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Enron posts loss after taking $1 billion in charges

Enron Corp on Tuesday reported its first loss in more than four years after taking $1.01 billion in charges on ill-fated investments, including water and telecommunications services, which it said have clouded the strength of its core energy businesses.

Enron, North America's biggest marketer and trader of natural gas and power, said the charges were an attempt to put its house in order after a tumultuous year in which a new chief executive suddenly resigned and the company's stock lost two-thirds of its value as once enthusiastic investors lost faith in the company.

"What we've tried to do here is clean up anything that we thought needed cleaning up to get these distractions out of the way," chief executive officer Ken Lay said in a conference call.

Lay reassumed the CEO mantle at Enron after his successor, Jeff Skilling, resigned in August after only six months at the helm.

Houston-based Enron reported a third-quarter net loss of $638 million, or 84 cents a share, compared with net income of $271 million, or 34 cents a share, in the same period of 2000. It was Enron's first loss since the second quarter of 1997.

The charges covered the company's loss-making broadband telecommunications business, its troubled water affiliate Azurix, and New Power Co, Enron's retail electricity joint-venture with AOL/Time Warner and IBM.

Commerzbank Securities analyst Andre Meade said it would probably take Enron a few more quarters to rebuild confidence in the company which was a Wall Street favourite just 12 months ago.

"They do a couple of things very well and if they stick to their knitting, they're a solid company, but they have stumbled when they strayed further afield," said Meade.

Enron's stock closed 67 cents higher at $33.84 on Tuesday, but for the year it is down about 59 per cent, underperforming the Standard & Poor's utilities index, which has fallen some 23 per cent over the same period.

ILL-FATED BUSINESSES

Originally a natural gas pipeline operator, Enron seized on opportunities created by the deregulation of US energy markets to become the nation's dominant wholesale marketer and trader of natural gas and electricity.

The company moved into the water services business in 1998 by acquiring Britain's Wessex Water and forming Azurix, a unit which Enron took public in 1999 but had to buy back this year after it failed to meet performance targets and its stock price tumbled.

Enron helped set up New Power Co and take it public last year but its stock has since fallen from about $28 per share to less than $2 as companies have found it hard to make a profit in deregulated US residential electricity markets.

Enron also launched a broadband telecommunications business last year, predicting that network capacity would one day be traded like natural gas or electricity, but it has recently admitted that it overestimated the market's early potential.

Enron's stock soared past sector peers last year when it posted a gain of 87 per cent, driven by enthusiasm for the broadband plans and the success of its EnronOnline Internet energy and commodity trading platform.

But the stock has fallen sharply this year as broadband sentiment soured, Skilling resigned and wrangling continued over Enron's stalled Dabhol power plan project in India.

DEBT ON CREDIT REVIEW

Rating agency Moody's Investors Service on Tuesday said it had placed all of Enron's long-term debt obligations on review for a possible downgrade. The writedowns would reduce Enron's equity base, increase its nominal financial leverage and materially impact its earnings, Moody's said.

Enron's third-quarter earnings report showed that income at its wholesale marketing and trading division, the company's backbone moneymaker, grew 28 per cent.

The division, which deals primarily in electricity and natural gas, saw pretax income rise to $754 million from $589 million in the third quarter of 2000.

All of the income growth in the segment came from Enron's gas and power trading and marketing operations in the Americas, where income grew to $701 million from $536 million last year.

The European segment, which includes gas and power operations there and other commodity sales like metals, coal and crude oil, remained flat at $53 million amid lower volatility.

The latest earnings report marked the first time that Enron has provided a financial breakdown of the European and Americas wholesale operations.

In doing so, Lay delivered on a promise he made after Skilling's departure: that he would make Enron's financial reporting more transparent. Many analysts and investors had grumbled about a lack of clarity from Enron.

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