A Halliburton Fairy Tale

A HALLIBURTON FAIRY TALE….It appears that Manchurian Global um, I mean Halliburton, has paid a fine for secretly changing its accounting practices in a way that inflated its 1998 and 1999 profit figures:

Until the second quarter of 1998, Halliburton had dealt with cost overruns on projects by taking a loss for the amount of the overrun unless and until the company that it was working for agreed to pay part or all of the overrun. But confronted with a large overrun on a fixed-fee project to build a gas production plant in the Middle East – the commission did not say in which country – Halliburton changed its policy so that it would record the income it thought the customer would eventually agree to pay.

That change in policy was not disclosed until March 2000, when the company filed its 1999 annual report with the S.E.C. The commission said that pretax profit for all of 1998 was reported at $278.8 million, 46 percent more than the $190.9 million that would have been reported under the old accounting.

Halliburton’s former CFO and controller have been the subject of an SEC investigation related to this, but Halliburton’s former CEO ? who, you may recall, is currently the vice president of the United States ? is in the clear. Why? Because the SEC was unable to find any evidence that he knew what was going on.

All I can say about this is that it must be mind-numbingly frustrating to be an SEC investigator. Dick Cheney ? like most CEOs in cases like this ? is off the hook because there’s no smoking gun. But anybody who’s spent even a few minutes in the executive suite of a large corporation knows that of course Cheney knew about this. Not only did he know, but this over-budget project was almost certainly a subject of considerable interest to him, the cost overruns were probably a subject of numerous status reports, and its effect on Halliburton’s earnings was surely a frequent source of conversation. There is nothing that a CEO pays more attention to than his company’s quarterly and yearly earnings reports. Nothing.

So Cheney knew. But as long as his former CFO and controller are willing to fall on their swords for him, there will never be any proof. And we will all go on pretending that when FY98 earnings turned out to be 46% higher than expected, Dick Cheney just scratched his chin, said “I’ll be damned, things turned out OK after all,” and then went out and played a round of golf. When he got back, nobody on his financial team, nobody in sales, nobody on the board, none of the analysts who follow Halliburton, and nobody in operations ever mentioned the subject of surprisingly high corporate earnings in his presence again.

And they all lived happily ever after.