
application of these policies. This discussion and analysis should be read in conjunction with our
consolidated financial statements and related notes included in this report.

We have discussed the development and selection of these critical accounting policies and
estimates with the Audit Committee of our Board of Directors, and the Audit Committee has reviewed the
disclosure presented below.

HALLIBURTON 2008 ANNUAL REPORT

Income tax accounting
We account for income taxes in accordance with Statement of Financial Accounting Standards

(SFAS) No. 109, “Accounting for Income Taxes,” which requires recognition of the amount of taxes
payable or refundable for the current year and an asset and liability approach in recognizing the amount of
deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our
financial statements or tax returns. We apply the following basic principles in accounting for our income
taxes:

a current tax liability or asset is recognized for the estimated taxes payable or refundable
on tax returns for the current year;
a deferred tax liability or asset is recognized for the estimated future tax effects
attributable to temporary differences and carryforwards;
the measurement of current and deferred tax liabilities and assets is based on provisions
of the enacted tax law, and the effects of potential future changes in tax laws or rates are
not considered; and
the value of deferred tax assets is reduced, if necessary, by the amount of any tax benefits
that, based on available evidence, are not expected to be realized.

We determine deferred taxes separately for each tax-paying component (an entity or a group of

entities that is consolidated for tax purposes) in each tax jurisdiction. That determination includes the
following procedures:

identifying the types and amounts of existing temporary differences;

-
- measuring the total deferred tax liability for taxable temporary differences using the

applicable tax rate;

- measuring the total deferred tax asset for deductible temporary differences and operating

loss carryforwards using the applicable tax rate;

- measuring the deferred tax assets for each type of tax credit carryforward; and
-

reducing the deferred tax assets by a valuation allowance if, based on available evidence,
it is more likely than not that some portion or all of the deferred tax assets will not be
realized.

Our methodology for recording income taxes requires a significant amount of judgment in the use

of assumptions and estimates. Additionally, we use forecasts of certain tax elements, such as taxable
income and foreign tax credit utilization, as well as evaluate the feasibility of implementing tax planning
strategies. Given the inherent uncertainty involved with the use of such variables, there can be significant
variation between anticipated and actual results. Unforeseen events may significantly impact these
variables, and changes to these variables could have a material impact on our income tax accounts related
to both continuing and discontinued operations.

We have operations in approximately 70 countries other than the United States. Consequently, we

are subject to the jurisdiction of a significant number of taxing authorities. The income earned in these
various jurisdictions is taxed on differing bases, including income actually earned, income deemed earned,
and revenue-based tax withholding. The final determination of our income tax liabilities involves the
interpretation of local tax laws, tax treaties, and related authorities in each jurisdiction. Changes in the
operating environment, including changes in tax law and currency/repatriation controls, could impact the
determination of our income tax liabilities for a tax year.

HALLIBURTON 2008 ANNUAL REPORT

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 FASB Interpretation No. (FIN) 48,
“Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109.” FIN 48, as
amended May 2007 by FASB Staff Position (FSP) FIN 48-1, “Definition of ‘Settlement’ in FASB
Interpretation No. 48,” prescribes 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. It also provides guidance for derecognition classification, interest and penalties,
accounting in interim periods, disclosure, and transition.

We had recorded a valuation allowance based on the anticipated inability to utilize future foreign

tax credits in the United States as of the end of 2006. This valuation allowance is reassessed quarterly
based on a number of estimates, including future creditable foreign income taxes and future taxable
income. Factors such as actual operating results, material acquisitions or dispositions, and changes to our
operating environment could alter the estimates, which could have a material impact on the valuation
allowance. Given that we fully utilized the United States net operating loss and began utilizing foreign tax
credits in the United States in 2006, the valuation allowance balance has been reduced to zero as of the end
of 2007. In addition, the provision for income taxes in 2007 included a favorable income tax adjustment
from the ability to recognize foreign tax credits previously generated in 2005 and 2006 thought not to be
fully utilizable. We now believe we can utilize these credits currently, because we have generated
additional taxable income and expect to continue to generate a higher level of taxable income largely from
the growth of our international operations.
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.
This method of accounting requires us to calculate job profit to be recognized in each reporting period for
each job based upon our projections of future outcomes, which include:

-
-
-
-

estimates of the total cost to complete the project;
estimates of project schedule and completion date;
estimates of the extent of progress toward completion; and
amounts of any probable unapproved claims and change orders included in revenue.

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. Our project personnel periodically evaluate the estimated costs, claims, change orders, and
percentage of completion at the project level. 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.

HALLIBURTON 2008 ANNUAL REPORT

When calculating the amount of total profit or loss on a long-term contract, we include

unapproved claims as revenue when the collection is deemed probable based upon the four criteria for
recognizing unapproved claims under the American Institute of Certified Public Accountants Statement of
Position 81-1, “Accounting for Performance of Construction-Type and Certain Production-Type
Contracts.” Including probable unapproved claims in this calculation increases the operating income (or
reduces the operating loss) that would otherwise be recorded without consideration of the probable
unapproved claims. Probable unapproved claims are recorded to the extent of costs incurred and include no
profit element. In all cases, the probable unapproved claims included in determining contract profit or loss
are less than the actual claim that will be or has been presented to the customer.

At least quarterly, significant projects are reviewed in detail by senior management. There are

many factors that impact future costs, including but not limited to weather, inflation, labor and community
disruptions, timely availability of materials, productivity, and other factors as outlined in our “Risk
Factors.” These factors can affect the accuracy of our estimates and materially impact our future reported
earnings. Currently, long-term contracts accounted for under the percentage-of-completion method of
accounting do not comprise a significant portion of our business. However, in the future, we expect our
business with national or state-owned oil companies to grow relative to our other business, with these types
of contracts likely comprising a more significant portion of our business. See Note 1 to the consolidated
financial statements for further information.

Legal and investigation matters
As discussed in Note 10 of our consolidated financial statements, as of December 31, 2008, we

have accrued an estimate of the probable and estimable costs for the resolution of some of these legal 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 precision of these estimates is impacted by 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.

Indemnity valuations
We provided indemnification in favor of KBR for certain contingent liabilities related to FCPA

investigations and the Barracuda-Caratinga bolts matter. See Note 10 to the consolidated financial
statements for further information. FIN 45, “Guarantor’s Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others – An Interpretation of FASB
Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34,” requires recognition of
third-party indemnities at their inception. Therefore, in accordance with FIN 45, we recorded our estimate
of the fair market value of these indemnities as of the date of KBR’s separation. The initial amounts
recorded for the FCPA and Barracuda-Caratinga indemnities were based upon analyses conducted by a
third-party valuation expert. The valuation models employed a probability-weighted cost analysis, with
certain assumptions based upon the accumulation of data and knowledge of the relevant issues. FSP FIN
45-2, “Whether FASB Interpretation No. 45, ‘Guarantor’s Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others’, Provides Support for Subsequently
Accounting for a Guarantor’s Liability at Fair Value,” states that the subsequent measurement of FIN 45
liabilities should not necessarily be based on fair value. The FSP references SFAS No. 5, “Accounting for
Contingencies” for subsequent adjustments related to contingent liabilities. As such, subsequent
adjustments to the indemnities provided to KBR upon separation, including the indemnity relating to the
FCPA investigations, have been recorded when the loss is both probable and estimable under SFAS No. 5.

HALLIBURTON 2008 ANNUAL REPORT

Value of long-lived assets, including intangible assets
We carry a variety of long-lived assets on our balance sheet including property, plant and

equipment, intangible assets, and goodwill. We conduct impairment tests on long-lived assets whenever
events or changes in circumstances indicate that the carrying value may not be recoverable and intangible
assets quarterly in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-
Lived Assets.” 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 in accordance with SFAS No. 142, “Goodwill and Other
Intangible Assets.” 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. The impairment test consists of a two-step process. The first step compares the fair value of a
reporting unit with its carrying amount, including goodwill, and utilizes a future cash flow analysis based
on the estimates and assumptions of our forecasted long-term growth model. If the fair value of a reporting
unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. If the carrying
amount of a reporting unit exceeds its fair value, we perform the second step of the goodwill impairment
test to measure the amount of the impairment loss, if any. The second step of the goodwill impairment test
compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill.
The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized
in a business combination. In other words, the estimated fair value of the reporting unit is allocated to all
of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit
had been acquired in a business combination and the fair value of the reporting unit was the purchase price
paid. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that
goodwill, an impairment loss is recognized in an amount equal to that excess. Any impairment charge that
we record reduces our earnings. The fair value of each of our reporting units exceeded its carrying amount
by a significant margin for 2008, 2007, and 2006. See Note 1 to the consolidated financial statements for
accounting policies related to long-lived assets and intangible assets.

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 inventory, identifiable intangible assets, and any other significant assets or liabilities when
appropriate. We adjust the preliminary purchase price allocation, as necessary, as we obtain more
information regarding asset valuations and liabilities assumed until the expiration of the measurement
period. 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. See
Note 3 to the consolidated financial statements for further information regarding acquisitions.

HALLIBURTON 2008 ANNUAL REPORT

Pensions
Our pension benefit obligations and expenses are calculated using actuarial models and methods,

in accordance with SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R).” Two of the more
critical assumptions and estimates used in the actuarial calculations are the discount rate for determining
the current value of plan benefit obligations and the expected rate of return on plan assets. Other critical
assumptions and estimates used in determining benefit obligations and plan expenses, 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. Considering the recent financial markets downturn, we elected to modify our methodology for
selecting discount rates at December 31, 2008 for our United States pension and postretirement plans. This
resulted in a lower discount rate and yielded a higher projected benefit obligation than if we had used our
previous methodology. 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 securities. As we
have both domestic and international plans, these assumptions differ based on varying factors specific to
each particular country or economic environment.

The discount rates utilized in 2008 to determine the projected benefit obligation at the
measurement date for our qualified United States non-terminating pension plans ranged from 5.72% to
5.77%, a decrease from the range of 6.03% to 6.19% that was utilized in 2007. The discount rate utilized in
2008 to determine the projected benefit obligation at the measurement date for our United Kingdom
pension plan, which constitutes 73% of our international plans and 63% of all plans, was 5.75% compared
to a discount rate of 5.70% utilized in 2007. The following table illustrates the sensitivity to changes in
certain assumptions, holding all other assumptions constant, for the United Kingdom pension plan.

Millions of dollars
25-basis-point decrease in discount rate
25-basis-point increase in discount rate

Pension Expense
in 2008
$ 4
$ (4)

Effect on

Pension Benefit Obligation
at December 31, 2008

$
$

30
(28)

HALLIBURTON 2008 ANNUAL REPORT

Our defined benefit plans reduced pretax earnings by $48 million in 2008, $48 million in 2007,

and $45 million in 2006. Included in the amounts were earnings from our expected pension returns of $51
million in 2008, $47 million in 2007, and $37 million in 2006. Unrecognized actuarial gains and losses are
being recognized over a period of five to 24 years, which represents the expected remaining service life of
the employee group. Our unrecognized actuarial gains and losses arose from several factors, including
experience and assumptions changes in the obligations and the difference between expected returns and
actual returns on plan assets. Actual losses on plan assets were $144 million in 2008, compared to actual
returns on plan assets of $68 million in 2007 and $65 million in 2006. The decline in value of plan assets
in 2008 was largely due to significant deterioration in the financial markets and broadening market decline
in the fourth quarter of 2008. The difference between actual and expected returns is deferred and recorded
net of tax in other comprehensive income as actuarial gain or loss and is recognized as future pension
expense. Our net actuarial loss, net of tax, at December 31, 2008 was $198 million. An estimated $4
million, net of tax, of our net actuarial loss at December 31, 2008 will be recognized as a component of our
expected 2009 pension expense. During 2008, we made contributions to fund our defined benefit plans of
$52 million, which included $18 million contributed to our United Kingdom plan. We expect to make
additional contributions in 2009 of approximately $48 million.

The actuarial assumptions used in determining our pension benefit obligations may differ
materially from actual results due to changing market and economic conditions, higher or lower withdrawal
rates, and longer or shorter life spans of participants. While we believe that the assumptions used are
appropriate, differences in actual experience or changes in assumptions may materially affect our financial
position or results of operations. See Note 15 to the consolidated financial statements for further
information related to defined benefit and other postretirement benefit plans.

Allowance for bad debts
We evaluate our accounts receivable through a continuous process of assessing our portfolio on an

individual customer and overall basis. This process consists of a thorough review of historical collection
experience, current aging status of the customer accounts, financial condition of our customers, and
whether the receivables involve retentions. We also consider the economic environment of our customers,
both from a marketplace and geographic perspective, in evaluating the need for an allowance. Based on
our review of these factors, we establish or adjust allowances for specific customers and the accounts
receivable portfolio as a whole. This process involves a high degree of judgment and estimation, and
frequently involves significant dollar amounts. Accordingly, our results of operations can be affected by
adjustments to the allowance due to actual write-offs that differ from estimated amounts. Our estimates of
allowances for bad debts have historically been accurate. Over the last five years, our estimates of
allowances for bad debts, as a percentage of notes and accounts receivable before the allowance, have
ranged from 1.5% to 5.0%. At December 31, 2008, allowance for bad debts totaled $60 million or 1.6% of
notes and accounts receivable before the allowance, and at December 31, 2007, allowance for bad debts
totaled $49 million or 1.6% of notes and accounts receivable before the allowance. A 1% change in our
estimate of the collectibility of our notes and accounts receivable balance as of December 31, 2008 would
have resulted in a $37 million adjustment to 2008 total operating costs and expenses.

OFF BALANCE SHEET ARRANGEMENTS

At December 31, 2008, 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 – Future uses of cash.”

HALLIBURTON 2008 ANNUAL REPORT

FINANCIAL INSTRUMENT MARKET RISK

We are exposed to financial instrument market risk from changes in foreign currency exchange

rates, interest rates, and, to a limited extent, commodity prices. From time to time, we may selectively
manage these exposures through the use of derivative instruments to mitigate our market risk from these
exposures. The objective of our risk management program is to protect our cash flows related to sales or
purchases of goods or services from market fluctuations in currency rates. We do not use derivative
instruments for trading purposes. Our use of derivative instruments includes the following types of market
risk:

volatility of the currency rates;
time horizon of the derivative instruments;

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- market cycles; and
-

the type of derivative instruments used.

We do not consider any of these risk management activities to be material. See Note 1 to the

consolidated financial statements for additional information on our accounting policies related to derivative
instruments. See Note 14 to the consolidated financial statements for additional disclosures related to
financial instruments.

Interest rate risk
We currently have no variable-rate, long-term debt that exposes us to interest rate risk.
The following table represents principal amounts of our long-term debt at December 31, 2008 and

related weighted average interest rates on the repayment amounts by year of maturity for our long-term
debt.

Millions of dollars

Repayment amount ($US)
Weighted average
interest rate on
repayment amount

2009

2010

$ 26

$ 750

2011
(cid:2)

2012
(cid:2)

2013
(cid:2)

Thereafter

Total

$ 1,839

$ 2,615

5.5%

(cid:2)

6.9%

6.5%

The fair market value of long-term debt was $2.8 billion as of December 31, 2008.

ENVIRONMENTAL MATTERS

We are subject to numerous environmental, legal, and regulatory requirements related to our

operations worldwide. In the United States, these laws and regulations include, among others:

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HALLIBURTON 2008 ANNUAL REPORT

In addition to the federal laws and regulations, states and other countries where we do business

We do not expect costs related to these remediation requirements to have a material adverse effect

on our consolidated financial position or our results of operations. Our accrued liabilities for
environmental matters were $64 million as of December 31, 2008 and $72 million as of December 31,
2007. Our total liability related to environmental matters covers numerous properties.

We have subsidiaries that have been named as potentially responsible parties along with other

third parties for 8 federal and state superfund sites for which we have established a liability. As of
December 31, 2008, those 8 sites accounted for approximately $10 million of our total $64 million liability.
For any particular federal or state superfund site, since our estimated liability is typically within a range and
our accrued liability may be the amount on the low end of that range, our actual liability could eventually
be well in excess of the amount accrued. Despite attempts to resolve these superfund matters, the relevant
regulatory agency may at any time bring suit against us for amounts in excess of the amount accrued. With
respect to some superfund sites, we have been named a potentially responsible party by a regulatory
agency; however, in each of those cases, we do not believe we have any material liability. We also could
be subject to third-party claims with respect to environmental matters for which we have been named as a
potentially responsible party.

NEW ACCOUNTING PRONOUNCEMENTS

In December 2008, the FASB issued FSP SFAS 132(R)-1 “Employers’ Disclosures about
Postretirement Benefit Plan Assets.” This FSP amends the disclosure requirements for employer’s
disclosure of plan assets for defined benefit pensions and other postretirement plans. The objective of this
FSP is to provide users of financial statements with an understanding of how investment allocation
decisions are made, the major categories of plan assets held by the plans, the inputs and valuation
techniques used to measure the fair value of plan assets, significant concentration of risk within the
company’s plan assets, and for fair value measurements determined using significant unobservable inputs a
reconciliation of changes between the beginning and ending balances. FSP SFAS 132(R)-1 is effective for
fiscal years ending after December 15, 2009. We will adopt the new disclosure requirements in the 2009
annual reporting period.

HALLIBURTON 2008 ANNUAL REPORT

In June 2008, the FASB issued FSP Emerging Issues Task Force (EITF) 03-6-1, “Determining
Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” This
FSP provides that unvested share-based payment awards that contain nonforfeitable rights to dividends or
dividend equivalents, whether paid or unpaid, are participating securities and shall be included in the
computation of both basic and diluted earnings per share. This EITF is effective for financial statements
issued for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years.
We will adopt the provisions of FSP EITF 03-6-1 on January 1, 2009, which will require us to recast prior
periods’ basic and diluted earnings per share to include outstanding unvested restricted common shares in
the weighted average shares outstanding calculation. We estimate that, had we calculated earnings per
share under these new provisions during 2008, basic income per share would have decreased by
approximately $0.02 for continuing operations and approximately $0.01 for net income and diluted income
per share would have decreased by approximately $0.01 for both continuing operations and net income per
share.

In May 2008, the FASB issued FSP Accounting Principles Board (APB) 14-1, “Accounting for

Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement).” This FSP clarifies that convertible debt instruments that may be settled in cash upon
conversion, including partial cash settlement, should separately account for the liability and equity
components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost
is recognized in subsequent periods. This FSP is effective for financial statements issued for fiscal years
beginning after December 15, 2008 and interim periods within those fiscal years. We will adopt the
provisions of FSP APB 14-1 on January 1, 2009 and will be required to retroactively apply its provisions,
which means we will restate our consolidated financial statements for prior periods.

In applying this FSP, we estimate approximately $60 million of the carrying value of the
convertible notes to be reclassified to equity as of the July 2003 issuance date. This amount represents the
equity component of the proceeds from the notes, calculated assuming a 4.3% non-convertible borrowing
rate. The discount will be accreted to interest expense over the five-year term of the notes. Accordingly,
approximately $13 million of additional non-cash interest expense, or $0.01 per diluted share, will be
recorded in 2006 and 2007 and approximately $7 million of additional non-cash interest expense will be
recorded in 2008. Furthermore, under this FSP, the $693 million loss to settle our convertible debt in the
third quarter of 2008 will be reversed and recorded to additional paid-in capital. We estimate that diluted
income per share for 2008 will increase by approximately $0.76.

In December 2007, the FASB issued SFAS No. 141(Revised 2007), “Business Combinations”

(SFAS No. 141(R)). SFAS No. 141(R) retains the underlying concepts of SFAS No. 141 in that all
business combinations are still required to be accounted for at fair value under the acquisition method of
accounting, but SFAS No. 141(R) changes the method of applying the acquisition method in a number of
ways. Acquisition costs will generally be expensed as incurred, noncontrolling interests (minority interests)
will be valued at fair value at the acquisition date, in-process research and development will be recorded at
fair value as an indefinite-lived intangible asset at the acquisition date, restructuring costs associated with a
business combination will generally be expensed subsequent to the acquisition date, and changes in
deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally
will affect income tax expense. SFAS No. 141(R) applies prospectively to business combinations for
which the acquisition date is on or after the first annual reporting period beginning on or after
December 15, 2008. We will adopt the provisions of SFAS No. 141(R) for business combinations on or
after January 1, 2009.

HALLIBURTON 2008 ANNUAL REPORT

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated

Financial Statements – An Amendment of ARB No. 51.” SFAS No. 160 establishes new accounting,
reporting, and disclosure standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. This statement requires the recognition of a noncontrolling interest
(minority interest) as equity in the consolidated financial statements and separate from the parent’s equity.
SFAS No. 160 is effective for fiscal years and interim periods within those fiscal years beginning on or
after December 15, 2008. We will adopt the provisions of SFAS No. 160 on January 1, 2009 and,
beginning with our 2009 interim reporting periods and for prior comparative periods, we will present
noncontrolling interest (minority interest) as a separate component of shareholders’ equity.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets
and Financial Liabilities – Including an amendment of FASB Statement No. 115.” SFAS No. 159 permits
entities to measure eligible assets and liabilities at fair value. Unrealized gains and losses on items for
which the fair value option has been elected are reported in earnings. SFAS No. 159 is effective for fiscal
years beginning after November 15, 2007. We adopted SFAS No. 159 on January 1, 2008 and did not elect
to apply the fair value method to any eligible assets or liabilities at that time.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which is
intended to increase consistency and comparability in fair value measurements by defining fair value,
establishing a framework for measuring fair value, and expanding disclosures about fair value
measurements. SFAS No. 157 applies to other accounting pronouncements that require or permit fair value
measurements and is effective for financial statements issued for fiscal years beginning after November 15,
2007 and interim periods within those fiscal years. In February 2008, the FASB issued FSP SFAS 157-1,
“Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting
Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or
Measurement under Statement 13,” which removes certain leasing transactions from the scope of SFAS
No. 157, and FSP SFAS 157-2, “Effective Date of FASB Statement No. 157,” which defers the effective
date of SFAS No. 157 for one year for certain nonfinancial assets and nonfinancial liabilities, except those
that are recognized or disclosed at fair value in the financial statements on a recurring basis. In October
2008, the FASB also issued FSP SFAS 157-3, “Determining the Fair Value of a Financial Asset When the
Market for That Asset Is Not Active,” which clarifies the application of SFAS No. 157 in an inactive
market and illustrates how an entity would determine fair value when the market for a financial asset is not
active. On January 1, 2008, we adopted without material impact on our consolidated financial statements
the provisions of SFAS No. 157 related to financial assets and liabilities and to nonfinancial assets and
liabilities measured at fair value on a recurring basis. Beginning January 1, 2009, we will adopt the
provisions for nonfinancial assets and nonfinancial liabilities that are not required or permitted to be
measured at fair value on a recurring basis, which include those measured at fair value in goodwill
impairment testing, indefinite-lived intangible assets measured at fair value for impairment assessment,
nonfinancial long-lived assets measured at fair value for impairment assessment, asset retirement
obligations initially measured at fair value, and those initially measured at fair value in a business
combination. We do not expect the provisions of SFAS No. 157 related to these items to have a material
impact on our consolidated financial statements.

HALLIBURTON 2008 ANNUAL REPORT

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,” “expects,” “do not expect,” “anticipates,” “do not anticipate,” 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 the results of operations may vary materially.

We do not assume any responsibility to publicly update any of our forward-looking statements

regardless of whether factors change as a result of new information, future events, or for any other reason.
You should review any additional disclosures we make in our press releases and Forms 10-K, 10-Q, and 8-
K filed with or furnished to the SEC. We also suggest that you listen to our quarterly earnings release
conference calls with financial analysts.

While it is not possible to identify all factors, we continue to face many risks and uncertainties that

could cause actual results to differ from our forward-looking statements and potentially materially and
adversely affect our financial condition and results of operations.

RISK FACTORS

Foreign Corrupt Practices Act Investigations

In February 2009, the FCPA investigations by the DOJ and the SEC were resolved. The DOJ and

SEC investigations resulted from allegations of improper payments to government officials in Nigeria in
connection with the construction and subsequent expansion by TSKJ of a multibillion dollar natural gas
liquefaction complex and related facilities at Bonny Island in Rivers State, Nigeria.

TSKJ is a private limited liability company registered in Madeira, Portugal whose members are

Technip SA of France, Snamprogetti Netherlands B.V. (a subsidiary of Saipem SpA of Italy), JGC
Corporation of Japan, and Kellogg Brown & Root LLC (a subsidiary of KBR), each of which had an
approximate 25% interest in the venture. TSKJ and other similarly owned entities entered into various
contracts to build and expand the liquefied natural gas project for Nigeria LNG Limited, which is owned by
the Nigerian National Petroleum Corporation, Shell Gas B.V., Cleag Limited (an affiliate of Total), and
Agip International B.V. (an affiliate of ENI SpA of Italy).

In addition to the DOJ and the SEC investigations, we are aware of other investigations in France,

Nigeria, Great Britain, and Switzerland regarding the Bonny Island project.

HALLIBURTON 2008 ANNUAL REPORT

We provided indemnification in favor of KBR under the master separation agreement for certain

contingent liabilities, including our indemnification of KBR and any of its greater than 50%-owned
subsidiaries as of November 20, 2006, the date of the master separation agreement, for fines or other
monetary penalties or direct monetary damages, including disgorgement, as a result of a claim made or
assessed by a governmental authority in the United States, the United Kingdom, France, Nigeria,
Switzerland, and/or Algeria, or a settlement thereof, related to alleged or actual violations occurring prior to
November 20, 2006 of the FCPA or particular, analogous applicable foreign statutes, laws, rules, and
regulations in connection with investigations pending as of that date, including with respect to the
construction and subsequent expansion by TSKJ of the Bonny Island project.

With respect to the DOJ, in February 2009, a subsidiary of KBR, Inc. pleaded guilty to conspiring
to violate the FCPA and to substantive violations of the anti-bribery provisions of the FCPA in connection
with the Bonny Island project. The DOJ investigation was resolved with respect to us with a non-
prosecution agreement in which the DOJ agreed not to bring FCPA or bid coordination-related charges
against us with respect to the matters under investigation, and in which we agreed to continue to cooperate
with the DOJ’s ongoing investigation and to refrain from and self-report certain FCPA violations. The DOJ
agreement does not provide for a monitor for us.

As a result of our indemnity in favor of KBR under the master separation agreement with KBR

and the KBR subsidiary’s criminal plea, we have paid $49 million and will pay an additional $333 million
in seven installments over the next seven quarters of the $402 million criminal fine payable by KBR as part
of the resolution of the DOJ investigation, with KBR consenting to pay the remaining $20 million.

With respect to the SEC, without admitting or denying the allegations in an SEC complaint, we
consented to the entry of a final judgment that permanently enjoins us from violating the record-keeping
and internal control provisions of the FCPA. KBR also entered into a related settlement with the SEC. As
part of our settlement with the SEC, we agreed to be jointly and severally liable with KBR for, and will pay
the SEC, $177 million in disgorgement in the first quarter of 2009.

In addition, as part of the resolution of the SEC investigation, we will retain an independent

consultant to conduct a 60-day review and evaluation of our internal controls and record-keeping policies
as they relate to the FCPA, and we will adopt any necessary anti-bribery and foreign agent internal controls
and record-keeping procedures recommended by or agreed upon with the independent consultant. In 2010,
the independent consultant will perform a 30-day follow-up review to confirm that we have implemented
the recommendations and continued the application of our current policies and procedures.

The settlements and the other ongoing investigations could result in third-party claims against us,

which may include claims for special, indirect, derivative or consequential damages, damage to our
business or reputation, loss of, or adverse effect on, cash flow, assets, goodwill, results of operations,
business prospects, profits or business value or claims by directors, officers, employees, affiliates, advisors,
attorneys, agents, debt holders, or other interest holders or constituents of us or our current or former
subsidiaries.

KBR has agreed that Halliburton’s indemnification obligations with respect to the DOJ and SEC

FCPA investigations have been fully satisfied. Our indemnity of KBR continues with respect to other
investigations within the scope of our indemnity.

Our indemnification obligation to KBR does not include losses resulting from third-party claims

against KBR, including claims for special, indirect, derivative or consequential damages, nor does our
indemnification apply to damage to KBR’s business or reputation, loss of, or adverse effect on, cash flow,
assets, goodwill, results of operations, business prospects, profits or business value or claims by directors,
officers, employees, affiliates, advisors, attorneys, agents, debt holders, or other interest holders or
constituents of KBR or KBR’s current or former subsidiaries.

HALLIBURTON 2008 ANNUAL REPORT

To reflect the resolution of the DOJ and SEC FCPA investigations and to reflect other adjustments

to the indemnities and guarantees provided to KBR upon separation, we recorded $420 million, net of tax,
in 2008 as a loss from discontinued operations. We did not record a tax benefit related to the resolution of
the DOJ and SEC FCPA investigations. As of December 31, 2008 and December 31, 2007, $559 million
and $142 million are recorded related to our obligations regarding DOJ and SEC FCPA matters in our
consolidated balance sheets in “Department of Justice and Securities and Exchange Commission settlement
and indemnity, current” and “Other liabilities.” See Note 2 to the consolidated financial statements for
additional information.

Barracuda-Caratinga Arbitration

We also provided indemnification in favor of KBR under the master separation agreement for all

out-of-pocket cash costs and expenses (except for legal fees and other expenses of the arbitration so long as
KBR controls and directs it), or cash settlements or cash arbitration awards, KBR may incur after
November 20, 2006 as a result of the replacement of certain subsea flowline bolts installed in connection
with the Barracuda-Caratinga project. Under the master separation agreement, KBR currently controls the
defense, counterclaim, and settlement of the subsea flowline bolts matter. As a condition of our indemnity,
for any settlement to be binding upon us, KBR must secure our prior written consent to such settlement’s
terms. We have the right to terminate the indemnity in the event KBR enters into any settlement without
our prior written consent. Our estimation of the indemnity obligation regarding the Barracuda-Caratinga
arbitration is recorded as a liability in our consolidated financial statements as of December 31, 2008 and
December 31, 2007. See Note 2 to our consolidated financial statements for additional information
regarding the KBR indemnification.

At Petrobras’ direction, KBR replaced certain bolts located on the subsea flowlines that failed

through mid-November 2005, and KBR has informed us that additional bolts have failed thereafter, which
were replaced by Petrobras. These failed bolts were identified by Petrobras when it conducted inspections
of the bolts. A key issue in the arbitration is which party is responsible for the designation of the material
to be used for the bolts. We understand that KBR believes that an instruction to use the particular bolts was
issued by Petrobras, and as such, KBR believes the cost resulting from any replacement is not KBR’s
responsibility. We understand Petrobras disagrees. We understand KBR believes several possible
solutions may exist, including replacement of the bolts. Estimates indicate that costs of these various
solutions range up to $148 million. In March 2006, Petrobras commenced arbitration against KBR
claiming $220 million plus interest for the cost of monitoring and replacing the defective bolts and all
related costs and expenses of the arbitration, including the cost of attorneys’ fees. We understand KBR is
vigorously defending and pursuing recovery of the costs incurred to date through the arbitration process
and to that end has submitted a counterclaim in the arbitration seeking the recovery of $22 million. The
arbitration panel held an evidentiary hearing during the week of March 31, 2008 and took evidence and
arguments under advisement.

HALLIBURTON 2008 ANNUAL REPORT

Impairment of Oil and Gas Properties

At December 31, 2008, we had interests in oil and gas properties totaling $105 million, net of
accumulated depletion, which we account for under the successful efforts method. The majority of this
amount is related to one property in Bangladesh in which we have a 25% non-operating interest. These oil
and gas properties are assessed for impairment whenever changes in facts and circumstances indicate that
the properties’ carrying amounts may not be recoverable. The expected future cash flows used for
impairment reviews and related fair-value calculations are based on judgmental assessments of future
production volumes, prices, and costs, considering all available information at the date of review.

A downward trend in estimates of production volumes or prices or an upward trend in costs could

result in an impairment of our oil and gas properties, which in turn could have an adverse effect on our
results of operations.

Geopolitical and International Environment

International and political events
A significant portion of our revenue is derived from our non-United States operations, which

exposes us to risks inherent in doing business in each of the countries in which we transact business. The
occurrence of any of the risks described below could have a material adverse effect on our consolidated
results of operations and consolidated financial condition.

Our operations in countries other than the United States accounted for approximately 57% of our
consolidated revenue during 2008 and 56% and 55% of our consolidated revenue during 2007 and 2006.
Operations in countries other than the United States are subject to various risks unique to each country.
With respect to any particular country, these risks may include:

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expropriation and nationalization of our assets in that country;
political and economic instability;
civil unrest, acts of terrorism, force majeure, war, or other armed conflict;
natural disasters, including those related to earthquakes and flooding;
inflation;
currency fluctuations, devaluations, and conversion restrictions;
confiscatory taxation or other adverse tax policies;
governmental activities that limit or disrupt markets, restrict payments, or limit the
movement of funds;
governmental activities that may result in the deprivation of contract rights; and
governmental activities that may result in the inability to obtain or retain licenses
required for operation.

Due to the unsettled political conditions in many oil-producing countries, our revenue and profits

are subject to the adverse consequences of war, the effects of terrorism, civil unrest, strikes, currency
controls, and governmental actions. Countries where we operate that have significant political risk include:
Algeria, Indonesia, Nigeria, Russia, Venezuela, and Yemen. In addition, military action or continued
unrest in the Middle East could impact the supply and pricing for oil and gas, disrupt our operations in the
region and elsewhere, and increase our costs for security worldwide.

HALLIBURTON 2008 ANNUAL REPORT

Our operations outside the United States require us to comply with a number of United States and
international regulations. For example, our operations in countries outside the United States are subject to
the FCPA, which prohibits United States companies or their agents and employees from providing anything
of value to a foreign official for the purposes of influencing any act or decision of these individuals in their
official capacity to help obtain or retain business, direct business to any person or corporate entity or obtain
any unfair advantage. Our activities in countries outside the United States create the risk of unauthorized
payments or offers of payments by one of our employees or agents that could be in violation of the FCPA,
even though these parties are not always subject to our control. We have internal control policies and
procedures and have implemented training and compliance programs for our employees and agents with
respect to the FCPA. However, we cannot assure you that our policies, procedures and programs always
will protect us from reckless or criminal acts committed by our employees or agents. In the event that we
believe or have reason to believe that our employees or agents have or may have violated applicable anti-
corruption laws, including the FCPA, we may be required to investigate or have outside counsel investigate
the relevant facts and circumstances. Violations of the FCPA may result in severe criminal or civil
sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating
results and financial condition.

In addition, investigations by governmental authorities as well as legal, social, economic, and

political issues in these countries could materially and adversely affect our business and operations.

Our facilities and our employees are under threat of attack in some countries where we operate. In

addition, the risks related to loss of life of our personnel and our subcontractors in these areas continue.

We are also subject to the risks that our employees, joint venture partners, and agents outside of

the United States may fail to comply with applicable laws.

Military action, other armed conflicts, or terrorist attacks
Military action in Iraq and the Middle East, military tension involving North Korea and Iran, as
well as the terrorist attacks of September 11, 2001 and subsequent terrorist attacks, threats of attacks, and
unrest, have caused instability or uncertainty in the world’s financial and commercial markets and have
significantly increased political and economic instability in some of the geographic areas in which we
operate. Acts of terrorism and threats of armed conflicts in or around various areas in which we operate,
such as the Middle East, Nigeria, and Indonesia, could limit or disrupt markets and our operations,
including disruptions resulting from the evacuation of personnel, cancellation of contracts, or the loss of
personnel or assets.

Such events may cause further disruption to financial and commercial markets and may generate

greater political and economic instability in some of the geographic areas in which we operate. In addition,
any possible reprisals as a consequence of the war and ongoing military action in Iraq, such as acts of
terrorism in the United States or elsewhere, could materially and adversely affect us in ways we cannot
predict at this time.

Income taxes
We have operations in approximately 70 countries other than the United States. Consequently, we

are subject to the jurisdiction of a significant number of taxing authorities. The income earned in these
various jurisdictions is taxed on differing bases, including net income actually earned, net income deemed
earned, and revenue-based tax withholding. The final determination of our income tax liabilities involves
the interpretation of local tax laws, tax treaties, and related authorities in each jurisdiction, as well as the
significant use of estimates and assumptions regarding the scope of future operations and results achieved
and the timing and nature of income earned and expenditures incurred. Changes in the operating
environment, including changes in or interpretation of tax law and currency/repatriation controls, could
impact the determination of our income tax liabilities for a tax year.

HALLIBURTON 2008 ANNUAL REPORT

Foreign exchange and currency risks
A sizable portion of our consolidated revenue and consolidated operating expenses is in foreign

currencies. As a result, we are subject to significant risks, including:

foreign exchange risks resulting from changes in foreign exchange rates and the
implementation of exchange controls; and
limitations on our ability to reinvest earnings from operations in one country to fund the
capital needs of our operations in other countries.

We conduct business in countries, such as Venezuela, that have nontraded or “soft” currencies

which, because of their restricted or limited trading markets, may be more difficult to exchange for “hard”
currency. We may accumulate cash in soft currencies, and we may be limited in our ability to convert our
profits into United States dollars or to repatriate the profits from those countries.

We selectively use hedging transactions to limit our exposure to risks from doing business in

foreign currencies. For those currencies that are not readily convertible, our ability to hedge our exposure
is limited because financial hedge instruments for those currencies are nonexistent or limited. Our ability
to hedge is also limited because pricing of hedging instruments, where they exist, is often volatile and not
necessarily efficient.

In addition, the value of the derivative instruments could be impacted by:

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adverse movements in foreign exchange rates;
interest rates;
commodity prices; or
the value and time period of the derivative being different than the exposures or cash
flows being hedged.

Customers and Business

Worldwide recession and effect on exploration and production activity
The recent worldwide financial and credit crisis has reduced the availability of liquidity and credit

to fund the continuation and expansion of industrial business operations worldwide. The shortage of
liquidity and credit combined with recent substantial losses in worldwide equity markets have led to a
worldwide economic recession that could continue for an extended period of time. The slowdown in
economic activity caused by the recession has reduced worldwide demand for energy and resulted in lower
oil and natural gas prices. This reduction in demand could continue through 2009 and beyond. Crude oil
prices declined from record levels in July 2008 of approximately $145 per barrel to levels as low as $30 per
barrel toward the end of 2008. As of February 10, 2009, crude oil prices were $37.54 per barrel. Natural
gas spot prices peaked at approximately $13.00 per mmBtu in 2008 and then fell to an average of $5.83 per
mmBtu toward the end of 2008. As of February 11, 2009, natural gas spot prices had fallen even further to
$4.68 per mmBtu. Demand for our services and products depends on oil and natural gas industry activity
and expenditure levels that are directly affected by trends in oil and natural gas prices. Demand for our
services and products is particularly sensitive to the level of exploration, development, and production
activity of, and the corresponding capital spending by, oil and natural gas companies, including national oil
companies. Any prolonged reduction in oil and natural gas prices will depress the immediate levels of
exploration, development, and production activity. Perceptions of longer-term lower oil and natural gas
prices by oil and gas companies can similarly reduce or defer major expenditures given the long-term
nature of many large-scale development projects. Lower levels of activity result in a corresponding decline
in the demand for our oil and natural gas well services and products, which could have a material adverse
effect on our revenue and profitability.

Exploration and production activity
Demand for our services and products depends on oil and natural gas industry activity and

expenditure levels that are directly affected by trends in oil and natural gas prices.

HALLIBURTON 2008 ANNUAL REPORT

Demand for our services and products is particularly sensitive to the level of exploration,

development, and production activity of, and the corresponding capital spending by, oil and natural gas
companies, including national oil companies. Prices for oil and natural gas are subject to large fluctuations
in response to relatively minor changes in the supply of and demand for oil and natural gas, market
uncertainty, and a variety of other factors that are beyond our control. The current low prices for oil and
natural gas have depressed the current levels of exploration, development, and production activity, resulting
in a corresponding decline in the demand for our oil and natural gas well services and products. Factors
affecting the prices of oil and natural gas include:

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governmental regulations, including the policies of governments regarding the
exploration for and production and development of their oil and natural gas reserves;
global weather conditions and natural disasters;

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the level of oil production by non-OPEC countries and the available excess production
capacity within OPEC;
oil refining capacity and shifts in end-customer preferences toward fuel efficiency and the
use of natural gas;
the cost of producing and delivering oil and gas;
potential acceleration of development of alternative fuels; and
the level of supply and demand for oil and natural gas, especially demand for natural gas
in the United States.

Historically, the markets for oil and gas have been volatile and are likely to continue to be volatile.

Spending on exploration and production activities by large oil and gas companies has a significant impact
on the activity levels of our businesses.

Capital spending
Our business is directly affected by changes in capital expenditures by our customers. Some of

the changes that may materially and adversely affect us include:

the consolidation of our customers, which could:

cause customers to reduce their capital spending, which would in turn reduce the
demand for our services and products; and
result in customer personnel changes, which in turn affect the timing of contract
negotiations;

adverse developments in the business and operations of our customers in the oil and gas
industry, including write-downs of reserves and reductions in capital spending for
exploration, development, and production; and
ability of our customers to timely pay the amounts due us.

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Customers
We depend on a limited number of significant customers. While none of these customers

represented more than 10% of consolidated revenue in any period presented, the loss of one or more
significant customers could have a material adverse effect on our business and our consolidated results of
operations.

In most cases, we bill our customers for our services in arrears and are, therefore, subject to our
customers delaying or failing to pay our invoices. In weak economic environments, we may experience
increased delays and failures due to, among other reasons, a reduction in our customer’s cash flow from
operations and their access to the credit markets. If our customers delay in paying or fail to pay us a
significant amount of our outstanding receivables, it could have a material adverse effect on our liquidity,
consolidated results of operations, and consolidated financial condition.

In addition, there is an increased risk in doing business with customers in countries that have

significant political risk or significant exposure to falling oil and natural gas prices, such as Venezuela.

HALLIBURTON 2008 ANNUAL REPORT

Business with national oil companies
Much of the world’s oil and gas reserves are controlled by national or state-owned oil companies
(NOCs). Several of the NOCs are among our top 20 customers. Increasingly, NOCs are turning to oilfield
services companies like us to provide the services, technologies, and expertise needed to develop their
reserves. Reserve estimation is a subjective process that involves estimating location and volumes based
on a variety of assumptions and variables that cannot be directly measured. As such, the NOCs may
provide us with inaccurate information in relation to their reserves that may result in cost overruns, delays,
and project losses. In addition, NOCs often operate in countries with unsettled political conditions, war,
civil unrest, or other types of community issues. These types of issues may also result in similar cost
overruns, losses, and contract delays.

Long-term, fixed-price contracts
NOCs often require integrated, long-term, fixed-price contracts that could require us to provide

integrated project management services outside our normal discrete business to act as project managers as
well as service providers. Providing services on an integrated basis may require us to assume additional
risks associated with cost over-runs, operating cost inflation, labor availability and productivity, supplier
and contractor pricing and performance, and potential claims for liquidated damages. For example, we
generally rely on third-party subcontractors and equipment providers to assist us with the completion of our
contracts. To the extent that we cannot engage subcontractors or acquire equipment or materials, our
ability to complete a project in a timely fashion or at a profit may be impaired. If the amount we are
required to pay for these goods and services exceeds the amount we have estimated in bidding for fixed-
price work, we could experience losses in the performance of these contracts. These delays and additional
costs may be substantial, and we may be required to compensate the NOCs for these delays. This may
reduce the profit to be realized or result in a loss on a project. Currently, contracts with NOCs do not
comprise a significant portion of our business. However, in the future, based on the anticipated growth of
NOCs, we expect our business with NOCs to grow relative to our other business, with these types of
contracts likely comprising a more significant portion of our business.

Acquisitions, dispositions, investments, and joint ventures
We continually seek opportunities to maximize efficiency and value through various transactions,

including purchases or sales of assets, businesses, investments, or joint ventures. These transactions are
intended to result in the realization of savings, the creation of efficiencies, the generation of cash or
income, or the reduction of risk. Acquisition transactions may be financed by additional borrowings or by
the issuance of our common stock. These transactions may also affect our consolidated results of
operations.

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These transactions also involve risks, and we cannot ensure that:
any acquisitions would result in an increase in income;
any acquisitions would be successfully integrated into our operations and internal
controls;
the due diligence prior to an acquisition would uncover situations that could result in
legal exposure or that we will appropriately quantify the exposure from known risks;
any disposition would not result in decreased earnings, revenue, or cash flow;
use of cash for acquisitions would not adversely affect our cash available for capital
expenditures and other uses;
any dispositions, investments, acquisitions, or integrations would not divert management
resources; or
any dispositions, investments, acquisitions, or integrations would not have a material
adverse effect on our results of operations or financial condition.

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HALLIBURTON 2008 ANNUAL REPORT

We conduct some operations through joint ventures, where control may be shared with unaffiliated

third parties. As with any joint venture arrangement, differences in views among the joint venture
participants may result in delayed decisions or in failures to agree on major issues. We also cannot control
the actions of our joint venture partners, including any nonperformance, default, or bankruptcy of our joint
venture partners. These factors could potentially materially and adversely affect the business and
operations of the joint venture and, in turn, our business and operations.

Environmental requirements
Our businesses are subject to a variety of environmental laws, rules, and regulations in the United

States and other countries, including those covering hazardous materials and requiring emission
performance standards for facilities. For example, our well service operations routinely involve the
handling of significant amounts of waste materials, some of which are classified as hazardous substances.
We also store, transport, and use radioactive and explosive materials in certain of our operations.
Environmental requirements include, for example, those concerning:

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the containment and disposal of hazardous substances, oilfield waste, and other waste
materials;
the importation and use of radioactive materials;
the use of underground storage tanks; and
the use of underground injection wells.

Environmental and other similar requirements generally are becoming increasingly strict.
Sanctions for failure to comply with these requirements, many of which may be applied retroactively, may
include:

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administrative, civil, and criminal penalties;
revocation of permits to conduct business; and
corrective action orders, including orders to investigate and/or clean up contamination.
Failure on our part to comply with applicable environmental requirements could have a material

adverse effect on our consolidated financial condition. We are also exposed to costs arising from
environmental compliance, including compliance with changes in or expansion of environmental
requirements, which could have a material adverse effect on our business, financial condition, operating
results, or cash flows.

We are exposed to claims under environmental requirements and, from time to time, such claims

have been made against us. In the United States, environmental requirements and regulations typically
impose strict liability. Strict liability means that in some situations we could be exposed to liability for
cleanup costs, natural resource damages, and other damages as a result of our conduct that was lawful at the
time it occurred or the conduct of prior operators or other third parties. Liability for damages arising as a
result of environmental laws could be substantial and could have a material adverse effect on our
consolidated results of operations.

We are periodically notified of potential liabilities at state and federal superfund sites. These

potential liabilities may arise from both historical Halliburton operations and the historical operations of
companies that we have acquired. Our exposure at these sites may be materially impacted by unforeseen
adverse developments both in the final remediation costs and with respect to the final allocation among the
various parties involved at the sites. For any particular federal or state superfund site, since our estimated
liability is typically within a range and our accrued liability may be the amount on the low end of that
range, our actual liability could eventually be well in excess of the amount accrued. The relevant
regulatory agency may bring suit against us for amounts in excess of what we have accrued and what we
believe is our proportionate share of remediation costs at any superfund site. We also could be subject to
third-party claims, including punitive damages, with respect to environmental matters for which we have
been named as a potentially responsible party.

HALLIBURTON 2008 ANNUAL REPORT

Changes in environmental requirements may negatively impact demand for our services. For

example, oil and natural gas exploration and production may decline as a result of environmental
requirements (including land use policies responsive to environmental concerns). A decline in exploration
and production, in turn, could materially and adversely affect us.

Law and regulatory requirements
In the countries in which we conduct business, we are subject to multiple and, at times,
inconsistent regulatory regimes, including those that govern our use of radioactive materials, explosives,
and chemicals in the course of our operations. Various national and international regulatory regimes
govern the shipment of these items. Many countries, but not all, impose special controls upon the export
and import of radioactive materials, explosives, and chemicals. Our ability to do business is subject to
maintaining required licenses and complying with these multiple regulatory requirements applicable to
these special products. In addition, the various laws governing import and export of both products and
technology apply to a wide range of services and products we offer. In turn, this can affect our
employment practices of hiring people of different nationalities because these laws may prohibit or limit
access to some products or technology by employees of various nationalities. Changes in, compliance
with, or our failure to comply with these laws may negatively impact our ability to provide services in,
make sales of equipment to, and transfer personnel or equipment among some of the countries in which we
operate and could have a material adverse affect on the results of operations.

Raw materials
Raw materials essential to our business are normally readily available. Market conditions can

trigger constraints in the supply chain of certain raw materials, such as sand, cement, and specialty metals.
The majority of our risk associated with supply chain constraints occurs in those situations where we have a
relationship with a single supplier for a particular resource.

Intellectual property rights
We rely on a variety of intellectual property rights that we use in our services and products. We

may not be able to successfully preserve these intellectual property rights in the future, and these rights
could be invalidated, circumvented, or challenged. In addition, the laws of some foreign countries in which
our services and products may be sold do not protect intellectual property rights to the same extent as the
laws of the United States. Our failure to protect our proprietary information and any successful intellectual
property challenges or infringement proceedings against us could materially and adversely affect our
competitive position.
Technology
The market for our services and products is characterized by continual technological developments

to provide better and more reliable performance and services. If we are not able to design, develop, and
produce commercially competitive products and to implement commercially competitive services in a
timely manner in response to changes in technology, our business and revenue could be materially and
adversely affected, and the value of our intellectual property may be reduced. Likewise, if our proprietary
technologies, equipment and facilities, or work processes become obsolete, we may no longer be
competitive, and our business and revenue could be materially and adversely affected.

Reliance on management
We depend greatly on the efforts of our executive officers and other key employees to manage our
operations. The loss or unavailability of any of our executive officers or other key employees could have a
material adverse effect on our business.

HALLIBURTON 2008 ANNUAL REPORT

Technical personnel
Many of the services that we provide and the products that we sell are complex and highly

engineered and often must perform or be performed in harsh conditions. We believe that our success
depends upon our ability to employ and retain technical personnel with the ability to design, utilize, and
enhance these services and products. In addition, our ability to expand our operations depends in part on
our ability to increase our skilled labor force. A significant increase in the wages paid by competing
employers could result in a reduction of our skilled labor force, increases in the wage rates that we must
pay, or both. If either of these events were to occur, our cost structure could increase, our margins could
decrease, and any growth potential could be impaired.

Weather
Our business could be materially and adversely affected by severe weather, particularly in the Gulf

of Mexico where we have operations. Repercussions of severe weather conditions may include:

evacuation of personnel and curtailment of services;

-
- weather-related damage to offshore drilling rigs resulting in suspension of operations;
- weather-related damage to our facilities and project work sites;
-
-

inability to deliver materials to jobsites in accordance with contract schedules; and
loss of productivity.

Because demand for natural gas in the United States drives a significant amount of our business, warmer
than normal winters in the United States are detrimental to the demand for our services to gas producers.

HALLIBURTON 2008 ANNUAL REPORT

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of Halliburton Company is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in the Securities Exchange Act Rule 13a-15(f).

Internal control over financial reporting, no matter how well designed, has inherent limitations.

Therefore, even those systems determined to be effective can provide only reasonable assurance with
respect to financial statement preparation and presentation. Further, because of changes in conditions, the
effectiveness of internal control over financial reporting may vary over time.

Under the supervision and with the participation of our management, including our chief executive

officer and chief financial officer, we conducted an evaluation to assess the effectiveness of our internal
control over financial reporting as of December 31, 2008 based upon criteria set forth in the Internal
Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on our assessment, we believe that, as of December 31, 2008, our internal control over
financial reporting is effective.

The effectiveness of Halliburton’s internal control over financial reporting as of December 31,

2008 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their
report that is included herein.

HALLIBURTON COMPANY

/s/ David J. Lesar
David J. Lesar
Chairman of the Board,
President, and Chief Executive Officer

/s/ Mark A. McCollum
Mark A. McCollum
Executive Vice President and
Chief Financial Officer

HALLIBURTON 2008 ANNUAL REPORT

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders
Halliburton Company:

We have audited the accompanying consolidated balance sheets of Halliburton Company and subsidiaries
as of December 31, 2008 and 2007, and the related consolidated statements of operations, shareholders’
equity, and cash flows for each of the years in the three-year period ended December 31, 2008. These
consolidated financial statements are the responsibility of the Company’s management. Our responsibility
is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of Halliburton Company and subsidiaries as of December 31, 2008 and
2007, and the results of their operations and their cash flows for each of the years in the three-year period
ended December 31, 2008, in conformity with U.S. generally accepted accounting principles.

As discussed in Notes 11 and 15, respectively, to the consolidated financial statements, the Company
changed its methods of accounting for uncertainty in income taxes as of January 1, 2007 and its method of
accounting for defined benefit and other postretirement plans as of December 31, 2006, respectively.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), Halliburton Company’s internal control over financial reporting as of December 31,
2008, based on criteria established in Internal Control - Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 16, 2009
expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial
reporting.

/s/ KPMG LLP
Houston, Texas
February 16, 2009

HALLIBURTON 2008 ANNUAL REPORT

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders
Halliburton Company:

We have audited Halliburton Company’s internal control over financial reporting as of December 31, 2008, based on
criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO). Halliburton Company's management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining
an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit
also included performing such other procedures as we considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company's internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on
the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.

In our opinion, Halliburton Company maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2008, based on criteria established in Internal Control - Integrated Framework issued by
COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated balance sheets of Halliburton Company as of December 31, 2008 and 2007, and the related
consolidated statements of operations, shareholders’ equity, and cash flows for each of the years in the three-year
period ended December 31, 2008, and our report dated February 16, 2009 expressed an unqualified opinion on those
consolidated financial statements.

/s/ KPMG LLP
Houston, Texas
February 16, 2009

HALLIBURTON 2008 ANNUAL REPORT

HALLIBURTON COMPANY
Consolidated Statements of Operations

Millions of dollars and shares except per share data
Revenue:
Services
Product sales
Total revenue
Operating costs and expenses:
Cost of services
Cost of sales
General and administrative
Gain on sale of business assets, net
Total operating costs and expenses
Operating income
Interest expense
Interest income
Other, net
Income from continuing operations before income

taxes and minority interest

Provision for income taxes
Minority interest in net income of subsidiaries
Income from continuing operations
Income (loss) from discontinued operations, net of

income tax (provision) benefit of $3, $(15), and
$(183)
Net income

Year Ended December 31
2007

2008

2006

$ 13,391
4,888
18,279

$ 11,256
4,008
15,264

$ 9,643
3,312
12,955

10,079
3,970
282
(62)
14,269
4,010
(160)
39
(726)

3,163
(1,211)
9
1,961

8,167
3,358
293
(52)
11,766
3,498
(154)
124
(8)

3,460
(907)
(29)
2,524

6,751
2,675
342
(58)
9,710
3,245
(165)
129
(10)

3,199
(1,003)
(19)
2,177

(423)
$ 1,538

975
$ 3,499

171
$ 2,348

Basic income (loss) per share:
Income from continuing operations
Income (loss) from discontinued operations, net
Net income per share

2.24
(0.49)
1.75

2.76
1.07
3.83

$ 2.15
0.16
$ 2.31

Diluted income (loss) per share:
Income from continuing operations
Income (loss) from discontinued operations, net
Net income per share

2.17
(0.47)
1.70

Basic weighted average common shares outstanding
Diluted weighted average common shares outstanding

877
904

See notes to consolidated financial statements.

2.66
1.02
3.68

913
950

$ 2.07
0.16
$ 2.23

1,014
1,054

HALLIBURTON 2008 ANNUAL REPORT

Liabilities and Shareholders’ Equity

$ 14,385

$ 13,135

HALLIBURTON COMPANY
Consolidated Balance Sheets

Millions of dollars and shares except per share data

Assets

Current assets:

Cash and equivalents

Receivables (less allowance for bad debts of $60 and $49)

Inventories

Current deferred income taxes

Investments in marketable securities

Other current assets

Total current assets

Property, plant, and equipment, net of accumulated depreciation of $4,566 and $4,126

Goodwill

Noncurrent deferred income taxes

Other assets

Total assets

Current liabilities:

Accounts payable

Accrued employee compensation and benefits

Department of Justice and Securities and Exchange Commission settlement

and indemnity, current

Deferred revenue

Income tax payable

Current maturities of long-term debt

Other current liabilities

Total current liabilities

Long-term debt

Employee compensation and benefits

Other liabilities

Total liabilities

Minority interest in consolidated subsidiaries

Shareholders’ equity:

Common shares, par value $2.50 per share – authorized 2,000 shares, issued 1,067

and 1,063 shares

Paid-in capital in excess of par value

Accumulated other comprehensive loss

Retained earnings

Treasury stock, at cost – 172 and 183 shares

Total shareholders’ equity

Total liabilities and shareholders’ equity

See notes to consolidated financial statements.

HALLIBURTON 2008 ANNUAL REPORT

December 31

2008

2007

1,124

1,847

3,795

1,828

246
(cid:2)

418

7,411

4,782

1,072

157

963

3,093

1,459

376

388

410

7,573

3,630

790

348

794

898

643

373

231

543

2,781

2,586

539

735

6,641

2,666

1,114

(215)

9,411

(5,251)

7,725

768

575

–

209

159

491

2,411

2,627

403

734

6,175

2,657

1,741

(104)

8,202

(5,630)

6,866

$ 14,385

$ 13,135

HALLIBURTON COMPANY
Consolidated Statements of Shareholders’ Equity

Millions of dollars
Balance at January 1
Dividends and other transactions with shareholders
Sale of stock by a subsidiary
Adoption of Financial Accounting Standards Board
Interpretation No. 48 and Statement of Financial

Accounting Standard No. 158
Shares exchanged in KBR, Inc. exchange offer
Other

2008
$ 6,866
(558)
–

2007
$ 7,376
(1,499)

–

2006
$ 6,372
(1,324)
117

(10)
–
–

(30)
(2,809)
(4)

(218)
–
34

Comprehensive income:
Net income
Net cumulative translation adjustments
Defined benefit and other postretirement plans adjustments
Net unrealized gains (losses) on investments

and derivatives
Total comprehensive income

1,538
1
(106)

3,499
(23)
355

(6)
1,427

1
3,832

2,348
34
2

11
2,395

Balance at December 31

$ 7,725

$ 6,866

$ 7,376

See notes to consolidated financial statements.

HALLIBURTON 2008 ANNUAL REPORT

HALLIBURTON COMPANY
Consolidated Statements of Cash Flows

Millions of dollars
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash from operations:
Depreciation, depletion, and amortization
Loss on extinguishment of debt
(Income) loss from discontinued operations
Provision (benefit) for deferred income taxes, continuing operations
Gain on sale of business assets, net
Other changes:
Accounts payable
Contributions to pension plans
Inventories
Receivables
Other
Cash flows from discontinued operations
Total cash flows from operating activities
Cash flows from investing activities:
Sales (purchases) of short-term investments in marketable securities, net
Sales of property, plant, and equipment
Dispositions of business assets, net of cash disposed
Disposal of KBR, Inc. cash upon separation
Acquisitions of business assets, net of cash acquired
Capital expenditures
Other investing activities
Cash flows from discontinued operations
Total cash flows from investing activities
Cash flows from financing activities:
Proceeds from long-term debt, net of offering costs
Proceeds from exercises of stock options
Tax benefit from exercise of options and restricted stock
Payments of dividends to shareholders
Payments to reacquire common stock
Payments on long-term debt
Other financing activities
Cash flows from discontinued operations
Total cash flows from financing activities
Effect of exchange rate changes on cash, including $0, $0, and $50 related to

discontinued operations

Increase (decrease) in cash and equivalents
Cash and equivalents at beginning of year, including $0, $1,461, and $390

Year Ended December 31
2007

2008

2006

1,538

3,499

$ 2,348

738
693
423
254
(62)

161
(52)
(368)
(670)
19
–
2,674

388
191
81
–
(652)
(1,824)
(40)
–
(1,856)

1,187
120
44
(319)
(507)
(2,048)
–
–
(1,523)

(18)
(723)

583
–
(975)
(140)
(52)

77
(41)
(218)
(326)
288
31
2,726

(332)
203
70
(1,461)
(563)
(1,583)
18
(13)
(3,661)

–
110
29
(314)
(1,374)
(7)
4
(18)
(1,570)

(27)
(2,532)

480
–
(171)
714
(66)

96
(75)
(309)
(327)
656
311
3,657

(20)
152
98
–
(27)
(834)
(20)
225
(426)

–
159
53
(306)
(1,339)
(324)
(8)
485
(1,280)

37
1,988

related to discontinued operations

1,847

4,379

2,391

Cash and equivalents at end of year, including $0, $0, and $1,461 related

to discontinued operations

1,124

1,847

$ 4,379

Supplemental disclosure of cash flow information for continuing operations:
Cash payments during the year for:
Interest
Income taxes

See notes to consolidated financial statements.

$
$

143
1,057

$
$

144
941

$
$

164
289

HALLIBURTON 2008 ANNUAL REPORT

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 gas around the world.

Use of estimates
Our financial statements are prepared in conformity with accounting principles generally accepted

in the United States, 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 valuation of income
taxes, percentage-of-completion accounting for long-term contracts, legal and environmental reserves,
indemnity valuations, purchase price allocations, pensions, goodwill, other intangible assets, and allowance
for bad debts. Ultimate results could differ from those 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. If we do not
have significant influence, we use the cost method.

As the result of realigning our products and services during the third quarter of 2007, we are now

reporting two business segments. See Note 4 for further information. Additionally, KBR, Inc. (KBR),
formerly a wholly owned subsidiary, is presented as discontinued operations in the consolidated financial
statements. See Note 2 for additional information. All periods presented reflect these changes.
Certain other prior year amounts have been reclassified to conform to the current year

presentation.

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, collectibility 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 collectibility 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.

HALLIBURTON 2008 ANNUAL REPORT

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.

Sale of stock by a subsidiary
When, as part of a broader corporate reorganization, a subsidiary or affiliate sells unissued shares
in a public offering, we treat the transaction as a capital transaction. Therefore, the increase or decrease in
the carrying amount of our subsidiary’s stock is not reflected as a gain or loss on our consolidated
statements of operations, but as an increase or decrease to “Paid-in capital in excess of par value.”

Research and development
Research and development costs are expensed as incurred. Research and development costs were

$326 million in 2008, $301 million in 2007, and $254 million in 2006, of which over 96% was company
sponsored in each year.

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.

Allowance for bad debts
We establish an allowance for bad debts through a review of several factors, including historical

collection experience, current aging status of the customer accounts, and financial condition of our
customers.

Property, plant, and equipment
Other than those assets that have been written down to their fair values due to impairment,

property, plant, and equipment are reported at cost less accumulated depreciation, which is generally
provided on the straight-line method over the estimated useful lives of the assets. Accelerated depreciation
methods are also used for tax purposes, wherever permitted. Upon sale or retirement of an asset, the related
costs and accumulated depreciation are removed from the accounts and any gain or loss is recognized.
Planned major maintenance costs are generally expensed as incurred. Expenditures for additions,
modifications, and conversions are capitalized when they increase the value or extend the useful life of the
asset.

HALLIBURTON 2008 ANNUAL REPORT

Goodwill and other intangible assets
We record as goodwill the excess purchase price over the fair value of the tangible and identifiable

intangible assets acquired. During the year, we recorded an additional $274 million in goodwill arising
from 2008 acquisitions, of which $159 million related to the Completion and Production segment and $115
million related to the Drilling and Evaluation segment. The reported amounts of goodwill for each
reporting unit are reviewed for impairment on an annual basis, during the third quarter, and more frequently
when negative conditions such as significant current or projected operating losses exist. The annual
impairment test for goodwill is a two-step process and involves comparing the estimated fair value of each
reporting unit to the reporting unit’s carrying value, including goodwill. If the fair value of a reporting unit
exceeds its carrying amount, goodwill of the reporting unit is not considered impaired, and the second step
of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the
second step of the goodwill impairment test would be performed to measure the amount of impairment loss
to be recorded, if any. The second step of the goodwill impairment test compares the implied fair value of
the reporting unit’s goodwill with the carrying amount of that goodwill. The implied fair value of goodwill
is determined in the same manner as the amount of goodwill recognized in a business combination. In
other words, the estimated fair value of the reporting unit is allocated to all of the assets and liabilities of
that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a
business combination and the fair value of the reporting unit was the purchase price paid. If the carrying
amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss
is recognized in an amount equal to that excess. Our annual impairment tests resulted in no goodwill
impairment in 2008, 2007, or 2006. In addition, there were no negative conditions, or triggering events,
that occurred in 2008, 2007, or 2006 requiring us to perform additional impairment reviews.

We amortize other identifiable intangible assets with a finite life on a straight-line basis over the

period which the asset is expected to contribute to our future cash flows, ranging from three years to 20
years. The components of these other intangible assets generally consist of patents, license agreements,
non-compete agreements, trademarks, and customer lists and contracts.

Evaluating impairment of long-lived assets
When events or changes in circumstances indicate that long-lived assets other than goodwill may

be impaired, an evaluation is performed. For an asset classified as held for use, the estimated future
undiscounted cash flows associated with the asset are compared to the asset’s carrying amount to determine
if a write-down to fair value is required. When an asset is classified as held for sale, the asset’s book value
is evaluated and adjusted to the lower of its carrying amount or fair value less cost to sell. In addition,
depreciation and amortization is ceased while it is classified as held for sale.

Insurance
The company is self-insured up to certain retention limits for general liability, vehicle liability,

group medical, and for workers’ compensation claims for certain of its employees. The amounts in excess
of the self-insured levels are fully insured, up to a limit. Self-insurance accruals are based on claims filed
and an estimate for significant claims incurred but not reported.

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.

HALLIBURTON 2008 ANNUAL REPORT

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 commodity prices. We do not enter into derivative
transactions for speculative or trading purposes. We recognize all derivatives on the balance sheet at fair
value. Derivatives are adjusted to fair value and reflected through the results of operations. Gains or losses
on foreign currency derivatives are included in “Other, net” and gains or losses on commodity derivatives
are included in operating income. Our derivatives are not designated as hedges for accounting purposes.

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
consolidated income in “Other, net” in the year of occurrence. Foreign entities whose functional currency
is not the United States dollar translate net assets at year-end rates and income and expense accounts at
average exchange rates. Adjustments resulting from these translations are reflected in the consolidated
statements of shareholders’ equity as “Net cumulative translation adjustments.”

Stock-based compensation
Effective January 1, 2006, we adopted the fair value recognition provisions of Financial

Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 123
(revised 2004), “Share-Based Payment”, using the modified prospective application. Accordingly, we are
recognizing compensation expense for all newly granted awards and awards modified, repurchased, or
cancelled after January 1, 2006. Compensation cost for the unvested portion of awards that were
outstanding as of January 1, 2006 is being recognized ratably over the remaining vesting period based on
the fair value at date of grant. Also, beginning with the January 1, 2006 purchase period, compensation
expense for our 2002 Employee Stock Purchase Plan (ESPP) is being recognized. The cumulative effect of
this change in accounting principle related to stock-based awards was immaterial.

Total stock-based compensation expense for continuing operations, net of related tax effects, was
$67 million in 2008, $62 million in 2007, and $49 million in 2006. Total income tax benefit recognized in
continuing operations for stock-based compensation arrangements was $36 million in 2008, $35 million in
2007, and $27 million in 2006.

HALLIBURTON 2008 ANNUAL REPORT

The majority of our options are generally issued during the second quarter of the year. The fair

value of options at the date of grant was estimated using the Black-Scholes option pricing model. The
expected volatility of options granted was a blended rate based upon implied volatility calculated on
actively traded options on our common stock and upon the historical volatility of our common stock. The
expected term of options granted was based upon historical observation of actual time elapsed between date
of grant and exercise of options for all employees. The assumptions and resulting fair values of options
granted were as follows:

Expected term (in years)
Expected volatility
Expected dividend yield
Risk-free interest rate
Weighted average grant-date fair value per share

2008
5.20
32.30%
0.71 – 2.38%
1.57 – 3.32%
$ 12.28

Year Ended December 31
2007
5.14
35.70%
0.89 – 1.14%
3.37 – 5.00%

2006
5.24
42.20%
0.76 – 1.06%
4.30 – 5.03 %

$ 11.35

$ 14.20

The fair value of ESPP shares was estimated using the Black-Scholes option pricing model. The

expected volatility was a one-year historical volatility of our common stock. The assumptions and
resulting fair values were as follows:

Expected term (in years)
Expected volatility
Expected dividend yield
Risk-free interest rate
Weighted average grant-date fair value per share

Offering period July 1 through December 31
2006
2007
2008
0.5
0.5
0.5
37.77%
29.49%
28.88%
0.80%
1.03%
0.67%
5.29%
4.98%
2.17%
9.32
7.97
$ 12.58

Expected term (in years)
Expected volatility
Expected dividend yield
Risk-free interest rate
Weighted average grant-date fair value per share

See Note 12 for further detail on stock incentive plans.

Offering period January 1 through June 30
2007
0.5
34.91%
1.00%
5.09%
7.20

2008
0.5
24.69%
0.93%
3.40%
8.64

2006
0.5
35.65%
0.75%
4.38%
7.91

HALLIBURTON 2008 ANNUAL REPORT

Note 2. KBR Separation

In November 2006, KBR completed an initial public offering (IPO), in which it sold

approximately 32 million shares of KBR common stock at $17.00 per share. Proceeds from the IPO were
approximately $508 million, net of underwriting discounts and commissions and offering expenses. The
increase in the carrying amount of our investment in KBR, resulting from the IPO, was recorded in “Paid-in
capital in excess of par value” on our consolidated balance sheet at December 31, 2006. On April 5, 2007,
we completed the separation of KBR from us by exchanging the 135.6 million shares of KBR common
stock owned by us on that date for 85.3 million shares of our common stock. In the second quarter of 2007,
we recorded a gain on the disposition of KBR of approximately $933 million, net of tax and the estimated
fair value of the indemnities and guarantees provided to KBR as described below, which is included in
income from discontinued operations on the consolidated statement of operations. During 2008,
adjustments of $420 million, net of tax, to our liability for indemnities and guarantees were reflected as a
loss in “Income (loss) from discontinued operations, net of income tax.”

The following table presents the financial results of KBR, which are reflected as discontinued
operations in our consolidated statements of operations. For accounting purposes, we ceased including
KBR’s operations in our results effective March 31, 2007.

Year Ended December 31

Millions of dollars
Revenue
Operating income
Net income

2006
$ 9,621
239
$
180
$
(a) Net income for 2007 represents our 81% share of KBR’s results from

2007
$ 2,250
62
$
23 (a)
$

January 1, 2007 through March 31, 2007.

We entered into various agreements relating to the separation of KBR, including, among others, a

master separation agreement, a registration rights agreement, a tax sharing agreement, transition services
agreements, and an employee matters agreement. The master separation agreement provides for, among
other things, KBR’s responsibility for liabilities related to its business and our responsibility for liabilities
unrelated to KBR’s business. We provide indemnification in favor of KBR under the master separation
agreement for certain contingent liabilities, including our indemnification of KBR and any of its greater
than 50%-owned subsidiaries as of November 20, 2006, the date of the master separation agreement, for:

fines or other monetary penalties or direct monetary damages, including disgorgement, as
a result of a claim made or assessed by a governmental authority in the United States, the
United Kingdom, France, Nigeria, Switzerland, and/or Algeria, or a settlement thereof,
related to alleged or actual violations occurring prior to November 20, 2006 of the United
States Foreign Corrupt Practices Act (FCPA) or particular, analogous applicable foreign
statutes, laws, rules, and regulations in connection with investigations pending as of that
date, including with respect to the construction and subsequent expansion by a
consortium of engineering firms comprised of Technip SA of France, Snamprogetti
Netherlands B.V., JGC Corporation of Japan, and Kellogg Brown & Root LLC (TSKJ) of
a natural gas liquefaction complex and related facilities at Bonny Island in Rivers State,
Nigeria; and
all out-of-pocket cash costs and expenses, or cash settlements or cash arbitration awards
in lieu thereof, KBR may incur after the effective date of the master separation agreement
as a result of the replacement of the subsea flowline bolts installed in connection with the
Barracuda-Caratinga project.

HALLIBURTON 2008 ANNUAL REPORT

Additionally, we provide indemnities, performance guarantees, surety bond guarantees, and letter

of credit guarantees that are currently in place in favor of KBR’s customers or lenders under project
contract, credit agreements, letters of credit, and other KBR credit instruments. These indemnities and
guarantees will continue until they expire at the earlier of: (1) the termination of the underlying project
contract or KBR obligations there under; (2) the expiration of the relevant credit support instrument in
accordance with its terms or release of such instrument by the customer; or (3) the expiration of the credit
agreements. Further, KBR and we have agreed that, until December 31, 2009, we will issue additional
guarantees, indemnification, and reimbursement commitments for KBR’s benefit in connection with: (a)
letters of credit necessary to comply with KBR’s Egypt Basic Industries Corporation ammonia plant
contract, KBR’s Allenby & Connaught project, and all other KBR project contracts that were in place as of
December 15, 2005; (b) surety bonds issued to support new task orders pursuant to the Allenby &
Connaught project, two job order contracts for KBR’s Government and Infrastructure segment, and all
other KBR project contracts that were in place as of December 15, 2005; and (c) performance guarantees in
support of these contracts. KBR is compensating us for these guarantees. We have also provided a limited
indemnity, with respect to FCPA and anti-trust governmental and third-party claims, to the lender parties
under KBR’s revolving credit agreement expiring in December 2010. KBR has agreed to indemnify us,
other than for the FCPA and Barracuda-Caratinga bolts matter, if we are required to perform under any of
the indemnities or guarantees related to KBR’s revolving credit agreement, letters of credit, surety bonds,
or performance guarantees described above.

During the second quarter of 2007, we recorded $190 million, as a reduction of the gain on the

disposition of KBR, to reflect the estimated fair value of the above indemnities and guarantees, net of the
associated estimated future tax benefit. During 2008, we recorded $420 million, net of tax, as a loss to
discontinued operations to reflect the resolution of the Department of Justice (DOJ) and Securities and
Exchange Commission (SEC) FCPA investigations and the impact of our most recent assumptions
regarding the resolution of the Barracuda-Caratinga bolt arbitration matter under the indemnities and
guarantees provided to KBR upon separation. We did not record a tax benefit related to the resolution of
the DOJ and SEC investigations. These indemnities and guarantees are primarily included in “Department
of Justice and Securities and Exchange Commission settlement and indemnity, current” and “Other
liabilities” on the consolidated balance sheets and totaled $631 million at December 31, 2008. Excluding
the DOJ and SEC matters noted above, our estimation of the remaining obligation for other indemnities and
guarantees provided to KBR upon separation was $72 million at December 31, 2008. See Note 10 for
further discussion of the FCPA and Barracuda-Caratinga matters.

The tax sharing agreement provides for allocations of United States and certain other jurisdiction

tax liabilities between us and KBR.

Note 3. Acquisitions and Dispositions

We have completed various acquisitions for cash payments in the aggregate of approximately

$652 million during 2008, $563 million during 2007, and $27 million during 2006. None of these
acquisitions were significant on an individual basis.

WellDynamics B.V.
In July 2008, we acquired the remaining 49% equity interest in WellDynamics B.V.

(WellDynamics) from Shell Technology Ventures Fund 1 B.V. (STV Fund), resulting in our 100%
ownership of WellDynamics. WellDynamics is a provider of intelligent well completion technology and its
results of operations are included in our Completion and Production segment.

HALLIBURTON 2008 ANNUAL REPORT

PSL Energy Services Limited
In July 2007, we acquired the entire share capital of PSL Energy Services Limited (PSLES), a

Dresser, Ltd. interest
As a part of our sale of Dresser Equipment Group in 2001, we retained a small equity interest in

Ultraline Services Corporation
In January 2007, we acquired all intellectual property, current assets, and existing business

Note 4. Business Segment Information

Subsequent to the KBR separation, in the third quarter of 2007, we realigned our products and

services to improve operational and cost management efficiencies, better serve our customers, and become
better aligned with the process of exploring for and producing from oil and natural gas wells. We now
operate under two divisions, which form the basis for the two operating segments we report: the
Completion and Production segment and the Drilling and Evaluation segment. All periods presented reflect
reclassifications related to the change in operating segments and the reclassification of certain amounts
between the operating segments and “Corporate and other.” KBR results are presented as discontinued
operations as a result of the separation of KBR from us.

Following is a discussion of our operating segments.
Completion and Production delivers cementing, stimulation, intervention, and completion

services. This segment consists of production enhancement services, completion tools and services, and
cementing services.

Production enhancement services include stimulation services, pipeline process services, sand

HALLIBURTON 2008 ANNUAL REPORT

Cementing services involve bonding the well and well casing while isolating fluid zones and

maximizing wellbore stability. Our cementing service line also provides casing equipment.

Drilling and Evaluation provides field and reservoir modeling, drilling, evaluation, and well

construction solutions that enable customers to model, measure, and optimize their well placement,
stability, and reservoir evaluation activities. This segment consists of fluid services, drilling services, drill
bits, wireline and perforating services, software and asset solutions, and project management services.

Fluid services provides drilling fluid systems, performance additives, completion fluids, solids

control, specialized testing equipment, and waste management services for oil and gas drilling, completion,
and workover operations.

Drill bits provides roller cone rock bits, fixed cutter bits, hole enlargement and related downhole

tools and services used in drilling oil and gas wells. In addition, coring equipment and services are
provided to acquire cores of the formation drilled for evaluation.

Wireline and perforating services include open-hole wireline services that provide information on

Corporate and other includes expenses related to support functions and corporate executives.

Also included are certain gains and losses that are not attributable to a particular business segment.
“Corporate and other” represents assets not included in a business segment and is primarily composed of
cash and equivalents, deferred tax assets, and marketable securities.

Intersegment revenue and revenue between geographic areas are immaterial. Our equity in

earnings and losses of unconsolidated affiliates that are accounted for under the equity method is included
in revenue and operating income of the applicable segment.

HALLIBURTON 2008 ANNUAL REPORT

The following tables present information on our business segments.

Operations by business segment

Millions of dollars
Revenue:
Completion and Production
Drilling and Evaluation
Total
Operating income:
Completion and Production
Drilling and Evaluation
Corporate and other
Total
Capital expenditures:
Completion and Production
Drilling and Evaluation
Corporate and other
Total
Depreciation, depletion, and amortization:
Completion and Production
Drilling and Evaluation
Total

Millions of dollars
Total assets:
Completion and Production
Drilling and Evaluation
Shared assets
Corporate and other
Discontinued operations
Total

Year Ended December 31
2007

2006

2008

$ 9,935
8,344
$ 18,279

$ 8,386
6,878
$ 15,264

$ 7,221
5,734
$ 12,955

$ 2,409
1,865
(264)
$ 4,010

$ 2,199
1,485
(186)
$ 3,498

$ 2,140
1,328
(223)
$ 3,245

797
$
1,021
6
$ 1,824

791
759
33
$ 1,583

366
372
738

288
295
583

441
390
3
834

239
241
480

2008

December 31
2007

2006

$ 6,045
6,096
648
1,596
–
$ 14,385

$ 4,842
4,606
672
3,015
–
$ 13,135

$ 3,636
3,566
1,216
3,047
5,395
$ 16,860

Not all assets are associated with specific segments. Those assets specific to segments include

receivables, inventories, certain identified property, plant, and equipment (including field service
equipment), equity in and advances to related companies, and goodwill. The remaining assets, such as
cash, are considered to be shared among the segments.

Revenue by country is determined based on the location of services provided and products sold.

Operations by geographic area

Millions of dollars
Revenue:
United States
Other countries
Total

HALLIBURTON 2008 ANNUAL REPORT

Year Ended December 31
2007

2006

2008

$ 7,775
10,504
$ 18,279

$ 6,673
8,591
$ 15,264

$ 5,869
7,086
$ 12,955

Millions of dollars
Long-lived assets:
United States
Other countries
Total

2008

December 31
2007

2006

$ 3,571
3,027
$ 6,598

$ 2,733
2,263
$ 4,996

$ 2,045
1,413
$ 3,458

Note 5. Receivables

Our trade receivables are generally not collateralized. At December 31, 2008, 34% of our gross

trade receivables were from customers in the United States. At December 31, 2007, 35% of our gross trade
receivables were from customers in the United States. No other country accounted for more than 10% of
our gross trade receivables at these dates.

Note 6. Inventories

Inventories are stated at the lower of cost or market. In the United States we manufacture certain

finished products and parts inventories for drill bits, completion products, bulk materials, and other tools
that are recorded using the last-in, first-out method, which totaled $92 million at December 31, 2008 and
$71 million at December 31, 2007. If the average cost method had been used, total inventories would have
been $31 million higher than reported at December 31, 2008 and $25 million higher than reported at
December 31, 2007. The cost of the remaining inventory was recorded on the average cost method.
Inventories consisted of the following:

December 31

Millions of dollars
Finished products and parts
Raw materials and supplies
Work in process
Total

2008
$ 1,312
446
70
$ 1,828

2007
$ 1,042
325
92
$ 1,459

Finished products and parts are reported net of obsolescence reserves of $81 million at December

31, 2008 and $65 million at December 31, 2007.

Note 7. Investments in marketable securities

At December 31, 2007, we had $388 million invested in marketable securities, consisting of
auction-rate securities and variable-rate demand notes which were classified as available-for-sale and
recorded at fair value. In January 2008, we sold the entire balance of marketable securities at face value.
At December 31, 2008, we held no investments in marketable securities.

HALLIBURTON 2008 ANNUAL REPORT

Note 8. Property, Plant, and Equipment

Property, plant, and equipment were composed of the following:

December 31

Millions of dollars
Land
Buildings and property improvements
Machinery, equipment, and other
Total
Less accumulated depreciation
Net property, plant, and equipment

2008

58
1,082
8,208
9,348
4,566
$ 4,782

2007

46
869
6,841
7,756
4,126
$ 3,630

The percentages of total buildings and property improvements and total machinery, equipment,

and other, excluding oil and gas investments, are depreciated over the following useful lives:

Buildings and Property
Improvements

2008
17%
46%
12%
25%

2007
17%
50%
13%
20%

Machinery, Equipment,
and Other

2008
19%
74%
7%

2007
22%
72%
6%

1 – 10 years
11 – 20 years
21 – 30 years
31 – 40 years

1 – 5 years
6 – 10 years
11 – 20 years

Note 9. Debt

Short-term notes payable consist primarily of overdraft and other facilities with varying rates of

interest. Long-term debt consisted of the following:

Millions of dollars
6.7% senior notes due September 2038
5.5% senior notes due October 2010
5.9% senior notes due September 2018
7.6% senior debentures due August 2096
8.75% senior debentures due February 2021
3.125% convertible senior notes due July 2023
Other
Total long-term debt
Less current portion
Noncurrent portion of long-term debt

December 31

2008

2007

800
749
400
294
185
–
184
2,612
26
$ 2,586

–
749
–
294
185
1,200
358
2,786
159
$ 2,627

HALLIBURTON 2008 ANNUAL REPORT

Convertible notes
Our 3.125% convertible senior notes due July 2023 became redeemable at our option on July 15,
2008. On July 30, 2008, we gave notice of redemption on the convertible notes. In lieu of redemption, the
holders of the convertible notes could convert each $1,000 principal amount of convertible notes into
53.4069 shares of our common stock. Substantially all of the holders timely elected to convert during the
third quarter of 2008. Upon conversion, we settled the principal amount of our convertible notes in cash
and the premium on the notes with a combination of $693 million in cash and approximately $840 million,
or 20 million shares, of our treasury stock. The settlement of the principal amount was funded with the
proceeds from the issuance of 6.7% and 5.9% senior notes. We recorded a non-tax deductible loss of $693
million in the third quarter of 2008, in “Other, net” on our consolidated statement of operations, related to
the portion of the premium settled in cash.

Other senior debt
We have issued various senior notes and debentures, all of which rank equally with our existing

and future senior unsecured indebtedness, have semiannual interest payments, and no sinking fund
requirements. We may redeem some of the 6.7% and 5.9% senior notes from time to time or all of the
notes of each series at any time at the redemption prices, plus accrued and unpaid interest. Our 5.5% senior
notes are redeemable by us, in whole or in part, at any time, subject to a redemption price equal to the
greater of 100% of the principal amount of the notes or the sum of the present values of the remaining
scheduled payments of principal and interest due on the notes discounted to the redemption date at the
treasury rate plus 25 basis points. Our 7.6% and 8.75% senior debentures may not be redeemed prior to
maturity.

Revolving credit facilities
We have an unsecured, $1.2 billion credit facility expiring 2012 whose purpose is to provide

commercial paper support, general working capital, and credit for other corporate purposes. On October
10, 2008, we entered into an unsecured, six-month revolving credit facility, with current commitments of
$400 million, to give us additional liquidity and for other general corporate purposes. We are able to draw
on the facility once we have used all of our existing $1.2 billion, five-year revolving credit facility. There
were no cash drawings under the revolving credit facilities as of December 31, 2008.

Maturities
Our debt matures as follows: $26 million in 2009; $749 million in 2010; and $1.8 billion in 2017

and thereafter.

Note 10. Commitments and Contingencies

Foreign Corrupt Practices Act investigations
In February 2009, the FCPA investigations by the DOJ and the SEC were resolved. The DOJ and

TSKJ is a private limited liability company registered in Madeira, Portugal whose members are

HALLIBURTON 2008 ANNUAL REPORT

In addition to the DOJ and the SEC investigations, we are aware of other investigations in France,

Nigeria, Great Britain, and Switzerland regarding the Bonny Island project.

We provided indemnification in favor of KBR under the master separation agreement for certain

With respect to the DOJ, in February 2009, a subsidiary of KBR, Inc. pleaded guilty to conspiring
to violate the FCPA and to substantive violations of the anti-bribery provisions of the FCPA in connection
with the Bonny Island project. The DOJ investigation was resolved with respect to us with a non-
prosecution agreement in which the DOJ agreed not to bring FCPA or bid coordination-related charges
against us with respect to the matters under investigation, and in which we agreed to continue to cooperate
with the DOJ’s ongoing investigation and to refrain from and self-report certain FCPA violations. The
DOJ agreement does not provide for a monitor for us.

As a result of our indemnity in favor of KBR under the master separation agreement with KBR

In addition, as part of the resolution of the SEC investigation, we will retain an independent

The settlements and the other ongoing investigations could result in third-party claims against us,

KBR has agreed that Halliburton’s indemnification obligations with respect to the DOJ and SEC

FCPA investigations have been fully satisfied. Our indemnity of KBR continues with respect to other
investigations within the scope of our indemnity.

HALLIBURTON 2008 ANNUAL REPORT

Our indemnification obligation to KBR does not include losses resulting from third-party claims

To reflect the resolution of the DOJ and SEC FCPA investigations and to reflect other adjustments

Bidding practices investigation
In connection with the investigation into payments relating to the Bonny Island project in Nigeria,
information was uncovered suggesting that, possibly beginning as early as the mid-1980s, former Kellogg
Brown & Root, Inc. employees may have engaged in coordinated bidding with one or more competitors on
certain foreign construction projects. Halliburton’s indemnity to KBR does not extend to liabilities for
governmental fines or third-party claims arising out of these activities. The settlement with the DOJ
included an agreement by the DOJ not to bring bid coordination-related charges against us.

Barracuda-Caratinga arbitration
We also provided indemnification in favor of KBR under the master separation agreement for all

out-of-pocket cash costs and expenses (except for legal fees and other expenses of the arbitration so long as
KBR controls and directs it), or cash settlements or cash arbitration awards, KBR may incur after
November 20, 2006 as a result of the replacement of certain subsea flowline bolts installed in connection
with the Barracuda-Caratinga project. Under the master separation agreement, KBR currently controls the
defense, counterclaim, and settlement of the subsea flowline bolts matter. As a condition of our indemnity,
for any settlement to be binding upon us, KBR must secure our prior written consent to such settlement’s
terms. We have the right to terminate the indemnity in the event KBR enters into any settlement without
our prior written consent. Our estimation of the indemnity obligation regarding the Barracuda-Caratinga
arbitration is recorded as a liability in our consolidated financial statements as of December 31, 2008 and
December 31, 2007. See Note 2 for additional information regarding the KBR indemnification.

At Petrobras’ direction, KBR replaced certain bolts located on the subsea flowlines that failed

HALLIBURTON 2008 ANNUAL REPORT

Securities and related litigation
In June 2002, a class action lawsuit was filed against us in federal court alleging violations of the
federal securities laws after the SEC initiated an investigation in connection with our change in accounting
for revenue on long-term construction projects and related disclosures. In the weeks that followed,
approximately twenty similar class actions were filed against us. Several of those lawsuits also named as
defendants several of our present or former officers and directors. The class action cases were later
consolidated, and the amended consolidated class action complaint, styled Richard Moore, et al. v.
Halliburton Company, et al., was filed and served upon us in April 2003. As a result of a substitution of
lead plaintiffs, the case is now styled Archdiocese of Milwaukee Supporting Fund (AMSF) v. Halliburton
Company, et al. We settled with the SEC in the second quarter of 2004.

In June 2003, the lead plaintiffs filed a motion for leave to file a second amended consolidated

complaint, which was granted by the court. In addition to restating the original accounting and disclosure
claims, the second amended consolidated complaint included claims arising out of the 1998 acquisition of
Dresser Industries, Inc. by Halliburton, including that we failed to timely disclose the resulting asbestos
liability exposure.

In April 2005, the court appointed new co-lead counsel and named AMSF the new lead plaintiff,

directing that it file a third consolidated amended complaint and that we file our motion to dismiss. The
court held oral arguments on that motion in August 2005, at which time the court took the motion under
advisement. In March 2006, the court entered an order in which it granted the motion to dismiss with
respect to claims arising prior to June 1999 and granted the motion with respect to certain other claims
while permitting AMSF to re-plead some of those claims to correct deficiencies in its earlier complaint. In
April 2006, AMSF filed its fourth amended consolidated complaint. We filed a motion to dismiss those
portions of the complaint that had been re-pled. A hearing was held on that motion in July 2006, and in
March 2007 the court ordered dismissal of the claims against all individual defendants other than our Chief
Executive Officer (CEO). The court ordered that the case proceed against our CEO and Halliburton.

In September 2007, AMSF filed a motion for class certification, and our response was filed in

November 2007. The court held a hearing in March 2008, and issued an order November 3, 2008 denying
AMSF’s motion for class certification. AMSF then filed a motion with the Fifth Circuit Court of Appeals
requesting permission to appeal the district court’s order denying class certification. The Fifth Circuit
granted AMSF’s motion and the order denying class certification is currently on appeal. The case will
remain stayed in the district court pending the outcome of the appeal. As of December 31, 2008, we had not
accrued any amounts related to this matter because we do not believe that a loss is probable. Further, an
estimate of possible loss or range of loss related to this matter cannot be made.

Asbestos insurance settlements
At December 31, 2004, we resolved all open and future asbestos- and silica-related claims in the
prepackaged Chapter 11 proceedings of DII Industries LLC, Kellogg Brown & Root LLC, and our other
affected subsidiaries that had previously been named as defendants in a large number of asbestos- and
silica-related lawsuits. During 2004, we settled insurance disputes with substantially all the insurance
companies for asbestos- and silica-related claims and all other claims under the applicable insurance
policies and terminated all the applicable insurance policies.

Under the insurance settlements entered into as part of the resolution of our Chapter 11
proceedings, we have agreed to indemnify our insurers under certain historic general liability insurance
policies in certain situations. We have concluded that the likelihood of any claims triggering the indemnity
obligations is remote, and we believe any potential liability for these indemnifications will be immaterial.
Further, an estimate of possible loss or range of loss related to this matter cannot be made. At
December 31, 2008, we had not recorded any liability associated with these indemnifications.

HALLIBURTON 2008 ANNUAL REPORT

Environmental
We are subject to numerous environmental, legal, and regulatory requirements related to our

operations worldwide. In the United States, these laws and regulations include, among others:

-
-
-
-
-

In addition to the federal laws and regulations, states and other countries where we do business

We do not expect costs related to these remediation requirements to have a material adverse effect

We have subsidiaries that have been named as potentially responsible parties along with other

Letters of credit
In the normal course of business, we have agreements with banks under which approximately $2.2

billion of letters of credit, surety bonds, or bank guarantees were outstanding as of December 31, 2008,
including approximately $828 million that relate to KBR. These KBR letters of credit, surety bonds, or
bank guarantees are being guaranteed by us in favor of KBR’s customers and lenders. KBR has agreed to
compensate us for these guarantees and indemnify us if we are required to perform under any of these
guarantees. Some of the outstanding letters of credit have triggering events that would entitle a bank to
require cash collateralization.

Leases
We are obligated under operating leases, principally for the use of land, offices, equipment,
manufacturing and field facilities, and warehouses. Total rentals, net of sublease rentals, were $561 million
in 2008, $487 million in 2007, and $402 million in 2006.

Future total rentals on noncancellable operating leases are as follows: $183 million in 2009; $161

million in 2010; $130 million in 2011; $84 million in 2012; $66 million in 2013; and $175 million
thereafter.

HALLIBURTON 2008 ANNUAL REPORT

Note 11. Income Taxes

The components of the provision for income taxes on continuing operations were:

Millions of dollars
Current income taxes:
Federal
Foreign
State
Total current
Deferred income taxes:
Federal
Foreign
State
Total deferred
Provision for income taxes

Year Ended December 31
2007

2006

2008

(561)
(346)
(50)
(957)

(560)
(449)
(38)
(1,047)

(156)
(122)
(11)
(289)

(303)
64
(15)
(254)
$ (1,211)

129
7
4
140
(907)

(600)
(95)
(19)
(714)
$ (1,003)

The United States and foreign components of income from continuing operations before income

taxes and minority interest were as follows:

Millions of dollars
United States
Foreign
Total

Year Ended December 31
2007
$ 2,219
1,241
$ 3,460

2006
$ 2,280
919
$ 3,199

2008
$ 1,988
1,175
$ 3,163

Reconciliations between the actual provision for income taxes on continuing operations and that

computed by applying the United States statutory rate to income from continuing operations before income
taxes and minority interest were as follows:

Year Ended December 31
2007
35.0%
-
(0.3)
(2.3)
(3.9)
(2.0)
(0.3)
26.2%

2008
35.0%
8.0
(2.3)
(1.4)
(1.3)
0.1
0.2
38.3%

2006
35.0%

-
(2.1)
(1.3)
3.1
(3.3)
-
31.4%

United States statutory rate

Repurchase premium paid in cash to retire debt

Adjustments of prior year taxes

Impact of foreign income taxed at different rates

Other impact of foreign operations
Valuation allowance
Other items, net
Total effective tax rate on continuing operations

HALLIBURTON 2008 ANNUAL REPORT

The major component of the difference between the 2008 statutory rate compared to the effective

rate was related to our inability to recognize a benefit for the $693 million loss on the settlement of our
convertible debt, as United States tax law generally prohibits a company from recognizing a tax deduction
for a repurchase premium paid to retire debt that is convertible into the stock of the issuing company. The
major component of the difference between the 2007 statutory rate compared to the effective rate was the
favorable impact of the ability to recognize United States foreign tax credits of approximately $205 million.
This amount consisted of approximately $68 million of a change in valuation allowance for credits
previously recognized and approximately $137 million reflected in other impact of foreign operations for
changes to United States tax filings to claim foreign tax credits rather than deducting foreign taxes. The
major component of the difference between the 2006 statutory tax rate compared to the effective tax rate
was the release of the remaining valuation allowance for future tax attributes related to United States net
operating losses established in prior years, the majority of which was released in 2005.

The primary components of our deferred tax assets and liabilities and the related valuation allowances were
as follows:

Millions of dollars
Gross deferred tax assets:

Employee compensation and benefits

Accrued liabilities
Foreign tax credit carryforward
Capitalized research and experimentation
Net operating loss carryforwards

Insurance accruals

Software revenue recognition

Inventory

Alternative minimum tax credit carryforward

Other

Total gross deferred tax assets
Gross deferred tax liabilities:

Depreciation and amortization
Joint ventures, partnerships, and unconsolidated affiliates
Other

Total gross deferred tax liabilities
Valuation allowances:

Net operating loss carryforwards
Other

Total valuation allowances
Net deferred income tax asset

December 31

2008

2007

$ 324
81
79
74
50
47
31
26
–
49
761

$ 262
80
61
94
24
46
37
63
19
176
862

303
25
38
366

164
34
55
253

14
–
14
$ 381

22
7
29
$ 580

At December 31, 2008, we had a total of $137 million of foreign net operating loss carryforwards,
of which $66 million will expire from 2009 through 2021 and $71 million will not expire due to indefinite
expiration dates. At December 31, 2008, we had $40 million of domestic net operating loss carryforwards
that will expire from 2021 through 2028. At December 31, 2008, we had United States foreign tax credit
carryforwards of $79 million that are expected to expire beginning in 2018.

We established a valuation allowance on certain foreign operating loss carryforwards on the basis
that we believe these assets will not be utilized in the statutory carryover period. The majority of the 2008
valuation allowance change was recorded as an adjustment to goodwill.

HALLIBURTON 2008 ANNUAL REPORT

Effective January 1, 2007, we adopted FASB Interpretation (FIN) No. 48, “Accounting for

Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109.” FIN 48, as amended May
2007 by FASB Staff Position (FSP) FIN 48-1, “Definition of ‘Settlement’ in FASB Interpretation No. 48,”
prescribes 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.
It also provides guidance for derecognition, classification, interest and penalties, accounting in interim
periods, disclosure, and transition. The cumulative effect of this change in accounting principle related to
FIN 48 was immaterial.

The following presents a rollforward of our unrecognized tax benefits and associated interest and

penalties.

Interest
and Penalties
$

Millions of dollars
Balance at January 1, 2007
Change in prior year tax positions
Change in current year tax positions
Cash settlements with taxing authorities
Lapse of statute of limitations
Balance at December 31, 2007
Change in prior year tax positions
Change in current year tax positions
Cash settlements with taxing authorities
Lapse of statute of limitations
Balance at December 31, 2008

Unrecognized
Tax Benefits
242
145
34
(30)
(3)
388
(98)
25
(5)
(10)
300

34
–
4
(1)
–
37
5
2
–
(1)
43

Tax benefits associated with United States foreign tax credits of $19 million and $99 million as of
December 31, 2008 and December 31, 2007 were included in the balance of unrecognized tax benefits that
could be resolved within the next 12 months. Tax benefits associated with United States research and
development tax credits of $30 million were included in the balance of unrecognized tax benefits that could
be resolved within the next 12 months as of December 31, 2008. Also, as of December 31, 2008 and
December 31, 2007, a significant portion of our non-United States unrecognized tax benefits, while not
individually significant, could be settled within the next 12 months. As of December 31, 2008 and
December 31, 2007, we estimated that $163 million and $289 million of the balance of unrecognized tax
benefits, if resolved in our favor, would positively impact the effective tax rate and, therefore, be
recognized as additional tax benefits in our statement of operations. We file income tax returns in the
United States federal jurisdiction and in various states and foreign jurisdictions. In most cases, we are no
longer subject to United States federal, state, and local, or non-United States income tax examination by tax
authorities for years before 1998. Tax filings of our subsidiaries, unconsolidated affiliates, and related
entities are routinely examined in the normal course of business by tax authorities. Currently, our United
States federal tax filings are under review for tax years 2000 through 2007.

HALLIBURTON 2008 ANNUAL REPORT

Note 12. Shareholders’ Equity and Stock Incentive Plans

The following tables summarize our common stock and other shareholders’ equity activity:

Deferred
Compensation
$ (98)
–
–
–

Retained
Earnings
$ 2,975
(306)
–
–

Accumulated
Other
Comprehensive
Income
$ (266)
–
–
–

Millions of dollars
Balance at December 31, 2005
Cash dividends paid
Stock plans
Common shares purchased
Tax benefit from exercise of options
and restricted stock
Total dividends and other transactions
with shareholders
Sale of stock by a subsidiary
Reclassification of deferred compensation
Adoption of SFAS No. 158, net of tax
benefit of $146
Other
Comprehensive income (loss):
Net income
Other comprehensive income:

Cumulative translation adjustment
Realization of translation gains
included in net income
Defined benefit and other

postretirement plans adjustments,
net of tax benefit of $16

Net unrealized gains on investments and
derivatives, net of tax provision of $7
Realization of gains on investments and
derivatives, net of tax provision of $0

Total comprehensive income
Balance at December 31, 2006

Paid-in
Capital in
Excess
of Par
Value
$ 1,501
–
116
–

Common
Shares
$ 2,634
–
16
–

–

16
–
–

–
–

–

169
117
(98)

–
–

–

Treasury
Stock
$ (374)
–
136
(1,339)

–

(1,203)
–
–

–
–

–

–
–
$ 2,650

–
–
$ 1,689

–
–
$ (1,577)

–

–
–
98

–
–

–

–
–
–

Total
$ 6,372
(306)
268
(1,339)

(1,324)
117
–

(218)
34

2,348

(14)

–

(306)
–
–

–
34

2,348

–

–
–
–

(218)
–

–

(14)

–
2,348
$ 5,051

(1)
47
$ (437)

(1)
2,395
$ 7,376

HALLIBURTON 2008 ANNUAL REPORT

Millions of dollars
Balance at December 31, 2006
Cash dividends paid
Stock plans
Common shares purchased
Tax benefit from exercise of options
and restricted stock
Total dividends and other transactions
with shareholders
Shares exchanged in KBR, Inc. exchange offer
Adoption of FIN 48
Other
Comprehensive income (loss):
Net income
Other comprehensive income:

Cumulative translation adjustment
Realization of translation gains
included in net income

Defined benefit and other postretirement

plans adjustments:
Prior service cost:

Plan amendment
Settlements/curtailments

Actuarial gain (loss):

Net gain
Amortization of net loss
Settlements/curtailments
Tax effect on defined benefit
and postretirement plans

KBR, Inc. separation
Defined benefit and other
postretirement plans, net

Net unrealized gains on investments, net

of tax provision of $0
Total comprehensive income
Balance at December 31, 2007
Cash dividends paid
Stock plans
Common shares purchased
Tax benefit from exercise of options and restricted stock
Total dividends and other transactions with shareholders
Adoption of SFAS No. 158, net of tax benefit of $2
Portion of the convertible debt premium settled in stock, at cost
Comprehensive income (loss):
Net income
Other comprehensive income:

Cumulative translation adjustment
Defined benefit and other postretirement plans adjustments:

Actuarial net loss
Other
Tax effect on defined benefit and postretirement plans

Defined benefit and other postretirement plans, net
Net unrealized losses on investments, net of tax benefit of $4

Total comprehensive income
Balance at December 31, 2008

Paid-in
Capital in
Excess
of Par
Value
$ 1,689
–
23
–

Common
Shares
$ 2,650
–
7
–

–

7
–
–
–

–

–
–

–
–
–

–
–

–

52
–
–
–

–

–
–

–
–
–

–
–

–

–
–
$ 2,657
–
9
–
–
9
–
–

–
–
$ 1,741
–
41
–
45
86
–
(713)

–

Treasury
Stock
$ (1,577)
–
130
(1,374)

–

(1,244)
(2,809)
–
–

–

–
–

–
–
–

–
–

–

–
–

$(5,630)

–
173
(507)
–
(334)
–
713

–

Retained
Earnings
$ 5,051
(314)
–
–

–

(314)
–
(30)
(4)

3,499

–

–
–

–
–
–

–
–

–

–
3,499
$ 8,202
(319)
–
–
–
(319)
(10)
–

1,538

–

–
–
–
–
–
–
$ 2,666

–
–
–
–
–
–
$ 1,114

–
–
–
–
–
–
(5,251)

–
–
–
–
–
1,538
$ 9,411

Accumulated
Other
Comprehensive
Income
$ (437)
–
–
–

–

–
–
–
–

–

(24)

(2)
5

105
14
7

(45)
271

355

1
333
$ (104)
–
–
–
–
–
–
–

–

(170)
18
46
(106)
(6)
(111)
$ (215)

Total
$ 7,376
(314)
160
(1,374)

(1,499)
(2,809)
(30)
(4)

3,499

(24)

(2)
5

105
14
7

(45)
271

355

1
3,832
$ 6,866
(319)
223
(507)
45
(558)
(10)
–

1,538

(170)
18
46
(106)
(6)
1,427
$ 7,725

HALLIBURTON 2008 ANNUAL REPORT

Accumulated other comprehensive loss
Millions of dollars
Cumulative translation adjustment
Defined benefit and other postretirement liability adjustments
Unrealized gains (losses) on investments and derivatives
Total accumulated other comprehensive loss

2008

(60)
(151)
(4)
(215)

Shares of common stock
Millions of shares
Issued
In treasury
Total shares of common stock outstanding

2008

1,067
(172)
895

December 31
2007

(61)
(45)
2
(104)

December 31
2007
1,063
(183)
880

2006

(38)
(400)
1
(437)

2006
1,060
(62)
998

Our stock repurchase program has an authorization of $5.0 billion, of which $1.8 billion remained
available at December 31, 2008. The program does not require a specific number of shares to be purchased
and the program may be effected through solicited or unsolicited transactions in the market or in privately
negotiated transactions. The program may be terminated or suspended at any time. From the inception of
this program in February 2006 through December 31, 2008, we have repurchased approximately 92 million
shares of our common stock for approximately $3.2 billion at an average price per share of $34.30. These
numbers include the repurchases of approximately 13 million shares of our common stock for
approximately $481 million at an average price per share of $36.61 during 2008.

Preferred Stock

Our preferred stock consists of five million total authorized shares at December 31, 2008, of

which none are issued.

Stock Incentive Plans

Our 1993 Stock and Incentive Plan, as amended (1993 Plan), provides for the grant of any or all of

the following types of stock-based awards:

-
-
-
-
-

stock options, including incentive stock options and nonqualified stock options;
restricted stock awards;
restricted stock unit awards;
stock appreciation rights; and
stock value equivalent awards.

There are currently no stock appreciation rights or stock value equivalent awards outstanding.

Under the terms of the 1993 Plan, 98 million shares of common stock have been reserved for

issuance to employees and non-employee directors. The plan specifies that no more than 32 million shares
can be awarded as restricted stock. At December 31, 2008, approximately 12 million shares were available
for future grants under the 1993 Plan, of which approximately 6 million shares remained available for
restricted stock awards. The stock to be offered pursuant to the grant of an award under the 1993 Plan may
be authorized but unissued common shares or treasury shares.

In addition to the provisions of the 1993 Plan, we also have stock-based compensation provisions

under our Restricted Stock Plan for Non-Employee Directors and our ESPP.

HALLIBURTON 2008 ANNUAL REPORT

Each of the active stock-based compensation arrangements is discussed below.
Stock options
All stock options under the 1993 Plan are granted at the fair market value of our common stock at
the grant date. Employee stock options vest ratably over a three- or four-year period and generally expire
10 years from the grant date. Stock options granted to non-employee directors vest after six months.
Compensation expense for stock options is generally recognized on a straight line basis over the entire
vesting period. No further stock option grants are being made under the stock plans of acquired companies.

The following table represents our stock options activity during 2008.

Stock Options
Outstanding at January 1, 2008

Granted
Exercised
Forfeited/expired

Outstanding at December 31, 2008

Weighted
Average
Exercise
Price
per Share
$ 20.81
39.43
17.34
29.61
$ 25.65

Number
of Shares
(in millions)
14.3
2.7
(3.9)
(0.3)
12.8

Exercisable at December 31, 2008

8.4

$ 19.80

Weighted
Average
Remaining
Contractual
Term (years)

Aggregate
Intrinsic
Value
(in millions)

6.17

4.72

$ 22

$ 21

The total intrinsic value of options exercised was $106 million in 2008, $68 million in 2007, and

$123 million in 2006. As of December 31, 2008, there was $37 million of unrecognized compensation
cost, net of estimated forfeitures, related to nonvested stock options, which is expected to be recognized
over a weighted average period of approximately 1.8 years.

Cash received from option exercises was $120 million during 2008, $110 million during 2007, and

$159 million during 2006. The tax benefit realized from the exercise of stock options was $33 million in
2008, $22 million in 2007, and $42 million in 2006.

Restricted stock
Restricted shares issued under the 1993 Plan are restricted as to sale or disposition. These

restrictions lapse periodically over an extended period of time not exceeding 10 years. Restrictions may
also lapse for early retirement and other conditions in accordance with our established policies. Upon
termination of employment, shares on which restrictions have not lapsed must be returned to us, resulting
in restricted stock forfeitures. The fair market value of the stock on the date of grant is amortized and
charged to income on a straight-line basis over the requisite service period for the entire award.

Our Restricted Stock Plan for Non-Employee Directors (Directors Plan) allows for each non-

employee director to receive an annual award of 800 restricted shares of common stock as a part of their
compensation. These awards have a minimum restriction period of six months, and the restrictions lapse
upon the earlier of mandatory director retirement at age 72 or early retirement from the Board after four
years of service. The fair market value of the stock on the date of grant is amortized over the lesser of the
time from the grant date to age 72 or the time from the grant date to completion of four years of service on
the Board. We reserved 200,000 shares of common stock for issuance to non-employee directors, which
may be authorized but unissued common shares or treasury shares. At December 31, 2008, 122,400 shares
had been issued to non-employee directors under this plan. There were 7,200 shares, 8,800 shares, and
8,000 shares of restricted stock awarded under the Directors Plan in 2008, 2007, and 2006. In addition,
during 2008, our non-employee directors were awarded 18,416 shares of restricted stock under the 1993
Plan, which are included in the table below.

HALLIBURTON 2008 ANNUAL REPORT

The following table represents our 1993 Plan and Directors Plan restricted stock awards and

restricted stock units granted, vested, and forfeited during 2008.

Restricted Stock
Nonvested shares at January 1, 2008

Granted
Vested
Forfeited

Nonvested shares at December 31, 2008

Number of Shares
(in millions)
7.3
4.2
(2.1)
(0.4)
9.0

Weighted Average
Grant-Date Fair
Value per Share
$ 27.16
36.78
25.02
33.57
$ 31.64

The weighted average grant-date fair value of shares granted during 2007 was $32.24 and during 2006

was $34.39. The total fair value of shares vested during 2008 was $81 million, during 2007 was $79 million,
and during 2006 was $64 million. As of December 31, 2008, there was $224 million of unrecognized
compensation cost, net of estimated forfeitures, related to nonvested restricted stock, which is expected to be
recognized over a weighted average period of 4 years.
2002 Employee Stock Purchase Plan
Under the ESPP, eligible employees may have up to 10% of their earnings withheld, subject to

some limitations, to be used to purchase shares of our common stock. Unless the Board of Directors shall
determine otherwise, each six-month offering period commences on January 1 and July 1 of each year. The
price at which common stock may be purchased under the ESPP is equal to 85% of the lower of the fair
market value of the common stock on the commencement date or last trading day of each offering period.
Under this plan, 24 million shares of common stock have been reserved for issuance. They may be
authorized but unissued shares or treasury shares. As of December 31, 2008, 15.9 million shares have been
sold through the ESPP.

Note 13. Income (Loss) per Share

Basic income (loss) per share is based on the weighted average number of common shares

outstanding during the period. Effective April 5, 2007, common shares outstanding were reduced by the
85.3 million shares of our common stock that we accepted in exchange for the shares of KBR common
stock we owned. Diluted income (loss) per share includes additional common shares that would have been
outstanding if potential common shares with a dilutive effect had been issued. A reconciliation of the
number of shares used for the basic and diluted income (loss) per share calculation is as follows:

Millions of shares
Basic weighted average common shares outstanding
Dilutive effect of:

Convertible senior notes premium
Stock options
Restricted stock

Diluted weighted average common shares outstanding

2008
877

2007
913

2006
1,014

22
4
1
904

29
6
2
950

29
9
2
1,054

HALLIBURTON 2008 ANNUAL REPORT

In 2004, we entered into a supplemental indenture that required us to satisfy our conversion

obligation for our convertible senior notes in cash, rather than in common stock, for at least the aggregate
principal amount of the notes. This reduced the resulting potential earnings dilution to only include the
conversion premium, which is the difference between the conversion price per share of common stock and
the average share price. See the table above for the dilutive effect for 2008, 2007, and 2006. In 2008, we
redeemed our 3.125% convertible senior notes. See Note 9 for additional information regarding the
redemption of our convertible senior notes.

Excluded from the computation of diluted income per share were options to purchase four million

shares of common stock that were outstanding in 2008, three million shares of common stock that were
outstanding in 2007, and two million shares of common stock that were outstanding in 2006. These options
were outstanding during these years but were excluded because the option exercise price was greater than
the average market price of the common shares.

Note 14. Financial Instruments and Risk Management

Foreign exchange risk
Techniques in managing foreign exchange risk include, but are not limited to, foreign currency

borrowing and investing and the use of currency derivative instruments. We selectively manage significant
exposures to potential foreign exchange losses considering current market conditions, future operating
activities, and the associated cost in relation to the perceived risk of loss. The purpose of our foreign
currency risk management activities is to protect us from the risk that the eventual dollar cash flows
resulting from the sale and purchase of services and products in foreign currencies will be adversely
affected by changes in exchange rates.

We manage our currency exposure through the use of currency derivative instruments as it relates
to the major currencies, which are generally the currencies of the countries in which we do the majority of
our international business. These instruments are not treated as hedges for accounting purposes and
generally have an expiration date of two years or less. Forward exchange contracts, which are
commitments to buy or sell a specified amount of a foreign currency at a specified price and time, are
generally used to manage identifiable foreign currency commitments. Forward exchange contracts and
foreign exchange option contracts, which convey the right, but not the obligation, to sell or buy a specified
amount of foreign currency at a specified price, are generally used to manage exposures related to assets
and liabilities denominated in a foreign currency. None of the forward or option contracts are exchange
traded. While derivative instruments are subject to fluctuations in value, the fluctuations are generally
offset by the value of the underlying exposures being managed. The use of some contracts may limit our
ability to benefit from favorable fluctuations in foreign exchange rates.

Foreign currency contracts are not utilized to manage exposures in some currencies due primarily
to the lack of available markets or cost considerations (non-traded currencies). We attempt to manage our
working capital position to minimize foreign currency commitments in non-traded currencies and recognize
that pricing for the services and products offered in these countries should cover the cost of exchange rate
devaluations. We have historically incurred transaction losses in non-traded currencies.

Notional amounts and fair market values. The notional amounts of open foreign exchange
forward contracts and option contracts were $324 million at December 31, 2008 and $272 million at
December 31, 2007. The notional amounts of our foreign exchange contracts do not generally represent
amounts exchanged by the parties and, thus, are not a measure of our exposure or of the cash requirements
related to these contracts. The amounts exchanged are calculated by reference to the notional amounts and
by other terms of the derivatives, such as exchange rates. The estimated fair market value of our foreign
exchange contracts was not material at either December 31, 2008 or December 31, 2007.

HALLIBURTON 2008 ANNUAL REPORT

Credit risk
Financial instruments that potentially subject us to concentrations of credit risk are primarily cash

equivalents, investments, and trade receivables. It is our practice to place our cash equivalents and
investments in high quality securities with various investment institutions. We derive the majority of our
revenue from sales and services to the energy industry. Within the energy industry, trade receivables are
generated from a broad and diverse group of customers. There are concentrations of receivables in the
United States. We maintain an allowance for losses based upon the expected collectibility of all trade
accounts receivable. In addition, see Note 5 for discussion of receivables.

There are no significant concentrations of credit risk with any individual counterparty related to

our derivative contracts. We select counterparties based on their profitability, balance sheet, and a capacity
for timely payment of financial commitments, which is unlikely to be adversely affected by foreseeable
events.

Interest rate risk
Our outstanding debt instruments have fixed interest rates.
Fair market value of financial instruments. The estimated fair market value of long-term debt was

$2.8 billion at December 31, 2008 and $4.1 billion at December 31, 2007, as compared to the carrying
amount of $2.6 billion at December 31, 2008 and $2.8 billion at December 31, 2007. The fair market value
of fixed-rate long-term debt is based on quoted market prices for those or similar instruments. The carrying
amount of short-term financial instruments, cash and equivalents, receivables, short-term notes payable,
and accounts payable, as reflected in the consolidated balance sheets, approximates fair market value due to
the short maturities of these instruments. The foreign currency derivative instruments are carried on the
balance sheet at fair value and are based upon third-party quotes.

Note 15. Retirement Plans

Our company and subsidiaries have various plans that cover a significant number of our
employees. These plans include defined contribution plans, defined benefit plans, and other postretirement
plans:

our defined contribution plans provide retirement benefits in return for services rendered.
These plans provide an individual account for each participant and have terms that
specify how contributions to the participant’s account are to be determined rather than the
amount of pension benefits the participant is to receive. Contributions to these plans are
based on pretax income and/or discretionary amounts determined on an annual basis.
Our expense for the defined contribution plans for continuing operations totaled $178
million in 2008, $162 million in 2007, and $138 million in 2006;

HALLIBURTON 2008 ANNUAL REPORT

our defined benefit plans include both funded and unfunded pension plans, which define
an amount of pension benefit to be provided, usually as a function of age, years of
service, and/or compensation; and
our postretirement medical plans are offered to specific eligible employees. These plans
are contributory. For some plans, our liability is limited to a fixed contribution amount
for each participant or dependent. Plan participants share the total cost for all benefits
provided above our fixed contributions. Participants’ contributions are adjusted as
required to cover benefit payments. We have made no commitment to adjust the amount
of our contributions; therefore, the computed accumulated postretirement benefit
obligation amount for these plans is not affected by the expected future health care cost
inflation rate.

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit
Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R).”
Effective for our fiscal year ended December 31, 2008, we adopted the requirements to measure plan assets
and benefit obligations as of the date of the employer’s fiscal year-end. Effective for our fiscal year ended
December 31, 2006, we adopted the requirement to recognize the funded status of a benefit plan and the
standard’s additional disclosure requirements.

The discontinued operations of KBR have been excluded from all of the following tables and

disclosures.

Benefit obligation and plan assets
The following tables present plan assets, expenses, and obligations for retirement plans of our

continuing operations.

Benefit obligation
Millions of dollars

Change in benefit obligation
Benefit obligation at beginning of period
Service cost
Interest cost
Plan participants’ contributions
Plan amendments
Settlements/curtailments
Divestitures
Business combinations
Currency fluctuations
Actuarial gain
Transfers
Benefits paid
Retained earnings adjustment – SFAS No. 158

adoption

United
States

Int’l

2008

Pension Benefits

United
States

Int’l

Other

Postretirement
Benefits

2007

2008

2007

110
–
6
–
–
–
–
–
–
–
–
(9)

1
108

108

$ 874
29
50
5
1
(42)
(1)
1
(201)
(18)
–
(28)

20
$ 690

$ 533

127
–
7
–
–
–
–
–
–
(9)
–
(15)

–
110

110

$ 814
26
44
4
2
(16)
–
–
38
(22)
1
(17)

$ 104
1
6
5
–
–
–
–
–
(13)
–
(12)

$ 155
1
8
5
(4)
–
–
–
–
(50)
–
(11)

–
$ 874

1
N/A

–
N/A

$ 678

$ 104

Projected benefit obligation at end of period

Accumulated benefit obligation at end of period

HALLIBURTON 2008 ANNUAL REPORT

Millions of dollars

Change in plan assets
Fair value of plan assets at beginning of period
Actual return on plan assets
Employer contributions
Settlements
Divestitures
Business combinations
Plan participants’ contributions
Currency fluctuations
Benefits paid
Retained earnings adjustment – SFAS No. 158
adoption
Fair value of plan assets at end of period

Funded status
Employer contribution
Net amount recognized

United
States

Int’l

2008

Pension Benefits

United
States

Int’l

Other
Postretirement
Benefits

2007

2008

2007

107
(33)
1
–
–
–
–
–
(9)

$ 724
(111)
51
(42)
(1)
1
5
(181)
(28)

–
66

12
$ 430

(42)
–
(42)

$ (260)
–
(260)

105
15
2
–
–
–
–
–
(15)

$ 622
53
39
(9)
–
–
4
32
(17)

–
107

–
$ 724

(3)
–
(3)

$ (150)
5
$ (145)

–
–
7
–
–
–
5
–
(12)

–
–
7
–
–
–
4
–
(11)

–
–

(92)
–
(92)

$ (104)
1
$ (103)

Millions of dollars

Amounts recognized on the consolidated
balance sheets
Other assets
Accrued employee compensation and benefits
Employee compensation and benefits

Pension plans in which projected benefit
obligation exceeded plan assets at December 31
Projected benefit obligation
Fair value of plan assets

Pension plans in which accumulated benefit
obligation exceeded plan assets at December 31
Accumulated benefit obligation
Fair value of plan assets

Weighted-average assumptions used to determine
benefit obligations at measurement date
Discount rate
Rate of compensation increase

United
States

Pension Benefits

Int’l

United
States

Int’l

Other
Postretirement
Benefits

2008

2007

2008

2007

–
(2)
(40)

1
(12)
(249)

2
(1)
(4)

9
(11)
(143)

–
(9)
(83)

–
(10)
(93)

107
65

$ 675
414

20
15

107
65

$ 477
360

20
15

835
677

N/A
N/A

65
7

N/A
N/A

4.68-5.77%

2.2-9.0%

4.61-6.19%

2.50-8.75%

5.57-5.61%

5.77-5.81%

N/A

2.0-10.0%

4.5%

2.0-10.0%

N/A

HALLIBURTON 2008 ANNUAL REPORT

United
States

Pension Benefits

Int’l

United
States

Int’l

Other
Postretirement
Benefits

2008

2007

2008

2007

Asset allocation at December 31
Asset category
Equity securities
Debt securities
Other
Total

Target Allocation

50%-70%
30%-50%
0%-5%
100%

59%
40%
1%
100%

49%
35%
16%
100%

64%
35%
1%
100%

57%
32%
11%
100%

N/A
N/A
N/A
N/A

Assumed health care cost trend rates at December 31
Health care cost trend rate assumed for next year
Rate to which the cost trend rate is assumed to decline

(the ultimate trend rate)

Year that the rate reached the ultimate trend rate

2008

9.0%

5.0%
2016

2007

9.0%

5.0%
2015

2006

10.0%

5.0%
2011

Assumed long-term rates of return on plan assets, discount rates for estimating benefit obligations,
and rates of compensation increases vary for the different plans according to the local economic conditions.
The weighted average assumptions for certain international plans are not included in the above tables as the
plans were immaterial. The discount rates were determined 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. Considering the recent financial markets downturn, we elected to modify our
methodology for selecting discount rates at December 31, 2008 for our United States pension and
postretirement plans. This resulted in a lower discount rate and yielded a higher projected benefit
obligation than if we had used our previous methodology. For our United Kingdom pension plan, which
constituted 73% of our international pension plans’ projected benefit obligation at December 31, 2008, the
discount rate utilized at the measurement date in 2008 was 5.75%, compared to 5.70% at the measurement
date in 2007. The overall expected long-term rate of return on plan assets was determined based upon an
evaluation of our plan assets and historical trends and experience, taking into account current and expected
market conditions.

Our investment strategy varies by country depending on the circumstances of the underlying plan.

Typically, less mature plan benefit obligations are funded by using more equity securities, as they are
expected to achieve long-term growth while exceeding inflation. More mature plan benefit obligations are
funded using more fixed income securities, as they are expected to produce current income with limited
volatility. Risk management practices include the use of multiple asset classes and investment managers
within each.

HALLIBURTON 2008 ANNUAL REPORT

Amounts recognized in accumulated other comprehensive (gain) loss, net of tax, were as follows

at December 31:

Millions of dollars

Net actuarial (gain) loss
Prior service cost (benefit)

Pension Benefits
United
States

Int’l

United
States

Int’l

Other
Postretirement
Benefits

2008

2007

2008

2007

$ 37
–

$ 161
(2)

$ 13
–

$ 72
2

$ (43)
(2)

$ (39)
(3)

Total recognized in accumulated other comprehensive (gain)

loss

$ 37

$ 159

$ 13

$ 74

$ (45)

$ (42)

Expected cash flows
Contributions. Funding requirements for each plan are determined based on the local laws of the

country where such plan resides. In certain countries the funding requirements are mandatory, while in
other countries they are discretionary. We currently expect to contribute $35 million to our international
pension plans in 2009. We do not have a required minimum contribution for our domestic plans; however,
we currently expect to contribute $13 million to these plans in 2009 and may make additional discretionary
contributions, which will be determined after the actuarial valuations are complete.

Benefit payments. The following table presents the expected benefit payments over the next 10

years.

Pension Benefits

Millions of dollars
2009
2010
2011
2012
2013
Years 2014 – 2018

United
States
$ 11
8
8
8
7
37

Int’l
$ 21
17
20
22
26
183

Other Postretirement Benefits
Gross Benefit Gross Medicare
Part D Receipts
$ (1)
(1)
(1)
(1)
(1)
(5)

Payments
$ 10
10
11
11
10
45

HALLIBURTON 2008 ANNUAL REPORT

Net periodic cost

Millions of dollars
Components of net periodic
benefit cost
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost
Settlements/curtailments
Recognized actuarial (gain) loss
Net periodic benefit cost

Weighted-average assumptions used
to determine net periodic benefit
cost for years ended December 31
Discount rate
Expected return on plan assets
Rate of compensation increase

United
States

Int’l

2008

Pension Benefits
United
States

Int’l

2007

United
States

Int’l

2006