enron.pptx

7/30/2019 enron.pptx

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Rise Of ENRON

In 1985, Kenneth Laymergedthe natural gas

pipeline companiesofHouston NaturalGas and InterNorth to form

Enron


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In the early 1990s, he helped to initiate the selling of electricity at marketprices and, soon after, the United States Congress passed

legislation deregulatingthe sale ofnatural gas.

The resulting markets made it possible for traders such as Enron to sell energyat higher prices, thereby significantly increasing its revenue.

After producers and local governments decried the resultant price

volatilityand pushed for increased regulation, strong lobbyingon the part ofEnron and others was able to keep the free marketsystem in place.


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As Enron rose to become the largest seller of natural gas in North America

by 1992, its gas contracts trading earned earnings before interest andtaxes of $122 million, the second largest contributor to the company's netincome.

The November 1999 creation of the Enron Online trading website allowedthe company to better manage its contracts trading business.

In an attempt to achieve further growth, Enron pursued a diversificationstrategy.


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The company owned and operated a variety of assets including gas

pipelines, electricity plants, pulp and paper plants, water plants, andbroadband services across the globe.

The corporation also gained additional revenue by trading contracts for thesame array of products and services it was involved in.

As a result, Enron's stock rose from the start of the 1990s until year -end

1998 by 311% percent, a significant increase over the rate of growth in theStandard & Poor 500 index.


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The stock increased by 56% in 1999 and a further 87% in 2000, compared toa 20% increase and a 10% decline for the index during the same years.

By December 31, 2000, Enrons stock was priced at $83.13 and its marketcapitalization exceeded $60 billion, 70 times earningsand six times bookvalue, an indication of the stock markets high expectations about its futureprospects.

In addition, Enron was rated the most innovative large company in Americain Fortune's Most Admired Companies survey.


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CAUSES OF DOWNFALL

Enron's nontransparent financial statements did not clearly depict itsoperations and finances with shareholders and analysts.

In addition, its complex business modeland unethical practices requiredthat the company use accounting limitations to misrepresent earnings and

modify the balance sheetto portray a favorable depiction of its performance.

According to McLean and Elkind in their book The Smartest Guys in theRoom, "The Enron scandal grew out of a steady accumulation of habits andvalues and actions that began years before and finally spiraled out of

control."


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In an article by James Bodurtha, Jr., he argues that from 1997 until its

demise, The primary motivations for Enron's accounting and financialtransactions seem to have been to keep reported income and reported cashflowup, asset values inflated, and liabilitiesoff the books.

The combination of these issues later led to the bankruptcy of the company,and the majority of them were perpetuated by the indirect knowledge or

direct actions of Lay, Jeffrey Skilling,Andrew Fastow, and otherexecutives.

Lay served as the chairman of the company in its last few years, andapproved of the actions of Skilling and Fastow although he did not alwaysinquire about the details.


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. Skilling, constantly focused on meeting Wall Street expectations, pushed forthe use ofmark-to-market accountingand pressured Enron executives tofind new ways to hide its debt.

Fastow and other executives "...created off-balance-sheet vehicles, complexfinancing structures, and deals so bewildering that few people could

understand them."


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BUSTED.


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The Enron scandal, revealed in October 2001, eventually led to

the bankruptcyof the Enron Corporation, an American energycompanyand the dissolution ofArthur Andersen, which was one of the fivelargest auditand accountancypartnerships in the world.

In addition to being the largest bankruptcy reorganization in Americanhistory at that time, Enron was attributed as the biggest audit failure .

when Jeffrey Skillingwas hired, he developed a staff of executives that,through the use of accounting loopholes, special purpose entities, and poorfinancial reporting, were able to hide billions in debt from failed deals andprojects.


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Chief Financial OfficerAndrew Fastowand other executives not only misledEnron's board of directors and audit committee on high-risk accounting

practices, but also pressured Andersen to ignore the issues.

Shareholders lost nearly $11 billion when Enron's stock price, which hit ahigh ofUS$90 per share in mid-2000, plummeted to less than $1 by the endof November 2001.

The U.S. Securities and Exchange Commission (SEC) began aninvestigation, and rival Houston competitorDynegyoffered to purchase thecompany at a fire sale price. The deal fell through, and on December 2,2001, Enron filed for bankruptcy underChapter 11

of the United States Bankruptcy Code.


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Enron's $63.4 billion in assets made it the largest corporate bankruptcy in

U.S. history until WorldCom's bankruptcy the following year.


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Gruesome Facts


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Queries


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THANK YOU

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enron.pptx