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Enron Mail |
Documents Track Enron's Partnerships --- Top Officers Viewed Deals As Integ=
ral to Ensuring Growth in Recent Years The Wall Street Journal, 01/02/2002 Humbled Enron tries to save core business --- Accounting practices thrust i= nto spotlight Associated Press, 01/02/2002 Shell Game; How Enron concealed losses, inflated earnings -- and hid secret= deals. Are criminal charges next? Forbes Magazine, 01/07/2002 Follow-Through Forbes Magazine, 01/07/2002 The Disease! It's Spreading!; Enron Fortune Magazine, 01/07/2002 When 401(k)s are KO'd Fortune Magazine, 01/07/2002 The Boardroom Follies: In which we meet the non-stockholders, non- attender= s, and nonagenarians still among America's corporate directors. Fortune Magazine, 01/07/2002 One Plus One Makes What?; The accounting profession had a credibility probl= em before Enron. Now it has a crisis. Fortune Magazine, 01/07/2002 VOICE OF THE PEOPLE (letter) Enron's woes Chicago Tribune, 01/02/2002 VOICE OF THE PEOPLE (letter) Executive actions Chicago Tribune, 01/02/2002 You Mean, We Won Something? (Mumia Abu-Jamal, Enron)(Brief Article) The Nation, 01/07/2002 CFA Largest Ch 11 Bankruptcy Filings Week Ended 12/28 Dow Jones Corporate Filings Alert, 01/02/2002 TXU CEO Ready As New Year Rings In Retail Deregulation Dow Jones News Service, 01/02/2002 USA: Finance - Small steps seen improving financial health. Reuters English News Service, 01/02/2002 LME Base Metals Called To Open Dn On Comex Losses, Stocks Dow Jones Commodities Service, 01/02/2002 US energy cos hoping to sell assets to reduce debts - report AFX News, 01/02/2002 Master short seller raised flag on Enron: Roberts tags Kodak, Safeway as st= ocks to avoid Barron's, 01/02/2002 SPANISH PRESS: Spanish Regulator Suspends Enron's License Dow Jones International News, 01/02/2002 Enron's Dabhol Power draws suitors: Parent seeks US$1B Bloomberg, 01/02/2002 GAS AUTHORITY OF INDIA TO BID FOR ENRON'S DABHOL POWER PROJECT Asia Pulse, 01/02/2002 U.S. set to target earnings deception --- Test case thought likely this mon= th The Toronto Star, 01/02/2002 J.P. Morgan Chase Sues Nine Insurers In Enron-Bond Case --- Institution See= ks to Quash Demands for Information The Wall Street Journal Europe, 01/02/2002 J.P. MORGAN CHASE: Objects to insurers seeing Enron details Chicago Tribune, 01/01/2002 Roll Over, Shakespeare, the Future of Jargon Is Here The New York Times, 01/02/2002 Commentary: Enron Is a Cancer on the Presidency Los Angeles Times, 01/02/2002 Career Journal: The Jungle The Wall Street Journal, 01/02/2002 Dynegy's Reasons for Terminating Merger Were "Mere Pretexts," Says Enron Securities Litigation & Regulation Reporter, 01/02/2002 Shareholders Claim Enron Directors Made $434 Million in Insider Trading Securities Litigation & Regulation Reporter, 01/02/2002 American Electric Power buys Enron wind project The Milwaukee Journal Sentinel, 01/01/2002 Enron hid behind smoke and mirrors South China Morning Post, 01/01/2002 Letters To The Editor ENRON PROBLEMS WON'T HOLD NEW POWER DOWN The Columbus Dispatch, 01/01/2002 The POWER of CHOICE / It is the dawning of deregulation in Texas, allowing = consumers to choose their electricity provider - and get a rate reduction a= s well. Houston Chronicle, 01/01/2002 Enron: The Lessons For Investors ; Hindsight, shmindsight. There's much to = learn when a stock loses $67 billion in value. Money Magazine, 01/01/2002 Edison Mission/Mirant -2: Deal Included Enron Bloomberg, 12/31/01 __________________________________ Documents Track Enron's Partnerships --- Top Officers Viewed Deals As Integ= ral to Ensuring Growth in Recent Years By John R. Emshwiller Staff Reporter of The Wall Street Journal 01/02/2002 The Wall Street Journal A3 (Copyright © 2002, Dow Jones & Company, Inc.) As some current and former Enron Corp. officials try to distance themselves= from controversial partnerships that played a role in the company's demise= , internal Enron documents show top management and directors viewed the par= tnerships as integral to maintaining the energy-trading giant's rapid growt= h in recent years.=20 The documents also reinforce the notion that top Enron officials, including= Chairman Kenneth Lay and former President Jeffrey Skilling, were directly = involved in the creation and oversight of the partnerships, which were run = by former Chief Financial Officer Andrew Fastow. Questions about the partne= rships in recent months contributed to a collapse in investor confidence in= the Houston-based company, which just a year ago had a market capitalizati= on of over $60 billion. Enron filed last month for Chapter 11 bankruptcy-co= urt protection, which shields the company from creditors while it seeks to = reorganize. An Enron spokeswoman said the company didn't have any comment on the docume= nts. Among these are an internal memorandum from an Enron attorney to Mr. S= killing regarding procedures for monitoring transactions with the partnersh= ips. The documents also include excerpts of minutes from meetings of Enron'= s board and the board's finance committee.=20 Enron and Mr. Lay have consistently said that the company's dealings with t= he partnerships, which involved joint investments as well as asset sales, w= ere aimed at helping the company, were carefully reviewed to prevent confli= cts of interest and were adequately disclosed. The partnership dealings are= the subject of a Securities and Exchange Commission probe and are being lo= oked into by Congress.=20 The Enron documents indicate that in mid-1999 the company began using the p= artnerships to confront changing business conditions.=20 A document excerpting a June 1999 board meeting cited Mr. Skilling as sayin= g that because of changing accounting rules affecting off-balance-sheet tra= nsactions, Enron had been analyzing new types of financing vehicles. Though= the document doesn't provide further explanation, the statement would appe= ar to be a reference to a concern at Enron about trying to keep as much deb= t as possible off the company's balance sheet. Too much debt lowers a compa= ny's credit rating, which was a particular worry for Enron, whose vast ener= gy-trading operations relied heavily on its credit standing.=20 In the June 1999 document, Messrs. Lay and Skilling were identified as bein= g designated by Enron's board to help ensure that the company received fair= consideration in one of the early partnership deals.=20 A draft version of minutes from an October 2000 meeting of the Enron board = finance committee cites Mr. Fastow speaking of the need for outside private= partnerships to help manage the company's finances so that Enron could "co= ntinue to grow." Enron planned to continue making "significant capital inve= stments. . . . some of which would not generate cash flow or earnings for a= number of years," the document said.=20 Out of such needs were born in 1999 the so-called LJM partnerships, which w= ere run by Mr. Fastow. The Enron documents show that an early transaction i= nvolved the hedging of the value of an Enron investment in Rhythms NetConne= ctions Inc., a data-communications company. According to one document, Mr. = Fastow discussed how Enron could protect the value of that holding through = a complicated swap arrangement that also involved Enron stock and a $50 mil= lion LJM payment.=20 In a filing last November with the SEC, Enron said that it had incorrectly = accounted for the Rhythms/LJM transaction. As a result, Enron retroactively= reduced its reported net income for 1999 and 2000 by about $100 million, o= r around 5%.=20 The internal documents show that the board and top management were aware of= the possible conflicts of interests in having Enron's chief financial offi= cer running partnerships that eventually did hundreds of millions of dollar= s of business with the company. One document, labeled as part of a June 199= 9 presentation to Enron's board, also laid out the huge profit potential in= Mr. Fastow's partnership compensation formula, under which he stood to rea= p as much as half of partnership profits in addition to management fees. En= ron has estimated that Mr. Fastow made over $30 million from his partnershi= p activities.=20 To avoid potential conflicts of interests on Mr. Fastow's part, Enron set u= p a review procedure for any Enron deals with the partnerships. Among other= things, all transactions had to be approved by Mr. Skilling and two other = senior Enron officials, according to one of the company documents.=20 In interviews with several media organizations last month, Mr. Skilling, wh= o resigned as Enron's president and chief executive officer in August, indi= cated that he wasn't fully aware of all the LJM-related dealings and was al= so surprised by the size of Mr. Fastow's partnership remuneration. Yesterda= y, a spokeswoman for Mr. Skilling said that while he was familiar with the = structure of the LJM partnerships, "he wasn't aware of or intimately involv= ed with details" of particular transactions. Those matters were "handled at= a lower level" of the company, she added.=20 Mr. Fastow couldn't be reached for comment. But a Fastow attorney has previ= ously pointed to Enron statements that all the LJM transactions were proper= and approved by the board and top management. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Business Humbled Enron tries to save core business --- Accounting practices thrust i= nto spotlight Kristen Hays, Associated Press 01/02/2002 A humbled Enron Corp. will enter 2002 with hopes of emerging from bankruptc= y with a viable trading business, once the source of 90 per cent of its rev= enues.=20 The once-mighty energy titan came crashing down with dizzying speed in 2001= after investors lost confidence in the accounting behind its core operatio= ns. The company is under investigation by the Securities and Exchange Commissio= n, the House or Representatives energy and commerce committee and the justi= ce department.=20 On Jan. 10, an auction will be held of 51 per cent of Enron's wholesale ene= rgy trading operation. Some Wall Street insiders say bids could be as high = as $1 billion (U.S.) for the joint venture Enron has been trying to put tog= ether, enabling it to revive its oil, natural gas and electricity trading b= usiness.=20 Enron was born in 1985 when Houston Natural Gas merged with InterNorth, a n= atural gas company based in Omaha, Neb. In 1989, Enron started trading natu= ral gas commodities and eventually became the world's largest buyer and sel= ler of natural gas.=20 Later it gained fame by pioneering trading markets in such commodities as w= eather derivatives, telecommunications transmission capacity, pulp, paper a= nd plastics. But some of these units and overseas investments consistently = lost money.=20 The company buried those losses in its profitable trading business and turn= ed to off-balance-sheet financing vehicles to keep burgeoning debt off its = books.=20 But eventually, the debt and bad investments couldn't be hidden.=20 On Oct. 16, Enron acknowledged $618 million (U.S.) in third-quarter losses,= took a $1 billion charge for losses on bad investments and cut $1.2 billio= n in shareholders' equity.=20 Enron filed for bankruptcy in New York Dec. 2 to keep creditors and lawsuit= s at bay so the company could try to preserve its trading operation. Money-= losing assets went up for sale.=20 Credit rating agencies have promised closer scrutiny of off-balance-sheet f= inancing.=20 "Enron is an animal all its own," said Credit Lyonnais analyst Gordon Howal= d. "A lot of companies have not handled their finances as aggressively as E= nron has. But one of the fallouts of Enron is that companies are going to h= ave to disclose a lot more than they have in the past." Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Company of the Year Shell Game; How Enron concealed losses, inflated earnings--and hid secret d= eals. Are criminal charges next? Daniel Fisher 01/07/2002 Forbes Magazine 52 Copyright 2002 Forbes Inc. How Enron concealed losses, inflated earnings--and hid secret deals from th= e authorities. Are criminal charges next?=20 Enron Corp.'s spectacular collapse may have shocked employees and investors= , who lost tens of billions of dollars. Could it have been a surprise to it= s top executives or its auditors, Arthur Andersen? The complex side bets an= d partnerships Enron used left it extremely vulnerable to a drop in its sto= ck price, its bond rating or the value of fiber-optic lines. The plunge of = all three doomed the company. This much is apparent from some internal company documents leaked to FORBES= : As early as March 2001 the elaborate network of external partnerships Enr= on used to hedge against declining values of its assets was starting to mel= t down. Even as former chief executive Jeffrey Skilling and Chairman Kennet= h Lay were selling millions of dollars' worth of shares last spring, an arm= y of lawyers and accountants was shuttling money among partnerships to fore= stall disaster. They couldn't. Finally, in November, Lay admitted Enron had= taken $710 million in losses to unwind the partnerships.=20 Enron refuses to discuss the workings of these partnerships, beyond the sca= nty disclosures in the recent 10-Q filed with the Securities & Exchange Com= mission. But documents laying out how some of the partnerships worked show = an ingenious structure designed by Enron's former chief financial officer, = Andrew Fastow. The idea was to use the value of Enron's rising stock price = to finance a welter of corporations that magically turned balance-sheet los= ses into gains on Enron's income statement. One round of partnerships forme= d last year hedged nearly $2 billion in Enron assets.=20 The partnerships were originally designed to comply with regulation 140 of = the Financial Accounting Standards Board. The rule lets companies move fina= ncial assets off their balance sheets if they are put into entities that ar= e completely out of the control of the parent company. But Enron skirted th= e law by having the partnerships issue put options--obligations to buy some= thing in the future at a specified price--on assets that were still on Enro= n's books.=20 "It's like somebody sat down with the rules and said, 'How can we get aroun= d them?'" says Douglas Carmichael, an accounting professor at Baruch Colleg= e in Manhattan. "They structured these things to comply with the letter of = the law but totally violated the spirit."=20 Only Enron knows how many such partnerships exist. Carol Coale, an analyst = with Prudential Securities in Houston, has identified over 3,000 subsidiari= es and partnerships, many of them off-balance-sheet entities. Several were = designed to "monetize" assets--sell them to a party unlikely to question th= e value Enron put on them. Some deals require a complete suspension of disb= elief.=20 In June 2000, for example, Enron sold $100 million worth of "dark fiber," o= r fiber-optic cables without the electronic gear necessary to transmit digi= tized information. The "buyer" was a partnership run by Fastow called LJM2 = (the acronym reportedly comes from the initials of his wife and children), = set up in 1999 to trade assets with Enron. On that deal, Enron booked a $67= million profit, a significant piece of the $318 million gross profit the c= ompany reported for the broadband business in 2000. LJM2 later sold $40 mil= lion of the dark fiber to what Enron refers to as "industry participants," = and the remainder to another Enron-related partnership for $113 million in = December. What's curious is that the value of the fiber ostensibly increase= d 53% between June and December--during the same time that, in open markets= at least, the value of dark fiber plunged by 67%. LJM2 reaped a $2.4 milli= on profit from the fiber trade, contributing to the $30 million of undisclo= sed gains the LJM partnerships delivered to Fastow, according to Enron.=20 Shouldn't Enron's top management or its auditors have sought the identity o= f the buyers who so overpaid for the fiber asset? One wonders. And where, b= y the way, was all this fiber? That $100 million, say a fiber broker and an= industry analyst, would have bought at least 33,000 miles of single-strand= dark fiber in June 2000--enough to string up three nationwide networks--an= d considerably more by December. Enron's entire network, presumably consist= ing of multiple strands, was 18,000 miles at the time, with much of that fi= ber leased.=20 The deal went undisclosed at a time when Skilling and Lay were talking up t= he great prospects for Enron's broadband business. There's something else t= hey neglected to mention. Enron provided what its current 10-Q calls "credi= t support" to the ultimate buyer, guaranteeing the debt. But if the partner= ship defaulted, Enron was on the hook for $61 million of the $67 million it= booked as profits. Former employees say Enron's broadband business consist= ed largely of such questionable deals. To win a $20 million broadband servi= ces contract from Rice University in Houston, for example, Enron donated $5= million to the school, and Ken Lay's personal foundation kicked in another= $3 million. Unreported was the fact that Rice dropped the contract soon af= ter.=20 The fiber deal finally came to light more than a year after it closed--in E= nron's 10-Q for the third quarter of 2001. Some of the most exotic deals re= main hidden in the files at Enron and its co-investors, files that disclose= a welter of Delaware partnerships that Fastow formed in 2000 among Enron, = LJM2 and the so-called Raptor partnerships, which included trusts, limited = liability corporations and other entities through which cash, stock and der= ivatives cascaded.=20 Code-named after Southwestern animals, these "special-purpose entities" wer= e curious beasts indeed. One of them, Bobcat, was capitalized with 6.3 mill= ion shares of Enron stock whose value was protected by a six-month put opti= on, expiring in mid-March of 2001, which Bobcat bought from Enron. The put = obligated Enron to buy its shares back at $68 each. Bobcat in turn sold put= s back to Enron, protecting it from declines in the value of various assets= .=20 One of the weirdest aspects of these fancy derivatives: When an asset decli= ned in value, Enron was sometimes able to avoid booking the paper loss on t= he asset at the same time that it immediately counted the payout on the pro= tective put as income. Pure alchemy: Bad investments become profits on the = income statement.=20 When Enron was trading at $80, Bobcat and its cubmates worked like magic. A= ny losses on derivatives sold to Enron were offset by an increase in the va= lue of their Enron stock. But as Enron shares fell below $68 in mid-March 2= 001, Raptor deals started to fall apart. While Enron declines to comment on= what happened next, present and former employees describe a mad scramble a= s the company tried to keep the elaborate structure Fastow created. Solvent= partnerships had to prop up failing ones, while Enron executives continued= to bail out of their employer's stock. Enron ultimately was forced to admi= t that Fastow's safety net had failed. The $532 million in hedging gains ge= nerated by the Raptors was wiped out by $710 million in losses created by t= heir collapse.=20 At what point did Enron's top executives realize Fastow's edifice was crumb= ling? SEC attorneys are surely trying to find out.=20 Pleading ignorance, as Andersen did before Congress, may not work. Market d= ata about falling values for international power plants and dark fiber was = readily available throughout the period Enron executives were reporting inf= lated values and selling some $1 billion in stock. That type of information= can be used to establish that insiders sold stock knowing it was overvalue= d, says Jacob Frenkel, a defense lawyer with Smith, Gambrell & Russell in W= ashington, D.C. and a former SEC enforcement attorney. "If you intentionall= y choose to be ignorant," he says, "that can satisfy the question of crimin= al intent."=20 With additional reporting by Lynn Cook and Rob Wherry.=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Departments Follow-Through Rob Wherry, Seth Lubove, & Carleen Hawn 01/07/2002 Forbes Magazine 48 Copyright 2002 Forbes Inc. January 22, 2001-- Enron Fallout=20 When we wrote about Calpine Corp. a year ago, the San Jose-based power prod= ucer's stock was trading at $47 despite the California energy crisis. But i= t hasn't been able to withstand the collateral damage resulting from the En= ron collapse in November. Investors are taking a second look at Calpine's a= mbitious plan to build and buy new plants. After a New York Times report co= mparing the company's "opaque" financial statements with Enron's and a Morg= an Stanley analyst's downgrading of Calpine's stock to neutral from strong = buy, Calpine shares have fallen to a recent $16. The road ahead for Calpine= could be rough. Over the next 18 months it will need $3.9 billion to finis= h construction projects, refinance debt and support its trading business. C= alpine may have to dip into cash reserves to fund $1.8 billion of that amou= nt or, in a worst case scenario, leverage its gas reserves. It may also hav= e to renegotiate a lucrative long-term contract with the inept government o= f California, which in desperation last spring paid too much. Peter Cartwri= ght, Calpine founder and chief executive, has called the comparison with En= ron "ridiculous," and Robert Kelly, president of Calpine's financial subsid= iary, insists liquidity is not a problem. --Rob Wherry May 3, 1999Sinking Ship=20 In our spotlight on how the federal government subsidized construction of l= uxury cruise liners, we explained that the Maritime Administration was guar= anteeing up to $1.1 billion in loans to American Classic Voyages. Controlle= d by billionaire Sam Zell, the company used the loans to build two huge shi= ps. In October the floating pork barrel finally sank. Zell's company filed = for bankruptcy, blaming the falloff in business after Sept. 11, though it h= ad been bleeding red ink long before the terrorist attacks. Among its liabi= lities: $211 million owed to the government. --Seth Lubove=20 December 10, 2001Disconnect=20 Two issues ago we explored a theory that AT&T drove At Home, a broadband In= ternet provider it controlled, to bankruptcy as a way to get assets on the = cheap. Bondholders pointed to the lowball bid, $307 million, that AT&T had = submitted to the bankruptcy court to buy At Home's subsidiary, ExciteAtHome= . But in early December AT&T withdrew its bid. It appears it was scared awa= y by threats from At Home creditors to cut off service to more than half of= AT&T's 1.4 million cable customers. --Carleen Hawn Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 First The Disease! It's Spreading!; Enron Bethany McLean 01/07/2002 Fortune Magazine Time Inc. 24 (Copyright 2002) This isn't how it was supposed to work. After Enron declared bankruptcy in = early December, the other "energy merchants"--Wall Street's name for compan= ies like Dynegy, Calpine, and Mirant that are engaged in new businesses suc= h as trading power and building unregulated plants--disclaimed any sort of = Enronesque behavior. They also downplayed the aftershocks, reiterating prom= ises of big earnings growth and at times discussing how Enron's downfall wo= uld actually benefit them.=20 Benefit? Not quite. Some of the "not-Enrons" have suffered huge stock price= declines, with Mirant, the worst performer, losing 43% since late November= . And many have had to revamp their balance sheets. First came El Paso, whi= ch on Dec. 12 announced plans to sell more than $2 billion of assets, raise= money in the equity market, and cut capital expenditures. A few days later= Dynegy followed suit. Then came Williams, and finally, on Dec. 19, Mirant = joined the better- balance-sheet movement. Unfortunately this newfound reli= gion hasn't always satisfied the suddenly suspicious credit rating agencies= . Most notably, Moody's downgraded Mirant's debt to junk status. Though none have proven themselves to be Enrons yet, the energy merchants d= o deserve some of this bad rap. They all have huge piles of debt, and like = Enron (and the dot-coms before that), they need the continued cooperation o= f the capital markets to fund their business plans. Last year widespread fe= ars of an energy shortage caused people to throw money at new power plants.= And the spiking prices and massive volatility caused in large part by the = California crisis created big profit opportunities for traders. Now people = are concerned about an energy glut, and prices have fallen sharply. The eff= ects of all that (plus perhaps tougher accounting rules) on profits remain = unclear.=20 Believers in the energy merchants insist that a healthier--albeit slower-gr= owth--industry will emerge from this. "Long-term prospects appear excellent= ," wrote Goldman analyst David Fleischer in a recent note about Dynegy and = Williams. "Disarming the shorts!" said UBS Warburg's Ron Barone about El Pa= so's restructuring plans. (Note that Fleischer and Barone remained big Enro= n supporters until almost the last gasp.)=20 This Wall Street babble won't amount to much; in the end these companies' p= rospects depend on the enthusiasm of the markets and flawless execution of = the restructuring plans. And since those plans rely in large part on asset = sales, it's worth asking: If everyone is selling, who's buying? COLOR ILLUSTRATION: MARTIN KOZLOWSKI=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 FORTUNE Advisor/Investing/Backlash When 401(k)s are KO'd Jeremy Kahn 01/07/2002 Fortune Magazine Time Inc. 104 (Copyright 2002) Marie Thibaut spent 15 years as an administrative assistant at Enron in Hou= ston. During that time, she dutifully put 15% of her salary into a 401(k) p= lan, investing the entire amount in the company's rapidly climbing stock. E= nron then matched that investment with yet more shares. By the winter of 20= 00, she had amassed close to $500,000 in stock and options, enough for the = 61-year-old divorcee to begin contemplating early retirement. "My children = told me I should diversify," Thibaut says. "But all the mutual funds were g= oing down, and I just kept going up." She's not going up any longer. Today,= Enron is bankrupt and Thibaut is out of work, a victim of one of the worst= corporate collapses in history. Her 401(k) is worth just $22,000.=20 That sorry tale has been repeated thousands of times at Enron, Lucent, Nort= el, and other companies whose stocks have cratered. But despite the punishi= ng market and calls for diversification, workers continue to pour a huge po= rtion of their retirement money into their employer's shares. Benefits cons= ulting firm Hewitt Associates estimates that as of Oct. 31, almost 30% of t= he $71 billion in assets in some 1.5 million 401(k) plans were invested in = the stock of the sponsoring company. At some places the proportion is even = higher. Microsoft employees keep 46% of their 401(k) funds in company stock= . At Enron, the figure was 62%. To make matters worse, many of these plans,= like Enron's, restrict the sale of stock purchased with matching contribut= ions until employees are close to retirement. Now legislators and pension-reform advocates are saying enough is enough. S= enators Barbara Boxer (D-California) and Jon Corzine (D-New Jersey) are spo= nsoring a bill that would force diversification by prohibiting any one stoc= k from making up more than 20% of a 401(k), reducing the tax breaks for com= panies that match 401(k) contributions with stock, and limiting to 90 days = the period a company can force employees to hold matching stock. Senator Je= ff Bingaman (D-New Mexico) also wants to allow companies to provide employe= es with investment advice without penalty. (Current law makes a company lia= ble for employees' investment decisions if it offers advice, and as a resul= t, few do.)=20 The legislation won't necessarily pass without a fight. When Senator Boxer = attempted to pass a similar bill in 1996, lobbyists-- particularly those fr= om option-reliant Silicon Valley--succeeded in watering her proposal down t= o the point where it simply barred companies from forcing employees to inve= st more than 10% of their own contributions in company stock. There's also = the issue of companies matching 401(k) contributions with stock. Andrew Lia= zos, an attorney with McDermott Will & Emery, says if this practice is rest= ricted, many companies may simply provide no match at all. Plus, he asks, i= sn't telling employees what to do with their retirement funds a bit paterna= listic?=20 Pension-reform advocates say a little paternalism is just what is needed. "= It's unrealistic to think that without a new law employees will limit the a= mount of company stock they buy," says Eli Gottesdiener, a lawyer who is su= ing Enron and its accountants on behalf of its 401(k) participants. Given w= hat's happened at Enron, it'll be hard to counter that argument this time a= round.=20 --Jeremy Kahn COLOR PHOTO: DAVID J. PHILLIP--AP When Enron collapsed, so did many a nest = egg.=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 First; Value Driven The Boardroom Follies: In which we meet the non-stockholders, non- attender= s, and nonagenarians still among America's corporate directors. Geoffrey Colvin 01/07/2002 Fortune Magazine Time Inc. 32 (Copyright 2002) The corporate disaster count seems to be going up, and it's worth asking wh= y. Not that we can tally these things precisely, but think of just the past= few months: Enron, the biggest bankruptcy in history, with over $50 billio= n of shareholder wealth vaporized; Warnaco, another former highflier, with = shares that now cost less than a Snickers bar; the U.S. steel industry, whi= ch has finally thrown in the towel and admitted it can't survive on its own= . Among slightly longer-running disasters, Lucent and Nortel have actually = destroyed far more shareholder wealth than Enron, and Xerox isn't far behin= d--but they've been pushed out of the headlines.=20 What went wrong? These are all man-made disasters, and when you search for = the people to blame, you end up quickly at the board of directors. Somewher= e around the last recession (1990-91) it dawned on America's shareholders t= hat when something goes hugely wrong at a company, the buck stops at the bo= ard. Thus began a great campaign, still going strong, to improve corporate = governance. Its cause is noble, and it has won a lot of victories. And yet the corporate-governance follies carry on with a surprising amount = of vim. To see just how much, stop by a terrific Website at www.thecorporat= elibrary.com. For our purposes you'll have to bypass the section that gives= you the full text of the employment contracts of hundreds of major CEOs, t= hough I recommend that you check that out later. Right now we're concerned = with the state of America's boards, and so we arrive at the site's director= screening tool, which answers all kinds of interesting questions about the= directors of 1,500 companies.=20 One of the major problems with directors of public companies is that they s= ometimes don't own much of the company's stock. Odds are strong they'd try = a lot harder if a significant amount of their own money were at stake. So I= asked how many directors owned no stock at all in the companies they direc= ted. Answer: 963--and the director screening tool gives you all their names= . For example, did you know that Apple Computer CEO Steve Jobs owns no shar= es of Gap, though he's on the board?=20 Another problem: too many inside directors. Virtually every board will incl= ude the CEO, which makes sense, and maybe the COO if that person is in line= to run the show. More insiders than that can give the CEO too much power o= ver a group that is supposedly the shareholders' independent guardian. So I= asked how many inside directors are on those 1,500 boards. Answer: 4,218, = or about three per board. Not bad, but what's interesting is the details. T= he major company with the most inside directors seems to be American Intern= ational Group, the world's most valuable insurance conglomerate, with nine.= You can find plenty of others with seven or eight.=20 Directors who don't go to board meetings aren't worth much, so I asked how = many directors missed at least 25% of the meetings in the past year. The an= swer is 271, including many big-deal CEOs who gave short shrift to their ou= tside boards, such as American Express' Ken Chenault, PepsiCo's Roger Enric= o, Oracle's Larry Ellison, and News Corp.'s Rupert Murdoch.=20 Just for fun, I asked if there were any triple-threat directors: insiders w= ho owned no shares and had attendance problems, even though the board meeti= ngs were presumably just down the hall. There were three. You've never hear= d of them, believe me.=20 I couldn't resist asking one other question: How many directors are over 90= ? Answer: nine. America's oldest director appears to be George E. Kane, 96,= who was just reelected to a three-year term at Panera Bread, which operate= s bakery cafes around the U.S. This Strom Thurmond of corporate America ser= ves on the board's audit and nominating committees, and was on the compensa= tion committee until this year. Unlike Strom, he has not promised he won't = run again.=20 I'd love to tell you things were getting better in the boardroom. By certai= n gross measures they clearly are. Investors are far more interested in dir= ectors than they used to be. Many companies are adopting excellent new poli= cies on important matters such as mandatory levels of stock ownership and m= andatory retirement ages for directors. Fed-up investors are flexing their = muscles far more effectively than before, forcing companies to abandon clas= sified boards--on which only a fraction of the directors are up for electio= n in any given year--and other devices that entrench management at the expe= nse of shareholders.That's all terrific news.=20 But the more important question is, Are boards getting better as fast as th= e world is getting tougher? Just barely. We should all support the good-gov= ernance campaign of the past decade. What matters most about corporate gove= rnance, though, is not whether it's good, but whether it's good enough. Unt= il the disaster count starts coming down, it isn't. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Features/Accounting In Crisis One Plus One Makes What? ; The accounting profession had a credibility prob= lem before Enron. Now it has a crisis. Jeremy Kahn 01/07/2002 Fortune Time Inc. 88 Copyright © 2002 ProQuest Information and Learning. All rights reserved. Where were the auditors? People ask that question after every corporate col= lapse, and lately they've been asking it with disturbing frequency. At Wast= e Management, Sunbeam, Rite Aid, Xerox, and Lucent, major accounting firms = either missed or ignored serious problems. The number of public companies t= hat have corrected or restated earnings since 1998 has doubled to 233, acco= rding to a study by Big Five accounting firm Arthur Andersen. Now, followin= g the stunning bankruptcy of Andersen's own client Enron, that question--wh= ere were the auditors?--has become a deafening refrain. "I believe that the= re is a crisis of confidence in my profession," Andersen CEO Joseph Berardi= no told a congressional committee investigating Enron's collapse in mid-Dec= ember. "Real change will be required to regain the public trust."=20 The full story of the Enron debacle--and what Andersen did or did not do in= its audit--will take months to emerge. In the meantime, no one disagrees w= ith Berardino's diagnosis that there's a crisis in accounting--even if his = sudden emphasis on industrywide reform springs from a desire to deflect att= ention from Andersen's own culpability. But the kind of "real change" requi= red is a matter of substantial debate. The government gave the franchise of= auditing public companies' financial statements to the accounting industry= after the 1929 stock market crash. In the decades since, the accountants h= ave adroitly avoided significant government regulation by arguing that they= can police themselves. Now, post-Enron, they're doing it again. The Big Fi= ve CEOs issued a rare joint statement outlining how they intend to strength= en financial reporting and auditing standards. "Self-regulation is right fo= r investors, the profession, and the financial markets," the release conclu= des. But is it? Accounting's main self-regulatory body, the Public Oversight Boa= rd, is a monument to the profession's failures. The POB was created in the = late 1970s, when Congress held hearings on a string of audit failures at pu= blic companies that had--much like the recent rash--shaken confidence in th= e major auditing firms. The POB, which has no enforcement power, investigat= es alleged audit failures and oversees a triennial review process in which = the major accounting firms examine one another's procedures. And yet proble= ms persist; arguably, they have grown more acute. "Is accounting self-regul= ation working? On the face of it, it is not," says Representative John Ding= ell, the powerful Michigan Democrat who has long sparred with the accountin= g profession.=20 In their defense, the auditors note that current accounting methods, many o= f which were designed 70 years ago, are difficult to apply to today's compl= ex financial transactions. And there is no way, they insist, to prevent sop= histicated fraud. The American Institute of Certified Public Accountants (A= ICPA), the industry's professional association, points out that accountants= examine the books of more than 15,000 public companies every year; they ar= e accused of errors in just 0.1% of those audits. But oh, the price of thos= e few failures. Lynn Turner, former chief accountant of the Securities and = Exchange Commission, estimates that investors have lost more than $100 bill= ion because of financial fraud and the accompanying earnings restatements s= ince 1995.=20 Perhaps the most glaring example of self-regulation's deficiency has been a= ccountants' unwillingness to deal with conflicts of interest. Over the year= s, the major auditing firms have transformed themselves into "professional = services" companies that derive an increasing portion of revenues and profi= ts from consulting: selling computer systems, advising clients on tax shelt= ers, and evaluating their business strategies (see chart). In 1999, accordi= ng to the SEC, half of the Big Five's revenues came from consulting fees, v= s. 13% in 1981.=20 Auditing, meanwhile, has become a commodity. Firms have even been accused o= f using it as a loss leader, a way of getting in the door at a company to s= ell more-profitable consulting contracts. "Audit work is a marvelous market= ing tool," says Lou Lowenstein, a professor emeritus of finance and law at = Columbia University. "You are already there doing the audit. You say their = internal controls are no good. Well, who are they going to call to fix it?"= But this requires a firm to work for the public (auditing) and management = (consulting). "You cannot serve them both," says former SEC commissioner Be= vis Longstreth.=20 This conflict may have played a role at Enron. Andersen received $25 millio= n in auditing fees from Enron last year. That's money Andersen was paid bot= h as Enron's outside auditor, certifying its financial statements, and as i= ts internal auditor, making sure Enron had the right systems to keep its bo= oks and working to detect fraud and irregularities. This double duty alone = raised a serious potential for conflict. Besides $25 million in accounting = fees, Andersen was paid $23 million for consulting services. "If you are au= diting your own creations, it is very difficult to criticize them," says Ro= bert Willens, a Lehman Brothers tax expert who disapproves of the accountin= g profession's recent move into selling aggressive tax shelters. Andersen h= as not revealed the details of its work on Enron's highly controversial off= -balance-sheet transactions, but the accounting firms have never believed c= onsulting fees compromise their objectivity. "They have militantly refused = to ever acknowledge the possibility of a problem," Longstreth says.=20 The major accounting firms say they would not risk their reputations by loo= king the other way on an audit. And they emphasize that no one has ever pro= ved that consulting caused a bad audit. Then again, the Big Five are very g= ood at getting court records sealed and settling lawsuits before trial with= out admitting wrongdoing. And what has been established during several high= -profile cases against the Big Five is that auditors' compensation is direc= tly linked to their ability to sell consulting services. "I think we had lo= ts of smoking guns," says former SEC chairman Arthur Levitt. Two years ago = the accounting industry waged a bitter battle with Levitt over the issue of= auditor independence. He had considered asking firms to curtail consulting= , but backed off after encountering stiff resistance from the accountants a= nd their friends in Congress. In the end, he settled for a rule forcing pub= lic companies to disclose how much they pay their accountants for auditing = and consulting. Levitt regrets not doing more. "If I could do it over again= , I would insist that corporate audit committees approve in advance any con= sulting contract," he says.=20 One might assume that Enron's collapse would finally give the SEC the polit= ical cover it needs to impose strict rules segregating auditing and consult= ing. One might even go so far as to think the accounting profession was in = jeopardy of losing its right to self- regulation, and that the SEC should s= tep into the breach. After all, how many chances should one industry get? B= ut there are no signs that either of those things is about to happen. Harve= y Pitt, the new SEC chairman, was Andersen's lawyer until taking office in = August and, big surprise, he's sympathetic to the accountants' arguments. H= e has given no indication that he plans to relaunch Levitt's anticonsulting= crusade, and he has voiced support for self-regulation.=20 Pitt does want some reform. He has called for clearer language in financial= statements and prompt disclosure of material information. He has instructe= d auditors to identify the three to five subjective accounting decisions th= at are most important to a company's financial status. The accountants shou= ld then "clearly and concisely" explain those decisions to investors and de= tail what the effect would be if they used a different accounting treatment= . And he would like to speed up the process by which the private-sector Fin= ancial Accounting Standards Board (FASB) creates new accounting rules. Worr= ied that Levitt's SEC was too adversarial, Pitt is encouraging companies an= d auditors to consult with the SEC staff if they have accounting questions.= "I'm exceedingly tough on improper behavior," he says. "But I am intereste= d in finding solutions to problems, not just pointing fingers." Pitt says h= e supports an "effective and transparent" self-regulatory system for accoun= tants that is subject to "rigorous" SEC oversight. But whether that means a= nother incremental increase in the POB's power or the creation of a new sel= f- regulatory organization, he hasn't said.=20 At the POB, Chairman Charles Bowsher is eager to prove his organization is = up to the job of policing the industry. A former U.S. Comptroller General a= nd head of the General Accounting Office, Bowsher is armed with a new chart= er that gives the POB authority over auditing standards, as well as uncondi= tional funding from the AICPA. (The professional association previously thr= eatened to withhold money when the POB began studying auditor independence = violations. The AICPA now says that was a misunderstanding.) Bowsher has ex= panded Deloitte & Touche's triennial peer review of Andersen to specificall= y look at issues raised by Enron. But the POB still doesn't have power to e= nforce recommendations or to discipline firms when they violate guidelines.= =20 None of these changes will make any difference if accountants continue to d= ownplay their job as guardians of the public trust. Many seem embarrassed b= y their watchdog role and have treated their public responsibility as thoug= h it were a burden. Auditing isn't sexy, the accountants whine; it doesn't = make them rich. So they've focused on consulting and tried to branch out in= to corporate finance and even law (heaven help us!). "The industry, from my= point of view, has rarely focused on the public interest, only its own par= ochial business concerns," Levitt says.=20 It wasn't always so. Once, the industry was led by professionals like Leona= rd Spacek. Spacek, who died in 2000 at 92, was Arthur Andersen's CEO from 1= 947 to 1963 and the profession's elder statesman for long after that. He wa= sn't afraid to rankle the big accounting firms or Big Business. Throughout = his career, he pushed to standardize accounting rules so that different com= panies' financial statements could be fairly compared. He worked to strengt= hen audit procedures. And although Andersen's forays into consulting began = on his watch, he spoke often and eloquently about the auditor's role as a p= rotector of the public interest. "There aren't any Leonard Spaceks in the i= ndustry anymore," Levitt laments.=20 Perhaps Enron's collapse will chasten the profession enough for it to retur= n to bedrock principles. And perhaps another Spacek will emerge to lead it.= Maybe then that anguished question--where were the auditors?--will reverbe= rate less often.=20 FEEDBACK: jkahn@fortunemail.com COLOR PHOTO: PHOTOGRAPH BY DOUGLAS GRAHAM--CORBIS SYGMA Andersen CEO Berard= ino: "Real change will be required to regain the public trust." COLOR CHART= : FORTUNE CHART/PUBLIC ACCOUNTING REPORT Auditing isn't sexy--or lucrative = Share of Big Five revenues by service Consulting Accounting and auditing Ta= x=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Commentary VOICE OF THE PEOPLE (letter) Enron's woes Dan McGuire 01/02/2002 Chicago Tribune North Sports Final ; N 14 (Copyright 2002 by the Chicago Tribune) If the executive shenanigans that brought Enron to its knees are not crimin= al acts, they should be.=20 On Nov. 8, Enron was forced to restate its earnings for the past 4 1/2 year= s, admitting to a near $600 million reduction due to suspect financial repo= rting. A major factor involves so-called off-balance- sheet deals run by co= mpany executives. Enron stock has plunged from $80 to less than a dollar, a= nd the company has since filed for Chapter 11 bankruptcy protection. Investors, trusting and awed by the company's posted earnings, learned too = late of Enron's departure from "generally accepted accounting principles." = Many have suffered significant losses. A civil suit charges that employees = were encouraged to invest more heavily in Enron stock just before it tanked= .=20 In spite of numerous civil suits and an impending congressional investigati= on, some experts say that a much higher standard of proof may preclude crim= inal charges. If so, justice will once again be thwarted. Clearly, somebody= --maybe several somebodies--deserves to spend some time in jail. But don't = count on it. An old adage says: "If you're going to steal, steal big." Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Commentary VOICE OF THE PEOPLE (letter) Executive actions Bill Marquardt 01/02/2002 Chicago Tribune North Sports Final ; N 14 (Copyright 2002 by the Chicago Tribune) I am deeply concerned about the impact management's behavior can have on yo= ung people's perceptions. It is clear that certain actions of Enron's senio= r executives can only be termed disgusting and immoral--maybe illegal, whic= h is yet to be determined. While management has prospered, it has brought f= inancial hardship and anguish to thousands of investors and employees. No w= onder there is often so much cynicism about big business in this country. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 You Mean, We Won Something?(Mumia Abu-Jamal, Enron)(Brief Article) ALEXANDER COCKBURN 01/07/2002 The Nation 8 Copyright 2002 Gale Group Inc. All rights reserved. COPYRIGHT 2002 The Nati= on Company L.P. It scarcely seems possible, but two of the staple items on the conversation= al menu of the left these past years might well be on the edge of disappear= ance, or at least a change in content. Mumia Abu-Jamal is no longer on deat= h row. Pacifica's wars are amid final settlement. In both instances, it's a= good advertisement for pertinacity. Had it not been for those tireless and= oft-ridiculed Mumiacs, I doubt US District Judge William Yohn Jr. would ha= ve detected those improper jury instructions. Two years ago the Pacifica Na= tional Board thought it had the situation under control, and it was only a = matter of time before the ultras were cleaned out of their caves in the mou= ntains of Berkeley. But the much-derided left kept at it.=20 One good feature of Judge Yohn's ruling is that it takes the emphasis off i= nnocence or guilt, which surrenders the basic moral axiom of the anti-death= penalty cause, namely, that capital punishment is wrong.=20 As for Pacifica, the heat is now on those who fought the national board to = exhaustion and defeat. Can they produce decent programming and hike Pacific= a's dismally low audience figures?=20 Enron and the Green Seal=20 The fall of Enron sounds the death knell for one of the great rackets of th= e past decade: green seals of approval, whereby some outfit like the Natura= l Resources Defense Council or the Environmental Defense Fund would issue t= estimonials to the enviro-conscience and selfless devotion to the public we= al of corporations like Enron. These green seals of approval were part of t= he neoliberal pitch, that fuddy-duddy regulation should yield to modern, "m= arket-oriented solutions" to environmental problems. Indeed, NRDC and EDF w= ere always the prime salesfolk of neoliberal remedies for environmental pro= blems. NRDC was socked into the Enron lobby machine so deep you couldn't se= e the soles of its feet. Here's what happened.=20 In 1997 high-flying Enron found itself in a pitched battle in Oregon, where= it planned to acquire Portland General Electric, Oregon's largest public u= tility. Warning that Enron's motives were of a highly predatory nature, the= staff of the state's Public Utility Commission (PUC) opposed the merger. T= hey warned that an Enron takeover would mean less ability to protect the en= vironment, increased insecurity for PGE's workers and, in all likelihood, s= oaring prices.=20 Other critics argued that Enron's actual plan was to cannibalize PGE, in pa= rticular its hydropower, which Enron would sell into California's energy ma= rket.=20 But at the very moment when such protests threatened to balk Enron of its p= rize, into town rode NRDC's top energy commissar, Ralph Cavanagh, Heinz env= ironmental genius award pinned to his armor and flaunting ties to the Energ= y Foundation, a San Francisco-based outfit providing financial wattage for = many citizen and environmental groups that work on utility and enviro issue= s.=20 Cavanagh lost no time whipping the refractory Oregon greens into line. In c= oncert with Enron, the NRDC man put together a memo of understanding, pledg= ing that the company would lend financial support to some of these groups' = pet projects. But Cavanagh still had some arduous politicking ahead. An OK = for the merger had to come from the PUC, whose staff was adamantly opposed.= So, on Valentine's Day, 1997, Cavanagh showed up at a hearing in Salem, Or= egon, to plead Enron's case.=20 Addressing the three PUC commissioners, he averred that this was "the first= time I've ever spoken in support of a utility merger." If so, it was the q= uickest transition from virginity to seasoned service in the history of int= ellectual prostitution. Cavanagh reveled in the delights of an Enron embrac= e: "What we've put before you with this company is, we believe, a robust as= sortment of public benefits for the citizens of Oregon which would not emer= ge, Mr. Chairman, without the merger." With a warble in his throat, Cavanag= h moved into rhetorical high gear: "The Oregonian asks the question, 'Can y= ou trust Enron?' On stewardship issues and public benefit issues I've dealt= with this company for a decade, often in the most contentious circumstance= s, and the answer is, yes."=20 Cavanagh won the day for the Houston-based energy giant. The PUC approved t= he merger, and it wasn't long before the darkest suspicions of Enron's plan= s were vindicated. The company raised rates, tried to soak the ratepayers w= ith the cost of its failed Trojan nuclear reactor and moved to put some of = PGE's most valuable assets on the block. Enron's motive had indeed been to = get access to the hydropower of the Northwest, the cheapest in the country,= and sell it into the California market, the priciest and--in part because = of Cavanagh's campaigning for deregulation--a ripe energy prize awaiting ex= ploitation.=20 Then, after two years, the company Cavanagh had hailed as being "engaged an= d motivated" put PGE up on the auction block. Pending sale of PGE, Enron ha= s been using it as collateral for loans approved by a federal bankruptcy ju= dge.=20 Enron is best known as George W. Bush's prime financial backer in his presi= dential quest. But it was a bipartisan purveyor of patronage: to its right,= conservative Texas Senator Phil Gramm; to its left, liberal Texas Democrat= Sheila Jackson-Lee (who had Enron's CEO Ken Lay as her finance chairman in= a Democratic primary fight preluding her first successful Congressional bi= d; her Democratic opponent was Craig Washington, an anti-NAFTA maverick Dem= ocrat the Houston establishment didn't care for). Today some House Republic= ans want to treat the Enron collapse as a criminal matter, while Democrats = have been talking in vaguer terms about cleaning up accounting rules and pl= ugging holes in the regulatory system. The inability of Enron's employees t= o sell company stock from their 401(k)s while high-ups absconded with milli= ons may doom Bush's promised onslaught on Social Security. There are many m= orals in Enron's collapse, and the role of that green seal of approval shou= ld not be forgotten. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 CFA Largest Ch 11 Bankruptcy Filings Week Ended 12/28 01/02/2002 Dow Jones Corporate Filings Alert (Copyright © 2002, Dow Jones & Company, Inc.) DJ CFA SOURCE:Bankruptcy=20 ISSUER: DOW JONES CORPORATE FILINGS ALERT=20 SYMBOL: X.FFI=20 WASHINGTON -(Dow Jones)- The following is a list of some of the=20 largest Chapter 11 bankruptcy filings for the week ended Dec. 28.=20 Company Court Location Contact=20 ----------- ------------ ----------- ----------=20 Brake Depot California, San Diego Not available=20 Systems Inc. San Diego=20 Cornerstone Internet Manhattan West Caldwell, NJ Schuyler Carroll=20 Solutions Co. 212-451-2313=20 Enron Broadband Manhattan Houston Brian S. Rosen=20 Services L.P. 212-310-8602=20 Greate Bay Wilmington Delaware Steven Kortanek=20 Casino Corp 302-552-5503=20 Heick Die Chicago Chicago Scott R. Clar=20 Casting Corp. 312-641-6777=20 Istinhealth Inc. New Jersey, Hasbrouck Mr. Washington=20 Newark Heights, NJ 201-227-9100=20 Life Quality Systems Chicago Chicago Robert Benjamin=20 312-444-1996=20 Nature's Farm California, Hayward, CA Not available=20 Products Inc. Northern=20 Nu Van Technology Texas Northern Mansfield, TX Not available=20 Presidio Valley Texas Western Presidio, TX Ronald Sommers=20 Farms Inc. 713-659-3222=20 Propoganda Films Inc. California, Los Angeles James Donovan=20 Los Angeles 213-629-4861=20 Red and Blue Inc. California, San Diego Not available=20 San Diego=20 Tradewell Inc. Manhattan New York Mark Thomas Power=20 212-736-1000=20 Swan Transportation Wilmington Tyler, TX Not available=20 (a non-operating=20 subsidiary of Tyler=20 Technologies Inc.)=20 09:00 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 TXU CEO Ready As New Year Rings In Retail Deregulation By Christina Cheddar 01/02/2002 Dow Jones News Service (Copyright © 2002, Dow Jones & Company, Inc.) Of DOW JONES NEWSWIRES=20 (This story was originally published Monday.)=20 NEW YORK -(Dow Jones)- As the clock strikes midnight in the Lone Star State= , ringing in the New Year, it is unlikely many will gather to toast their n= ewly-gained right to pick a supplier of electricity. However, 2002 kicks off an important chapter in history of Texas electricit= y deregulation, and TXU Corp. (TXU), the state's largest electricity suppli= er, appears excited about the opportunities retail competition will bring i= t.=20 With the transition in Texas, about 75% of TXU's earnings will come from pr= oviding energy to customers in a deregulated environment, TXU Chairman and = Chief Executive Erle Nye said in an interview with Dow Jones Newswires. The= Dallas company has 11 million customers worldwide, with about 2.7 million = of those in the Dallas-Fort Worth area and in northern Texas.=20 Nye said he has been a proponent of retail competition for many years becau= se he feels a deregulated market drives innovation, allocates capital most = effectively, and punishes poor performance. Most importantly, costs drop, h= e said.=20 According to Nye, on average, TXU customers will see a 14% reduction in the= ir electricity bills compared with last year. Although part of the decrease= is due to the effect of lower natural gas prices in the state, the company= had promised a minimum of a 6% price reduction, he said.=20 Under the state's 1999 restructuring law, customers of the incumbent utilit= ies who don't switch energy providers will be assigned to the retail electr= ic provider operated by the utility company. Those customers will pay a set= rate for at least three years, or until at least 40% of the utility's cust= omers switch to another electricity provider. Meanwhile, the new electricit= y providers, may change the prices they charge up to twice year if there ar= e changes in natural gas or power costs.=20 "Outside our area, we are trying to pick up some customers," Nye said. "We = know we will lose some of our current customers. We are hoping there is at = least a balance." He declined to more specific about the company's expectat= ions.=20 As for its earnings outlook, TXU expects it will be able to maintain its 9%= to 11% growth rate in the competitive market, Nye said.=20 For the fourth quarter, Nye said he would be "shocked" if the company was u= nable to meet the current Wall Street consensus of 67 cents a share reporte= d by Thomson Financial/First Call.=20 A year ago, TXU earned 61 cents a share.=20 "We are very comfortable with the consensus," he said.=20 Despite the imminent start of retail competition in Texas, efforts to persu= ade consumers to switch electricity providers have been muted so far.=20 TXU's Nye admits his company hasn't spent much on advertising to consumers,= but expects the company to step up its marketing efforts as the year progr= esses.=20 TXU is in the process of establishing offices in parts of Texas outside its= traditional operating area, and is making an effort to establish "personal= contact" in those communities.=20 TXU also is directly contacting medium-to-small industrial customers that m= ight consider switching electricity providers.=20 According to Nye, early efforts to get the internal data processing and cle= arance systems that would allow for a smooth transition to competition oper= ating properly had preoccupied the company during the six-month pilot progr= am.=20 During the pilot, 5% of Texas residential customers were allowed to try new= providers. Despite a slowed start brought on by computer glitches at the s= tate's power grid operator, the Electric Reliability Council of Texas, or E= RCOT, the system is said to be ready to begin as planned.=20 Tony Spare, portfolio manager of Spare Value First and a TXU investor, said= the company has been "chomping on the bit for the new business opportuniti= es" presented by deregulation. According to Spare, TXU is an "effective mar= keter" and its nuclear assets will help the company's price competitiveness= .=20 Spare's view of TXU hasn't changed despite a recent bumpy ride in the utili= ty sector brought on by Enron Corp.'s (ENE) stunning and rapid financial co= llapse.=20 In the aftermath of Enron's collapse, TXU's comparatively conservative stra= tegy may be coming into back into vogue.=20 According to Nye, TXU has always used energy trading as a way to obtain mar= ket information.=20 "We trade around resources," he said, adding that the company's trading act= ivities are limited to its core areas: electricity, gas and telecommunicati= ons.=20 That behavior distinguishes TXU from Enron, Nye said. He cited Enron's aggr= essive trading practices, its accounting practices, and in inability to tak= e the proper reserves as factors that contributed to Enron's need to file f= or Chapter 11 bankruptcy protection in early December.=20 Still, there is no doubt that Enron's troubles have caused credit rating ag= encies to take a tougher stance toward companies in the sector, and TXU is = among those companies receiving more closer scrutiny.=20 Recently, the two largest credit rating agencies, Moody's Investors Service= and Standard & Poor's, affirmed TXU's investment grade status. However, in= its review, S&P said TXU must continue its current efforts to reduce its h= igh leverage in the coming year.=20 Nye declined to say what the company's ideal debt-to-capital ratio is, but = he said the company would continue to reduce its debt level. He added, it i= s essential to have a "strong credit rating ... one to two levels above the= investment grade level."=20 Despite the need to reduce debt, Nye doesn't dismiss the possibility for fu= ture acquisitions at the right price.=20 "We're excited about our prospects for the company," Nye said. As several r= ival energy merchants begin to shed assets to raise money to reduce debt, T= XU will be watching closely to see which assets come up for sale.=20 "I had said a long time ago that there will be a secondary market (for ener= gy assets). That expectation has come to pass," Nye said. "We're interested= in the fact that so many are looking to sell assets."=20 In addition to Texas, TXU has been active in the Northeast and the Midwest.= =20 In Europe, the company has a presence in the Nordic region, and has been bu= ilding positions in Germany and the Iberian peninsula.=20 -By Christina Cheddar, Dow Jones Newswires; 201-938-5166; christina.cheddar= @dowjones.com Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 USA: Finance - Small steps seen improving financial health. By Linda Stern 01/02/2002 Reuters English News Service (C) Reuters Limited 2002. WASHINGTON, Jan 2 (Reuters) - After a bad year, the financial markets are s= ignaling "Recovery, ho!" But many people don't feel so "recovered" personal= ly.=20 They may be looking at diminished stock portfolios, flat 401(k)s and stacks= of holiday bills. They may be lacking the enthusiasm for yet another New Y= ear's "get-my-finances-fixed" resolution after last year's list turned out = so badly. No matter! It's not the sweeping pronouncements or big market moves that ma= ke or break a financial life. It's the little acti
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