Incredible Shrinking Assets

Accounting woes bedevil Enron; company may take $24 billion in write-downs. Also: Telecom CFOs do okay—companies don't. Plus: Lucent's swell stock option swap.

If ever there was a company that didn’t have its numbers tied down, it’s Enron.

In October, the company was forced to restate revenues by more than $600 million. That unexpected rejiggering eventually forced the once-powerful energy trader into Chapter 11. Now, in the middle of a massive restructuring to claw its way out of bankruptcy, the company has announced more bookkeeping problems.

In Securities and Exchange Commission documents filed yesterday, Enron management noted it could write down another $14 billion worth of assets, partly due to accounting errors. Other causes: the write-down on Enron’s numerous Chapter 11 cases, lower-than-expected sale values of company assets, and decisions to sell assets not previously up for sale. Oh yes, Enron management also noted it may have overstated the value of assets by $8 billion to $10 billion.

The company’s current executives seemed to lay some of the blame for the bad math on the company’s previous executives—as well as former auditor Arthur Andersen. “The possible accounting errors or irregularities relating to these several assets were not, to the best of current management’s knowledge, presented to the board’s audit and compliance committee,” stated Enron in the filing. “The company’s reported financial information for periods in 2001, including the accounting treatment of these assets, was prepared by prior management and (in the case of the first two quarters of 2001) reviewed by Arthur Andersen.”

Enron also said it does not have an independent auditor and does not intend to provide audited financial statements for the fiscal year ended December 31, 2001. The reason: a court-appointed examiner will be performing a comprehensive review of certain prior period transactions, and the company doesn’t believe it would be the best way to use its limited resources.

Besides, the company’s recent audited financial statements haven’t exactly been pillars of reliability. As you recall, Enron listed $61.5 billion in assets when it filed for bankruptcy last year. The company also reported liabilities of $49 billion, but has since said the liabilities could swell to $100 billion.

“No matter how cynical you would have been about Enron, it’s defied all of them in terms of being worse than imagined,” analyst John Olson of Houston investment bank Sanders Morris Harris told Reuters. “They were making it up as they were going along apparently, but $14 billion is real dollars. This thing is just a staggering number to me.”

Pay for Performance?

Tough times for telecom companies mean tough times for telecom CFOs, right? Not necessarily.

According to a proxy filing, Nextel Communications CFO Paul Saleh had a pretty good 2001. He took home $154,984 in salary and a $503,500 bonus. He also received $80,898 in other compensation, mostly due to allowances for relocation expenses. Saleh also received $509,000 from restricted stock. That adds up to more than $1.2 million—not bad considering Nextel’s share price is also down 75 percent from its one-year high, and fell more than 11 percent on Monday amid the latest telecom sell-off.

Under Saleh’s employment agreement reached in August 2001, the finance chief received an annual salary of $475,000, along with and a minimum 2001 bonus of $475,000—even though he only spent a few months with the company. Saleh also received a grant of options to purchase 500,000 shares of common stock. The options are 20 percent vested upon granting, and then vest monthly over a four-year term. Saleh also received a grant of 50,000 deferred shares, which vest annually over a three-year term.


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