Message-ID: <33073050.1075851594344.JavaMail.evans@thyme> Date: Thu, 16 Aug 2001 07:13:14 -0700 (PDT) From: m..schmidt@enron.com Subject: Enron Mentions Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: Schmidt, Ann M. X-To: X-cc: X-bcc: X-Folder: \Dasovich, Jeff (Non-Privileged)\Dasovich, Jeff\Deleted Items X-Origin: DASOVICH-J X-FileName: Dasovich, Jeff (Non-Privileged).pst COMPANIES & FINANCE THE AMERICAS: Skilling's abrupt departure mystifies energy sector: The resignation of the Enron chief executive after six months will not alter the company's strategy, writes Sheila McNulty: Financial Times; Aug 16, 2001 COMMENT & ANALYSIS: Enron goes back to the future: Andrew Hill and Sheila McNulty examine the background to Jeff Skilling's premature exit: Financial Times; Aug 16, 2001 COMPANIES & FINANCE THE AMERICAS: Enron chief takes back key positions ENERGY LAY VOWS THAT NOTHING WILL CHANGE AFTER SURPRISE DEPARTURE OF SKILLING: Financial Times; Aug 16, 2001 Enron CEO's Departure Not Passing the Smell Test TheStreet.com, 08/15/01 COMPANIES & FINANCE THE AMERICAS: Skilling's abrupt departure mystifies energy sector: The resignation of the Enron chief executive after six months will not alter the company's strategy, writes Sheila McNulty: Financial Times; Aug 16, 2001 By SHEILA MCNULTY Jeff Skilling loved helping to build Enron into the US energy powerhouse it is today. He just did not want to run it. After six months as chief executive, Mr Skilling abruptly resigned on Tuesday evening, shocking financial markets, the analysts who had tracked his 11-year rise to the top - even the man who hired him. "I certainly didn't expect it," Kenneth Lay, Enron chairman, said in an interview. "I knew he had a lot going on. He was thinking about a lot of things." But Mr Lay declined to elaborate: "It was based upon personal and family matters. He prefers to keep that private." Mr Skilling simply cited "personal reasons" in his farewell conference with analysts. He will not get a severance package and has agreed to adhere to his contract, and will not compete with the company until the end of 2003. His Houston office said he left town yesterday without leaving any more details, so setting the rumour mill in motion. Some suspect he suffered from executive burn-out. Others say he was frustrated with an inability to convince investors he would guide the company around roadblocks thrown up in California, India and in its broadband operations. And there were those who accused him of having adopted a domineering approach that turned off many who dealt with the company. But someone who has known Mr Skilling for many years says the 47-year-old did not like the "crushing responsibility" of being at the top. Most of his friends are at Enron. He loved helping drive the company's tremendous expansion. Yet he could not retreat back down the ranks within the company without losing his standing. So he left. Mr Lay will assume both of Mr Skilling's positions and stay on until the end of 2005 to establish a new line of succession. He served as chief executive from 1985 until Mr Skilling's election in February. Indeed, analysts and even Mr Lay admit he never really let go of the strings. And so Mr Skilling's departure will not be a turning point for Enron. "There will not be any significant change," Mr Lay said. "We have worked jointly on all of the strategies, all of the organisation, all of the people." Mr Lay is the one widely credited with transforming Enron from a regional natural gas pipeline company to a leading electricity, natural gas and communications company. During his 15 years as chief executive, the company's market capitalisation increased from Dollars 2bn to Dollars 70bn. Revenues reached Dollars 101bn in 2000. But its share price has not done as well, falling 58 per cent since its peak of Dollars 90 in August last year. Enron is one of several energy traders facing questions in California over alleged manipulation of prices - which it denies. It is trying to sell out of India, where the company is embroiled in a legal battle with a state electricity board. And its broadband operations have been performing poorly. "Despite continued solid earnings growth from the ongoing expansion of its dominant position in the worldwide energy markets, the company has been plagued with a series of negative issues while its overall quality of earnings has deteriorated, its level of behind-the-scenes financial engineering has increased and its overall standing with the Street has plunged," says Ronald Barone of UBS Warburg. "Mr Skilling was a core force in the evolution of Enron over the past decade, and the recent turn of events cannot all be placed on his watch." That said, Mr Barone believes the company will be undaunted by Mr Skilling's departure: "I cannot think of a more capable person to put in charge of this company than Ken Lay." Copyright: The Financial Times Limited COMMENT & ANALYSIS: Enron goes back to the future: Andrew Hill and Sheila McNulty examine the background to Jeff Skilling's premature exit: Financial Times; Aug 16, 2001 By ANDREW HILL and SHEILA MCNULTY Jeff Skilling receiveda cream pie in the face when he went to San Francisco in June to address a meeting. But protests by disgruntled Californian electricity consumers have been the least of the Enron's chief executive's worries since he took over the top operational job at the US gas-pipeline-turned-energy-trading- company in February. In the past six months there have been accusations that Enron manipulated power prices in California; legal battles in India over its attempt to pull out of a project near Bombay; and a halving of its share price from last year's peak of Dollars 90. On Tuesday came the surprise announcement that Mr Skilling would step down as chief executive and president for personal reasons, to be replaced by Kenneth Lay, Enron's chairman and Mr Skilling's predecessor as chief executive. Mr Skilling told analysts that his resignation had nothing to do with Enron. Mr Lay said there were "no accounting issue, no trading issue, no reserve issue, no previously unknown problem issues". Whatever the reason for his premature exit, it has drawn attention to the savage reassessment of companies from beyond the technology sector that had benefited from the promise of rapid growth in tech-related areas. In the analyst jargon of the moment, Enron has joined a group of aggressive companies that are being punished for "getting ahead of the curve". Enron is no dotcom one-hit wonder. Its net income rose 40 per cent in the second quarter of this year and revenue more than trebled to Dollars 50bn (Pounds 35bn) as its core energy-trading business prospered. But under Mr Lay and Mr Skilling, who was chief operating officer until he took on the chief executive role, the group made a bold bet on the future of trading in a range of commodities beyond energy. Interviewed last October, when Enron's shares were still trading within sight of their Dollars 90 peak, Mr Skilling picked data storage, logistics and credit instruments that support business-to-business e-commerce as three areas in which Enron believed it could make a market. "The total value of the market that we are looking at, outside of energy or bandwidth, is equivalent to the worldwide market in electricity," he said. With the benefit of hindsight, it seems that Enron was guilty of plotting a rosy future on the basis of exceptional 1999-2000 growth in some technology sectors. Companies directly involved in data storage and B2B e-commerce have been among the hardest hit this year, as the rest of the corporate sector has cut back on information technology spending. Enron has also been punished for its commitment to bandwidth trading, as forecasts of a rapid expansion of broadband telecommunications have proved over-optimistic. Instead, the division lost Dollars 102m in the second quarter and the company has had to scale back its ambitions. Enron was not alone, even if it was among the most aggressive in its attempt to pioneer new markets. In the technology sector, Cisco Systems has acknowledged that it expected demand for its products to continue at the same pace as last year. When demand fell, it was left with useless inventory. Outside the pure technology companies, Charles Schwab appears to have overshot by committing too many resources to online broking and Eastman Kodak has admitted it originally overestimated demand for digital photographic products. All these companies were encouraged by armies of market analysts and consultants, some of whom earlier lauded their efforts radically to change their structure for a new era in which physical assets would count less than an ability to exploit intellectual capital. Ambitious executives may also bear part of the blame for disappointment. "Part of what happens in these companies that perform in superior ways is that the senior executives lead them with the expectation that they are going to achieve that performance again, without fully understanding how they are going to do it," says Chuck Lucier, senior vice-president with consultancy Booz-Allen & Hamilton. "It's like working on a high wire without a net." With the outlook for the US and global economies still uncertain, investors now prefer a more cautious approach. Enron's decision to reappoint Mr Lay fits into a pattern in which once high-flying companies, such as Xerox and Lucent Technologies of the US and Marconi of the UK have - at least temporarily - restored a trusted old hand to the top job, partly to reassure shareholders. The Enron case is slightly different, because it was Mr Lay who led the company through its strong growth phase, although Mr Skilling was a fundamental part of the strategy and increasingly the frontman for the company even before he took over as chief executive. "Jeff personified Enron; he was Enron probably to a greater extent than Jack Welch is General Electric," says one analyst. Mr Lay yesterday acknow-ledged that Enron share-holders had benefited from the hefty premium awarded to growth stocks in 1999 and 2000 and suffered with the same group in the first half of this year. It used to be "fun to be one of those", he said, but "in the last six months there was a sell-off in the market of growth companies and high p/e companies". Admiration for Enron went beyond the trading floors and research departments of Wall Street. As recently as a year ago, top financial executives admitted privately to envy of the former pipeline company's elevated stock rating and to frustration that their more traditional employers would not support pioneering experiments in new markets. The last year has seen a more sober assessment of those prospects, even though many analysts still believe Enron's push into different areas will be rewarded. Mr Lay repeated yesterday that he believed the company was fundamentally strong. The irony is that having been punished by the markets as the technology sector declined, Enron may not benefit if the economic cycle turns because it is now associated with its peers in the energy sector. As one analyst put it yesterday: "You don't buy energy stocks at the beginning of a new cycle - you buy tech stocks." Copyright: The Financial Times Limited COMPANIES & FINANCE THE AMERICAS: Enron chief takes back key positions ENERGY LAY VOWS THAT NOTHING WILL CHANGE AFTER SURPRISE DEPARTURE OF SKILLING: Financial Times; Aug 16, 2001 By Sheila McNulty in Houston Kenneth Lay, Enron chairman, yesterday reassumed the positions of chief executive officer and president of the Texas energy giant following the surprise departure of Jeff Skilling. He vowed nothing would change. "We don't need to change things. The company is doing well. The business is sound," Mr Lay said in an interview. Enron reported a 32 per cent increase in diluted earnings per share to 45 cents for the second quarter of 2001; a 40 per cent increase in net income to Dollars 404m; a 58 per cent increase in energy volumes delivered; and an 89 per cent increase in new retail energy services contracts to Dollars 7.2bn. However, its share price has plunged 58 per cent since its peak late last year on high-profile problems in California, India and in its broadband businesses. Yesterday the shares fell 10 per cent to Dollars 38.57. Mr Lay says Mr Skilling's departure has nothing to do with those problems. Mr Skilling took the helm from him only in February, Mr Lay says. Not only does he readily admit they moved into all those problem areas together, but he indicates none of them is of a magnitude to put the company at risk. Instead, he believes Enron has fallen victim to the widespread sell-off in growth companies and a misconception in financial markets that its recent focus on energy trading means it has no underlying fundamentals. "We are not a trading company. We're basically a logistics company, an energy services company," he said. "We have not done a very good job of explaining that for quite a while." He added: "Maybe we can do better at segmenting the businesses to give analysts a better sense of respective segments." Enron has undergone dramatic growth as Mr Lay transformed the company from a regional natural gas pipeline concern into a global energy powerhouse in just over a dozen years. The company now markets electricity and natural gas; delivers physical commodities and financial and risk management services worldwide; and has developed its own platform through which it facilitates online business. Stephen Moore, of Moody's Investors Service, notes that Enron continues to obtain significant new business and believes even its troubled broadband unit offers potential in a market with expectations of exponential demand over the long-term. He characterises the recent problems as growing pains. Nevertheless, analysts agree Enron has strong fundamentals at its core. Ronald Barone, of UBS Warburg, said investors are overreacting to Mr Skilling's departure. "This company is being put back into the hands of the architect," he said. Copyright: The Financial Times Limited Enron CEO's Departure Not Passing the Smell Test By Christopher Edmonds TheStreet.com 8/15/01 6:25 PM ET Speculation's swirling around Jeff Skilling's abrupt departure from energy giant Enron (ENE :NYSE) on Tuesday, for what he would only say were "personal reasons." While Enron's stock performance since Skilling ascended to the CEO spot in February has left shareholders wanting, his departure is being assailed by many as both selfish and riddling. Skilling left behind a trove of potential financial gains, making the timing of his move puzzling. "I'm quite confused by the whole thing," says Tom McIntyre, president of Dessauer McIntyre Asset Management and an Enron shareholder. "After a difficult few months, all of a sudden the CEO quits. This just isn't passing the smell test." Other investors spoke with their feet. Enron shares traded down as much as 14% early Wednesday before closing at $40.25, down $2.68 or 6.2% "I reject the notion that this is a very good time to leave," says McIntyre. "That is a very selfish interpretation of the current situation. People of Skilling's stature take on a responsibility and they cannot walk away without considering the impact such a decision can have on shareholders." The $22 Million Question While both Skilling and Enron Chairman Ken Lay, former -- and now current -- president and CEO, maintain that Skilling left for personal reasons and of his own volition, the shroud of secrecy over the specifics is troubling to both investors and pundits -- including my colleague James J. Cramer. On a company conference call Tuesday evening, Skilling said he "wished to keep the personal reasons private." Sources at Enron would not elaborate, but insisted that Skilling, 47, did not resign for health reasons. On the conference call, Lay confirmed that Skilling would not receive severance pay, as his resignation was "voluntary." Had Skilling been canned, the severance package would have been hefty. According to Enron's 2000 Proxy Statement: "In the event of involuntary termination prior to the expiration of the term, Mr. Skilling will receive a lump sum payment for each full calendar year of the remaining term of the agreement equal to base salary, performance bonus and long-term grant value received in calendar year 2000, offset against amounts payable under the severance plan maintained by Enron, as well as full vesting of all outstanding stock options and restricted stock awards." Hence the $20 million question with a $2 million kicker. In 2000, Skilling was paid a base salary of $850,000 and a bonus of $5.6 million, and received restricted stock awards valued at $3.5 million as well as 867,880 options to purchase Enron stock. With a contract expiring in 2002, Skilling would have been eligible to receive a single severance payment of at least $19.9 million, not including the value of the options received in 2000. Also, the nonvested portion of the 2.4 million stock options he currently owns immediately would become vested, had he been forced out. Leaving voluntarily, Skilling would have collected a cool $2 million if he'd hung around for another four months. That's because, according to the 2000 proxy, Enron loaned $4 million to Skilling in 1997. Skilling repaid $2 million in 1999 and his employment contract calls for the balance of the loan to be forgiven "if Mr. Skilling fulfills all the duties and responsibilities under his employment agreement through Dec. 31, 2001 or is involuntarily terminated prior to Dec. 31, 2001." So if the Enron ship is on course, Skilling isn't ill and timing really wasn't an issue, why wouldn't he either wait until December to resign or announce his resignation but make it effective Dec. 31 and collect the extra $2 million? "Gee, only four months," McIntyre quipped. "If he's not sick and dying you would think he would be willing to stay four months." Some may argue that money isn't an issue for Skilling. According to recent data compiled by Thomson Financial/First Call, Skilling owns nearly 1.1 million shares of Enron, worth more than $42 million at today's price. Skilling also has been retained as a consultant under terms that have not been released by the company. Calls to the company seeking clarification were not returned, leaving questions unanswered. "I just don't think you can understand it," says McIntyre. "You might as well watch cows fly out the window."