enron case studySubscribe
I have been reading Graham and Dodd for the first time. I thought it would be fun to read enron's financial statements in light of GD's advice and see what I could find. Here is a gem from Enron's year ending 2000 statement
"On August 16, 1999, Enron exchanged approximately 62.3 million
shares (approximately 75%) of the Enron Oil & Gas Company (EOG)
common stock it held for all of the stock of EOGI-India, Inc., a
subsidiary of EOG. Also in August 1999, Enron received net
proceeds of approximately $190 million for the sale of 8.5
million shares of EOG common stock in a public offering and
issued approximately $255 million of public debt that is
exchangeable in July 2002 into approximately 11.5 million shares
of EOG common stock. As a result of the share exchange and share
sale, Enron recorded a pre-tax gain of $454 million ($345 million
after tax, or $0.45 per diluted share) in 1999. As of August 16,
1999, EOG is no longer included in Enron's consolidated financial
statements. EOGI-India, Inc. is included in the consolidated
financial statements within the Wholesale Services segment
following the exchange and sale. Enron accounts for its oil and
gas exploration and production activities under the successful
efforts method of accounting."
I read this as saying that Enron sold debt and common stock and recorded the proceeds of this sale in their income account. Are there other interpretations? Does my interpretation suggest fraudulent activity, or is this sort of thing common practice in accounting?
Has anyone else done this exercise? If so, what have you found?