thought I would start a topic on ENRON, every so often a large company will have troubles, and go broke. will post some articles about the company.
feel sorry for the workers in the 401K plan.
when a stock has a sharp dropoff and restates earnings from previous years you should never be long the stock. as soon as company restates earnings from prior years that is a sign to exit and quickly.
following article was found on Bloomberg.
thanks
selkirk
Enron 401(k) Plan Set Up for a Fall
Commentary. David Wilson is a columnist for Bloomberg News. The opinions expressed are his own.
By David Wilson
Princeton, New Jersey, Nov. 28 (Bloomberg) -- Enron Corp. employees participating in a company-sponsored savings plan were more vulnerable than usual to this year's collapse of the company and its stock price.
Common and convertible preferred shares of Enron, once the largest U.S. energy trader, rose as a percentage of the plan's assets last year for the first time since 1994, according to filings with the U.S. Securities and Exchange Commission.
The stock amounted to 62 percent of assets in the so-called 401(k) plan, designed to help people save for retirement, at the end of 2000. That figure was the highest in six years; in both 1998 and 1999, it had been less than a majority.
Participants in the plan, which had $2.14 billion in assets available for benefits, could only do so much to diversify their investments. Enron, like many other companies, used stock rather than cash to match employee contributions and restricted sales of the shares.
And they could only guess at the year-end makeup of the plan's assets until the end of June, reflecting SEC disclosure standards for savings plans. By that time, the stock's drop -- which reached 99 percent today -- was already well under way.
Trio of Lawsuits
Enron later reported $1.01 billion in third-quarter charges; ousted Chief Financial Officer Andrew Fastow, who ran partnerships that accounted for some of the charges; restated its results since 1997; became the target of an SEC accounting investigation; and accepted a takeover bid from Dynegy Inc., its biggest rival.
The company's shares, which ended last year at $83.13, closed at just 61 cents today as Enron's debt was downgraded to junk-bond status and Dynegy abandoned its offer.
In response to the plunge, employees in the 401(k) plan -- which allows workers to defer part of their pay and build tax-free savings, and takes its name from a section of the Internal Revenue Service code -- have filed three lawsuits against Enron.
The suits allege, among other things, that the Houston-based company prevented employees from shifting investments within the plan between Oct. 17, the day after its disclosure of the charges, and Nov. 19 as the company made administrative changes.
All three seek class-action status on behalf of the plan's participants. The most recent filing came from the Gottesdiener Law Firm, based in Washington, on Monday. It covers the longest time period: November 1995 to now.
Falling Percentages
Enron shares accounted for 64 percent of the savings plan's assets at the end of 1994, the year before the period associated with the Gottesdiener suit began. The figure reflected a one-time company contribution of preferred stock, and rose from 62 percent in 1993.
Each preferred share has a face value of $100 and is convertible into 27.304 common shares. This translates into a conversion price of $3.66 a share, a bargain before the common tumbled 85 percent today.
The plan also owned a stake in Enron's former oil and gas unit, which became EOG Resources Inc. after gaining independence in 1999. Add in those shares, and company stock represented about two-thirds of the 1994 assets.
Enron's common and preferred shares fell to 60 percent of 401(k) assets available for benefits in 1995, 58 percent in 1996 and 53 percent in 1997 as the U.S. stock market rallied, lifting the value of participants' investments in equity mutual funds.
The shares represented 49 percent of the plan's assets in 1998. The proportion hit bottom at 46 percent in 1999, when the assets more than doubled -- exceeding the 56 percent increase in Enron's share price that year -- to $1.62 billion.
How Much Choice?
Then came last year, when the common shares recorded their best performance in more than two decades even as U.S. stocks stumbled. Enron rallied 87 percent amid soaring electricity and natural gas prices, while the Standard & Poor's 500 Index, a market benchmark that includes the company, fell 10 percent.
Company shares in the plan rose in value by $652.7 million, according to an SEC filing. The total includes shares bought and sold throughout the year. By contrast, mutual-fund holdings fell by $47 million and ``other investments'' rose by just $134,000, the filing said.
At year-end, the 401(k) plan owned 13.9 million Enron common shares and 70,000 preferred shares, valued at $1.32 billion. This total encompasses not only Enron's matching contributions to the plan, but also employees' investments with their own money.
The company generally provides a 50 percent match, in stock, for the first 6 percent of pay that goes into the plan. Employees can't sell the shares and move the proceeds into other investment choices until they reach the age of 50.
Company contributions accounted for about 11 percent of the plan's stock holdings, said Karen Denne, an Enron spokeswoman. The figure suggests employees invested more heavily in their company than usual for 401(k) participants.
Waiting for Data
For the average U.S. plan account, company stock amounted to 19 percent of assets at the end of last year, according to a study done by the Employee Benefit Research Institute and the Investment Company Institute and published last week.
In any case, Enron's approach to matching ensures that as much as one-third of the contribution to an employee's account takes the form of shares that they can't sell right away.
Anyone who wanted to gauge how this approach, and Enron's stock performance, affected the plan's financial position last year had to wait until June 27. That's when the filing cited earlier arrived at the SEC.
Employee savings and stock-purchase plans, such as 401(k) plans, don't have to submit annual reports until 180 days after their fiscal year ends. They can even get a 15-day extension of the deadline if they need one.
By the time Enron's plan made its annual report, it was already a bit too late to act on the information. The company's shares dropped 44 percent between the end of 2000 and the date of the submission. As the filing demonstrated, employees looking to save for retirement had been set up for a fall.
feel sorry for the workers in the 401K plan.
when a stock has a sharp dropoff and restates earnings from previous years you should never be long the stock. as soon as company restates earnings from prior years that is a sign to exit and quickly.
following article was found on Bloomberg.
thanks
selkirk
Enron 401(k) Plan Set Up for a Fall
Commentary. David Wilson is a columnist for Bloomberg News. The opinions expressed are his own.
By David Wilson
Princeton, New Jersey, Nov. 28 (Bloomberg) -- Enron Corp. employees participating in a company-sponsored savings plan were more vulnerable than usual to this year's collapse of the company and its stock price.
Common and convertible preferred shares of Enron, once the largest U.S. energy trader, rose as a percentage of the plan's assets last year for the first time since 1994, according to filings with the U.S. Securities and Exchange Commission.
The stock amounted to 62 percent of assets in the so-called 401(k) plan, designed to help people save for retirement, at the end of 2000. That figure was the highest in six years; in both 1998 and 1999, it had been less than a majority.
Participants in the plan, which had $2.14 billion in assets available for benefits, could only do so much to diversify their investments. Enron, like many other companies, used stock rather than cash to match employee contributions and restricted sales of the shares.
And they could only guess at the year-end makeup of the plan's assets until the end of June, reflecting SEC disclosure standards for savings plans. By that time, the stock's drop -- which reached 99 percent today -- was already well under way.
Trio of Lawsuits
Enron later reported $1.01 billion in third-quarter charges; ousted Chief Financial Officer Andrew Fastow, who ran partnerships that accounted for some of the charges; restated its results since 1997; became the target of an SEC accounting investigation; and accepted a takeover bid from Dynegy Inc., its biggest rival.
The company's shares, which ended last year at $83.13, closed at just 61 cents today as Enron's debt was downgraded to junk-bond status and Dynegy abandoned its offer.
In response to the plunge, employees in the 401(k) plan -- which allows workers to defer part of their pay and build tax-free savings, and takes its name from a section of the Internal Revenue Service code -- have filed three lawsuits against Enron.
The suits allege, among other things, that the Houston-based company prevented employees from shifting investments within the plan between Oct. 17, the day after its disclosure of the charges, and Nov. 19 as the company made administrative changes.
All three seek class-action status on behalf of the plan's participants. The most recent filing came from the Gottesdiener Law Firm, based in Washington, on Monday. It covers the longest time period: November 1995 to now.
Falling Percentages
Enron shares accounted for 64 percent of the savings plan's assets at the end of 1994, the year before the period associated with the Gottesdiener suit began. The figure reflected a one-time company contribution of preferred stock, and rose from 62 percent in 1993.
Each preferred share has a face value of $100 and is convertible into 27.304 common shares. This translates into a conversion price of $3.66 a share, a bargain before the common tumbled 85 percent today.
The plan also owned a stake in Enron's former oil and gas unit, which became EOG Resources Inc. after gaining independence in 1999. Add in those shares, and company stock represented about two-thirds of the 1994 assets.
Enron's common and preferred shares fell to 60 percent of 401(k) assets available for benefits in 1995, 58 percent in 1996 and 53 percent in 1997 as the U.S. stock market rallied, lifting the value of participants' investments in equity mutual funds.
The shares represented 49 percent of the plan's assets in 1998. The proportion hit bottom at 46 percent in 1999, when the assets more than doubled -- exceeding the 56 percent increase in Enron's share price that year -- to $1.62 billion.
How Much Choice?
Then came last year, when the common shares recorded their best performance in more than two decades even as U.S. stocks stumbled. Enron rallied 87 percent amid soaring electricity and natural gas prices, while the Standard & Poor's 500 Index, a market benchmark that includes the company, fell 10 percent.
Company shares in the plan rose in value by $652.7 million, according to an SEC filing. The total includes shares bought and sold throughout the year. By contrast, mutual-fund holdings fell by $47 million and ``other investments'' rose by just $134,000, the filing said.
At year-end, the 401(k) plan owned 13.9 million Enron common shares and 70,000 preferred shares, valued at $1.32 billion. This total encompasses not only Enron's matching contributions to the plan, but also employees' investments with their own money.
The company generally provides a 50 percent match, in stock, for the first 6 percent of pay that goes into the plan. Employees can't sell the shares and move the proceeds into other investment choices until they reach the age of 50.
Company contributions accounted for about 11 percent of the plan's stock holdings, said Karen Denne, an Enron spokeswoman. The figure suggests employees invested more heavily in their company than usual for 401(k) participants.
Waiting for Data
For the average U.S. plan account, company stock amounted to 19 percent of assets at the end of last year, according to a study done by the Employee Benefit Research Institute and the Investment Company Institute and published last week.
In any case, Enron's approach to matching ensures that as much as one-third of the contribution to an employee's account takes the form of shares that they can't sell right away.
Anyone who wanted to gauge how this approach, and Enron's stock performance, affected the plan's financial position last year had to wait until June 27. That's when the filing cited earlier arrived at the SEC.
Employee savings and stock-purchase plans, such as 401(k) plans, don't have to submit annual reports until 180 days after their fiscal year ends. They can even get a 15-day extension of the deadline if they need one.
By the time Enron's plan made its annual report, it was already a bit too late to act on the information. The company's shares dropped 44 percent between the end of 2000 and the date of the submission. As the filing demonstrated, employees looking to save for retirement had been set up for a fall.
