Dick Cheney: Another Criminal Thug

Haliburton and SEC Inquiry

http://www.nytimes.com/2002/05/30/business /30HALL.html?todaysheadlines

May 30, 2002
Halliburton and Inquiry by the S.E.C.
By ALEX BERENSON

The Halliburton Company ? which disclosed Tuesday that it was under investigation by the Securities and Exchange Commission for a change in its accounting practices in 1998, while Vice President Dick Cheney was its chief executive ? adopted more aggressive policies last year about recording sales and postponing potential losses.

In a statement Tuesday night, Halliburton said the S.E.C. was investigating a change in its accounting practices that enabled the company to postpone possible losses of hundreds of millions of dollars. Halliburton did not reveal the change to investors for more than a year after instituting it.

Halliburton said that it viewed the accounting change as proper and that it would cooperate with the investigation. The company said it believed that the inquiry was prompted by a May 22 article in The New York Times disclosing the 1998 change.

Halliburton shares fell 63 cents, or 3.3 percent, yesterday, to $18.72.

At the same time, Halliburton's most recent annual report to the S.E.C. says that the company adopted an even more aggressive approach last year to recognizing revenue on big construction projects. Halliburton now sometimes reports sales months before it has billed its clients for work, the filings show. And the company now keeps some disputed bills on its books for more than a year, instead of writing them off and reporting a loss to investors.

Neither change necessarily violates accounting rules, but both are aggressive, accounting experts said. In general, accounting rules encourage companies not to report sales unless they are sure they can collect them, and to write off losses as soon as they are certain of them.

Otherwise, "you're creating greater uncertainty, and how do you justify that this is a change that was preferable?" said Lynn Turner, the former chief accountant of the S.E.C. and a professor of accounting at Colorado State University.

Douglas Foshee, Halliburton's chief financial officer, said the recent changes, like the earlier ones, did not break accounting rules and were not overly aggressive. "It's an issue of proper disclosure," he said.

Whether the S.E.C. inquiry will reach Mr. Cheney, who as chief executive had final responsibility for Halliburton's books, is unclear. In a memo in 2000 to his colleagues at Arthur Andersen, which was Halliburton's auditor, the partner who managed the Halliburton account boasted of his close relationship with Mr. Cheney.

The partner, Terry Hatchett, said the relationship was so close that Mr. Hatchett had remained lead partner on the Halliburton account even after he moved from Dallas to Tokyo to oversee Andersen's Asian operations. In addition, while he was an executive at Halliburton, Mr. Cheney appeared in a marketing video extolling Andersen's services.

Current and former executives at Halliburton have described Mr. Cheney as a hands-off executive who left daily management to David Lesar, a former Andersen partner who at the time was Mr. Cheney's second-in-command. Mr. Foshee said last week that he could not imagine that Mr. Cheney had specifically approved the 1998 change, though he said he was certain that it was approved by Mr. Lesar, who became chief executive in 2000.

Mr. Cheney declined to comment, referring all questions to Halliburton. Andersen also declined to comment.

Seth Taube, former director of enforcement for the New York office of the Securities and Exchange Commission, said he believed that the S.E.C. would not shy from investigating Mr. Cheney's role in Halliburton's accounting practices.

"The S.E.C. has a history of investigating administration officials as much as the party out of office," Mr. Taube said. "If the investigation leads to Cheney, I believe the staff will pursue it. The staff is relatively nonpolitical; the staff is made up of relatively young lawyers trying to make their reputation."

The changes Halliburton disclosed in its most recent annual report expand on the accounting shift the company made four years ago.

Much of Halliburton's business comes from big construction projects, like natural gas processing plants, which sometimes run over budget. In the fourth quarter of 1998, Halliburton began to book revenue on the assumption that its customers would pay at least part of the cost overruns, although they remained in dispute. Before that, Halliburton had been more conservative, reporting revenue from overruns only after settling with its customers.

Cost overruns still in dispute represented 50 percent of Halliburton's operating profit in the fourth quarter of 1998, according to company financial reports.

Last year, Halliburton further loosened its policies on revenue recognition, according to its annual report for 2001, which was filed in March. Now Halliburton says that it will keep claims for cost overruns on its books indefinitely, as long as it believes that they will be paid. Previously, the company had said it believed that it would collect most of the claims within a year.

Under the policies adopted last year, Halliburton reported that it was carrying $234 million in disputed claims on its books as of Dec. 31, up from $113 million a year earlier.

In addition, Halliburton disclosed that it changed its policy on recording "unbilled receivables" last year. Those revenues represent work on big projects that Halliburton has completed but for which it has not yet billed its clients.

Until last year, Halliburton would only record unbilled receivables if it expected to bill its clients within a month. Now, the company will record unbilled receivables as revenue even if does not expect to bill its clients for several months.

Mr. Foshee said the company was simply being clearer in its latest disclosures about revenue-recognition practices that remain virtually unchanged.

"The change is immaterial, and the unbilled receivables will be collected," Mr. Foshee said. "All we did is clean up the language to say that instead of in the next month, the next several months."

James Wicklund, an analyst at Banc of America Securities in Houston, said he thought that Halliburton's accounting practices were reasonable.

"Is their business as profitable as it had purported to be?" Mr. Wicklund said. "No. Is that a surprise? No. Sure, it does matter, but it is a small part of the profitability of the business."