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, 2001

                                       OR

[ ] 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 1-3492
                               HALLIBURTON COMPANY
             (Exact name of registrant as specified in its charter)

             Delaware                                     75-2677995
    (State or other jurisdiction of                    (I.R.S. Employer
    incorporation of organization)                     Identification No.)

            3600 Lincoln Plaza, 500 N. Akard St., Dallas, Texas 75201
                    (Address of principal executive offices)
                   Telephone Number - Area code (214) 978-2600

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

                                                        Name of each Exchange on
       Title of each class                                  which registered
       -------------------                                  ----------------
Common Stock par value $2.50 per share                   New York Stock Exchange
Baroid Corporation 8% Guaranteed Senior Notes due 2003   New York Stock Exchange

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

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 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. [X]

The aggregate market value of Common Stock held by nonaffiliates on February 28,
2002,  determined  using  the per  share  closing  price on the New  York  Stock
Exchange Composite tape of $16.50 on that date was approximately $7,162,000.00.

As of February 28, 2002,  there were 435,613,251  shares of Halliburton  Company
Common Stock $2.50 par value per share outstanding.

Portions of the  Halliburton  Company Proxy  Statement dated March 19, 2002, are
incorporated by reference into Part III of this report.



PART I

Item 1. Business.
     General  development 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, products, maintenance,
engineering and construction to energy,  industrial and governmental  customers.
See  Note 2 to the  financial  statements  for  information  related  to  recent
acquisitions and dispositions.
     Financial  information about business segments.  We operate in two business
segments:
          -   Energy Services Group; and
          -   Engineering and Construction Group.
     Dresser  Equipment  Group is presented as discontinued  operations  through
March  31,  2001  as a  result  of the  sale  in  April  2001  of its  remaining
businesses.  See Note 4 to the financial  statements  for financial  information
about our business segments.
     Description  of  services  and  products.  Our  ability  to mix,  bundle or
integrate  products and services to meet the varied needs of our customers is of
increasing importance in the highly competitive environment in which we operate.
We believe that, based upon our customers' requirements, our future success will
depend, in part, upon our ability to offer total capabilities and solutions on a
global,  industry-encompassing  scale as well as discrete services and products.
Our business  strategy is focused on continuing to maintain global leadership in
providing our customers discrete services, products,  engineering,  construction
and maintenance which can be combined with our project  management  capabilities
to provide our customers a wide range of integrated solutions.  This strategy is
dependent upon four key goals:
          -   technological leadership;
          -   operational excellence;
          -   innovative business relationships; and
          -   a dynamic workforce.
     We offer a broad suite of products  and  services  through the two business
segments.  The  following  summary  describes our services and products for each
business segment.
     ENERGY SERVICES GROUP
     The Energy Services Group segment consists of Halliburton  Energy Services,
Landmark  Graphics and  operations  through  various  product  service  lines in
Surface/Subsea  and  major  projects.  This  segment  provides  a wide  range of
discrete services and products, as well as integrated solutions to customers for
the  exploration,  development and production of oil and gas. The segment serves
major, national and independent oil and gas companies throughout the world.
     Halliburton  Energy Services  provides  discrete  products and services and
integrated solutions ranging from the initial evaluation of producing formations
to drilling,  completion,  production  and well  maintenance.  Major product and
service line offerings include:
          -   pressure pumping, including:
              -   cementing,
              -   production enhancement (fracturing and acidizing), and
              -   tools and testing;
          -   logging and perforating;
          -   drilling systems and services;
          -   drilling fluids systems;
          -   drill bits;
          -   completion products;
          -   integrated solutions; and
          -   reservoir description.
     Cementing  is the  process  used to bond the well  and  well  casing  while
isolating fluid zones and maximizing wellbore stability. This is accomplished by
pumping  cement and chemical  additives to fill the space between the casing and
the side of the  wellbore.  Our  cementing  service  line also  provides  casing
equipment and services.

                                       1


     Production  enhancement  optimizes oil and gas reservoirs through a variety
of pressure pumping services, including: fracturing and acidizing, sand control,
coiled tubing,  well control,  nitrogen services and specialty  services.  These
services  are used to clean out a formation or to fracture  formations  to allow
increased oil and gas production.
     Tools  and  testing  includes  tubing-conveyed   perforating  products  and
services, drill stem and other well testing tools, data acquisition services and
production applications.
     Logging  products  and  services  include our  Magnetic  Resonance  Imaging
Logging (MRIL(R)),  high-temperature  logging, as well as traditional  open-hole
and cased-hole logging tools.  MRIL(R) tools apply medical  diagnostic  magnetic
resonance imaging  technology to the evaluation of subsurface rock formations in
newly  drilled oil and gas wells.  Our high  temperature  logging  tools combine
advanced  electronic  and  mechanical  tool  designs,  quality  materials  and a
telemetry  system to  operate in high  temperature  and high  pressure  downhole
environments.   Open-hole  tools  provide  information  on  well  visualization,
formation   evaluation   (including   resistivity,   porosity,   lithology   and
temperature),  rock mechanics and sampling.  Cased-hole tools provide  cementing
evaluation,   reservoir   monitoring,   pipe   evaluation,   pipe  recovery  and
perforating.
     Drilling systems and services are provided by Sperry-Sun  Drilling Systems.
These    services     include     directional    and    horizontal     drilling,
measurement-while-drilling,   logging-while-drilling,   multilateral  wells  and
related  completion  systems,  and rig site  information  systems.  Our drilling
systems feature increased bit stability,  directional control, borehole quality,
lower  vibration,  and higher rates of penetration  while  drilling  directional
wells. In 2001 we introduced the Geo-Pilot(TM), an advanced point-the-bit rotary
steerable system that expands directional  drilling  capabilities while reducing
overall drilling costs.
     Baroid  provides  fluid systems and  performance  additives for oil and gas
drilling, completion and workover operations. In addition, Baroid sells products
to a wide variety of industrial customers.
     Drill bits,  offered by Security DBS,  include roller cone rock bits, fixed
cutter bits,  coring  equipment and services,  and other  downhole tools used to
drill wells.
     Completion  products  include  subsurface  safety  valves and flow  control
equipment,  surface safety systems,  packers and specialty completion equipment,
production  automation,  well  screens,  well control  services,  and  slickline
equipment and services.
     Integrated  solutions provides  value-added oilfield project management and
solutions to  independent,  integrated,  and national oil companies.  Integrated
solutions  enhance field  deliverability  and maximize the customer's  return on
investment.  These services  leverage all Halliburton  Energy  Services  product
service  lines  and   technologies  as  well  as  overall   project   management
capabilities.
     Reservoir   description   is  composed  of  two  groups  -  geoscience  and
engineering,  and  computed  products.  The  geoscience  and  engineering  group
provides a comprehensive  suite of products  including  opportunity  assessment,
reservoir characterization,  field development planning, production enhancement,
reservoir  surveillance,  and reservoir management.  The computed products group
provides   interpretation   for  wellbore  imaging,   waveform  sonics,   cement
evaluation,  production,  and a  variety  of  open  and  cased-hole  information
evaluation  logs.  By  combining   reservoir   description  with  field  service
capabilities  and  technology,  Halliburton  Energy Services  provides  complete
reservoir solutions.
     Landmark  Graphics is the leading  supplier of integrated  exploration  and
production  software  information  systems  as well  as  professional  and  data
management  services for the upstream oil and gas industry.  Landmark's software
transforms  vast  quantities  of seismic,  well log and other data into detailed
computer  models  of  petroleum  reservoirs  to  achieve  optimal  business  and
technical  decisions in  exploration,  development  and  production  activities.
Landmark's broad range of professional  services enable our worldwide  customers
to optimize technical, business and decision processes. Data management services
provides  efficient  storage,   browsing  and  retrieval  of  large  volumes  of
exploration  and petroleum  data. The products and services  offered by Landmark
integrate data workflows and operational  processes across disciplines including
geophysics, geology, drilling, engineering,  production,  economics, finance and
corporate planning, and key partners and suppliers.
     Surface/Subsea   and  major   projects  product   service   lines   provide
construction, installation and servicing of subsea facilities; flexible pipe for
offshore  applications;  pipeline services for offshore  customers;  pipecoating
services; feasibility, conceptual and front-end engineering and design, detailed
engineering,  procurement, construction site management, commissioning, start-up
and    debottlenecking    of    both    onshore    and    offshore   facilities;

                                       2


and  large  integrated  engineering,   procurement,  and  construction  projects
containing both surface and sub-surface components.
     ENGINEERING AND CONSTRUCTION GROUP
     The Engineering and  Construction  Group segment,  operating as Halliburton
KBR,  provides a wide range of services to energy and  industrial  customers and
government entities worldwide.
     Halliburton KBR includes the following five product lines:
          -   Onshore   operations   comprises  engineering   and   construction
              activities, including  liquefied natural  gas, ammonia,  crude oil
              refineries, and natural gas plants;
          -   Offshore   operations   includes  specialty   offshore   deepwater
              engineering  and  marine  technology  and   worldwide  fabrication
              capabilities;
          -   Government   operations   provides  operations,   maintenance  and
              logistics activities for government facilities and installations;
          -   Operations and  maintenance provides  services for  private sector
              customers,  primarily   industrial,   hydrocarbon  and  commercial
              applications; and
          -   Asia  Pacific  operations,  based  in  Australia,  provides  civil
              engineering and consulting services.
     Markets  and  competition.  We are one of the world's  largest  diversified
energy  services  and  engineering  and  construction  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 (including the ability to deliver services and products on an "as
needed,   where  needed"  basis),   product  quality,   warranty  and  technical
proficiency.  While we provide a wide range of discrete services and products, a
number of customers  have  indicated a preference  for  integrated  services and
solutions.  In the case of the Energy  Services Group,  integrated  services and
solutions  relate to all phases of  exploration,  development  and production of
oil,  natural gas and natural gas liquids.  In the case of the  Engineering  and
Construction  Group,  integrated  services and solutions relate to all phases of
design,  procurement,   construction,  project  management  and  maintenance  of
facilities primarily for energy and government customers. Demand for these types
of integrated services and solutions is based primarily upon quality of service,
technical proficiency, price and value created.
     We conduct business worldwide in over 100 countries.  Since the markets for
our  services  and  products are vast and cross  numerous  geographic  lines,  a
meaningful  estimate of the number of competitors cannot be made. The industries
we serve  are  highly  competitive  and we have  many  substantial  competitors.
Generally,  our services and products are marketed through our own servicing and
sales  organizations.  A small percentage of sales of the Energy Service Group's
products is made through supply stores and third-party representatives.
     Operations  in  some  countries  may be  adversely  affected  by  unsettled
political  conditions,  acts of terrorism,  expropriation or other  governmental
actions,  and exchange control and currency problems.  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  exposures  to  foreign  currency
fluctuations,  risk  concentration,  and financial  instruments used to minimize
risk is  included  on pages 23 and 24 under the  caption  "Financial  Instrument
Market Risk" and in Note 16 to the financial statements.
     Customers and backlog.  Our revenues from continuing  operations during the
past three years were mainly  derived  from the sale of products and services to
the energy  industry.  Sales of products and services to the energy  industry in
2001 represented 85% of revenues from continuing  operations  compared to 84% in
2000 and 83% in  1999.  The  following  schedule  summarizes  the  backlog  from
continuing  operations of engineering and construction  projects at December 31,
2001 and 2000:



Millions of dollars                                 2001          2000
-----------------------------------------------------------------------------
                                                         
Firm orders                                      $  8,118      $  7,652
Government orders firm but not yet funded,
   letters of intent and contracts awarded but
   not signed                                       1,794         1,751
-----------------------------------------------------------------------------
 Total                                           $  9,912      $  9,403
=============================================================================


                                       3


     We estimate  that 52% of the total  backlog  existing at December  31, 2001
will be completed  during 2002.  Approximately  45% of total backlog  relates to
fixed-price  contracts  with the  remaining  55%  relating to cost  reimbursable
contracts.  For  contracts  which  are not for a  specific  amount,  backlog  is
estimated as follows:
          -   operations and  maintenance contracts  which cover  multiple years
              are included in backlog based upon a rolling estimate  of the work
              to be provided over the next twelve months; and
          -   government  contracts which  cover a broad  scope of  work up to a
              maximum value are  included in backlog  at the estimated amount of
              work  to  be  completed  under  the  contract based  upon periodic
              consultation with the customer.
     For projects where we act as project manager,  we only include our scope of
each project in backlog.  For projects related to unconsolidated joint ventures,
we only include our percentage  ownership of each joint venture's  backlog.  Our
backlog excludes contracts for recurring  hardware and software  maintenance and
support  services  offered by Landmark.  Backlog  does not indicate  what future
operating  results will be because  backlog  figures are subject to  substantial
fluctuations.  Arrangements  included in backlog are in many instances extremely
complex, nonrepetitive in nature and may fluctuate in contract value and timing.
Many contracts do not provide for a fixed amount of work to be performed and are
subject to  modification  or  termination  by the customer.  The  termination or
modification  of any one or more  sizeable  contracts  or the  addition of other
contracts may have a substantial and immediate effect on backlog.
     Raw materials. Raw materials essential to our business are normally readily
available.  Where we are dependent on a single supplier for materials  essential
to our business,  we are confident that we could make  satisfactory  alternative
arrangements in the event of an interruption in supply.
     Research,  development  and  patents.  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.  Information  relating
to our  expenditures for research and development is included in Note 1 and Note
4 to the financial statements.
     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 under patents owned by others.  We do not consider a particular  patent
or group of patents to be material to our business operations.
     Seasonality.  Weather  and natural  phenomena  can  temporarily  affect the
performance of our services,  but the widespread  geographical  locations of our
operations  serve to  mitigate  these.  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  offshore  operations; and
          -   severe weather  during  the  winter  months  normally  results  in
              reduced activity levels in the North Sea.
     Employees.  At December 31, 2001, we employed  approximately  85,000 people
worldwide  compared to 93,000 at December 31, 2000,  which  included about 9,000
related to discontinued operations.
     Environmental  regulation. We are subject to various environmental laws and
regulations.  Compliance with these requirements has not substantially increased
capital expenditures,  adversely affected our competitive position or materially
affected our earnings.  We do not anticipate any material adverse effects in the
foreseeable  future as a result of existing  environmental laws and regulations.
See Note 9 to the financial statements.

                                       4


Item 2. Properties.
     We own or lease numerous properties in domestic and foreign locations.  The
following locations represent our major facilities:



                                        Owned/
Location                                Leased    Sq. Footage   Description
----------------------------------------------------------------------------------------------------------------------
                                                       
Energy Services Group
North America
Duncan, Oklahoma                        Owned        603,000    Four locations which include manufacturing capacity
                                                                totaling 442,000 square feet.  The manufacturing
                                                                facility is the main manufacturing site for the
                                                                cementing, fracturing and acidizing equipment used
                                                                by our pressure pumping product service line.
                                                                Duncan facilities also include a technology and
                                                                research center, training facility, administrative
                                                                offices, and warehousing.

Houston, Texas                          Owned        690,000    Two suburban campus locations.  One campus is on 89
                                                                acres consisting of office, training, test well,
                                                                warehouse, manufacturing and laboratory facilities.
                                                                The manufacturing facility, which occupies 115,000
                                                                square feet, produces highly specialized down hole
                                                                equipment for our logging and drilling systems
                                                                product service lines.  The other campus is a
                                                                manufacturing facility with limited office,
                                                                laboratory and warehouse space that primarily
                                                                produces fixed cutter drill bits.

Houston, Texas                          Owned        593,000    A campus facility that is the home office for the
                                                                Energy Services Group.

Carrollton, Texas                       Owned        792,000    Manufacturing facility including warehouses,
                                                                engineering and sales, testing, training and
                                                                research.  The manufacturing plant produces
                                                                equipment for the completion products product
                                                                service line including surface and sub-surface
                                                                safety valves and packer assemblies.

Dallas, Texas                           Owned        352,000    Manufacturing facility includes office, laboratory
                                                                and warehouse space that primarily produces roller
                                                                cone drill bits.

Alvarado, Texas                         Owned        238,000    Manufacturing facility including some office and
                                                                warehouse space.  The manufacturing facility
                                                                produces perforating products and exploratory and
                                                                formation evaluation tools for the tools, testing
                                                                and tubing conveyed perforating and logging product
                                                                service lines.

Panama City, Florida                    Leased       180,000    Manufacturing facility including office and
                                                                warehouse/storage space, that produces flexible pipe
                                                                used in our Surface/Subsea product service lines.

                                       5


                                        Owned/
Location                                Leased    Sq. Footage   Description
----------------------------------------------------------------------------------------------------------------------
Europe/Africa
Manchester, United Kingdom              Owned        244,000    Primarily a manufacturing facility which produces
                                                                positive displacement pumps and processing units for
                                                                use in general industry, wastewater and oilfield
                                                                applications.

Newcastle, United Kingdom               Owned        453,000    Manufacturing facility including office and
                                        Leased        11,000    warehouse/storage space, that produces flexible pipe
                                                                used in our Surface/Subsea product service lines.

Arbroath, United Kingdom                Owned        119,000    Manufacturing site that produces equipment for the
                                                                completions products product service line.

Aberdeen, United Kingdom                Owned      1,216,000    A total of 26 sites including 866,000 square feet of
                                        Leased       365,000    manufacturing capacity used by various product
                                                                service lines.

Tananger, Norway                        Leased       319,000    Service center with workshops, testing facilities,
                                                                warehousing and office facilities supporting the
                                                                Norwegian North Sea operations.

Asia Pacific
Singapore                               Owned        102,000    A manufacturing facility that produces surface and
                                                                subsurface safety valves and packer assemblies for
                                                                the completions products product service line.

Engineering and Construction Group
North America
Houston, Texas                          Leased       851,000    Engineering and project support center, as well as
                                                                the home office of Halliburton KBR which occupies 34
                                                                full floors in 2 office buildings.  One of these
                                                                buildings is owned by a joint venture in which we
                                                                have a 50% ownership.

Europe/Africa
Leatherhead, United Kingdom             Owned        226,000    Engineering and project support center on 55 acres
                                                                in suburban London.

Corporate
North America
Houston, Texas                          Owned      1,017,000    A campus facility occupying 135 acres utilized
                                                                primarily for administrative and support personnel.
                                                                Approximately 221,000 square feet is dedicated to
                                                                warehousing and construction equipment maintenance
                                                                and storage facilities.

Dallas, Texas                           Leased        26,000    Office facilities for our corporate headquarters.


     We have two idle  manufacturing  facilities that we own in Longview,  Texas
with 151,000  square  feet.  These  facilities  were written down to fair market
value in our 1998 special charge.

                                       6


     In addition,  we have 153  international  and 125 domestic field camps from
which Halliburton  Energy Services  delivers its products and services.  We also
have numerous small facilities which include sales offices,  project offices and
bulk storage facilities throughout the world. We own or lease marine fabrication
facilities covering approximately 761 acres in Texas, England and Scotland.
     We have  mineral  rights to proven and  prospective  reserves of barite and
bentonite. These rights include leaseholds,  mining claims and property owned in
fee.  Based on the  number of tons of each of the  above  minerals  consumed  in
fiscal year 2001, we estimate our proven  reserves are sufficient for operations
for the foreseeable future.
     All  properties  that we  currently  occupy are deemed  suitable  for their
intended use.
     We have office space in Dallas,  Texas totaling  80,000 square feet that is
fully sublet.

                                       7


Item 3. Legal Proceedings.
     Information  relating to various commitments and contingencies is described
in  Management's  Discussion and Analysis of Financial  Condition and Results of
Operations and Note 9 to the 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 2001.

                                       8


Executive Officers of the Registrant.

     The following table indicates the names and ages of the executive  officers
of the  registrant  as of February 1, 2002,  along with a listing of all offices
held by each during the past five years:



Name and Age                   Offices Held and Term of Office
------------                   -------------------------------
                            
     Jerry H. Blurton          Vice President and Treasurer, since July 1996
     (Age 57)

     Margaret E. Carriere      Vice President - Human Resources, since September 2000
     (Age 50)                  Vice President and Secretary of Halliburton Energy Services, Inc., February 2000
                                 to August 2000
                               Law Department Manager of Integration & Development of Halliburton
                                 Energy Services, Inc., October 1998 to February 2000
                               Region Chief Counsel (London) Europe/Africa Law Department of Halliburton
                                 Energy Services, Inc., May 1994 to September 1998

*    Lester L. Coleman         Executive Vice President and General Counsel, since May 1993
     (Age 59)

*    Douglas L. Foshee         Executive Vice President and Chief Financial Officer, since August 2001
     (Age 42)                  Chairman, President and CEO of Nuevo Energy Company, July 1997 to May 2001
                               President and CEO of Torch Energy Advisors, Inc., May 1995 to July 1997

*    Robert R. Harl            Chief Executive Officer of Kellogg Brown & Root, Inc., since March 2001
     (Age 51)                  President of Kellogg Brown & Root, Inc., since October 2000
                               Vice President of Kellogg Brown & Root, Inc., March 1999 to October 2000
                               Chief Executive Officer and President of Brown & Root Energy Services Division
                                 of Kellogg Brown & Root, Inc., April 2000 to February 2001
                               Chief Executive Officer of Brown & Root Services Division of Kellogg Brown &
                                 Root, Inc., January 1999 to April 2000
                               Chief Executive Officer and President of Brown & Root Services Corporation,
                                 November 1996 to January 1999
                               Vice President of Brown & Root, Inc., July 1989 to July 1998

     Robert F. Heinemann       Vice President and Chief Technology Officer, since February 2000
     (Age 48)                  Vice President of Mobil Technology Company and General Manager of
                                 Mobil Exploration and Producing Technical Center, 1997 to February 2000
                               Manager of Surface Engineering and Upstream Strategic Research of Mobil
                                 Technology Company, 1996 to 1997

     Arthur D. Huffman         Vice President and Chief Information Officer, since August 2000
     (Age 49)                  Chief Information Officer of Group Air Liquide, 1997 to August 2000
                               Vice President - Information Technology of Air Liquide America Corporation,
                                 1995 to 1997



                                       9


Executive Officers of the Registrant (continued)

Name and Age                   Offices Held and Term of Office
------------                   -------------------------------
*    David J. Lesar            Chairman of the Board, President and Chief Executive Officer, since August 2000
     (Age 48)                  Director of Registrant, since August 2000
                               President and Chief Operating Officer, May 1997 to August 2000
                               Executive Vice President and Chief Financial Officer, August 1995 to May 1997
                               Chairman of the Board of Kellogg Brown & Root, Inc., January 1999 to August 2000
                               President and Chief Executive Officer of Brown & Root, Inc., September 1996 to
                                 December 1998

*    Gary V. Morris            Executive Vice President, since August 2001
     (Age 48)                  Executive Vice President and Chief Financial Officer, May 1997 to August 2001
                               Senior Vice President - Finance, February 1997 to May 1997
                               Senior Vice President, May 1996 to February 1997

     R. Charles Muchmore, Jr.  Vice President and Controller, since August 1996
     (Age 48)

*    Edgar Ortiz               Chief Executive Officer and President of Energy Services Group,
     (Age 59)                    since April 2000
                               Executive Vice President of Halliburton Energy Services, Inc., since June 2000
                               Senior Vice President of Halliburton Energy Services, Inc., December 1997 to
                                 June 2000
                               Vice President of Halliburton Energy Services, Inc., February 1997 to
                                 December 1997
                               President of Halliburton Energy Services Division of Halliburton Energy
                                 Services, Inc., November 1997 to March 2000
                               Senior Vice President - Global Operations of Halliburton Energy Services
                                 Division of Halliburton Energy Services, Inc., April 1997 to November 1997
                               Vice President - Latin America Region of Halliburton Energy Services
                                 Division of Halliburton Energy Services, Inc., October 1994 to April 1997





















* Members of the Policy Committee of the registrant.
There are no family relationships between the executive officers of the
registrant.



                                       10


PART II

Item 5. Market  for  the  Registrant's  Common  Stock  and  Related  Stockholder
Matters.
     Halliburton Company's common stock is traded on the New York Stock Exchange
and the Swiss  Exchange.  Information  relating to market prices of common stock
and quarterly dividend payment is included under the caption "Quarterly Data and
Market  Price  Information"  on  pages  72 and 73 of this  annual  report.  Cash
dividends on common stock for 2001 and 2000 were paid in March, June, September,
and  December  of each year.  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.
     At December 31,  2001,  there were  approximately  25,100  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.

Item 6. Selected Financial Data.
     Information  relating  to selected  financial  data is included on pages 69
through 71 of this annual report.

Item 7. Management's Discussion and  Analysis of Financial Condition and Results
of Operations.
     Information  relating to management's  discussion and analysis of financial
condition  and results of  operations is included on pages 13 through 27 of this
annual report.

Item 7(a). Quantitative and Qualitative Disclosures About Market Risk.
     Information relating 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 pages 23 and 24 of this annual report.

                                       11


Item 8. Financial Statements and Supplementary Data.



                                                                                                               Page No.
                                                                                                            
Responsibility for Financial Reporting                                                                             28
Report of Arthur Andersen LLP, Independent Public Accountants                                                      29
Consolidated Statements of Income for the years ended December 31, 2001, 2000 and 1999                             30
Consolidated Balance Sheets at December 31, 2001 and 2000                                                          31
Consolidated Statements of Shareholders' Equity for the years ended December 31, 2001, 2000 and 1999            32-33
Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999                         34
Notes to Annual Financial Statements                                                                            35-68
  1.     Significant Accounting Policies                                                                        35-37
  2.     Acquisitions and Dispositions                                                                          37-38
  3.     Discontinued Operations                                                                                38-39
  4.     Business Segment Information                                                                           39-42
  5.     Inventories                                                                                               42
  6.     Property, Plant and Equipment                                                                             42
  7.     Related Companies                                                                                      42-43
  8.     Lines of Credit, Notes Payable and Long-Term Debt                                                      43-44
  9.     Commitments and Contingencies                                                                          44-50
 10.     Income Per Share                                                                                          51
 11.     Engineering and Construction Reorganization                                                            51-52
 12.     Change in Accounting Method                                                                               52
 13.     Income Taxes                                                                                           53-54
 14.     Common Stock                                                                                           55-57
 15.     Series A Junior Participating Preferred Stock                                                             57
 16.     Financial Instruments and Risk Management                                                              57-58
 17.     Retirement Plans                                                                                       58-62
 18.     Dresser Industries, Inc. Financial Information                                                         62-68
Quarterly Data and Market Price Information (Unaudited)                                                         72-73


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

Item 9. Changes  in  and  Disagreements  with  Accountants   on  Accounting  and
Financial Disclosure.
     None.

                                       12


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

     In this  section,  we discuss the operating  results and general  financial
condition of Halliburton Company and its subsidiaries. We explain:
          -   factors and risks that impact our business;
          -   why our earnings and expenses for the year 2001 differ from 2000
              and why our earnings and expenses for 2000 differ from 1999;
          -   capital expenditures;
          -   factors that impacted our cash flows; and
          -   other items that materially affect our financial condition or
              earnings.

BUSINESS ENVIRONMENT

     Our business is organized around two business segments:
          -   Energy Services Group; and
          -   Engineering and Construction Group.
     We currently operate in over 100 countries throughout the world,  providing
a  comprehensive  range of discrete and integrated  products and services to the
energy  industry,  and to  other  industrial  and  governmental  customers.  The
majority of our  consolidated  revenues is derived from the sale of services and
products,  including engineering and construction  activities,  to large oil and
gas  companies.  These  services  and products  are used  throughout  the energy
industry, from the earliest phases of exploration and development of oil and gas
reserves through the refining and distribution process.
     The  industries  we serve are  highly  competitive  with  many  substantial
competitors  for each  segment.  No country  other than the United States or the
United Kingdom accounts for more than 10% of our operations. Unsettled political
conditions,  acts of terrorism,  expropriation  or other  governmental  actions,
exchange controls or currency  devaluation may result in increased business risk
in any one country.  We believe the geographic  diversification  of our business
activities  reduces the risk that loss of  business in any one country  would be
material to our consolidated results of operations.
     Halliburton Company
     Spending on  exploration  and  production  activities  and  investments  in
capital  expenditures for refining and distribution  facilities by large oil and
gas companies  have a significant  impact on the activity  levels within our two
business  segments.  Throughout  the first part of 2001,  increased  spending by
large oil and gas companies  contributed to higher levels of worldwide  drilling
activity,  especially  gas  drilling  in the  United  States.  General  business
conditions in the United States began to decline during the third  quarter.  The
events of September 11  accelerated a global  economic  recession  which in turn
adversely  impacted  the energy  industry,  particularly  in the United  States.
Reduced demand for aviation fuel and increasing  natural gas storage levels, due
to weakened  demand for  industrial  and  residential  natural gas,  resulted in
significant decreases in North American oil and natural gas drilling.
     Although down,  crude oil prices have remained above threshold  levels that
our customers use to justify  their  spending on capital and drilling  projects.
Generally, major oil and gas field development projects,  particularly deepwater
projects  in the Gulf of Mexico,  West  Africa and Brazil as well as  downstream
energy  projects,  have longer lead times.  The economics of these  projects are
based on longer-term  commodity prices. Once started,  projects of this type are
less likely to be delayed due to fluctuating short-term prices.
     We expect United States gas drilling  activity to continue  declining  into
the second quarter of 2002 due to the slow global economy and unseasonably  warm
winter.  We expect gas drilling  activity to begin recovering in the latter part
of the year.  If prices for oil remain stable as compared to year-end prices, we
expect major oilfield development  projects to continue providing  international
opportunities.  Over the longer-term,  we expect increased global demand for oil
and natural gas,  additional customer spending to replace depleting reserves and
our continued  technological  advances to provide growth  opportunities  for our
products and services.

                                       13


     Energy Services Group
     Strong  natural gas and crude oil drilling  activity  during the first nine
months contributed to increased demand for the products and services provided by
the Energy Services Group.  Activity was especially  strong in oilfield services
within the United States,  reflecting  increased  levels of drilling for natural
gas. The rotary rig count in the United States continued to increase  throughout
the first half of the year and  averaged  1,206 rigs in the first nine months of
2001.  This  represents  an  increase of 40% over the average for the first nine
months of 2000. In the United States drilling  activity for gas remained strong,
posting a 44% increase over the average for the first nine months of 2000. Henry
Hub gas prices for the first nine months of 2001 averaged  $4.62/MCF as compared
to  $3.54/MCF  average  for  the  first  nine  months  of  2000.   Increases  in
international rig activity also continued through the first nine months of 2001,
up 19%  compared  to the first  nine  months  of 2000.  All  geographic  regions
experienced higher activity levels, which allowed us to increase our utilization
of  equipment  and  personnel.   This  higher  utilization  resulted  in  better
profitability and opportunities to increase prices, especially within the United
States.
     During the latter part of 2001, drilling activity within the United States,
primarily  land-based gas rigs,  began to significantly  decline.  Henry Hub gas
prices for the fourth quarter of 2001 averaged $2.42/MCF,  almost 50% lower than
the average for the first nine months of 2001.  For the month of December  2001,
the  United  States  natural  gas rig  count  averaged  754,  down 100 rigs from
December 2000 and down 304 rigs from the peak in July 2001. United States rotary
rig count for the fourth  quarter of 2001 was down 19% compared to third quarter
of 2001 and down 6%  compared to the fourth  quarter of 2000.  At the same time,
the international rig count averaged 748 rigs for the fourth quarter of 2001 and
was down 1% compared to the third quarter of 2001,  and increased 5% compared to
the fourth quarter of 2000. Natural gas prices for 2002 are expected to continue
to be weak in the first half of the year due to current high gas storage levels,
caused by an abnormally warm winter and a slow economy in the United States, but
then  improve in the second half of the year.  Timing of the recovery of natural
gas  prices,  which  will lead to  increased  drilling  activity  depends,  upon
depletion of existing reserves and future gas storage levels.
     We expect oil prices to range  between  $17 and $22 per barrel in 2002.  We
believe this range will support international  activity at or just below current
levels.  The outlook for world oil demand growth is highly  uncertain due to the
slowdown  in the global  economy and the length of the  recession  in the United
States.  In 2002 worldwide  exploration  and production  spending is expected to
decrease with most of the decrease occurring in the United States and Canada.
     We expect that recent  declines  in United  States rig counts and  economic
uncertainty  within the United  States  will  result in  short-term  declines in
revenues  and  operating  income  within the  segment.  The price  increases  we
implemented  in late 2000 and during  2001  combined  with our efforts to manage
costs should partially offset lower activity levels and pressures by competitors
and customers to increase discounts.  The production enhancement product service
line,  due to its  dependence on United  States gas drilling,  is expected to be
significantly  impacted by the current  slow down in natural gas  drilling.  Our
drilling  systems and  completion  products  product  service lines have a large
percentage  of their  business  outside the United  States and are also  heavily
involved in deepwater oil and gas developments.  These product service lines are
expected to remain relatively strong.
     Engineering and Construction Group
     Our  Engineering and  Construction  Group did not benefit from the positive
factors which provided  opportunities for growth in the Energy Services Group in
the first part of 2001. Both groups provide products and services to many of the
same customers. However, oilfield service activities,  especially land-based gas
drilling activity in the United States,  is more short-term  focused as compared
to the long-term nature of most major engineering and construction projects. The
downturn in the energy industry that began in 1998 led our customers to severely
curtail many large  engineering and  construction  projects during 2000 and into
2001. During this time, a series of mergers and  consolidations  among our major
customers  also  reduced our  customers'  levels of  investment  in refining and
distribution  facilities  as  they  evaluated  and  maximized  use  of  combined
capacities.  Due to the lack of opportunities existing throughout 2000, combined
with an extremely  competitive global engineering and construction  environment,
we  restructured  our Engineering  and  Construction  Group in late 2000 and the
first quarter of 2001 to facilitate  operational  efficiencies and reduce costs.
Engineering, construction,  fabrication, and project management capabilities are
now part of one operating group - Halliburton KBR.

                                       14


     In the latter part of the third quarter and  throughout  the fourth quarter
of 2001 we saw a slowdown of the economy.  The current global economic  slowdown
is expected to last until the second half of 2002. Soft demand in the first half
of 2002 will  continue to delay energy  related  project  awards,  or reduce the
scope of existing  projects,  especially  for olefins  and  chemicals  projects.
Although slower  economies and lower oil and gas prices may delay some projects,
we  expect  an  increasing   need  for  security  and  government   defense  and
infrastructure projects.  Worldwide tightening of sulfur content in gasoline and
diesel and other new environmental  regulations are likely to require changes in
refinery  configurations and the addition of new process units in the long-term.
We remain  optimistic  about our  opportunities  in  liquefied  natural  gas and
gas-to-liquids. Our optimism is based on anticipated new projects as well as the
front-end  engineering  and initial work  contracts  for  liquefied  natural gas
projects  we  received  in late  2001.  We expect  activity  levels  within  the
Engineering and Construction  Group to remain about the same in 2002 as compared
with 2001. This expectation is based upon our:
          -   technologies and proven capabilities on complex projects;
          -   recent and pending project awards; and
          -   current  backlog   and  prospects,  especially  for   onshore  and
              government operations and infrastructure projects.

RESULTS OF OPERATIONS IN 2001 COMPARED TO 2000

REVENUES



                                                                  Increase/
Millions of dollars                        2001        2000      (Decrease)
-------------------------------------------------------------------------------
                                                        
Energy Services Group                     $  8,722    $  6,776    $  1,946
Engineering and Construction Group           4,324       5,168        (844)
-------------------------------------------------------------------------------
Total revenues                            $ 13,046    $ 11,944    $  1,102
===============================================================================


     Consolidated  revenues  for 2001 were  $13.0  billion,  an  increase  of 9%
compared to 2000. International revenues comprised 62% of total revenues in 2001
and 66% in 2000 as activity and pricing  increased in our Energy  Services Group
more rapidly in the United States  particularly  in the first half of 2001.  Our
Engineering  and  Construction  Group  revenues,  which did not benefit from the
positive  factors  contributing  to the  growth  of the  Energy  Services  Group
decreased 16%. Engineering and construction projects are long-term in nature and
customers  continue  to delay  major  projects  with the slowdown in the economy
occurring in the latter part of 2001.
     Energy Services Group revenues  increased by $1.9 billion,  or 29%, in 2001
from 2000. International revenues were 58% of the total segment revenues in 2001
compared to 62% in 2000.  Revenues in 2001 from our  oilfield  services  product
service lines were $6.8 billion.  Our oilfield  services  product  service lines
experienced  revenue  growth of 29% despite a 14% decline in oil prices and a 3%
decrease in natural gas prices  between  December  2000 and December  2001.  The
revenue  increase  was  primarily  due to higher  drilling  activity and pricing
improvements,  particularly in the United States.  Revenues increased across all
product  service lines and  geographic  regions.  Our pressure  pumping  product
service lines  experienced  growth of 34% in 2001 as compared to 2000.  Logging,
drilling services and drilling fluids revenues increased  approximately 28%, and
drill bit  revenues  were 19%  higher in 2001 as  compared  to 2000.  Completion
products  revenues   increased  13%.  Logging  and  drilling  services  revenues
increases  occurred primarily in the United States, as the product service lines
benefited from higher prices and increased drilling activity.  Geo-Pilot(TM) and
other new products  introduced  in the drilling  services  product  service line
further  contributed  to the improved  revenue in 2001.  Drilling fluid revenues
increased  in  2001  with  higher   activity  levels  in  the  Gulf  of  Mexico.
Geographically,  all regions within the oilfield  service  product service lines
prospered with North America revenues increasing 37% from 2000 to 2001. Pressure
pumping  revenues  in North  America  were 48% higher in 2001  compared  to 2000
primarily due to higher levels of drilling activity. Revenues from Latin America
increased 27% with significant increases in Venezuela and Brazil.  Europe/Africa
and Middle East revenues  were about 20% higher in 2001 than 2000,  particularly
in Russia and Egypt.  Revenues for the  remainder of the segment of $1.9 billion
increased by $400 million,  or 27%,  primarily due to a large multi-year project
in Brazil which began in the third quarter of 2000.  Integrated  exploration and

                                       15


production  information systems revenues were higher by 19% partially due to the
acquisition  of PGS Data  Management  as well as  growth in  software  sales and
professional services.
     Engineering and Construction Group revenues decreased $844 million, or 16%,
from 2000 to 2001.  The decline is primarily  due to the  completion  of several
large international  onshore and offshore projects which have not yet been fully
replaced  with new  project  awards and  delays in  start-ups  of new  projects.
International  revenues  were  approximately  71% in 2001 as  compared to 72% in
2000. On a percentage basis, revenues declined about the same inside and outside
of North America. Revenues for the Asia/Pacific region were down over 40% due to
the  effects  of  completing  two  major  projects,  partially  offset  by a new
liquefied  natural gas project and the start-up of  construction on a railway in
Australia.  In  Europe/Africa,  revenues were down 6%. The decline was primarily
due to the  completion  of a major  project in Norway and lower  activity on the
logistical  support contract in the Balkans which moved to the sustainment phase
in late 2000. The decline was partially offset by increases in activities at our
shipyard  in the  United  Kingdom.  North  American  revenues  declined  in 2001
partially due to the completion of highway and paving  construction jobs and the
baseball  stadium in Houston.  These  declines in North  America were  partially
offset by a slight  increase  in  operations  and  maintenance  revenues  as our
customers focus on maintaining  current  facilities and plant operations  rather
than adding new facilities.

OPERATING INCOME



                                                                        Increase/
Millions of dollars                        2001            2000        (Decrease)
-----------------------------------------------------------------------------------
                                                              
Energy Services Group                     $  1,015       $  582           $  433
Engineering and Construction Group             143          (42)             185
General corporate                              (74)         (78)               4
-----------------------------------------------------------------------------------
Operating income                          $  1,084       $  462           $  622
===================================================================================


     Consolidated operating income increased $622 million, or 135%, from 2000 to
2001. In 2000 our results of operations  include two  significant  items: an $88
million  pretax gain on the sale of marine  vessels  and a pretax  charge of $36
million  related  to the  restructuring  of  the  engineering  and  construction
businesses. Excluding these items, operating income increased by more than 160%.
     Energy Services Group operating income  increased $433 million,  or 74%, in
2001 over 2000. Excluding the sale of marine vessels, operating income increased
more than 100% compared to 2000.  Increased  operating income reflects increased
activity levels, higher equipment utilization and improved pricing, particularly
in the United  States in the first nine months of 2001.  Our  oilfield  services
product  service lines operating  income in 2001 exceeded $1 billion,  more than
double from 2000.  Operating  margins for our oilfield  services product service
lines increased from 8.6% in 2000 to 14.8% in 2001,  resulting in an incremental
margin of 37%.  Operating  income was higher in 2001 as  compared to 2000 in all
product  service  lines and  geographic  regions.  The largest  increase  was in
pressure  pumping  in  North  America,  which  rose  by over  130%.  Substantial
increases  in  operating  income were also made in the  logging,  drill bits and
drilling  services product service lines.  Operating income in North America was
higher by 78% in 2001 as compared to 2000.  International regions,  particularly
Latin America and  Europe/Africa,  made  significant  improvements  in operating
income.  Excluding the sale of marine vessels in 2000,  operating income for the
remainder of the segment decreased $41 million, primarily due to lower operating
margins in our Surface/Subsea  product service line and revised profit estimates
on a major project.
     Engineering and Construction  Group operating income increased $185 million
from 2000 to 2001.  Operating margins improved to 3.3% in 2001. This increase is
primarily  due to the $167 million  recorded in the fourth  quarter of 2000 as a
result of higher than estimated  costs on specific jobs and  unfavorable  claims
negotiations  on other  jobs.  We also  recorded a  restructuring  charge of $36
million in the  fourth  quarter of 2000  related  to the  reorganization  of the
engineering and construction  businesses under Halliburton KBR.  Excluding these
fourth quarter 2000 charges,  operating  income  decreased $18 million,  or 11%,
consistent with the decline in revenues.
     General  corporate  expenses  were $74  million for 2001 as compared to $78
million in 2000.

                                       16


NONOPERATING ITEMS

     Interest  expense of $147  million in 2001 was $1  million  higher  than in
2000. Our outstanding short-term debt was substantially higher in the first part
of 2001 due to  repurchases  of our common  stock in the fourth  quarter of 2000
under our repurchase  program and borrowings  associated with the acquisition of
PGS Data  Management in March 2001.  Cash proceeds of $1.27 billion  received in
April  2001  from  the  sale of the  remaining  businesses  within  the  Dresser
Equipment  Group  were  used to repay our  short-term  borrowings;  however, our
average  borrowings for 2001 were   slightly  higher than in 2000. The impact of
higher  average  borrowings  was  mostly  offset  by  lower  interest  rates  on
short-term borrowings.
     Interest  income was $27 million in 2001,  an  increase of $2 million  from
2000.
     Foreign  currency losses were $10 million in 2001 as compared to $5 million
in 2000.
     Other,  net was a loss of $1 million in 2000 and less than $1 million  gain
in 2001.
     Provision  for income taxes was $384  million for an effective  tax rate of
40.3% in 2001 compared to 38.5% in 2000.
     Minority  interest in net income of subsidiaries in 2001 was $19 million as
compared to $18 million in 2000.
     Income (loss) from discontinued  operations in 2001 was a $42 million loss,
or $0.10 per diluted share,  due to accrued  expenses  associated  with asbestos
claims of disposed businesses.  See Note 3. The loss was partially offset by net
income for the first quarter of 2001 from Dresser  Equipment  Group of $0.05 per
diluted share. Income from discontinued  operations of $98 million, or $0.22 per
diluted share, represents the net income of Dresser Equipment Group for the full
year of 2000.
     Gain on  disposal  of  discontinued  operations  in 2001 was  $299  million
after-tax,  or $0.70 per diluted share.  The 2001 gain resulted from the sale of
our remaining  businesses  within the Dresser Equipment Group in April 2001. The
gain of $215 million  after-tax,  or $0.48 per diluted  share,  in 2000 resulted
from the sale of our 51%  interest in  Dresser-Rand,  formerly a part of Dresser
Equipment Group, in January 2000.
     Cumulative  effect of  accounting  change,  net of $1 million  reflects the
adoption of SFAS No. 133  "Accounting  for  Derivative  Instruments  and Hedging
Activities" in the first quarter of 2001.
     Net  income  for 2001 was $809  million,  or $1.88 per  diluted  share,  as
compared to net income of $501 million, or $1.12 per diluted share in 2000.

RESULTS OF OPERATIONS IN 2000 COMPARED TO 1999

REVENUES



                                                                      Increase/
Millions of dollars                         2000          1999        (Decrease)
-----------------------------------------------------------------------------------
                                                             
Energy Services Group                     $   6,776     $   5,921       $     855
Engineering and Construction Group            5,168         6,392          (1,224)
-----------------------------------------------------------------------------------
Total revenues                            $  11,944     $  12,313       $    (369)
===================================================================================


     Consolidated  revenues for 2000 were $11.9  billion,  a decrease of 3% from
1999 revenues of $12.3  billion.  Lower levels of Engineering  and  Construction
Group revenues were partially  offset by increased  oilfield  services  revenues
within  the  Energy   Services   Group,   particularly  in  the  United  States.
International  revenues were 66% of our consolidated  revenues in 2000, compared
with 70% in 1999.
     Energy  Services  Group revenues were $6.8 billion for 2000, an increase of
14% from 1999 revenues of $5.9 billion. International revenues were 62% of total
segment revenues in 2000 compared with 68% in 1999.  Revenues for the group were
positively impacted in late 1999 and throughout 2000 by increased rig counts and
customer spending, particularly within North America, following increases in oil
and gas prices that began in 1999.  After a slight seasonal decline in the first
quarter  of 2000,  revenues  increased  consecutively  each  quarter  across all
product service lines throughout the year.  Revenues from our oilfield  services
product  service lines were $5.3 billion.  Increased  demand for natural gas and
increased  drilling  activity  benefited our oilfield  services  product service
lines. The pressure pumping product service line revenues increased 30% compared
to 1999.  The logging product  service line revenues  increased 26%  compared to

                                       17


1999.  Drilling  fluids  increased  over 20%,  while  drill bits and  completion
products  service lines  increased about 14%.  Drilling  systems product service
line revenues  increased by 9%.  Geographically,  strong North American activity
resulted in revenue  growth of 43%, with growth  experienced  across all product
service lines in that region  compared to 1999.  North America  generated 52% of
total oilfield service product service line revenues for 2000 compared to 44% in
1999.  Pressure  pumping  accounted  for  approximately  50% of the  increase in
revenues  within North America,  reflecting  higher  activity levels in all work
areas,  particularly  the  Gulf  of  Mexico,  South  Texas,  Canada,  and  Rocky
Mountains.  Revenues  increased  by 16% in the Middle East region and 12% in the
Latin America region compared to 1999.  Europe/Africa  revenues were up slightly
while revenues in the Asia Pacific region declined by 3%. Activity was slower to
increase internationally  throughout 2000 despite higher oil and gas prices. The
turnaround  in  international  rig  activity,  which  started late in the second
quarter of 2000,  continued into the fourth  quarter of 2000 when  international
rig counts reached the highest  levels since late 1998.  Revenues also increased
across all regions  outside North America  during the fourth quarter of 2000, as
customer spending for exploration and production began to increase outside North
America.
     Revenues  from the  remainder of the segment of $1.5  billion  decreased 7%
compared to 1999. Lower revenues within the Surface/Subsea product service lines
were partially  offset by record revenues within the integrated  exploration and
production information systems product service line which increased 13% compared
to 1999. Increases in software and professional services revenues were partially
offset by lower hardware revenues, which have been de-emphasized. Software sales
contributed  just  over  19% in  revenue  growth,  while  professional  services
increased over 7% compared to 1999.
     Engineering  and  Construction  Group  revenues were $5.2 billion for 2000,
down 19% from $6.4  billion in 1999.  Higher oil and gas prices  during 2000 did
not translate  into  customers  proceeding  with new awards of large  downstream
projects.  Many other large  projects,  primarily gas and liquefied  natural gas
projects,  were also delayed,  continuing a trend that started in 1999. Revenues
in  1999  benefited  from  increased  logistics  support  services  to  military
peacekeeping  efforts in the Balkans and  increased  activities at the Devonport
Dockyard  in the United  Kingdom.  The  logistics  support  services to military
peacekeeping  efforts in the Balkans peaked in the fourth quarter of 1999 as the
main construction and procurement  phases of the contract were completed.  These
increases partially offset lower revenues from onshore and offshore  engineering
and  construction  projects,  particularly  major projects in Europe and Africa,
which were winding down.

OPERATING INCOME



                                                                        Increase/
Millions of dollars                        2000            1999        (Decrease)
-------------------------------------------------------------------------------------
                                                              
Energy Services Group                     $   582        $   250          $   332
Engineering and Construction Group            (42)           175             (217)
General corporate                             (78)           (71)              (7)
Special credits                                 -             47              (47)
-------------------------------------------------------------------------------------
Operating income                          $   462        $   401          $    61
=====================================================================================


     Consolidated  operating  income was $462 million for 2000  compared to $401
million  for  1999.   Engineering  and  Construction   segment  results  include
restructuring charges of $36 million in 2000 related to the restructuring of the
engineering   and   construction   businesses.   See  Note  11.   Excluding  the
restructuring  charge in 2000 and the  special  credits of $47  million in 1999,
operating income for 2000 increased by 41% from 1999.
     Energy  Services  Group  operating  income  in 2000  was $582  million,  an
increase of 133% from 1999 operating income of $250 million.  Operating  margins
were 8.6% in 2000,  up from 4.2% in 1999.  Operating  income  from our  oilfield
services  product  service  lines was $452 million.  During 2000,  strengthening
North American drilling and oilfield  activity  resulted in increased  equipment
utilization and improved  pricing within the oilfield  services  product service
lines.  Pressure pumping  operating income increased about 135% compared to 1999
levels,  while logging  services  operating income increased by 170% compared to
1999. Drilling fluids, drilling systems and completion products were impacted by
slow  recovery in  international  activity.  During the fourth  quarter of 2000,
oilfield services recorded an $8 million reversal of bad debts related to claims
settled by the United Nations against Iraq dating from the invasion of Kuwait in
1990.  Geographically,  strong oil and gas prices  throughout 2000 led to higher
levels  of deepwater and  onshore gas drilling  within North  America.  Activity

                                       18




increases in the Gulf of Mexico,  South Texas,  Canada,  and Rocky Mountain work
areas were greater than most other areas. Operating income outside North America
continued  to  lag  the  performance  noted  within  North  America,  reflecting
continued  delays in  international  exploration and production for oil and gas.
However, fourth quarter 2000 operating income increased across all international
geographic regions compared to the third quarter of 2000,  reflecting  increased
international spending by our customers.
     Operating income in 2000 for the remainder of the segment was $130 million.
Operating  income benefited in 2000 from a third quarter $88 million pretax gain
on sale of two semi-submersible  vessels and one multipurpose support vessel and
increasing   profitability   in  the  integrated   exploration   and  production
information systems product service line.  Excluding the gain of the sale of the
vessels,  operating income declined in the Surface/Subsea product service lines.
Lower   activity   levels  in  the  North  Sea   United   Kingdom   sector   and
under-utilization of manufacturing and subsea equipment and vessels, which carry
large fixed costs, were the primary factors for the decline in operating income.
Operating income from integrated  exploration and production information systems
in 2000 increased almost 200% compared to 1999,  reflecting  higher software and
professional services revenues.
     Engineering and  Construction  Group recorded an operating loss for 2000 of
$42 million  compared to operating income of $175 million in 1999, a decrease of
124%. The operating margin was 2.7% in 1999.  Operating margins in 2000 declined
both  internationally and in North America due to losses on projects as a result
of higher than estimated costs on selected jobs and claims negotiations on other
jobs not progressing as anticipated.  Given the number and technical  complexity
of the engineering and construction projects we perform, some project losses are
normal occurrences.  However, the environment for negotiations with customers on
claims and change orders has become more  difficult in the past few years.  This
environment,  combined  with  performance  issues  on a few  large,  technically
complex jobs, contributed to unusually high job losses on large projects of $171
million in 2000, including $167 million in the fourth quarter. At the same time,
the group recorded $36 million of restructuring  charges.  Lower activity due to
the trend in delayed new projects, which continued through 2000, also negatively
impacted  operating  income.  Operating  income in 1999  benefited  from  higher
activity levels  supporting United States military  peacekeeping  efforts in the
Balkans,  offset by reduced engineering and construction  project profits due to
the timing of project awards and revenue recognition.
     Special  credits  in 1999 are the  result of a change in  estimate  on some
components  of the 1998  special  charges.  In the second  quarter  of 1999,  we
concluded that total costs,  particularly for severance and facility exit costs,
were lower than previously estimated.  Therefore, we reversed $47 million of the
$959 million special charge that was originally recorded.
     General  corporate  expenses for 2000 were $78  million,  an increase of $7
million from 1999. In 2000 general corporate expenses  increased  primarily as a
result of costs  related to the early  retirement  of our previous  chairman and
chief executive officer.

NONOPERATING ITEMS

     Interest  expense  was $146  million for 2000  compared to $141  million in
1999.  Interest  expense was up in 2000 due to higher average  interest rates on
short-term  borrowings and additional  short-term  debt used to repurchase  $759
million of our common stock under our share  repurchase  program,  mostly during
the fourth quarter of 2000.  These increases  offset the benefits from our lower
borrowings  earlier  in 2000  due to the use of the  proceeds  from  the sale of
Ingersoll-Dresser Pump and Dresser-Rand to repay short-term debt.
     Interest  income of $25 million in 2000  declined  $49  million  from 1999.
Interest  income in 1999 included  settlement of income tax issues in the United
States and United  Kingdom and imputed  interest  income on the note  receivable
from the sale of our ownership in M-I L.L.C.
     Foreign  currency  losses  were $5 million in 2000,  down from a loss of $8
million in 1999.  The losses in 2000 were  primarily in Asia Pacific  currencies
and the euro.  Losses in 1999 occurred  primarily in Russian and Latin  American
currencies.
     Other,  net was a net loss of $1 million in 2000 compared to $19 million in
1999.  The net loss in 1999 includes a $26 million  charge in the second quarter
relating  to an  impairment  of  Halliburton  KBR's  net  investment  in  Bufete
Industriale,  S.A.  de C.V.,  a large  specialty  engineering,  procurement  and
construction company in Mexico.

                                       19


     Provision  for  income  taxes  on  continuing  operations  in 2000 was $129
million for an effective tax rate of 38.5%, compared to 37.8% in 1999. Excluding
our special charges and related taxes, the effective rate was 38.8% in 1999.
     Minority  interest  in net income of  subsidiaries  was $18 million in 2000
compared to $17 million in 1999.
     Income  from  discontinued  operations  was $98  million  in 2000  and $124
million in 1999.
     Gain on disposal of discontinued  operations resulting from the sale of our
51% interest in  Dresser-Rand  was $215  million  after-tax or $0.48 per diluted
share,  in 2000.  In 1999 we recorded a gain on the sale of our 49%  interest in
Ingersoll-Dresser Pump of $159 million after-tax, or $0.36 diluted share.
     Cumulative  effect of change in  accounting  method in 1999 of $19  million
after-tax,  or $0.04 per diluted  share,  reflects  our adoption of Statement of
Position 98-5, "Reporting on the Costs of Start-Up Activities." See Note 12.
     Net income was $501 million,  or $1.12 per diluted share,  in 2000 and $438
million, or $0.99 per diluted share, in 1999.

LIQUIDITY AND CAPITAL RESOURCES

     We ended 2001 with cash and equivalents of $290 million  compared with $231
million at the end of 2000 and $466 million at the end of 1999.
     Cash  flows  from  operating  activities  provided  $1.0  billion  for 2001
compared  to using $57  million in 2000 and using $58  million in 1999.  Working
capital items,  which include  receivables,  inventories,  accounts  payable and
other working  capital,  net, used $50 million of cash in 2001 compared to using
$563 million in 2000 and  providing  $2 million in 1999.  Included in changes to
working  capital and other net changes are special  charge  usage for  personnel
reductions,  facility closures,  merger transaction costs, and integration costs
of $6 million in 2001, $54 million in 2000 and $202 million in 1999.
     Cash flows used in investing  activities  were $858 million for 2001,  $411
million for 2000 and $107 million for 1999. Capital expenditures of $797 million
in 2001 were  about 38% higher  than in 2000 and about 53% higher  than in 1999.
Capital  spending in 2001 was mostly  directed to Halliburton  Energy  Services,
primarily  for  pressure  pumping  equipment,  directional  drilling  tools  and
logging-while-drilling  equipment. In March 2001 we acquired PGS Data Management
division of Petroleum  Geo-Services  ASA for $164 million  cash.  In addition we
spent $56 million for various  acquisitions  in 2001.  Cash flows from investing
activities in 1999 include $254 million  collected on the  receivables  from the
sale of our 36% interest in M-I L.L.C.  Imputed  interest on this  receivable of
$11 million is included in operating cash flows.
     Cash flows from  financing  activities  used $1.4  billion in 2001 and $584
million in 2000 and provided $189 million in 1999.  Proceeds  from  exercises of
stock  options  provided  cash  flows of $27  million in 2001  compared  to $105
million in 2000 and $49 million in 1999.  Dividends  to  shareholders  used $215
million of cash in 2001 and $221 million in 1999 and 2000.  We used the proceeds
from the sale of the remaining  businesses in Dresser  Equipment  Group in April
2001, the sale of  Dresser-Rand  in early 2000 and the collection of a note from
the fourth quarter 1999 sale of Ingersoll-Dresser Pump received in early 2000 to
reduce short-term debt. On July 12, 2001, we issued $425 million in two and five
year medium-term notes under our medium-term note program.  The notes consist of
$275  million  of 6% fixed  rate  notes due  August 1, 2006 and $150  million of
floating  rate notes due July 16, 2003.  Net proceeds  from the two  medium-term
note  offerings  were also used to reduce  short-term  debt.  Net  repayments of
short-term  debt in 2001 used $1.5  billion.  On April  25,  2000,  our Board of
Directors  approved plans to implement a share  repurchase  program for up to 44
million  shares.  We repurchased  1.2 million shares at a cost of $25 million in
2001 and 20.4  million  shares at a cost of $759  million in 2000.  We currently
have no plan to  repurchase  the  remaining  shares under the approved  plan. In
addition,  we  repurchased $9 million of common stock in 2001 and $10 million in
both 2000 and 1999  from  employees  to  settle  their  income  tax  liabilities
primarily for restricted stock lapses.
     Cash flows from  discontinued  operations  provided $1.3 billion in 2001 as
compared to $826 million in 2000 and $234  million in 1999.  Cash flows for 2001
include proceeds from the sale of Dresser Equipment Group of approximately $1.27
billion.  Cash flows for 2000 include proceeds from the sale of Dresser-Rand and
Ingersoll-Dresser Pump of $913 million.

                                       20


     Capital  resources  generally are derived from  internally  generated  cash
flows and access to capital markets when  appropriate.  Our combined  short-term
notes payable and long-term debt was 24% of total  capitalization  at the end of
2001,  40% at the end of 2000, and 35% at the end of 1999.  Short-term  debt was
reduced  significantly  in the second quarter of 2001 with the proceeds from the
sale of Dresser  Equipment  Group and in the third  quarter from the issuance of
$425 million of medium-term  notes.  In 2000 we reduced our short-term debt with
proceeds  from  the  sales of  Ingersoll-Dresser  Pump  and  Dresser-Rand  joint
ventures early in the year. We increased  short-term  debt in the third  quarter
of 2000 to fund share repurchases.
     Late in 2001 and early in 2002,  Moody's  Investors'  Services  lowered its
ratings of our long-term senior unsecured debt to Baa2 and our short-term credit
and commercial paper ratings to P-2. In addition,  Standard & Poor's lowered its
ratings of our long-term senior  unsecured debt to A- and our short-term  credit
and commercial  paper ratings to A-2. The ratings were lowered  primarily due to
the  agencies'  concerns  about  asbestos  litigation.  Although  the  long-term
ratings  continue at investment  grade levels and the  short-term  ratings allow
participation  in the  commercial  paper  market,  the cost of new  borrowing is
higher and our access to the debt  markets  is more  volatile  at the new rating
levels.  Reduced  ratings and concerns  about  asbestos  litigation,  along with
recent changes in the banking and insurance markets,  will also result in higher
cost and more  limited  access to markets for other  credit  products  including
letters of credit and surety bonds.  At this time, it is not possible to compute
the increased  costs of credit  products we may need in the future but it is not
expected to be material based upon the current forecast of our credit needs.
     We  ended  2001  with  cash  and  equivalents  of $290  million  and we are
projecting  strong cash flow from  operations in 2002. We also have $700 million
of  committed  lines of credit from banks that are  available  if we maintain an
investment  grade  rating.  Investment  grade  ratings  are BBB- or  higher  for
Standard & Poor's and Baa3 or higher for Moody's Investors'  Services and we are
currently above these levels. Nothing has been borrowed under these lines and no
borrowings are anticipated during 2002. In the normal course of business we have
agreements  with banks  under  which  approximately  $1.4  billion of letters of
credit or bank  guarantees  were issued,  including $241 million which relate to
our joint  ventures'  operations.  In addition,  $320 million of these financial
instruments   include   provisions   that  allow  the  banks  to  require   cash
collateralization if debt ratings of either rating agency falls below the rating
of BBB by  Standard  & Poor's or Baa2 by  Moody's  Investors'  Sevices  and $149
million  where banks may require  cash  collateralization  if either debt rating
falls below investment grade.

CRITICAL ACCOUNTING POLICIES

     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  judgments  about future events and
related estimations and how they can impact our financial statements. A critical
accounting policy 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 policies to be:
          -   percentage of  completion accounting for our long-term engineering
              and construction contracts; and
          -   loss contingencies, primarily related to
                  -   asbestos litigation; and
                  -   other litigation.
This discussion and analysis should be read in conjunction with our consolidated
financial statements and related notes included elsewhere in this report.
     Percentage of completion
     We account  for our  revenues on  long-term  engineering  and  construction
contracts on the  percentage  of  completion  method.  This method of accounting
requires us to calculate job profit to be recognized  in each  reporting  period
for each job based upon our predictions of future outcomes which include:
          -   estimates of the total cost to complete the contract;
          -   estimates of project schedule and completion date;
          -   estimates of the percentage the project is complete; and
          -   amounts  of  any  probable  unapproved  claims  and  change orders
              included in revenues.
At the onset of each contract,  we prepare a detailed  step-by-step  analysis of
our estimated cost to complete the project.  Our project personnel  continuously
evaluate  the  estimated  costs, claims  and  change orders, and  percentage  of

                                       21


completion at the project level.  Significant projects are reviewed in detail by
senior  engineering and construction  management at least  quarterly.  Preparing
project cost estimates and percentages of completion is a core competency within
our engineering and construction  businesses.  We have a long history of dealing
with  multiple  types of projects  and in  preparing  accurate  cost  estimates.
However,  there  are  many  factors,  including  but  not  limited  to  weather,
inflation,  labor  disruptions and timely  availability of materials,  and other
factors as outlined in our "Forward-Looking  Information" section. These factors
can affect  the  accuracy  of our  estimates  and  impact  our  future  reported
earnings.
     Loss contingencies
     Asbestos.  We have  approximately  274,000  open  asbestos  claims  pending
against us at  December  31,  2001 for which we have  accrued  $737  million for
estimated  settlements and $612 million for estimated  recoveries from insurance
companies.  Computing our liability for open asbestos claims requires us to make
judgments as to the most likely outcome of litigation,  future  settlements  and
judgments to be paid for open claims. We estimate  settlement  payments for open
claims by applying our average  historical  settlement costs by type of claim to
the  corresponding  open claims.  We believe our average  historical  settlement
costs  are a  reasonable  estimate  of the cost of  resolving  open  claims.  We
estimate the cost of final  judgments by  reviewing  with our legal  counsel the
probable outcome of pending appeals. If the actual cost of settlements and final
judgments  differs from our  estimates,  our reserves for open claims may not be
sufficient.  If so,  any  deficiency  would be a loss we would  be  required  to
recognize at the time it becomes reasonably estimable.
     Estimating amounts we will recover from insurance companies for open claims
involves  making  assumptions  about the ability of the  companies to meet their
obligations  under our  policies.  If our  estimates of  recoveries  differ from
actual recoveries, we may have uncollectible receivables that we may be required
to write-off and we will have reduced  amounts of insurance  coverage for future
claims.  Dozens of  insurance  companies  provide  our  insurance  coverage  for
non-refractory and non-engineering and construction  asbestos claims. We believe
this reduces our risk associated with the failure of any one insurance  company.
On the other hand, a majority of our coverage for refractory  asbestos claims is
with  Equitas.  Although  we  believe  Equitas  is  currently  able to meet  its
obligations to us, its failure to meet its  commitments in the future could have
a material adverse affect on our financial condition at that time.
     We have also  estimated  the  amount  we will  recover  from the  insurance
written  by  Highlands   Insurance  Company  that  covers  our  engineering  and
construction  asbestos  claims.  If our  assumptions  concerning  our ability to
collect  amounts owed to us by Highlands  are  incorrect,  we may have up to $80
million of billed  and  accrued  receivables  from  Highlands  which will not be
collectible  as of December 31, 2001. See Note 9 of our  consolidated  financial
statements  as of December  31, 2001 for  further  discussion  of the status and
history of our asbestos claim litigation and our insurance coverage.
     Uncertainty about future asbestos claims and jury awards has caused much of
the recent  volatility  in our stock price and recent  downgrades  in our credit
ratings.  We have not accrued  reserves for unknown  claims that may be asserted
against  us in the  future.  We have not had  sufficient  information  to make a
reasonable  estimate of future claims.  However,  we recently retained a leading
claim  evaluation  firm to  assist us in making  an  estimate  of our  potential
liability  for  asbestos  claims that may be asserted  against us in the future.
When the  evaluation  firm's  analysis  is  completed  it is likely that we will
accrue a material  liability for future claims that may be asserted  against us.
We expect the analysis will be completed  during the second  quarter of 2002 and
that we will accrue the liability at the end of the quarter. At the same time we
will accrue a  receivable  for related  insurance  proceeds we expect to collect
when future claims are actually paid.
     Litigation.  We are  currently  involved  in other  legal  proceedings  not
involving  asbestos.  As  discussed  in  Note  9 of our  consolidated  financial
statements, as of December 31, 2001, we have accrued an estimate of the probable
costs for the  resolution  of these  claims.  Attorneys in our legal  department
specializing in litigation  claims,  monitor and manage all claims filed against
us. The  estimate of probable  costs  related to these  claims is  developed  in
consultation with outside legal counsel  representing us in the defense of these
claims. Our estimates are based upon an analysis of potential results,  assuming
a combination  of litigation and  settlement  strategies.  We attempt to resolve
claims  through  mediation  and  arbitration  where  possible.   If  the  actual
settlement costs and final judgments,  after appeals, differ from our estimates,
our future financial results may be adversely affected.

                                       22


LONG-TERM CONTRACTURAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

     The  following   table   summarizes  our  various   long-term   contractual
obligations:



                                              Payments due
Millions of dollars            2002     2003     2004     2005      2006    Thereafter     Total
---------------------------------------------------------------------------------------------------
                                                                    
Long-term debt                  $  81   $  291   $   2    $   2    $  277     $   828    $  1,481
Operating leases                   97       83      59       43        30          97         409
---------------------------------------------------------------------------------------------------
Total contractual cash          $ 178   $  374   $  61    $  45    $  307     $   925    $  1,890
===================================================================================================


     In  addition  to these  long-term  contractual  obligations,  we have other
commercial commitments that could become contractual obligations.
     We also have $700 million of committed  lines of credit from banks that are
available if we maintain an investment  grade rating.  Investment  grade ratings
are BBB- or  higher  for  Standard  &  Poor's  and Baa3 or  higher  for  Moody's
Investors'  Services  and we are  currently  above these  levels.  In the normal
course of business we have agreements with banks under which  approximately $1.4
billion of letters of credit or bank  guarantees  were  issued,  including  $241
million  which  relate to our joint  ventures'  operations.  In  addition,  $320
million of these financial  instruments  include provisions that allow the banks
to require cash  collateralization if debt ratings of either rating agency falls
below the  rating of BBB by  Standard  & Poor's  or Baa2 by  Moody's  Investors'
Services and $149  million  where banks may require  cash  collateralization  if
either debt rating falls below  investment  grade.  These  letters of credit and
bank guarantees relate to our guaranteed performance or retention payments under
our long-term contracts and  self-insurance.  In the past, no significant claims
have  been  made  against  these  financial  instruments.  We do not  anticipate
material losses to occur as a result of these financial instruments.

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.  We  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.  Our
use of derivative instruments includes the following types of market risk:
          -   volatility of the currency rates;
          -   time horizon of the derivative instruments;
          -   market cycles; and
          -   the type of derivative instruments used.
     We do not  use  derivative  instruments  for  trading  purposes.  We do not
consider any of these risk management activities to be material.  See Note 1 for
additional information on our accounting policies on derivative instruments. See
Note 16 for additional disclosures related to derivative instruments.
     Interest  rate  risk.  We have  exposure  to  interest  rate  risk from our
long-term debt and related interest rate swaps.
     The following table represents  principal  amounts of our long-term debt at
December  31,  2001  and  related  weighted  average  interest  rates by year of
maturity for our long-term debt.

                                       23









Millions of dollars           2002       2003       2004      2005      2006    Thereafter    Total
-------------------------------------------------------------------------------------------------------
                                                                        
Long-term debt:
Fixed rate debt              $    75     $  139          -         -   $   275   $   824     $  1,313
Weighted average
    interest rate               6.3%       8.0%          -         -      6.0%      7.4%         7.1%
Variable rate debt           $     6     $  152     $    2    $    2   $     2   $     4     $    168
Weighted average
    interest rate               3.5%       2.6%       4.2%      4.2%      4.2%      4.2%         2.7%
=======================================================================================================


     Fair market  value of  long-term  debt was $1.3  billion as of December 31,
2001.
     We have two interest  rate swaps which  convert fixed rate debt to variable
rate debt.  One of our  interest  rate swaps hedges $150 million of the 6% fixed
rate  medium-term  notes and has a fair value of $3.4  million at  December  31,
2001.  Under this interest rate swap  agreement,  the counter party pays a fixed
rate of 6%  interest  and we pay a variable  interest  rate  based on  published
6-month LIBOR  interest  rates.  The payments under the agreement are settled on
February 1 and August 1 of each year until  August 2006,  and coincide  with the
interest  payment dates on the hedged debt  instrument.  The other interest rate
swap hedges $139 million of our 8% long-term debt and has a fair value of a loss
of $0.2 million at December 31, 2001.  Under this interest rate swap  agreement,
the  counter  party  pays a fixed  rate  of 8%  interest  and we pay a  variable
interest rate based on published  6-month  LIBOR  interest  rates.  The payments
under the  agreement  are  settled on April 15 and October 15 of each year until
April 2003,  and  coincide  with the interest  payment  dates on the hedged debt
instrument.

RESTRUCTURING ACTIVITIES

     In the  fourth  quarter  of  2000 we  approved  a plan  to  reorganize  our
engineering   and   construction   businesses   into  one  business  unit.  This
restructuring was undertaken because our engineering and construction businesses
continued  to  experience  delays in customer  commitments  for new upstream and
downstream  projects.  With the  exception  of  deepwater  projects,  short-term
prospects for increased  engineering and  construction  activities in either the
upstream  or  downstream  businesses  were  not  positive.  As a  result  of the
reorganization of the engineering and construction  businesses,  we took actions
to  rationalize  our  operating  structure  including  write-offs  of equipment,
engineering  reference  designs  and  capitalized  software  of $20  million and
recorded severance costs of $16 million. See Note 11.
     During the second  quarter of 1999,  we  reversed  $47  million of our 1998
special  charges  related to the  acquisition of Dresser  Industries,  Inc., and
industry  downturn.  This was  based on our  reassessment  of total  costs to be
incurred to complete the actions covered in the charges.

ENVIRONMENTAL MATTERS

     We are subject to numerous environmental legal and regulatory  requirements
related to our  operations  worldwide.  As a result of those  obligations we are
involved in  specific  environmental  litigation  and  claims,  the  clean-up of
properties   we  own  or  have   operated,   and  efforts  to  meet  or  correct
compliance-related matters. See Note 9.

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," "do not  anticipate,"
and similar  expressions.  We may also provide  oral or written  forward-looking
information  in  other  materials  we  release  to the  public.  Forward-looking
information  involves  risks and  uncertainties  and reflects our best  judgment
based on  current information.  Our results  of operations  can be  affected  by

                                       24


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.
     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 including:
     Legal
          -   asbestos  litigation  including  the  recent  judgments against us
              and related appeals;
          -   asbestos related insurance  litigation  including  our  litigation
              with Highlands Insurance Company;
          -   other  litigation,  including,  for  example,  contract  disputes,
              patent infringements and environmental matters;
          -   trade  restrictions and  economic embargoes  imposed by the United
              States and other countries;
          -   changes in governmental  regulations in the numerous  countries in
              which we operate including, for example, regulations that:
                  -   encourage or mandate the hiring of local contractors; and
                  -   require  foreign  contractors  to employ  citizens of,  or
                      purchase supplies from, a particular jurisdiction; and
          -   environmental  laws, including,  for example,  those  that require
              emission performance standards for facilities;
     Geopolitical
          -   unsettled  political conditions,  war, the  effects of  terrorism,
              civil  unrest, currency  controls and governmental  actions in the
              numerous countries in which we operate;
          -   operations  in  countries  with  significant  amounts of political
              risk, including, for example,  Algeria, Angola,  Argentina, Libya,
              Nigeria, and Russia; and
          -   changes in foreign  exchange rates  and exchange  controls as were
              experienced in Argentina in late 2001 and early 2002;
     Liquidity
          -   reductions in debt  ratings by rating agencies  such as our recent
              reductions by Standard & Poor's and Moody's Investors' Services;
          -   access to lines of credit and credit markets;
          -   ability to issue letters of credit; and
          -   ability to raise capital via the sale of stock;
     Weather related
          -   the effects of  severe weather conditions, including, for example,
              hurricanes    and   typhoons,    on   offshore   operations    and
              facilities; and
          -   the impact of  prolonged severe or  mild weather conditions on the
              demand for and price of oil and natural gas;
     Customers
          -   the  magnitude  of  governmental   spending  and  outsourcing  for
              military  and  logistical  support  of the  type that  we provide,
              including, for example, support services in Bosnia;
          -   changes  in capital  spending by  customers in  the  oil  and  gas
              industry  for  exploration, development,  production,  processing,
              refining, and pipeline delivery networks;
          -   changes  in  capital  spending  by  governments for infrastructure
              projects of the sort that we perform;
          -   consolidation of customers in the oil and gas industry such as the
              proposed merger of Conoco and Phillips Petroleum; and
          -   claim negotiations with  engineering and construction customers on
              cost variances and change orders on major projects;
     Industry
          -   technological  and structural  changes in  the industries  that we
              serve;
          -   changes  that  impact  the  demand  for  oil  and  gas such as the
              slowdown in the global economy following the terrorist  attacks on
              the United States on September 11, 2001;
          -   changes in the price of oil and natural gas, resulting from:
                  -   OPEC's ability  to set and maintain  production levels and
                      prices for oil;

                                       25


                  -   the level of oil production by non-OPEC countries;
                  -   the policies of governments regarding  exploration for and
                      production  and  development of their oil  and natural gas
                      reserves; and
                  -   the level of  demand for oil  and natural  gas, especially
                      natural gas in the United States where demand is currently
                      below prior year usage;
          -   changes in  the price or the  availability of commodities  that we
              use;
          -   risks  that  result  from  entering  into  fixed  fee engineering,
              procurement    and    construction    projects,   such   as    the
              Barracuda-Caratinga  project  in  Brazil, where  failure  to  meet
              schedules, cost estimates or  performance targets could  result in
              non-reimbursable  costs which  cause the project  not  to meet our
              expected profit margins;
          -   risks that result from entering into complex business arrangements
              for technically  demanding projects  where failure  by one or more
              parties could result in monetary penalties; and
          -   the risk inherent in the use of derivative instruments of the sort
              that we  use which could cause a change in value of the derivative
              instruments as a result of:
                  -   adverse  movements  in  foreign  exchange  rates, interest
                      rates, or commodity prices; or
                  -   the  value  and  time   period  of  the  derivative  being
                      different than the exposures or cash flows being hedged;
     Personnel and mergers/reorganizations/dispositions
          -   increased competition in  the hiring and retention of employees in
              specific   areas,   including,   for   example,   energy  services
              operations, accounting and finance;
          -   integration of  acquired businesses  into Halliburton, such as our
              2001  acquisition of  Magic Earth, Inc.  and PGS Data  Management,
              including:
                  -   standardizing  information  systems  or  integrating  data
                      from multiple systems;
                  -   maintaining uniform  standards, controls,  procedures  and
                      policies; and
                  -   combining operations and personnel of acquired  businesses
                      with ours;
          -   effectively   reorganizing    operations  and   personnel   within
              Halliburton  such as  the  reorganization of  our engineering  and
              construction business in early 2001;
          -   ensuring acquisitions and  new products and services add value and
              complement our core businesses; and
          -   successful completion of planned dispositions.
     In addition, future trends for pricing, margins, revenues and profitability
remain  difficult to predict in the  industries  we serve.  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-Q,  8-K and 10-K to the United  States
Securities  and  Exchange  Commission.  We also  suggest  that you listen to our
quarterly earnings release conference calls with financial analysts.

OTHER ISSUES

     Conversion to the euro currency
     On January 1, 1999, some member countries of the European Union established
fixed  conversion  rates  between  their  existing  currencies  and the European
Union's common currency (euro).  This was the first step towards transition from
existing national  currencies to the use of the euro as a common currency.  Euro
notes and coins were introduced on January 1, 2002 and the transition period for
the  introduction of the euro ends February 28, 2002.  Issues resulting from the
introduction  of the euro include  converting  information  technology  systems,
reassessing  currency  risk,  negotiating  and amending  existing  contracts and
processing  tax and  accounting  records.  We  addressed  these  issues prior to
December 31, 2001. In addition,  our operations in the eurozone  countries began
transacting  most of their  businesses in euros prior to December 31, 2001. Thus
far in 2002, we have not  experienced  any major issues related to converting to
the euro and do not anticipate any material impacts in the future.

                                       26


     New pronouncements
     In August 2001, the Financial  Accounting  Standards  Board issued SFAS No.
143 "Accounting for Asset Retirement  Obligations" which addresses the financial
accounting  and  reporting for  obligations  associated  with the  retirement of
tangible long-lived assets and the associated  assets' retirement costs. The new
standard  will  be  effective  for us  beginning  January  1,  2003,  and we are
currently  reviewing and  evaluating  the effects this standard will have on our
future financial condition,  results of operations,  and accounting policies and
practices.
     In October 2001, the Financial  Accounting  Standards Board issued SFAS No.
144  "Accounting  for the  Impairment  or Disposal of Long-Lived  Assets."  This
statement supercedes:
          -   SFAS No. 121 "Accounting for  the Impairment of Long-Lived  Assets
              and for Long-Lived Assets to be Disposed Of"; and
          -   the accounting  and reporting provisions of APB 30, "Reporting the
              Results of  Operations - Reporting the  Effects  of Disposal  of a
              Segment  of  a Business,  Extraordinary, Unusual  and Infrequently
              Occurring Events and Transactions".
The new standard will be effective for us beginning  January 1, 2002,  and we do
not  believe  the effects of this  standard  will have a material  effect on our
future financial condition or operations.

                                       27


RESPONSIBILITY FOR FINANCIAL REPORTING

     We are  responsible  for the  preparation  and  integrity of our  published
financial statements.  The financial statements have been prepared in accordance
with accounting  principles  generally  accepted in the United States of America
and,  accordingly,  include amounts based on judgments and estimates made by our
management. We also prepared the other information included in the annual report
and  are  responsible  for its  accuracy  and  consistency  with  the  financial
statements.
     The financial  statements have been audited by the  independent  accounting
firm, Arthur Andersen LLP. Arthur Andersen LLP was given unrestricted  access to
all  financial  records and related data,  including  minutes of all meetings of
stockholders,  the Board of Directors and committees of the Board. Halliburton's
Audit  Committee  of the Board of Directors  consists of  directors  who, in the
business judgment of the Board of Directors,  are independent under the New York
Exchange listing standards. The Board of Directors,  operating through its Audit
Committee,  provides oversight to the financial  reporting process.  Integral to
this process is the Audit Committee's  review and discussion with management and
the external auditors of the quarterly and annual financial  statements prior to
their respective filing.
     We maintain a system of internal control over financial reporting, which is
intended  to  provide  reasonable  assurance  to our  management  and  Board  of
Directors  regarding the  reliability  of our financial  statements.  The system
includes:
          -   a   documented   organizational   structure   and    division   of
              responsibility;
          -   established policies  and procedures,  including a code of conduct
              to  foster  a  strong   ethical  climate  which   is  communicated
              throughout the company; and
          -   the careful selection, training and development of our people.
Internal  auditors  monitor the  operation  of the internal  control  system and
report  findings and  recommendations  to management and the Board of Directors.
Corrective  actions  are  taken  to  address  control   deficiencies  and  other
opportunities  for  improving the system as they are  identified.  In accordance
with the Securities and Exchange  Commission's  rules to improve the reliability
of financial statements, our interim financial statements are reviewed by Arthur
Andersen LLP.
     There  are  inherent  limitations  in the  effectiveness  of any  system of
internal control, including the possibility of human error and the circumvention
or  overriding  of controls.  Accordingly,  even an effective  internal  control
system can provide only reasonable  assurance with respect to the reliability of
our financial statements.  Also, the effectiveness of an internal control system
may change over time.
     We have  assessed our internal  control  system in relation to criteria for
effective  internal  control  over  financial  reporting  described in "Internal
Control-Integrated   Framework"   issued   by  the   Committee   of   Sponsoring
Organizations of the Treadway Commission. Based upon that assessment, we believe
that,  as of December 31, 2001,  our system of internal  control over  financial
reporting met those criteria.


HALLIBURTON COMPANY
by



     /s/ DAVID J. LESAR                         /s/   DOUGLAS L. FOSHEE
----------------------------------           ----------------------------------
         David J. Lesar                               Douglas L.Foshee
     Chairman of the Board,                     Executive Vice President and
         President and                            Chief Financial Officer
     Chief Executive Officer

                                       28


REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders and Board of Directors
Halliburton Company:

     We have audited the accompanying consolidated balance sheets of Halliburton
Company (a Delaware  corporation)  and  subsidiary  companies as of December 31,
2001 and 2000, and the related  consolidated  statements of income,  cash flows,
and  shareholders'  equity  for  each of the  three  years in the  period  ended
December 31, 2001.  These  financial  statements are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audits.

     We conducted our audits in accordance  with  auditing  standards  generally
accepted in the United States of America.  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 financial statements referred to above present fairly,
in all material  respects,  the financial  position of  Halliburton  Company and
subsidiary  companies as of December 31, 2001 and 2000, and the results of their
operations  and their cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting  principles  generally accepted
in the United States of America.





                                            /s/ ARTHUR ANDERSEN LLP
                                          ---------------------------
                                                ARTHUR ANDERSEN LLP


Dallas, Texas,
     January 23, 2002 (Except with respect to certain matters discussed in  Note
     9, as to which the date is February 21, 2002.)


                                       29



                               Halliburton Company
                        Consolidated Statements of Income
             (Millions of dollars and shares except per share data)
                                                                                  Years ended December 31
                                                                      ------------------------------------------------
                                                                           2001            2000             1999
----------------------------------------------------------------------------------------------------------------------
                                                                                                  
Revenues:
Services                                                                $  10,940       $  10,185          $ 10,826
Product sales                                                               1,999           1,671             1,388
Equity in earnings of unconsolidated affiliates                               107              88                99
----------------------------------------------------------------------------------------------------------------------
Total revenues                                                          $  13,046       $  11,944          $ 12,313
----------------------------------------------------------------------------------------------------------------------
Operating costs and expenses:
Cost of services                                                        $   9,831       $   9,755          $ 10,368
Cost of sales                                                               1,744           1,463             1,240
General and administrative                                                    387             352               351
Gain on sale of marine vessels                                                  -             (88)                -
Special credits                                                                 -               -               (47)
----------------------------------------------------------------------------------------------------------------------
Total operating costs and expenses                                      $  11,962       $  11,482          $ 11,912
----------------------------------------------------------------------------------------------------------------------
Operating income                                                            1,084             462               401
Interest expense                                                             (147)           (146)             (141)
Interest income                                                                27              25                74
Foreign currency losses, net                                                  (10)             (5)               (8)
Other, net                                                                      -              (1)              (19)
----------------------------------------------------------------------------------------------------------------------
Income from continuing operations before taxes, minority
    interest, and change in accounting method, net                            954             335               307
Provision for income taxes                                                   (384)           (129)             (116)
Minority interest in net income of subsidiaries                               (19)            (18)              (17)
----------------------------------------------------------------------------------------------------------------------
Income from continuing operations before change in
    accounting method, net                                                    551             188               174
----------------------------------------------------------------------------------------------------------------------
Discontinued operations:
Income (loss) from discontinued operations, net of tax
    (provision) benefit of $20, ($60), and ($98)                              (42)             98               124
Gain on disposal of discontinued operations, net of tax (provision)
    of ($199), ($141), and ($94)                                              299             215               159
----------------------------------------------------------------------------------------------------------------------
Income from discontinued operations, net                                      257             313               283
----------------------------------------------------------------------------------------------------------------------
Cumulative effect of change in accounting method,
    net of tax benefit of $11 in 1999                                           1               -               (19)
----------------------------------------------------------------------------------------------------------------------
Net income                                                              $     809       $     501          $    438
======================================================================================================================

Basic income (loss) per share:
Income from continuing operations before change
    in accounting method, net                                           $    1.29       $    0.42          $   0.40
Income (loss) from discontinued operations                                  (0.10)           0.22              0.28
Gain on disposal of discontinued operations                                  0.70            0.49              0.36
Change in accounting method, net                                                -               -             (0.04)
----------------------------------------------------------------------------------------------------------------------
Net income                                                              $    1.89       $    1.13          $   1.00
======================================================================================================================

Diluted income (loss) per share:
Income from continuing operations before change
    in accounting method, net                                           $    1.28       $    0.42          $   0.39
Income (loss) from discontinued operations                                  (0.10)           0.22              0.28
Gain on disposal of discontinued operations                                  0.70            0.48              0.36
Change in accounting method, net                                                -               -             (0.04)
----------------------------------------------------------------------------------------------------------------------
Net income                                                              $    1.88       $    1.12          $   0.99
======================================================================================================================

Basic average common shares outstanding                                       428             442               440
Diluted average common shares outstanding                                     430             446               443


See notes to annual financial statements.



                                       30




                               Halliburton Company
                           Consolidated Balance Sheets
             (Millions of dollars and shares except per share data)
                                                                                          December 31
                                                                                    -------------------------
                                                                                        2001        2000
-------------------------------------------------------------------------------------------------------------
                                       Assets
                                                                                            
Current assets:
Cash and equivalents                                                                  $    290    $    231
Receivables:
Notes and accounts receivable (less allowance for bad debts of $131 and $125)            3,015       2,952
Unbilled work on uncompleted contracts                                                   1,080         982
-------------------------------------------------------------------------------------------------------------
Total receivables                                                                        4,095       3,934
Inventories                                                                                787         723
Current deferred income taxes                                                              154         235
Net current assets of discontinued operations                                                -         298
Other current assets                                                                       247         236
-------------------------------------------------------------------------------------------------------------
Total current assets                                                                     5,573       5,657
Net property, plant and equipment                                                        2,669       2,410
Equity in and advances to related companies                                                551         400
Goodwill (net of accumulated amortization of $269 and $231)                                720         597
Noncurrent deferred income taxes                                                           410         340
Net noncurrent assets of discontinued operations                                             -         391
Insurance for asbestos litigation claims                                                   612          51
Other assets                                                                               431         346
-------------------------------------------------------------------------------------------------------------
Total assets                                                                          $ 10,966    $ 10,192
=============================================================================================================
                        Liabilities and Shareholders' Equity
Current liabilities:
Short-term notes payable                                                              $     44    $  1,570
Current maturities of long-term debt                                                        81           8
Accounts payable                                                                           917         782
Accrued employee compensation and benefits                                                 357         267
Advance billings on uncompleted contracts                                                  611         377
Deferred revenues                                                                           99          98
Income taxes payable                                                                       194         113
Other current liabilities                                                                  605         700
-------------------------------------------------------------------------------------------------------------
Total current liabilities                                                                2,908       3,915
Long-term debt                                                                           1,403       1,049
Employee compensation and benefits                                                         570         662
Asbestos litigation claims                                                                 737          80
Other liabilities                                                                          555         520
Minority interest in consolidated subsidiaries                                              41          38
-------------------------------------------------------------------------------------------------------------
Total liabilities                                                                        6,214       6,264
-------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Common shares, par value $2.50 per share - authorized 600 shares,
     issued 455 and 453 shares                                                           1,138       1,132
Paid-in capital in excess of par value                                                     298         259
Deferred compensation                                                                      (87)        (63)
Accumulated other comprehensive income                                                    (236)       (288)
Retained earnings                                                                        4,327       3,733
-------------------------------------------------------------------------------------------------------------
                                                                                         5,440       4,773
Less 21 and 26 shares of treasury stock, at cost                                           688         845
-------------------------------------------------------------------------------------------------------------
Total shareholders' equity                                                               4,752       3,928
-------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity                                            $ 10,966    $ 10,192
=============================================================================================================


See notes to annual financial statements.



                                       31




                               Halliburton Company
                 Consolidated Statements of Shareholders' Equity
                        (Millions of dollars and shares)
                                                                           Years ended December 31
                                                                  -------------------------------------------
                                                                       2001          2000          1999
-------------------------------------------------------------------------------------------------------------
                                                                                        
Common stock (number of shares)
Balance at beginning of year                                             453           448             446
Shares issued under compensation and incentive stock plans,
    net of forfeitures                                                     1             4               2
Shares issued for acquisition                                              1             1               -
-------------------------------------------------------------------------------------------------------------
Balance at end of year                                                   455           453             448
=============================================================================================================
Common stock (dollars)
Balance at beginning of year                                         $ 1,132       $ 1,120       $   1,115
Shares issued under compensation and incentive stock plans,
    net of forfeitures                                                     2             9               5
Shares issued for acquisition                                              4             3               -
-------------------------------------------------------------------------------------------------------------
Balance at end of year                                               $ 1,138       $ 1,132       $   1,120
=============================================================================================================
Paid-in capital in excess of par value
Balance at beginning of year                                         $   259       $    68       $       8
Shares issued under compensation and incentive stock plans,
    net of forfeitures                                                    30           109              47
Tax benefit                                                               (2)           38              13
Shares issued for acquisition, net                                        11            44               -
-------------------------------------------------------------------------------------------------------------
Balance at end of year                                               $   298       $   259       $      68
=============================================================================================================
Deferred compensation
Balance at beginning of year                                         $   (63)      $   (51)      $     (51)
Current year awards, net                                                 (24)          (12)              -
-------------------------------------------------------------------------------------------------------------
Balance at end of year                                               $   (87)      $   (63)      $     (51)
=============================================================================================================
Accumulated other comprehensive income
Cumulative translation adjustment                                    $  (205)      $  (275)      $    (185)
Pension liability adjustment                                             (27)          (12)            (19)
Unrealized loss on investments and derivatives                            (4)           (1)              -
-------------------------------------------------------------------------------------------------------------
Balance at end of year                                               $  (236)      $  (288)      $    (204)
=============================================================================================================
Cumulative translation adjustment
Balance at beginning of year                                         $  (275)      $  (185)      $    (142)
Sales of subsidiaries                                                    102            11             (17)
Current year changes                                                     (32)         (101)            (26)
-------------------------------------------------------------------------------------------------------------
Balance at end of year                                               $  (205)      $  (275)      $    (185)
=============================================================================================================
(continued on next page)




See notes to annual financial statements.



                                       32




                               Halliburton Company
                 Consolidated Statements of Shareholders' Equity
                        (Millions of dollars and shares)
                                   (continued)
                                                                            Years ended December 31
                                                                  -------------------------------------------
                                                                       2001          2000          1999
-------------------------------------------------------------------------------------------------------------
                                                                                         
Pension liability adjustment
Balance at beginning of year                                          $   (12)      $   (19)      $     (7)
Sale of subsidiary                                                         12             7              -
Current year change, net of tax                                           (27)            -            (12)
-------------------------------------------------------------------------------------------------------------
Balance at end of year                                                $   (27)      $   (12)      $    (19)
=============================================================================================================
Unrealized loss on investments
Balance at beginning of year                                          $    (1)      $     -       $      -
Current year unrealized loss on investments and derivatives                (3)           (1)             -
-------------------------------------------------------------------------------------------------------------
Balance at end of year                                                $    (4)      $    (1)      $      -
=============================================================================================================
Retained earnings
Balance at beginning of year                                          $ 3,733       $ 3,453       $  3,236
Net income                                                                809           501            438
Cash dividends paid                                                      (215)         (221)          (221)
-------------------------------------------------------------------------------------------------------------
Balance at end of year                                                $ 4,327       $ 3,733       $  3,453
=============================================================================================================
Treasury stock (number of shares)
Beginning of year                                                          26             6              6
Shares issued under benefit, dividend reinvestment plan and
     incentive stock plans, net                                            (2)            -              -
Shares issued for acquisition                                              (4)            -              -
Shares purchased                                                            1            20              -
-------------------------------------------------------------------------------------------------------------
Balance at end of year                                                     21            26              6
=============================================================================================================
Treasury stock (dollars)
Beginning of year                                                     $   845       $    99       $     98
Shares issued under benefit, dividend reinvestment plan and
     incentive stock plans, net                                           (51)          (23)            (9)
Shares issued for acquisition                                            (140)            -              -
Shares purchased                                                           34           769             10
-------------------------------------------------------------------------------------------------------------
Balance at end of year                                                $   688       $   845       $     99
=============================================================================================================
Comprehensive income
Net income                                                            $   809       $   501       $    438
-------------------------------------------------------------------------------------------------------------
Cumulative translation adjustment, net of tax                             (32)         (101)           (26)
Less reclassification adjustments for (gains) losses included in
     net income                                                           102            11            (17)
-------------------------------------------------------------------------------------------------------------
Net cumulative translation adjustment                                      70           (90)           (43)
-------------------------------------------------------------------------------------------------------------
Current year adjustment to minimum pension liability                      (15)            7            (12)
Unrealized loss on investments and derivatives                             (3)           (1)             -
-------------------------------------------------------------------------------------------------------------
Total comprehensive income                                            $   861       $   417       $    383
=============================================================================================================



See notes to annual financial statements.



                                       33




                               Halliburton Company
                      Consolidated Statements of Cash Flows
                              (Millions of dollars)
                                                                               Years ended December 31
                                                                      ------------------------------------------
                                                                           2001          2000         1999
----------------------------------------------------------------------------------------------------------------
                                                                                            
Cash flows from operating activities:
Net income                                                               $    809      $    501      $     438
Adjustments to reconcile net income to net cash from operations:
Income from discontinued operations                                          (257)         (313)          (283)
Depreciation, depletion and amortization                                      531           503            511
(Benefit) provision for deferred income taxes                                  26            (6)           187
Distributions from (advances to) related companies, net of equity in            8           (64)            24
(earnings) losses
Change in accounting method, net                                               (1)            -             19
Accrued special charges                                                        (6)          (63)          (290)
Other non-cash items                                                           (3)          (22)            19
Other changes, net of non-cash items:
Receivables and unbilled work on uncompleted contracts                       (199)         (896)           616
Inventories                                                                   (91)            8             (3)
Accounts payable                                                              118           170           (179)
Other working capital, net                                                    122           155           (432)
Other operating activities                                                    (28)          (30)          (685)
----------------------------------------------------------------------------------------------------------------
Total cash flows from operating activities                                  1,029           (57)           (58)
----------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures                                                         (797)         (578)          (520)
Sales of property, plant and equipment                                        120           209            118
Acquisitions of businesses, net of cash acquired                             (220)          (10)            (7)
Dispositions of businesses, net of cash disposed                               61            19            291
Other investing activities                                                    (22)          (51)            11
----------------------------------------------------------------------------------------------------------------
Total cash flows from investing activities                                   (858)         (411)          (107)
----------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from long-term borrowings                                            425             -              -
Payments on long-term borrowings                                              (13)         (308)           (59)
(Repayments) borrowings of short-term debt, net                            (1,528)          629            436
Payments of dividends to shareholders                                        (215)         (221)          (221)
Proceeds from exercises of stock options                                       27           105             49
Payments to reacquire common stock                                            (34)         (769)           (10)
Other financing activities                                                    (17)          (20)            (6)
----------------------------------------------------------------------------------------------------------------
Total cash flows from financing activities                                 (1,355)         (584)           189
----------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash                                       (20)           (9)             5
Net cash flows from discontinued operations   (1)                           1,263           826            234
----------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and equivalents                                    59          (235)           263
Cash and equivalents at beginning of year                                     231           466            203
----------------------------------------------------------------------------------------------------------------
Cash and equivalents at end of year                                      $    290      $    231      $     466
----------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash payments during the year for:
Interest                                                                 $    132      $    144      $     145
Income taxes                                                             $    382      $    310      $      98
Non-cash investing and financing activities:
Liabilities assumed in acquisitions of businesses                        $     92      $     95      $      90
Liabilities disposed of in dispositions of businesses                    $    500      $    499      $     111

(1)  Net cash flows from discontinued operations in 2001 include proceeds of
     $1.27 billion from the sale of the remaining businesses in Dresser
     Equipment Group and in 2000 proceeds of $913 million from the sales of
     Dresser-Rand in 2000 and Ingersoll-Dresser Pump in 1999. See Note 3.
See notes to annual financial statements.



                                       34


                               HALLIBURTON COMPANY
                      Notes to Annual Financial Statements

Note 1. Significant Accounting Policies
     We  employ  accounting  policies  that are in  accordance  with  accounting
principles  generally accepted in the United States of America.  The preparation
of financial  statements  in conformity  with  accounting  principles  generally
accepted  in the United  States of America  requires  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 revenues and expenses during the reporting
              period.
     Ultimate results could differ from those estimates.
     Principles of consolidation.  The consolidated financial statements include
the accounts of our company and all of our  subsidiaries in which we own greater
than  50%  interest  or  control.   All  material   intercompany   accounts  and
transactions  are  eliminated.  Investments  in  companies  in  which we own 50%
interest or less and have a  significant  influence  are accounted for using the
equity  method  and if we do not  have  significant  influence  we use the  cost
method. Prior year amounts have been reclassified to conform to the current year
presentation.
     Revenues  and income  recognition.  We  recognize  revenues as services are
rendered or products are shipped.  The distinction  between services and product
sales is based upon the overall activity of the particular  business  operation.
Revenues  from  engineering  and  construction  contracts  are  reported  on the
percentage of completion  method of accounting  using  measurements  of progress
towards  completion  appropriate for the work  performed.  Progress is generally
based  upon  physical  progress,  man-hours  or costs  incurred  based  upon the
appropriate  method  for the type of job.  All  known or  anticipated  losses on
contracts are provided for currently.  Claims and change orders which 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.
Training and  consulting  service  revenues are  recognized  as the services are
performed.  Sales of perpetual  software licenses,  net of deferred  maintenance
fees,  are  recorded  as  revenue  upon  shipment.  Sales  of use  licenses  are
recognized as revenue over the license period.  Post-contract  customer  support
agreements are recorded as deferred  revenues and recognized as revenue  ratably
over the contract period of generally one year's duration.
     Research and development.  Research and development expenses are charged to
income as incurred.  See Note 4 for research and development expense by business
segment.
     Software  development  costs.  Costs of  developing  software  for sale are
charged  to  expense  when  incurred,   as  research  and   development,   until
technological   feasibility  has  been   established   for  the  product.   Once
technological  feasibility  is  established,   software  development  costs  are
capitalized  until the software is ready for general  release to  customers.  We
capitalized  costs  related to software  developed  for resale of $19 million in
2001,  $7  million  in 2000 and $12  million  in 1999.  Amortization  expense of
software  development  costs was $16 million for 2001,  $12 million for 2000 and
$15 million for 1999.  Once the software is ready for release,  amortization  of
the software  development costs begins.  Capitalized  software development costs
are amortized over periods which do not exceed five years.
     Income per share.  Basic income per share is based on the weighted  average
number of common shares  outstanding  during the year.  Diluted income per share
includes  additional common shares that would have been outstanding if potential
common  shares  with a  dilutive  effect  had  been  issued.  See  Note 10 for a
reconciliation of basic and diluted income per share.
     Cash  equivalents.  We  consider  all  highly  liquid  investments  with an
original maturity of three months or less to be cash equivalents.
     Receivables.  Our  receivables are generally not  collateralized.  With the
exception  of  claims  and  change  orders  which  are in the  process  of being
negotiated  with  customers,  unbilled work on uncompleted  contracts  generally
represents  work  currently  billable,  and this work is usually  billed  during
normal  billing  processes  in the next  several  months.  The claims and change
orders,  included in unbilled receivables,  amounted to $234 million at December
31, 2001 and $113 million at December  31, 2000.  Included in notes and accounts
receivable  are notes  with  varying  interest  rates  totaling  $19  million at
December 31, 2001 and $38 million at December 31, 2000.

                                       35


     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.  The  cost  of  most
inventories  is determined  using either the first-in,  first-out  method or the
average cost method,  although the cost of some United States  manufacturing and
field service  inventories is determined  using the last-in,  first-out  method.
Inventories  of sales items owned by foreign  subsidiaries  and  inventories  of
operating supplies and parts are generally valued at average cost. See Note 5.
     Property,  plant and equipment.  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. Some assets
are depreciated on accelerated  methods.  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.  When  events  or  changes  in
circumstances  indicate that assets may be impaired, an evaluation is performed.
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 market
value or  discounted  cash flow  value is  required.  We follow  the  successful
efforts method of accounting for oil and gas properties. See Note 6.
     Maintenance  and  repairs.  Expenditures  for  maintenance  and repairs are
expensed;  expenditures for renewals and improvements are generally capitalized.
We use the  accrue-in-advance  method of accounting  for major  maintenance  and
repair costs of marine vessel dry docking  expense and major aircraft  overhauls
and repairs.  Under this method we anticipate the need for major maintenance and
repairs and charge the estimated expense to operations before the actual work is
performed.  At the time the work is  performed,  the  actual  cost  incurred  is
charged against the amounts that were previously  accrued with any deficiency or
excess charged or credited to operating expense.
     Goodwill.  For  acquisitions  occurring prior to July 1, 2001,  goodwill is
amortized  on a  straight-line  basis  over  periods  not  exceeding  40  years.
Effective July 1, 2001, we adopted SFAS No. 141, "Business  Combinations"  which
precludes  amortization of goodwill on acquisitions completed subsequent to June
30, 2001.  See Note 12 for  discussion of this  accounting  change.  Goodwill is
continually monitored for potential impairment. When negative conditions such as
significant  current or projected  operating losses exist, a review is performed
to determine if the projected  undiscounted  future cash flows  indicate that an
impairment exists. If an impairment exists,  goodwill, and, if appropriate,  the
associated assets are reduced to reflect the estimated  discounted cash flows to
be  generated by the  underlying  business.  This  practice is  consistent  with
methodologies  in SFAS No. 121  "Accounting  for the  Impairment  of  Long-lived
Assets and for Long-lived Assets to be Disposed of."
     Income taxes.  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 either
expire before we are able to realize their benefit, or that future deductibility
is uncertain.
     Derivative instruments.  We enter into derivative financial transactions to
hedge  existing or projected  exposures to changing  foreign  currency  exchange
rates,  interest  rates and commodity  prices.  We do not enter into  derivative
transactions for speculative or trading purposes.  Effective January 1, 2001, we
adopted  SFAS  No.  133  "Accounting  for  Derivative  Instruments  and  Hedging
Activities."  See  Note  12.  SFAS  No.  133  requires  that  we  recognize  all
derivatives on the balance sheet at fair value.  Derivatives that are not hedges
must be adjusted to fair value and reflected  immediately through the results of
operations.  If the  derivative  is  designated  as a hedge  under SFAS No. 133,
depending on the nature of the hedge,  changes in the fair value of  derivatives
are either offset against:
          -   the change  in fair  value of the hedged  assets, liabilities,  or
              firm commitments through earnings; or
          -   recognized in other comprehensive  income until the hedged item is
              recognized in earnings.
The  ineffective  portion of a derivative's  change in fair value is immediately
recognized in earnings.  Recognized gains or losses on derivatives  entered into
to manage  foreign  exchange  risk are  included in foreign  currency  gains and
losses on the  consolidated  statements  of income.  Gains or losses on interest
rate  derivatives  are  included  in  interest  expense  and  gains or losses on
commodity  derivatives are included in operating income.  During the three years
ended December 31, 2001, we did not enter into any  significant  transactions to
hedge  commodity  prices.  See Note 8 for  discussion of interest rate swaps and
Note 16 for further discussion of foreign currency exchange derivatives.

                                       36


     Foreign currency translation. Foreign entities whose functional currency is
the United States dollar  translate  monetary assets and liabilities at year-end
exchange rates and non-monetary 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 revenues, and expenses
associated  with  non-monetary  balance sheet  accounts  which are translated at
historical rates.  Gains or losses from changes in exchange rates are recognized
in  consolidated  income  in the  year of  occurrence.  Foreign  entities  whose
functional currency is the local currency 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 titled "Cumulative Translation Adjustment."
     Loss  contingencies.  We accrue for loss contingencies  based upon our best
estimates in accordance  with SFAS No. 5,  "Accounting for  Contingencies."  See
Note 9 for discussion of our significant loss contingencies.

Note 2. Acquisitions and Dispositions
     Magic Earth acquisition. In November 2001, we acquired Magic Earth, Inc., a
leading 3-D  visualization  and  interpretation  technology  company  with broad
applications in the area of data mining. Under the agreement, Halliburton issued
4.2 million  shares of common stock from treasury  stock valued at $100 million.
Magic Earth became a wholly owned  subsidiary and is reported  within our Energy
Services Group. We preliminarily  recorded  intangible assets of $19 million and
goodwill of $71 million, all of which is nondeductible for tax purposes, subject
to the final  valuation of  intangible  assets and other costs.  The  intangible
assets will be amortized based on a five year life.
     PGS Data  Management  acquisition.  In March 2001 we acquired  the PGS Data
Management  division of Petroleum  Geo-Services ASA (PGS) for $164 million.  The
agreement  also  calls  for  Landmark  to  provide,  for a fee,  strategic  data
management and  distribution  services to PGS for three years. We  preliminarily
recorded  intangible  assets of $16 million and  goodwill  of $148  million,  $9
million  of  which is  nondeductible  for tax  purposes,  subject  to the  final
valuation of intangible  assets and other costs.  The goodwill  amortization for
2001 was based on a 15 year life and the intangible  assets are being  amortized
based on a three year life.
     PES  acquisition.  In February  2000,  we acquired the remaining 74% of the
shares of PES (International)  Limited that we did not already own. PES is based
in Aberdeen, Scotland, and has developed technology that complements Halliburton
Energy Services' real-time reservoir solutions.  To acquire the remaining 74% of
PES, we issued 1.2 million  shares of Halliburton  common stock.  We also issued
rights that will result in the issuance of up to 2.1 million  additional  shares
of Halliburton common stock between February 2001 and February 2002. We issued 1
million shares in February 2001; 400,000 in June 2001; and the remaining 700,000
shares in February 2002 under these rights. We recorded $115 million of goodwill
in connection with acquiring the remaining 74%.
     During the second  quarter of 2001,  we  contributed  the  majority of PES'
assets and technologies,  including $130 million of goodwill associated with the
purchase of PES, to a newly formed joint venture,  WellDynamics. We received $39
million in cash as an equity equalization  adjustment.  The remaining assets and
goodwill of PES relating to completions and well intervention products have been
combined  with our existing  completions  product  service  line.  We own 50% of
WellDynamics and account for this investment using the equity method.
     Other  acquisitions.  We acquired other businesses in 2001 for $56 million,
as  compared to  businesses  acquired in 2000 for $10 million and $13 million in
1999.
     2001  acquisitions.  None of our 2001 acquisitions had a significant effect
on revenues or earnings.
     Subsea joint venture. In October 2001, we signed a letter of intent to form
a new company by combining our  Halliburton  Subsea  operations with DSND Subsea
ASA, a Norwegian-based company. The closing of the transaction is subject to the
execution of a definitive  agreement,  regulatory approvals and approvals by the
Board of Directors of each party.  We will own 50% of the new company which will
be accounted for on the equity method. The new company plans to begin operations
by the end of the first quarter of 2002.
     European Marine Contractors Ltd. disposition. In October 2001, we signed an
agreement  to sell our 50%  interest in European  Marine  Contractors  Ltd.,  an
unconsolidated  joint venture in the Energy Services Group, to our joint venture
partner,  Saipem.  The sale was  finalized in January 2002 and we received  $115
million in cash plus a contingent  payment based on a formula  linked to the Oil
Service Index performance that was exercised in February 2002 for $19 million in
cash.  We expect to record a pretax  gain of $108  million or $0.15 per  diluted
share after-tax in the first quarter of 2002.

                                       37


     Dresser Equipment Group  divestiture.  Between October 1999 and April 2001,
we disposed of all the businesses in the Dresser Equipment Group. See Note 3.
     LWD divestiture.  In March 1999, in connection with the Dresser Industries,
Inc.   merger,   we   sold   the   majority   of   our   pre-merger    worldwide
logging-while-drilling    business    and   a   portion   of   the    pre-merger
measurement-while-drilling  business.  The sale was in accordance with a consent
decree  with  the  United  States  Department  of  Justice.  This  business  was
previously part of the Energy  Services  Group. We continue to provide  separate
logging-while-drilling services through our Sperry-Sun Drilling Systems business
line, which was acquired as part of the merger with Dresser Industries, Inc. and
is now part of the Energy  Services  Group.  In  addition,  we will  continue to
provide sonic  logging-while-drilling  services using technologies we had before
the merger with Dresser Industries, Inc.

Note 3. Discontinued Operations
     In 1999,  the  Dresser  Equipment  Group  was  comprised  of six  operating
divisions and two joint ventures that  manufactured and marketed  equipment used
primarily in the energy, petrochemical,  power and transportation industries. In
October   1999,   we   announced   the  sales  of  our  49%   interest   in  the
Ingersoll-Dresser  Pump joint  venture and our 51% interest in the  Dresser-Rand
joint venture to  Ingersoll-Rand.  The sales were triggered by  Ingersoll-Rand's
exercise of its option under the joint venture  agreements to cause us to either
buy their  interests or sell ours.  Both joint ventures were part of the Dresser
Equipment Group. Our  Ingersoll-Dresser  Pump interest was sold in December 1999
for  approximately   $515  million.   We  recorded  a  gain  on  disposition  of
discontinued  operations of $253 million before tax, or $159 million  after-tax,
for  a  net  gain  of  $0.36  per  diluted  share  in  1999  from  the  sale  of
Ingersoll-Dresser   Pump.   Proceeds  from  the  sale,   after  payment  of  our
intercompany  balance,  were  received in the form of a $377 million  promissory
note with an annual  interest  rate of 3.5% which was  collected  on January 14,
2000.  On  February  2,  2000, we completed  the  sale of our  51%  interest  in
Dresser-Rand  for a price  of $579  million.  Proceeds  from  the  sale,  net of
intercompany amounts payable to the joint venture, were $536 million,  resulting
in a gain on disposition of discontinued  operations of $356 million before tax,
or $215  million  after-tax,  for a net gain of $0.48 per  diluted  share in the
first quarter of 2000.
     These joint ventures  represented  nearly half of the group's  revenues and
operating  profit in 1999.  The sale of our  interests  in the  segment's  joint
ventures  prompted a strategic  review of the  remaining  businesses  within the
Dresser  Equipment  Group.  As a result of this review,  we determined  that the
remaining  businesses  did not closely fit with our core  businesses,  long-term
goals and strategic  objectives.  In April 2000, our Board of Directors approved
plans to sell all the remaining businesses within the Dresser Equipment Group.
     We sold these  businesses  on April 10,  2001.  As part of the terms of the
transaction,  we retained a 5.1% equity interest in the Dresser Equipment Group,
which  has been  renamed  Dresser,  Inc.  In the  second  quarter  of  2001,  we
recognized a pretax gain on the sale of discontinued operations of $498 million,
or $299 million  after-tax.  Total value under the agreement was $1.55  billion,
less assumed  liabilities,  and resulted in cash  proceeds of $1.27 billion from
the sale. In connection  with the sale, we accrued  disposition  related  costs,
realized  $68 million of  noncurrent  deferred  income tax  assets,  and reduced
employee  compensation  and benefit  liabilities by $152 million for liabilities
assumed by the purchaser. The employee compensation and benefit liabilities were
previously included in "Employee  compensation and benefits" in the consolidated
balance sheets.
     The financial results of the Dresser Equipment Group through March 31, 2001
are presented as  discontinued  operations in our financial  statements.  During
2001,  we recorded as expense to  discontinued  operations  $99 million,  net of
anticipated  insurance  recoveries for asbestos claims.  This expense  primarily
consisted of $91 million  relating to  Harbison-Walker  asbestos  claims arising
after our divestiture of Harbison-Walker in 1992. See Note 9.

                                       38



Income (loss) from Operations
of Discontinued Businesses               Years ended December 31
                                 -----------------------------------------
Millions of dollars                  2001        2000          1999
--------------------------------------------------------------------------
                                                     
Revenues                            $  359      $ 1,400       $ 2,585
==========================================================================
Operating income                    $   37      $   158       $   249
Other income and expense                 -            -            (1)
Asbestos litigation claims,
    net of insurance recoveries        (99)           -             -
Tax benefit (expense)                   20          (60)          (98)
Minority interest                        -            -           (26)
--------------------------------------------------------------------------
Net income (loss)                   $  (42)     $    98       $   124
==========================================================================

     Gain on disposal of discontinued  operations  reflects the gain on the sale
of the remaining  businesses  within the Dresser  Equipment  Group in the second
quarter of 2001, the gain on the sale of  Dresser-Rand  in February 2000 and the
gain on the sale of Ingersoll-Dresser Pump in December 1999.


Gain on Disposal of Discontinued Operations
Millions of dollars                                    2001          2000          1999
---------------------------------------------------------------------------------------------
                                                                         
Proceeds from sale, less intercompany settlement     $  1,267       $   536       $   377
Net assets disposed                                      (769)         (180)         (124)
---------------------------------------------------------------------------------------------
Gain before taxes                                         498           356           253
Income taxes                                             (199)         (141)          (94)
---------------------------------------------------------------------------------------------
Gain on disposal of discontinued operations          $    299       $   215       $   159
=============================================================================================

     Net assets of discontinued  operations at December 31, 2001 are zero and at
December 31, 2000 are composed of the following items:


Millions of dollars                                   2000
-----------------------------------------------------------------
                                                  
Receivables                                          $  286
Inventories                                             255
Other current assets                                     22
Accounts payable                                       (104)
Other current liabilities                              (161)
-----------------------------------------------------------------
Net current assets of discontinued operations        $  298
=================================================================

Net property, plant and equipment                    $  219
Net goodwill                                            257
Other assets                                             30
Employee compensation and benefits                     (113)
Other liabilities                                        (2)
-----------------------------------------------------------------
Net noncurrent assets of discontinued operations     $  391
=================================================================

Note 4. Business Segment Information
     We have two business  segments - Energy  Services Group and Engineering and
Construction Group. Dresser Equipment Group is presented as part of discontinued
operations  through  March 31, 2001 as a result of the sale in April 2001 of the
remaining  businesses  within Dresser  Equipment Group. See Note 3. Our segments
are organized around the products and services provided to our customers. During
the fourth  quarter of 2000,  we  announced  restructuring  plans to combine all
engineering,  construction,  fabrication and project management  operations into
one company,  Halliburton  KBR,  reporting as our Engineering  and  Construction
Group.  This  restructuring  resulted in some activities  moving from the Energy

                                       39


Services Group to the Engineering and Construction  Group,  effective January 1,
2001. Prior periods have been restated for this change.
     Energy Services  Group.  The Energy Services Group provides a wide range of
discrete  services and products and  integrated  solutions to customers  for the
exploration,  development, and production of oil and gas. The customers for this
segment are major, national and independent oil and gas companies.  This segment
consists of:
          -   Halliburton  Energy  Services  provides  oilfield  services   and
              products including discrete  products and services  and integrated
              solutions   for   oil  and  gas   exploration,   development   and
              production  throughout  the world.  Products  and services include
              pressure pumping equipment  and services, logging and perforating,
              drilling  systems and  services, drilling  fluids  systems,  drill
              bits,  specialized   completion  and   production   equipment  and
              services,  well  control,  integrated  solutions,  and   reservoir
              description;
          -   Landmark Graphics  provides integrated exploration  and production
              software   information  systems,  data   management  services  and
              professional services to the petroleum industry; and
          -   Other product  service lines  provide  construction,  installation
              and servicing  of subsea facilities;  flexible pipe  for  offshore
              applications;   pipeline   services    for   offshore   customers;
              pipecoating  services;   feasibility,  conceptual   and  front-end
              engineering  and   design,  detailed   engineering,   procurement,
              construction   site   management,  commissioning,   start-up   and
              debottlenecking of both onshore and offshore facilities; and
              large  integrated   engineering,  procurement,   and  construction
              projects containing both surface and sub-surface components.
     Engineering and Construction  Group. The Engineering and Construction Group
provides  engineering,   procurement,   construction,  project  management,  and
facilities  operation and maintenance  for oil and gas and other  industrial and
governmental  customers.  The Engineering and Construction  Group,  operating as
Halliburton KBR, includes the following five product lines:
          -   Onshore   operations   comprises   engineering   and  construction
              activities,  including liquefied  natural gas,  ammonia, crude oil
              refineries, and natural gas plants;
          -   Offshore   operations   includes   specialty   offshore  deepwater
              engineering  and  marine  technology  and  worldwide   fabrication
              capabilities;
          -   Government   operations   provides   operations,  maintenance  and
              logistics activities for  government facilities and installations;
          -   Operations  and maintenance  provides services  for private sector
              customers,   primarily   industrial,  hydrocarbon  and  commercial
              applications; and
          -   Asia  Pacific  operations,  based  in  Australia,  provides  civil
              engineering and consulting services.
     General  corporate.  General corporate  represents assets not included in a
business segment and is primarily  composed of receivables,  deferred tax assets
and  other  shared  assets,  including  the  investment  in  an  enterprise-wide
information system.
     Intersegment revenues included in the revenues of the business segments and
revenues between geographic areas are immaterial.  Our equity in pretax earnings
and losses of  unconsolidated  affiliates  that are  accounted for on the equity
method is included in revenues and operating income of the applicable segment.
     The tables below present information on our continuing  operations business
segments.

                                       40




Operations by Business Segment
                                                           Years ended December 31
                                                 ------------------------------------------
Millions of dollars                                  2001          2000          1999
-------------------------------------------------------------------------------------------
                                                                      
Revenues:
Energy Services Group                              $   8,722      $  6,776     $   5,921
Engineering and Construction Group                     4,324         5,168         6,392
-------------------------------------------------------------------------------------------
Total                                              $  13,046      $ 11,944     $  12,313
===========================================================================================
Operating income:
Energy Services Group                              $   1,015      $    582     $     250
Engineering and Construction Group                       143           (42)          175
Special credits                                            -             -            47
General corporate                                        (74)          (78)          (71)
-------------------------------------------------------------------------------------------
Total                                              $   1,084      $    462     $     401
===========================================================================================
Capital expenditures:
Energy Services Group                              $     705      $    494     $     413
Engineering and Construction Group                        47            33            35
General corporate and shared assets                       45            51            72
-------------------------------------------------------------------------------------------
Total                                              $     797      $    578     $     520
===========================================================================================
Depreciation, depletion and amortization:
Energy Services Group                              $     430      $    403     $     409
Engineering and Construction Group                        44            53            55
General corporate and shared assets                       57            47            47
-------------------------------------------------------------------------------------------
Total                                              $     531      $    503     $     511
===========================================================================================

Total assets:
Energy Services Group                              $   7,075      $  6,086     $   5,464
Engineering and Construction Group                     2,674         2,408         1,985
Net assets of discontinued operations                      -           690         1,103
General corporate and shared assets                    1,217         1,008         1,087
--------------------------------------------------------------------------------------------
Total                                              $  10,966      $ 10,192     $   9,639
============================================================================================
Research and development:
Energy Services Group                              $     226      $    224     $     207
Engineering and Construction Group                         7             7             4
--------------------------------------------------------------------------------------------
Total                                              $     233      $    231     $     211
============================================================================================
Special credits:
Energy Services Group                              $       -      $      -     $     (41)
Engineering and Construction Group                         -             -            (4)
General corporate                                          -             -            (2)
--------------------------------------------------------------------------------------------
Total                                              $       -      $      -     $     (47)
============================================================================================


                                       41




Operations by Geographic Area
                                                          Years ended December 31
                                                  ------------------------------------------
Millions of dollars                                   2001          2000          1999
--------------------------------------------------------------------------------------------
                                                                       
Revenues:
United States                                       $   4,911      $  4,073     $   3,727
United Kingdom                                          1,800         1,512         1,656
Other areas (numerous countries)                        6,335         6,359         6,930
--------------------------------------------------------------------------------------------
Total                                               $  13,046      $ 11,944     $  12,313
============================================================================================
Long-lived assets:
United States                                       $   3,030      $  2,068     $   1,801
United Kingdom                                            617           525           684
Other areas (numerous countries)                          744           776           643
--------------------------------------------------------------------------------------------
Total                                               $   4,391      $  3,369     $   3,128
============================================================================================

Note 5. Inventories
     Inventories to support continuing  operations at December 31, 2001 and 2000
are composed of the following:



Millions of dollars                2001          2000
------------------------------------------------------------
                                           
Finished products and parts       $  520         $  486
Raw materials and supplies           192            178
Work in process                       75             59
------------------------------------------------------------
Total                             $  787         $  723
============================================================

     Inventories on the last-in,  first-out  method were $54 million at December
31, 2001 and $66 million at December  31,  2000.  If the average cost method had
been used,  total  inventories  would have been about $20  million  higher  than
reported at December 31, 2001,  and $28 million higher than reported at December
31, 2000.

Note 6. Property, Plant and Equipment
     Property,  plant and equipment to support continuing operations at December
31, 2001 and 2000 are composed of the following:



Millions of dollars                          2001          2000
---------------------------------------------------------------------
                                                   
Land                                       $     82      $     83
Buildings and property improvements             942           968
Machinery, equipment and other                4,926         4,509
---------------------------------------------------------------------
Total                                         5,950         5,560
Less accumulated depreciation                 3,281         3,150
---------------------------------------------------------------------
Net property, plant and equipment          $  2,669      $  2,410
=====================================================================

     At December 31, 2001 machinery,  equipment and other property  includes oil
and gas investments of approximately  $423 million and software developed for an
information  system of $233 million.  At December 31, 2000 machinery,  equipment
and other  property  includes  oil and gas  investments  of  approximately  $363
million and software developed for an information system of $223 million.

Note 7. Related Companies
     We conduct some of our operations  through various joint ventures which are
in  partnership,  corporate  and  other  business  forms,  and  are  principally
accounted  for  using the  equity  method.  Information  pertaining  to  related
companies for our continuing operations is set out below.

                                       42


     The larger  unconsolidated  entities include  European Marine  Contractors,
Ltd., and Bredero-Shaw which are both part of the Energy Services Group. We sold
our 50% interest in European Marine Contractors, Ltd., in January 2002. See Note
2. Bredero-Shaw, which is 50%-owned, specializes in pipecoating.
     Combined summarized financial  information for all jointly owned operations
which are not consolidated is as follows:



Combined Operating Results               Years ended December 31
                                 ------------------------------------------
Millions of dollars                  2001          2000          1999
---------------------------------------------------------------------------
                                                       
Revenues                            $  1,987      $  3,098      $  3,215
===========================================================================
Operating income                    $    231      $    192      $    193
===========================================================================
Net income                          $    169      $    169      $    127
===========================================================================




Combined Financial Position               December 31
                                  -----------------------------
Millions of dollars                    2001          2000
---------------------------------------------------------------
                                             
Current assets                       $  1,818      $  1,604
Noncurrent assets                       1,672         1,307
---------------------------------------------------------------
Total                                $  3,490      $  2,911
===============================================================
Current liabilities                  $  1,522      $  1,238
Noncurrent liabilities                  1,272           947
Minority interests                          2             2
Shareholders' equity                      694           724
---------------------------------------------------------------
Total                                $  3,490      $  2,911
===============================================================

Note 8. Lines of Credit, Notes Payable and Long-Term Debt
     At December  31,  2001,  we had  committed  lines of credit  totaling  $700
million, of which $350 million expires in 2002 and $350 million expires in 2006.
There were no borrowings  outstanding  under these lines of credit.  These lines
are not  available if our senior  unsecured  long-term  debt is rated lower than
BBB- by Standard & Poor's  Ratings  Service Group or lower than Baa3 by Moody's
Investors' Services.
Fees for committed lines of credit were immaterial.
     Short-term debt consists  primarily of $25 million in commercial paper with
an  effective  interest  rate of 2.9% and $19 million of other  facilities  with
varying rates of interest.
     Long-term debt at the end of 2001 and 2000 consists of the following:



Millions of dollars                                         2001          2000
------------------------------------------------------------------------------------
                                                                   
7.6% debentures due August 2096                            $   300       $   300
8.75% debentures due February 2021                             200           200
8% senior notes due April 2003                                 139           139
Medium-term notes due 2002 through 2027                        825           400
Effect of interest rate swaps                                    3             -
Term loans at LIBOR (GBP) plus 0.75% payable in
    semiannual installments through March 2002                   4            11
Other notes with varying interest rates                         13             7
------------------------------------------------------------------------------------
Total long-term debt                                         1,484         1,057
Less current portion                                            81             8
------------------------------------------------------------------------------------
Noncurrent portion of long-term debt                       $ 1,403       $ 1,049
====================================================================================

     The 7.6%  debentures  due 2096,  8.75%  debentures  due 2021, and 8% senior
notes due 2003 may not be  redeemed  prior to maturity  and do not have  sinking
fund requirements.

                                       43


     On July 12,  2001,  we issued $425 million of two and five year notes under
our  medium-term  note program.  The notes consist of $275 million 6% fixed rate
notes due August 2006 and $150  million  LIBOR + 0.15%  floating  rate notes due
July 2003. At December 31, 2001, we have outstanding notes under our medium-term
note program as follows:



      Amount              Due             Rate      Issue Price
-----------------------------------------------------------------
                                           
  $  75 million         08/2002          6.30%          Par
  $ 150 million         07/2003        Floating%        Par
  $ 275 million         08/2006          6.00%         99.57%
  $ 150 million         12/2008          5.63%         99.97%
  $  50 million         05/2017          7.53%          Par
  $ 125 million         02/2027          6.75%         99.78%
-----------------------------------------------------------------

     Each holder of the 6.75%  medium-term  notes has the right to require us to
repay the holder's notes in whole or in part, on February 1, 2007. We may redeem
the  5.63% and 6.00%  medium-term  notes in whole or in part at any time.  Other
notes issued  under the  medium-term  note program may not be redeemed  prior to
maturity. The medium-term notes do not have sinking fund requirements.
     We  manage  our ratio of fixed  variable  rate  debt and  accordingly  have
entered into two interest rate swaps during the second half of 2001 on a portion
of our newly issued 6% fixed rate medium-term  notes and on our 8% senior notes.
The interest rate swap agreements have notional amounts of $150 million and $139
million. The interest rate swaps have been designated as fair value hedges under
SFAS No. 133.  See Note 16. At December  31, 2001 the fair value of the interest
rate swap on our 6% fixed rate medium-term notes was $3.4 million which has been
classified in "Other assets." The fair value of the interest rate swap on our 8%
senior  notes at December  31, 2001 was a $0.2  million  liability  and has been
classified in "Other  liabilities."  The hedged portion of the long-term debt is
recorded  at fair  value.  We account  for these  interest  rate swaps using the
short-cut  method,  as described in SFAS No. 133,  and  determined  there was no
ineffectiveness  for the period ending December 31, 2001. Amounts to be received
or paid as a result of the swap  agreements  are  recognized as  adjustments  to
interest  expense.  The interest  rate swaps  resulted in a decrease to interest
expense of $2.6 million for the year ended December 31, 2001.
     Our debt matures as follows:  $81 million in 2002; $291 million in 2003; $2
million in 2004 and 2005; $277 million in 2006; and $828 million thereafter.

Note 9. Commitments and Contingencies
     Leases. At year end 2001, we were obligated under  noncancelable  operating
leases, expiring on various dates through 2021, principally for the use of land,
offices,  equipment, field facilities, and warehouses.  Total rentals charged to
continuing  operations,  net of sublease rentals,  for  noncancelable  leases in
2001, 2000, and 1999 were as follows:



Millions of dollars      2001          2000         1999
-------------------------------------------------------------
                                          
Rental expense          $ 172         $ 149        $ 139
=============================================================

     Future total rentals on noncancelable  operating leases are as follows: $97
million in 2002;  $83 million in 2003; $59 million in 2004; $43 million in 2005;
$30 million in 2006; and $97 million thereafter.
     Asbestos  litigation.  Several of our  subsidiaries,  particularly  Dresser
Industries,  Inc. and Kellogg  Brown & Root,  Inc.,  are  defendants  in a large
number of asbestos related lawsuits. The plaintiffs allege injury as a result of
exposure to asbestos in products  manufactured  or sold by former  divisions  of
Dresser  Industries,  Inc. or in materials used in  construction  or maintenance
projects  of  Kellogg  Brown & Root,  Inc.  These  claims  are in three  general
categories:
          -   refractory claims;
          -   other Dresser Industries, Inc. claims; and
          -   construction claims.

                                       44


     Refractory claims
     Asbestos was used in a small number of products manufactured or sold by the
refractories  business of Harbison-Walker  Refractories  Company,  which Dresser
Industries,  Inc.  acquired  in 1967.  Harbison-Walker  was  spun-off by Dresser
Industries,  Inc. in 1992. At that time,  Harbison-Walker  assumed liability for
asbestos  claims filed after the spin-off and it agreed to defend and  indemnify
Dresser  Industries,  Inc. from liability for those claims.  Dresser Industries,
Inc.  retained  responsibility  for asbestos  claims filed before the  spin-off.
After the spin-off,  Dresser Industries,  Inc. and Harbison-Walker  entered into
coverage-in-place  agreements  with  a  number  of  insurance  companies.  Those
agreements provide both Dresser Industries,  Inc. and Harbison-Walker  access to
the same insurance coverage to reimburse them for defense costs, settlements and
court judgments they pay to resolve refractory claims.
     As of December 31, 2001 there were approximately  7,000 open and unresolved
pre-spin-off  refractory  claims against Dresser  Industries,  Inc. In addition,
there  were  approximately  125,000  post  spin-off  claims  that  name  Dresser
Industries,  Inc. as a  defendant.  Dresser  Industries,  Inc.  has taken up the
defense of unsettled post spin-off refractory claims that name it as a defendant
in order to prevent  Harbison-Walker  from  unnecessarily  eroding the insurance
coverage both companies can access for these claims.
     Other Dresser Industries, Inc. claims
     As of  December  31,  2001,  there  were  approximately  110,000  open  and
unresolved claims alleging injuries from asbestos used in several other types of
products formerly manufactured by Dresser Industries,  Inc. Most of these claims
involve  gaskets  and  packing  materials  used in pumps  and  other  industrial
products.
     Construction claims
     Our   Engineering   and   Construction   Group  includes   engineering  and
construction  businesses formerly operated by The M.W. Kellogg Company and Brown
& Root,  Inc.,  now  combined as Kellogg  Brown & Root,  Inc. As of December 31,
2001,  there were  approximately  32,000  open and  unresolved  claims  alleging
injuries  from  asbestos  in  materials  used in  construction  and  maintenance
projects,  most of which were conducted by Brown & Root, Inc. Less than 1,000 of
these claims are asserted against The M.W. Kellogg Company. A prior owner of The
M.W.  Kellogg  Company  provides  Kellogg  Brown  &  Root,  Inc.  a  contractual
indemnification for those claims.
     Harbison-Walker Chapter 11 bankruptcy
     Harbison-Walker was spun-off by Dresser  Industries,  Inc. in 1992. At that
time Harbison-Walker  agreed to assume liability for asbestos claims filed after
the spin-off and it agreed to defend and indemnify Dresser Industries, Inc. from
liability  for those  claims.  On  February  14,  2002  Harbison-Walker  filed a
voluntary  petition for  reorganization  under  Chapter 11 of the United  States
Bankruptcy  Code in the  bankruptcy  court in Pittsburgh,  Pennsylvania.  In its
bankruptcy-related  filings,  Harbison-Walker said that it would seek to utilize
Sections  524(g) and 105 of the bankruptcy  code to propose and have confirmed a
plan of  reorganization  that  provides  for  distributions  for all  legitimate
asbestos  pending  and  future  claims  against it or for which it has agreed to
indemnify and defend Dresser  Industries,  Inc. If a plan of  reorganization  is
ultimately confirmed,  all pending and future  Harbison-Walker  related asbestos
claims against Harbison-Walker or Dresser Industries, Inc. could be channeled to
a Section  524(g)/105 trust for resolution and payment.  In order for a trust to
be  confirmed,  at least a majority of the equity  ownership of  Harbison-Walker
would  have to be  contributed  to the  trust.  Creation  of a trust  would also
require  the   approval  of  75%  of  the   asbestos   claimant   creditors   of
Harbison-Walker.
     In connection with the Chapter 11 filing by Harbison-Walker, the bankruptcy
court issued a temporary  restraining  order  staying all further  litigation of
more than 200,000 asbestos claims currently pending against Dresser  Industries,
Inc. in numerous courts  throughout the United States. On February 21, 2002, the
bankruptcy  court extended the time period of the stay until April 4, 2002, when
the bankruptcy  court will hold a hearing to decide if the stay will continue or
be modified. The stayed asbestos claims are those covered by insurance that both
Dresser  Industries,  Inc. and  Harbison-Walker can access to pay defense costs,
settlements  and judgments  attributable to asbestos  claims.  The stayed claims
include  approximately  132,000  post-1992  spin-off  refractory  claims,  7,000
pre-spin-off  refractory claims and approximately 96,000 other types of asbestos
claims pending  against  Dresser  Industries,  Inc. that are covered by the same
shared insurance.  Approximately  46,000 of the claims in the third category are
claims made against Dresser  Industries,  Inc. based on more than one ground for
recovery  and the stay  affects  only the  portion  of the claim  covered by the
shared insurance. The stay prevents litigation from proceeding while the stay is
in effect and also  prohibits  the filing of new claims.  One of the purposes of
the  stay is to allow  Harbison-Walker  and  Dresser  Industries,  Inc.  time to
develop and propose a plan of reorganization.

                                       45


     The stay issued on February 14, 2002, and extended on February 21, 2002, is
temporary until the bankruptcy court completes a hearing currently scheduled for
April 4, 2002. At the conclusion of that hearing, the bankruptcy court may issue
a preliminary  injunction  continuing  the stay or it may modify or dissolve the
stay as it applies to Dresser  Industries,  Inc.  It is also  possible  that the
bankruptcy  court will schedule  future  hearings  while continuing or modifying
the stay.  At present, there is no assurance  that a stay will remain in effect,
that a plan of reorganization will ultimately be proposed or confirmed,  or that
any plan that is confirmed will provide relief to Dresser Industries,  Inc. If a
plan is not  ultimately  confirmed that provides  relief to Dresser  Industries,
Inc.,  it will be required to defend all open claims in the courts in which they
have been filed,  possibly  with  reduced  access to the  insurance  shared with
Harbison-Walker.
     Dresser   Industries,   Inc.   has  agreed  to  provide   $35   million  of
debtor-in-possession  financing  to  Harbison-Walker  during the pendency of the
Chapter 11 proceeding.  On February 14, 2002, Dresser Industries,  Inc. paid $40
million to  Harbison-Walker's  U.S.  parent holding  company,  RHI  Refractories
Holding  Company  which we will charge to  discontinued  operations in the first
quarter of 2002.  The first  payment  was made on the  filing of the  bankruptcy
petition.  Dresser  Industries,  Inc. had to act to protect its insurance  asset
from  dissipation by  Harbison-Walker  if there was going to be any potential to
resolve the asbestos claims through the creation of a Section  524(g)/105 trust.
The  payment  to RHI  Refractories  led  RHI  Refractories  to  forgive  certain
inter-company debt owed to it by Harbison-Walker,  thus increasing the assets of
Harbison-Walker. Dresser Industries, Inc. will pay another $35 million to RHI if
a plan of reorganization  acceptable to Dresser Industries,  Inc. is proposed in
the bankruptcy proceedings.  A further $85 million will be paid to RHI if a plan
acceptable to Dresser Industries, Inc. is approved by 75% of the Harbison-Walker
asbestos claimant  creditors and is confirmed by the bankruptcy  court.  Dresser
Industries,  Inc.,  Harbison-Walker  and RHI and its affiliates have settled all
litigation among them.
     Asbestos insurance coverage
     We have insurance coverage that reimburses us for a substantial  portion of
the  costs we incur  defending  against  asbestos  claims.  This  coverage  also
reimburses us for a  substantial  portion of amounts we pay to settle claims and
amounts awarded in court  judgments.  The coverage is provided by a large number
of insurance  policies written by dozens of insurance  companies.  The insurance
companies  wrote  the  coverage  over a period  of more  than 30  years  for our
subsidiaries  and their  predecessors.  Large  amounts of this  coverage are now
subject to  coverage-in-place  agreements that resolve issues concerning amounts
and terms of coverage.  The amount of insurance coverage available to us depends
on the  nature  and time of the  alleged  exposure  to  asbestos,  the  specific
subsidiary against which an asbestos claim is asserted and other factors.
     Refractory claims insurance
     Dresser Industries, Inc. has approximately $2.1 billion in aggregate limits
of insurance coverage for refractory  asbestos claims of which over half is with
Equitas.  Many of the issues relating to the majority of this coverage have been
resolved by  coverage-in-place  agreements  with dozens of companies,  including
Equitas and other London-based insurance companies.  Recently,  however, Equitas
and other  London-based  companies  have imposed new  restrictive  documentation
requirements on Dresser  Industries,  Inc. and other  insureds.  Equitas and the
other  London-based  companies have stated that the new requirements are part of
an effort to limit payment of settlements to claimants who are truly impaired by
exposure to asbestos and can identify the product or premises  that caused their
exposure.  On August 7, 2001 Dresser Industries,  Inc. filed a lawsuit in Dallas
County,  Texas, against a number of these insurance companies  asserting Dresser
Industries,  Inc.'s rights under existing  coverage-in-place  agreements.  These
agreements  allow Dresser  Industries,  Inc. to enter into settlements for small
amounts without requiring claimants to produce detailed documentation to support
their claims,  when we believe  settlements are an effective  claims  management
strategy.  We believe that the new  documentation  requirements are inconsistent
with  the  current  coverage-in-place  agreements  and  are  unenforceable.  The
insurance  companies Dresser  Industries,  Inc. has sued have not refused to pay
larger  claim  settlements  where  documentation  is  obtained  or  where  court
judgments are entered.  Also, they continue to pay previously  agreed to amounts
of defense costs Dresser Industries,  Inc. incurs defending  refractory asbestos
claims.   If  a  Section   524(g)/105   trust  is   confirmed  as  part  of  the
Harbison-Walker bankruptcy proceedings, this insurance will be used to fund that
trust.

                                       46


     Other Dresser Industries, Inc. claims insurance
     Dresser  Industries,  Inc. has  insurance  that covers other open  asbestos
claims  against it.  Some of this  insurance  covers  Dresser  Industries,  Inc.
entities acquired prior to the 1986 asbestos exclusions. Many of the traditional
Dresser  Industries,  Inc.  product  manufacturing  companies or  divisions  are
covered  under  these  policies.  Other  coverage  is  provided  by a number  of
different policies which Dresser Industries,  Inc. acquired rights to access for
coverage of asbestos claims when it acquired businesses from other companies.  A
significant  portion of this  insurance  coverage is shared  with  Federal-Mogul
Corporation,  which is now in reorganization  under Chapter 11 of the bankruptcy
code.  The effect of that  bankruptcy on Dresser  Industries,  Inc.'s ability to
continue to access this shared insurance is uncertain.
     On August 28,  2001,  Dresser  Industries,  Inc.  filed a separate  lawsuit
against  Equitas and other  London-based  companies  that  provide  some of this
insurance.  This lawsuit is similar to the lawsuit  described  under  Refractory
Claims  Insurance  above  that  seeks  to  prevent   insurance   companies  from
unilaterally modifying the terms of existing coverage-in-place agreements.
     Construction claims insurance
     Nearly all of our construction asbestos claims relate to Brown & Root, Inc.
operations before the 1980s. Our primary insurance coverage for these claims was
written  by  Highlands  Insurance  Company  during  the  time  it was one of our
subsidiaries.  Highlands was spun-off to our  shareholders  in 1996. At present,
Highlands is not paying any portion of the  settlement or defense costs we incur
for construction  asbestos claims.  On April 5, 2000,  Highlands filed a lawsuit
against us in the Delaware Chancery Court. Highlands asserted that the insurance
it wrote for Brown & Root,  Inc. that covered  construction  asbestos claims was
terminated by agreements  between  Halliburton  and Highlands at the time of the
1996  spin-off.  Although we do not believe that a termination of this insurance
occurred,  in March 2001, the Chancery Court ruled that a termination  did occur
and that Highlands is not obligated to provide coverage for Brown & Root, Inc.'s
asbestos  claims. A three Justice panel of the Delaware Supreme Court heard oral
arguments of our appeal of this decision on September 17, 2001.  The appeal will
be reargued  before the entire  Delaware  Supreme  Court on March 12,  2002.  We
believe the Chancery  Court's  decision is wrong and that the  Delaware  Supreme
Court will reverse and return the case to the Chancery  Court for a trial on the
merits.  We expect,  based on an opinion  from our  outside  legal  counsel,  to
ultimately  prevail in this  litigation.  We  anticipate  the  Delaware  Supreme
Court's decision later this year.
     In addition, on April 24, 2000, we filed a lawsuit in Harris County, Texas,
asserting  that  Highlands has breached its  contractual  obligations to provide
coverage for asbestos  claims under the policies it wrote for Brown & Root, Inc.
This lawsuit is stayed  pending  resolution of the Delaware  litigation.  We are
aware that Highland's financial condition has deteriorated since this litigation
began.  A.M.  Best has  reduced  its rating  for  Highlands  to "C-"  (weak) and
Highlands has ceased all of its  underwriting  operations.  However,  we believe
that once the Delaware  litigation is successfully  concluded in our favor as we
expect,  Highlands has the ability to reimburse us for a substantial  portion of
the defense,  settlement and other costs we incur  defending  Brown & Root, Inc.
open asbestos claims.  If Highlands becomes unable to pay amounts owed to us for
coverage of Brown & Root, Inc. open asbestos  claims,  we have the right to seek
reimbursement  from the Texas Property and Casualty Guaranty  Association.  This
association  consists of and is funded by all insurance  companies  permitted to
write  insurance  in Texas.  It  provides  protection  to  insured  parties  and
claimants when an insurance  company licensed in Texas becomes  insolvent.  This
protection  is  limited  and there are a number of issues  that would need to be
resolved  if we seek to  collect  from  the  association  if  Highlands  becomes
insolvent.
     Significant asbestos judgments on appeal
     During  2001,   there  were  several  adverse   judgments  in  trial  court
proceedings  that are in  various  stages of the  appeal  process.  All of these
judgments concern asbestos claims involving Harbison-Walker refractory products.
Each of these  appeals,  however,  has been stayed by the bankruptcy  court,  as
described in the  Harbison-Walker  Chapter 11 bankruptcy section above, until at
least April 4, 2002.
     On November 29, 2001,  the Texas  District  Court in Orange, Texas, entered
judgments  against  Dresser  Industries,  Inc.  on a $65  million  jury  verdict
rendered in September 2001 in favor of five  plaintiffs.  The $65 million amount
includes $15 million of a $30 million judgment against Dresser Industries,  Inc.
and another defendant.  Dresser Industries, Inc. is jointly and severally liable
for $15 million in addition to $65 million if the other  defendant  does not pay
its share of this judgment. We believe that during the trial the court committed
numerous errors, including prohibiting Dresser Industries,  Inc. from presenting
evidence that the alleged  illness of the  plaintiffs  was caused by products of

                                       47


other companies that had previously  settled with the  plaintiffs.  We intend to
appeal this judgment and believe that the Texas appellate courts will ultimately
reverse this judgment.
     On November 29, 2001,  the same  District  Court in Orange,  Texas, entered
three additional  judgments  against Dresser  Industries,  Inc. in the aggregate
amount  of $35.7  million  in  favor of 100  other  asbestos  plaintiffs.  These
judgments relate to an alleged breach of purported settlement  agreements signed
early in 2001 by a New Orleans lawyer hired by  Harbison-Walker,  which had been
defending  Dresser   Industries,   Inc.  pursuant  to  the  agreement  by  which
Harbison-Walker  was  spun-off  by  Dresser  Industries,  Inc.  in  1992.  These
settlement agreements expressly bind Harbison-Walker Refractories Company as the
obligated party, not Dresser Industries,  Inc. Dresser Industries,  Inc. intends
to appeal  these three  judgments  on the grounds that it was not a party to the
settlement  agreements and it did not authorize  anyone to settle on its behalf.
We believe  that these  judgments  are  contrary to  applicable  law and will be
reversed.
     On  December  5, 2001,  a jury in the  Circuit  Court for  Baltimore  City,
Maryland,   returned  verdicts  against  Dresser  Industries,   Inc.  and  other
defendants  following a trial involving  refractory asbestos claims. Each of the
five  plaintiffs   alleges  exposure  to   Harbison-Walker   products.   Dresser
Industries,  Inc.'s  portion of the  verdicts  was  approximately  $30  million.
Dresser Industries, Inc. believes that the trial court committed numerous errors
and that the trial  evidence did not support the  verdicts.  The trial court has
entered judgment on these verdicts.  Dresser Industries,  Inc. intends to appeal
the judgment to the Maryland  Supreme Court where we expect the judgment will be
significantly reduced, if not totally reversed.
     On October 25, 2001, in the Circuit Court of Holmes County,  Mississippi, a
jury  verdict of $150 million was  rendered in favor of six  plaintiffs  against
Dresser Industries,  Inc. and two other companies.  Dresser  Industries,  Inc.'s
share of the verdict was $21.5 million. The award was for compensatory  damages.
The jury did not award  any  punitive  damages.  The  trial  court  has  entered
judgment on the verdict.  We believe there were serious  errors during the trial
and we intend to appeal  this  judgment to the  Mississippi  Supreme  Court.  We
believe the judgment will ultimately be reversed  because there was a total lack
of evidence that the  plaintiffs  were exposed to a  Harbison-Walker  product or
that they suffered compensatory  damages.  Also, there were procedural errors in
the selection of the jury.
     Asbestos claims history. Since 1976,  approximately 474,500 asbestos claims
have  been  filed  against  us.  Almost  all of these  claims  have been made in
separate  lawsuits in which we are named as a  defendant  along with a number of
other defendants, often exceeding 100 unaffiliated defendant companies in total.
During the fourth quarter of 2001 we received  approximately  14,000 new claims,
compared  to 16,000  new claims in the third  quarter,  27,000 new claims in the
second  quarter and 18,000 new claims in the first quarter of 2001.  Included in
these  numbers  are new  Harbison-Walker  claims of  approximately  4,000 in the
fourth  quarter  and 3,000 in the third  quarter.  During the fourth  quarter of
2001, we closed  approximately 7,000 claims,  resulting in approximately  36,000
closed claims during 2001. The number of open claims  pending  against us at the
end of each  quarter  of 2001  and at the end of the two  preceding  years is as
follows:



                               Total Open
      Period Ending              Claims
----------------------------------------------
                            
December 31, 2001               274,000
September 30, 2001              146,000
June 30, 2001                   145,000
March 31, 2001                  129,000
December 31, 2000               117,000
December 31, 1999               107,700
==============================================


     The claims  reported  above at  December  31,  2001  include  approximately
125,000 Harbison-Walker  refractory related claims that name Dresser Industries,
Inc. as a defendant.  These claims were added to the open claim total during the
fourth quarter.


                                       48


     We manage  asbestos  claims to  achieve  settlements  of valid  claims  for
reasonable amounts. When that is not possible, we contest claims in court. Since
1976 we have closed  approximately  200,500 claims through settlements and court
proceedings at a total cost of approximately  $150 million.  We have received or
expect to receive from our insurers  all but  approximately  $40 million of this
cost, resulting in an average net cost per closed claim of less than $200.
     Reserves for asbestos claims.  We have accrued reserves for our estimate of
our liability for known open asbestos  claims.  We have not accrued reserves for
unknown  claims that may be filed against us in the future.  Our estimate of the
cost of resolving open claims is based on our historical  litigation  experience
on closed  claims,  completed  settlements  and our  estimate of amounts we will
recover from  insurance  companies.  Our estimate of recoveries  from  insurance
companies  with  which we have  coverage-in-place  agreements  is based on those
agreements.  In those instances in which  agreements are still in negotiation or
in litigation, our estimate is based on our expectation of our ultimate recovery
from insurance companies.  We believe that the insurance companies with which we
have  signed  agreements  will be able to meet  their  obligations  under  these
agreements  for the amounts due to us. A summary of our reserves for open claims
and corresponding insurance recoveries is as follows:



                                                     December 31
                                             -----------------------------
Millions of dollars                               2001          2000
--------------------------------------------------------------------------
                                                        
Asbestos litigation claims                      $    737      $     80
--------------------------------------------------------------------------
Estimated insurance recoveries:
    Highlands Insurance Company                      (45)          (39)
    Other insurance carriers                        (567)          (12)
--------------------------------------------------------------------------
Insurance for asbestos litigation claims            (612)          (51)

--------------------------------------------------------------------------
Net liability for known open asbestos claims    $    125      $     29
==========================================================================


     These insurance  receivables and reserves are included in noncurrent assets
and liabilities due to the extended time periods involved to settle claims.
     In addition to these asbestos reserves, our accounts receivable include $35
million we expect to collect from Highlands  Insurance  Company for  settlements
and defense costs we have already incurred for construction  asbestos claims. If
we are ultimately unsuccessful in the Highlands litigation, we will be unable to
collect  this $35 million as well as the $45  million  estimated  recovery  from
Highlands included in our asbestos reserves summarized above. If this occurs, it
may have a material  adverse  impact on the  results of our  operations  and our
financial position at that time.
     Accounts  receivable for billings to other insurance companies for payments
made on asbestos claims were $18 million at December 31, 200l and $13 million at
December 31, 2000.
     We have not  accrued  reserves  for  unknown  claims  that may be  asserted
against  us in the  future.  We have not had  sufficient  information  to make a
reasonable  estimate of future claims.  However,  we recently retained a leading
claim  evaluation  firm to  assist us in making  an  estimate  of our  potential
liability  for  asbestos  claims that may be asserted  against us in the future.
When the  evaluation  firm's  analysis  is  completed  it is likely that we will
accrue a material  liability for future claims that may be asserted  against us.
We expect the analysis will be completed  during the second  quarter of 2002 and
that we will accrue the liability at the end of the quarter. At the same time we
will accrue a  receivable  for related  insurance  proceeds we expect to collect
when future claims are actually paid.
     The  uncertainties  of asbestos  claim  litigation  and  resolution  of the
litigation  with  insurance  companies  described  above  make it  difficult  to
accurately  predict the results of the ultimate  resolution of asbestos  claims.
That uncertainty is increased by the possibility of adverse court rulings or new
legislation  affecting  asbestos  claim  litigation or the  settlement  process.
Subject to these  uncertainties and based on our experience  defending  asbestos
claims and our estimate of amounts we will recover  from  insurance,  we believe
that the open  asbestos  claims  pending  against us will be resolved  without a
material  adverse  effect  on  our  financial  position  or the  results  of our
operations.
     Fort Ord litigation.  Brown & Root Services, now operating as Kellogg Brown
& Root,  has been a defendant in civil  litigation  pending in federal  court in
Sacramento,  California. The lawsuit alleges that Brown & Root Services violated
provisions of the False Claims Act while  performing  work for the United States
Army at Fort Ord in California.  This lawsuit was filed by a former  employee in
1997. On February 8, 2002,  this lawsuit and a related grand jury  investigation


                                       49


were  settled.  Kellogg  Brown & Root made a $2  million  payment  to the United
States government and paid the former employee's legal expenses. Kellogg Brown &
Root denied wrongdoing and did not admit liability.  The United States agreed to
suspend further  investigation  and forgo any  further  sanctions with regard to
the Ft. Ord contract. Kellogg Brown & Root's ability to perform further work for
the United States government has not been impaired.
     BJ Services patent litigation. On March 17, 2000, BJ Services Company filed
a lawsuit against us in the United States District Court in Houston,  Texas. The
lawsuit alleges that a well fracturing  fluid system used by Halliburton  Energy
Services  infringes a patent  issued to BJ in January  2000 for a method of well
fracturing  using a specific  fracturing  fluid.  A jury trial is scheduled  for
March 2002. We expect BJ will seek several  hundred  million  dollars of damages
and an  injunction  to  prevent us from  using one of our  competing  fracturing
fluids.  We also expect BJ to allege that we intentionally  infringed its patent
and to seek treble damages.  We do not believe we have infringed BJ's patent and
we have filed a counterclaim  that the patent is invalid and  unenforceable.  We
also believe that BJ's large damage claims are unsupportable. We believe that we
have no liability for infringement of the BJ patent.  However,  if the patent is
found to be enforceable  and we are found to have infringed it, we could be held
liable  for  damages  in an amount  that has a  material  adverse  effect on our
financial position and the results of our operations.
     Environmental.   We  are  subject  to  numerous   environmental  legal  and
regulatory requirements related to our operations worldwide. We take a proactive
approach  to  evaluating  and  addressing  the   environmental   impact  of  our
operations.  Each year we assess and remediate contaminated  properties in order
to avoid future  liabilities and comply with legal and regulatory  requirements.
On occasion we are  involved in specific  environmental  litigation  and claims,
including  the clean-up of properties we own or have operated as well as efforts
to meet or correct compliance-related matters.
     We also incur costs related to compliance with ever-changing environmental,
legal and regulatory  requirements in the jurisdictions  where we operate. It is
very  difficult to quantify the  potential  liabilities.  We do not expect these
expenditures  to have a material  adverse effect on our  consolidated  financial
position or our results of operations.
     During the second quarter of 2001, we accrued $15 million for environmental
matters  related to liabilities  retained on properties  included in the sale of
Dresser Equipment Group. Our accrued liabilities for environmental  matters were
$49 million as of December 31, 2001 and $31 million as of December 31, 2000.
     Other.  We are a party to various other legal  proceedings.  We expense the
cost of legal fees related to these  proceedings.  We believe any liabilities we
may have arising from these proceedings will not be material to our consolidated
financial position or results of operations.
     Letters of credit.  In the normal  course of business,  we have  agreements
with banks under which  approximately  $1.4 billion of letters of credit or bank
guarantees  were  issued,  including  $241  million  which  relate  to our joint
ventures' operations.  In addition,  $320 million of these financial instruments
include  provisions  that allow the banks to require cash  collateralization  if
debt ratings of either  rating agency fall below the rating of BBB by Standard &
Poor's or Baa2 by Moody's  Investors'  Sevices and $149 million  where banks may
require  cash  collateralization  if either debt rating  falls below  investment
grade.  These  letters of credit and bank  guarantees  relate to our  guaranteed
performance   or  retention   payments   under  our   long-term   contracts  and
self-insurance.  In the past, no significant claims have been made against these
financial instruments. We do not anticipate material losses to occur as a result
of these financial instruments.

                                       50


Note 10. Income Per Share



Millions of dollars and shares
except per share data                                              2001          2000          1999
----------------------------------------------------------------------------------------------------------
                                                                                     
Income from continuing operations before
    change in accounting method, net                              $   551       $    188      $    174
==========================================================================================================

Basic weighted average shares                                         428            442           440
Effect of common stock equivalents                                      2              4             3
----------------------------------------------------------------------------------------------------------
Diluted weighted average shares                                       430            446           443
==========================================================================================================

Income per common share from continuing operations
    before change in accounting method, net:
Basic                                                             $  1.29       $   0.42      $   0.40
==========================================================================================================
Diluted                                                           $  1.28       $   0.42      $   0.39
==========================================================================================================


     Basic  income per share is based on the weighted  average  number of common
shares  outstanding  during  the  period.  Diluted  income  per  share  includes
additional  common shares that would have been  outstanding if potential  common
shares with a dilutive  effect had been issued.  Included in the  computation of
diluted  income  per share are  rights  we  issued  in  connection  with the PES
acquisition  for between  850,000 and 2.1 million shares of  Halliburton  common
stock.  Excluded from the computation of diluted income per share are options to
purchase 10 million shares of common stock in 2001, 1 million shares in 2000 and
2 million shares in 1999. 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 11. Engineering and Construction Reorganization
     The table below  summarizes  non-recurring  charges of $36  million  pretax
recorded in the  Engineering  and  Construction  Group  segment in December 2000
related to the reorganization of our engineering and construction businesses.



                                           Asset
                                          Related      Personnel
Millions of dollars                       Charges       Charges       Total
-------------------------------------------------------------------------------
                                                            
2000 charges                             $   20         $   16       $   36
Utilized in 2000                            (20)             -          (20)
-------------------------------------------------------------------------------
Balance December 31, 2000                     -             16           16
Utilized in 2001                              -            (11)         (11)
Adjustments of estimate to actual             -             (4)          (4)
-------------------------------------------------------------------------------
Balance December 31, 2001                $    -         $    1       $    1
===============================================================================


     These charges were reflected in the following  captions of the consolidated
statements of income:



                                     Year ended
                                     December 31
                                 --------------------
Millions of dollars                     2000
-----------------------------------------------------
                              
Cost of services                       $   30
General and administrative                  6
-----------------------------------------------------
Total                                  $   36
=====================================================


                                       51


     Asset Related Charges
     As a result  of the  reorganization  of the  engineering  and  construction
businesses,  we took actions in the fourth  quarter of 2000 to  rationalize  our
cost structure including write-offs of equipment,  engineering reference designs
and capitalized  software.  Cost of services includes $20 million of charges for
equipment,  licenses  and  engineering  reference  designs  related to  specific
projects that were discontinued as a result of the reorganization. Equipment and
licenses  with a net  book  value of $10  million  were  abandoned.  Engineering
reference designs specific to a project with a net book value of $4 million were
written  off.  Software  developed  for internal use with a net book value of $6
million  which we no longer  plan to use due to  standardization  of systems was
also written off.
     Personnel Charges
     Personnel  charges of $16  million  include  severance  and  related  costs
incurred  for the  planned  reduction  of  approximately  30  senior  management
positions.  As of December 31,  2001,  payments of $11 million had been made and
the elimination of personnel was  substantially  complete.  In January 2002, the
last of the planned personnel actions was completed.

Note 12. Change in Accounting Method
     In July 2001, the Financial  Accounting Standards Board issued SFAS No. 142
"Goodwill and Other Intangible Assets." Effective January 1, 2002, goodwill will
no longer be  amortized  but will be tested for  impairment  as set forth in the
statement.  We have reviewed this new  statement  and have  determined  that our
reporting units as defined under SFAS No. 142 will be the same as our reportable
operating  segments;  Energy  Services Group and  Engineering  and  Construction
Group. We have completed our step one goodwill impairment analysis as of January
1,  2002 to  estimate  the fair  value of each of our  reporting  units and that
analysis  indicates  that we do not have a  goodwill  impairment  as a result of
adopting  SFAS No. 142.  Amortization  of goodwill  for 2001 totaled $42 million
pretax and $38 million after-tax.
     In July 2001, the Financial  Accounting Standards Board issued SFAS No. 141
"Business  Combinations"  which  requires the purchase  method of accounting for
business combination  transactions  initiated after June 30, 2001. The statement
requires that goodwill recorded on acquisitions  completed prior to July 1, 2001
be amortized  through December 31, 2001.  Goodwill  amortization is precluded on
acquisitions completed after June 30, 2001.
     In June 1998, the Financial  Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and for Hedging Activities", subsequently
amended by SFAS No. 137 and SFAS No. 138.  This  standard  requires  entities to
recognize all  derivatives  on the statement of financial  position as assets or
liabilities and to measure the  instruments at fair value.  Accounting for gains
and losses  from  changes in those fair  values  is  specified  in the  standard
depending on the intended use of the derivative and other  criteria.  We adopted
SFAS No. 133 effective  January 2001 and recorded a gain of $1 million after-tax
for the cumulative effect of adopting the change in accounting method. We do not
expect future measurements at fair value under the new accounting method to have
a material effect on our financial condition or results of operations.
     In April 1998,  the  American  Institute of  Certified  Public  Accountants
issued   Statement  of  Position  98-5  "Reporting  on  the  Costs  of  Start-Up
Activities."   This  Statement   requires  costs  of  start-up   activities  and
organization costs to be expensed as incurred.  We adopted Statement of Position
98-5 effective January 1, 1999 and recorded expense of $30 million pretax or $19
million  after-tax or $0.04 per diluted share. The components of the $30 million
pretax  cost,  all  contained  within  the  Energy  Services  Group,  that  were
previously deferred include:
          -   $23  million  for  mobilization  costs  associated  with  specific
              contracts  and for  installation of  offshore  cementing equipment
              onto   third   party  marine   drilling   rigs  or   vessels;  and
          -   $7  million  for   costs  incurred  opening  a  new  manufacturing
              facility in the United Kingdom.

                                       52


Note 13. Income Taxes
     The components of the (provision) benefit for income taxes are:



                                                        Years ended December 31
                                              -------------------------------------------
Millions of dollars                               2001          2000           1999
-----------------------------------------------------------------------------------------
                                                                    
Current income taxes:
Federal                                         $   (146)      $   (16)      $   137
Foreign                                             (157)         (114)          (64)
State                                                (20)           (5)           (2)
-----------------------------------------------------------------------------------------
Total                                               (323)         (135)           71
-----------------------------------------------------------------------------------------
Deferred income taxes:
Federal                                              (58)          (20)         (175)
Foreign and state                                     (3)           26           (12)
-----------------------------------------------------------------------------------------
Total                                                (61)            6          (187)
-----------------------------------------------------------------------------------------
Total continuing operations                     $   (384)      $  (129)      $  (116)
-----------------------------------------------------------------------------------------
Discontinued operations:
     Current income taxes                            (15)          (60)          (98)
     Deferred income taxes                            35             -             -
Disposal of discontinued operations                 (199)         (141)          (94)
Benefit for change in accounting method                -             -            11
-----------------------------------------------------------------------------------------
Total                                           $   (563)      $  (330)      $  (297)
=========================================================================================


     Included in the current  (provision)  benefit for income  taxes are foreign
tax  credits of $106  million in 2001,  $113  million in 2000 and $52 million in
1999.  The United  States and foreign  components of income before income taxes,
minority interests, discontinued operations, and change in accounting method are
as follows:



                               Years ended December 31
                        ---------------------------------------
Millions of dollars         2001         2000         1999
---------------------------------------------------------------
                                            
United States             $    565      $  128       $  131
Foreign                        389         207          176
---------------------------------------------------------------
Total                     $    954      $  335       $  307
===============================================================


     The primary  components of our deferred tax assets and  liabilities and the
related  valuation   allowances,   including  federal  deferred  tax  assets  of
discontinued operations are as follows:

                                       53




                                                            December 31
                                                  --------------------------------
Millions of dollars                                    2001            2000
----------------------------------------------------------------------------------
                                                              
Gross deferred tax assets:
    Employee benefit plans                          $    214        $    265
    Capitalized research and experimentation              46              39
    Accrued liabilities                                  121             118
    Insurance accruals                                    82              99
    Construction contract accounting methods             100             117
    Inventory                                             53              43
    Asbestos                                              44              10
    Intercompany profit                                   54              44
    Net operating loss carryforwards                      44              35
    Intangibles                                           18              20
    Allowance for bad debt                                36              31
    All other                                             41              57
----------------------------------------------------------------------------------
      Total                                         $    853        $    878
----------------------------------------------------------------------------------
Gross deferred tax liabilities:
    Depreciation and amortization                   $    106        $    128
    Nonrepatriated foreign earnings                       36              36
    All other                                            101             103
----------------------------------------------------------------------------------
      Total                                         $    243        $    267
----------------------------------------------------------------------------------
Valuation allowances:
    Net operating loss carryforwards                $     38        $     28
    All other                                              8               8
----------------------------------------------------------------------------------
      Total                                               46              36
----------------------------------------------------------------------------------
Net deferred income tax asset                       $    564        $    575
==================================================================================


     We have accrued for the potential repatriation of undistributed earnings of
our foreign  subsidiaries  and consider  earnings above the amounts on which tax
has been provided to be permanently reinvested.  While these additional earnings
could become  subject to  additional  tax if  repatriated,  repatriation  is not
anticipated. Any additional amount of tax is not practicable to estimate.
     We have net  operating  loss  carryforwards  of $95 million which expire in
2002 through 2009. We also have net operating loss  carryforwards of $25 million
with indefinite expiration dates.  Reconciliations  between the actual provision
for income taxes and that computed by applying the United States  statutory rate
to income from continuing  operations  before income taxes and minority interest
are as follows:



                                                                    Years ended December 31
                                                             --------------------------------------
Millions of dollars                                             2001         2000         1999
---------------------------------------------------------------------------------------------------
                                                                                
Provision computed at statutory rate                           $  (334)     $  (117)     $  (107)
Reductions (increases) in taxes resulting from:
    Tax differentials on foreign earnings                          (32)         (14)         (14)
    State income taxes, net of federal income tax benefit          (13)          (3)          (1)
    Nondeductible goodwill                                         (11)         (11)         (10)
    Other items, net                                                 6           16           16
---------------------------------------------------------------------------------------------------
    Total continuing operations                                   (384)        (129)        (116)
Discontinued operations                                             20          (60)         (98)
Disposal of discontinued operations                               (199)        (141)         (94)
Benefit for change in accounting method                              -            -           11
---------------------------------------------------------------------------------------------------
    Total                                                      $  (563)     $  (330)     $  (297)
===================================================================================================


                                       54


Note 14. Common Stock
     Our 1993 Stock and Long-Term  Incentive  Plan provides for the grant of any
or all of the following types of awards:
          -   stock options, including incentive stock options and non-qualified
              stock options;
          -   stock  appreciation  rights,  in  tandem  with  stock  options  or
              freestanding;
          -   restricted stock;
          -   performance share awards; and
          -   stock value equivalent awards.
Under the terms of the 1993 Stock and Long-Term  Incentive  Plan as amended,  49
million shares of common stock have been reserved for issuance to key employees.
The plan  specifies  that no more  than 16  million  shares  can be  awarded  as
restricted  stock.  At December 31, 2001, 22 million  shares were  available for
future  grants  under the 1993 Stock and  Long-Term  Incentive  Plan of which 11
million shares remain available for restricted stock awards.
     In connection with the acquisition of Dresser Industries,  Inc. in 1998, we
assumed the outstanding stock options under the stock option plans maintained by
Dresser  Industries,  Inc. Stock option  transactions  summarized  below include
amounts  for the 1993  Stock and  Long-Term  Incentive  Plan and stock  plans of
Dresser  Industries,  Inc. and other acquired  companies.  No further awards are
being made under the stock plans of acquired companies.



                                         Number of        Exercise        Weighted Average
                                          Shares          Price per        Exercise Price
Stock Options                          (in millions)        Share            per Share
---------------------------------------------------------------------------------------------
                                                                 
Outstanding at December 31, 1998             13.8      $  3.10 - 61.50       $  29.37
---------------------------------------------------------------------------------------------
    Granted                                   5.6        28.50 - 48.31          36.46
    Exercised                                (1.7)        3.10 - 54.50          24.51
    Forfeited                                (0.6)        8.28 - 54.50          35.61
---------------------------------------------------------------------------------------------
Outstanding at December 31, 1999             17.1      $  3.10 - 61.50       $  32.03
---------------------------------------------------------------------------------------------
    Granted                                   1.7        34.75 - 54.00          41.61
    Exercised                                (3.6)        3.10 - 45.63          25.89
    Forfeited                                (0.5)       12.20 - 54.50          37.13
---------------------------------------------------------------------------------------------
Outstanding at December 31, 2000             14.7      $  8.28 - 61.50       $  34.54
---------------------------------------------------------------------------------------------
    Granted                                   3.6        12.93 - 45.35          35.56
    Exercised                                (0.7)        8.93 - 40.81          25.34
    Forfeited                                (0.5)       12.32 - 54.50          36.83
---------------------------------------------------------------------------------------------
Outstanding at December 31, 2001             17.1      $  8.28 - 61.50       $  35.10
=============================================================================================


     Options outstanding at December 31, 2001 are composed of the following:



                                          Outstanding                                 Exercisable
                         -----------------------------------------------    --------------------------------
                                             Weighted
                                             Average        Weighted                            Weighted
                            Number of       Remaining        Average          Number of         Average
       Range of              Shares        Contractual      Exercise            Shares          Exercise
    Exercise Prices       (in millions)        Life           Price          (in millions)       Price
------------------------------------------------------------------------------------------------------------
                                                                                 
  $  8.28 - 29.06               4.9             5.7         $  25.11               4.0          $  24.97
    29.07 - 39.06               4.7             6.7            33.42               2.9             33.58
    39.07 - 39.55               5.3             8.0            39.51               2.2             39.50
    39.56 - 61.50               2.2             6.7            50.22               1.6             50.77
------------------------------------------------------------------------------------------------------------
  $  8.28 - 61.50              17.1             6.8         $  35.10              10.7          $  34.08
============================================================================================================


     There were 8.8 million options exercisable with a weighted average exercise
price of $32.81 at December 31, 2000, and 9.5 million options exercisable with a
weighted average exercise price of $28.96 at December 31, 1999.

                                       55


     All stock  options  under  the 1993  Stock and  Long-Term  Incentive  Plan,
including  options  granted to employees of Dresser  Industries,  Inc. since its
acquisition,  are  granted at the fair market  value of the common  stock at the
grant date.
     The fair  value of  options  at the date of grant was  estimated  using the
Black-Scholes  option  pricing  model.  The  weighted  average  assumptions  and
resulting fair values of options granted are as follows:



                                         Assumptions
           ---------------------------------------------------------------------  Weighted Average
              Risk-Free         Expected           Expected         Expected        Fair Value of
            Interest Rate    Dividend Yield    Life (in years)     Volatility      Options Granted
------------------------------------------------------------------------------------------------------
                                                                   
2001             4.5%             2.3%                5                58%              $ 19.11
2000             5.2%             1.3%                5                54%              $ 21.57
1999             5.8%             1.3%                5                56%              $ 19.77
======================================================================================================


     Stock options  generally expire 10 years from the grant date. Stock options
under the 1993 Stock and Long-Term  Incentive  Plan vest ratably over a three or
four year  period.  Other plans have  vesting  periods  ranging from three to 10
years. Options under the Non-Employee Directors' Plan vest after six months.
     We account for the option plans in accordance  with  Accounting  Principles
Board Opinion No. 25, under which no  compensation  cost has been recognized for
stock option awards other than for restricted stock grants.   Compensation  cost
for  the  stock  option  programs  calculated  consistent  with  SFAS  No.  123,
"Accounting  for  Stock-Based  Compensation,"  is set forth on a pro forma basis
below:



Millions of dollars
except per share data                2001              2000             1999
-----------------------------------------------------------------------------------
                                                              
Net income:
    As reported                     $   809          $   501           $   438
    Pro forma                           767              460               406
===================================================================================
Diluted earnings per share:
    As reported                     $  1.88          $  1.12           $  0.99
    Pro forma                          1.77             1.03              0.92
===================================================================================


     Restricted shares awarded under the 1993 Stock and Long-Term Incentive Plan
were 1,484,034 in 2001,  695,692 in 2000 and 352,267 in 1999. The shares awarded
are net of  forfeitures  of 170,050 in 2001,  69,402 in 2000 and 72,483 in 1999.
The weighted  average fair market value per share at the date of grant of shares
granted was $30.90 in 2001, $42.25 in 2000 and $43.41 in 1999.
     Our  Restricted  Stock  Plan for  Non-Employee  Directors  allows  for each
non-employee  director to receive an annual  award of 400  restricted  shares of
common stock as a part of  compensation.  We reserved  100,000  shares of common
stock for issuance to  non-employee  directors.  Under this plan we issued 4,800
restricted  shares in 2001, 3,600 restricted shares in 2000 and 4,800 restricted
shares in 1999.  At  December  31,  2001,  33,600  shares  have  been  issued to
non-employee  directors under this plan. The weighted  average fair market value
per share at the date of grant of shares  granted was $34.35 in 2001,  $46.81 in
2000 and $46.13 in 1999.
     Our Employees'  Restricted Stock Plan was established for employees who are
not officers,  for which 200,000 shares of common stock have been  reserved.  At
December 31, 2001,  153,050  shares (net of 42,350 shares  forfeited)  have been
issued.  Forfeitures  were 800 in 2001,  6,450  in 2000  and  8,400 in 1999.  No
further grants are being made under this plan.
     Under the terms of our Career  Executive  Incentive  Stock Plan, 15 million
shares of our common  stock were  reserved  for  issuance  to  officers  and key
employees  at a purchase  price not to exceed  par value of $2.50 per share.  At
December 31, 2001,  11.7 million  shares (net of 2.2 million  shares  forfeited)
have been issued under the plan. No further grants will be made under the Career
Executive Incentive Stock Plan.

                                       56


     Restricted shares issued under the 1993 Stock and Long-Term Incentive Plan,
Restricted Stock Plan for Non-Employee  Directors,  Employees'  Restricted Stock
Plan and the Career  Executive  Incentive  Stock Plan are  limited 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.  The fair
market  value of the stock,  on the date of  issuance,  is being  amortized  and
charged to income  (with  similar  credits  to paid-in  capital in excess of par
value) generally over the average period during which the restrictions lapse. At
December  31,  2001,  the  unamortized  amount  is $87  million.  We  recognized
compensation  costs of $23 million in 2001,  $18 million in 2000 and $11 million
in 1999.
     On April 25,  2000,  our Board of Directors  approved  plans to implement a
share repurchase program for up to 44 million shares. We repurchased 1.2 million
shares at a cost of $25  million  in 2001 and 20.4  million  shares at a cost of
$759 million in 2000.

Note 15. Series A Junior Participating Preferred Stock
     We previously  declared a dividend of one preferred stock purchase right on
each outstanding  share of common stock. The dividend is also applicable to each
share of our common stock that was issued  subsequent  to adoption of the Rights
Agreement  entered into with Mellon Investor  Services LLC. Each preferred stock
purchase  right entitles its holder to buy one  two-hundredth  of a share of our
Series A Junior Participating Preferred Stock, without par value, at an exercise
price of $75. These preferred stock purchase rights are subject to anti-dilution
adjustments,  which are  described  in the Rights  Agreement  entered  into with
Mellon.  The preferred  stock purchase  rights do not have any voting rights and
are not entitled to dividends.
     The  preferred  stock  purchase   rights  become   exercisable  in  limited
circumstances  involving a potential business  combination.  After the preferred
stock purchase  rights become  exercisable,  each preferred stock purchase right
will  entitle  its  holder  to an  amount  of  our  common  stock,  or  in  some
circumstances,  securities of the acquirer, having a total market value equal to
two  times  the  exercise  price of the  preferred  stock  purchase  right.  The
preferred  stock purchase rights are redeemable at our option at any time before
they become exercisable.  The preferred stock purchase rights expire on December
15,  2005.  No event  during  2001  made the  preferred  stock  purchase  rights
exercisable.

Note 16. Financial Instruments and Risk Management
     In June 1998, the Financial  Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and for Hedging Activities", subsequently
amended by SFAS No. 137 and SFAS No. 138.  This  standard  requires  entities to
recognize all  derivatives on the balance sheet as assets or liabilities  and to
measure  the  instruments  at fair value.  Accounting  for gains and losses from
changes in those fair values are  specified  in the  standard  depending  on the
intended  use of the  derivative  and other  criteria.  We adopted  SFAS No. 133
effective  January  2001 and  recorded  a $1  million  after-tax  credit for the
cumulative effect of adopting the change in accounting  method. We do not expect
future  measurements  at fair value  under the new  accounting  method to have a
material effect on our financial condition or results of operations.
     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  products  and  services  in  foreign
currencies  will be adversely  affected by changes in exchange  rates. We do not
hold or issue  derivative  financial  instruments  for  trading  or  speculative
purposes.
     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  for which we do the majority of our  international
business.  These  contracts  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

                                       57


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.
     Assets,  liabilities  and  forecasted  cash  flows  denominated  in foreign
currencies.  We utilize the derivative instruments described above to manage the
foreign currency exposures related to certain assets and liabilities,  which are
denominated in foreign  currencies;  however, we have not elected to account for
these instruments as hedges for accounting  purposes.  Additionally,  we utilize
the  derivative  instruments  described  above to manage  forecasted  cash flows
denominated in foreign currencies generally related to long-term engineering and
construction  projects.  While we enter  into  these  instruments  to manage the
foreign  currency  risk on these  projects,  we have  chosen  not to seek  hedge
accounting treatment for these contracts.  The fair value of these contracts was
immaterial as of the end of 2001 and 2000.
     Notional  amounts  and fair market  values.  The  notional  amounts of open
forward  contracts and options for  continuing  operations  were $505 million at
December  31, 2001 and $281 million at December  31,  2000.  Amounts  related to
discontinued  operations  were $61 million at December  31,  2000.  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  relating  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.
     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  revenues  from  sales  and  services,  including
engineering  and  construction,  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 and the
United  Kingdom.  We maintain an  allowance  for losses  based upon the expected
collectibility of all trade accounts receivable.
     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. We have several debt instruments outstanding which have
both  fixed  and  variable  interest  rates.  We  manage  our  ratio of fixed to
variable-rate  debt through the use of different  types of debt  instruments and
derivative instruments.
     Fair market value of financial instruments. The estimated fair market value
of long-term debt at year-end 2001 was $1.3 billion and in 2000 was $1.1 billion
as compared to the  carrying  amount of $1.5  billion at year-end  2001 and $1.1
billion at year-end  2000. 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 variable rate  long-term debt  approximates  fair market value because
these  instruments  reflect  market changes to interest  rates.  See Note 8. 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 currency derivative instruments are carried
on the balance sheet at fair value and are based upon  third-party  quotes.  The
fair market  values of  derivative  instruments  used for fair value hedging and
cash flow hedging were immaterial.

Note 17. Retirement Plans
     Our company and  subsidiaries  have various plans which cover a significant
number of their employees. These plans include defined contribution plans, which
provide  retirement  contributions in return for services  rendered,  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

                                       58


plans are based on pretax income and/or  discretionary  amounts determined on an
annual basis. Our expense for the defined contribution plans for both continuing
and  discontinued  operations  totaled  $129  million in 2001  compared  to $140
million in 2000 and $111 million in 1999. Other retirement plans include defined
benefit plans, which define an amount of pension benefit to be provided, usually
as a function of age, years of service or  compensation.  These plans are funded
to operate on an actuarially sound basis. Plan assets are primarily  invested in
cash, short-term investments, real estate, equity and fixed income securities of
entities domiciled in the country of the plan's operation. Plan assets, expenses
and  obligations  for  retirement  plans in the  following  tables  include both
continuing and discontinued operations.



                                                                2001                               2000
                                                  ---------------------------------------------------------------------
Millions of dollars                                United States    International     United States     International
-----------------------------------------------------------------------------------------------------------------------
                                                                                            
Change in benefit obligation
Benefit obligation at beginning of year                $  288          $  1,670           $   413          $  1,781
Service cost                                                2                60                 4                57
Interest cost                                              13                89                20                87
Plan participants' contributions                            -                14                 -                13
Effect of business combinations                             -                 -                 -                32
Amendments                                                  -                 -                 5                 -
Divestitures                                             (111)              (90)             (138)              (61)
Settlements/curtailments                                  (46)                -                (8)                -
Currency fluctuations                                       -                15                 -              (168)
Actuarial gain/(loss)                                       8               270                13               (13)
Benefits paid                                             (14)              (60)              (21)              (58)
-----------------------------------------------------------------------------------------------------------------------
Benefit obligation at end of year                      $  140          $  1,968           $   288          $  1,670
=======================================================================================================================




                                                                2001                               2000
                                                  ---------------------------------------------------------------------
Millions of dollars                                United States    International     United States     International
-----------------------------------------------------------------------------------------------------------------------
                                                                                            
Change in plan assets
Fair value of plan assets at beginning of year         $  313          $  2,165           $   466          $  2,169
Actual return on plan assets                              (22)             (294)               18               266
Employer contribution                                       7                30                17                27
Settlements                                               (46)                -               (14)                -
Plan participants' contributions                            1                14                 -                13
Divestitures                                             (109)              (45)             (153)              (47)
Currency fluctuations                                       -                15                 -              (205)
Benefits paid                                             (14)              (58)              (21)              (58)
-----------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year               $  130          $  1,827           $   313          $  2,165
=======================================================================================================================

Funded status                                          $  (10)         $   (141)           $   25          $    495
Unrecognized transition obligation/(asset)                 (1)               (3)               (1)               17
Unrecognized actuarial (gain)/loss                         34               308                 4              (379)
Unrecognized prior service cost/(benefit)                  (2)              (96)               13               (83)
-----------------------------------------------------------------------------------------------------------------------
Net amount recognized                                  $   21          $     68           $    41          $     50
=======================================================================================================================


                                       59


     We recognized an additional  minimum pension  liability for the underfunded
defined benefit plans. The additional  minimum  liability is equal to the excess
of the accumulated benefit obligation over plan assets and accrued  liabilities.
A  corresponding  amount  is  recognized  as  either  an  intangible  asset or a
reduction of shareholders' equity.



                                                               2001                               2000
                                                 ---------------------------------------------------------------------
Millions of dollars                               United States    International     United States    International
----------------------------------------------------------------------------------------------------------------------
                                                                                          
Amounts recognized in the consolidated
    balance sheets
Prepaid benefit cost                                   $   7           $    85            $   54          $    93
Accrued benefit liability                                (10)              (36)              (28)             (49)
Intangible asset                                           1                 1                10               (2)
Deferred tax asset                                         8                 6                 1                -
Accumulated other comprehensive income,
    net of tax                                            15                12                 4                8
----------------------------------------------------------------------------------------------------------------------
Net amount recognized                                  $  21           $    68            $   41          $    50
======================================================================================================================


     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 rates used are
as follows:



Weighted-average assumptions            2001             2000            1999
-------------------------------------------------------------------------------------
                                                            
Expected return on plan assets:
   United States plans                  9.0%             9.0%            9.0%
   International plans              5.5% to 9.0%     3.5% to 9.0%    7.25% to 8.0%
Discount rate:
   United States plans                  7.25%            7.5%            7.5%
   International plans              5.0% to 8.0%     4.0% to 8.0%    2.5% to 7.5%
Rate of compensation increase:
   United States plans                  4.5%             4.5%        4.5% to 5.0%
   International plans              3.0% to 7.0%     3.0% to 7.6%    1.0% to 10.5%
-------------------------------------------------------------------------------------




                                                   2001                        2000                        1999
                                        -----------------------------------------------------------------------------------
                                          United                       United                     United
Millions of dollars                       States     International     States    International    States    International
-------------------------------------------------------------------------------- ------------------------------------------
                                                                                          
Components of net periodic
    benefit cost
Service cost                               $   2         $    60        $  4         $    57      $    7         $   66
Interest cost                                 13              89          20              87          30             96
Expected return on plan assets               (18)            (95)        (26)            (99)        (33)          (110)
Transition amount                              -              (2)          -               -           1             (2)
Amortization of prior service cost            (2)             (6)         (1)             (6)         (2)            (7)
Settlements/curtailments                      16               -          10               -          14              -
Recognized actuarial gain                     (1)             (9)          -             (10)         (1)           (11)
---------------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost                  $  10         $    37       $   7         $    29     $    16         $   32
===========================================================================================================================


     The projected benefit obligation,  accumulated benefit obligation, and fair
value of plan assets for the pension plans with accumulated  benefit obligations
in excess of plan assets as of December 31, 2001 and 2000 are as follows:

                                       60




Millions of dollars                   2001           2000
----------------------------------------------------------------
                                              
Projected benefit obligation        $   235         $   172
Accumulated benefit obligation      $   215         $   154
Fair value of plan assets           $   175         $    82
================================================================


     Postretirement  medical  plan.  We offer  postretirement  medical  plans to
specific eligible employees. For some plans, our liability is limited to a fixed
contribution  amount for each  participant or dependent.  The plan  participants
share the total cost for all benefits provided above our fixed  contribution and
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  is  not
affected by the expected future health care cost inflation rate.
     Other postretirement medical plans are contributory but we generally absorb
the  majority  of  the  costs.  We  may  elect  to  adjust  the  amount  of  our
contributions for these plans. As a result, the expected future health care cost
inflation rate affects the accumulated postretirement benefit obligation amount.
These plans have assumed health care trend rates  (weighted based on the current
year benefit  obligation) for 2001 of 11% which are expected to decline to 5% by
2005.
     Obligations and expenses for postretirement  medical plans in the following
tables include both continuing and discontinued operations.



Millions of dollars                                   2001             2000
------------------------------------------------------------------------------------
                                                                 
Change in benefit obligation
Benefit obligation at beginning of year              $   296           $  392
Service cost                                               2                3
Interest cost                                             15               20
Plan participants' contributions                          12               11
Acquisitions/divestitures, net                             -             (110)
Settlements/curtailments                                (144)               -
Actuarial gain                                             5               11
Benefits paid                                            (29)             (31)
------------------------------------------------------------------------------------
Benefit obligation at end of year                    $   157           $  296
====================================================================================
Change in plan assets
Fair value of plan assets at beginning of year       $     -           $    -
Employer contribution                                     17               20
Plan participants' contributions                          12               11
Benefits paid                                            (29)             (31)
------------------------------------------------------------------------------------
Fair value of plan assets at end of year             $     -           $    -
====================================================================================

Funded status                                        $  (157)          $ (296)
Employer contribution                                      2                3
Unrecognized actuarial gain                              (14)             (20)
Unrecognized prior service cost                            3              (78)
------------------------------------------------------------------------------------
Net amount recognized                                $  (166)          $ (391)
====================================================================================


                                       61




Millions of dollars                                   2001             2000
------------------------------------------------------------------------------------
                                                                 
Amounts recognized in the consolidated
   balance sheets
Accrued benefit liability                            $  (166)          $ (391)
------------------------------------------------------------------------------------
Net amount recognized                                $  (166)          $ (391)
====================================================================================




Weighted-average assumptions                      2001        2000        1999
------------------------------------------------------------------------------------
                                                                 
Discount rate                                    7.25%       7.50%        7.50%
------------------------------------------------------------------------------------




Millions of dollars                               2001         2000        1999
------------------------------------------------------------------------------------
                                                                  
Components of net periodic benefit cost
Service cost                                     $    2        $  3        $  5
Interest cost                                        15          20          28
Amortization of prior service cost                   (3)         (7)         (9)
Settlements/curtailments                           (221)          -          (2)
Recognized actuarial gain                            (1)         (1)         (5)
------------------------------------------------------------------------------------
Net periodic benefit cost                        $ (208)       $ 15        $ 17
====================================================================================


     Assumed  health  care cost  trend  rates have a  significant  effect on the
amounts reported for the total of the health care plans. A  one-percentage-point
change in assumed health care cost trend rates would have the following effects:



                                                          One-Percentage-Point
                                                      -----------------------------
Millions of dollars                                     Increase     (Decrease)
-----------------------------------------------------------------------------------
                                                               
Effect on total of service and interest cost              $   1          $ (1)
components
Effect on the postretirement benefit obligation           $   8          $ (7)
===================================================================================


Note 18. Dresser Industries, Inc. Financial Information
     Since  becoming a wholly owned  subsidiary,  Dresser  Industries,  Inc. has
ceased filing  periodic  reports with the United States  Securities and Exchange
Commission.  Dresser  Industries,  Inc. 8% guaranteed  senior notes,  which were
initially  issued by Baroid  Corporation,  remain  outstanding and are fully and
unconditionally guaranteed by Halliburton. In January 1999, as part of the legal
reorganization  associated  with  the  merger,  Halliburton  Delaware,  Inc.,  a
first-tier holding company subsidiary, was  merged into Dresser Industries, Inc.
The  majority of our  operating  assets and  activities  are included in Dresser
Industries,  Inc.  and its  subsidiaries.  In August  2000,  the  United  States
Securities and Exchange  Commission  released a new rule governing the financial
statements of guarantors and issuers of guaranteed  securities  registered  with
the SEC. The following condensed  consolidating  financial  information presents
Halliburton and our subsidiaries on a stand-alone  basis using the equity method
and as if our  current  organizational  structure  were in place for all periods
presented.

                                       62




Condensed Consolidating Statements
    of Income                                 Non-issuer/        Dresser       Halliburton                  Consolidated
Year ended December 31, 2001                 Non-guarantor    Industries, Inc.   Company     Consolidating   Halliburton
Millions of dollars                          Subsidiaries       (Issuer)       (Guarantor)    Adjustments      Company
-------------------------------------------------------------------------------------------------------------------------
                                                                                             
Total revenues                                $  13,046            $  596       $ 1,047         $(1,643)       $13,046
Cost of revenues                                 11,575                 -             -               -         11,575
General and administrative                          387                 -             -               -            387
Interest expense                                    (41)              (43)          (71)              8           (147)
Interest income                                      25                 1            57             (56)            27
Other, net                                           (3)              189            (5)           (191)           (10)
-------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before
    taxes, minority interest and change
    in accounting method, net                     1,065               743         1,028          (1,882)           954
Benefit (provision) for income taxes               (387)              (17)           20               -           (384)
Minority interest in net income of
    subsidiaries                                    (19)                -             -               -            (19)
-------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before
    change in accounting method, net                659               726         1,048          (1,882)           551
Income (loss) from discontinued operations          (64)              321             -               -            257
Cumulative effect of change in accounting
    method, net of tax benefit                        1                 -             -               -              1
-------------------------------------------------------------------------------------------------------------------------
Net income                                    $     596            $1,047       $ 1,048         $(1,882)       $   809
=========================================================================================================================





Condensed Consolidating Statements
    of Income                                 Non-issuer/        Dresser       Halliburton                  Consolidated
Year ended December 31, 2000                 Non-guarantor    Industries, Inc.   Company     Consolidating   Halliburton
Millions of dollars                          Subsidiaries       (Issuer)       (Guarantor)    Adjustments      Company
-------------------------------------------------------------------------------------------------------------------------
                                                                                             
Total revenues                              $  11,944            $ 356        $  680         $(1,036)        $11,944
Cost of revenues                               11,218                -             -               -          11,218
General and administrative                        352                -             -               -             352
Gain on sale of marine vessels                    (88)               -             -               -             (88)
Interest expense                                  (47)             (45)          (69)             15            (146)
Interest income                                    21               18             1             (15)             25
Other, net                                          2              129            56            (193)             (6)
-----------------------------------------------------------------------------------------------------------------------
Income from continuing operations
    before taxes and minority interest            438              458           668          (1,229)            335
Benefit (provision) for income taxes             (162)               7            26               -            (129)
Minority interest in net income of
    subsidiaries                                  (18)               -             -               -             (18)
-----------------------------------------------------------------------------------------------------------------------
Income from continuing operations                 258              465           694          (1,229)            188
Income from discontinued operations                98                -             -               -              98
Gain on disposal of discontinued
    operations, net of tax                          -              215             -               -             215
-----------------------------------------------------------------------------------------------------------------------
Net income                                  $     356            $ 680        $  694         $(1,229)        $   501
=======================================================================================================================


                                       63




Condensed Consolidating Statements
    of Income                                 Non-issuer/        Dresser       Halliburton                  Consolidated
Year ended December 31, 1999                 Non-guarantor    Industries, Inc.   Company     Consolidating   Halliburton
Millions of dollars                          Subsidiaries       (Issuer)       (Guarantor)    Adjustments      Company
-------------------------------------------------------------------------------------------------------------------------
                                                                                             
Total revenues                              $  12,313            $ 555        $  637         $(1,192)        $12,313
Cost of revenues                               11,608                -             -               -          11,608
General and administrative                        351                -             -               -             351
Special credits                                   (47)               -             -               -             (47)
Interest expense                                  (50)             (50)          (70)             29            (141)
Interest income                                    77               26             -             (29)             74
Other, net                                        (29)             105           183            (286)            (27)
-----------------------------------------------------------------------------------------------------------------------
Income from continuing operations
    before taxes, minority interest, and
    change in accounting method, net              399              636           750          (1,478)            307
Benefit (provision) for income taxes              (91)               1           (26)              -            (116)
Minority interest in net income of
    subsidiaries                                  (17)               -             -               -             (17)
-----------------------------------------------------------------------------------------------------------------------
Income from continuing operations
    before change in
    accounting method, net                        291              637           724          (1,478)            174
Income from discontinued operations               124                -             -               -             124
Gain on disposal of discontinued
    operations, net of tax                        159                -             -               -             159
Cumulative effect of change in
    accounting method, net of
    tax benefit                                   (19)               -             -               -             (19)
-----------------------------------------------------------------------------------------------------------------------
Net income                                  $     555            $ 637        $  724         $(1,478)        $   438
=======================================================================================================================


                                       64




Condensed Consolidating
    Balance Sheets                            Non-issuer/        Dresser       Halliburton                  Consolidated
Year ended December 31, 2001                 Non-guarantor    Industries, Inc.   Company     Consolidating   Halliburton
Millions of dollars                          Subsidiaries       (Issuer)       (Guarantor)    Adjustments      Company
-------------------------------------------------------------------------------------------------------------------------
                                                                                             
                 Assets
Current assets:
Cash and equivalents                        $     213           $     -       $    77       $      -         $   290
Receivables:
Notes and accounts receivable, net              3,002                13             -              -           3,015
Unbilled work on uncompleted contracts          1,080                 -             -              -           1,080
-----------------------------------------------------------------------------------------------------------------------
Total receivables                               4,082                13             -              -           4,095
Inventories                                       787                 -             -              -             787
Other current assets                              323                71             7              -             401
-----------------------------------------------------------------------------------------------------------------------
Total current assets                            5,405                84            84              -           5,573
Property, plant and equipment, net              2,669                 -             -              -           2,669
Equity in and advances to
    unconsolidated affiliates                     551                 -             -              -             551
Intercompany receivable from
    consolidated affiliates                    (1,089)                -         2,854         (1,765)              -
Equity in and advances to
    consolidated affiliates                         -             5,296         3,122         (8,418)              -
Goodwill, net                                     636                84             -              -             720
Insurance for asbestos litigation claims          612                 -             -              -             612
Other assets                                      793                27            21              -             841
-----------------------------------------------------------------------------------------------------------------------
Total assets                                $   9,577           $ 5,491       $ 6,081       $(10,183)        $10,966
=======================================================================================================================

  Liabilities and Shareholders' Equity
Current liabilities:
Accounts and notes payable                  $     808           $   129       $   105       $      -         $ 1,042
Other current liabilities                       1,791                20            55              -           1,866
-----------------------------------------------------------------------------------------------------------------------
Total current liabilities                       2,599               149           160              -           2,908
Long-term debt                                    211               439           753              -           1,403
Intercompany payable from
    consolidated affiliates                         -             1,765             -         (1,765)              -
Asbestos litigation claims                        737                 -             -              -             737
Other liabilities                               1,016                16            93              -           1,125
Minority interest in consolidated
    subsidiaries                                   41                 -             -              -              41
-----------------------------------------------------------------------------------------------------------------------
Total liabilities                               4,604             2,369         1,006         (1,765)          6,214
Shareholders' equity:
Common shares                                     175                 -         1,138           (175)          1,138
Other shareholders' equity                      4,798             3,122         3,937         (8,243)          3,614
-----------------------------------------------------------------------------------------------------------------------
Total shareholders' equity                      4,973             3,122         5,075         (8,418)          4,752
-----------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity  $   9,577           $ 5,491       $ 6,081       $(10,183)        $10,966
=======================================================================================================================


                                       65




Condensed Consolidating
    Balance Sheets                            Non-issuer/        Dresser       Halliburton                  Consolidated
Year ended December 31, 2000                 Non-guarantor    Industries, Inc.   Company     Consolidating   Halliburton
Millions of dollars                          Subsidiaries       (Issuer)       (Guarantor)    Adjustments      Company
-------------------------------------------------------------------------------------------------------------------------
                                                                                             
                 Assets
Current assets:
Cash and equivalents                        $     227           $     -       $     4       $      -         $   231
Receivables:
Notes and accounts receivable, net              2,889                63             -              -           2,952
Unbilled work on uncompleted contracts            982                 -             -              -             982
-----------------------------------------------------------------------------------------------------------------------
Total receivables                               3,871                63             -              -           3,934
Inventories                                       723                 -             -              -             723
Other current assets                              753                 1            15              -             769
-----------------------------------------------------------------------------------------------------------------------
Total current assets                            5,574                64            19              -           5,657
Property, plant and equipment, net              2,410                 -             -              -           2,410
Equity in and advances to
    unconsolidated affiliates                     258               142             -              -             400
Intercompany receivable from
    consolidated affiliates                        66                 -         2,140         (2,206)              -
Equity in and advances to
    consolidated affiliates                         -             6,558         4,220        (10,778)              -
Goodwill, net                                     510                87             -              -             597
Insurance for asbestos litigation claims           51                 -             -              -              51
Other assets                                    1,058                 5            14              -           1,077
-----------------------------------------------------------------------------------------------------------------------
Total assets                                $   9,927           $ 6,856       $ 6,393       $(12,984)        $10,192
=======================================================================================================================

  Liabilities and Shareholders' Equity
Current liabilities:
Accounts and notes payable                  $     767           $    53       $ 1,540       $      -         $ 2,360
Other current liabilities                       1,463                36            56              -           1,555
-----------------------------------------------------------------------------------------------------------------------
Total current liabilities                       2,230                89         1,596              -           3,915
Long-term debt                                    205               444           400              -           1,049
Intercompany payable from
    consolidated affiliates                         -             2,206             -         (2,206)              -
Asbestos litigation claims                         80                 -             -              -              80
Other liabilities                               1,038                26           118              -           1,182
Minority interest in consolidated
    subsidiaries                                   38                 -             -              -              38
-----------------------------------------------------------------------------------------------------------------------
Total liabilities                               3,591             2,765         2,114         (2,206)          6,264
Shareholders' equity:
Common shares                                     391                 -         1,132           (391)          1,132
Other shareholders' equity                      5,945             4,091         3,147        (10,387)          2,796
-----------------------------------------------------------------------------------------------------------------------
Total shareholders' equity                      6,336             4,091         4,279        (10,778)          3,928
-----------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity  $   9,927           $ 6,856       $ 6,393       $(12,984)        $10,192
=======================================================================================================================


                                       66




Condensed Consolidating Statements
    of Cash Flows                             Non-issuer/        Dresser       Halliburton                  Consolidated
Year ended December 31, 2001                 Non-guarantor    Industries, Inc.   Company     Consolidating   Halliburton
Millions of dollars                          Subsidiaries       (Issuer)       (Guarantor)    Adjustments      Company
-------------------------------------------------------------------------------------------------------------------------
                                                                                             
Net cash flows from operating activities    $   1,021          $   (28)      $    36       $      -         $ 1,029
Capital expenditures                             (797)               -             -              -            (797)
Sales of property, plant and equipment            120                -             -              -             120
Other investing activities                       (281)               -         1,292         (1,192)           (181)
Borrowings of long-term debt                        -                -           425              -             425
Payments on long-term borrowings                   (8)              (5)            -              -             (13)
Net borrowings (repayments) of
    short-term debt                               (15)               -        (1,513)             -          (1,528)
Payments of dividends to shareholders               -                -          (215)             -            (215)
Proceeds from exercises of stock options            -                -            27              -              27
Payments to reacquire common stock                  -                -           (34)             -             (34)
Other financing activities                        (87)          (1,177)           55          1,192             (17)
Effect of exchange rate on cash                   (20)               -             -              -             (20)
Net cash flows from discontinued
    operations                                      -            1,263             -              -           1,263
----------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and
    equivalents                             $     (67)         $    53       $    73       $      -         $    59
======================================================================================================================






Condensed Consolidating Statements
    of Cash Flows                             Non-issuer/        Dresser       Halliburton                  Consolidated
Year ended December 31, 2000                 Non-guarantor    Industries, Inc.   Company     Consolidating   Halliburton
Millions of dollars                          Subsidiaries       (Issuer)       (Guarantor)    Adjustments      Company
-------------------------------------------------------------------------------------------------------------------------
                                                                                             
Net cash flows from operating activities    $    (268)         $   113       $    98       $      -          $   (57)
Capital expenditures                             (578)               -             -              -             (578)
Sales of property, plant and equipment            209                -             -              -              209
Other investing activities                        (42)               -            72            (72)             (42)
Payments on long-term borrowings                   (8)            (300)            -              -             (308)
Net borrowings (repayments) of
    short-term debt                                17                -           612              -              629
Payments of dividends to shareholders               -                -          (221)             -             (221)
Proceeds from exercises of stock options            -                -           105              -              105
Payments to reacquire common stock                  -                -          (769)             -             (769)
Other financing activities                       (235)             143             -             72              (20)
Effect of exchange rate on cash                    (9)               -             -              -               (9)
Net cash flows from discontinued
    operations                                    826                -             -              -              826
-------------------------------------------------------------------------------------------------------- --------------
Increase (decrease) in cash and
    equivalents                             $     (88)         $   (44)      $  (103)      $      -          $  (235)
=======================================================================================================================


                                       67




Condensed Consolidating Statements
    of Cash Flows                             Non-issuer/        Dresser       Halliburton                  Consolidated
Year ended December 31, 1999                 Non-guarantor    Industries, Inc.   Company     Consolidating   Halliburton
Millions of dollars                          Subsidiaries       (Issuer)       (Guarantor)    Adjustments      Company
-------------------------------------------------------------------------------------------------------------------------
                                                                                             
Net cash flows from operating activities    $    (219)         $    52       $   109       $      -          $   (58)
Capital expenditures                             (520)               -             -              -             (520)
Sales of property, plant and equipment            118                -             -              -              118
Other investing activities                        295                -          (248)           248              295
Payments on long-term borrowings                   (9)               -           (50)             -              (59)
Net borrowings (repayments) of
    short-term debt                               (27)               -           463              -              436
Payments of dividends to shareholders               -                -          (221)             -             (221)
Proceeds from exercises of stock options            -                -            49              -               49
Payments to reacquire common stock                  -                -           (10)             -              (10)
Other financing activities                        297              (55)            -           (248)              (6)
Effect of exchange rate on cash                     5                -             -              -                5
Net cash flows from discontinued
    operations                                    234                -             -              -              234
-----------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and
    equivalents                             $     174          $    (3)      $    92       $      -          $   263
=======================================================================================================================


                                       68





                               Halliburton Company
                             Selected Financial Data
                                   (Unaudited)


                                                                           Years ended December 31
Millions of dollars and shares                    ----------------------------------------------------------------------
except per share and employee data                    2001          2000          1999           1998          1997
------------------------------------------------------------------------------------------------------------------------
                                                                                             
Operating results
Net revenues
    Energy Services Group                           $  8,722      $  6,776     $    5,921     $  8,001      $    7,830
    Engineering and Construction Group                 4,324         5,168          6,392        6,503           5,668
------------------------------------------------------------------------------------------------------------------------
       Total revenues                               $ 13,046      $ 11,944     $   12,313     $ 14,504      $   13,498
========================================================================================================================
Operating income
    Energy Services Group                           $  1,015      $    582     $      250     $    981      $      983
    Engineering and Construction Group                   143           (42)           175          227             255
    Special charges and credits (1)                        -             -             47         (959)             11
    General corporate                                    (74)          (78)           (71)         (79)            (71)
------------------------------------------------------------------------------------------------------------------------
       Total operating income (1)                      1,084           462            401          170           1,178
Nonoperating income (expense), net (2)                  (130)         (127)           (94)        (115)            (82)
------------------------------------------------------------------------------------------------------------------------
Income from continuing operations
    before income taxes and minority interest            954           335            307           55           1,096
Provision for income taxes (3)                          (384)         (129)          (116)        (155)           (406)
Minority interest in net income of consolidated
    subsidiaries                                         (19)          (18)           (17)         (20)            (30)
------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations            $    551      $    188     $      174     $   (120)     $      660
========================================================================================================================
Income from discontinued operations                 $    257      $    313     $      283     $    105      $      112
========================================================================================================================
Net income (loss)                                   $    809      $    501     $      438     $    (15)     $      772
========================================================================================================================
Basic income (loss) per common share
    Continuing operations                           $   1.29      $   0.42     $     0.40     $   (0.27)    $     1.53
    Net income (loss)                                   1.89          1.13           1.00         (0.03)          1.79
Diluted income (loss) per common share
    Continuing operations                               1.28          0.42           0.39         (0.27)          1.51
    Net income (loss)                                   1.88          1.12           0.99         (0.03)          1.77
Cash dividends per share                                0.50          0.50           0.50          0.50           0.50
Return on average shareholders' equity                 18.64%        12.20%         10.49%        (0.35)%        19.16%
------------------------------------------------------------------------------------------------------------------------
Financial position
Net working capital                                 $  2,665      $  1,742     $    2,329     $  2,129      $    1,985
Total assets                                          10,966        10,192          9,639       10,072           9,657
Property, plant and equipment, net                     2,669         2,410          2,390        2,442           2,282
Long-term debt (including current maturities)          1,484         1,057          1,364        1,426           1,303
Shareholders' equity                                   4,752         3,928          4,287        4,061           4,317
Total capitalization                                   6,280         6,555          6,590        5,990           5,647
Shareholders' equity per share                         10.95          9.20           9.69         9.23            9.86
Average common shares outstanding (basic)                428           442            440          439             431
Average common shares outstanding (diluted)              430           446            443          439             436
------------------------------------------------------------------------------------------------------------------------
Other financial data
Capital expenditures                                $   (797)     $   (578)    $     (520)    $   (841)     $     (804)
Long-term borrowings (repayments), net                   412          (308)           (59)         122             285
Depreciation, depletion and amortization expense         531           503            511          500             465
Goodwill amortization included in depreciation,
    depletion and amortization expense:
       Energy Services Group                              27            22             16           25              23
       Engineering and Construction Group                 15            22             17           11               9
Payroll and employee benefits (4)                     (4,818)       (5,260)        (5,647)      (5,880)         (5,479)
Number of employees (4), (5)                          85,000        93,000        103,000      107,800         102,000
========================================================================================================================
(continued on next page)


                                       69




                               Halliburton Company
                             Selected Financial Data
                                   (Unaudited)
                                   (continued)

                                                                           Years ended December 31
Millions of dollara and shares                   --------------------------------------------------------------------------
except per share and employee data                    1996          1995           1994           1993            1992
----------------------------------------------------------------------------------------------------------------------------
                                                                                               
Operating results
Net revenues
    Energy Services Group                           $   5,936     $  4,902     $    4,548      $    5,061     $    4,535
    Engineering and Construction Group                  5,300        4,143          3,992           4,084          4,913
----------------------------------------------------------------------------------------------------------------------------
       Total revenues                               $  11,236     $  9,045     $    8,540      $    9,145     $    9,448
============================================================================================================================
Operating income
    Energy Services Group                           $     654     $    553     $      411      $      396     $      253
    Engineering and Construction Group                    178           88             66              94             82
    Special charges and credits (1)                       (86)          (8)           (19)           (419)          (294)
    General corporate                                     (72)         (71)           (56)            (63)           (58)
----------------------------------------------------------------------------------------------------------------------------
       Total operating income (1)                         674          562            402               8            (17)
Nonoperating income (expense), net (2)                    (70)         (34)           333             (61)           (63)
----------------------------------------------------------------------------------------------------------------------------
Income from continuing operations
    before income taxes and minority interest             604          528            735             (53)           (80)
Provision for income taxes (3)                           (158)        (167)          (275)            (18)           (30)
Minority interest in net income of consolidated
    subsidiaries                                            -           (1)           (14)            (24)            (9)
----------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations            $     446     $    360     $      446      $      (95)    $     (119)
============================================================================================================================
Income from discontinued operations                 $     112     $     36     $       97      $       81     $       49
============================================================================================================================
Net income (loss)                                   $     558     $    381     $      543      $      (14)    $     (483)
============================================================================================================================
Basic income (loss) per common share
    Continuing operations                           $    1.04     $   0.83     $     1.04      $    (0.23)    $    (0.29)
    Net income (loss)                                    1.30         0.88           1.26           (0.04)         (1.18)
Diluted income (loss) per common share
    Continuing operations                                1.03         0.83           1.03           (0.23)         (0.29)
    Net income (loss)                                    1.29         0.88           1.26           (0.04)         (1.18)
Cash dividends per share                                 0.50         0.50           0.50            0.50           0.50
Return on average shareholders' equity                  15.25%       10.44%         15.47%          (0.43)%       (12.72)%
----------------------------------------------------------------------------------------------------------------------------
Financial position
Net working capital                                 $   1,501     $  1,477     $    2,197      $    1,563     $    1,423
Total assets                                            8,689        7,723          7,774           8,087          7,480
Property, plant and equipment, net                      2,047        1,865          1,631           1,747          1,741
Long-term debt (including current maturities)             957          667          1,119           1,129            872
Shareholders' equity                                    3,741        3,577          3,723           3,296          3,277
Total capitalization                                    4,828        4,378          4,905           4,746          4,179
Shareholders' equity per share                           8.78         8.29           8.63            7.70           7.99
Average common shares outstanding (basic)                 429          431            431             422            408
Average common shares outstanding (diluted)               432          432            432             422            408
----------------------------------------------------------------------------------------------------------------------------
Other financial data
Capital expenditures                                $    (612)    $   (474)    $     (358)     $     (373)    $     (405)
Long-term borrowings (repayments), net                    286         (481)          (120)            192           (187)
Depreciation, depletion and amortization expense          405          380            387             574            470
Goodwill amortization included in depreciation,
    depletion and amortization expense:
       Energy Services Group                               19           17             14              11              6
       Engineering and Construction Group                   7            7              7               7              8
Payroll and employee benefits (4)                      (4,674)      (4,188)        (4,222)         (4,429)        (4,590)
Number of employees (4), (5)                           93,000       89,800         86,500          90,500         96,400
============================================================================================================================
(continued on next page)

                                       70


                               Halliburton Company
                             Selected Financial Data
                                   (Unaudited)
                                   (continued)


 (1) Operating income includes the following special charges and credits:

     1999 - $47 million: reversal of a portion of the 1998 special charges.

     1998 - $959 million:  asset  related  charges   ($491  million),  personnel
     reductions ($234 million), facility  consolidations ($124 million),  merger
     transaction costs ($64 million), and other related costs ($46 million).

     1997 - $11 million:  merger costs  ($9 million),  write-downs  on  impaired
     assets and early retirement incentives ($10 million), losses from  the sale
     of  assets ($12 million),  and  gain on  extension of  joint  venture  ($42
     million).

     1996 - $86 million:  merger costs ($13 million), restructuring,  merger and
     severance  costs  ($62  million),  and  write-off  of  acquired  in-process
     research and development costs ($11 million).

     1995 - $8 million:  restructuring  costs  ($5  million)  and  write-off  of
     acquired in-process research and development costs ($3 million).

     1994 - $19 million:  merger costs  ($27 million), litigation ($10 million),
     and litigation and insurance recoveries ($18 million).

     1993 - $419 million: loss on sale of business ($322 million), merger  costs
     ($31 million),  restructuring  ($5 million), litigation ($65 million), and
     gain on curtailment of medical plan ($4 million).

     1992 - $294 million:  merger costs  ($273 million)  and  restructuring  and
     severance ($21 million).

(2)  Nonoperating income  in 1994 includes a gain  of $276 million from the sale
     of  an  interest in Western Atlas  International, Inc. and a  gain of  $102
     million from the sale of our natural gas compression business.

(3)  Provision for income taxes in 1996 includes tax benefits of $44 million due
     to the recognition of net  operating loss carryforwards and the  settlement
     of various issues with the Internal Revenue Service.

(4)  Includes  employees of  Dresser Equipment Group which is  accounted for  as
     discontinued operations for the years 1992 through 2000.

(5)  Does not include employees of 50% or less owned affiliated companies.



                                       71




                               HALLIBURTON COMPANY
                   Quarterly Data and Market Price Information
                                   (Unaudited)
                                                                               Quarter
                                                       --------------------------------------------------------
Millions of dollars except per share data                  First         Second        Third         Fourth         Year
-----------------------------------------------------------------------------------------------------------------------------
                                                                                                    

2001
Revenues                                                $   3,144        $ 3,339       $ 3,391       $ 3,172       $13,046
Operating income                                              198            272           342           272         1,084
Income from continuing operations before
    change in accounting method, net                           86            143           181           141           551
Income (loss) from discontinued operations                     22            (60)           (2)           (2)          (42)
Gain on disposal of discontinued operations                     -            299             -             -           299
Cumulative effect of accounting change                          1              -             -             -             1
Net income                                                    109            382           179           139           809
Earnings per share:
    Basic income (loss) per common share:
       Income from continuing operations                     0.20           0.34          0.42          0.33          1.29
       Income (loss) from discontinued operations            0.05          (0.14)            -         (0.01)        (0.10)
       Gain on disposal of discontinued operations              -           0.70             -            -           0.70
       Net income                                            0.25           0.90          0.42          0.32          1.89
    Diluted income (loss) per common share:
       Income from continuing operations                     0.20           0.33          0.42          0.33          1.28
       Income (loss) from discontinued operations            0.05          (0.14)            -         (0.01)        (0.10)
       Gain on disposal of discontinued operations              -           0.70             -            -           0.70
       Net income                                            0.25           0.89          0.42          0.32          1.88
Cash dividends paid per share                               0.125          0.125         0.125         0.125          0.50
Common stock prices (2)
    High                                                    45.91          49.25         36.79         28.90         49.25
    Low                                                     34.81          32.20         19.35         10.94         10.94
=============================================================================================================================
2000
Revenues                                                $   2,859        $ 2,868       $ 3,024       $ 3,193       $11,944
Operating income (1)                                           81            126           248             7           462
Income (loss) from continuing operations                       27             52           130           (21)          188
Income from discontinued operations                            22             23            27            26            98
Gain on disposal of discontinued operations                   215              -             -             -           215
Net income                                                    264             75           157             5           501
Earnings per share:
    Basic income (loss) per common share:
       Income (loss) from continuing operations              0.06           0.12          0.29         (0.05)         0.42
       Income from discontinued operations                   0.05           0.05          0.06          0.06          0.22
       Gain on disposal of discontinued operations           0.49             -             -             -           0.49
       Net income                                            0.60           0.17          0.35          0.01          1.13
    Diluted income (loss) per common share:
       Income (loss) from continuing operations              0.06           0.12          0.29         (0.05)         0.42
       Income from discontinued operations                   0.05           0.05          0.06          0.06          0.22
       Gain on disposal of discontinued operations           0.48             -             -             -           0.48
       Net income                                            0.59           0.17          0.35          0.01          1.12
Cash dividends paid per share                               0.125          0.125         0.125         0.125          0.50
Common stock prices (2)
    High                                                    45.50          52.25         55.19         51.06         55.19
    Low                                                     33.44          37.50         41.19         32.25         32.25
=============================================================================================================================
(continued on next page)

                                       72



                               HALLIBURTON COMPANY
                   Quarterly Data and Market Price Information
                                   (Unaudited)
                                   (continued)


(1)  Includes pretax job  losses and severance for engineering and  construction
     contracts and related restructuring of $193 million ($118 million after-tax
     or $0.27 per diluted share) in the fourth quarter of 2000.

(2) New  York  Stock  Exchange - composite transactions  high  and low  intraday
price.



                                       73


PART III

Item 10. Directors and Executive Officers of Registrant.
     The   information   required  for  the  directors  of  the   Registrant  is
incorporated by reference to the Halliburton Company Proxy Statement dated March
19, 2002,  under the caption  "Election of Directors." The information  required
for the executive officers of the Registrant is included under Part I on pages 9
and 10 of this annual report.

Item 11. Executive Compensation.
     This  information is incorporated  by reference to the Halliburton  Company
Proxy Statement dated March 19, 2002, under the captions "Compensation Committee
Report on Executive  Compensation,"  "Comparison  of Cumulative  Total  Return,"
"Summary  Compensation  Table,"  "Option  Grants For Fiscal  2001,"  "Aggregated
Option   Exercises  in  Fiscal  2001  and  December  31,  2001  Option  Values,"
"Employment  Contracts  and  Change-in-Control   Arrangements"  and  "Directors'
Compensation."

Item 12(a). Security Ownership of Certain Beneficial Owners and Management.
     This  information is incorporated  by reference to the Halliburton  Company
Proxy  Statement  dated March 19, 2002,  under the caption  "Stock  Ownership of
Certain Beneficial Owners and Management."

Item 12(b). Security Ownership of Management.
     This  information is incorporated  by reference to the Halliburton  Company
Proxy  Statement  dated March 19, 2002,  under the caption  "Stock  Ownership of
Certain Beneficial Owners and Management."

Item 12(c). Changes in Control.
     Not applicable.

Item 13. Certain Relationships and Related Transactions.
     This  information is incorporated  by reference to the Halliburton  Company
Proxy Statement dated March 19, 2002, under the caption  "Certain  Relationships
and Related Transactions."

                                       74


PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

(a)   1.     Financial Statements:
             The report of Arthur Andersen LLP, Independent  Public Accountants,
             and the financial statements of the Company as required by Part II,
             Item 8, are included on pages 28 through 68 and  pages 72 and 73 of
             this annual report. See index on page 12.

      2.     Financial Statement Schedules:                           Page No.

             Report on supplemental schedule of Arthur Andersen LLP     83

             Schedule II - Valuation and qualifying accounts for the
                 three years ended December 31, 2001                    84

             Note:  All  schedules  not  filed  with  this  report  required  by
             Regulation S-X have been  omitted as not applicable or not required
             or  the  information required  has been  included in the  notes  to
             financial statements.

      3.     Exhibits:

      Exhibit
      Number          Exhibits
      -------         --------

      3.1             Restated  Certificate  of   Incorporation  of  Halliburton
                      Company filed  with the Secretary of State  of Delaware on
                      July 23, 1998 (incorporated  by reference to  Exhibit 3(a)
                      to  Halliburton's  Form 10-Q for the  quarter  ended  June
                      30, 1998).

      3.2             By-laws  of  Halliburton  revised  effective  May 16, 2000
                      (incorporated by reference to  Exhibit 3 to  Halliburton's
                      Form 10-Q for the quarter ended June 30, 2000).

      4.1             Form of debt security of 8.75% Debentures due February 12,
                      2021  (incorporated  by  reference  to Exhibit 4(a) to the
                      Predecessor's Form 8-K dated as of February 20, 1991).

      4.2             Senior Indenture dated as of January  2, 1991  between the
                      Predecessor and Texas Commerce Bank National  Association,
                      as trustee (incorporated by  reference to Exhibit  4(b) to
                      the Predecessor's Registration Statement on Form S-3 (File
                      No.  33-38394) originally  filed with  the Securities  and
                      Exchange Commission on December 21, 1990), as supplemented
                      and  amended by the First  Supplemental Indenture dated as
                      of  December  12, 1996 among  the Predecessor, Halliburton
                      and the Trustee  (incorporated by reference to Exhibit 4.1
                      of Halliburton's Registration  Statement on Form 8-B dated
                      December 12, 1996, File No. 1-03492).

      4.3             Resolutions  of  the  Predecessor's   Board  of  Directors
                      adopted at a meeting held on February  11, 1991 and of the
                      special pricing committee of the Board of Directors of the
                      predecessor adopted at a meeting held on February 11, 1991
                      and  the  special pricing  committee's  consent in lieu of
                      meeting dated February 12, 1991 (incorporated by reference
                      to Exhibit 4(c) to the  Predecessor's Form 8-K dated as of
                      February 20, 1991).

      4.4             Form  of debt security of 6.75% Notes due February 1, 2027
                      (incorporated by reference to Exhibit 4.1 to Halliburton's
                      Form 8-K dated as of February 11, 1997).

                                       75


      4.5             Second  Senior  Indenture  dated  as of  December  1, 1996
                      between the  Predecessor and  Texas Commerce Bank National
                      Association, as Trustee,  as supplemented  and amended  by
                      the  First Supplemental Indenture dated  as of December 5,
                      1996 between  the Predecessor  and  the  Trustee  and  the
                      Second  Supplemental Indenture  dated as  of  December 12,
                      1996 among  the Predecessor,  Halliburton and the  Trustee
                      (incorporated by reference to Exhibit 4.2 of Halliburton's
                      Registration  Statement  on  Form  8-B  dated December 12,
                      1996, File No. 1-03492).

      4.6             Third  Supplemental Indenture  dated as of  August 1, 1997
                      between  Halliburton  and  Texas  Commerce  Bank  National
                      Association,  as Trustee,  to the Second  Senior Indenture
                      dated as of December 1, 1996 (incorporated by reference to
                      Exhibit 4.7 to Halliburton's  Form 10-K for the year ended
                      December 31, 1998).

      4.7             Fourth  Supplemental Indenture  dated as  of September 29,
                      1998 between Halliburton and Chase Bank of Texas, National
                      Association   (formerly  Texas  Commerce   Bank   National
                      Association), as  Trustee, to the Second Senior  Indenture
                      dated as of December 1, 1996 (incorporated by reference to
                      Exhibit 4.8 to Halliburton's Form  10-K for the year ended
                      December 31, 1998).

      4.8             Resolutions of Halliburton's Board of Directors adopted by
                      unanimous consent dated  December 5, 1996 (incorporated by
                      reference  to Exhibit 4(g) of  Halliburton's Form 10-K for
                      the year ended December 31, 1996).

      4.9             Resolutions of Halliburton's Board of Directors adopted at
                      a special meeting held on September 28, 1998 (incorporated
                      by reference  to Exhibit  4.10 to Halliburton's  Form 10-K
                      for the year ended December 31, 1998).

      4.10            Restated  Rights  Agreement  dated  as of December 1, 1996
                      between  Halliburton  and  Mellon  Investor  Services  LLC
                      (formerly   ChaseMellon   Shareholder   Services,  L.L.C.)
                      (incorporated by reference to Exhibit 4.4 of the Company's
                      Registration  Statement  on  Form  8-B  dated December 12,
                      1996, File No. 1-03492).

      4.11            Copies of instruments that define the rights of holders of
                      miscellaneous  long-term  notes  of  Halliburton  and  its
                      subsidiaries,  totaling  $17  million in  the aggregate at
                      December   31,  2001,   have  not  been  filed   with  the
                      Commission.  Halliburton agrees to furnish copies of these
                      instruments upon request.

      4.12            Form  of  debt  security of  7.53% Notes  due May 12, 2017
                      (incorporated by reference to Exhibit 4.4 to Halliburton's
                      Form 10-Q for the quarter ended March 31, 1997).

      4.13            Form of  debt security  of 6.30%  Notes due August 5, 2002
                      (incorporated by reference to Exhibit 4.1 to Halliburton's
                      Form 8-K dated as of August 5, 1997).

      4.14            Form of debt security of  5.63% Notes due December 1, 2008
                      (incorporated by reference to Exhibit 4.1 to Halliburton's
                      Form 8-K dated as of November 24, 1998).

                                       76


      4.15            Form  of Indenture,  between Baroid  Corporation and Texas
                      Commerce  Bank  National Association,  as Trustee, for  8%
                      Senior  Notes  due  2003  (incorporated  by  reference  to
                      Exhibit 4.01  to the  Registration Statement  on  Form S-3
                      filed by Baroid Corporation,  Registration No.  33-60174),
                      as  supplemented  and  amended  by  Form  of  Supplemental
                      Indenture, between Dresser,  Baroid Corporation  and Texas
                      Commerce  Bank N.A.  as Trustee, for 8%  Guaranteed Senior
                      Notes  due 2003 (incorporated  by reference to Exhibit 4.3
                      to  Registration  Statement  on  Form S-4  filed by Baroid
                      Corporation, Registration No. 33-53077).

      4.16            Second  Supplemental  Indenture  dated  October  30,  1997
                      between   Dresser  and   Texas  Commerce   Bank   National
                      Association,  as Trustee,  for 8%  Senior  Notes  due 2003
                      (incorporated   by    reference   to   Exhibit   4.19   to
                      Halliburton's  Form 10-K  for the  year ended December 31,
                      1998).

      4.17            Third  Supplemental  Indenture dated  September  29,  1998
                      between Dresser, Halliburton, as Guarantor, and Chase Bank
                      of Texas, National Association, as Trustee, for 8%  Senior
                      Notes due 2003 (incorporated by  reference to Exhibit 4.20
                      to Halliburton's Form 10-K for the year ended December 31,
                      1998).

      4.18            Form of Indenture, between Dresser and Texas Commerce Bank
                      National Association, as Trustee, for 7.60% Debentures due
                      2096  (incorporated  by  reference  to  Exhibit  4  to the
                      Registration   Statement   on   Form   S-3   as   amended,
                      Registration  No. 333-01303), as  supplemented and amended
                      by  Form of  Supplemental Indenture,  between  Dresser and
                      Texas  Commerce Bank  National  Association,  Trustee, for
                      7.60%  Debentures due  2096 (incorporated  by reference to
                      Exhibit  4.1 to  Dresser's  Form  8-K filed  on  August 9,
                      1996).

      4.19            Form of debt security of floating rate Notes due July 16,
                      2003   (incorporated  by  reference  to   Exhibit  4.1  to
                      Halliburton's Form 8-K dated January 8, 2002).

      4.20            Form  of  debt  security  of  6%  Notes due August 1, 2006
                      (incorporated by reference to Exhibit 4.2 to Halliburton's
                      Form 8-K dated January 8, 2002).

      10.1            Halliburton Company Career Executive  Incentive Stock Plan
                      as amended November 15, 1990 (incorporated by reference to
                      Exhibit 10(a) to the Predecessor's  Form 10-K for the year
                      ended December 31, 1992).

      10.2            Retirement  Plan for the Directors of Halliburton Company,
                      as   amended   and  restated   effective   May  16,   2000
                      (incorporated   by   reference   to   Exhibit   10.2    to
                      Halliburton's Form 10-Q for the quarter ended September
                      30, 2000).

      10.3            Halliburton Company Directors' Deferred Compensation Plan
                      as  amended  and  restated  effective   February  1,  2001
                      (incorporated   by   reference   to    Exhibit   10.3   to
                      Halliburton's Form  10-K for the  year ended  December 31,
                      2000).

      10.4            Halliburton  Company  1993  Stock  and Long-Term Incentive
                      Plan,  as  amended  and  restated  effective  May 16, 2000
                      (incorporated   by   reference   to   Exhibit   10.3    to
                      Halliburton's  Form 10-Q  for the  quarter  ended June 30,
                      2000).

      10.5            Halliburton Company Restricted Stock Plan for Non-Employee
                      Directors  (incorporated by reference to Appendix B of the
                      Predecessor's proxy statement dated March 23, 1993).

      10.6            Employment agreement (incorporated by reference to Exhibit
                      10(n)  to the  Predecessor's  Form 10-K for the year ended
                      December 31, 1995).

                                       77


      10.7            Employment agreement (incorporated by reference to Exhibit
                      10.16  to  Halliburton's  Form  10-K  for  the  year ended
                      December 31, 1998).

      10.8            Employment agreement (incorporated by reference to Exhibit
                      10.19  to  Halliburton's  Form  10-K  for  the  year ended
                      December 31, 1998).

      10.9            Dresser  Industries, Inc.  Deferred Compensation  Plan, as
                      amended   and   restated   effective   January   1,   2000
                      (incorporated   by   reference   to   Exhibit   10.16   to
                      Halliburton's  Form 10-K  for the  year ended December 31,
                      2000).

      10.10           Dresser   Industries,   Inc.   1982   Stock   Option  Plan
                      (incorporated by reference to Exhibit A to Dresser's Proxy
                      Statement  dated  February  12,  1982,  filed  pursuant to
                      Regulation 14A, File No. 1-4003).

      10.11           ERISA Excess Benefit Plan for Dresser Industries, Inc., as
                      amended and restated effective June  1, 1995 (incorporated
                      by  reference to  Exhibit 10.7 to  Dresser's Form 10-K for
                      the year ended October 31, 1995).

      10.12           ERISA  Compensation  Limit   Benefit  Plan   for   Dresser
                      Industries, Inc., as amended  and restated effective  June
                      1,  1995  (incorporated  by  reference  to Exhibit 10.8 to
                      Dresser's Form 10-K for the year ended October 31, 1995).

      10.13           Supplemental   Executive   Retirement   Plan   of  Dresser
                      Industries,  Inc.,  as  amended  and  restated   effective
                      January 1, 1998 (incorporated by reference to Exhibit 10.9
                      to Dresser's Form 10-K for the year ended October 31,
                      1997).

      10.14           Stock  Based  Compensation   Arrangement  of  Non-Employee
                      Directors (incorporated by  reference to  Exhibit  4.4  to
                      Dresser's Registration Statement on Form S-8, Registration
                      No. 333-40829).

      10.15           Dresser  Industries, Inc.  Deferred Compensation  Plan for
                      Non-employee Directors, as restated and amended  effective
                      November 1, 1997 (incorporated by reference to Exhibit 4.5
                      to   Dresser's  Registration   Statement   on   Form  S-8,
                      Registration No. 333-40829).

      10.16           Long-Term  Performance Plan for Selected  Employees of The
                      M. W. Kellogg Company,  as amended and restated  effective
                      September 1,  1999 (incorporated by reference  to  Exhibit
                      10.23  to  Halliburton's  Form  10-K  for  the  year ended
                      December 31, 2000).

      10.17           Dresser  Industries,  Inc.  1992  Stock  Compensation Plan
                      (incorporated by reference to Exhibit A to Dresser's Proxy
                      Statement  dated  February  7,  1992,  filed  pursuant  to
                      Regulation 14A, File No. 1-4003).

      10.18           Amendments  No. 1 and 2 to  Dresser  Industries, Inc. 1992
                      Stock  Compensation  Plan (incorporated  by  reference  to
                      Exhibit  A to Dresser's Proxy Statement dated  February 6,
                      1995, filed pursuant to Regulation 14A, File No. 1-4003).

      10.19           Amendment No. 3 to the Dresser Industries, Inc. 1992 Stock
                      Compensation  Plan (incorporated by  reference to  Exhibit
                      10.25  to  Dresser's Form 10-K for the year  ended October
                      31, 1997).

                                       78


      10.20           Amendment  No. 1 to the  Supplemental Executive Retirement
                      Plan   of  Dresser  Industries,  Inc.   (incorporated   by
                      reference  to Exhibit 10.1 to Dresser's  Form 10-Q for the
                      quarter ended April 30, 1998).

      10.21           Employment agreement (incorporated by reference to Exhibit
                      10.2 to Halliburton's Form 10-Q for the quarter ended June
                      30, 2000).

      10.22           Employment agreement (incorporated by reference to Exhibit
                      10.1 to  Halliburton's Form 10-Q  for  the  quarter  ended
                      September 30, 2000).

      10.23           Form   of  Nonstatutory   Stock   Option   Agreement   for
                      Non-Employee  Directors   (incorporated  by  reference  to
                      Exhibit  10.3  to Halliburton's  Form 10-Q for the quarter
                      ended September 30, 2000).

      10.24           Employment agreement (incorporated by reference to Exhibit
                      10.39  to  Halliburton's  Form  10-K  for  the  year ended
                      December 31, 2000).

      10.25           Agreement  and Plan of  Recapitalization,  as  amended and
                      restated  effective   April  10,  2001   (incorporated  by
                      reference to Halliburton's Form 8-K/A dated  as of May 10,
                      2001).

      10.26           Halliburton Company Supplemental Executive Retirement Plan
                      (formerly  part of  Halliburton Company Senior Executives'
                      Deferred  Compensation   Plan), as  amended  and  restated
                      effective January 1, 2001  (incorporated  by  reference to
                      Exhibit  10.1 to Halliburton's Form  10-Q for the  quarter
                      ended June 30, 2001).

      10.27           Halliburton  Company Benefit  Restoration  Plan  (formerly
                      part  of Halliburton Company  Senior Executives'  Deferred
                      Compensation  Plan),  as  amended  and  restated effective
                      January 1, 2001 (incorporated by reference to Exhibit 10.2
                      to Halliburton's Form 10-Q for the quarter  ended June 30,
                      2001).

      10.28           Employment agreement (incorporated by reference to Exhibit
                      10.3 to Halliburton's Form 10-Q for the quarter ended June
                      30, 2001).

      10.29           Halliburton  Annual Performance  Pay  Plan, as amended and
                      restated  effective  January  1,  2001   (incorporated  by
                      reference  to Exhibit 10.1 to Halliburton's  Form 10-Q for
                      the quarter ended September 30, 2001).

      10.30           Halliburton Company Performance Unit Program (incorporated
                      by  reference to  Exhibit 10.2  to Halliburton's Form 10-Q
                      for the quarter ended September 30, 2001).

      10.31           Halliburton   Elective  Deferral   Plan,  as  amended  and
                      restated  effective  January  1,   2002  (incorporated  by
                      reference to  Exhibit 4.1  to  Halliburton's  Registration
                      Statement  on Form S-8,  Registration No. 333-73046  filed
                      November 9, 2001).

*     10.32           Employment agreement.

*     10.33           Employment agreement.

*     21              Subsidiaries of the Registrant.

*     23              Consent of Arthur Andersen LLP.

                                       79


      24.1            Powers of attorney for  the following directors  signed in
                      February, 1997 (incorporated by reference to Exhibit 24 to
                      Halliburton's  Form  10-K for the year ended December  31,
                      1996):

                      Lord Clitheroe
                      Robert L. Crandall
                      W. R. Howell
                      C. J. Silas

      24.2            Power of  attorney signed in December, 1997 for Charles J.
                      DiBona (incorporated  by reference  to  Exhibit  24(b)  to
                      Halliburton's  Form  10-K for  the year ended December 31,
                      1997).

      24.3            Powers of attorney for the following directors signed in
                      October,  1998 (incorporated by  reference to Exhibit 24.3
                      to Halliburton's Form 10-K for the year ended December 31,
                      1998):

                      Lawrence S. Eagleburger
                      Ray L. Hunt
                      J. Landis Martin
                      Jay A. Precourt

      24.4            Powers of attorney for the  following directors  signed in
                      May,  2001 (incorporated  by reference to Exhibit  24.1 to
                      Halliburton's  Form  10-Q  for  the quarter ended June 30,
                      2001):

                      Kenneth T. Derr
                      Aylwin B. Lewis
                      Debra L. Reed

      24.5            Powers of  attorney for  Douglas L. Foshee, Robert R. Harl
                      and Edgar J. Ortiz  (incorporated by reference to  Exhibit
                      24.2 to Halliburton's Form 10-Q for the quarter ended June
                      30, 2001).

  *                   Filed with this Form 10-K.

(b)          Reports on Form 8-K:



                         Date of
Date Filed               Earliest Event         Description of Event
-------------------------------------------------------------------------------------------------------------------
                                          

During the fourth quarter of 2001:

October 19, 2001         October 18, 2001       Item 5. Other Events for a press release announcing the signing
                                                of a letter of intent to combine Halliburton Subsea and DSND
                                                Subsea ASA.

October 26, 2001         October 23, 2001       Item 5. Other Events for a press release announcing 2001 third
                                                quarter earnings.

                                       80


                         Date of
Date Filed               Earliest Event         Description of Event
-------------------------------------------------------------------------------------------------------------------

During the fourth quarter of 2001 (continued):

October 30, 2001         October 26, 2001       Item 5. Other Events for a press release announcing the Board of
                                                Directors declared a 2001 fourth quarter dividend of 12.5 cents a
                                                share payable December 20, 2001 to shareholders of record at the
                                                close of business on November 29, 2001.

November 6, 2001         November 1, 2001       Item 5. Other Events for a press release announcing that
                                                Halliburton KBR, formerly Kellogg Brown & Root, has acquired GVA
                                                Consultants AB from British Maritime Technology Limited for an
                                                undisclosed amount.

November 7, 2001         October 30, 2001       Item 5. Other Events for a press release announcing Halliburton's
                                                dispute of asbestos claims relating to a verdict in a Mississippi
                                                trial.

November 27, 2001        November 21, 2001      Item 5. Other Events for a press release announcing the
                                                acquisition of Magic Earth, Inc., a leading 3-D visualization and
                                                interpretation technology company.

December 4, 2001         November 29, 2001      Item 5.  Other Events for a press release announcing judgments
                                                against Halliburton's subsidiary, Dresser Industries, Inc.,
                                                involving asbestos claims and Halliburton's intent to appeal.

December 7, 2001         December 5, 2001       Item 5. Other Events for a press release announcing returned
                                                verdicts against Halliburton's subsidiary, Dresser Industries,
                                                Inc., involving asbestos claims.

December 11, 2001        December 7, 2001       Item 5. Other Events for a press release announcing a telephone
                                                conference by Halliburton's management to discuss asbestos
                                                litigation.

December 12, 2001        December 11, 2001      Item 5. Other Events for a press release announcing Halliburton
                                                maintains Standard & Poor's Investment Grade Rating.

December 20, 2001        December 17, 2001      Item 5. Other Events for a press release announcing that
                                                Halliburton KBR Government Operations division has been awarded
                                                the U.S. Army Logistics Civil Augmentation Program (LOGCAP) III
                                                contract.

                                       81


                         Date of
Date Filed               Earliest Event         Description of Event
-------------------------------------------------------------------------------------------------------------------

During the first quarter of 2002:

January 4, 2002          January 4, 2002        Item 5. Other Events for a press release denying rumors.

January 8, 2002          July 16, 2001          Item 5. Other Events for a press release detailing the terms of
                                                the $275 million fixed-rate note due August 1, 2006 and $150
                                                million of floating notes due July 16, 2003.

January 28, 2002         January 23, 2002       Item 5. Other Events for a press release announcing 2001 fourth
                                                quarter earnings.

January 28, 2002         January 23, 2002       Item 5. Other Events for a press release announcing Moody's
                                                Investors' Services continued credit rating at investment grade.

February 1, 2002         January 30, 2002       Item 5. Other Events for a press release announcing A-/A2 credit
                                                ratings reaffirmed by Standard & Poor's.

February 13, 2002        February 7, 2002       Item 5. Other Events for a press release announcing that Kellogg
                                                Brown & Root, Inc. settled Qui Tam lawsuit.

February 15, 2002        February 13, 2002      Item 5. Other Events for a press release announcing the Board of
                                                Directors declared a 2002 first quarter dividend of 12.5 cents a
                                                share payable March 21, 2002 to shareholders of record at the
                                                close of business on February 28, 2002.  The annual meeting of
                                                shareholders was set for May 15, 2002 in Dallas, Texas.

February 15, 2002        February 14, 2002      Item 5. Other Events for a press release announcing that a U.S.
                                                Bankruptcy Court has issued a temporary restraining order staying
                                                certain pending asbestos claims.

February 27, 2002        February 22, 2002      Item 5. Other Events for a press release announcing that the U.S.
                                                Bankruptcy Court restraining order on staying certain pending
                                                asbestos claims has extended the time period of such stay until
                                                April 4, 2002.


                                       82


REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SUPPLEMENTAL SCHEDULE

To the Shareholders and Board of Directors
Halliburton Company:

We have audited in accordance with auditing standards  generally accepted in the
United States of America, the consolidated financial statements included in this
Form 10-K, and have issued our report thereon dated January 23, 2002. Our audits
were made for the purpose of forming an opinion on those  statements  taken as a
whole.  The  supplemental  schedule  (Schedule  II)  is  the  responsibility  of
Halliburton Company's management and is presented for purposes of complying with
the  Securities  and  Exchange  Commission's  rules and is not part of the basic
financial  statements.   This  schedule  has  been  subjected  to  the  auditing
procedures  applied in the audits of the basic financial  statements and, in our
opinion,  is fairly  stated in all  material  respects  in relation to the basic
financial statements taken as a whole.





                                         /s/ ARTHUR ANDERSEN LLP
                                        ------------------------
                                             ARTHUR ANDERSEN LLP
Dallas, Texas,
     January 23, 2002 (Except with respect to certain  matters discussed in Note
     9, as to which the date is February 21, 2002.)

                                       83




                               HALLIBURTON COMPANY
                 Schedule II - Valuation and Qualifying Accounts
                              (Millions of Dollars)

     The table below presents  valuation and qualifying  accounts for continuing
operations.
                                                                            Additions
                                                                  ------------------------------
                                                     Balance at     Charged to      Charged to                     Balance at
                                                      Beginning      Costs and        Other                          End of
                   Descriptions                       of Period      Expenses        Accounts       Deductions       Period
------------------------------------------------------------------------------------------------ ------------------------------
                                                                                                    
Year ended December 31, 1999:
   Deducted from accounts and notes receivable:
      Allowance for bad debts                         $  66        $    49             $ -         $   (21) (a)      $   94
-------------------------------------------------------------------------------------------------------------------------------
   Reserve for repairs and maintenance                $  14        $     4             $ -         $    (3)          $   15
-------------------------------------------------------------------------------------------------------------------------------
   Accrued special charges                            $ 357        $     -             $ -         $  (288) (b)      $   69
===============================================================================================================================

Year ended December 31, 2000:
   Deducted from accounts and notes receivable:
      Allowance for bad debts                         $  94        $    39             $ -         $    (8) (a)      $  125
-------------------------------------------------------------------------------------------------------------------------------
   Reserve for repairs and maintenance                $  15        $     4             $ -         $    (5)          $   14
---------------------------------------------------------------------------------- --------------------------------------------
   Accrued special charges                            $  69        $     -             $ -         $   (63) (c)      $    6
-------------------------------------------------------------------------------------------------------------------------------
   Accrued reorganization charges                     $   -        $    36             $ -         $   (20)          $   16
===============================================================================================================================

Year ended December 31, 2001:
   Deducted from accounts and notes receivable:
      Allowance for bad debts                         $ 125        $    70             $ -         $   (64) (a)      $  131
-------------------------------------------------------------------------------------------------------------------------------
   Reserve for repairs and maintenance                $  14        $     4             $ -         $    (5)          $   13
-------------------------------------------------------------------------------------------------------------------------------
   Accrued special charges                            $   6        $     -             $ -         $    (6)          $    -
-------------------------------------------------------------------------------------------------------------------------------
   Accrued reorganization charges                     $  16        $     -             $ -         $   (15) (d)      $    1
===============================================================================================================================

(a)    Receivable write-offs and reclassifications, net of recoveries.
(b)    Includes $47 million reversal of special charges taken in 1998 and $14 million for  items of a long-term nature reclassified
       to employee compensation and benefits in 1999.
(c)    Includes $9 million for items of a long-term nature reclassified to other liabilities in 2000.
(d)    Includes $4 million estimate to actual adjustment.



                                       84


SIGNATURES
As required by Section 13 or 15(d) of the  Securities  Exchange Act of 1934, the
registrant  has  authorized  this  report  to be  signed  on its  behalf  by the
undersigned authorized individuals, on this            day of March, 2002.
                                            ----------

                                       HALLIBURTON COMPANY




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

As required by the Securities  Exchange Act of 1934, this report has been signed
below by the following persons in the capacities indicated on this        day of
                                                                   ------
March, 2002.

Signature                                   Title
---------                                   -----




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




  /s/  Douglas L. Foshee                    Executive Vice President and
----------------------------------
       Douglas L. Foshee                    Chief Financial Officer




  /s/  R. Charles Muchmore, Jr.             Vice President and Controller and
----------------------------------
       R. Charles Muchmore, Jr.             Principal Accounting Officer

                                       85


Signature                                                     Title
---------                                                     -----

* LORD CLITHEROE                                              Director
----------------------------------
Lord Clitheroe

*ROBERT L. CRANDALL                                           Director
----------------------------------
Robert L. Crandall

* KENNETH T. DERR                                             Director
----------------------------------
Kenneth T. Derr

* CHARLES J. DIBONA                                           Director
----------------------------------
Charles J. DiBona

* LAWRENCE S. EAGLEBURGER                                     Director
----------------------------------
Lawrence S. Eagleburger

* W. R. HOWELL                                                Director
----------------------------------
W. R. Howell

* RAY L. HUNT                                                 Director
----------------------------------
Ray L. Hunt

* AYLWIN B. LEWIS                                             Director
----------------------------------
Aylwin B. Lewis

* J. LANDIS MARTIN                                            Director
----------------------------------
J. Landis Martin

* JAY A. PRECOURT                                             Director
----------------------------------
Jay A. Precourt

* DEBRA L. REED                                               Director
----------------------------------
Debra L. Reed

* C. J. SILAS                                                 Director
----------------------------------
C. J. Silas




* /s/  SUSAN S. KEITH
----------------------------------
        Susan S. Keith, Attorney-in-fact

                                       86