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The terrorist attacks on the United States in September 2001 touched us all in different ways. I am very proud of the way Halliburton employees around the world rallied in support of the victims. The impact of 9/11 on the corporate world has been huge in the short term, but I believe long-term prospects for the worldwide economy remain bright, particularly for our industry sector.

The Halliburton stock price dropped precipitously toward the end of the year. There were several reasons for the drop. First, there was overall uneasiness about the U.S. and global economies and the negative impact on oil and gas prices, and the tragic events of 9/11 heightened those concerns. But the main reason was reaction to several sizable asbestos-related jury verdicts against the Company. The lawsuits relate mainly to products manufactured by various divisions of Dresser Inc. and past operations of Brown & Root. The largest category of claims relates to Harbison-Walker, a refractory company that Dresser spun off in 1992.

Although we’ve worked hard to explain our strategy, it’s likely that the investment community will continue to express concern about our asbestos-related activities in the face of softening fundamentals in the oilfield services industry. We take the issue very seriously and understand the concerns our shareholders have. Asbestos litigation is a U.S. national problem — many companies are affected — and the civil justice system is producing uneven and inequitable results. We believe asbestos litigation needs serious review by Congress. In the meantime, the Company has substantial insurance, we continue to pursue what I believe is the right litigation strategy, and we are conducting a vigorous defense of asbestos lawsuits.

While these issues have had a negative impact on our share price in the near term, we will continue to work through this problem without losing sight of our strong global market position and our underlying corporate strategy. We will continue to invest in the people, equipment and technologies that we believe will make us successful. Our businesses are strong and healthy, and our financial disclosure is accurate and complete.

While the global economic slowdown has hurt the demand for hydrocarbons, the fundamental nature of our industry has not changed. We are driven by supply and demand. Energy prices are cyclical, our business is cyclical, and we have to deal with the current downturn as best we can. Halliburton has a strong history of performance that helps us ride through weak periods. We continue to introduce new technologies that will give us a competitive advantage even in the face of soft demand. We’re always looking for innovative business relationships that will keep us working and keep our customers developing, in spite of short-term price fluctuations. Steering a course through price swings is one of the great management challenges in our business. How well we succeed is an indicator of our overall management quality.

We can count on one thing. Our industry will always be affected by world events and economics. None of our technologies will change that, and none of them are short-term solutions. They require heavy investment, and they demand that we change the way we think and work. We must pursue the technologies that are best for our Company and our industry tomorrow, next year and for the next generation.

By most measures, and certainly in light of current industry conditions, we have completed an excellent year. The full year’s earnings from continuing operations exceed all prior years combined since the Dresser merger. We are very well positioned for “through the cycle” revenues and earnings, with almost $10 billion in backlog and industry-leading people, technology, products and services.



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