Q & A about Cheney, Halliburton

Posted: Tuesday, July 23, 2002

WASHINGTON -- Vice President Dick Cheney has not publicly discussed his actions as chairman and CEO of Halliburton Co. since it came under investigation by the Securities and Exchange Commission and became the target of multiple lawsuits for its accounting practices.

The latest suit against Halliburton was announced Wednesday by a participant in the company's retirement plan. Cheney is a defendant in a lawsuit filed by Judicial Watch, a conservative watchdog group, over Halliburton's accounting practices.

President Bush said Wednesday he believed Cheney would be exonerated of any wrongdoing. ''When I picked him, I knew he was a fine business leader and a fine, experienced man, and he's doing a great job,'' the president said.

Cheney himself has neither been contacted by the SEC since it opened the probe, nor spoken to journalists about it.

Here, in question and answer form, is a look at the Halliburton situation:

Q: What is Halliburton?

A: The company provides products and services to the petroleum industry worldwide, selling the hardware for exploring and drilling on land and under sea and its engineering know-how for building refining and processing plants and pipeline.

Q: What was Cheney's role at Halliburton?

A: Cheney was chairman and chief executive of the company from 1995 to 2000. A former secretary of defense with experience in Congress and at the White House, Cheney helped open doors for Halliburton as it sought government business and contracts overseas, particularly in the Middle East.

Q: What is the SEC investigating?

A: The commission informed Halliburton on May 28 that it was looking into the company's accounting practices, starting in 1998 on projects where there were cost overruns. Halliburton began counting revenue on the assumption that its customers would pay at least part of the cost overruns, although they remained in dispute and customers sometimes didn't pay on time. The SEC also is investigating whether the company adequately disclosed the practice to investors. Halliburton says it adopted the accounting change because of a transition in the types of contracting it was doing, and says the move was disclosed in footnotes in financial statements.

Q: What's wrong with this accounting change?

A: Judicial Watch alleges in its lawsuit that the changes resulted in overvaluation of Halliburton's stock, deceiving investors. It says the company overstated revenues by $445 million from 1999 through the end of 2001 through what it termed ''fraudulent security practices.'' Halliburton says most publicly traded companies in its industry were using the same accounting practice it switched to, and insists it has always followed ''generally accepted accounting principles.''

Q. How will investigators determine whether Halliburton's actions were proper?

A. ''For any company you have to take into account what its experience has been with respect to collecting past cost overruns,'' said Alan Bromberg, distinguished professor of corporate law and securities at Dedman School of Law at Southern Methodist University. ''If the past experience has been good, that tells you that the probability of collection is very high and it's reasonable to treat that as revenue.''

Q. If what Halliburton did is common practice in the industry, does that make it proper?

A. ''I think it's a limited defense,'' Bromberg said.

Q: What did Cheney know?

A: He did not approve the accounting change, the company said, although he helped collect revenue from cost-overrun projects. Top company officials said Cheney knew Halliburton was counting cost-overrun payments as revenue. As CEO, Cheney signed Halliburton's financial statements in 1998 and 1999.

Q: Will the government defend Cheney if he needs a lawyer in the SEC probe or the lawsuits?

A: No. Cheney was not a government employee during the period under scrutiny. Terry O'Donnell, Cheney's personal lawyer, would represent the vice president. Cheney has not put O'Donnell on notice, a spokeswoman says, and neither the SEC nor Judicial Watch has contacted Cheney.

Q: How much was Cheney paid to head Halliburton?

A: Cheney retired from Halliburton in August 2000. For the nearly eight months he served that year, he received $4.3 million in deferred compensation and bonuses, and $806,332 in salary. The summer when he began his campaign with Bush for the White House, Cheney sold stock options worth just over $40 million.

It was fortuitous timing. When Cheney retired from Halliburton on Aug. 16, 2000, the company's stock sold for $54.02 a share. Battered in recent months by asbestos liabilities, falling profits in its energy units and the SEC probe, Halliburton closed Wednesday at $12.85.

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