|
Page | |
|
Reports
of Independent Registered Public Accounting Firms |
1-2 |
|
Statements
of Net Assets Available for Plan Benefits |
|
|
December
31, 2004 and 2003 |
3 |
|
Statement
of Changes in Net Assets Available for Plan Benefits |
|
|
Year
ended December 31, 2004 |
4 |
|
Notes
to Financial Statements |
|
|
December
31, 2004 and 2003 |
5-15 |
|
Supplemental
Schedule |
|
|
Schedule
H, Line 4i - Schedule of Assets (Held at End of Year) |
|
|
December
31, 2004 |
16 |
|
2004 |
2003 |
||||||
|
Assets |
|||||||
|
Investments,
at fair value |
|||||||
|
Cash
and cash equivalents |
$ |
- |
$ |
1,460,211 |
|||
|
Plan
interest in Master Trust |
2,902,560,089 |
2,698,038,651 |
|||||
|
Participant
loans |
52,723,939 |
49,279,173 |
|||||
|
Total
investments |
2,955,284,028 |
2,748,778,035 |
|||||
|
Receivables |
|||||||
|
Company
contributions receivable, net of forfeitures |
42,432,643 |
2,638,490 |
|||||
|
Plan
participants’ contributions |
3,528,063 |
2,488,413 |
|||||
|
Plan
participants’ loan repayments |
473,217 |
622,447 |
|||||
|
Total
receivables |
46,433,923 |
5,749,350 |
|||||
|
Liabilities |
|||||||
|
Payable
for investments purchased |
5,012,617 |
- |
|||||
Net
assets available for plan benefits |
$ |
2,996,705,334 |
$ |
2,754,527,385 |
|||
|
Additions: |
||||
|
Contributions |
||||
|
Company,
net of forfeitures |
$ |
77,213,926 |
||
|
Plan
participants |
78,253,057 |
|||
|
Rollovers |
4,082,288 |
|||
|
Investment
income, net |
||||
|
Plan
interest in Master Trust investment gain |
295,371,392 |
|||
|
Interest
on loans to participants |
2,732,078 |
|||
|
Total
additions |
457,652,741 |
|||
|
Deductions: |
||||
|
Benefits
paid to participants |
(215,474,792 |
) | ||
|
Total
deductions |
(215,474,792 |
) | ||
|
Net
increase in net assets available for plan benefits |
242,177,949 |
|||
|
Net
assets available for plan benefits, beginning of year |
2,754,527,385 |
|||
Net
assets available for plan benefits, end of year |
$ |
2,996,705,334 |
|
(1) |
Description
of the Plan |
|
The
Halliburton Retirement and Savings Plan (the “Plan”) is a defined
contribution plan for certain qualified employees of Halliburton Company
and subsidiaries (the “Company”). The Plan was established in accordance
with Sections 401(a) and 401(k) of the Internal Revenue Code of 1986, as
amended (“IRC”) and is subject to the provisions of the Employee
Retirement Income Security Act of 1974, as amended (“ERISA”). The
following description of the Plan provides only general information.
Participants should refer to the Plan document or summary plan description
for a more complete description of the Plan’s
provisions. |
|
(a) |
Eligibility |
|
Certain
employees of the Company are eligible for immediate participation in the
Plan upon their date of hire. |
|
(b) |
Contributions |
|
Participants
may elect to contribute to the tax deferred savings feature of the Plan
through periodic payroll deductions. These contributions are limited to an
aggregate of 50% of the participant’s eligible earnings of up to $205,000;
the total amount of participant tax deferred savings contributions is
limited to $13,000 for 2004. Additional limitations are in place for
highly compensated employees under the provisions of the
Plan. |
|
The
Plan participants who contribute also receive Company matching
contributions equal to 100% of the first 4% of a participant’s
compensation. Prior to January 1, 2004, the Company would make a “true up”
matching contribution to certain individuals under the provision of the
Plan. During 2003, the Company could make annual discretionary retirement
allocation contributions, based on Company performance to participants
actively employed the last day of the Plan year. Participants were not
required to have contributed to the Plan to be eligible for such a
contribution. The participant’s share of any discretionary retirement
allocation contribution was based on a percentage of their eligible pay
for the Plan year to be determined in the subsequent year after company
performance results were recorded. For the plan year 2003, there was not a
discretionary retirement allocation
contribution. |
|
Effective
January 1, 2004, the discretionary retirement allocation was replaced with
an annual non-elective contribution of 4% of eligible compensation on
behalf of each employee, regardless of individual participation in the
Plan. This annual contribution is in addition to the Company match that
participating employees will receive. To be eligible to receive the
contribution, an employee must be employed by the Company as of December
31. Exceptions to this eligibility rule are retirees, employees on long
term disability, and those employees whose death occurs while in service.
The non-elective contribution for the 2004 plan year will be funded by the
Company during April 2005 in the amount of
$40,951,845. |
|
Effective
January 1, 2004, the pension equalizer contribution was removed from the
Plan. The Company will continue it's commitment and pay all pension
equalizer contributions earned under the current formula. This payment
will continue outside the Plan via tax grossed up payroll
payments. |
|
Participants
who are age 50 or older before the close of the Plan year may elect to
make a catch-up contribution, subject to certain limitations under the IRC
($3,000 per participant in 2004). |
|
Employees
are permitted to rollover pre-tax and after-tax amounts with earnings held
in other qualified plans or individual retirement accounts (IRAs) into the
Plan, as specified in the Plan document. |
|
Upon
attainment of either the normal retirement age (65) or early retirement
age (55 or 50 during specified periods), participants in the Halliburton
Retirement Plan (a defined benefit pension plan sponsored by the Company)
may elect to transfer their vested benefits to the Plan. Such transfers
are restricted as to the investment elections in which they may be
invested. The amount of the benefit that may be rolled over is the
actuarially determined amount to be received by the participant. Transfers
may be made during any month of the year. |
|
(c) |
Plan
Accounts |
|
The
Company has entered into a master trust agreement known as the Halliburton
Company Employee Benefit Master Trust (the “Master Trust”). The Master
Trust was established for the collective investment of certain defined
contribution and defined benefit plans sponsored by the Company or its
affiliates. The Plan maintains a clearing account, which invests in a
short term investment fund to facilitate the payment of benefits and
receipt of contributions to the Plan. |
|
(d) |
Investment
Elections and Transfers |
|
Contributions
and participant account balances may be directed to one of eleven funds or
a combination of funds. The assets of the funds are held in the Master
Trust (see note 3). Participants may direct up to a maximum of 15% of
their contributions to the Halliburton Stock Fund
(“HSF”). |
|
The
Plan allows participants to make daily transfers of their account balances
among the funds. The amount of the transfer may be all or any portion of
the participant’s account balance. The Plan imposes a fifteen calendar-day
waiting period on transfers involving the Non-U.S. Equity
Fund. |
|
(e) |
Administration |
|
The
Halliburton Company Benefits Committee (the “Committee”) controls and
manages the operation and administration of the Plan. State Street Bank
and Trust Company (“State Street”) is the Plan’s trustee, and Hewitt
Associates LLC is the recordkeeper. |
|
(f) |
Participant
Loans |
|
A
participant may borrow from their vested account balance a minimum of
$1,000 up to a maximum equal to the lesser of $50,000 (reduced by the
highest outstanding loan balance in all Company sponsored plans in the
prior twelve months) or 50% of their vested account balance. A participant
may not have more than one loan outstanding at any time. Loans bear
interest at the current prime rate plus 1% as published in the Wall Street
Journal. Loans must be repaid within five years (10 years for primary
residence loan) through payroll deductions and are collateralized by the
participant’s account balance. If a participant fails to comply with the
repayment terms of the loan, the Committee or its designee may deem such
defaulted loans as a distribution when the loans are considered
uncollectible from the participant. |
|
(g) |
Vesting |
|
Participants’
contributions to their accounts and pension equalizer contributions and
the earnings thereon are fully vested when made or earned. Effective
January 1, 2004, all active participants as of December 31, 2003 became
fully vested in all Company matching and discretionary
retirement allocation contribution accounts. Participants are fully vested
in all Company matching and discretionary retirement allocation
contributions after completing one year of service. Participants
become vested in the non-elective
contribution after a three-year period. If
a participant currently has three or more years of credited service, they
are considered fully vested in the non-elective
contribution. |
|
Participants
who terminate prior to obtaining the service requirements forfeit their
nonvested balances. The nonvested portion is forfeited at the end of the
fifth year following termination unless the participant is rehired within
five years of termination. |
|
Forfeitures
are used to reduce future Company matching contributions.
The forfeiture amounts that were used to reduce Company
matching contributions were $474,825 for the year ended December 31,
2004. Forfeitures available to reduce future Company matching
contributions are $10,455 and $59,772 as of December 31, 2004 and 2003,
respectively. |
|
(h) |
Distributions |
|
Each
participant, or their designated beneficiary, may elect to receive a
distribution upon retirement, termination, disability, or death. Direct
rollovers to an IRA or other qualified plan are permitted. All termination
distributions are made in lump-sum amounts. Periodic installments are also
available to participants who retire, or become disabled, at the
participant’s election. Certain joint and survivor annuities are available
upon election to participants who had a balance under the Plan prior to
June 1998, as provided under the terms of the Plan. Distributions from the
HSF may be made in the form of shares of stock or
cash. |
|
While
employed, a participant may make in-service withdrawals from their
after-tax accounts as defined in the Plan document. In-service withdrawals
are also permitted upon attainment of age 59-1/2 or proven financial
hardship, subject to limitations under the Plan. Certain additional
in-service withdrawals are permitted for account balances transferred from
acquired company plans as defined in the Plan
document. |
|
(i) |
Investment
Earnings |
|
Investment
earnings on participants’ accounts are allocated proportionately based on
their relative account balance in each investment
fund. |
|
(j) |
Halliburton
Stock Fund |
|
Effective
July 1, 2002, the HSF was converted into an Employee Stock Ownership Plan
(“ESOP”). The ESOP is designed to comply with Section 4975(e)(7) of the
Internal Revenue Code and Section 407(d)(6)
ERISA. |
|
The
ESOP has a dividend pass-through election whereby any cash dividends
attributable to Halliburton Company Common Stock held by the ESOP are to
be paid by the Company directly to the Trustee. Any cash dividends
received by the Trustee which are attributable to financed stock are to be
used by the Trustee to make exempt loan payments until the exempt loan has
been repaid in full. During 2004 and 2003, there were no loans related to
stock purchases. |
|
Each
participant is entitled to exercise voting rights attributable to the
Halliburton Company Common Stock allocated to his or her account and is
notified by the Trustee prior to the time that such rights are to be
exercised. The Trustee is not permitted to vote any allocated shares for
which instructions have been given by a participant. The Trustee is
required, however, to vote at their discretion all shares which have not
been voted by Plan participants and
beneficiaries. |
|
(k) |
Plan
Termination |
|
The
Board of Directors of the Company may amend, modify, or terminate the Plan
at any time. No such termination is contemplated, but if it should occur,
the accounts of all participants would be immediately fully vested and
paid in accordance with the terms of the
Plan. |
|
(2) |
Significant
Accounting Policies |
|
(a) |
Basis
of Accounting |
|
The
accompanying financial statements are prepared using the accrual basis of
accounting. |
|
(b) |
Valuation
of Investments |
|
The
Plan invests in cash and cash equivalents and participants loans, which
are held by the Trustee outside of the Master Trust. Cash and cash
equivalents are a short term investment fund, which is valued at cost,
which approximates fair value. Participant loans are valued at cost, which
approximates fair value. |
|
Cash
equivalents, derivative financial instruments, stock securities, mutual
funds, bonds and notes, and all other debt securities held within the
Master Trust are presented at their quoted market value. Common/collective
trust funds are stated at the fair market value of the underlying
securities. |
|
Real
estate related investments of the Master Trust consist of real estate
mortgages and investments in real estate investment trusts (“REITs”). Real
estate mortgages are stated at cost plus accrued interest, less payments
received. Investments in REITs are stated at fair
value. |
|
The
Master Trust’s investment in pooled equity managers (the Pooled Fund)
represents the unitized values of certain equity managers’ accounts on a
combined basis. Each manager’s account is valued daily. A unit price is
calculated for each manager by dividing the total value of the manager’s
account by the total number of units in existence for that manager. Net
income and realized/unrealized investment gains and losses by each manager
are passed through to the investment options through the managers’ unit
price. |
|
The
Fixed Income Fund within the Master Trust holds bank, insurance, and
investment contracts providing a fully benefit-responsive feature. These
investments are stated at contract value, which approximates fair value.
Where the Master Trust owns the underlying securities of asset-backed
investment contracts, the contracts are stated at fair market value of the
underlying securities plus an adjustment for the difference between fair
market value of the underlying securities and contract value. Contract
value represents the principal balance of the investment plus accrued
interest at the stated contract rate, less payments received, and contract
charges by the insurance company or bank. The weighted average crediting
interest rates for these contracts is 4.89% and 4.90% as of December 31,
2004 and 2003, respectively, and the weighted average return was 4.81% for
the year ended December 31, 2004. In addition, the Fixed Income Fund holds
a common/collective trust fund, which also invests in investment contracts
and asset-backed investment contracts. The return for the
common/collective trust fund is 4.15% for the year ended December 31,
2004. |
|
The
Plan’s proportionate interest in the investments of the Master Trust is
shown in the statements of net assets available for plan benefits as Plan
interest in the Master Trust (see note 3). |
|
(c) |
Securities
Transactions and Investment
Income |
|
The
Plan records interest on cash and cash equivalents and participant loans
held outside of the Master Trust when earned. Purchases and sales of
securities held outside the Master Trust are recorded on the trade-date
basis. |
|
Purchases
and sales of securities in the Master Trust are also recorded on the
trade-date basis. Realized gains (losses) on investments sold and
unrealized appreciation (depreciation) for investments of the Master Trust
are combined and presented as net Plan interest in Master Trust investment
gain on the statement of changes in net asset available for plan
benefits. |
|
In
addition, investment income of the Master Trust includes interest,
dividends, and other income. Interest income of the Master Trust
investments is recorded when earned. Dividends on the Master Trust
investments are recorded on the ex-dividend
date. |
|
(d) |
Administrative
Expenses |
|
The
Master Trust pays substantially all plan expenses on behalf of the Plan.
Generally, trustee fees, recordkeeping fees, audit fees, and investment
management fees are paid from Master Trust assets and are charged to the
plans participating in the Master Trust. Expenses related to the direct
management of the Master Trust are shared on an equitable basis by the
participating plans. Expenses specifically related to an individual plan
are charged to the assets of the Plan which incurred the charges. These
expenses are shown as a component of Plan interest in Master Trust
investment gain. |
|
(e) |
Payment
of Benefits |
|
Benefits
are recorded when paid. |
|
(f) |
Use
of Estimates |
|
The
preparation of financial statements in conformity with generally accepted
accounting principles in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, and changes therein, and disclosure of contingent assets and
liabilities. Actual results could differ from those
estimates. |
|
(3) |
Investment
Assets Held in the Master Trust |
|
Certain
assets of the Plan are combined with the assets of certain other benefit
plans of affiliated companies in the Master Trust. The assets of the
Master Trust are segregated into eleven funds in which the plans may
participate. The combination of the plans’ assets is only for investment
purposes and the plans continue to be operated under their current plan
documents, as amended. |
|
The
following is a summary of net assets as of December 31, 2004 and 2003 and
total investment income for the year ended December 31, 2004 of the Master
Trust and net appreciation (depreciation) by investment type for the year
ended December 31, 2004 (dollar amounts in thousands). The Plan’s interest
in the Master Trust’s net assets for the applicable periods (dollar
amounts in thousands) are also
presented. |
|
Net
Assets |
2004 |
2003 |
|||||
|
(in
000’s) |
(in
000’s) |
||||||
|
Assets: |
|||||||
|
Investments
- |
|||||||
|
Cash
and equivalents |
$ |
458,525 |
$ |
429,930 |
|||
|
Collateral
received for securities loaned |
852,554 |
613,397 |
|||||
|
Asset-backed
investment contracts |
(69,632 |
) |
(77,391 |
) | |||
|
U.S.
bonds and notes |
1,117,725 |
1,443,969 |
|||||
|
Non-U.S.
bonds and notes |
134,345 |
116,032 |
|||||
|
Real
estate related investments |
- |
29 |
|||||
|
Halliburton
stock |
269,080 |
194,187 |
|||||
|
Other
U.S. stock |
1,068,028 |
1,003,792 |
|||||
|
Non-U.S.
stock |
421,315 |
373,923 |
|||||
|
Common/collective
trust funds |
615,634 |
550,283 |
|||||
|
Mutual
funds |
218,990 |
178,900 |
|||||
|
Securities
loaned - |
|||||||
|
U.S.
bonds and notes |
713,032 |
521,439 |
|||||
|
Other
U.S. stock |
102,130 |
55,604 |
|||||
|
Non-U.S.
stock |
20,849 |
23,364 |
|||||
|
Total
investments |
5,922,575 |
5,427,458 |
|||||
|
Receivables
- |
|||||||
|
Receivables
for investment sold |
73,853 |
60,758 |
|||||
|
Dividends |
1,998 |
1,664 |
|||||
|
Interest |
17,653 |
16,105 |
|||||
|
Other |
512 |
276 |
|||||
|
Total
receivables |
94,016 |
78,803 |
|||||
|
Total
assets |
6,016,591 |
5,506,261 |
|||||
|
Liabilities: |
|||||||
|
Payables
for investments purchased |
271,752 |
300,949 |
|||||
|
Obligation
for collateral received for securities loaned |
852,554 |
613,397 |
|||||
|
Other
payables |
4,284 |
3,631 |
|||||
|
Total
liabilities |
1,128,590 |
917,977 |
|||||
Net
Assets |
$ |
4,888,001 |
$ |
4,588,284 |
|||
|
Plan’s
interest in Master Trust net assets |
$ |
2,902,560 |
$ |
2,698,039 |
|||
Percentage
interest |
59.38 |
% |
58.80 |
% | |||
|
Year
ended |
||||
|
December
31, |
||||
|
Total
Investment Income |
2004 |
|||
|
(in
000’s) |
||||
|
Net
investment appreciation |
$ |
340,321 |
||
|
Investment
income |
145,213 |
|||
|
Expenses |
(16,425 |
) | ||
Total
investment income |
$ |
469,109 |
||
|
Year
ended |
||||
|
December
31, |
||||
|
Net
Appreciation (Depreciation) by Investment Type |
2004 |
|||
|
(in
000’s) |
||||
|
Cash
and equivalents |
$ |
(3 |
) | |
|
U.S.
bonds and notes |
3,162 |
|||
|
Non-U.S.
bonds and notes |
969 |
|||
|
Halliburton
stock |
93,272 |
|||
|
U.S.
stock |
109,653 |
|||
|
Non-U.S.
stock |
55,207 |
|||
|
Common/collective
trust funds |
51,044 |
|||
|
Mutual
funds |
8,871 |
|||
|
Other
investments |
18,146 |
|||
Total
appreciation |
$ |
340,321 |
||
|
The
Master Trust makes use of several investment strategies involving limited
use of derivative investments. The Master Trust’s management, as a matter
of policy and with risk management as their primary objective, monitors
risk indicators such as duration and counter-party credit risk, both for
the derivatives themselves and for the investment portfolios holding the
derivatives. Investment managers are allowed to use derivatives for such
strategies as portfolio structuring, return enhancement, and hedging
against deterioration of investment holdings from market and interest rate
changes. Derivatives are also used as a hedge against foreign currency
fluctuations. The Master Trust’s management does not allow investment
managers for the Master Trust to use leveraging for any investment
purchase. Derivative investments are stated at estimated fair market
values as determined by quoted market prices. Gains and losses on such
investments are included in the net appreciation of the Master
Trust. |
|
Certain
investment managers of the Master Trust participate in a securities
lending program administered by State Street. The transfer of assets under
State Street’s securities lending program are secured borrowings with
pledge of collateral. The fair market value of the securities loaned as of
December 31, 2004 and 2003 was $836,010,385 and $600,407,471 respectively.
The cash and non-cash collateral received for securities loaned as of
December 31, 2004 and 2003 was $852,554,443 and $613,397,374 respectively.
As of December 31, 2004 and 2003, none of the collateral received for
securities loaned has been sold or
repledged. |
|
(4) |
Plan
Mergers, Spin-offs and Transfers |
|
Effective
January 1, 2003, the Company spun off the accounts and participation of
Kellogg Brown & Root Inc., (“KBR”), a subsidiary of the Company,
employees and former terminated employees of KBR, including beneficiaries
and alternate payees, thereby establishing a new defined contribution plan
on the behalf of KBR and other participating subsidiaries, the Kellogg
Brown & Root, Inc. Retirement and Savings Plan (the “KBR Plan”). The
total amount transferred to the KBR Plan of approximately $1.0 billion was
equal to the account balances including loans and clearing account
balances of the transferring participants as of the effective
date. |
|
Effective
July 1, 2003, the Landmark Savings Plan was merged with and into the Plan,
at which time all participants in the Landmark Savings Plan became
participants in the Plan. As a result of the merger, the Plan replaced, in
their entirety, the provisions set forth by the Landmark Savings Plan.
Accordingly, investments, including loans, of approximately $82.6 million
were transferred to the Plan. |
|
(5) |
Investments |
|
The
following table represents the fair value of individual investment funds
held under the Master Trust which exceed 5% of the Plan’s net assets as of
December 31, 2004 and 2003: |
|
2004 |
2003 |
||||||
|
Participation
in Master Trust, at fair value: |
|||||||
|
Fixed
Investment Fund |
$ |
1,006,282,905 |
$ |
990,767,257 |
|||
|
Equity
Investment Fund |
185,161,845 |
171,039,079 |
|||||
|
General
Investment Fund |
717,737,226 |
714,773,866 |
|||||
|
S&P
500 Index Fund |
207,047,656 |
196,342,508 |
|||||
|
Halliburton
Company Stock Fund |
212,648,239 |
153,400,573 |
|||||
Large
Cap Value Fund |
175,420,957 |
131,031,516* |
|||||
|
(6) |
Tax
Status |
|
The
Internal Revenue Service (“IRS”) informed the Company by a letter dated
March 4, 2004, that the Plan and related trust were designed in accordance
with the applicable provisions of the IRC. The Plan has been amended and
restated since receiving the letter; however, the plan administrator
believes that the Plan is currently designed and being operated in
compliance with the applicable requirements of the IRC. Therefore, the
plan administrator believes that the Plan was qualified and the related
trust was tax-exempt as of December 31, 2004 and
2003. |
|
In
2003, the Company submitted a filing under a voluntary correctional
program with the IRS to correct certain transactions of the Plan. On June
17, 2003, the IRS approved the Company’s proposed method of correction and
executed their Compliance Statement. The Company has corrected these
matters and made necessary modifications to their administrative
procedures as required by the Compliance Statement. Accordingly, the
impact of these actions has been properly reflected in the Plan’s
financial statements as of December 31,
2003. |
|
(7) |
Related-Party
Transactions |
|
The
Plan, through its participation in the Master Trust, may invest in
investment securities issued and/or managed by the Trustee and asset
managers. Additionally, the Master Trust invests in Halliburton Company’s
common stock through the HSF. These entities are considered
parties-in-interest to the Plan. These transactions are covered by an
exemption from the prohibited transaction provisions of ERISA and the
IRC. |
|
(8) |
Subsequent
Events |
|
Effective
January 1, 2005, the Master Trust added a new investment for Plan
participants called the Mid Cap Equity Index
Fund. |
|
(a) |
(b) |
(c) |
(d) | |
|
Identity
of issue, borrower, |
Current | |||
|
lessor,
or similar party |
Description
of investment |
value | ||
|
* |
Halliburton
Company Employee |
Investment
in net assets of |
||
|
Benefit
Master Trust |
Halliburton
Company Employee Benefit |
|||
|
Master
Trust |
2,902,560,089 | |||
|
* |
Participant
Loans |
Loans
issued at interest rates between |
||
|
5.0%
and 11.5% |
52,723,939 | |||
|
$ |
2,955,284,028 | |||