----- Original Message -----
From: "Dan Minette" <[EMAIL PROTECTED]>
To: "Killer Bs Discussion" <[EMAIL PROTECTED]>
Sent: Sunday, January 04, 2004 2:21 PM
Subject: Re: Minimal Profits for Halliburton
>
> ----- Original Message -----
> From: "John D. Giorgis" <[EMAIL PROTECTED]>
> To: "Killer Bs Discussion" <[EMAIL PROTECTED]>
> Sent: Saturday, January 03, 2004 10:53 PM
> Subject: Re: Minimal Profits for Halliburton
>
>
> > At 06:46 PM 1/3/2004 -0600 Dan Minette wrote:
> > >Any corporation worth its salt can have small or zero profits from
> certain
> > >international operations.
> >
> > So, so you are saying that you disagree with the conclusions of the NY
> > Times' investigation?
> >
> > If so, on what grounds?
>
> I have no doubt that the facts that they report are accurate. I'm saying
> that they are, virtually, meaningless. In a corporation, the splitting of
> the profits and costs between different cost/profit centers is fairly
> arbitrary. For example, a corporation may work in a country that
prohibits
> taking profits out of that country. So, they make no profit in that
> country. However, the division of the company that rents tools to that
> operations in that country makes a nice profit.
>
> In addition, if there is anything like a cost plus bidding with a poor
> paper trail, it becomes a cost sink. Anyone who can get their costs
> association with that project can make their division balance sheet look a
> lot better. There are bonuses riding on those sheets, so there is an
> overwhelming incentive to do this.
>
> I'm not assuming any unusual bookkeeping here, just the stuff that oil
> service firms have been doing for decades.
>
>
> > If not, then what *are* you saying, other than simply saying that no
> > evidence will sway you from your pre-determined conclusion that Cheney &
> > Co. are looting America and Iraq for the profiteers at Halliburton?
>
> But, I never said that it was looting. I'd just be shocked if they didn't
> maximize return by using Iraq as a wonderful cost sink.
And the oil patch isn't the only place this kind of bookkeeping takes place,
of course. Here are a couple of other examples of how money gets moved
around and accounted for in, shall we say, interesting ways. Back in early
2000 there was a discussion on the moderated Babylon 5 newsgroup about this
kind of thing in the entertainment industry. Someone on the newsgroup
remembered JMS stating at one point that he owned a piece of the B5 net
profit and asked if that amounted to anything. His reply, from 1/15/2000:
No, nor will it ever. That's how Hollywood bookkeeping works.
We know, because [w]e were told, that when the show was
still first airing on PTEN, it was a mandate that All PTEN shows
had to show a profit every season in order to be renewed. That
was a hard and fast rule.
Each year, we got renewed, because we made a profit for WB.
Once, in a meeting with the execs after year 3, they complimented
us on how much money the show had made for WB. [Warner
Brothers was the major partner in PTEN.]
Then they turn right around and, for purposes of net
participation, pump out balance sheets that show we'll forever
be in the red.
Net means nothing because they can continue to charge anything
and everything against the revenue, and you can never show a
profit on paper; it's only if you own a piece of the gross that
actual money appears.
Shifting around what division within a corporation is running at a deficit
and what division has a profit, or even what company owned by a corporation
has debt and what part is profitable, is nothing new at all. Just recently,
a company for which I formerly worked did an interesting piece of debt
restructuring to save some money for one of its subsidiaries. This
wholly-owned subsidiary company had taken out a rather substantial loan and
was paying a relatively high interest rate because of the balance sheet of
that company. To reduce the debt load, the parent company, which was
eligible for very low interest rates, took out a loan *from the same bank*
in the amount that would pay off the original loan including currently
accrued interest, and then loaned that amount to the subsidiary to pay off
the original loan. Now the subsidiary pays the parent company enough each
month to cover the payments on the new loan, which are quite a bit lower
than the payments they were making in the first place. On paper, the new
loan looks like a wash to the parent company, it's paying more out but
getting an equal amount back in. For the subsidiary, it basically has the
same loan it always has, but with a lower interest rate, so less money going
out means their balance sheet suddenly looks better. And the bank doesn't
mind the lower interest rate much because now the risk of non-payment is
lower in their eyes, because the parent company is guaranteeing payment in
full of the debt, and they can show on paper that they have the assets to do
so while barely even noticing it. In the bank's eyes, making a loan like
this that they know will reduce their income is not a bad thing because it
makes it more likely that the parent company will continue to do business
with that bank in the future. And from what I understand, this is all legal
and above-board, even announced publicly with a press release.
But the payments are still originating from the same company where they've
always originated. It's all a shell game, and it's all too easy to
conveniently loose track of just exactly what assets and debts are under
which shell. And it's easy to shuffle around the numbers on paper in a way
that looks completely misleading, for example a publicly traded parent
company showing nothing but profits even though all of its wholly-owned
subsidiaries are running at losses. And this can lead to the kind of
corporate scandals we've been seeing in the news over the past couple of
years. Some companies can shuffle the numbers and make it all clean and
legal, and I'm sure many do. But it is very easy to bury unfavorable
numbers in ways that are difficult to track (although becoming less
difficult with some of the post-Enron regulations, from what I understand).
Of course, I'm not an economist and my description and understanding could
be all wrong. I'd really like someone with a bit more practical knowledge
in this area to take a shot at this thread.
Reggie Bautista
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