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Strategies & Market Trends : VOLTAIRE'S PORCH-MODERATED -- Ignore unavailable to you. Want to Upgrade?

To: Cactus Jack who wrote (51231)	5/10/2002 2:27:49 AM
From: stockman_scott	Read Replies (1) \| Respond to of 65232

Enron-Andersen Ties Ended in Disaster By Jeff Franks Thursday May 9, 8:45 pm Eastern Time HOUSTON (Reuters) - Accounting firm Andersen bent over backwards to please its lucrative client Enron Corp. in an unusually close relationship that ended in disaster for both, according to testimony on Thursday in Andersen's obstruction of justice trial. A picture emerged of Enron constantly looking for ways to polish its financial statements by skirting conventional accounting rules and Andersen all too frequently going along, after a little internal anguish. Their chummy relationship came to an end last fall when Enron reported a series of staggering financial losses tied to off-balance sheet partnerships the company used to disguise debt and boost profits. The energy trading giant declared bankruptcy on Dec. 2 and Andersen, discredited by its permissive auditing of Enron, is struggling to survive the loss of hundreds of clients. The Big Five accounting firm is charged with obstruction of justice for allegedly destroying thousands of Enron audit records to keep them away from investigators. Prosecutors say Andersen wanted to cover its role in Enron's collapse because it feared losing its license to practice after involvement in previous accounting scandals at Waste Management and Sunbeam corporations. Two high-level Andersen partners, Ben Neuhausen and Carl Bass, described an ongoing tug-of-war between Enron and Andersen in which the energy trading giant enlisted the local Andersen accountants to fight for its financial schemes against senior Andersen people advising caution. "They (Enron) operated in areas (where) the accounting wasn't real clear..it was sort of pushing the envelope of what other companies would do," Bass told the jury. SKIRTED REGULATIONS The battles were often over Enron's numerous off-balance sheet partnerships, where the company skirted federal regulations about ownership, conflict of interest and financial reporting, they said. Neuhausen told of a 1999 exchange in which Andersen's lead Enron accountant David Duncan asked whether it would be OK for Enron's then-chief financial officer Andrew Fastow to run and be part-owner of one of the partnerships. Neuhausen, like Bass a member of a high-level Andersen standards committee that resolved accounting questions, shot back a memo saying there was "conflict of interest galore" in the proposal and that no board of directors "in its right mind" would approve such a deal. But, in the end, both the board and Andersen OKd Fastow-run partnerships that earned him a reported $30 million. Bass told of how he opposed several Enron proposals, including accounting treatment of the off-balance sheet deals, then one day his managers took him off all Enron work because Enron thought him to be an obstructionist. Enron blasted him in a client satisfaction survey as "too rule-oriented" and his bosses said the company viewed him as "caustic and cynical toward their transactions," he said. Aside from the personal blow of being removed from working with Andersen's biggest Houston client, he said he thought it dangerous for a client to be dictating personnel decisions to its auditor, who is supposed to remain independent. The two witnesses, in a mirror of Andersen's overall strategy in the trial, appeared to pin the blame for their firm's cozy Enron relationship on Duncan, who they thought too willing to do Enron's bidding. 'PUSHED TO EXCESS' Duncan has pleaded guilty to obstruction of justice by shredding Enron documents so investigators would not see them. He is scheduled to testify in the trial, perhaps as early as Friday. "They (Andersen's Enron team) would often push for an aggressive interpretation of the accounting standards," Neuhausen said. "I thought many times, yes, he (Duncan) pushed to excess on aggressive interpretations." He said Duncan and his team defied his committee's recommendations about how to book the off-balance sheet deals, with the result that Enron took a $1.1 billion charge to its 2001 third quarter earnings and restated results for four years. Both men said relations between them and the Duncan-led group were tense last fall as Enron began to unravel. They said top-level Andersen managers got involved to try to come up with accounting methods to reduce the third-quarter blow, but Enron released the figures before they reached a solution. Things only worsened when shortly afterwards Enron was forced to write down shareholder equity by $1 billion because of an Andersen error. "There was a billion-dollar debit that needed to find a home somewhere," Neuhausen said. Neuhausen also testified that he deleted Enron-related e-mails at the height of Enron's problems in October, but said he was simply cleaning up his files, not hiding information from investigators. "It didn't dawn on me that anybody would have an interest in them," he said. biz.yahoo.com

To: Cactus Jack who wrote (51231)	5/10/2002 2:47:42 AM
From: stockman_scott	Read Replies (2) \| Respond to of 65232

Nice piece on CSCO from IBD: Thursday, May 9, 2002 Cisco Rebound Ignites Powerful Stock Surge; Will It Last This Time? BY MIKE ANGELL INVESTOR'S BUSINESS DAILY Sometimes a little bit of good news can make a big difference. Cisco Systems (CSCO) rescued tech stocks and the market from the doldrums Wednesday, thanks to strong third-quarter earnings. The Nasdaq soared 123 points, or 7.8%, for its eighth-best percentage gain ever. The Dow added 305 points, or 3.1%, and the S&P 500 39 points, or 3.8%. Don't get too excited, though. While Cisco's net soared 267% from a weak year ago and beat views by 2 cents, sales grew just 2%. It was cheaper supplies and efficiency, not growth, that boosted the bottom line. "There are not enough data, and it is too early to call a possible turnaround," CEO John Chambers said in a conference call Tuesday. Market analysts, while encouraged, tempered their views, too. "This market has been so negative for so long that when we do see a good move, we question it," said Brian Belski, market strategist for U.S. Bancorp Piper Jaffray. "Ultimately, that's healthy for the market." The results show Cisco runs an efficient business, says U.S. Bancorp Piper Jaffray tech analyst Ted Jackson. "The earnings surprise really got people excited," he said. But "that has no bearing on rate of growth for the company in the future." Small Sales Gain For the quarter ended last month, Cisco eked out its 2% gain in sales to $4.8 billion. Product sales fell slightly from last year — to $3.9 billion from $4 billion. Service sales grew 15% to $829 million. "Growth in the top line was really from services," Jackson said. "The performance of products was not quite as strong." Business spending on networking gear continued to keep Cisco afloat. But sales to the stumbling telecom sector offset that. Sales of high-end routers, optical gear and other telecom-specific gear fell 10% or more. As for Cisco's fourth quarter, Chambers expects sequential sales to be flat or slightly up. "I feel better about going into Q4, but still not great," he said. Analysts are trimming sales projections for the company, Jackson says. Cisco watchers expected sales growth of 15% to 20%. But absent a strong recovery, Cisco is more likely to see 10% to 15%. 'Subdued Recovery' For higher gains, telecom network spending would have to rise, Jackson says, and Cisco would have to get a larger share. "There's far more data out there in the market pointing to a more subdued recovery," Jackson said. Other financial data suggest a dismal sales outlook. Cisco's ratio of new product orders vs. orders shipped — the book-to-bill ratio — fell below 1. A ratio above 1 suggests the company will ship more orders in upcoming quarters. "They shipped out more product than they booked orders for," Jackson said. Another indicator of future sales growth — deferred revenue — was $3.8 billion, flat compared with the second fiscal quarter. Deferred revenue is for products sold but not shipped. Growing deferred revenue indicates a company is going to ship more products, and recognize more revenue, in upcoming quarters. Investors were more interested in Cisco's sharp earnings rise. Excluding one-time items, Cisco earned 11 cents a share in the quarter. That was up from 3 cents in the year-ago period. Analysts were expecting 9 cents. Almost all of that gain came from better gross margins. Excluding effects of Cisco's $2.2 billion inventory write-down last year, product gross margins were 61% compared with 53% a year ago.