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Enron Mail |
Enron, a Giant Bargain
The New York Times, 11/11/01 Dow Breaks Through Pre-Attack Level The New York Times, 11/11/01 Dealings of Enron emerging Houston Chronicle, 11/11/01 Demise of Enron a blow to city / As local business pillars crumble, Dynegy = a bright spot Houston Chronicle, 11/11/01 FLYING BLIND / By keeping investors in the dark, Enron lost its way Houston Chronicle, 11/11/01 Deregulation Not Derailed by California's Meltdown Power: Though many energ= y firms were scarred in the state's free-market stumble, analysts say they = are likely to rebound. Los Angeles Times, 11/11/01 The Thing Is: Enron The Independent - London, 11/11/01 USA: Wall Street takes aim at accounting tricks. Reuters English News Service, 11/11/01 Senate stimulus bill slammed as grab bag of special interests Houston Chronicle, 11/11/01 Week in Review Desk; Section 4 November 4-10 Enron, a Giant Bargain By Richard A Oppel Jr. 11/11/2001 The New York Times Page 2, Column 3 c. 2001 New York Times Company With its principal business in peril, Enron agreed to be acquired by Dynegy= for $9 billion -- one-ninth what it was worth last year. Enron, of Houston= , used political muscle and trading-floor savvy to create new markets for e= lectricity and gas and become the nation's dominant energy trader. Yet its = refusal to explain its finances caught up to it last month, when investors = fled after disclosure of an S.E.C. probe and an unusual $1.2 billion reduct= ion in shareholder equity. After it admitted overstating profits by $600 mi= llion, other energy companies began to shun Enron, putting its trading busi= ness in jeopardy. Finally, a humbled Enron, out of options, threw itself in= to the arms of Dynegy, its much smaller crosstown rival. Richard A. Oppel J= r. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Money and Business/Financial Desk; Section 3 DataBank Dow Breaks Through Pre-Attack Level By MICHAEL BRICK 11/11/2001 The New York Times Page 15, Column 3 c. 2001 New York Times Company Stocks posted big gains this past week, pushing the Dow Jones industrial av= erage to its highest close since the Sept. 11 attacks.=20 The Federal Reserve's half-point reduction of short-term interest rates on = Tuesday, to 2 percent -- the 10th cut this year -- was a big reason for the= advance. Investors bought stocks on optimism that the latest cut would fin= ally help stimulate the economy. Equities got a further lift when reports emerged on Friday that seemed to r= un counter to the Fed's prediction that the economy would worsen, suggestin= g an economic turnaround had already started. The University of Michigan's = monthly index of consumer sentiment, a widely followed barometer, showed a = November improvement in attitudes about finances and the economy.=20 For the week, the Dow Jones industrials rose 284.46, or 3.05 percent, to 9,= 608.00, the first time since the Sept. 11 attacks that the average had clos= ed above its Sept. 10 finish of 9,605.51. The Nasdaq composite index rose 8= 2.75, or 4.74 percent, to 1,828.48. The Standard & Poor's 500-stock index r= ose 36.21, or 3.34 percent, to 1,120.31. Both the Nasdaq and S.& P. indexes= regained their pre-attack levels in October. MICHAEL BRICK Chart: ''STOCKS IN THE NEWS'' Baxter International NYSE: BAX Baxter said a = chemical that it used to manufacture filters for dialysis patients may have= played a role in dozens of deaths around the world. The F.D.A. is investig= ating those deaths. Friday's Close: $47.48 Week's Change: -3.10% EST. '01 P= /E: 27.13 Cisco Systems NNM: CSCO For the first time this year, Cisco's rev= enue increased from the previous quarter. Although it had a loss in the fir= st fiscal quarter, the results exceeded Wall Street's expectations. Friday'= s Close: $19.20 Week's Change: +11.24% EST. '01 P/E: 86.49 BellSouth NYSE: = BLS The regional telephone company said it expected revenue to grow 5 to 7 = percent in 2002, compared with sales growth of 8 to 9 percent this year. Fr= iday's Close: $39.02 Week's Change: +3.67% EST. '01 P/E: 17.66 Microsoft NN= M: MSFT A federal judge plans to hold separate but related proceedings on t= he proposed antitrust settlement between Microsoft and the Bush administrat= ion. Friday's Close: $65.21 Week's Change: +6.21% EST. '01 P/E: 35.44 Newpo= rt News Shipbuilding NYSE: NNS The company agreed to a $2.1 billion takeove= r by Northrop Grumman, a rival military contractor. Northrop will acquire t= he outstanding shares for $67.50 each and assume $500 million of debt. Frid= ay's Close: $67.95 Week's Change: -2.09% EST. '01 P/E: 20.75 Dynegy NYSE: D= YN Dynegy has agreed to acquire Enron, a rival energy trading company, in a= deal valued at about $9 billion. It also includes the assumption of around= $13 billion in Enron debt. Friday's Close: $38.76 Week's Change: +15.87% E= ST. '01 P/E: 18.52 Palm NNM: Palm The hand-held computer maker said that it= s chief executive, Carl J. Yankowski, had resigned. The departure comes aft= er a year of missteps, including product delays and inventory buildups. Fri= day's Close: $2.65 Week's Change: +14.22% EST. '01 P/E: -- H. J. Heinz NYSE= : HNZ Citing a slowdown in its food-service business, the company lowered i= ts profit targets for the second quarter and for the full fiscal year. Frid= ay's Close: $39.90 Week's Change: -7.66% EST. '01 P/E: 14.98 (Source: Bloom= berg Financial Markets)=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 NEWS Dealings of Enron emerging TOM FOWLER Staff 11/11/2001 Houston Chronicle 4 STAR 16 (Copyright 2001) The Enron name may soon fade away, but the federal securities investigation= that helped erode the energy giant's foundation is not over yet.=20 The 3 1/2-week-old Securities and Exchange Commission probe into Enron Corp= .'s finances is likely drawing closer to answering questions about complex = partnerships that wiped out more than $1 billion in shareholder value and a= lmost $600 million in profits. SEC officials don't discuss their works in progress, but already the result= s are becoming clear.=20 The company admitted that massive accounting errors over the past four year= s led it to overstate its profits and understate its debts, an admission th= at no doubt saved the company from some SEC penalties, say observers.=20 And the company has gradually distanced itself from its former chief financ= ial officer - considered the architect behind some of the deals - and indic= ated that other employees were personally involved in the partnerships with= out its knowledge. But the culpability of Enron's current or former employe= es, if any, won't be clear for some time.=20 On Oct. 17, the day after Enron reported an unexpected third- quarter loss,= the SEC began asking Enron questions about two off- balance-sheet partners= hips, called LJM1 and LJM2. They were formed to help the company grow witho= ut adding additional debt or diluting stock valuations, and were also used = to help hedge against the risks in some of Enron's newer lines of business.= =20 Former CFO Andy Fastow formed the partnerships with the approval of the com= pany's board of directors, attorneys and auditors. His dual role as CFO and= managing partner of those two partnerships had the appearance of a conflic= t of interest, even though Enron insisted that measures were taken to preve= nt any illegal or unethical behavior.=20 The SEC's role in looking at the partnerships isn't to prevent company exec= utives from having conflicts of interest in their dealings, however, but ra= ther to make sure the companies fully disclose those conflicts or any situa= tions that may appear to be conflicts, said John Coates, a professor at Har= vard Law school.=20 "So although they have a role in determining that all the information in En= ron's proxy was correct and that all transactions were reported, they were = not responsible for determining whether or not the transactions were done o= n fair terms," Coates said.=20 Item 404 of SEC Regulation S-K requires companies to disclose any transacti= ons where executive officers personally benefit by $60,000 or more. That di= sclosure should include their direct and indirect interests in the deal, th= e amount of money or assets they receive through it and other information.= =20 As in all rules, however, there are certain exceptions.=20 If an executive's compensation from a deal is less than 10 percent of the v= alue of the overall transaction, they may not need to disclose all of those= details, Coates said. That stipulation could possible give Enron cover for= not having previously disclosed the $30 million Fastow earned through the = partnerships.=20 "But there are times when the companies may have followed the letter of the= rules and the SEC still pushes them to fully disclose the details," he sai= d.=20 Whether or not Enron needed to disclose previously the investments or profi= ts that a number of other employees made in some of the partnerships is als= o hard to discern.=20 The company said this week that in addition to Fastow, five other employees= invested in the deals. Two of those employees - Ben Glisan, a managing dir= ector and treasurer of Enron Corp., and Kristina Mordaunt, a managing direc= tor and general counsel of an Enron division - were terminated by Enron thi= s week. The other employees, including Fastow and executives Michael Kopper= , Kathy Lynn and Anne Yeager, no longer work for Enron.=20 The company didn't mention how much those individuals invested or how much = benefit, if any, they reaped from the deals. Some of the employees may not = even fall under the disclosure rule since it doesn't give a clear definitio= n of what positions are "executive officers."=20 The company has gradually distanced itself from Fastow and the partnerships= since the problems arose. Shortly after the earnings report last month Lay= said he and the board stood by Fastow, but a day later replaced him.=20 On Oct. 31, the day Enron said the SEC had upgraded its review of the finan= ces from a simple inquiry to a formal investigation, the company announced = that its board of directors had created a special investigation committee o= f its own. A company spokeswoman stressed that the committee had the power = to take disciplinary action against any Enron employee, officer or director= who it determines "improperly participated in the transactions."=20 In its SEC filing that outlined the partnerships on Thursday, the company s= aid it was aware of the partnerships but required that certain safeguards b= e put in place and that the transactions be approved and reviewed regularly= .=20 "Whether these controls and procedures were properly implemented is a subje= ct of the Special Committee's investigation," the statement said.=20 At a Friday news conference, Lay said the board was aware of the formation = of one of the partnerships but that he was not aware that Glisan and Mordau= nt were investing in the partnerships. Lay deflected many of the questions = regarding the investigation, saying a conference call would be held next we= ek.=20 Shareholders have lined up behind lawsuits against the company, the partner= ships, and even the company's law firm, Vinson & Elkins.=20 "Disclosure cases and state corporate law cases are all but assured in situ= ations like this," Coates said. "Even if the SEC does very little, the shar= eholders will still line up." Photo: The new Enron Corp. building, framed by a curved walkway, is still u= nder construction in downtown Houston. If Dynegy's proposal is approved, th= e $200 million, 40-story building will be among its new assets in the purch= ase of its much larger rival.=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 NEWS Demise of Enron a blow to city / As local business pillars crumble, Dynegy = a bright spot DAVID KAPLAN Staff 11/11/2001 Houston Chronicle 4 STAR 1 (Copyright 2001) It seems like only days ago that Enron Corp. was being held up as an exampl= e of a company that could see the future.=20 The wizards of Wall Street were marveling at the corporation's bold, innova= tive strategies. In Houston, high-flying Enron was erecting its new headquarters downtown, a= tall and shiny skyscraper, the city's first in more than a decade.=20 And now, almost suddenly, Enron is vanishing.=20 In the past few months, three pillars of Houston's economy and business lea= dership have fallen on hard times. Compaq Computer Corp., the centerpiece o= f Houston's technology image, may be sold. Continental Airlines has laid of= f thousands as it adjusts to a slowing economy and the aftermath of Sept. 1= 1 in the travel business.=20 And only months ago, Houston lost the headquarters of American General as t= he company was sold to American International Group.=20 Now Enron will disappear as it is absorbed by one of its rivals.=20 What impact does all of this negative business news have on Houston's image= ?=20 The recent wave of corporate downturns has some experts concerned, but othe= rs say that when they look at the big picture they are still optimistic.=20 "The fact we have had multiple blows has certainly had a negative effect in= the short run," said Barton Smith, director of the Institute for Regional = Forecasting at the University of Houston.=20 But in the long run, Smith said, a city's future has more to do with its qu= ality of life and the quality of its infrastructure than whether the city h= as lost or attracted a major headquarters.=20 "When Boeing left Seattle, we said, `Poor Seattle,' " Smith said. "(Three m= onths later) Seattle is still growing and still known as a good place to li= ve."=20 What is more important in terms of Houston's corporate image and its image = in general, Smith said, is "whether it's easy to get around and get to work= and how smoothly a businessman can get to Tokyo or London."=20 Smith believes Houstonians should be more concerned about other local probl= ems such as getting the city's pollution problem "under control in a ration= al way." If Houston continues to be known as one of the most polluted citie= s in America, Smith said, "that will continue to haunt us."=20 The demise of Enron is "certainly not good news, nor was Compaq good news,"= said Steve Klineberg, a Rice University professor of sociology.=20 The two companies enhanced the city's image and stature, Klineberg said, in= that they signified that Houston was moving out of a 20th- century oil-bas= ed economy into a 21st-century economy based on information and technology.= =20 In terms of image, the Enron news is more damaging within the business comm= unity than to the perception of Houston by the world at large, said Steve C= urrall, associate professor of management psychology and statistics at the = Jesse H. Jones Graduate School of Management at Rice University.=20 "Enron has very little business-to-consumer activity, and for the average p= erson on the street" it doesn't mean much, he said.=20 But it is significant to the business community, Currall said. Enron has be= en a Fortune 10 company and consistently ranked as one of the most innovati= ve companies in America. "And I think the struggles of Enron (have) a negat= ive impact" in the business community, he said.=20 "Houston has benefited from a company like Enron, which has made the city a= world headquarters for energy trading," Currall said. "It made us a hub fo= r the development of financial management innovations.=20 "It's part of the reason why Enron and Dynegy resonate with the Wall Street= gang. They say, `That trading stuff down there is cool.' It's the converge= nce of highly sophisticated finance and the energy industry."=20 Currall said he is delighted that Dynegy is Enron's "suitor" because it kee= ps the people and operations in Houston.=20 "That's great news for Houston," he said.=20 Others agreed that the presence of Dynegy in Houston will soften the blow.= =20 Enron being bought by Dynegy, another Houston firm, is "like a couple of co= usins getting together," said Barry Silverman, a marketing and management c= onsultant.=20 "In a sense, there is no loss for Houston," said David Crossley, president = of the Gulf Coast Institute, a nonprofit group that promotes quality-of-lif= e issues in the area.=20 "Who would have thought that a company in Houston was capable of buying Enr= on?" Crossley said. It makes Dynegy a bigger company and, he said, creates = a certain mystique about Houston since both cutting- edge businesses are he= re.=20 David Morris, the managing partner of the Houston office of Heidrick & Stru= ggles, an executive recruiting firm, believes that Houston has been unfairl= y stereotyped as having a "gunslinger" style of business environment, and h= e is concerned that "what's perceived as a gunslinging type of accounting a= t Enron will be underscored once again."=20 But what should really be emphasized, Morris said, is Houston's creativity.= =20 "That Enron took an old-line industry of gas transmission and re- created i= t into the marketing of gas and trading of gas and hedging of the price for= gas - creating different value streams in the same industry - and did it b= efore the rest of the world could grasp it all is pretty amazing, and none = of that is going away," he said.=20 That point was echoed by Don Henderson, vice president and managing directo= r of Hyatt Regency, Houston, and the recent chairman of the Greater Houston= Convention and Visitors Bureau.=20 "When you think of New York, you think of the stock market," he said, "and = when you think of Chicago, you think of agribusiness.=20 "And more and more when you think of Houston, it's energy as a commodity. A= nd it's only going to be stronger with all the mergers and acquisitions bec= ause the business of trading energy as a commodity is only going to grow."= =20 Henderson maintained that Houston is still the envy of much of the country.= =20 Houston has always been one of the continuously booming economies, he said,= and "has bounced back quicker and stronger than any region."=20 To offer an example of the city's resilience and appeal, Henderson noted th= at Hewlett-Packard Chief Executive Officer Carly Fiorina recently stated th= at the work force of Compaq's Houston campus might increase in size in part= because of the city's business-friendly environment compared to what she d= escribed as a less friendly business climate in California.=20 Silverman maintained that the recent experiences of various local businesse= s "won't hurt our image at all."=20 "In this global economy, you often see companies changing names and headqua= rters," he said. "It's like a Monopoly game.=20 "I bet if I asked 100 people where Microsoft is headquartered, 50 of them c= ouldn't tell me." Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 OUTLOOK Editorials FLYING BLIND / By keeping investors in the dark, Enron lost its way Staff 11/11/2001 Houston Chronicle 4 STAR 2 (Copyright 2001) Last spring, Enron Chairman Ken Lay told a leadership forum at the Universi= ty of Houston that his goal was to make Enron the No. 1 company in the worl= d. Six months later, Enron was fighting for its life. In a $7.8 billion sto= ck deal struck Friday, Enron will cease to exist as its operations are fold= ed into rival Houston energy firm Dynegy.=20 Enron, in recent years one of Houston's most important corporations, did no= t reach this pass because its ambitions were too high. Unlike the mythical = Icarus, Enron did not fly too near the sun, melting the wax of its wings. Enron's troubles came because some of its top executives chose to do much o= f their piloting under cover of darkness. In the process, they lost their w= ay.=20 By using several mysterious partnerships to finance projects and shield ris= k and debt from public scrutiny, Enron's leaders set the stage for the vici= ous circle in which drops in earnings and investor confidence and creditwor= thiness followed and exacerbated one another. The deals became so complicat= ed and impenetrable that Enron's directors, who approved them, no longer kn= ew whether the company's revenues and assets were coming or going.=20 The Securities and Exchange Commission is investigating Enron's financial a= rrangements and questionable bookkeeping, and an Enron spokesman says the c= ompany now finds it difficult to know the state of the partnerships it owne= d or controlled. Following months during which Enron's announcements regard= ing departing executives lacked both accuracy and candor, the company this = past week restated its finances back to 1997, subtracting $586 million from= its net income and adding $2.5 billion to its debt. Regardless of what the= SEC inquiry finds, Enron's revised accounting makes a good case for congre= ssional or regulatory elimination of whatever loopholes allowed Enron to in= flate its income and obscure its debt.=20 Enron officials say a special board committee is investigating the financia= l arrangements between former Enron executives and the obscure investment p= artnerships they managed or controlled. An Enron spokesman said the committ= ee would make public its findings "at an appropriate time." The appropriate= ness of that time diminishes the further it gets from the present.=20 Neither Enron officials nor investors need to wait for the committee's repo= rt to conclude that letting executives profit on the side from the partners= hips while sticking stockholders with the liabilities was inappropriate. Fo= r the sake of Enron, its stockholders and the citizens of Houston, who depe= nd on Enron's contribution to the economy and the civic life of the city, t= hat arrangement must not be repeated.=20 Much of Enron's problems stem from straightforward but imprudent or ill-tim= ed investments: a power plant in India, broadband capacity not needed in a = collapsing telecommunications market, and a doomed venture into the water b= usiness - Azurix Corp.=20 Those losses might have been survivable, had Enron not denied its own trans= actions the transparency it sought for global energy markets. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Business; Financial Desk Deregulation Not Derailed by California's Meltdown Power: Though many energ= y firms were scarred in the state's free-market stumble, analysts say they = are likely to rebound. NANCY RIVERA BROOKS TIMES STAFF WRITER 11/11/2001 Los Angeles Times Home Edition C-1 Copyright 2001 / The Times Mirror Company Branded as lawless cowboys by California politicians and consumer advocates= , energy merchants rode skyrocketing electricity and natural gas prices to = new stock highs during the worst of California's energy crisis.=20 But in recent months these energy companies--names such as Duke, Dynegy, Re= liant, AES, Mirant, Williams and El Paso Corp.--have seen their fortunes di= m as California's electricity meltdown has slowed the pace of deregulation = nationwide, power prices have tumbled and the economy has faltered. Even power plant owners and energy trading operations that have maintained = healthy earnings growth have watched their stock performance fade.=20 And then there's the Enron Effect.=20 Enron Corp., cast as the heavy by California politicians, has suffered the = biggest fall of all and has helped to drag down stocks of other energy prod= ucers and traders.=20 Enron's woes appear to be a special case in that they flow less from its en= ergy businesses than from a loss of investor confidence in the company's co= mplex and shadowy financial structure, with a resulting cash crunch.=20 Nonetheless, Enron's detractors are crowing at the rapid decline of the tru= est believer in electricity deregulation, the movement to take businesses c= ontrolled for decades by monopoly utilities and throw open the generation, = trading and retail sale of electricity to new competitors.=20 But just as Enron is not dead, neither is electricity deregulation, energy = experts contend. Though several states have delayed their deregulation plan= s and some major corporate players are tempering their enthusiasm, other st= ates and corporations press ahead.=20 It's a tough new world for energy companies that will bring profit opportun= ities for some and acquisitions of low-priced players, analysts say. Enron,= once the most brash of the energy peddlers, has agreed to be acquired by a= rchrival Dynegy Inc. in a $7.7-billion stock deal.=20 Yet when the economy and power prices improve, energy companies will see th= eir prospects gleam again, analysts say.=20 "Deregulation is a train that's not going to be derailed. It may be delayed= , but it's coming," said Jon Kyle Cartwright, senior energy analyst with br= okerage firm Raymond James & Associates.=20 "When the economy rebounds, we're going to see higher energy prices again,"= Cartwright said. "That means that the guys who sell power, the guys who ma= nufacture power--they're going to have very bright futures."=20 Less than a year ago, when energy prices were headed for record territory i= n California and a winter of electricity shortages plagued the state, the f= avorite whipping boys of Gov. Gray Davis and other politicians were such en= ergy sellers as Enron, AES Corp., Dynegy, Duke Energy Corp., Reliant Energy= Inc., Mirant Corp., Williams Cos. and El Paso Corp.=20 All are energy companies that own power plants in California or sell electr= icity or natural gas in the state at prices deemed by state officials to be= higher than those a truly competitive market would have produced. The ener= gy companies have denied that they overcharged Californians, and federal re= gulators investigating the matter have so far ordered only limited refunds = of electricity revenues.=20 Nonetheless, Southern California Edison Co. and Pacific Gas & Electric Co. = lost so much money paying for electricity--costs they could not pass on to = customers because of a rate freeze--that they became insolvent. PG&E filed = for bankruptcy protection.=20 California's near-death experience in electricity markets brought state gov= ernment into the power business in unanticipated ways when lawmakers passed= the landmark deregulation bill in 1996.=20 The state became the primary electricity buyer for the big utilities' custo= mers and formed a power authority to build power plants and transmission li= nes, becoming potential competition to generation companies. State regulato= rs blocked electricity sellers from signing up new retail customers, a prog= ram known as "direct access" that is one of the key components of electrici= ty deregulation.=20 Players Refocusing on Other Operations=20 The energy spectacle in California caused several states to short-circuit d= eregulation plans or to take a much slower approach that could delay for ye= ars the opening of those markets to competition.=20 Energy companies also are now contending with lower electricity prices, whi= ch have plummeted since the beginning of the year, thanks to lower natural = gas prices and temperate weather. And volatility has nearly disappeared, th= ereby cutting profit potential for energy trading firms.=20 The economic downturn will reduce demand for electricity, analysts said, wh= ich also will hurt earnings at a range of companies.=20 The pain was apparent in third-quarter results.=20 "After several quarters of across-the-board strong results, we are now in m= ore of a winners-and-losers environment, as low commodity prices and a weak= economy make conditions more difficult," Merrill Lynch energy analyst Stev= en Fleishman said in a recent note to clients.=20 Some big and mid-size players have stumbled, and a few have slowed their he= adlong rush into unregulated businesses that had until recently held promis= e for these companies, many of them utilities that branched out.=20 A prime example is AES, which generates electricity in California, across t= he nation and in 26 other countries. AES said third-quarter net income fell= 98% because of a sharp drop in profit from its operations in Brazil and Br= itain. AES reduced its earnings estimates for the year and said it will ref= ocus on its core energy business, look for divestiture opportunities and no= t invest in any more telecommunications businesses, dropping its hostile $1= .37-billion bid last week to take over a Venezuelan telecom firm.=20 Reliant Energy said its wholesale energy operation had a 15% drop in third-= quarter operating income, blaming lower gas and power prices, plus legal an= d other costs related to the California electricity crisis. The company's E= uropean operations lost $5 million because of lower profit brought about by= deregulation in the Netherlands, and Reliant now is considering selling it= s European businesses.=20 Constellation Energy Group, which owns the utility in Baltimore and is buil= ding power plants in California and around the country, abandoned plans to = spin off its trading operation after it said earnings for the year will com= e in at the low end of estimates.=20 One California firm that appeared poised to benefit from electricity shorta= ges was Chatsworth-based Capstone Turbine Corp., which manufactures micro-t= urbines that supply power to a small business or a cluster of homes.=20 But struggling Capstone said third-quarter revenue dropped by nearly half a= nd its net loss widened by 54% to $12.5 million as California dodged a summ= er of blackouts and the economy slowed.=20 Energy Giant Takes an Unexpected Loss=20 The company hired a new chief operating officer and said it would restructu= re and lay off an undisclosed number of employees.=20 The biggest surprise came from Enron, which broke a run of 16 profitable qu= arters, reporting a $635-million net loss for the third quarter because of = a $1-billion charge from failed investments in water and telecommunications= . The Houston-based energy giant also revealed that two of its off-balance-= sheet investment partnerships, headed until July by its chief financial off= icer, led to $35million of the losses and chipped $1.2billion off sharehold= er equity in the third quarter.=20 Investors began this month to dump the stock, and Enron's credit rating ero= ded amid lawsuits, news of a probe by the Securities and Exchange Commissio= n into conflicts of interest and attempts by management to soothe fears.=20 Enron Chief Financial Officer Andrew Fastow, who ran the two partnerships, = was pushed out and the firm lined up new financing and went looking for new= investors.=20 Enron has used an opaque grid of off-balance-sheet partnerships to shelter = assets and debt to help the company's push into a variety of deregulated ma= rkets in recent years. But analysts and investors fear that Enron is hiding= money-losing assets in the partnerships; management has been tight-lipped = about the purpose and holdings of the investment vehicles.=20 Takeover rumors swirled last week around Enron before Dynegy announced the = deal Friday, underscoring predictions of general industry consolidation bec= ause of low stock prices.=20 Some Firms Thriving, but Not Their Stocks=20 Some companies are still going strong, although their stocks remain depress= ed.=20 That includes companies on the receiving end of potshots from California's = politicians and utility regulators such as Duke Energy, Dynegy, Mirant, NRG= Corp. and Williams, as well as San Jose-based Calpine Corp., which was rep= eatedly praised by Davis for playing a constructive role during the crisis.= =20 Calpine, for instance, said third-quarter profit and revenue doubled becaus= e the electricity producer increased sales by adding power plants. And yet = its stock is down 55% from a 52-week high of $58 reached in March.=20 "These are the energy merchants that seem to have the best grasp on the mar= ket and on risk management," said Chris Ellinghaus, power and natural gas a= nalyst with Williams Capital in New York. Many of these companies are diver= sified geographically and by the fuel they use to generate electricity and = had locked in favorable contracts that protected them when power prices fel= l this summer, he said.=20 ABN Amro utility analyst Paul Patterson said investors have turned away fro= m these companies, even the healthy ones, because the business "isn't as ex= citing as it used to be."=20 "People go on earnings momentum. It's kind of like having your dessert firs= t," Patterson said. "Once the best is over, you lose your appetite."=20 One company trying to adapt to deregulation's devolution in California is C= ommonwealth Energy Corp., which has survived a run-in with the California P= ublic Utilities Commission and the suspension in California of direct acces= s, Commonwealth's primary business of selling electricity directly to consu= mers and businesses.=20 Commonwealth Energy was one of the more than 300 companies that flocked to = California to sell retail electricity to the customers of Southern Californ= ia Edison, PG&E and San Diego Gas & Electric Co. All but about a dozen of t= he electricity sellers failed, and Commonwealth enjoyed initial success ped= dling low-priced power from renewable sources.=20 But the Tustin-based company and its founder, Fred Bloom, ran afoul of the = PUC for faulty billing practices and Bloom's failure to disclose that he ha= d been ordered to stop selling unregistered securities by five states.=20 Commonwealth Energy settled the matter by paying about $350,000 and reimbur= sing customers. Bloom was banished from the firm as part of the settlement,= and an all-new management team set about diversifying away from deregulate= d businesses, said Ian Carter, the company's chairman and chief executive.= =20 The firm, which recently became registered as a public company but can't se= ll stock until January, is earning a profit, largely because it has been ab= le to resell contracted energy for more than it paid.=20 To maintain its growth, the company is turning away from deregulation and t= oward providing back-office services for regulated companies, generators an= d municipalities, Carter said.=20 For the fiscal year ended July 31, Commonwealth Energy posted revenue of $1= 83 million, up 84%, and income of $60.5 million, compared with a loss of $8= .6 million in the previous fiscal year.=20 "We certainly don't consider ourselves a casualty of deregulation or direct= access," Carter said, noting that the company still sells electricity to 5= 5,000 California business and residential customers and to cities, includin= g Santa Monica and Palmdale.=20 "We realized that we needed to diversify and we needed to do that fairly qu= ickly," Carter said. The company has nearly 40,000 retail customers in Penn= sylvania and will be entering Texas, Michigan, New Jersey and Ohio, he said= .=20 Seven states have delayed their push toward open markets, and some of those= that remain on track, such as Texas, have run into unforeseen glitches tha= t delay the process of giving electricity customers choices beyond their tr= aditional utilities.=20 Deregulation marches on in power trading and generation.=20 The Electric Power Supply Assn., a Washington-based trade group, said last = week that competitive power supplies account for slightly more than a third= of the nation's generation capacity, up from 8.5% in 1997. Wholesale power= trading could approach 7 billion megawatt-hours this year, up from 2.6 bil= lion in 1999, the group said.=20 Federal regulators are in the middle of determining how to reallocate contr= ol of electricity transmission lines into only a few regional operators, pe= rhaps owned by new for-profit companies other than utilities.=20 This process shows that the Federal Energy Regulatory Commission remains de= termined to open electricity markets despite the problems in California, sa= id Lawrence J. Makovich, senior director of the North American power practi= ce at Cambridge Energy Research Associates.=20 "We've got major parts of the electricity business moving backward, and Cal= ifornia is the prime example," Makovich said. "But when you look at other p= laces in the country, what you see is a continuing evolution to a much more= market-based power situation."=20 David Jermain, a principal in the national utility practice of Andersen LLP= , said California will remain on the sidelines for years, paying higher pri= ces than those produced by competitive markets. It also must contend with a= number of pending lawsuits.=20 "California is in for a long-term state of chaotic confusion," Jermain said= . "It's such a complicated mess that you're going to have to let the court = system play through." PHOTO: Commonwealth Energy is trying to adapt to deregulation's devolution = by diversifying quickly, says Chief Executive Ian Carter.; ; PHOTOGRAPHER: = ROBERT GAUTHIER / Los Angeles Times; GRAPHIC: Landscape for Electricity, Lo= s Angeles Times; ; GRAPHIC: Losing Wattage, Los Angeles Times;=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Business The Thing Is: Enron 11/11/2001 The Independent - London FINAL 3 (Copyright 2001 Independent Newspapers (UK) Limited) To investors who thought utilities were a slow but steady way to watch thei= r money grow, Enron tells a particularly chilling tale of horror.=20 Even Friday's news that Enron's much smaller Houston neighbour, Dynergy, ma= y be preparing to mount a $7bn (pounds 5bn) cash and stock bid did not mask= the grisly truth. As far as US fund managers are concerned, this is a comp= any that let Wall Street down spectacularly. Dynergy is thought to have wai= ted until then to be sure Moody's did not downgrade Enron's investment grad= e to junk status. The misery is doubled by the tempting image of what Enron could have been. = At their peak almost a year ago, the shares gave the company a market value= of $69bn; on Friday they were worth a tenth of that.=20 The market felt there was good reason to push the stock to those heights. H= ere was a company that had, for many years, appeared to make all the right = moves. As the group transformed itself from a dull utility into an exciting= mix of energy trading, communications and services, it seemed never to put= a foot wrong. "You had such an outstanding and arrogant company," said Rog= er Hamilton, a senior fund manager at John Hancock, "They were the giant. E= verything in the energy industry touched Enron."=20 The company even managed to persuade investors its convoluted management st= ructure, which some believe is the root cause of its demise, was a positive= thing. "You can't kiss the ass of 24 people," said former Enron chairman J= effrey Skilling. "And together those 24 people are more likely to have the = interests of the shareholders at heart than any one person."=20 Unfortunately, behind the scenes, all hell was breaking loose. The last cou= ple of months have given the market a long, embarrassing string of revelati= ons about the company it once cherished. The company has $13bn of outstandi= ng debt, and has found its access to funds extremely limited. Two weeks ago= , as a measure of its desperation, Enron had to secure a rescue loan agains= t its 25,000- mile network of gas pipelines. Along the way, details of the = group's botched expansion into India have made for supremely depressing ref= lections on management. Crowning the whole sorry tale, and driving the shar= es down 80 per cent, was the opening last month of a Securities and Exchang= e Commission probe into the accounting for some of Enron's partnerships. La= st week came the sacking of the group's treasurer and corporate lawyer, and= a revision of earnings for the last four years to the tune of half-a-billi= on dollars.=20 Despite it all, Dynergy's bid could be the steal of the century. Until all = its troubles are out in the open, Enron may be just a little too grimy for = many potential buyers. But even the most bearish analysts can see there are= rich pickings from the old Enron empire. Dynergy's big problem is snapping= them up before the big boys, including Chevron or Shell, poach the good st= uff.=20 Leo Lewis Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 USA: Wall Street takes aim at accounting tricks. By Deepa Babington 11/11/2001 Reuters English News Service (C) Reuters Limited 2001. NEW YORK, Nov 11 (Reuters) - Wall Street is starting to refuse to bite the = bait on dubious earnings numbers highlighted by corporations in press relea= ses.=20 Companies tout profit figures, frequently called pro forma results, that st= rip out unseemly one-time charges and expenses at record levels - more than= $200 billion this year alone. Investors, analysts, and accountants are rev= olting, and pressure is building to do away with the medley of different pr= ofit numbers or at least cut down on it. Standard & Poor's, a major compiler of earnings and other financial data, n= ow will treat restructuring charges, stock option expenses, and write-downs= from ongoing operations as part of a company's operating earnings - items = that many companies exclude from their version of operating earnings.=20 "In the past, S&P would take a company's special charges at their word," sa= id S&P analyst Robert Friedman, who was involved in the project. "But now w= e're going to say, 'Hey, wait a minute.'"=20 The decision underscores the momentum building on Wall Street to scrutinize= corporate accounting. One recent high-profile victim of this movement was = Enron Corp. The energy trading company faced a crisis in investor confidenc= e after it became clear it had boosted profits and racked up debt through c= omplex financial transactions known as off-balance sheet deals.=20 The deals, which were structured so they wouldn't show up on Enron's balanc= e sheet, caused Enron to chop almost $600 million off earnings for the last= four years. The once-mighty company lost $20 billion in market value, and = on Friday agreed to be bought by smaller rival Dynegy Inc.=20 Investors are scared of such stock market casualties. That's partly why the= y want to crack down on pro-forma numbers, which often present a much rosie= r picture of a company's performance because they exclude a whole bevy of c= osts that drag down the bottom line.=20 "Hopefully, this will put pressure on companies to think twice when they pu= t out their financials," said Friedman.=20 Tech companies, in particular, conveniently have stripped out everything fr= om inventory write-downs to severance costs from their bottom-line figures = and pressured analysts to do the same with their earnings estimates.=20 Mobile phone maker Motorola Inc. , for example, reported a third-quarter pr= o forma loss of $153 million early last month. After including charges for = investment impairments, cost reduction activities and additional reserves f= or its financing of a Turkish cellular operator, however, the company poste= d a whopping $1.4 billion loss.=20 A Motorola spokesman was not available for comment.=20 The practice has also made it difficult for analysts and investors to compa= re the results of one company against its peers as each comes up with its o= wn ideas of what should be included in pro forma earnings.=20 "There are so many variants of pro forma that it can cloud comparisons," sa= id David Zion, an accounting analyst at Bear Stearns.=20 The proliferation of these reports has also caught the attention of the nat= ion's accounting rule makers, even though they don't have the authority to = police press releases.=20 The Financial Accounting Standards Board (FASB) two weeks ago said it is pr= essing ahead with a project that will look at how some closely watched item= s such as pension fund income should be classified and presented in financi= al statements.=20 Corporate America was not enthused by the idea and several corporations wro= te to the accounting body urging it not to go ahead with the plan, said the= project's senior manager, Ronald Bossio.=20 But fund managers and investors are applauding.=20 In a survey of 223 portfolio managers by capital markets firm Broadgate Con= sultants, nine out of 10 stock pickers said companies need to improve how t= hey report results. FASB needs to come up with one key indicator of financi= al performance, and companies should abide by it, they basically said.=20 If the accounting rule-making body accepted EBITDA, or earnings before inte= rest, taxes, depreciation and amortization, as a key measure, companies oug= ht to calculate it in a consistent manner and display it as a separate item= on their statements, almost all managers agreed.=20 "I think that pro forma thing is just a way to get around Generally Accepte= d Accounting Principles," said Debra McNeill, a portfolio manager at Fremon= t Investment Advisors. "I think there needs to be some guidelines to be set= out on pro forma numbers, but it does not necessarily need to be banned. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 NEWS Senate stimulus bill slammed as grab bag of special interests JANET HOOK Los Angeles Times 11/11/2001 Houston Chronicle 4 STAR 6 (Copyright 2001) WASHINGTON - Watermelon growers. Filmmakers. Owners of electric cars. Commu= ters in northern New Jersey. Those are among the people who would benefit f= rom the fine print of a bill, in the Senate on Friday, to boost the languis= hing U.S. economy.=20 The bill, on which a vote is expected this week, would pour about $70 billi= on into the economy next year, mostly for extended unemployment benefits, h= ealth insurance subsidies and tax breaks for individuals and businesses. But it also includes a panoply of provisions less obviously connected to st= imulating the economy - and more clearly designed to win support from speci= fic senators.=20 In a last-minute concession to Sen. Robert Torricelli, D-N.J., the bill inc= ludes bonding authority for Amtrak to develop high-speed railroads and for = a new New York-New Jersey tunnel. More than $5 billion in agriculture subsi= dies were grafted on to help shore up support of farm-state members.=20 The Senate Finance Committee approved the bill Thursday night on a party-li= ne vote, but only after Republicans spent hours slamming it as a hodgepodge= of special-interest favors that will do little to strengthen the economy.= =20 "This is a collage of political giveaways," said Sen. Phil Gramm, R-Texas.= =20 Sound familiar? That's because Democrats mounted a similar critique of the = bill approved by the Republican-controlled House two weeks ago. Democrats a= rgued that the House's $100 billion tax cut bill primarily would benefit so= me of the biggest corporations in America, including Houston-based Enron Co= rp. Rep. Martin Frost, D- Dallas, called it a "grab bag of special-interest= goodies."=20 The mudslinging on both sides illustrates a new line of argument that crops= up in debates all over Capitol Hill these days: The best way to attack you= r opponents is to accuse them of trying to capitalize on the post-Sept. 11 = sense of crisis to advance a parochial political agenda.=20 Sometimes the critique boomerangs. Rep. J.C. Watts, R-Okla., a member of th= e House Republican leadership, issued a statement Thursday attacking the Se= nate Democrats' bill, saying, "The Senate's economic proposal focuses more = on the excise tax for rum and other special-interest breaks than creating j= obs."=20 He was referring to a Senate provision that would extend for one year an ex= isting provision affecting rum imports. The problem with his argument, howe= ver, is that the same provision is in the House Republican bill - which Wat= ts supported.=20 That's just one of many provisions in both the House Republican and Senate = Democratic bills that have little connection to economic stimulus; instead,= they extend a slew of tax breaks, routinely approved by Congress, which ar= e about to expire.=20 At the White House, spokesman Ari Fleischer said the Senate bill contained = "too much spending and not enough stimulus." He lambasted the $220 million = in the bill for bison meat, eggplant, cauliflower and pumpkin growers - in = essence, a government subsidy for commodities that have "experienced low pr= ices during the 2000 or 2001 crop years." Thirty-four commodities would qua= lify.=20 But Senate Finance Committee Chairman Max Baucus, D-Mont., said aid for the= ailing agricultural sector is an appropriate element of a recovery plan.= =20 "When our national economy declines, rural areas are often among the areas = that are hit the hardest and that recover slowest," Baucus said.=20 Another industry that could benefit from the Senate bill is the motion pict= ure industry. Like the House bill, the Senate bill allows businesses more q= uickly to write off their investments in assets whose value depreciates ove= r a number of years. But unlike the House legislation, the Senate bill incl= udes a provision specifying that films are a depreciable asset qualifying f= or the tax break. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09
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