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Enron Mail |
Fortune Global 500 List: Enron No. 16
Fortune, July 23, 2001 THE CARNAGE GETS WORSE Profits at bellwether companies slid in the second quarter BusinessWeek, 07/30/01 Power-Market Bear Mauls Plans For New Generators In West Dow Jones Energy Service, 07/26/01 UK: Carrots and sticks to turn big business greener. Reuters English News Service, 07/26/01 JAPAN: UPDATE 1-Kobe Steel to raise 165 bln yen for power business. Reuters English News Service, 07/26/01 ENRON CANCELS MIAMI-DADE PLAN POWER PLANT BUILDER FAVORS DEERFIELD SITE South Florida Sun-Sentinel, 07/26/01 Rove's First Step Toward Shedding Stock Took 5 Months The Washington Post, 07/26/01 Insider Selling by Enron Execs Speaks Louder Than Their Words TheStreet.com, 07/20/01 Enron's Own Dot-Com Bubble Finally Popped TheStreet.com, 07/13/01 Fortune Global 500 List: Enron No. 16 Fortune, July 23, 2001 http://www.fortune.com/indexw.jhtml?channel=artcol.jhtml&;doc_id=203281 News: Analysis & Commentary: FLASH PROFITS THE CARNAGE GETS WORSE Profits at bellwether companies slid in the second quarter By Pallavi Gogoi in Chicago, with bureau reports 07/30/2001 BusinessWeek 34 (Copyright 2001 McGraw-Hill, Inc.) Welcome to the earnings recession. Economists may debate the health of the economy, but there's little doubt where Corporate America stands: Profits have shrunk for three consecutive quarters now. Higher energy costs, the gut-wrenching hangover from tech-spending excesses, and the strong dollar have all contributed to a slowing economy--and continue to take a heavy toll on earnings. That's despite seemingly strong revenue gains. Although overall sales rose 8% in the second quarter from the year before, BusinessWeek's flash profit survey of 90 bellwether companies shows that net income shriveled 34%. But on a closer look, sales weren't so hot either. Much of the jump stems from Enron Corp.'s 196% revenue gain. Barring that, overall sales were flat. DEPRESSED. Nor is the carnage over yet. First Call/Thomson Financial says earnings will drop 8% in the third quarter. Worse, recent earnings surprises have the Boston firm backing away from a projected 3.3% profit recovery in the fourth quarter. So far, 811 companies have warned of lower second-quarter earnings, up from 263 a year ago. ``You don't switch from record earnings warnings to normal overnight,'' says Charles L. Hill, First Call's director of research. Few sectors escaped the bloodbath. Tech companies continued to lead the downturn: Intel Corp.'s net dropped 94% on depressed demand for chips, while Motorola Inc.'s $759 million quarterly loss was one of the worst among the 90 companies. Carmakers and airlines didn't fare much better. General Motors Corp.'s profits plunged 73% on weaker sales and losses from overseas units. ``The strong dollar is becoming an increased problem in the marketplace,'' says GM CFO John Devine. Among carriers, UAL Corp. was one of the worst performers, posting a $292 million loss. Corporate travel cuts will force losses at most major carriers. The financial services sector was a mixed bag. Citigroup's net rose 9%, to $3.7 billion, on higher global business growth. But venture capital investments in technology dealt Wells Fargo & Co. an $87 million loss. There were few surprises among the quarter's star performers. Jack Welch will retire with his legacy as a master of strong and consistent earnings intact: General Electric Co. earnings rose 15%, to $3.9 billion. Pharmaceuticals were also healthy. Pfizer Inc.'s net surged 56% to $1.8 billion, and Johnson & Johnson's climbed 9%, to $1.5 billion, on increased drug sales. Good thing. If the economy stays sick, we're all going to need plenty of painkillers. Table: BusinessWeek's Flash Profits Survey (This table is not available electronically. Please see the July 30, 2001 issue.) Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Power-Market Bear Mauls Plans For New Generators In West By Mark Golden Of DOW JONES NEWSWIRES 07/26/2001 Dow Jones Energy Service (Copyright © 2001, Dow Jones & Company, Inc.) NEW YORK -(Dow Jones)- The crumbling price of electricity in the western U.S., attributed by many to federal price controls, has forced power plant developers to cancel projects, calling into question whether there will be enough electricity to meet demand in the Northwest this winter. The cancellations of peaking plants and temporary, oil-fired generators - high-cost units that provide power needed only when demand is highest - have cut projected generating capacity in the Northwest by up to 1,000 megawatts, about 3% of the combined peak demand of Washington, Oregon, Idaho and western Montana. "The price caps have added uncertainty," said Scott Simms, spokesman for Enron Corp. (ENE) unit Portland General Electric Co. "If we look forward to this winter and you see a diminished supply scenario, you can see why we have concerns about regional reliability. That could put us in a position of having rotating outages in the region." About two weeks after the Federal Energy Regulatory Commission imposed limits on western power prices on June 19, Portland General halted installation of a new 45-megawatt gas-fired peaking turbine at its existing Boardman power plant. The utility was developing the extra generation both to meet its customers' needs and to sell some output to other Northwest utilities left short of hydroelectric supplies due to this year's drought. A turbine that size could power about 45,000 homes. "You can directly attribute that to FERC price controls," Simms said. After the FERC order, at least two utilities in Washington State ended negotiations with NRG Energy (NRG) for supplies from new plants that NRG was ready to build in time for winter. Both utilities - Tacoma Power and Snohomish County Public Utility District - experienced significant supply shortages in the past 12 months, paid very high prices in the spot market and had to raise customer electric rates by as much as 50%. But both utilities told NRG, and later Dow Jones Newswires, that they had no reason to sign long-term contracts to guarantee new supplies, because the FERC had practically eliminated the financial risk of relying on the spot market. NRG, as a result, scuttled plans to build peaking plants in Washington that could have added 300 megawatts. FERC's price controls, as well as supply-demand fundamentals, have dramatically changed the economics of selling power into the West's open market in the past few months. The current western U.S. electricity price cap of $98 a megawatt-hour covers the costs of generating power from easy-to-install but inefficient peaking turbines, but not the capital costs of buying and installing new peakers. In addition, the current price cap may soon be recalculated to a much lower level. The cap is based largely on natural gas prices, which have been cut in half since the cap was first formulated in June. Not Everyone Blames FERC The average monthly price for on-peak hours in the Northwest from August through March is $60 a megawatt-hour - a fraction of what it was three months ago. Many in the western electricity industry think that's because FERC's price controls have kept prices artificially low. A smaller group thinks the market is appropriately signaling that not all the planned gas-fired plants are needed, because some power plants are already under construction and consumers are conserving electricity. Jim Kemp, a senior executive for the Canadian utility TransAlta's (TA.TO) merchant power group, TransAlta (TA.TO), for example, doesn't attribute the cancellation of projects to price controls. "I see it as due to demand-side control and new units," Kemp said. "The market is sending out a signal that we have enough. Maybe this winter we will find that we don't have enough, but that's not the signal the market is sending now." The spot market for power has been far below the federal price cap for two months. Mild weather, a slowing economy and conservation efforts throughout the West have made power from expensive peaking plants unnecessary except for a few hours so far this summer. "Prices started to come down before the FERC mitigation plan started," said Tacoma Power supply analyst David Lucio, who was negotiating with NRG. "The need to try to execute a contract wasn't as great with the prices falling." Lucio said there should be enough capacity to get the Northwest through the winter, barring abnormalities like a long, extended freeze. Construction of dozens of peaking plants in the West is going forward in cases where developers sold supply contracts in advance. TransAlta is continuing construction of a 154-megawatt peaking plant in Washington, because much of the plant's capacity was sold months ago. "The number of announced projects is far and away more than what is needed within the time frame we're talking about," said Dick Watson, a director with the Northwest Power Planning Council. Still, several western utilities have asked the FERC to raise the price cap. Puget Sound Energy (PSD) told the FERC the cap "undercuts the Commission's efforts to ensure adequate supplies of electricity." As previously reported, some small oil-fired generators, which are even more expensive to operate than the permanent, gas-fired peaking plants, have even been taken off line permanently after being installed over the past six months. And orders for new generators have been canceled. -By Mark Golden, Dow Jones Newswires; 201-938-4604; mark.golden@dowjones.com Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. UK: Carrots and sticks to turn big business greener. By Andrew Callus 07/26/2001 Reuters English News Service (C) Reuters Limited 2001. LONDON, July 26 (Reuters) - Stricter environmental laws, flagged by last week's climate change conference, have companies scrambling to link investment strategies to making money from helping save the planet. Governments from 186 countries returned home from a climate change meeting in Bonn with the task of making the 1997 Kyoto protocol on combatting global warming into law. After that, they must find ways to meet their respective carbon emissions limits by 2012, or face penalties. The deal reached in Bonn will allow the trading of greenhouse gas emissions whereby a company polluting below its limit can sell credits to a company polluting more than is allowed. Advocates of the system believe this will create incentives to cut emissions and will help reduce costs of lowering emissions. The allowances of greenhouses gases a company can emit will be denominated in metric tonnes of carbon dioxide equivalent. Energy giant Royal Dutch/Shell predicts a traded price of $5 a tonne of carbon in 2005, rising to $20 a tonne (equivalent to $6 a tonne of CO2) by 2012. "Our investment criteria today incorporate that cost of carbon," said David Hone, Climate Change Adviser to the Anglo-Dutch group. "What that's doing is starting to steer our investment portfolio and our project portfolio to lower emission projects, or forcing higher emission projects to go down the route of more investment to mitigate that carbon in the first place." "This is a big agenda now. It's serious stuff," said Mark Lilley, a partner in risk management at the consultancy Accenture. "Business, and not just the energy business, just has to be part of it on every level, or it risks getting burned." NEW TOOLS Besides the internationally tradeable carbon pollution credits, the governments agreed initiatives such as Clean Development Mechanisms (CDMs) that allow developed nations to score credits by funding climate friendly projects in developing countries. On top of this, they have their own decisions to make on what kind of domestic legislation to use to get the message through to industry. Their options include bully tactics such as UK's Climate Change Levy on greenhouse gas polluters, incentive-based schemes like Germany's guaranteed prices for greener electricity, or a combination of both styles. But it will be the business community that does the emissions reducing, the trading, and the innovating. "Now (after Bonn) we have targets, timeframes, market mechanisms and opportunities to develop some new energy technologies," said Nick Hughes, environmental policy adviser to the British oil multinational BP Plc. "Now that those elements are there and there's an opportunity to do something on a global scale, the ball is really rolling." Green investment funds springing up everywhere are not just focussing on the obvious alternative energy plays. Emma Howard Boyd runs the Environmental Research Unit of British fund Jupiter Asset Management, managing two green funds worth about 230 million pounds ($330 million). About 70 percent of her funds are in "solution providers" like Danish wind power stock Vestas and the British public transport operation FirstGroup that is involved in testing fuel cell powered buses. But the remaining 30 percent is reserved for companies from a wide range of sectors that are minimising their environmental impact. "We believe we are focussing on the companies of the future," she said. "There are strong drivers coming into place to encourage their growth." Nevertheless, it looks as though Big Oil, the motor industry, and power utilities are destined to play the biggest part. "It's not a revolution we are looking at here, it's mainly about doing existing things better," said David Kernohan, Manager of the Energy Environment Service at the consultancy Cambridge Econometrics. "The new fuel technologies and fuel efficiency improvements achieved by the energy producers and motor manufacturers are major achievements, even if not very flamboyant ones." The prospect of emissions trading alone will bring the trading skills of existing energy giants and gas and power traders like Enron into play. And, of course, all the corporate oil producers - even the environmentally conservative giant Exxon Mobil - recognise the shift to cleaner gas, and are scrambling as fast as they can in that direction with their production portfolios. "Gas has a major role to play as a bridge to sustainability and we are talking about decades in that role," said Frank Chapman, chief executive of the gas-rich energy group BG. Independent Power Producers (IPPs) like International Power and Calpine and their construction partners are obvious beneficiaries of CDM projects, building cleaner replacement plants in developing countries for maximum carbon credit points. But nuclear generators, too, are looking for rehabilitation, now that the environmental focus is off the toxic waste debate and on CO2 emissions - where they are zero emitters along with more expensive wind and solar power. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. JAPAN: UPDATE 1-Kobe Steel to raise 165 bln yen for power business. 07/26/2001 Reuters English News Service (C) Reuters Limited 2001. TOKYO, July 26 (Reuters) - Kobe Steel Ltd, Japan's fifth-largest steel maker, said on Thursday it would raise 165 billion yen ($1.34 billion) in project funds from banks to launch an electricity wholesale business. It will borrow funds from banks including Dai-Ichi Kangyo Bank, Sanwa Bank, the Industrial Bank of Japan and Sumitomo Mitsui Banking Corp. Kobe Steel is currently building two coal-burning power generators with output capacity of 700,000 kilowatts each in the western city of Kobe, with plans to begin supplying electricity to the wholesale market from April 2002. As part of ongoing moves to deregulate the power industry, Japan opened up the market for the supply of electricity to large-lot consumers in March 2000. The electricity is supplied to office buildings and commercial centres among others, and represents some 30 percent of the power market. Only a handful of firms have been successful so far in taking business away from Japan's 10 main power utilities, which until last year enjoyed a regional monopoly on the wholesale business. Some foreign firms have also expressed an interest in carving a niche, most notably Enron Corp, a U.S. energy marketing and trading giant. Japan plans to review its deregulation measures in 2003. Kobe Steel's shares ended the day up 3.13 percent, or two yen at, 66 yen. ($1=123.58 Yen). Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. LOCAL ENRON CANCELS MIAMI-DADE PLAN POWER PLANT BUILDER FAVORS DEERFIELD SITE ELLIS BERGER Miami Bureau 07/26/2001 South Florida Sun-Sentinel Broward Metro 4B (Copyright 2001 by the Sun-Sentinel) Enron Corp. is focusing its energies on building a power plant in Deerfield Beach now that it has canceled construction plans for a site in far south Miami-Dade County, a company spokesperson said Wednesday. "We're not renewing our option on the Miami-Dade property," said Lea Sooter in a telephone interview from Enron headquarters in Houston. "This makes Deerfield Beach that much more important to the citizens of Florida. I don't know what the big picture is for Florida, but there is a definite need for power." But Sooter refused to conclusively rule out the possibility Enron could someday build on another site not far away in south Miami- Dade. She acknowledged that a company project manager met with officials of Homestead, a city faced with severe financial problems. But nothing came of the meeting. "We were approached by the city of Homestead, and were listening to what they could bring to the table," she said in a prior interview. "We do that all the time on projects that never get developed." Charles LaPradd, Homestead's communications and project manager, said city officials had no specific site in mind, but let Enron know the company would be welcome in the city that has its own power plant. "It never went anywhere, but it's still open," LaPradd said. "It was a `we're here' kind of thing. We showed our power plant to them. It's always good to have backup. We have three of our 16 main generators down." The Deerfield Beach project is currently stalled. Given the go- ahead in June by the city's Development Review Committee, it was put on hold last week when the Broward County Commission imposed a moratorium on new power-plant construction. Enron officials said the company was considering legal action as well as trying to convince the state Department of Environmental Protection to intervene. The moratorium, enforced by denying the air-quality operating permits are required for power plants, is to end May 1. Sooter said Enron's Miami-Dade decision was based on which site would best serve the public interest. "It is not unusual for us to look at multiple sites and choose to build on the one that is going to work best for everyone," she said. The action clears the way for Miami-Dade's Department of Environmental Resources Management to close a construction landfill near the 61-acre site at Southwest 256th Street and 97th Avenue, east of the Homestead Extension of the Florida Turnpike. Environmentalists and residents of the nearby Lakes of the Bay neighborhood vehemently opposed the project. But Sooter said that opposition had nothing to do with the switch in plans. "Enron wants to be seen as the good guys," she said. "The primary benefit we can give the residents of Miami-Dade is to let the county close the landfill in a timely manner. DERM can now go forward on their own time line with Enron out of the loop." Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. A Section Rove's First Step Toward Shedding Stock Took 5 Months George Lardner Jr. Washington Post Staff Writer 07/26/2001 The Washington Post FINAL A04 Copyright 2001, The Washington Post Co. All Rights Reserved Shortly before he was named as President Bush's senior adviser in January, Karl Rove met with a transition team lawyer who took a look at Rove's stock portfolio, heavy with companies that do business with the government, and told him he would probably have to sell. "He wanted it cleaned up as fast as he could," said the lawyer, Fred Fielding. "He didn't want the bother." But Fielding advised Rove to wait until he obtained a certificate of divestiture from government lawyers -- a determination that the stocks did, indeed, pose a conflict -- in order to defer paying capital gains taxes. Yet, it took more than five months for that step to occur, and, in the meantime, Rove met with officials or trade association representatives of at least six of the companies in which he said he had more than $100,000 worth of stock: Intel, Enron, General Electric, Johnson & Johnson, Pfizer and Cisco. Given Rove's preeminent position in the Bush White House and the size of his holdings, those meetings have generated the very trouble Rove had said he wanted to avoid. Democrats have seized on the meetings to accuse the administration of the kind of ethical lapses that Republicans were quick to jump on during the Clinton administration, and Rep. Henry A. Waxman (D-Calif.) has demanded that Rove's conduct be referred to the Justice Department. Republicans have said the controversy smells of political payback -- "putting politics before the facts," White House spokesman Dan Bartlett said of Waxman -- and dismissed suggestions that the meetings constituted a conflict of interest. In a June 29 letter to Waxman, White House counsel Alberto R. Gonzales defended Rove, saying that he "either had passing, inconsequential contacts" with some of the companies in his portfolio "or participated in broad policy discussions" on issues affecting them, such as energy policy. None of this, Gonzales said, "presents an ethical problem under applicable regulations." But several ethics experts said they thought that determination should be made by the Justice Department, not the White House, although they said they doubted a review would result in anything more than a civil penalty, if that. One expert, a Republican who asked that his name not be used, blamed White House lawyers for political ineptitude in failing to see that "top guys" like Rove should have been given priority instead of being kept waiting for weeks while lower-ranking staffers had their holdings reviewed. "If the system had worked efficiently, within a short period of time, a certificate of divestiture would have been issued, [Rove's] stock sold, and that would have been it," the source said. "A lot of forms have to be reviewed, but if there are problems, most of them are going to wind up on the Fed Page. If the chief of staff or senior political adviser gets into trouble, it's Page One." Under the federal conflict-of-interest law, it is a crime for any government official to take part "personally and substantially" in a government action about any "particular matter" in which he or she has a financial interest. Regulations issued by the Office of Government Ethics cover appearances of a conflict, or situations that would not violate the criminal law but "would raise a question in the mind of a reasonable person about [the official's] impartiality." Failing to meet that standard can result in a reprimand, suspension or dismissal. President Bush told his staff at its swearing-in ceremony Jan. 22 that he expected "every member of this administration to stay well within the boundaries that define ethical and legal conduct. This means avoiding even the appearance of problems." According to the White House, lawyers from the counsel's office met with Rove in early April and again April 24 to inform him of several options he had in addition to selling his stocks. White House spokeswoman Anne Womack said these included seeking waivers that would have allowed him to participate despite a conflict or selling his stocks down to permissible "threshold levels." Rove said he still wanted to sell everything and the lawyers started working on an application for a certificate of divestiture. Under OGE guidelines, it amounted to an affirmation on Rove's part that he had to sell the stocks "to eliminate or prevent a conflict of interest." Waxman said last week that the White House did not have the power to judge Rove's conduct. He cited the federal law requiring that executive branch departments, including the White House, report to the Justice Department "any information" relating to criminal violations by an employee. "Congress appropriately believed that the Department of Justice would be in a better position to render an impartial judgment than the employee's own department or agency," Waxman wrote. The Clinton White House was boxed in by that law on two occasions. Former White House counsel Abner Mikva said he was forced to ask the Justice Department whether national security advisers Samuel R. "Sandy" Berger and Anthony Lake had violated conflict-of-interest rules by failing to dispose of certain stocks after being told to do so. Mikva said he viewed the violations as technical and completely unintentional, but under the law he had no choice. "They had stock in a couple of oil companies, nothing approaching a significant holding," Mikva, now a law professor at the University of Chicago, said in an interview. Berger and Lake "never met with the individual companies, but they were dealing with the energy crisis," Mikva said. "Beth Nolan [Mikva's deputy] brought it to my attention. She said, 'You've got to turn this over to Justice.' I said, 'This is ridiculous.' She said, 'The law is very clear; we have no discretion.' " In Berger's case, he was told by White House lawyers to sell 1,500 shares of Amoco Corp. that had been held for years in a trust established by his wife's grandfather. He was reluctant, fearing a stiff tax for stocks held so long, but he was informed in March 1994 that he had to sell since he was involved in questions about whether to keep sanctions on Iraq and Libya, policy decisions that could affect his stock. He was told he could defer his capital gains taxes by using the proceeds to buy "permitted property" such as an open-end mutual fund. Berger agreed to sell, but then, sources have said, forgot to do so until White House lawyers prodded him in mid-June 1995. Lake was "even more innocent," Mikva said. Lake was told in 1993 to sell stock in four energy companies -- Exxon Corp., Mobil Corp., Duke Power Co. and TECO Energy Inc., because he would be making decisions on energy policy as national security adviser. Mikva said Lake told his secretary to forward the instructions to his broker, but she simply filed the instructions, thinking the sales had been completed. Lake has said he discovered from his broker in June 1995 that he still owned the stocks and sold them the next day. Justice "sat" on the cases for more than a year, Mikva said, but Lake eventually paid a fine of $5,000 to close a civil probe, and Berger agreed to pay $23,000. The Bush White House, Mikva said, "couldn't be more wrong" if it thinks it can absolve Rove without Justice Department scrutiny. Rove's March 12 meeting with Intel executives and associates has generated the most controversy because they brought up a merger application that they hoped the government would approve. Gonzales said Rove was "noncommittal and offered no substantive response." The White House counsel said the matter was in the hands of an interagency review panel "on which Mr. Rove did not sit and in which he played no part." New York University law professor Stephen Gillers said he did not think Rove could be called to account for saying, "The people handling this are Joe and Harry.' I realize they may then go to Joe and Harry and say, 'Karl sent me,' but I don't think this violates the rule." Another ethics specialist, Monroe Freedman, disagreed, saying Rove created "an appearance of impropriety" simply by meeting with Intel when he held more than $100,000 worth of stock in the company. "The problem you have is that a reasonable person would question the propriety of what went on," Freedman said. "We are not required to accept what they say about their meeting not having anything of substance to it." Gonzales said Rove sought no waivers because he "took care to avoid" any direct participation in matters that would have required one. Gonzales did not address the question of an appearance of impropriety, but White House spokesman Bartlett said Rove rejects the notion that he had created one. In addition to the Intel meeting, the White House has also acknowledged that Rove attended meetings that helped shape the administration's energy policy at a time when he owned a substantial amount of energy company stock, including Enron Corp., the Houston-based natural gas and electricity trader embroiled in energy disputes in California, and General Electric Co., which has a nuclear power division. He also reported holdings of up to $50,000 each in Royal Dutch Shell Group and BP Amoco. Rove spoke with Enron Chief Executive Officer Kenneth Lay on subjects ranging from energy policy and global warming to appointment of an Enron-favored candidate to the Federal Energy Regulatory Commission. Gonzales said that Rove was not a member of the task force that developed Bush's energy policy and that the discussions he took part in about "the contours" of the policy were general and had no direct and predictable impact on his Enron holdings. Rove also met March 20 with a group of executives from the Nuclear Energy Institute, which develops policy on key legislative and regulatory issues affecting the nuclear power industry and which counts GE's Nuclear Energy division as one of its members. On May 11, he met with John Chambers, president of Cisco Systems Inc., which makes Internet routing equipment, during a trip to Palo Alto that Rove made for the Republican National Committee. On June 5, Rove set aside half an hour in his office for an introductory meeting with two lobbyists from the Pharmaceutical Research and Manufacturers Association; its members include Johnson & Johnson and Pfizer Inc. He finally received his divestiture orders June 6 and sold all his stock June 7. Staff researchers Lynn Davis and Madonna Lebling contributed to this report. http://www.washingtonpost.com Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Insider Selling by Enron Execs Speaks Louder Than Their Words By Christopher Edmonds <mailto:cedmonds@thestreet.com< Special to TheStreet.com 7/20/01 7:32 AM ET URL: <http://www.thestreet.com/funds/chrisedmonds/1496696.html<; At Enron, actions are speaking differently than words. At the same time as Enron Chairman Ken Lay and Enron President and CEO Jeff Skilling were touting their company's stock as undervalued, both were in the process of selling hundreds of thousands of shares. In an exclusive interview </comment/streetsidechat/1186095.html< with TheStreet.com last November, Lay suggested that Enron stock -- then trading in the mid-$70s at nearly 50 times earnings -- was undervalued. "Comfortable that it's worth that [50 times earnings], yes," he said. "As a matter of fact, some of us here and, of course, many analysts would maintain that even that is undervaluing the company." Yet, since the beginning of the year, Lay has simultaneously exercised and sold nearly 400,000 shares, continuing a program of exercising options and selling the shares that dates back to last November. This year's sales were all at prices below the November prices at which he said the shares were undervalued. According to data compiled by Thomson Financial/First Call, Lay's options transactions occurred between $52.95 and $82 a share. In February, Lay stepped down as Enron's CEO, retaining the title of chairman. Skilling's words and actions were similar. During a January analysts and investors meeting in Houston, Skilling said he believed Enron stock was worth $126 a share. At the same time, he was in the middle of completing sales of 130,000 shares of Enron stock he registered in November 2000. Since January, Skilling has registered for sale an additional 270,000 shares of Enron. And since the first of the year, he has sold stock at between $52.95 and $80.57 a share. Both Lay and Skilling still hold large positions in Enron. As of May 30, Lay and his family reportedly owned more than 2.66 million shares, and Skilling controlled more than 1.1 million shares. They each acquired more than 100,000 shares from the company in January. Enron spokesperson Mark Palmer says the sales are "program sales" that involve the exercise of expiring options and the sale of stock to cover the costs and tax liability, a common practice among executives at many major corporations. And, Palmer notes that Enron's compensation makes such sales almost routine. "A very significant portion of senior management's compensation is paid in equity," he says. Mixed Messages Analysts and investors worry about the messages such high-level insider sales send, especially when at the same time executives are touting the stock's appealing value. "Certainly, it's a concern to see the chief executive selling so aggressively," says Jeff Dietert, an analyst at Simmons & Co., a Houston energy investment boutique and a member of the TSC Energy Roundtable. </comment/streetsidechat/1242533.html< "Especially when they are saying the stock is undervalued. That sends a very mixed message to investors." While acknowledging Enron's unique equity-based compensation program, Dietert says recent selling at the top is unique. "You constantly see a regular group of people selling as they monetize their compensation" at Enron, he says. "However, the larger sales from senior executives are different. Sales have been weighted much more heavily to Lay and Skilling than they have been in the past." Dietert's 12-month price for Enron is $58, and his firm has not provided banking services to Enron. Simmons does not rate companies. Another analyst who asked not to be named was more critical. "The [insider sales] are disconcerting to say the least. In a market like this where the slightest indication of lack of confidence sends a stock down precipitously, their actions are speaking louder than their words." Dream vs. Reality One reason for the mixed messages may have been the company's belief in broadband. At the time Skilling made his now famous $126 tout, he indicated that nearly $40 of value would come from Enron's now flailing broadband business. As my colleagues Adam Lashinsky </comment/siliconstreet/1489696.html< and Peter Eavis </comment/detox/1489630.html< have aptly chronicled, Enron's great dream for broadband turned into a nightmare. "The world certainly looks a lot different today than it did in January, especially to Enron," says Tom McIntyre, president of Dessauer & McIntyre Asset Management, a Massachusetts-based investment adviser. "You sure don't see projections from anyone assigning value to broadband now." In fact, on Enron's second-quarter earnings call, Skilling lamented the fact that investors seem to be assigning negative value to the company's telecom operations. McIntyre holds a long position in Enron. Still, investors might have expected Skilling's words to be backed by his actions. When he made the bullish comments in January, Skilling was selling stock even though the shares were trading near $80 a share, a 57% discount to his target price. That led the analyst to quip, "If it's not an expensive stock, why are they out there selling it?" To others, however, the sales are just noise that distracts from a solid growth story. "You would prefer it if they would never sell," says McIntyre. "I'd rather watch them hold the shares like I do. However, [Skilling] still owns well over a million shares, and the consistent sales suggest they have a program to sell whether the stock is near its high or at its lows." (Records show that Skilling has been selling 10,000 shares each week since mid-November.) The two executives "have a long record of creating and sustaining value for shareholders. I have a high level of confidence that Skilling can continue that record," McIntyre said. But appearances count. "It's a question of perceptions," says McIntyre. "In this market, anything can get a company, and the insider-sales news does hurt." That's especially true when actions and words don't mesh. As the analyst quipped, "It's what they call an oxymoron. You are saying one thing and doing another." Enron's Own Dot-Com Bubble Finally Popped By Adam Lashinsky <mailto:alashinsky@thestreet.com< Silicon Valley Columnist 7/13/01 9:58 AM ET URL: <http://www.thestreet.com/markets/adamlashinsky/1490114.html<; Enron (ENE <http://tscquote.thestreet.com/StockQuotes.jhtml?tkr=ENE<;:NYSE) is no longer an Internet company. Of course, the Houston-based energy distribution and trading concern never was a dot-com, though it tried to convince Wall Street it was. In early 2000, Enron went so far as to suggest to investors the precise value of its nascent money-losing bandwidth business. Wall Street obediently obliged, inflating Enron's share value by as much as 75% from the time the company started bragging about its prospects, a disconnect noted disapprovingly here </comment/siliconstreet/928870.html< a year ago April. Now that dot-com valuations have gone the way of full-service gas stations, Enron is finally owning up to reality regarding the broadband business. "It's like someone turned off the light switch," Enron President and CEO Jeffrey Skilling told investors Thursday morning while announcing an otherwise solid quarter. "Revenue opportunities have just dried up." Indeed, Enron recorded a $109 million loss related to its broadband businesses, compared with income before interest, minority interest and taxes of $17 million in the year-earlier period. Skilling noted that Enron would dramatically scale back the burn rate for its broadband business and that the expectations for resuming progress in this market have been pushed back by at least a year. The story was so different a year and a half ago. With Enron's shares trading in the low 50s, Enron convinced analysts -- who openly admitted their ignorance of the telecommunications issues important to the broadband market -- that bandwidth delivery opportunities were huge. Enron cajoled the stock price into the $90s by August, after telling analysts that the broadband business alone was worth $37 per share, or $27 billion. Today, despite sound performance in its key, wholesale energy-distribution business, Enron's shares are worth $49.55. Even Wall Street, convinced perhaps that the prospects for an IPO of the once-hot Internet operations are totally dead, has gone back to analyzing energy prospects. Ronald Barone, a "natural gas/energy convergence" analyst with UBS Warburg in New York, lowered his price target Thursday on Enron from $102 to $70. In a report, he noted that his earlier projected price applied a multiple of 40 to his previous 2002 earnings target of $2.10 per share and $17 worth of value for broadband services. Now Barone assumes 32 to 33 times estimated 2002 per-share earnings of $2.15 (the same EPS estimate CEO Skilling offered on Thursday's conference call) and zero value for broadband. Enron must be one of the most promotional companies on the planet. If investors played the old Bob Newhart drinking game and had to refill their mugs every time Skilling said "outstanding" in relation to second-quarter performance, they would have been drunk before the question-and-answer session. But Skilling doesn't like the new reality. "Everything has been taken out of our stock for the bandwidth business," he correctly observed. "We are probably getting a negative impact on the stock, and I don't think that's right." Interestingly, as recently as January, management at Enron suggested to Wall Street that its discounted cash-flow models suggested a value of $126 for the stock, including $40 a share for the broadband business. Why companies feel it's proper even to comment on their own stock prices is a wonder. Skilling had nothing to say about the $126 valuation, and analysts didn't query him about it. Oh, it's right all right. No longer the bright shining prospect, broadband is a real drag on the company now, albeit a small one. Robert Franson, an analyst with Bear Stearns in New York, notes that the old IPO rumor has been replaced by one suggesting Enron will sell or lease its broadband network while maintaining the services businesses built around it. "One great thing about Enron is that it is constantly getting out of businesses that aren't right," he says. Bear Stearns had the luxury of initiating coverage on Enron only in December, so it was able to sidestep the trap of perceived value to the broadband business. Donato Eassey of Merrill Lynch is hanging on to hope. "We believe Enron at current prices offers investors a free call option on the future of broadband, and the ultimate turnaround in the telecom market once it occurs," he told clients in a report. Eassey has a price target of $74.50 on Enron's shares. For what it's worth, in April 2000 Enron traded for about 43 times Wall Street's 2001 earnings estimates of about $1.65 per share. Now the company predicts 2001 EPS of $1.80 (showing the success of its main wholesale business), and is valued at about 23 times its own 2002 earnings estimates. It's worth noting that Enron is a good example of a company that has taken advantage of the Internet. Skilling said 60% of the company's transactions occurred on the Internet in the second quarter. That's impressive, but no more so than all the business Dell or Cisco does online. Efficient use of Internet infrastructure does not an Internet company make. Interestly, Enron is in much better shape than the upstart companies to which it eagerly compared itself 18 months ago in justifying a higher valuation. By giving up all of the hype-driven market value it received from gullible investors with dot-com stardust in their eyes, Enron merely is back to about where it belongs, or, as Skilling argues, perhaps a little lower. Comparable stand-alone "bandwidth" companies like Akamai and Exodus have given up most of their boom-time value. Enron prudently says it will maintain a stake in the ground of broadband services so it can benefit when the market materializes. Perhaps when that happens, Wall Street will value the incremental business for what it's worth, not what they dream it's worth.
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