TOP STORIES--JAN. 13-18
Enron Probe Uncovers More Revelations
More revelations pored forth last week about the days leading up to Enron Corp.’s spectacular bankruptcy.
A detailed road map of Enron’s aggressive accounting maneuvers and an uncannily accurate prediction of the company’s collapse were laid before Enron Chairman Kenneth L. Lay in August in a lengthy memo written by a vice president.
Enron’s auditor, Andersen, fired the partner in charge of Enron’s audits for ordering the destruction of thousands of Enron-related e-mails and documents soon after the Securities and Exchange Commission asked for information about the energy trader’s books.
That in part prompted SEC Chairman Harvey Pitt to outline plans for a private oversight body to discipline accountants and review company audits.
Meanwhile, Enron’s proposed sale of its core energy-trading business to UBS Warburg raises the question: Without its crown jewel, what is Enron?
Until only a few months ago, the Houston-based company was the world’s largest energy trader.
But now, under Bankruptcy Court protection, Enron is frantically unloading assets, including its once-dominant trading operation, its Oregon utility, its best natural gas pipeline and a variety of international assets.
If all of these deals are completed, Enron could end up much as it began, a smallish operator of scattered pipelines.
And Enron was bumped from the New York Stock Exchange to the lowest tier of regular securities trading--the unregulated “pink sheets.”
*
Kmart Gives Rescuer the Green Light
Kmart Corp. moved to stem some of its woe last week by tapping retailing turnaround expert James B. Adamson to help rescue the nation’s second-largest discount chain.
But speculation remained that the company may be headed to Bankruptcy Court.
Adamson, a Kmart director who steered the Advantica restaurant company and Revco drugstore chain through bankruptcy reorganizations, becomes the retailer’s chairman. Charles C. Conaway remains chief executive. Mark S. Schwartz departed as president and chief operating officer.
Experts said it was incumbent upon the company to take some action, as its credit quality and stock price continues to flag.
Standard & Poor’s and Moody’s Investors Service cut their Kmart ratings twice, and its stock lost about 50% over the last five trading days, closing Friday at $1.74.
*
WTO Won’t Give U.S. a Break
The World Trade Organization ruled that a tax break for U.S. exporters was illegal, opening the door for Europe to impose as much as $4 billion in duties on U.S. exports as punishment.
Unless the United States repeals or amends its tax code, it could face a bitter trade war with its European allies as well as the largest penalty imposed in the six years that the Geneva-based WTO has been regulating commerce.
A WTO panel is scheduled to meet in late March to finalize the duties and to decide which exports will be targeted. The list could include airplanes, chemicals, toys and food.
Relations between the United States and Europe already were strained over threatened U.S. penalties on steel imported from Europe and elsewhere.
Given the financial stakes and the fragile state of the global economy, many officials say they expect the U.S. and Europe to craft a face-saving compromise that will avoid a costly trade war.
*
More Turbulence for Airline Earnings
Putting the last touches on a portrait of a horrendous year, the major airlines began reporting massive fourth-quarter losses that reflected the slump in air travel after Sept. 11.
American Airlines parent AMR Corp. said its loss, a quarterly record for the nation’s largest carrier, totaled $734 million.
Continental, Northwest and US Airways also posted huge quarterly losses.
The industry altogether is expected to lose at least $6 billion for all of 2001.
But maverick Southwest Airlines, the low-cost short-haul leader, again managed a slim fourth-quarter profit despite the bleak industry conditions. Southwest earned $32.4 million before one-time items.
On the positive side, the airlines say passenger traffic continues to gradually build, helped by fare sales.
But most of the gains reflect leisure travel, and the carriers don’t expect business traffic to climb substantially until the U.S. economy improves.
*
Bonuses Prescribed for Best Doctors
Six of California’s largest health insurers plan to begin paying bonuses to doctors for providing top-notch care.
The initiative is one among several nationwide that provides further evidence that the current system of fixed HMO payments for patient care is rapidly coming unglued.
The health plans are Aetna Inc., Blue Cross of California, Blue Shield of California, Cigna Corp., Health Net Inc. and PacifiCare Health Systems Inc.
Together, they are devising a set of standards for measuring care and plan to publish report cards on doctors’ performance and reward medical groups with bonuses of 5% to 10% for meeting or exceeding the standards.
Critics are skeptical, and the consortium acknowledged that creating a fund for doctor bonuses might have to come from higher customer premiums.
*
Suit by Sunbeam Shareholders Settled
Albert J. Dunlap, the business leader dubbed “Chainsaw Al” for his slash-and-burn approach to fixing troubled companies, agreed to pay $15 million to settle a lawsuit brought by shareholders of Sunbeam Corp.
The suit, set to go to trial last week, accused Dunlap and other Sunbeam executives of mismanagement and fraud at the small-appliance maker. Dunlap served as chairman and chief executive from 1996 to 1998.
The suit stemmed from Sunbeam’s abrupt financial nose dive in the late 1990s. Sunbeam filed for bankruptcy protection a year ago.
A judge must approve the settlement, in which Dunlap did not admit wrongdoing.
Sunbeam’s former auditor, accounting giant Andersen, agreed last year to pay $110 million to settle securities-fraud litigation brought by Sunbeam shareholders.
*
Weak Tech Earnings Send Strong Signal
Firms at the top of the hierarchy such as Microsoft Corp., Yahoo Inc. and Compaq Computer Corp. sparked optimism on Wall Street with earnings--anemic compared with the boom years of the late 1990s--that nonetheless signaled that the period of freefall has come to an end.
Those front-line companies are best positioned to feel reawakening demand from consumers and businesses. But they are the first links of a long chain of events that will take at least a year to ripple through the high-tech economy.
Nonetheless, tech stocks fell after chip-making giant Intel Corp. said it would cut its capital spending 25% in 2002 despite fourth-quarter earnings that beat analysts’ expectations.
*
MGM Failed to Attract Bidders
Metro-Goldwyn-Mayer Inc. majority shareholder Kirk Kerkorian was hoping to sell the legendary studio, but has failed to attract the kind of promising bids he wants from major media companies, industry sources said.
The billionaire was hoping that a suitor--perhaps Walt Disney Co., Viacom Inc., Vivendi Universal or AOL Time Warner Inc.--would pony up $30 a share or more to get their hands on MGM’s vast film library of more than 4,100 titles, which include the James Bond and the Pink Panther series.
*
For a preview of this week’s business and economic news, please see Monday’s Business section.
