CON

“tay plays the role of the cleseic ‘Mr. Ovtaide,* jetting sround the
world opeaing doors for the cowpany asd schmoozing his mostly
Republican contacts in Weshingten,* said Fortune magazine in 1996. But
Lay courted Democrats, tov. He served on an advisory commission for
Ann Richards, George W. Sueh's predecessor ## governor of Texas. A
place was found on the Baron board for former Commodity Futures
Trading Commission chairman Wendy Grane, wife of Gen. Phil Grass
(R- Texan)

Lay owned one of the first beach houses in the fancy Galveston,
Texas, resort community of Kahala Beach Estates, called the *Hesptons
of the Gulf Coast.* At # typical party in the neighborhood, ‘the
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01300000000426


Page 4 of 11
short exchange of gunfire. To what that was directed is not clear right now, but it did last several minutes,

We were later told by the Marines that smal] arms were received here and also received by covert gunstups circling overhead, two to be
precise. Later, we were told by the Marines that snipers were detected and perceived around the perimeter. Special forces were sent out to
extinguish that threat. Members of the 10st Airborne division, U.S. Marines, scrambling at that point to take their defensive positions here,
many more scrambling inside the terminal building where we were located at the time,

Again, this lasted about three to three-and-a-half hours and we're not quite sure right now, Lou, as to whether or not that security breach
continues at this point, or whether or not they'll be questions for the next shipment of detainces once that gets underway at sometime in the
very pear future, Lou.

DOBBS: You mentioned the two covert gunships. Presumably, they were dispatched in response to the perceived breach of the perimeter. Is
that correct?

HEMMER: Yes, that is indeed correct, Lou. And they were flying around, based on our perception, for about two hours time. And we did
notice also, at the time that the covert gunships were basically the only type of aircraft in the air, the airport was basically and essentially shut
down, no flight operations, no lights were on as the security again was breached here, and they were taking no chances.

I should mention also prior to that, the first group of detainees, Lou, two groups of 10 taken out here. It seemed very orderly and very
deliberate. Security was extremely tight. And the two groups were told recently all the detainees here taken out were clean shaven from head to
toe, including the much coveted beard worm by many and all al Qaeda members here in Afghanistan.

Again, a C-17, especially equipped to take the detainees on that 20-hour flight to Guantanamo Bay, Cuba. But again, as | mentioned, this is a
major security breach at this point, There will be many questions about how to handle this in the future, One source it was a tral rin of
sorts to make sure the security measures implemented over the past four or five days here in Kandahar indeed were upheld. There will be many
questions about that when the daylight comes up several hours from now, Lou,

DOBBS: One final question, Bill, the perimeter, presumably, manned by U.S. forces rather than Afghan. That would be my presumption. Is
that 2 correct presumption’?

HEMMER: Lou, at this point, here's our understanding: Two perimeters here in Kandahar, the interior and the exterior. The interior is guarded
by the U.S, military and the other coalition forces. The exterior, we're told, is guarded by the OGs, the apposition groups, opposition groups of
the Taliban and al Qaeda here in Kandahar, We are told the exterior perimeter is where the breach was determined and located, where those
snipers apparently were firing again about nine hours ago here in Kandahar, Lou.

DOBBS; Bill, thank you very much. Bill Hemmer from Kandahar.

Well, CNN has learned an that an advance team of 25 U.S. special forces has landed in the Philippines. And that number could grow to 100
special forces with hundreds of maintenance and other personnel in support. They are all part of a larger U.S. military effort that could
eventually number as many as 500 troops to help the Philippine government fight Muslim terrorists tied to the al Qaeda. Experts calculate that
hundreds of Muslim terrorists may be in the outlying islands of the Philippines, perhaps tvousands. Kitty Pilgrim has the report.

(BEGIN VIDEOTAPE)

KITTY PILGRIM, CNNin CORRESPONDENT (voice-over): U.S. officials say the total effort could number 500 US. troops, including.
special forces troops, will be involved in the effort to root out Muslim terrorists tied to al Qaeda.

DONALD RUMSFELD, SECRETARY OF DEFENSE: Some time back, | signed understandings that we would provide some training and
assistance to the Philippine government.

PILGRIM: The current effort is part of a $4 billion military aid package approved after September 11 to provide advice, training and
equipment to the Philippine forces,
MIKE VICKERS, CSIS: Helicopters, transport aircraft, patrol craft and trucks, and then a lot of stepped up training too by special forces and

intelligence folks and also helicopter training for the Filipinos to give them an edge over the guerrillas. But I think the Filipino army will
largely do the work themselves,

PILGRIM: The Philippines has a been a hotbed of terrorist activity. A particularly savage group, Abu Sayyaf, operates from the Philippine
island of Mindinao. U.S. troops are being sent to the southern city of Zamboanga.

Abu Sayyaf terrorists are notorious for beheading their captives, Two Americans, Martin Burnham and his wife, Gracia, were taken hostage
along with another American and 17 Filipino guests of a resort last May, One of the Americans and four of the other captives were beheaded in
June,

ADRIAN KARATNYCKY, PRESIDENT, FREEDOM HOUSE: But it is a fact that the founders of this group participated in the struggle in
17/02 '@) 1 8 8 2

013000000004390


Nickoloff, Peter

From: Carleton, Norman
Sent: Thursday, December 20, 2001 11:34 AM
To: Sharer, James; Cetina, Jill; Bair, Shella; Berardi, Steve, Bitsberger, Timothy; Eichner,

Matthew; Gabilondo, Jose; Gross, Jared; Hammer, Viva; Lori Sanatamorena (E-mail);
Nickoloff, Peter; Novey, Michael; Pietrangell, Fred; Roseboro, Brian; Schultheiss, Heidilynne;
Whaley, Jean; Wiedman, Mark

Subject: Economist; Pensions in America -- The merits of diversity

Pensions in America

The merits of diversity

D
Fro

3th 2001
The Economist print editior

A company pension plan should not be allowed to invest heavily in its own shares

Get article background

DIVERSIFICATION is one of the first rules of any investment strategy. Put too many eggs in one basket,
goes the proverb, and you risk losing the lot if things go wrong. Enron's bankruptcy was bad for investors.
But for Enron's employees, the bulk of whose retirement savings were in Enron shares, it was a disaster-
and one that must be avoided in future.

shares
25 % of 401(k) assets

“0 cy ® wo
Procter & Gamble

Cou-Cota

Generat Electric

Enron

What is most disturbing is how widespread the practice is in America. As pension funds based on
employees’ final salaries ("defined benefits”) wither away, so-called 401(k) plans are becoming the most
common company retirement vehicle. In such "defined-contribution” schemes, employees’ ultimate
pensions depend entirely on the investment performance of the plans. Yet such blue-chip companies as
Coca-Cola, General Electric and McDonald's all have three-quarters or more of thelr 401(k) plans invested
in their own equity. For Procter & Gamble, normally a paragon of best corporate practice, the proportion is
almost 95%. Set against these examples, Enron's 58% looks almost reasonable (see article).

How has this come about? Part of the answer is that section 401(k) plans evolved out of previous schemes
to encourage employee stock ownership. But there are two other, more questionable explanations. Many
companies match employees’ contributions to 401(k) plans in the form of company shares, not cash. In
some plans (including Enron's), these come with the restriction that the shares cannot be sold until the
employee is over 50. The second explanation is that companies offer their staff a relatively small menu of
possible investments for their 401(k) plans, one of which is the company's own shares, Many select this
option.

282

01300000000391


10K Wizard - SEC filings Page 14 of 83

reasons, Northern may redeem the preferred atock in whole, but not in part, at a
redemption price equal to the $1.5 billion liquidation preference amount plus
any accrued and unpaid dividends.

In connection with the subscription agreement, Dynegy entered into an
option agreement with a subsidiary of Enron that indirectly owns the common
stock of Northern, under which a Dynegy subsidiary has the option to purchase
all of the equity of that gnron subsidiary. The option will become exercisable
only upon certain specified terminations of the merger agreement. The exercise
price for the opticn is $23 million, plus the amount by which Northern's
indebtedness under its bank credit facility and senior notes is less than $950
million (or minus the amount by which such indebtedness exceeds $950 million},
subject to adjustment for the amount of working capital at the time of the
exercise. If the option is exercised by Dynegy, Bnron will have certain rights
to repurchase the ownership of Northern for 90 (or under some scenarios 180)
days at a substantially equivalent exercise price adjusted for changes in
working capital and debt after the purchase by Dynegy.

Also in connection with the purchase of the Northern preferred tock,
Dynegy entered into an exchange agreement with Enron under which each share of
the Northern preferred atock may be exchanged for shares of Enron common stock.
Dynegy has the option to cause such an exchange if the merger agreement is
terminated in certain circumstances relating to a competing third party
acquisition proposal relating to Enron or if the Board withdraws or changes, in
@ manner adverse to Dynegy, its approval or recommendation of the merger with
Dynegy or recommends a competing third party acquisition proposal. Enron has the
option to cause such an exchange if the merger agreement is terminated in
certain circumstances relating to a competing third party acquisition Proposal
relating to Dynegy or if Dynegy's board of directors withdraws or changes, in a
manner adverse to Enron, its approval or recommendation of the merg@r with Enron
or recommends a competing third party acquisition proposal. If the exchange
right is exercised, each share of Northern preferred stock would be exchanged
for approximately 169,300 shares of Enron common stock (or approximately 169.3
million shares in the aggregate), subject to adjustment based on changes to the
Enron merger exchange ratio pursuant to the Merger agreement. The exchange
agreement will terminate if the proposed merger is consummated, the option under
the option agreement described above is exercised or the preferred stock ia
redeemed in accordance with its terms. »

13

PART I. FINANCIAL INFORMATION - (CONTINUED)

ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
ENRON CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED PINANCIAL STATEMENTS 02080

The exchange agreement further Provides that if Dynegy is prevented from
receiving Enron common stock under the exchange agreement because the regulatory
and other specified conditions for the issuance have not been satisfied, Dynegy
will have the right to assign its rights under the exchange agreement to any
third party or Enron will issue to Dynegy shares of a new class of Enron
preferred stock convertible into an equivalent number of shares of Enron common
stock. If the conditions for Dynegy to receive Enron common stock are not
satisfied after twelve months, Dynegy may instead elect to withdraw its exercise
of the exchange right and exercise its rights under the option agreement, or
receive equivalent consideration from Enron.

Subsequent to the execution of the merger agreement with Dynegy, Kenneth
L. Lay, Enron's Chairman and Chief Executive Officer, waived his right to
receive approximately $60.6 million under the change of control terms in his

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01300000000688


10K Wizard - SEC filings Page 9 of 83

herein have been adjusted to reflect the impacts of the anticipated restatements
discussed in Note 3 based on Enron's current understanding of the relevant facts
as of the date of filing of this report. Por the impacts on Enron's Consolidated
Financial Statements for the years ended December 31, 1997 through 2000 and for
the first and second quarters of 2001, see Note 3. It is possible that the
investigation by the Special Committee will identify additional or different
information concerning these matters which May require additional or different
restatements. Accordingly, Enron will not file amendments to ite annual reports
on Forms 10-K for the years ended December 31, 1997 through 2000, or its
quarterly reports on Forms 10-9 for the quarterly periods ended March 31, 2001
and June 30, 2001 to reflect the restatements of Enron's Consolidated Financial
Statements until the Special Committee has completed its investigation.

PART I. FINANCIAL INFORMATION - (CONTINUED)

ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
ENRON CORP. AND SUBSIDIARIES *
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent ete and liabiliti at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Consistent with SEC requirements for interim reporting, certain
information and notes normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. Enron believes that the
disclosures are adequate to make the information presented not misleading.

Certain reclassifications have been made in the 2000 amounts te conform
with the 2001 presentation,

2. RECENT EVENTS

FINANCIAL CONDITION. Following Enron's announcement of ite third quarter
2001 results on October 16, 2001, there was a significant decrease in Enron's
common share price and subsequent decreases in the credit ratings of Enron's
long-term debt to BBB- and Baa3 (the lowest level of investment grade) with a
warning that further downgrades were possible. Thia situation resulted in a lose
of investor confidence and significantly affected Enron's ability to raise
capital. 02075

Maintaining an investment grade credit rating is a critical element in
maintaining liquidity for Enron's wholesale business which, together with the
natural gas pipeline operations and the retail business, comprise Enron's core
businesses diacussed below. As a part of their standard contractual
arrangements, Enron and its trading counterparties regularly post cash deposits
or letters of credit to collateralize a portion of their trading obligations.

A downgrade to below investment grade could lead to a substantial increa. in
the level of cash required for collateral and margin deposits with Enron's
wholesale trading partners. Additionally, Enron and its subsidiaries have
outstanding surety bonds and other instruments related to construction projects

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01300000000683


responsibility and, therefore, double potential liability."

Andersen officials say their firm's independence wasn't impaired by the size or nature of the fees paid
by Enron -- $52 million last year, An Enron spokesman said, "The company believed and continues
to believe that Arthur Andersen's role as Enron's internal auditor would not compromise Andersen's
role as independent auditor for Enron."

Andersen spokesman David Tabolt said Enron outsourced its internal-audit department to Andersen
around 1994 or 1995. He said Enron began conducting some of its own internal-audit functions in
recent years. Enron, Andersen's second-largest U.S. client, paid $25 million for audit fees in 2000,
according to Enron's proxy last year. Mr. Tabolt said that figure includes both internal and externa!
audit fees, a point not explained in the proxy, though he declined to specify how much Andersen was
paid for each. Additionally, Enron paid Andersen a further $27 million for other services, including tax
and consulting work.

Following audit failures, outside auditors frequently claim that their clients withheld crucial information
from them. In testimony Wednesday before a joint hearing of two House Financial Services
subcommittees, which are investigating Enron's collapse, Andersen's chief executive, Joseph
Berardino, made the same claim about Enron. However, given that Andersen also was Enron's
internal auditor, “it's going to be tough for Andersen to take that traditional tack that ‘management
pulled the wool over our eyes,’ " says Douglas Carmichael, an accounting professor at Baruch
College in New York.

Mr. Tabolt, the Andersen spokesman, said it is too early to make judgments about Andersen's work.
“None of us knows yet exactly what happened here," he said. "When we know the facts we'll all be
able to make informed judgments. But until then, much of this is speculation.”

Though it hasn't received public attention recently, Andersen's double-duty work for Enron wasn't a
secret. A March 1996 Wall Street Journal article, for instance, noted that a growing number of
companies, including Enron, had outsourced their internal-audit departments to their outside auditors,
a development that had prompted criticism from regulators and others. At other times, Mr. Tabolt
said, Andersen and Enron officials had discussed their arrangement publicly.

Accounting firms say the double-duty arrangements let them become more familiar with clients’
control procedures and that such arrangements are ethically permissible, as long as outside auditors
don't make management decisions in handling the internal audits. Under the new SEC rules taking
effect next year, an outside auditor impairs its independence if it performs more than 40% of a
client's internal-audit work. The SEC said the restriction won't apply to clients with assets of $200
million or less. Previously, the SEC had imposed no such percentage limitation.

Write to Jonathan Weil at jonathan.weil

252

01300000000360


Page 2 of 2

NI CAS
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O- (BN } Dec/10/2003 18:15 OT

01878

1/17/02

01300000000486


FRD_ ___weonespay, 1anuary 9, 2002 BY3

FUTURES

Weather, Supply Talk Sink Crude;
Beans Rise Again; Silver Cools

wrevurans—
Oi prices closed lower on Tuesday

| February crude oil fell 23 cents to
$21.25 a barrel. Heating ofl fell 0.37
cent to $6.82 cents a gallon. Gaso-
line lost L.35 cents to 60,99 cents.

pees
tocol to-4-20

and 2-6 degrees sawier

sate Chtegp Boe rage she i

oft

01300000000435


10K Wizard - SEC filings Page 12 of 83

Particularly in longer-term transactions. It is too early to determine the
impact these events will have on Enron's fourth quarter 2001 operating resulte.
Additionally, the fourth quarter of 2001 will likely be negatively impacted by
severance, restructuring and other charges resulting from the repositioning of
many of Enron's businesses consistent with the restructuring plan, as well as
potential writedowns as discussed in Note 8.

Snron has various financial arrangements which require Enron to maintain
specified credit ratings. The November 12, 2001 downgrade in Rnron's senior
unsecured debt rating to BBS- by Standard & Poor's has caused a ratings event
related to a $690 million note payable that, absent Enron posting collateral,
will become a demand obligation on November 27, 2001, See Note 9 for a
description of this obligation. Consistent with the restructuring plan discussed
above, Enron ig currently working with the lenders to develop a mutually
acceptable amendment or waiver to the transaction documents in order to avoid an
early Enron payment cbligation.

In the event Enron were to lose its investment grade credit rating and
Snron's stock price was below a specified price, a note trigger event would
occur. This could require Enron to repay, refinance or cash collateralize
additional facilities totaling $3.9 billion, which primarily consist of $2.4
billion of debt in Osprey Trust (Osprey) and $915 million of debt in Marlin
Water Trust (Marlin). In the event such a trigger event occurs and Enron cannot
timely issue equity in an amount sufficient to repay the notes or restructure
the obligations, Enron is obligated to pay the difference in cash. Por a
description of the Marlin and Osprey Trusts, both of which are unconsolidated
affiliates, and the related debt obligations, see Note 8.

In the event that Enron fails to pay any debt obligations when due,
including when such obligations may be accelerated, or is unable to refinance or
obtain a waiver of or amendment to such obligations, a series of events would
begin which could impact Enron's compliance with the terma of its Revolving
Credit Agreements and certain other obligations, including bank debt facilities.

11

PART I. FINANCIAL INFORMATION - (CONTINUED)

ITEM 1. PINANCIAL STATEMENTS - (CONTINUED)
ENRON CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED PINANCIAL STATEMENTS

It is not possible to predict whether any or all of the actions described
above (including the @ of non-core business:
or waiver of Enron cbligations that may become
scheduled maturities or due to an accel
maintain Enron's investment grade credit rating or enable Enron to refinance or
otherwise restructure its debt obligations that become due. An adverse outcome
with respect te any of these matters would likely have a material adverse impact

on Enron's ability to continue as a going concern. 02078

MERGER WITH DYNEGY AND RELATED EQUITY FINANCING. On November 9, 2001,
Enron and Dynegy announced the execution of a definitive agreement providing for
a merger of the two companies. The merger agreement contemplates that both Enron
and Dynegy will merge with separate subsidiaries of a newly formed holding
company to be named Dynegy Inc. (New Dynegy). Ag a result of the mergers, both
Enron and Dynegy would become wholly owned subsidiaries of New Dynegy. However,
the merger agreement provides that both parties will cooperate with each other
in analyzing and determining an alternative structure that results in a single
corporation with substantially all the senior debt (other than that of regulated
utility subsidiaries) of the two companies,

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————— 01300000000686


SEC Chairman Harvey Pitt, who has been in office about five months, already has promised a comprehensive review of
fules about corporate disclosures of financial information, Pitt has said he wants to establish a system where companies
make more-frequent disclosures to investors and describe more clearly important factors for their business prospects.

Enron stock, which traded for as much $90.75 in August 2000, fell 10 cents to 69 cents in late morning trading.

01300000000446


Nickoloff, Peter

From: Carleton, Norman
Sent: Wednesday, December 19, 2001 4:55 PM
To: Cetina, Jit; Sharer, James; Bair, Sheila, Berardi, Steve, Bitsberger, Timothy; Eichner,

Matthew; Gabilondo, Jose; Gross, Jared; Hammer, Viva; Lori Sanatamorena (E-mail),
Nickoloff, Peter; Novey, Michael; Pietrangeli, Fred; Roseboro, Brian; Schultheiss, Heidilynne;
Wheley, Jean; Wiedman, Mark

Subject: Slate: Accounting and Accountability
moneybox

Accounting and Accountability

By Rob Walker

Posted Tuesday, December 18, 2001, at 2:21 PM PT

It's been a rough time for the accountants and auditors at Arthur Andersen, While it remains unclear
who knew what and when at Enron, it’s very clear that there's almost no scenario that won't reflect
pretty poorly on Andersen, Last week the firm got beat up on by a congressional committee, and at a
certain point, you have to wonder if some of its clients aren't thinking about maybe signing on with an
auditor who isn't so closely associated with allegations of lax standards.

This got me thinking-after some prodding by one of my Slate colleagues-about the reputations of the
other Big Five accounting firms. Let's say, for example, that you happen to run a major, publicly
traded corporation, and you need an auditor. Let's say you want to pick one with a spotless record,
one that hasn't signed off on the books of any big corporation that subsequently spiraled into financial
turmoil amid nasty finger-pointing over accounting funny business. Or let's just say you're an investor
who wants to make sure that the companies whose shares you've bought are being audited by a firm
that has no association with stock-price collapses linked to questionable accounting. Following my
usual procedure, | set out to conduct exhaustive due diligence. But it turned out that a simple Nexis
search brought my quest to a rapid conclusion.

Andersen, obviously, was out. There's the Enron fiasco, of course, but that's not the only blemish on
the firm's record. Mere months ago, the firm paid $110 million to settle a fraud lawsuit after being
accused of signing off on assorted monkeying with the books at Sunbeam. Andersen paid millions
more to settle charges that one of its then partners let slide recurring "accounting irregularities” in
Waste Management Inc.'s financials. Investors with particularly long memories might recall way back
in the 1990s-well before this sort of thing was fashionable-the remarkable trip from Nasdaq high flyer
to Chapter 11 by the Boston Chicken fast-food chain. Andersen was the Chicken's accountant.

OK, then, how about Ernst & Young? Well, in February of 2000, Ernst & Young agreed to pay $335
million to settle a lawsuit filed by shareholders of Cendant who accused it of accounting negligence
after shares in that company melted down. And a couple of years ago, Emst & Young also coughed
up about $23 million to settle charges relating to its allegedly sloppy auditing of a company called
JWP Inc. According to the Washington Post, the federal judge presiding over that suit commented,
"The ‘watchdog’ behaved more like a lapdog." “

That doesn't sound very good; let's move on. How about Deloitte & Touche? According to a Forbes
story from earlier this year, that firm was sued by erstwhile shareholders in Just for Feet, a shoe store
chain that went bankrupt and has since been swallowed by a rival. The suit alleges-you'll never
guess-that Just for Feet cooked its books and the auditors didn't stop them. Deloitte denied doing

3

01300000000381


10K Wizard - SEC filings Page 57 of 83

Third quarter 2001 other, net included the impact of a decline in the value of
investments. Other, net in 2000 consisted primarily of a gain on the sale of a
generation-related asset.

On October 8, 2001, Enron entered into an agreement with Northwest
Natural Gas Company (NW Natural) for the sale of Portland General for $1.9
billion, comprised of $1.55 billion in cash, $200 million in NW Natural
preferred stock and common stock purchase units, $50 million in NW Natural
common stock and the assumption of Enron's $75 million balance on its customer
benefits cbligation, which was stipulated in its 1996 agreement to purchase
Portland General. In addition to the purchase price, NW Natural will assume
approximately $1.1 billion in Portland General debt and preferred stock. The
proposed transaction, which ia subject to customary regulatory approvals, is
expected to close by the fourth quarter of 2002. Enron currently believes that
the after-tax gain on the sale of Portland General will not be material.
However, certain regulatory and other contingencies could negatively impact
Enron's current estimate. Enron's carrying amount of Portland General as of
September 30, 2001 was $1.6 billion. Income before interest, minority interest
and income taxes for Portland General was $108 million and $241 million for the
nine month periods ended September 30, 2001 and 2000, respectively.

GLOBAL ASSETS

Significant components of Global Assets' results are as follows (in

millions) ;
Third Quarter

2001 2000
Revenues § 424 $ 408
Cost of sales 286 244
Operating expenses 107 126
Depreciation and amortization a6 so
Equity in earnings (losses) (263) 22
Other, net 10 9
Income (loss) before interest and taxes $(268) $ 19

Revenues increased $16 million in the third quarter of 2001 compared to
the third quarter of 2000 due to an increase in project revenues at EREC,
partially offset by a decrease in revenues from Elektro which had curtailed
power sales due to the reduction in available hydro-generated power. Cost of
sales increased $42 million in the third quarter of 2001 compared to the third
quarter of 2000 due to an increase in costs at EREC, partially offset by a
decrease in costs at Elektro. Operating expenses decreased due to reduced
developmental activities partially offset by higher costs in EREC's
Buropean operations.

Equity in earnings (losses) for the third quarter of 2001, reflect the
recognition of a loss of $287 million related to asset impairments by Atlantic
Water Trust (the parent of Azurix Corp.}, an equity method investment, These

impairments primarily reflect Azurix's planned disposition of its North American
and certain South American service-related businesses. See

52 02123

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01300000000731



Page 9 of 11

L.A. that was involve with this. He told me that there’s a thing called the parallel market where Fortune 500 companies are basically using their
product to launder Colombian drug cash, It has been going on for years and years.

DOBBS: Using certain countries, Caribbean countries, principly, as the duty-free air,

CANNELL; That's right. The duty-free companies broker these deals between the drug dealers and the cigarette companies. The cigarettes go
to an istand, somewhere in the Caribbean, a duty-free zone and then it is smuggled into Columbia.

DOBBS: What is the total size of the cigarette market in Columbia?

CANNELL; They believe that the market is about $10 million,

DOBBS: And they spend -- U.S. companies -- spend in advertising, how much a year?

CANNELL: Well, over 30.

DOBBS: Now there is a $10 million market. They are spending 30 million, and what do you think the value of the entire enterprise is?
CANNELL: I think there may be as much as a billion dollar illegal market in Columbia,

DOBBS; Just in Columbia?

CANNELL: Yes, And this advertising money is being spent to basically promote that billion dollar market.

DOBBS: You don't name names, you don't name specific tobacco company, would you like to venture forth tonight?

CANNELL: No, I mean, I will tell you what, if you go on the Internet and you punch out the black market peso exchange, and — with any
descent search engine you will get 50 stories that will name them for you -- the idea is that what I'm trying to do with this novel, this is work of
fiction - but it is based on fact -- I'm trying to do is put some heat on this idea that there is a way that we can attack drug dealers without
manning these borders and trying to shut down the importation of narcotics.

DOBBS: And in my opinion, you've done just that. And as always, anytime you have Shane Sculley, 1 am going to read it, The fact is, what I
was pointing out in terms of naming names, the lawsuits that would result are probably sufficiently bothersome that it wouldn't be...

CANNELL: Well, that is probably where we are headed. You're right.
DOBBS: All right. Stephen Cannell as always, good to see you,
CANNELL; Thank you.

DOBBS; Still ahead here, with the telecom business in the midst of the worst slump ever, we will be talking with the chief executive officer of
Sprint. William Esrey will be talking about new products and plaguing problems, Stay with us.

(COMMERCIAL BREAK)

DOBBS; On Wall Street, stock prices finishing generally lower despite new signs pointing toward economic recovery. Blue Chips falling for
the fourth straight session, the Dow down 26 points today. The Nasdaq gained two points however, And the S&P 500 up a point on the day.

A much anticipated advancement in telecom: the third generation technology 3G, providing higher data speed and capacity for the mobile
phones of Sprint (Company: Sprint FON Group; Ticker: FON; URL: http://www sprint.com’). Sprint today announcing the new product at its
consumer electronics show, announcing that they will offer the 3G next generation applications and services this summer, the first to do so.
CEO William Esrey joins me now from Las Vegas to talk about the product, his company and the prospects.

Bill, good to have you here.

WILLIAM ESREY, CHMN & CEO, SPRINT: Lou, always a pleasure to be with you,

DOBBS: You've stolen the march on your competitors with the introduction of the next, if you will, generation of CDMA. How will you
maintain the advantage?

ESREY: We're going to convert our entire nationwide network in the middle of the year to this third generation technology. We are fortunate

that we have the frequency and we have the technology that enables us to get there. It is going to be very hard for our competitors that are
frequency shy and don't have the technology that allows a graceful migration to third generation.

1/17/02 (@) 1 8 87

01300000000495


Page 4 of 7
does not follow the patterns, the usual lines, and for which our response has to be as — as diverse and subtle as well.

CRIER: All right. But then -- one final thought from Eric. Because whatever we think Reid is part of, he is displaying something with this shoe
bomb that is frightening a lot of investigators. What does that signal to you? Anything?

MARGOLIES: Well, first of all, that there are not so much a network but like-minded groups everywhere who are against the United States
and who are attracting other anti-American groups around them. We're lucky that Reid was as stupid as he was and tried to light a match inside
the cabin.

Supposed he had gone to the toilet and set off the bomb there, If he had had any brains he would have dane that. Thank God he didn't. So next
lime, the —- the person who was sent may be much more clever than this. This guy was strictly expendable material, Cannon fodder.

CRIER; Absolutely, Well, next time is a chilling phrase, but one we have to remember. Eric Margolies, Mark Jurgensmyer. Gentlemen, thank
you.

Now, we're going to stop worrying about terrorists for just a while and talk about money. Specifically, a stock that went from $80 a share to a
mere 66 cents. Was your retirement riding on if? Don’t go away.

{COMMERCIAL BREAK)

(BEGIN VIDEO TAPE)

ANNOUNCER: Ahead, the biggest fall in corporate history.

People who lost a good chunk of change.

ANNOUNCER: Who's hurting? Who's investigating? And who's not getting involved? When THE POINT continues.

(COMMERCIAL BREAK)

CRIER: It was the biggest fall from grace in business history. Enron was ranked number seven in last year’s "Fortune 500." By the time the
energy merchant went bankrupt in December, its fallout wiped out $60 billion in shareholder valuc and the financial, legal and political fallout,

Today, to avoid a possible conflict of interest, Attorney General John Ashcroft and his chief of staff recused themselves from the criminal
investigation of Enron. The company and its executives have given tens of thousands of dollar to Ashcroft's political campaigns.

Enron also has been one of President Bush's contributors. Today the president told reporters he never discussed the company's financial
problems with its chief executive, although the two met at a fundraiser. The administration also has disclosed that during Enron's fall there
‘were contacts between its executives and Vice President Cheney, Treasury Secretary Paul O'Neill and Commerce Secretary Don Evans,

‘This afternoon, Enron's accounting firm, Andersen, disclosed it had destroyed 2 significant number of documents im recent months, something
the Securities and Exchange Commission is calling, quote, “extremely serious."

All right. Congress is now looking into the Enron mess, It's also looking for lessons and ways to protect regular investors from future wipeouts,
So joining me now is New Jersey Senator Jon Corzine. He is co- sponsor of legislation to protect pension plans in the wake of Enron's collapse.
Senator, thanks so much for joining us.

SEN. JON CORZINE (D), NEW JERSEY: Good evening, Catherine.

CRIER: Looking at this act, cited as the Pension Protection and Diversification Act of 2001, the point being what?

CORZINE: Very simple. When investors put all of their bets, al! of their investments in one asset, one stock or a highly-concentrated portion of
it, they're at a much greater risk than they would be if they had a diversified portfolio.

Most professional money managers, most people who study financial planning think about this on a -- an effective basis have a diversified
portfolio, so we put a cap, a 20 percent cap,

Barbara Boxer and | introduced the bill to make that the maximum that one could bold in their 401(k) plans with regard to company stock —
actually, any stock, because diversification is a good principle for investment,

CRIER: OK. Senator, I have a little bit of trouble. While -- while | think it's a good thing for you to go in and tell companies they cannot
mandate ~ which | understand is part of this ~ they can’t make employees buy their stock. They can't prevent employees from selling stock

1/17/02 01893

01300000000501


10K Wizard - SEC filings Page 49 of 83

Corp. (EREC), which develops and constructs wind-generated power projecte; and
Enron's investment in Azurix Corp.

Broadband Services. Enron's broadband services bueiness (Broadband
Services) provides customers with broadband services, including network
intermediation services. © :

Corporate and Other. Corporate and Other includes the operations of
Enron's methanol and MTBE plants as well as overall corporate activities of
Enron.

INCOME BEFORE INTEREST, MINORITY INTERESTS AND INCOME TAXES
The following table presents income (loss) before interest, minority

interests and income taxes (IBIT) for each of Enron's operating segments (in
millions) :

Third Quarter

r
Americas

Europe and Other
Retail Services
Natural Gas Pipelines
Portland General
Global Assets
Broadband Services
Corporate and Other

Income (loss) before interest and taxea $ (666) $ 679

WHOLESALE SERVICES BUSINESS

Enron's Wholesale Services business is comprised of two segments,
Americas and Europe and Other (collectively Wholesale Services), Wholesale
Services builds its business through the creation of networks involving
selective asset ownership, contractual access to third-party assete and
market-making activities. Bach market in which it operates utilizes these

45

PART I. PINANCIAL INFORMATION - (CONTINUED)

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)

ENRON CORP, AND SUBSIDIARIES 02 1 1 5

components in a slightly different manner and is at a different stage of
development. This network strategy has enabled Enron to establish a leading
position in its markets. Activities may be integrated into a bundled product
offering for Enron's customers.

Wholesale Services manages its portfolio of contracts and assets in order
to maximize value, minimize the associated risks and provide overall liquidity.

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01300000000723


10K Wizard - SEC filings Page 38 of 83

conversions $ (664) $ 303 $16
=
Denominator:
Denominator for basic earnings per
share - weighted-average shares 761 729 75

Effect of assumed conversion of
dilutive securities (a):
Preferred stock:
Second preferred stock
Series B Preferred Stock
Stock options
Equity instruments

Dilutive potential common shares

Denominator for diluted earnings per
share - adjusted weighted-average
shares and assumed conversions 761 ese 80

ic earnings (loss) per share;
Before cumulative effect of
accounting changes $ (0.87) $0.39 $0.1
Cumulative effect of accounting
changes - - 0.0

$0.39

Basic earnings (less) per share

Diluted earnings {loss) per share:
Before cumulative effect of
accounting changes $ (0.87) $0.35 $0.1
Cumulative effect of accounting
changes ©

Diluted earnings (loss) per share $ (0.87) $0.35 $0.2

{a} For the three months ended September 30, 2001, the dividends and conversion
of the second preferred stock and the Series B Preferred Stock, stock
options and equity instruments have been excluded from the computation
because they are anti-dilutive. For the nine months ended September 30,
2001, the dividends and conversion of the second preferred stock and the
Series B Preferred Stock have been excluded from the computation because
they are anti-dilutive.

(b) Restated (see Note 3).
35

PART I. FINANCIAL INFORMATION - (CONTINUED)
ITEM 1. PINANCIAL STATEMENTS - (CONTINUED)
ENRON CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. COMPREHENSIVE INCOME

Comprehensive income (loss) includes the following (in millions) : 021 04

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013000000007 12


o/o%/oz
BN iflatiye Chief, Harlan Chief Spokeswoman

Jan 8 2002 15:22

SEC Names Carter Legislative Chief, Harlan Chief Spokeswoman

Washington, Jan. 8 (Bloomberg) == The Securities and Exchange
Commission's acting legislative chief, Casey Carter, was named to
the post on a permanent basis today, and former Senate Banking
Committee aide Christi Harlan was appointed chief SEC spokeswoman,

They will work with SEC Chairman Harvey Pitt, whose immediate
tasks including facing questions from Congress and the news media
about possible changes in U.S. accounting policies following Enron
Corp.'s collapse.

Carter, 38, and Harlan, 44, will report to Brian Gross, the
SEC's communications director. Harlan and Gross worked for Senator
Phil Gramm, a Texas Republican, when he was Senate Banking
Committee chairman.

Carter, who has been with the SEC since 1999, worked in
legislative affairs for the Comptroller of the Currency and the
Resolution Trust Corp.

Harlan most recently was in charge of external affairs at the
Federal Emergency Management Agency. She also has worked as a
reporter for several newspapers, including the Wall Street
Journal.

The SEC is investigating Enron and its auditor, Arthur
Andersen LLC, after the energy trader filed the largest Chapter 11
bankruptcy ever and admitted to overstating earnings by $600
million,

--Weil Roland in Washington (202) 624-1668 or
nroland@bloomberg.net /ba

Page BJ Wednesday, January 9, 2002

01300000000441


Nickoloff, Peter

From: Carleton, Norman
Sent: Friday, December 21, 2001 10:37 AM
To: Cetina, Jill, Bair, Sheila; Berardi, Steve; Bitsberger, Timothy, Eichner, Matthew; Gabiondo,

Jose; Gross, Jared; Hammer, Viva; Lori Sanatarnorena (E-mail); Nickoloff, Peter; Novey,
Michael; Pietrangeli, Fred; Roseboro, Brian; Schultheiss, Heidilynne; Whaley, Jean; Wiedman,
Mark; Bieger, Peter, DeMarco, Edward; Dorsey, Karen; Eset, Martha; Ellis, Dina; Huffman,
Lucy; Hughes, Gerry, McGivern, Tom; McInemey, Roberta; Salladin, Anne; Smith, Amy;
Sutton, Gary; Tishuk, Brian

‘Subject: DJ: US Congress Fails To Pass Contract Netting Bil

December 21, 2001

US Congress Fails To Pass Contract Netting Bill

Dow Jones Newswires
(This article was originally published Thursday.)

WASHINGTON -- Despite an eleventh-hour appeal from Federal Reserve Chairman Alan Greenspan
and pressure from Wall Street, lawmakers again failed to enact legislation that clarifies corporate
bankruptcy laws by allowing companies to quickly settle outstanding derivatives contracts in the event
of an insolvency.

The once-obscure financial issue gained new prominence and urgency on Capito! Hill as lawmakers
struggled to understand the high-finance finagling that lead to the recent Chapter 11 bankruptcy filing
of energy giant Enron Corp. (ENE).

The measure allows institutions to quickly close outstanding derivatives contracts with bankrupt
trading partners by netting all the losses and gains of individual contracts into one deal.

“Enron underscores the importance of it," said Peggy Peterson, spokeswoman for the House
Financial Services Committee. "The other factor is the recessionary economic climate - the netting
provisions would lower market risk.”

Greenspan recently met with committee Chairman Michael Oxley, R-Ohio, and House Judiciary
Chairman James Sensenbrenner, R-Wis., after Oxley held a bruising hearing on financial
improprieties leading to Enron's demise.

Pressure to pass the measure was already building since the Sept. 11 terrorist attacks shut down
U.S. financial markets and destroyed the Manhattan offices of many Wall Street brokerage houses.

“Congress should not fail to enact netting legislation this year,” Greenspan and Treasury Secretary
Paul O'Neill wrote House lawmakers a few weeks after the attacks. "Further delays would
unnecessarily place the financial system at greater risk.”

But Sensenbrenner rebuffed requests from Greenspan, Oxley and House leaders to pass the

legislation apart from the larger bankruptcy bill it was attached,
16

01300000000398


From: Schulthess, Hi ne

Sent: Monday, October 29, 2001 10:01 AM
To: Carleton, Norman, Nickoloff, Peter
Subject: Enron Seeks Additional Financing
October 29, 2001

Enron Seeks Additional Financing

By RICHARD A. OPPEL Jr.

DALLAS, Oct. 28 - The Enron Corporation, still struggling to reassure investors it can weather a financial crisis
over complicated transactions involving its former chief financial officer, is secking $1 billion to $2 billion in
additional financing from banks, an industry official said today.

Last week, Enron, the nation's largest energy-trading concem, used about $3 billion in available credit lines and
spent about $2 billion to pay off commercial paper. Now, by obtaining even more financing, Enron is hoping to
convince investors and other energy-trading firms that it will not face a cash squeeze that could lead trading
partners to refuse to extend credit or do business with it.

Enron's board, which has been holding meetings by telephone over the last two weeks to monitor the company’s
financial situation, held another meeting this aftemoon. "The board is meeting frequently and will announce any
actions when appropriate,” an Enron spokesman said,

Two weeks ago, Enron disclosed that its shareholder equity had been reduced by $1.2 billion because of deals
with investment partnerships involving its former chief financial officer, Andrew S. Fastow, who was ousted
last week. The company also disclosed about $1 billion in separate write- offs, and it said last week that the
Securities and Exchange Commission had made an inquiry into its financial accounting.

Enron hopes to maintain its investment-grade credit rating, which is crucial to ensuring that other energy traders
continue to do business with it. Lately, Enron's bonds have been trading at prices more like junk bonds, and two
major credit-rating agencies are considering whether to downgrade the company's rating.

: 02644

01300000001253


Nickoloff, Peter

a

From: Carleton, Norman

Sent: Thursday, January 10, 2002 4:55 PM

To: Cetina, Ja; Bair, Sheila; Berardi, Steve; Bitsberger, Timothy, Eichner, Matthew; Gabilondo,
Jose; Gross, Jared; Hammer, Viva; Lori Sanatamorena (E-mail); Nickoloff, Peter; Novey,
Michael; Pietrangeli, Fred; Roseboro, Brian; Schultheiss, Heidilynne; Whaley, Jean; Wiedman,
Mark

Subject: DJ: WHITE HOUSE WATCH; Enron Story Heats Up At White House

January 10, 2002

Dow Jones Newswires

WHITE HOUSE WATCH: Enron Story Heats Up At White House

By ALEX KETO

A Dow Jones Newswires Analysis

WASHINGTON -- The long-simmering story over the collapse of Enron (ENE) and its political
contributions to President George W. Bush heated up considerably Thursday with the revelation that
Enron Chairman Kenneth Lay pleaded for help from the administration while his company was going
down in flames.

Administration officials turned Lay down, but the news brings the issues of political contributions and
political favors into uncomfortably close proximity.

For his part, Bush said he was out of the loop.

"| have never discussed with Mr. Lay the financial problems of the company. The last time that | saw
Mr. Lay was at my mother's fund-raising event for literacy in Houston. That would have been last
spring,” Bush said.

Bush went on to say he wants to see a full investigation into Enron's bankruptcy, the largest in U.S.
history.

"What anybody's going to find out is that this administration will fully investigate issues such as the
Enron bankruptcy, to make sure we can lear from the past and make sure workers are protected,”
Bush said.

Nevertheless, the White House appeared to be buffeted by fast-moving events with White House
spokesman Ari Fleischer denying at midday there was any conflict of interest in having Attomey
General John Ashcroft, who received political contributions from Enron as a Senate candidate,

oversee a criminal probe of the company's bankruptcy. Less then two hours later, Ashcroft and a top
aide recused themselves from the investigation.

331

01300000000470


(Cartinnce :-)

US, Senate Minority Leader Trent Lott, agreed Newsome’s background makes him

perfect for the role.

Newsome’s achievements include serving as former executive vice-president of the
Mississippi Cattlemen's Association and Beef Council, former Chainnan of the
Mississippi Agribusiness Council, and @ past president of the Association of Mississippi
Agriculture Organizations, and past president of the Florida Future Farmers of America.

Newsome received his bachelor’s degree in Food and Resource Economics from the
University of Florida, and a master’s degree and doctorate in Animal Scicnee/Agricultural

Economics from Mississippi State University.

ew)

Soeurtieo Keylatue € Lau kept

Commodity Futures Trading Commission

Expedited Senate Vote Installs Newsome
As Permanent CFTC Head; Hearing Bypassed

be Senate voted Dec. 20 to approve James New-

some as the new leader of the Commodity Futures

‘Trading Commission, removing the “interim” label
he has carried since taking over for his predecessor Jan.
19.

Newsome was nominated as chairman by President

Bush Sept. 20 G3 SRLR 1379, 9/24/01). The Senate by-

hearings on the confirmation, instead approving
lewsome on the day it adjourned for the year.

‘The last-minute vote denied Newsome a trip to Capi-
tol Hill to testify before the Senate Agriculture Commit-
tee, which has oversight of the CFTC.
tified icly only once since taking over for former

implement an
passed by Congress at the end of Rainer’s tenure in De-
cember 2000.

medity
12/25/00). He was unavailable for comment following.
his confirmation.

As a result of the legistation, Newsome bas overseen
the formulation of three new tiers of regulation—the
most liberal of which permits almost no oversight over
the trading done by so-called “sophisticated” traders of
futures and options.

almost unprecedented cooperation between the CFTC
and the Securities and Exchi Commission as the
two regulators tried to create for the introduction
of single stock futures. That effort is ongoing. with a
target date for rules to allow trading of the new instru-
ments having passed Dec. 21.

Newsome and SEC Chairman Harvey Pitt, who also
was named to his post this year, issued a statement Dec.
21 pledging promptly to resolve the rulemaking iswes
that are delaying the the onset of retail trading in the
products [See related report in this issue].

A CFTC official said a date for Newsome’s swearing
in has not been scl .

By Rowe Hi.

‘Wednesday, January 9, 2002

Page 3

01300000000406


10K Wizard - SEC filings Page 24 of 83

time of LUM2's sale of the fiber to the SPE, Enron entered into a derivative
contract which served as credit support for the benefit of some of the debt
holders of a third-party investor in the SPB. Thia credit support provided the
lender with a specified rate of return. As a result, Enron's credit exposure
under the $70 million note was replaced with $61 million in remaining exposure
under the derivative contract. LJM2 earned $2:4 million on ite resale of the
fiber.

Purchases of Equity/Debt in Enron-Sponsored SPs. Between September 1999
and December 2000, LUM1 or LJM2 purchased equity or debt intereats in nine
Enron-sponsored SP&s, LUM1 and LJM2 invested $175 million in the nine SPEs.
These transactions enabled Enron to monetize assets and generated pre-tax
earnings to Enron of $2 million in 1999.

Enron believes that LJM received cash of $15 million, $64 million and $s3
million in 1999, 2000 and 2001, respectively, relating to ite investments in
these entities. In three instances, third-party financial instituticns also
invested in the entities. LJM invested on the same terme as the third-party
investors. In one of these nine transactions, Enron entered into a marketing
agreement with LUM2 that provided Enron with the right to market the underlying
equity. This arrangement gave Enron profit potential in proceeds received after
LJM2 achieved a specified return level. In six of these nine tra tions, Enron
repurchased all or a portion of the equity and debt initially purchased by Lum.

The SPEe owned, directly or indirectly, a variety of operating and
financial assets, For example, Yosemite Securities Trust was a finance entity
which facilitated Enron's ability to raise funds in the capital markets through
the use of credit-linked notes, a standard financing arrangement offered by
investment banks. Osprey Trust is beneficially-owned by a number of financial
institutions and is a limited partner in Whitewing Associates, L.P“% an snron
unconsolidated affiliate (Whitewing) (see Note 8). Enron ig the other partner.
Whitewing purchased certain Enron investments for future sale.

In addition, as a result of these transactions, Enron was able to
monetize equity interests with investment banka. These monetizations resulted in
Enron's recognizing $146 million and $5 million in pre-tax earnings in 2000 and
the nine months ended 2001, respectively, and $252 million in cash inflows, all
in 2000. »

Investment in Enron Affiliates. In two transactions, LJM2 made direct and
indirect investments in stock (and warrants convertible into stock) of NPW. NPW
initially was a wholly-owned subsidiary of Enron, subsequently included other
strategic and financial investors, and in October 2000 became a

22

PART I. FINANCIAL INFORMATION ~ (CONTINUED)

ITEM 1. PINANCIAL STATEMENTS - (CONTINUED)
ENRON CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED PINANCIAL STATEMENTS

public company. NPW is engaged in the retail marketing and sale of natural gas,

electricity and other commodities, products and services to residential and

small commercial customers in the United States. In January 2000, LUM2 invested

$673,000 in Cortez Energy Services LLC (Cortez), a limited liability company

formed by Enron and LJM2, and Enron contributed five million shares of NPW stock

to Cortez. In July 2000, in a private placement, LUM2 purchased warrants

exercisable for NPW stock for $50 million on the same terms as third-party

investors. Enron believes that LJM2 still owns these investments. 02090

In September 1999, LJM1 acquired from Enron a 13% equity interest in a
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01300000000698


Os, ew Sn2d

Tuesday, January 06, 2002 -- ODJ CBT Renews Contract With Dow Jones Indexes
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Chicago, Jan. 8 (OsterDowlones) - The Chicago Board of Trade has renewed
its contract with Dow Jones Indexes, allowing the CBT to continue trading
te 7
equity products until the end of 2007, the CBT said on Tuesday.

The CBT declined to detail terme of the licensing agreement, which it
inteinlly teked in wtne of 1997 and was set to expire on Sept. 30, 2002.

However lirg to deeunents filed by the CBT with the O.¢ urities
and Fxch miséion, the initial pec 7 ed the CBT ta pay Jones
aonval + bared mw trading volwnes, with a minimam annua) paywert of

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Page 28 Wednesday, January &, 2002

01300000000431


10K Wizard - SEC filings Page 63 of 83

Mine Months Ended

September 30,

Zo001 2000

Physical Volumes (BBtue/d) (a):
Gas 6,438 3,192
Power (b) 7,798 1,086
Crude Oil and Liquids 8,776 5,640
Total 25,012 9,918
Power Volumes Marketed (Thousand MWh) (c) 212,906 29,777
Financial Settlements (Notional) (Bbtue/d) 64,672 40,782

Other Commodity Volumes:

Crude Oil and Liquids (MM Bb1) 434 300
Coal (thousand tons) 67,209 28,643
Weather (notional value $MM) 779 512
LNG (BBtue) 17,664 bd
Metale (thousand tons) 6,904 2,946
Forest Products (thousand tons) 2,094 162
Steel (thousand tons) 687 -

(a) Billion British thermal unite equivalent per day.
(b) Represents electricity volumes, converted to BBtue/d.
(c) Thousand megawatt-hours.
Gross margin of Burope and Other increased $237 million in the first nine
months of 2001 as compared to the first nine months of 2000, primarily as a

result of increased earnings from European power and gas marketing operations
and steel, coal and liquids marketing partially offset by lower earnings from

s7

PART I. FINANCIAL INFORMATION - (CONTINUED)

ITEM 2, MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
ENRON CORP. AND SUBSIDIARIES

Enron's metals marketing operations, an adjustment to reflect an increase in
credit reserves in the crude oil and liquids marketing business and the
settlement of certain construction related receivables for lees than book value
subsequent to September 30, 2001 but prior to the filing date of the Form 10-9
(these amounts were not reflected in Enron's announcement of its third quarter

2001 results on October 16, 2001},
02129

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01300000000737


10K Wizard - SEC filings Page 8 of 83

Cash and Cash Equivalents, End of Period $

Changes in Components of Other Working Capital

Receivables e $
Inventories
Payables (
Other

Total . §

The accompanying notes are an integral part of these consolidated financial
statements.

PART I. FINANCIAL INFORMATION - (CONTINUED)

ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
ENRON CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

As discussed in Note 3, on November @, 2001, Enron Corp. (Enron)
announced that it will restate its Consolidated Financial Statements for the
years ended December 31, 1997 through 2000 and for the first and second quarters
of 2001. As a result, the previously-issued financial statements for these
periods and the audit reports covering the year-end financial statements for
1997 through 2000 should not be relied upon.

As further discussed in Note 2, the Securities and Exchange Commission
(SEC) has opened a formal investigation of certain related party transactions.
Additionally, Enron's Board of Directors (Board) has formed a special committee
{Special Committee} to conduct an independent investigation and review of
transactions between Enron and certain related parties. The Special Committee
also was charged with taking any disciplinary action that it deems appropriate,
communicating with the SEC and reccamending to the Board any other appropriate
actions. The duration of the SEC and Special Committee investigations, and the
ultimate regults of those investigations, have not yet been determined.

The consolidated financial statements included herein have been prepared
by Enron without audit pureuant to the rules and regulations of the SEC.
Contrary to the rules of the SEC, the Consolidated Financial Statementa included
herein have not been reviewed by an independent public accountant using
professionsl standards and procedures for conducting such reviews, as
established by generally accepted auditing standards, because of the ongoing
investigation by the Special Committee, as discussed above, and the need of 02074

Arthur Andersen LLP, Enron's independent auditors, to complete their review
procedures.

These statements reflect all adjustments (consisting of the anticipated
restatement items discussed in Wote 3, and normal recurring entries) which are,
in the opinion of management, necessary for a fair statement of the financial
results for the interim periods. The Consolidated Financial Statements included

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01300000000682


Fidelity Balanced fund.

Mr Gramm played a key role in getting the Commodity Futures Modemisation Act passed in December 2000. The act,
which deregulated all financial derivatives and relaxed oversight of commodity exchanges, had been languishing in the
Senate,

Copyright: The Financial Times Limited 1995-1998

01300000000402


Ion
Cotton Posts

COMMODITIES

By Exna Teaco
Comer Dende Communbiy exe

NEW YORK—Far tbe thiod consecutive
day, cotton frites a the Mew Yorke Cutie
Inchange vepisiered siroas gains, oath
traders dting tecanical facwes muclaced
to busie eupply aot demand (uctocs.
while cotten’s rocent behavior
ight peeplen, fuadagncotad anal ysts— whe
wie cenrstantly comibeing saret players
of the extans cottec, suymplles wick wie,
poor coeniumermptian 1 the TLS. and copious
gfobal inventaries ~amre Are appriachiatg
The cearket with a iresti eyo tm 2M.
alticipation of an eeapampic recovery Brit
raid bocet consunsgtiae and ceauce Pes
dactian in the oentag sens.

‘Atior nung 2 high of SAW cents &
pound, due Beare Maret renitract settied
Tn 2ssussion heh of 25.43 rents 0.29 ost
higher om Ike day. ‘That gives March ate 8%
gi since the bezirondieg of tbe yeas.

Ron Lawson, senor vice prestéent of
sovesiznents Wate Presentiat Secorties
be. in Napa Satiey, Calif... qvestbors
whether tarznecs will pLanh as tanich cotton
‘next seuver becansse they miett ind Urea
selves with no credits asd vo cup Ws
ance. He enaistalme that beeuuse af past
fraucinlent episodes, bans ar tightening
reer lending. 7

eSecause Shaskst get fursed bn che

they are Oe very reluctant to give
any credi} wv soy seal stoomg balance
shart” Mr, Lavesna explained. “Logie

otloa/o\
Third Straight Day of
oe

Cotton Futures

Conk eaus Mront murat £oenrark,
in cents per pound

Reasce, Thorsen feranchl/Tsabter®

Tend any meeney fo sonmeome th produce @
product wifls a selting price UPS Below Last
year’s, expectally because they didi’
taxke money Bist Y24z"

fn eddition, with (he insurenee compa-

Strong Gains

bestia: to contiuge weting
checks lo Carmmers with failed othe Crops,
5 they have £9 Ube pst Uowe years, Sarre
wre wifi be frend with wet enough Te
sources ta even buy thelr eds,
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pects a sharp redur

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that thade players might be finalfy *urwhng
their bneks no the bear tack amd jotmisn
dhe buvers, otners Delle

ward mages cokinue 49 be strietly drive
tay speculative partidpsots.

‘Alan Feld, 3 cattan priker with STA
Trating Services, a Merptis, ‘Tena. bre
herage, aturibeted the gains purety to bor
mations on price charts, oF yeas.
fad said they cant ve jestitied by Te
suppiy dexnazs1 plewure. “ALD of this kes ure

jt evartcet Ut be qverpricad
righa new,” Dr, Beil? gab “Pant are ab
realy toe Jong; Sbay're foreing a teceaucal
isswa and sit sexme poet the rmcurbart will
fall apart 2 fundamenisls are out of lane

Ta othr comunediny markets:

SUGAR: World sugar fatures mer toa
eet Toath high as specuslars and Weal
tracers bought, arid tight suailes fom
Grant and of Burepean ‘white sogar. The
March contract merensed o.c8 cen ta 79
oonts & pound

LEMIRE: Futures tached thelr daily
limit al he Chlicage Mereaoulle Exchange,
ag gpeesd tradieg hotped is the waraet

orders.
suse $8.8) 1p $253.70 8 toasacal bord feet,
having extlier heen up by $18.

(arelf

Wernesday, January 9, 2002

Page 31

01300000000434


10K Wizard - SEC filings Page 50 of 83

In doing so, it uses portfolio and risk management disciplines, including
offsetting or hedging transactions, to manage exposures to market price
movements (commodities, intere: rates, foreign currencies and equities).
Additionally, Wholesale Services manages its liquidity and exposure to
third-party credit risk through monetization of ite contract portfolio or
third-party insurance contracts.

Additionally, Wholesale Services invests in debt and equity securities of
energy-related busine: which may also utilize its products and services.
with these merchant investments, Enron's influence is much more limited relative
to assets developed or constructed. Earnings from these activities, which are
accounted for on a fair value basis and are included in revenues, result from
changes in the market value of the securities. Wholesale Services uses risk
management disciplines, including hedging transactions, to manage the impact of
market price movements on its merchant investments.

AMERICAS

Significant components of Americas’ results are as follows (in millions):

Third Quarter

2001 2000

Revenues $28,952 $20,922
Cost of sales 28,550 20,197
Gross margin 402 725
Operating expenses . 2145 168
Depreciation and amortization s4 22
Equity in earnings 515 43
Other, net qv) (29)
IBIT $ 717 $ 549

a6

PART I. PINANCIAL INFORMATION - (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF

PINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
ENRON CORP. AND SUBSIDIARIES

Americas markets, transports and provides energy commodities as reflected
in the following table (including intercompany amounts):
Third Quarter

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01300000000724


10K Wizard - SEC filings Page 56 of 83

Average Variable Power Cost (Mills/kWh) (b) 119.3 48.8

Retail Customers (end of period, thousands) 732 722

{a) Thousand megawatt-hours.
(b) Mills (1/10 cent) per kilowatt-hour.

Significant components of Portland General's results are as follows (in
millions):

Third Quarter

Revenues
Purchased power and fuel

Net revenues
Operating expen:
Depreciation and amortization
Other, net

Income {loss} before interest and taxes $ (17) : $ 74

e Se Seeeewerecseessesees

Net revenues decreased $124 million in the third quarter of 2001 compared
to the third quarter of 2000, The decrease was dus to increased power costes
resulting from general market conditions, including lower hydroelectric
generation. Portland General entered into power contracts in prior periods to
ensure adequate supply for the recent quarter at prices that were significantly
higher than actual settled prices during the third quarter of 2001. Although the
rate mechaniam in place anticipated and substantially mitigated the effect of
the higher purchased power costs, only the amount in excess of a defined
baseline wag recoverable from ratepayers. Increased power cost recovery was
incorporated into Portland General's new £ifteen-month rate structure, which
became effective October 1, 2001 and included an average 40 percent rate
increase.

51

PART I. FINANCIAL INFORMATION - (CONTINUED)

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)

ENRON CORP. AND SUBSIDIARIES 02122

Operating expenses decreased primarily as a result of lower maintenance
costs and lower regulatory and overhead expens Depreciation and amortization
decreased in 2001 primarily as a result of a favorable energy efficiency rate
mechanism adjustment, partially offset by increased requlatory amortization.

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01300000000730


Shortly after the Ashcroft announcement, Arthur Andersen LLP, the company that served as Enron's
auditors, announced that a "significant" number of the company’s documents and records had been
destroyed. Both federal and congressional investigators have been seeking the documents,

Fleischer said that during the autumn Lay called Treasury Secretary Paul O'Neill to warn him that
Enron was on the verge of collapse, and Lay said the bankruptcy of his company could be as
destabilizing as the implosion of the Long-Term Capital Management hedge fund in the late 1990s.

However, upon investigation, the Treasury Department rejected Lay's arguments.

Later, Lay called Commerce Secretary Don Evans to say "he (Lay) was having problems with his
bond rating and he was worried about its impact on the energy sector."

Evans then called O'Neill but "they both agreed no action should be taken to intervene with their
bond holders,” Fleischer said.

Even before the latest revelations, the White House had confirmed Vice President Dick Cheney or
his aides met with Enron officials six times last year to discuss energy issues while the White House

was drawing up its energy plan .

However, Fleischer said the fact that Lay and others were talking to top officials isn't in and of itself a
crime.

“| want to remind you that communication is not a wrongdoing. What took place here was, they
received phone calls and took no action. The charge has been, did the government take any action?
And the answer from these two officials is no,” Fleischer said.

“| think it should surprise no one that people in the administration receive phone calls from people
who are either in business or at unions. It happens everyday," Fleischer said.

However, some of Fleischer's assertions were, to be blunt, surprising.

To begin with, Fleischer said Thursday morning was the first time that O'Neill and Evans mentioned
to Bush they had been in contact with Lay in the weeks just ahead of the company's bankruptcy.

In addition, Fleischer said no one in the administration briefed Bush about Enron's woes and he was
hard pressed to say how the president learned the company had gone belly up late last year.

"He learned last fall. And | couldn't tell you if he learned as a result of the media accounts when
everybody wrote that Enron had gone bankrupt or through any other mechanism, He learned last
fall," Bush said.

However, this explanation appeared to be rather thin considering that Bush was fully informed and
deeply involved in the financial bailout of the nation’s airlines at the same time in part because
thousands of jobs were at risk. Enron employed 20,000 workers.

Asked if, in hindsight, the president wished he had been better informed of the developments at
Enron and among his top officials, Fleischer said, “No.”

Adding to the White House's discomfort is the fact that Democrats on Capitol Hill are gearing up for
hearings on Enron. Fleischer wamed them against going too far.

332

0130000000047 1


10K Wizard - SEC filings Page 27 of 83

currently has interests in six of the investments described above in which LIM2
originally invested $124 million, and that LIM2 has received cash inflows of $27
million from these investments. These investments include $23 million in eguity
in two Enron-sponsored SPEs, $32.5 million in equity in Osprey Trust, $3 million
in equity in an Enron affiliate and $50.7 million in direct equity investments
in NPW (representing two transactions).

Enron and LJM2 also entered into various agreements relating to cash
management services, employee services and office space provided by Enron to
LJM2. In addition, Snron paid LIM2 a management fee for certain transactions,
and other transaction fees described above. Enron aleo reimbursed LJM2 for
transaction-related expenses (such as legal and tax fees and other costs)
associated with some of the transactions described above.

OTHER EMPLOYEE TRANSACTIONS. From June 1993 through November 1997, an
Enron subsidiary was the general partner of JEDI and a third-party, the
California Public Employees' Retirement System (CalPERS), wae the limited
partner. In November 1997, JEDT made a liquidating distribution to CalPERS of
$363 million. Concurrently, Chewco purchased a limited partnership interest in
JEDI for $383 million, $132 million of which was financed by an interest-bearing
loan from JEDI to Chewco, and $240 million of which was borrowed from a
third-party financial institution (supported by a guarantee from Enron). The
balance of the transaction (approximately $12 million) was principally funded by
a contribution from a third party. Enron has subsequently determined that a
portion of this contribution was cash collateralized. Based on current
information, Enron believes that a non-executive officer of an Enron division,
Michael J. Kopper, was an investor in the general partner of Chewco and, at the
time of the purchase, also was the manager of the Chewco general partner. These
events resulted in inadequate capitalization of Chewco to meet the SPE
accounting guidelines. The restatement resulting from the Chewco transaction is
discussed in Note 3.

From December 1997 to December 2000, Chewco received distributions of
$433 million from JEDI. Among other things, Chewco used a portion of these
distributions to make repayments on its JEDI loan and to repay an additional
borrowing from the third-party financial institution.

In December 1999, Chewco purchased a $15 million equity interest in
Osprey Trust, an Enron-sponsored SPs, from LUJM1.

In March 2001, Enron purchased Chewco's limited partnership interest in
JEDI for $35 million. In September 2001, Enron paid an additional $2.6 million
to Chewco in connection with a tax indemnification agreement between JEDI,
Chewco and Enron. Of the total purchase consideration, $26 million wae used by
Chewco to make a payment on the JEDI loan. Chewco currently has an outstanding
balance due on the JEDI loan of $15 million. JEDI is currently a wholly-owned
subsidiary of Enron.

Enron now believes that Mr. Kopper also was the controlling partner of a
limited partnership that (through another limited partnership) purchased
interests in affiliated subsidiaries of LJM1 in March 2000. Enron also now
believes that four of the six limited partners of the purchager were, at the
time of the investment, non-executive officers or employees of Enron, and a

as

PART I. FINANCIAL INFORMATION - (CONTINUED)

ENRON CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ITEM 1. FINANCIAL STATEMENTS - (CONTINUED) 02093

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01300000000701


Page 7 of II

(CNN has learned that 25 special forces soldiers on the ground in the Philippines. They will be there to help train Philippine troops to hunt
down Muslim rebels tied to al Qaeda terrorist network. Sources now till CNN that they expect the U.S. deployment to expand to more than 500
troops in the next few months,

President Bush is demanding that Palestinian Leader Yasser Arafat renounce terrorism. President Bush's words come one day after U.S,
officials said there is now credible evidence that Arafat's Palestinian authority was involved in an arms shipment intercepted by Isracl.

As we mentioned, Treasury Secretary Paul O'Neil is joining us. He is at the center of the war against terrorism, searching out, freezing
terrorist assets around the world. He is also helping to manage the fallout from an economy in recession and now involved in the Enron disaster
and its investigation.

‘There is word tonight that the entire U.S. attorney's office in Houston has recused itself from the Enron investigation. Treasury Secretary Paul

Mr. Secretary, good to have you bere.
PAUL O'NEILL, U.S. TREASURY SECRETARY: Nice to be with you, Lou.

DOBBS: These are extraordinary developments in terms of Enron: the attorney general recusing himself, the president now for the first time
having to deal with the issue from the White House; the reports of your conversations between Ken Lay, twice, once in October, once in
November; and then his calls also to Commerce Secretary Evans a well as subsequent conversation between the two of you. If I may, sir, I'd
just like to ask you what you and the commerce secretary discussed and what your decision was?

O'NEILL: Well, as you say, Lou, I bad — my first call from Ken Lay was for him to give me a heads-up that they were struggling and to offer
the president of his company to speak with the undersecretary for domestic finance to understand the positions that they had to make so that we
could make sure that we were taking care of our responsibility which is to make sure that the U.S. capital markets work. And that was the
purpose of Ken's call to me, to let me know that we were welcome to have access to information so we could understand what they were doing
and understand the possible exposure for the world’s capital markets. The second call to me was -- I've forgotten exactly when, but Ken called
me to tell me that they were in discussions with Dynegy. And it was an information only call. And subsequent to that, Don Evans called me to
tell me that he'd had a call from Ken and that Ken had told him that their -- rating agencies were looking at them and there was a real concer
that if the rating agencies downgraded them, that that could had effectively scuttle the deal with Dynegy, And I went down...

DOBBS: Which it subsequently did.
O'NEILL; Excuse me?
DOBBS; Which it subsequently did.

O'NEILL: That's right. And when Don called me, and we talked about it, we agreed there wasn't anything within our responsibilities that
required us to do anything. And that was the end of it.

DOBBS: Were you asked at anytime by Ken Lay to do anything specific?
O'NEILL: I was not, Absolutely not.

DOBBS: An extraordinary statement today, the president said that be had not discussed the financial problems of Enron with Ken Lay. And I
would like to ask you at any point have you discussed the financial problems of Enron with Ken Lay aver the course of your tenure as
‘Treasury secretary?

O'NEILL: Well, the only contact I had with Ken on the subject of Enron was the two times that he called me that have been reported. And I
must tell you, I thought it was business as usual. I mean, as secretary of the Treasury with the responsibility for the U.S. capital markets and
our position in world capital markets, I get calls every day from the big players in the world. Enron was the biggest trader of energy in the
world. And so I was not surprised at all that I would get a call saying, hey, we've got a problem over here and you should know about it.
DOBBS; Although, you were, I'm sure, aware that on November 2, the auditor, bead of the auditing firm Andersen had said to the finance
committee, the Financial Institutions Committee, that in fact they had said that there were criminal violations as a result of their own early
investigation, would that be correct?

O'NEILL: I have no idea. You're telling me something I don't know.

DOBBS: You were not aware then?

O'NEILL: Absolutely not.

01885

1/17/02

01300000000493


(Cortona. -7

By confining the purview of the CFTC and the SEC, the Commodity Futures Modernization Act
allowed much of Enron's trading activity to remain unmolested by government oversight.
However, whether oversight could have prevented the company’s collapse is unknown.

If the Banking Committee chooses not to examine the role of the SEC and Congress in the
collapse of Enron, the task may fall to someone like Sen. Byron Dorgan (0-N.D.), who is
conducting an investigation on behalf of the Commerce Committee,

"Enron was very active politically here on Capitol Hill to try to prevent legislation from
occurring that would have resulted in the oversight by CFTC and others,” Dorgan said ina
television interview last month, "They helped create the circumstance in which they operated
off the books with secret partnerships. We intend to get to the bottom of all that and see

where it leads us."

Alexander Bolton can be reached at alexb@thehill.com.

Comp. exeeu-
tives met six times Inst year with officials
of the Bash administration's energy task
force, though thay did not talk about (he

company’s finances, J
Sent Pick Cheney's office said im a letter
‘to Capitol Hill,

One of the meetings incioded a
JO-mioule session between the vice presi-
dent and Enron Chief Executive Kenmeth
Lay that had been previously disclosed. In
addition, Karon officials met in large and

otlog/o}

ure of the giant energy trading company.
Next month, the Senate Government Af-
fairs Committee expects to open hearings
om Enron, Comsnittee Chairman Joseph Lie-
berman (D., Conn,) said at a news confer:
ence last week that he wanted to explore,
sinong other things, whether Enron influ-
enced administration energy policy.

‘The letter produced @ swift response

first response, he said, “raises additional
questions about the extent to which Enron

or provided information

‘about ils own aeration.” Por: +» Mi.
ected that the © Mr.

Cheney met provately with Mr. Lay, the vice

president stated hks opposition to etectricity:
price caps in Culiformia, a position that Br
Ton had espowed Z

Mr. Waxman said the response did pot
Be nce present

i
:

i
§
i

i
a8
Et
|
x
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:
&
i

af

Wednesday, January 9, 2002

Page 9

01300000000412


Additional pressure may soon come from the influential General Accounting Office, Congress's
auditing agency, which is also seeking records from the Cheney task force. After backing off the
threat of a lawsuit in the wake of the September 11 terrorist attacks, David Walker, the GAO chief,
said last month he was reconsidering his options in light of "several recent developments.”

Although Mr Walker did not detail what developments have prompted his new review, they are
believed to include Enron's collapse and US success in the Afghan campaign.

mS

01300000000454


Nickoloff, Peter

LS

From: Carleton, Norman
Sent: Wednesday, December 19, 2001 11:42 AM
To: Cetina, Jill; Bair, Sheila; Berardi, Steve; Bilsberger, Timothy, Eichner, Matthew; Gabilondo,

Jose; Gross, Jared; Hammer, Viva; Lori Sanatamorena (E-mail); Nickoloff, Peter; Novey,
Michael; Pietrangeli, Fred, Roseboro, Brian; Schultheiss, Heiditynne; Whaley, Jean; Wiedman,
Mark

Subject: ‘WSJ: Enron Workers Face Losses On Pensions, Not Just 401(k)}s

December 19, 2001

Money & Investing

Enron Workers Face Losses
On Pensions, Not Just 401(k)s

By EtLen E. SCHULTZ
Staff Reporter of THE WALL STREET JOURNAL

Many Enron Com. employees will suffer even greater losses to their retirement income than was
immediately apparent in the wake of the energy-trading company's sudden downfall.

It is well known that many Enron employees will take big hits in their 401(k) retirement-savings plans
because much of their investments were in company stock. What has been largely overlooked is that
the pensions of many employees also will be reduced as a result of complex, interrelated changes
involving pension and retirement-savings plans.

The decline wasn't caused by investments in the pension plan, which by law cannot invest more than
10% of its assets in the company stock. Rather, it stems from ways that companies such as Enron
have increasingly coordinated their pensions, 401(k)s and employee stock ownership plans (ESOPs)
to reduce costs for the company and shift investment decisions to employees. Enron had no
comment.

Lawmakers, reacting to the decimation of the savings of many employees in Enron's 401(k) have
begun calling for legislation that would hold savings plans to the same standards as pensions.
Employees suffered steep losses in their 401(k) plans because more than 60% of the assets were in
Enron's stock at one point, and the stock has dropped to about 50 cents a share from a peak of $90
last year.

But Enron's situation reveals that employees’ retirement benefits are exposed to company stock in
more than their 401(k) plans.

Employees share some of the responsibility for this overexposure. That's because to some extent

employees could have limited their retirement-related holdings of Enron, if they had taken the right
s

01300000000374


Nickoloff, Peter

——_—_————————————————

From: Carleton, Norman
Sent: Tuesday, December 18, 2001 12:12 PM
To: Bair, Shella; Berardi, Steve; Bitsberger, Timothy, Eichner, Matthew, Gabilondo, Jose; Gross,

Jared; Hammer, Viva; Lori Sanatamorena (E-mail); Nickoloff, Peter; Novey, Michael;
Pietrangeli, Fred; Roseboro, Brian; Schultheiss, Heidilynne; Whaley, Jean; Wiedman, Mark

Subject: Bloomberg: Enron Enriched Wall Street Firms, Analysts Ignored Warnings (long story)
12/98 02:43

Enron Enriched Wall Street Firms, Analysts Ignored Warnings

By Adam Levy

Houston, Dec. 18 (Bloomberg) -- On Tuesday, Oct, 16, Enron Corp. Chief Executive Kenneth Lay delivered a shocker.
Late in a conference call that followed the release of the company’s third-quarter results, Lay said Enron would terminate
one of its several limited partnerships — and thereby wipe out $1.2 billion of shareholder equity.

“| shuddered when | heard that,” says Gregory Phelps, who invests $1.1 billion in energy and utility stocks at John
Hancock Advisers Inc. and has long avoided Enron. “But it didnt seem to make much of an impression on part of the
investment community."

Over the next few days, reports began piling up on Phelps's desk from the Wall Street analysts who track Enron. Merrill
Lynch & Co., UBS Warburg LLC, Credit Sutsse First Boston and Goldman Sachs Group Inc. still rated Enron a “buy.”

Prudential Securities Inc. analyst Carol Coale wrote that she was "dismayed" by management's “disguise” of the $1.2
billion equity reduction, yet she kept intact her “buy” rating and $55 price target on Enron stock, which was then trading at
$33.17.

“Strong Buy’

Richard Gross of Lehman Brothers Holdings Inc. maintained his “strong buy“ rating. ‘The end of the world is not at
hand," Gross said. ‘‘We think investors should rustle up a little courage and aggressively buy the stock.”

Phelps and other investors say the analysts’ reactions were just another sign of Wall Street's guilibility about Enron.

For more than a year, they say, analysts had ignored red flags ranging from inflated business valuations to large insider
stock sales, to the abeupt resignation of Jeffrey Skilling in August 2001 -- just six months into his tenure as CEO.

As recently as September, Enron was the second most highly rated stock in the Standard & Poor's 500 Index, behind Tyco
International Ltd., according to Thomson Financial/First Call,

“Enron is uniquely positioned to be the GE of the new economy,” Donato Eassey, Merrill Lynety's energy stock analyst,
told Bloomberg News in February 2001, “This isn't a management team to bet against." Eassey resigned from Merrill in
December.

Support is Obvious

One of the main reasons for all of the support is obvious, say investors: Until the week before its third- quarter earnings
report in October, Enron was a deal machine that enriched dozens of Wall Street firms through lucrative underwriting
contracts, mergers and acquisitions assignments and derivatives trades.

“You'd be hard-pressed to find a house on the Street that didn’t do business with Enron,” says Don Coxe, chairman and
chief executive of Harris Investment Management Inc., which in early December held 78,000 Enron shares in the Harris
Insight Equity Fund. “They spread @ ton of business around the Street, so it's no wonder these analysts were behind the
stock."

Enron says it didn’t have a quid pro quo relationship with anyone, “At no time has Enron ever required any financial firm to
262

01300000000367


10K Wizard - SEC filings Page 10 of 83

and other performance obligations. Under certain circumstances, the issuers of
such sureties may request collateral.

Liquidity Actions. Enron has implemented a financial strategy to reatore
investor confidence and will continue its initiatives in this regard. Enron has
taken the following steps to assure its customers and investors that it can
fulfill ite commitments in the ordinary course of business:

© Enron borrowed approximately $3.0 billion from ite committed lines of
credit to repay outstanding and expiring commercial paper obligations
of approximately $1.9 billion and to provide immediate cash liquidity.
This action to convert Enron's committed lines of credit to cash was
done to eliminate any doubt as to their availability in the future;

o In an effort to further enhance short-term liquidity, on November 13,
2001, Enron (through its wholly-owned subsidiary) obtained
$550 million in a new secured line of credit from JP Morgan Chase
Bank (Chase) and Citicorp North America, Inc. (Citicorp), secured by
Enron's Transwestern Pipeline Company assets. Enron anticipates
obtaining $450 million in a new secured line of credit on or about
November 20, 2001 from Chase and Citicorp secured by Northern
Natural Gas Company assets. These proceeds will be used to further
supplement short-term liquidity and to retire maturing obligations;

~ PART I. FINANCIAL INFORMATION - (CONTINUED)

ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
ENRON CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

© On November 13, 2001, Enron received a $1.5 billion equity infusion in
the form of a preferred stock investment in Northern Natural Gas
Company, an Enron subsidiary (Northern), from Dynegy Inc. (Dynegy) in
connection with the merger agreement signed between Enron and Dynegy
discussed below,

© Enron anticipates the receipt of over $800 million in net proceeds
from asset sales scheduled to close by year-end. However, the closings
of these sale transactions are pending certain regulatory and other
approvals that will impact whether such transactions close and the
ultimate timing of the closings. Of the net proceeds, approximately
$250 million, or a portion thereof, may be required to repay an
obligation that may become a demand obligation due to « recent credit
rating downgrade discussed below and in Note 9.

Enron is also engaged in discussions with various institutions about
investing in Enron equity. Enron is diligently pursuing a program te raise an
incremental $500 million to $1 billion of private equity from these sources in
the near future. There can be no assurance, however, that such program will be
successful. Depending on the terms and amounts of such investments, Enron may be
required to increase its authorized capital, which would require the approval of
its stockholders.

Restructuring Plan. As a result of the merger agreement with Dynegy, 02076
discussed below, and the logs of investor confidence, Enron has initiated an
action plan for restructuring its business. The key aspects of the action plan
involve (i) concentrating primarily on its core businesses; (ii) taking
aggressive steps to rationalize the existing cost structure; (iii) accelerating
the process of divesting non-core businesses and assets; (iv) restructuring

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—— 01300000000684



Derivatives

Jolnt Regulators’ Report Concludes Congress

Should Refrain From Regulating Retail Swaps

report from federal financial regulators de-

to Congress Dec, 20 said there currently is

no need for lawmakers to create # legal structure

to financial known as “retail
swaps"—swaps for ordinary-income investors.

‘The report cited participants in the derivatives

jostly commercial and

investment
banks—as saying there is no interest in either sell or
the jucts in the retail sector, and ore

‘no need to delve into creating regulation.

However, one member of the Commodity Futures
Trading Commission—which participated in developing
the report—dissented, He warned that if @ regulatory
system is not developed for retail! swaps, retail investors
will be left unprotected. ly, retail swaps, like
swaps traded by institutions, are unregulated.

Futures
ceived by Congress the day it adjourned, was jared

Treasury, the CFTC, the Securities and Exchange
Pe rimasion, and the Federal Reserve Board of Gover:
nors.

“a apparent sufficient ot ae acy eee nthe
“ to any on
part of these institutions to explore issuance of these In-
struments, thus obviating the need to analyze is
sues.” Not only were the institutions nearly

in the view that retail investors are not well positioned
sophisticated swaps contracts, they
also questioned the cost and efficacy of offering such
products should interest in them rise.

parties, often do so for the purposes

ic exposure” to securities, the
tactics that may not similarly benefit the smaller inves
tor.

Using swaps to hedge, the report noted as an ex-
ample, could trigger negative tax consequences, while
using them for synthetic ¢; would not be cost-
effective or convenient for ordinary investors, it said.
Because of these drawbacks, retail investors have not

dlamored for the product, the report said, and likewise
there has been no effort to sell customers on them.

the potential credit risks of offering retail
ited investors), and the need to imple-

ind tail to become standardized
there is & ig Increase ea oe on determining
“It appears one challenge for firms in i
the feasibility of offering retail swaps,” the report 5
“is the potential tension between the desire
infrastructure costs by standardizing terms of retail
st ‘and the need to offer products that would meet
the nancial objectives of specific retail customers.”

“Lack of demand Is apparently sufficient to
preclude any desire on the part of these
Institutions to explore issuance of these

instruments, thus obviating the need to analyze
legal issues.”
Jowrr Rerost on Reta: Swars

‘The report used as its sources Bank of America and
JP Morgan Chase & Co. from the commercial ban!
Sector; Goldman Sachs Inc., Lehman Brothers Inc.,
Morgan Stanley Dean Witter from the investment bank-

ing sector; as well as derivatives trading system Black-
bird Hol Inc,, the International Swaps and Deriva-
tives |, and Enron Energy Services Inc,

Dissent. Thomas Erickson, a member of the CFTC,
dissented from the recommendations of the report, say-
ing he “cannot in good i to leave a

Trading Commission.”

Erickson termed it incumbent on the CFTC, as well
as the other relevant agencies, to develop an oversight
regime for the products. “To do anything less,” he said,
“would leave retail customers without recourse, for no
federal financial regulator would have any measure of
authority over this market.”

He also criticized the scope and execution of the re-
port, saying it does not live to the standards re-
quested by Congress. “This neither identifies nor

Mic — >

Page 6

Wednesday, January 9, 2002

01300000000409


10K Wizard - SEC filings Page 21 of 83
PART I. FINANCIAL INFORMATION - (CONTINUED)

ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
ENRON CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

General Summary of LJM Transactions. Prom June 1999 through September
2001, Enron and Enron-related entities entered into 24 business relationships in
which LUM1 or LJM2 participated. These relationships were of several general
types, including: (1) sales of a by Bnron to LUM2 and by LJM2 to Enron; (2)
purchases of debt or equity interests by LJM1 or LJM2 in Enron-sponsored SPRs;
(3) purchases of debt or equity interests by LJM1 or LJM2 in Enron affiliates or
other entities in which Enron was an investor; (4) purchases of equity
invest=ents by LJM1 or LJM2 in SPEs designed to mitigate market risk in Enron's
investments; (5) the sale of a call option and a put option by LJM2 on physical
assets; and (6) a subordinated loan to LJM2 from an Enron affiliate. The
financial results of these transactions are summarized below.

Cash and

LM Other Value LUM Net
{In Millions) Investment eived by Lum Cash Plow
Nine Months Ended September 30, 2001
Sales of Assets $ - $ - $ -
Purchases of Squity/Debt in Enron-
Sponsored Special Purpose Entities - 52.5 $2.5
Investments in Enron Affiliates 3.4 17.8 14.4
Portfolio Special Purpose Entities - 75.5 78.$
Call Option - . .

Transactions with LIM and Other Entities - - -

Transaction with LUM and Whitewing - - >

Total $ 3.4 $145.8 $142.4

Nine Months Ended September 30, 2000 02087

Sales of Assets $ 30.0(b) $ = $(30.0)
Purchases of Equity/Debt in Snron-

Sponsored Special Purpose Entities 63.3 63.0 (20.3)
Investments in Enron Affiliates 64.3 48.9 (15.4)
Portfolio Special Purpose Entities 127.21 209.0 (28.1)
Call Option 6.2 0.9 (7.3)

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01300000000695


Rega Saas tara gees
lewtero Limited 2002.

Tueuday, January &, 2002

USA: KCBT yotes to drop Ho- 3 wheat for deliverable stocks.

wausas CITY, Jan. © {Reuters} - kansas City Board of Fre8e Atebers-om Torsday
voted to reneve lower quality number three grade hard red winter wheat from
approved standards for mixing te weet delivery requizenvmte againat RCBT wheat
contracts.

KCBY chairean Greg Mdelblute told Reuters that the 1
work of the exchange’s contract comeit!
balance between the makers and takers of

to-14 vote backed the
whieh had sought to "¢
Liverios.*

Tha nev standards will begin with the July, 2003, contract and are pending
approval Crow the Commodity rutures Trading Comsisvion, he caid-

‘Tuesday's vote was th Jeon to adjust the content of deliverable
stocks. An earlier vote in Augest, 2902, failed to garner the necessary
two-thirds majority

The arguments to eliminate mumber three wheat from the acceptable mix for

liveries had stirred up controvaray at the XCUT. There were wesbers vho
believed that number three wheat i beeowing increasing hard to broker or sell
for feed or export and who wactud flexibility to blend low-quality wheat te
deliverable standards in case there is a poor wheat crop.

Wonber thoce wheat hae lower standards for minimus test weight and other
grading factors like damaged or broken kernels and allowable foreign material.

Edclblute vaid the “potential is still there" for 4 peor crop producing more
than ite share of number three or poorer wheat, but the vawt majority of
menbers fele comfortable voting for the sew rule.

With number three wheat ineligible for isclueion in deliverable stocks, it is
likely that "people will handle it, merchandise it and discount they
always have,* Edelblute said. "It's just consi¢erably less likely to be
delive

Most of the Kanaan wheat crop grades Gut as number two wheat, he added,

/

Wednesday, January 9, 2002 Page 37

01300000000440


“When tech was in favor, all of Wall Street was pushing them to increase their exposure in broadband," sald Tim

Ghriskey, manager of Ghriskey Capital Partners. As a fund manager for Dreyfus Corp. in late 2000, Ghriskey sold 1.55
million Enron shares.

Trading bandwidth proved more difficull han trading natural gas, For starters, Enron faced stiffer competition. When the
company began trading gas futures in 1991, it took years for rivals to follow its lead.

Action by Rivals

Two months after Enron completed its first bandwidth trade, Williams Communications announced it was forming a unit to
trade broadband. By the end of 2000, rivals such as Koch Industries Inc. and Dynegy Inc. had set up units to trade
bandwidth

“When Enron revolutionized the gas industry, they were ahead of the game and they made a lot of money,” said Kyle
Vann, chief executive of Entergy-Koch LP, a joint venture between Koch and New Orleans utility Entergy Corp. “Then they
took it to the power industry, and they made a lot of money. With bandwidth, once Enron went that way, there were a lot of
other people who did, too.”

Even as more companies began selling bandwidth, consumers and businesses began ordering fewer telecommunications
services. Industry experts estimate that about 20 percent of the world's fiber is being used.

“You have such an incredible surplus of capacity, that there's really not a lot of trading leverage there," Vann said, “It's
just @ big old huge excess.”

In March, Enron lost one of its biggest customers. Blockbuster Inc., the world's largest video-store chain, canceled a 20-
year contract to deliver movies-on-demand over Enron's network. Blockbuster spokeswoman Karen Raskopf said at the
time that the company “decided there were plenty of other carriers out there that were more sophisticated technically.”
New Counting Method

With contracts drying up, Enron developed a new method for measuring trading volume. At the January investor
conference, Lay said Enron completed 300 “intermediation transactions” the previous year. He never defined the term,
and Yeck had never heard it before. It was a measure that broke broadband contracts down to thelr smallest components
to create a larger number, Yeck said,

“Itimade it look like @ lot more was happening than there wes,” she said, “It’s like @ personal computer maker saying ‘we
sold a million bytes.” That's not much, but it sounds like it —"a million, wow."

Banaszek of Traditional Financial Services and other broadband traders and consultants said they aren't familiar with the
term, either.

“it was always very difficult with these guys to get any specifics in terms of their businesses," said Ghriskey, the former
Dreyfus fund manager. *' That's one of the reasons we sold all our stock.”

Few Broadband Trades

At a Houston court hearing on Dec, 7, William Lerach, an atlorney for Amalgamated Bank, an Enron shareholder that
wants to freeze profits Enron executives made from stock sales, said his investigation found Enron's broadband unit never
did more than 20 “legitimate” transactions.

Most of Enron's broadband trades were so-called daisy chain deals, with related affiliates, Lerach said.

Enron spokesman Mark Palmer said he has no way to find out how many contracts the broadband division had. He said
he thinks intermediation transactions represented “deals where we were either the buyer or seller of some type of
bandwidth commitment in the future.”

Yeck and Kose said they knew of Enron buying and selling broadband contracts at no profit to increase trading volume.
Palmer dismissed such claims as the ‘talk of disgruntled former employees.”

310

01300000000449


Nickoloff, Peter

From: Carleton, Norman
Sent: Friday, December 14, 2001 3:00 PM
To: Bair, Sheila; Berardi, Steve; Bitsberger, Timothy; Eichner, Matthew, Gabilondo, Jose; Gross,

Jared; Hammer, Viva; Lori Sanatamorena (E-mail); Nickoloff, Peter; Novey, Michael;
Pietrange’, Fred; Roseboro, Brian; Schultheiss, Heidilynne, Whaley, Jean; Wiedman, Mark
Subject: WSJ: Arthur Andersen's ‘Double Duty’ Work Raises Questions About Its Independence

December 14, 2001

Money & Investing

Arthur Andersen's ‘Double Duty’ Work
Raises Questions About Its Independence

By JONATHAN WEIL
Staff Reporter of THE WaLL STREET JOURNAL

In addition to acting as Enron Corp.'s outside auditor, Arthur Andersen LLP also performed internal-
auditing services for Enron, raising further questions about the Big Five accounting firm's
independence and the degree to which it may have been auditing its own work.

That Andersen performed "double duty” work for the Houston-based energy concern likely will trigger
greater regulatory scrutiny of Andersen's role as Enron's independent auditor than would ordinarily be
the case after an audit failure, accounting and securities-aw specialists say.

It also potentially could expose Andersen to greater liability for damages in shareholder lawsuits,
depending on whether the internal auditors employed by Andersen missed key warning signs that
they should have caught, Once valued at more than $77 billion, Enron is now in proceedings under
Chapter 11 of the U.S. Bankruptcy Code.

Internal-audit departments, among other things, are used to ensure that a company’s control systems
are adequate and working, while outside independent auditors are hired to opine on the accuracy of
a company’s financial statements. Every sizable company relies on outside auditors to check whether
its intemal auditors are working effectively to prevent fraud, accounting irregularities and waste. But
when a company hires its outside auditor to monitor internal auditors working for the same firm,
critics say it creates an unavoidable conflict of interest for the firm.

Still, such arrangements have become more common over the past decade. In response, the
Securities and Exchange Commission last year passed new rules, which take effect in August 2002,
restricting the amount of intemal-audit work that outside auditors can perform for their clients, though
not banning it outright.

"It certainly runs totally contrary to my concept of independence,” says Alan Bromberg, a securities-

law professor at Southern Methodist University in Dallas. “I see it as a double duty, double
251

01300000000359


Nickoloff, Peter

EE

From: Carleton, Norman
Sent: Thursday, January 10, 2002 5:59 PM
To: Cetina, Jill; Bair, Sheila; Berardi, Steve; Bitsberger, Timothy, Eichner, Matthew; Gabilondo,

Jose; Gross, Jared; Hammer, Viva; Lori Sanatamorena (E-mail); Nickoloff, Peter; Novey,
Michael; Pietrangell, Fred; Roseboro, Brian; Schuttheiss, Heidilynne; Whaley, Jesn, Wiedman,
Mark

Subject: DJ: US O'Neill Focuses On Regulatory Reform in Enron Review

January 10, 2002

US O'Neill Focuses On Regulatory Reform In Enron Review

NEW YORK — U.S. Treasury Secretary Paul O'Neill said Thursday that he would focus on regulatory
reform as part of President George W. Bush's newly announced probe of Enron Co. (ENE).

O'Neill told Fox News Channel that he would be part of two task forces stemming from the issue.

In the first, he would join Commerce Secretary Don Evans and Labor Secretary Elaine Chao to look
at the impact of recent corporate bankruptcies on pension benefits.

In the second, he would join Federal Reserve Chairman Alan Greenspan, Commodities Futures and
Trading Commission Chairman James E. Newsome and Securities and Exchange Chairman Harvey
Pitt in looking into disclosure rules. O'Neill said they will determine whether changes are needed "to
assure that investors and markets have all the information they are entitled to have to make our free-
market economy work properly."

In ordering the probe, Bush particularly pointed at the loss of pension benefits by employees at
Enron, which filed for bankruptcy last month. As Enron's stock collapsed, employees were barred

from selling the company's shares while the energy trading company was changing pension
administrators and the accounts were frozen.

Asked for specific solutions, O'Neill suggested that the government needed to see if 401(k) and other
pension accounts need to be locked up when new administrators come in.

"We need to look at that and see if that is a sensible thing to do,” he said.

But beyond that, the Treasury secretary refused to be pinned down on possible remedies. “| think we
need to do a study and we need to do analysis,” he said.

"We need to do analysis before we do prescription. It's a pretty good idea to figure out what disease
exists before we start cutting off arms and legs,” he added.

O'Neill also stressed that this effort is motivated by Bush's concer for Enron's employees. The

Treasury secretary said the president is “just hurting a lot for people who apparently accumulated all
of their savings in a 401(k) plan and then lost it all in a couple of months.”

336

01300000000475


10K Wizard - SEC filings Page 42 of 83
NOTES TO CONSOLIDATED PINANCIAL STATEMENTS

Rurope
and
Other
Commodity Retail
(In Millions) Americas (c) Markets Services (c)
Three Months Ended
September 30, 2000(e)
Unaffiliated revenues (a) $20,374 $ 7,566 $ S14
Intersegment revenues (b) S46 (407) 21

Total revenues

Income (loss) before interest,
minority interests and
income taxes $ S49 $ 53 $ 27

Nine Months Ended
September 30, 2000(e)

Unaffiliated revenues (a) $39,678 $15;578 $2,210
Intersegment revenues (b) 764 (416) s9

Total revenues

Income (loss) before interest,
minority interests and
income ti $ 1,009 $ 265 $ #79

Portland Global Broadband

(In Millions) General Asscta

Three Months Ended
September 30, 2000(e)

Unaffiliated revenues (a) $ 663 9 394 $ 162
Intersegment revenues (b) 66 14 -

Total revenues $ 729 $ 408 § 162

Income (loss) before interest,
minority interests and
income taxes $ 4 $ ois $ (20)

wine Nonthe Ended 02108

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01300000000716


Page 1 of 7
Carleton, Norman

From: Lori. Santamorena@bpd.treas.gov
Sent: Friday, January 11, 2002 1:52
To: norman.carleton@do.treas.gov

CNN

SHOW: CNN THE POINT 20:30
January 10, 2002 Thursday 8:30 PM Eastern Time

Transcript # 011000CN.V68_

SECTION: News; Intemational

LENGTH: 4186 words

HEADLINE: Enron Political Repercussions Just Beginning

GUESTS: Mark Juergensmeyer, Eric Margolies, Jon Corzine, Arianna Huffington, Peter Coy, William Bradley
BYLINE: Catherine Crier, Sheila Mac Vicar

HIGHLIGHT; Guests discuss the collapse of Enron.

BODY:
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

(BEGIN VIDEO TAPE)

ANNOUNCER:

THE POINT, with Catherine Crier,

He's in jail. But others got away, and could try again. Tonight, why investigators have decided the alleged shoe bomber didn't act alone.

UNIDENTIFIED MALE: The combination of materials im the device and the priming mechanism appears to be quite unusual and
sophisticated. ANNOUNCER: Flashpoint: where are the others?

It was the biggest bankruptcy in U.S. history,

UNIDENTIFIED MALE: Each floor at the -- at the Enron building had a floor meeting. Some floors were told you have 30 minutes and get
out,

ANNOUNCER: Thousands lost their retirement savings. And the political repercussions are just beginning.

UNIDENTIFIED MALE: What's important here in the president's opinion is that this needs to be investigated from a criminal point of view to
determine what went wrong with Enron

1/17/02 ¢) 1 890

01300000000498


10K Wizard - SEC filings Page 19 of 83
PART I. FINANCIAL INFORMATION - (CONTINUED!

ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
ENRON CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

common stock in exchange for a note receivable. Enron increased notes receivable
and shareholders' equity to reflect this transaction. Enron now believes that,
under generally accepted accounting principles, the note receivable should have
been presented aa a reduction to shareholders’ equity (similar to a shareholder
lean). This treatment would have resulted in no net inere: to shareholders’
equity. The net effect of this initial accounting entry was to overstate both
notes receivable and shareholders’ equity by approximately $172 million (which
represented less than 2% of shareholders' equity at the time) in each of the
second quarter, third quarter and year-end financial statemente of Enron for the
year 2000.

In the first quarter of 2001, Enron entered into a series of transactions
with Raptor that could have obligated Enron to issue Enron common stock in the
future in exchange for notes receivable. Enron accounted for these transactions
using the accounting treatment described in the Preceding paragraph. This
resulted in sn additional overstatement of both notes receivable and
shareholders' equity by $828 million. As a result of these errors, shareholders’
equity and notes receivable were overstated by a total of $1 billion in the
unaudited bflance sheets of Enron at March 31, 2001 and June 30, 2001.

In the third quarter of 2001, as a result of deterioration in the credit
quality of the Raptor SPEs caused by the decline in New Power Holdings, Inc.'s
(NPW) stock price, the increase in Raptor's exposure under derivative contracts
with Enron and the increasing dilutive effect on Enron's earnings ger share
calecdlation, Enron acquired LUM2's equity in the SPEs for $35 million and
terminated the entities. Consistent with the original treatment, Enron accounted
for this transaction as a reduction to Enron shareholders" equity and notes
receivable by $1.2 billion. Of this amount, $270 million related to the amount
by which the fair value of contracts to deliver Enron shares exceeded the value
of the notes receivable, which is not related to the restatement discussed
above.

a
Audit Adjustments. The restatements include prior-year proposed audit
adjustments and reclassifications which were determined to be immaterial in the
periods originally proposed.

4. RELATED PARTY TRANSACTIONS

On November 8, 2001, Enron released information in a Form 8-K regarding
the two LUM limited partnerships formed by Enron's former chief financial
officer, his role in the partnerships, the business relationships and
transactions between Enron and the partnerships, and the economic results of
those transactions as known thus far, and transactions between Enron and certain
other Enron employees, Following is the information that was provided.

THE LUM LIMITED PARTNERSHIPS AND TRANSACTIONS WITH ENRON. LUM1 and LUM2
(collectively, LUM) are private investment limited partnerships that were formed
in 1999. Andrew $. Fastow was (from inception through July 2001) the managing
member of the general partners of LJM1 and LUM2, Enron believes that the LUM
partnerships have as limited partnera a significant number of institutions and
other investors that are not related parties to Enron. These Partnerships are a
subject of the Special Committee's investigation and it ie possible that this
investigation will identify additional or different information concerning

as 02085

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01300000000693


and it's probably going to be at a fire-sale price," said a Washington-based power industry analyst
who asked not to be identified.

Shell, BG Seen Potential Buyers For LNG Assets

The process appears to have gained momentum from negotiations last Friday in Singapore, where
lenders reportedly agreed to form a subcommittee to oversee the mothballed plant while they
entertain bids for Dabhol Power's assets.

The project could require additional funding as its second stage - involving the import of LNG that
would be regasifed to fuel-expanded, power-generating capacity - was only about 90% complete
when work halted this year,

Two leading contenders to buy the power plant, Indian firms Tata Power Co. (P.TPW) and BSES Ltd.
({P.BSX), are expected to sign confidentiality agreements later this month and then submit bids within
60 days.

But whether project lenders choose Tata, BSES or another bidder, Dabhol Power Co. likely won't
remain a direct importer of liquefied natural gas, or LNG, Chettur of Cambridge Energy says. “The
LNG plant is going to have to be sold to one strategic partner and the power plant to another,” he
says.

Two potential buyers for the company's LNG importing, regasification and storage facilities are Royal
Dutch/Shell Group (RD) and BG Group Pic (BRG).

A London-based BG spokeswoman says the company is watching talks on Dabhol Power's future
“with interest." But she adds BG's current priority in India is completing its proposed purchase of
Enron's stakes in the Panna-Mukta and Tapti gas fields offshore westem India.

Shell, which is developing another LNG import terminal in India, indicated last month it would also be
interested in Dabhol Power's LNG facilities.

“We are primarily interested in the LNG facilities, but we would not exclude any interest in the power
plant at this stage," said London-based Shell spokesman Justin Everard. Shell had had an
agreement to supply Dabhol power with LNG shipped from Oman.

Enron itself is keeping relatively quiet about the Dabhol Power talks, suggesting selection of new
investors may be up to the Indian government and project financiers. Houston-based Enron
spokesman John Ambler said Monday the company is evaluating the results of meetings last week
with project lenders.

A spokesman For General Electric Co. (GE), which holds a 10% stake in Dabhol Power, declined to
comment on matter. Officials from privately held U.S. construction and engineering company Bechtel
Corp. (X.BTL), which also holds 10%, couldn't be reached for comment.

A spokeswoman for the U.S. Ex-Im Bank, which is owed $202.5 million by Dabhol Power, says bank
Officials didn't take part in last week's negotiations in Singapore.

Officials from the project's other U.S. government financier, OPIC, and from private lenders Citigroup
Inc. (C) and Bank of America (BAC) weren't available for comment.

-By Campion Walsh, Dow Jones Newswires; 202-862-9291; campion.walsh@dowjones.com

260

01300000000366


10K Wizard - SEC filings Page 51 of 83

Physical Volumes (BBtue/d) (a):

Gas 26,659 25,253
Power (b) 31,507 17,777
Total 58,166 43,030
mameeensscsesensssesence

Power Volumes Marketed (Thousand MWh) (c) 289,853 163,556

Financial Settlements (Notional) (Bbtue/d) 247,467

(a) Billion British thermal units equivalent per day.
(b) Represents electricity volumes, converted to BBtue/d.
(c}) Thousand megawatt-hours.

Gross margin of Americas, excluding the impact of a change in value of
Enron's contingent obligation to Whitewing (Whitewing Obligation) discussed in
Note & to the Consolidated Financial Statements, increased $260 million in the
third quarter of 2001 as compared to the third quarter of 2000, primarily as a
result of increased earnings from both gas and power marketing operations,
partially offset by a decline in the value of merchant investments. Gas and
Power marketing operations benefited from price volatility in the third quarter
of 2001. In the third quarter of 2001, the Whitewing Obligation resulted in a
decrease in revenues of approximately $583 million with a corresponding incr:
in equity in earnings of unconsolidated affiliates.

Operating expenses decreased $28 million in the third quarter of 2001 as
compared to the same period in 2000, primarily as a result of the sale of
certain Houston Pipeline Company ete in the second quarter of 2001.
Depreciation and amortization increased $32 million primarély as a result of
increased amortization related to intangible assets acquired in the second
quarter of 2001 and other assets and depreciation associated with
computer-related equipment placed into service in 2001.

BZquity in earnings, excluding the impact of the Whitewing Obligation,
decreased $111 million in the third quarter of 2001 as compared to the same
period of 2000 primarily a@ result of the decline in the value of merchant
investments held by unconsolidated equity affiliates. Other, net in the third
quarter of 2000 included charges related to losses on transactions in foreign
currencies, partially offset by interest income.

47

PART I. FINANCIAL INFORMATION - (CONTINUED)

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
ENRON CORP. AND SUBSIDIARIES

02117

Significant components of Europe and Other's results are as follows (in
millions):

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01300000000725


10K Wizard - SEC filings Page 71 of 83

In October 2001, the PASB issued SPAS No. 144, "Accounting for the
Impairment or Disposal of Long-bLived Aseeta." SPAS No. 144, which must be
applied to fiscal years beginning after December 15, 2001, addresses the
financial accounting and reporting for the impairment or disposal of long-lived
assets. Enron is in the process of evaluating the impact of SPAS No. 144 on, the
financial statements.

63

PART I. FINANCIAL INFORMATION - (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
ENRON CORP. AND SUBSIDIARIES

FINANCIAL CONDITION

CASH FLOWS
Nine Months Ended
September 30,
~~ s—i“(“‘“‘ét nnn nnn meee nen
(1 Millions) ‘ 2001 2000
Cash provided by (used in):
Operating activities:
Operating activities excluding net
margin deposit activity $ 1,596 $ (414)
Net margin deposit activity (2,349) S41
Operating activities $ (783) $ 127

Investing activities $(1,366) $(3,580)
Financing activities $ 1,880 $ 3,873

Cash used in operating activities totaled $753 million in the first nine
months of 2001 as compared to cash provided by operating activities of $127
million in the same period last year. Cash used in operating activities in the
first nine months of 2001 reflects cash provided by operations and price risk
management activities, offset by net cash used related to margin deposit
activity. Excluding net margin deposit activity, cash provided by operating
activity was $1,596 million. Enron received significant cash deposits as credit
collateral during the fourth quarter of 2000 resulting from volatility in the
power and gas markets. During the first nine months of 2001, net deposits of
$2,349 million were returned as general price levels in the commodity prices
have declined, Net cash provided by operating activities in the first nine
months of 2000 primarily reflects earnings and proceeds from the sale of
merchant assete and investmente, partially offset by cash used in acquiring
merchant assets and investments and working capital requirements. 02 1 37

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01300000000745


-By Paul Rekoff, Dow Jones Newswires; 201-938-4370;
paul.rekoffédowjones.com

3

01300000000476


Nickoloff, Peter

From: Carleton, Norman

Sent: Friday, December 21, 2001 9:52 AM
To: Schultheiss, Heidilynne, Nickoloff, Peter
Subject: Accounting Officials Picked for SEC

Accounting Officials Picked for SEC

By David S. Hilzenrath
Washington Post Staff Writer
Friday, December 21, 2001; Page E01

President Bush said yesterday that he plans to nominate two members of large accounting firms to fill
vacancies on the Securities and Exchange Commission.

They would join Chairman Harvey L., Pitt, a Bush appointee who represented each of the Big Five
accounting firms and their main lobbying group while he was a securities lawyer.

Bush said he plans to name Paul S, Atkins, a lawyer who is a partner at PricewaterhouseCoopers,
and Cynthia A. Glassman, an economist who Is a principal at Ernst & Young .

If confirmed by the Senate, Atkins and Glassman would share responsibility for regulating their
former employers at a time when the industry is under scrutiny for failing to prevent disastrous
accounting errors at corporations such as energy trader Enron Corp.

Congress should "thoroughly examine” the nominees" backgrounds "given that they are from an
industry that is by its own admission saying it is going to have to make some changes,” said Sen.
Ron Wyden (D-Ore.), who sharply questioned the auditing of Enron at a Senate hearing this week,
"You want to see their commitment to really protect the investing public and the consumer.”

Atkins served as a lawyer at the SEC during the first Bush administration, under then-chairman
Richard Breeden, and he remained at the agency for part of Arthur Levitt Jr.'s term as chairman
during the Clinton administration. The White House said his titles included chief of staff.

Glassman previously worked at the Federal Reserve and at Furash & Co., a consulting firm serving
the financial services industry. She has worked on issues such as risk management and regulation in
banking.

"i'm very honored to be named by the president,” Glassman said, adding, "I hope the Senate sees fit
to confirm me.”

Glassman said she would refrain from commenting on issues “until after the confirmation process.”

Atkins did not return a call, and a spokesman for the SEC chairman referred questions to the White
House.

Noting that Atkins and Glassman did not work in the accounting side of their firms, White House
spokeswoman Claire Buchan said, "Individually and together, they will provide strong, balanced and
effective regulation.”

Mu

01300000000396


10K Wizard - SEC filings Page 73 of 83

obtaining $450 million in a new secured line of credit on or about
November 20, 2001, from Chase and Citicorp secured by Northern's
assets. These proceeds will be used to further supplement short-term
liquidity and to retire maturing obligations;

© On November 13, 2001, Enron received a $1.5 billion equity infusion in
the form of a preferred atock investment in Northern from Dynegy Inc.
(Dynegy) in connection with the merger agreement signed between Enron
and Dynegy;

© Enron anticipatee the receipt of over $800 million in net proceeds
from asset sales scheduled to close by year-end: However, the closings
of these sale transactions are pending certain regulatory and other
approvals that will impact whether euch transactions close and the
ultimate timing of the closings. Of the net proceeds, $250 million, or
a portion thereof, may be required to repay an obligation that may
become a demand obligation due to a recent credit rating downgrade
discu below and in "Impact of Recent Events" and "Minority
Interes' below.

65

PART I. FINANCIAL INFORMATION - (CONTINUED)

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
. ENRON CORP. AND SUBSIDIARIES

a

Enron is engaged in discussions with various institutions about investing
in Enron equity. Enron is diligently pursuing a pregram to ra an incremental
$500 million to $1 billion of private equity from these sources in the near
future. There can be no assurance, however, that such program will be
successful. Depending on the terms and amounts of such investments, Enron may be
required to increase its authorized capital, which would require the approval of
ite sharcholders.

RESTRUCTURING PLAN. As a result of the Dynegy merger agreement and the
lose of investor confidence, Enron has initiated an action plan for
restructuring its business. The key aspects of the action plan involve (i)
concentrating primarily on its core businesses; (ii) taking aggressive steps to
rationalize the existing cost structure; (iii) accelerating the process of
divesting non-core businesses and assets; (iv) restructuring scheduled
maturities of debt and other obligations; (v) completing the investigation by
the Special Committee and its advisors with respect to related party
transactions; (vi) reviewing and strengthening Enron's corporate governance; and
(vii) expanding certain disclosures with a focus on increased transparency.
Management and the Board have not completed nor approved a reatructuring plan.
Such restructuring plan ia currently being prepared and, therefore, Enron is
unable to estimate the timing of implementation or the financial impacts.
Enron's fourth quarter 2001 results of operations will likely be negatively
impacted by severance, restructuring and other charges resulting from the
repositioning of many of Enron's busine: .

In order to focus on Enron's core businesses and rationalize their cost
structure, management is in the proceas of dividing Enron into three fundamental
groups of businesses - Core, Non-Core and Under Review. Following is a

description of each group of businesses: 02 1 39

© Core Businesses are the consistent franchise businesses for which
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01300000000747


brought in the industry trade body, the International Swaps and Derivatives Association, to sort things
out.

At issue was whether Railtrack's convertible bonds were covered by default protection. The association
opined, in favour of protection buyers, that they were. It did much last year to improve its rules on
contracts for credit derivatives. Its new “modified restructuring” rule clarifies the issue, keenly debated
over the past two years, of whether debt restructuring, as opposed to actual default or bankruptcy, should
count as a credit event. The trade body has also offered guidelines for what should happen to default
swaps on companies that demerge or spin off units.

With these improvements, growth in the market for credit derivatives is likely to continue apace, It has
almost doubled each year since 1998, to a total of nearly $700 billion in value, according to the Bank for
International Settlements, Credit protection has particular appeal at a time of high corporate default rates.

Commercial banks are continuing to shed corporate-credit risk using default swaps. But new entrants-
Insurance companies and fund managers-are coming into the market to assume risk, as sellers of
protection, Last year, investors seeking attractive yields were eager to gain exposure to corporate credit
through “synthetic” collateralised debt obligations (CDOs), structured-finance vehicles made up using
credit-default swaps. Investors may not be quite so gung-ho in future. Enron, for example, was one of the
credits contained in many synthetic CDOs, and its collapse will have led to losses for investors. In the
world of credit derivatives, caveat emptor still applies.

a7

01300000000456


10K Wizard - SEC filings Page 59 of 83
$106 million in the same period of 2000,

In September 2001, as a result of deterioration in the credit quality of
the Raptor SP&s caused by a decline in NPW's stock price, the increase in
Raptor's exposure under derivative contracts with Enron and the increasing
dilutive effect on Enron's earnings per share calculation, Enron acquired, for
approximately $35 million, LJM's interests in the Raptor SPEs which were created
in 2000 to hedge certain of Enron's merchant and other investments. See Notes 3
and 4 to the Consolidated Pinancial Statements. Enron recorded charges totaling
$710 million ($462 million after tax) related to the acquisition of the Raptor
SPEs and a charge of $48 million ($31 million after-tax) to write down Enron's
investment in NPW warrants acquired in connection with the termination of the
Raptor SPEs.

53

PART I, FINANCIAL INFORMATION ~- (CONTINUED)

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
ENRON CORP. AND SUBSIDIARIES

INTEREST AND RELATED CHARGES, NET

Interest and related charges, net ig reported net of interest capitalized
of $22 million and $3 million for the third quarter of 2001 and 2000,
respectively. The net expense decreased $58 million in the third quarter of 2001
as compared to the same period of 2000, primarily due to decreased debt levele
and lower interest rates resulting from general market conditions within the
U.s,

INCOME TAX EXPENSE

Income taxes decreased during the third quarter of 2001 as compared with
the same period of 2000 primarily as a result of pretax losees due to charges
related to the asset impairments by Azurix, the restructuring of Broadband
Services and the lo: associated with the Raptor SPEs. The projected effective
tax rate for 2001 is lower than the statutory rate mainly due to differences
between the book and tax basis of certain assets and stock sales.

54

PART I. PINANCIAL INFORMATION - (CONTINUED)

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
ENRON CORP. AND SUBSIDIARIES

RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 2001 VS. 02 1 25
NINE MONTHS ENDED SEPTEMBER 30, 2000

The following review of Enron's results of operations should be read in
conjunction with the Consolidated Financial Statements. The Consolidated
Financial Statements included herein have been adjusted to reflect the
anticipated impacts of the restatements discussed in Note 3 to the Consolidated

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01300000000733


Nickoloff, Peter

——  — — —/:00&GCO Oe

From: Carleton, Norman

Sent: Thursday, January 10, 2002 12:22 PM

To: Cetina, J@; Bair, Sheila; Berardi, Steve; Bitsberger, Timothy, Eichner, Matthew; Gabilondo,
Jose; Gross, Jared; Hammer, Viva; Lori Sanatamorena (E-mail); Nickoloff, Peter; Novey,
Michael; Pietrangeli, Fred; Roseboro, Brian; Schultheiss, Heidilynne; Whaley, Jean; Wiedman,
Mark

Subject: FT: Enron's collapse sparks government review

Enron's collapse sparks government review
By FT.com staff in New York, Peter Spiegel in Washington and Sheila McNulty in Houston
Published: January 10 2002 02:15 | Last Updated: January 10 2002 17:00

gavel

President George W. Bush on Thursday called for a government review into the adequacy of current
regulations governing corporate pension funds and disclosure in the wake of Enron's collapse, the
largest corporate bankruptcy in US history.

Mr Bush also created a task force in which the treasury secretary and commerce secretary will
analyse pension rules and recommend reforms so that employee savings will be better shielded from
employer bankruptcies.

The Treasury department, Securities and Exchange Commission, Federal Reserve and the
Commodity Futures Trading Commission will carry out the review of corporate disclosure rules in
order to protect stockholders.

Mr Bush's move follows the US government's launch of a criminal probe into the bankruptcy of the
energy trading giant. Enron's bankruptcy in December led to thousands of lay-offs and wiped out
investors and the life savings of some of its employees, as a large part of employee retirement plans
were invested in the company’s own stock.

The criminal probe was welcomed by Enron's new Washington lawyer, who said it will help
consolidate the various investigations currently under way.

The criminal! inquiry, which will be headed by the Justice Department's Washington-based criminal
division, will be run by a new task force being set up by the agency, which will include prosecutors in
New York, San Francisco and Houston, where Enron is based.

Robert Bennett, the prominent Washington attorney who was recently retained by Enron to handle
the sundry investigations into the company’s collapse, said on Wednesday the new task force will
centralise requests made of the company.

“It makes it a much more rational process to be dealing with a primary leader in the investigation," Mr
Bennett said in an interview. "I wish there were no investigation, but if there were an investigation,
this is the way to do it.”

The Labor Department and the SEC have launched separate civil inquiries into the company's
dealings, and the decision by the Justice Department to launch a full criminal inquiry comes after it
has been debated within the agency for weeks.

wz

01300000000451


independence.

Coffee expects the Enron debacle also may result in stricter self-regulation for accountants and
auditors, similar to what the National Association of Securities Dealers provides in overseeing U.S.
broker-dealers. The American Institute of Certified Public Accountants currently leaves discipline up
to states, which Coffee said has resulted in inadequate oversight and discipline.

Lawmakers promised to return to accounting and auditing issues in 2002.

“It seems to me there is a carload of conflicts here," said Sen. Byron Dorgan, D-N.D., who is
chairman of the Senate Commerce subcommittee on consumer affairs.

-By Judith Burns, Dow Jones Newswires, 202-862-6692; judith.burns@dowjones.com

01300000000378


10K Wizard - SEC filings Page 65 of 83
EWRON CORP. AND SUBSIDIARIES

NATURAL GAS PIPELINES

The following table summarizes total volumes transported for each of
Enron's interstate natural gas pipelines.

Nine Months Ended
September 30,

Total Volumes Transported (BBtu/d) (a)

Northern Natural Gas 3,139 3,464
Transwestern Pipeline 1,847 1,639
Florida Gas Transmission 1,576 1,601
Northern Border Pipeline 2,362 2,438

(a) Reflects 100% of each entity's throughput volumes.

Significant components of Natural Gas Pipelines' results are as follows
(in gillions) :

September 30,
2001 2000
Net revenues $ 500 $ 499
Operating expenses 236 232
Depreciation and amortization 51 50
Equity in earnings 48 45
Other, net 34 27

$ 289

Init

Revenues, net of cost of sales (net revenues) of Natural Gas Pipelines in
the first nine months of 2001 were comparable to the prior period. In 2001,
increased revenues generated by Transwestern from transportation and operational
gas and increased storage revenues received by Northern, were offset by
lower sales of gas storage inventory by Northern. Operating expenses, including
depreciation expense, in the first nine montha of 2001 increased primarily as a
result of higher gas prices and other costs associated with the volumes
transported by Transwestern and other pipeline expenses. Equity in earnings
increased $3 million in the first nine months of 2001 compared to the same
period in 2000 primarily due to higher operating results from BOTT and Florida
Gas. In 2001, other, net consisted primarily of a gain related to the expiration
ef an Enron guarantee to fund the EOTT partnership. In 2000, other, net
consisted of gains related to an energy commodity contract and the sale of 02 1 3 1
compressor-related equipment.

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01300000000739



(Contos .. 5

Quarting the previous record. ‘Texaco's 9 billion bankruptcy SA*e
filed in 1987, The earaveling came quickly amid disclosures ot
{atiated Baron eaxaings ~ fo the tyne of $600 million over five

a and massive hidien debt. Wee skilling inviting nemest
he boasted in the summer f i
tynteally che effort to disguies nat Gary Mindes of Doltec Asset
fanegement has dubbed # *corporere Siack hole? *Uneit the foreasic
tan get in there and sort things o0F you just don't know
what Enron's worth, * said Windes. Ever it the company 4 auctioned
off following ite Dec. 2 filing for Chapter 21 bankruptcy. the
Camificutions - ecoaonic, political and legal- will be Yong--

Lasting. About the only silver Lining fron Heron's crash is he

cinieg. Analysts say tha 16 Ae And cowe earlier or later, when the
econory was Dot flooded with Liquidity by the Pederal Reserve. the
fire's collapse could have posed * secious threat to the tinanciel
marker

unron ineiders believe the fire's thunderose fall wee due bos to
corruption and commercial stupidity A senior Earon ‘executive celle
{usTONT, “Skilling was out of sentrol: we didn't know bait thet was
going on. My impression ie chee hia cover up wae an effore to Puy
Tee, Me was che Kicauber of the Mew ‘Rconomy,* cercain that

put, as Enron employees point out, be wow not 2 poor Hicawber.
pering the year Skilling, « forsee Nckinsey 6 Co, conaultast who vat
vecruited by tay to become the ne ghana bolts man at Baron. quietly
seerunioading atock, waking 27 trades £0 sell $62 @idlion worth of
inron shares.

While Skilling vas waiting for something to ters up for Enroe,
where vas Arthur Andersen LLP, ‘tnron's auditor? It felled to ask

probing questions about che byzantioe off-the-balence-sheet
partnerships with Irnoevous-sounding neses such a8 O8PFCY: Merlin
pee unitewing that Skiliieg snd his idekick, foreer chief financial
Riticec Andrew Pastow, used to disguise the parious state of the
Company. Fastow personally sade $30: ‘sillicn on the paxteership - *
Sontiies of interest. say Enron employees: -

And where, too, was the company’ * independent auditing comittes
hat to have bean asleep at che Twiten? Nervous federal
Tegelatore say there Ls plenty er blame to be spread. They

thee the US, financial and politica) eetablisheents have auch tO
answer for, either direct plsyers oF negligest observers.

een and far herwenn, & Rortune saqesine

ously EH the company sid note

Wedresday, January

Mie =,

2002

01300000000421


10K Wizard - SEC filings Page 31 of 83
to such injury. The

PART I. FINANCIAL INFORMATION - (CONTINUED)

ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
ENRON CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

defendants agreed on a fund for settlements or final awards. Numerous claima
have been settled and ten cases involving 18 plaintiffs were scheduled for trial
in the United States District Court beginning on December 10, 2001. Five of
these cases involving 11 plaintiffs have been resolved. No cases have yet been
scheduled fer trial in the Superior Court. Although no assurances can be given,
Enron believes that the ultimate resolution of these matters will not have a
material adverse effect on its financial position or results of operations.

Trojan Investment Recovery. In early 1993, PGE ceased commercial
operation of the Trojan nuclear power generating facility. The Oregon Public
Utility Commission (OPUC) granted PGE, through a general rate order, recovery
of, and a return on, 87 percent of its remaining investment in Trojan.

The OPUC's general rate order related to Trojan has been subject to
litigation in various state courte, including rulings by the Oregon Court of
Appeals and petitions to the Oregon Supreme Court filed by parties opposed to
the OPUC's order, including the Utility Reform Project(URP) and the Citizens
Utiléty Board (CUB).

In August 2000, PGE entered into agreements with the CUB and the staff of
the OPUC to settle the litigation related to PGE's recovery of its investment in
the Trojan plant. Under the agreements, the CUB agreed to withdraw from the
litigation and to support the settlement as the means to resolve the Trojan
litigation. The OPUC approved the accounting and ratemaking elements of the
settlement on September 29, 2000. As a result of these approvals, PGE's
investment in Trojan is no longer included in rates charged to customers, either
through a return on or a return of that investment. Collection of ongoing
decommissioning costs at Trojan is not affected by the settlement agreements or
the September 29, 2000 OpUC order. With the CUB's withdrawal, the URP is the one
remaining significant adverse party in the litigation. The URP has indicated
that it plans to continue to challenge the settlement and the original opuc
order allowing PGE recovery of and a return on its investment in Trojan.
Although no assurances can be given, Enron belie that the ultimate resolution
of these matters will not have a material adverse effect on its financial
position or results of operations.

Azurix Litigation. In October 2000, several class actions were filed
against Enron, Agurix and several of Enron's officers and directors, alleging
that some or #11 of the defendants violated section 10(b) and 20{a) of the
Securities Exchange Act of 1934 and Rule 10b-5 thereunder and Sections 11, 12
and 15 of the Securities Act of 1933. The plaintiffs alleged that defendants
made misrepresentations and omissions related to Azurix's performance between
June 9, 1399 and August &, 2000. The lawsuits were consolidated inte one lawsuit
in the United States District Court for the Southern District of Texas. The
Plaintiffs seek rescission and compensatory damages, expert fees and attorney's
fees. The defendants have moved to dismiss thie lawauit. Enron intends to
vigorously defend this lawsuit. Although no assurances can be given, Enron
believes that the ultimate resolution of these matters will not have a material
adverse effect on its financial position or results of operations.

Environmental Matters. Enron is subject to extensive federal, state and
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01300000000705


Nickoloff, Peter
—e——— eee

From: Carleton, Norman

Sent: Thursday, January 10, 2002 2:49 PM

To: Cetina, Jill; Bair, Sheita; Berardi, Steve; Bitsberger, Timothy; Eichner, Matthew; Gablondo,
Jose; Gross, Jared, Hammer, Viva; Lori Sanatamorena (E-mail); Nickoloff, Peter; Novey,
Michael; Pietrangeli, Fred; Roseboro, Brian; Schultheiss, Heidilynne; Whaley, Jean; Wiedman,
Mark

Subject: DJ: Enron Justice Probe Not Seen Reaching Into Bankruptcy Crt

January 10, 2002

Enron Justice Probe Not Seen Reaching Into Bankruptcy Crt

By PHYLLIS PLITCH

Of DOW JONES NEWSWIRES

NEW YORK -- Despite its apparent sweeping nature, the Justice Department's creation of a task
force to investigate Enron Corp. (ENE) isn't expected to have much of an impact on ongoing
bankruptcy proceedings.

Nor does the bankruptcy code offer a safe haven to senior executives who managed the company
before its historic Chapter 11 filing in December, the largest on record.

Late Wednesday, Enron confirmed it's the target of a criminal investigation. The probe, which is
expected to focus on possible accounting fraud, will be run by the Justice Department in coordination
with U.S. Attorneys from across the country, including New York City, San Francisco and Houston,
where Enron is headquartered.

Investors and employees lost billions in the collapse of Enron's core energy-trading operations amid
a crisis of confidence among shareholders and trading partners, and the case has spawned a slew of
shareholder lawsuits, as well as investigations by the Securities and Exchange Commission and the
Department of Labor.

There have been past bankruptcy cases where stays have been issued or injunctions entered that
protect current officers and directors from being sued during bankruptcy, if the court finds a civil
lawsuit would interfere with the ability to help the company reorganize, said attorney Matthew
Feldman.

“But that extension of an automatic stay or injunction would not apply under any circumstances that
would protect an officer being pursued by state or federal authorities," said Feldman, a bankruptcy
partner at Willkie Farr & Gallagher.

Similarly, the criminal probes are not seen undermining any continuing efforts by Enron and its
creditors to dispose of the failed energy company’s assets, he said.

Feldman represented another high profile bankruptcy filer that drew criminal scrutiny, Livent Inc., the
324

01300000000463


10K Wizard - SEC filings Page 45 of 83
accounting, but provide Enron with an economic hedge of an associated risk.

The maximum amount of time over which cash flow exposure in forecasted
transactions ie hedged, excluding hedges of variable interest rate risk on
existing financial instruments, is approximately 20 years. Derivative contracta
are entered into with counterparties who are equivalent to investment grade.
Accordingly, Enron does not anticipate any material impact to its financial
position or results of operations as a result of nonperformance by the third
parties on derivative instruments related to non-risk management business
activities.

In August 2001, the OPUC issued a general rate order that, among other
things, excluded all SFAS No. 133 mark-to-market valuations for Getermining net
variable power costs in setting PGE base rates. Thie action was further
supported by an accounting order issued by the OpuUC in June 2001 directing
deferral as a regulatory asset or liability under SPAS 71 the effects of SFAS
133 mark-to-market on contracts subject to regulation. As a result, subsequent
to August 2000, PGE began recording a regulatory et or regulatory liability
pursuant to SPAS 71 to fully offset the net effects of unrealized gains and
losses in earnings and OCI.

PGE's net after-tax amount expected to be reclassified from OCI and to be
fully offset by recording a regulatory asset or regulatory liability within the
next 12 months is approximately $5 million.

14. NEW ACCOUNTING PRONOUNCEMENTS

In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard No. 142, *Goodwill and Other
Intangible Assets" (SFAS No. 142). SFAS No. 142, which must be applied to fiscal
years beginning after December 15, 2001, modifies the accounting and reporting
of goodwill and intangible assets.

The pronouncement requires entities to discontinue the amortization of
goodwill, reallocate all existing goodwill among its reporting segments based on
criteria set by SPAS No. 142 and perform initial impairment tests by applying a
fair-value-based analyais on the goodwill in each reporting segment. Any
impairment at the initial adoption date shall be recognized as the effect of a
change in accounting principle. Subsequent to the initial adoption, goodwill
shall be tested for impairment annually or more frequently if circumstances
indicate a possible impairment.

42

PART I. PINANCIAL INFORMATION - (CONTINUED)

ITEM 1. FINANCIAL STATEMENTS - (CONCLUDED)
ENRON CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 02 1 1 1

Under SFAS No. 142, entities are required to determine the useful life of
other intangible iets and amortize the value over the useful life. If the
useful life is determined to be indefinite, no amortization will be recorded.
Por intangible assets recognized prior to the adoption of SFAS No. 142, the
useful life should be reassessed. Other intangible assets are required to be
tested for impairment in a manner similar to goodwill.

At September 30, 2001, Enron's goodwill related to consolidated entities
was approximately $3.5 billion. Additionally, unconsolidated equity affiliates
of Enron have approximately $1.9 billion of goodwill. Eetimated annual

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7 01300000000719


10K Wizard - SEC filings Page 30 of 83

PART I. PINANCIAL INFORMATION - (CONTINUED)

ITEM 1, FINANCIAL STATEMENTS - (CONTINUED)
. ENRON CORP. AND SUBSIDIARIES
NOTRS TO CONSOLIDATED FINANCIAL STATEMENTS

Dynegy is conditioned on the absence of any event after November 9, 2001 that
would have a material adverse effect on Enron. Pursuant to the merger agreement,
if Bnron's liabilities and expenses from and after November 9, 2001 associated
with all pending or threatened litigation matters, in the reasonable judgment of
Dynegy exceed, or are reasonably likely to exceed, $2 billion in the aggregate
(net of proceeds of insurance and litigation reserves reflected in Enron's
financial statements), the amount of such excess over $2 billion will be taken
inte account in determining whether a material adverse effect on Enron has
eccurred, and, in any event, if the amount of such excess exceeds, or is
reasonably likely to exceed, $1.5 billion, a material adverse effect on Enron
will be deemed to have occurred.

OTHER LITIGATION

Intratex. In 1995, a number of parties (the Plaintiffs) filed suit in
Harris County District Court in Houston, Texas, against Intratex Gas Company
{Intratex), Houston Pipe Line Company and Panhandle Gas Company (collectively,
the Enron Defendants), each of which is a wholly-owned subsidiary of Enron. The *
Plaintiffs were cither llers or royalty owners under numerous gas purchase
contracts with Intratex, many of which have terminated. Early in 1996, the case
severed by the Court into two mattera to be tried (or otherwise resolved)
arately. In the first matter, the Plaintiffs alleged that the Enron
Defendants committed fraud and negligent misrepresentation in connection with
the “Panhandle program,* a special marketing program established in the. early
2980s. This case was tried in October 1996 and resulted in a verdict for the
Enron Defendants. In the second matter, the Plaintiffs allege that the Enron
Defendants violated state regulatory requirements and certain gas purchase
contracts by failing to take the Plaintiffs’ gas ratably with other produce:
gas at certain times between 1978 and 1986. The trial court certified a clase
action with respect to ratability claims. On March 9, 2000, the Texas Supreme
Court ruled that the trial court's class certification was improper and remanded
the case to the trial court. The case was then severed again into two lawsuits
asserting two separate theories of recovery. The trial court granted summary
judgment in favor of the Enron Defendants in one of the lawsuits. The Plaintiffs
have appealed. The Enron Defendants deny the Plaintiffe' claims and have
asserted various affirmative defenses, including the statute of limitations. The
Bnron Defendants believe that they have strong legal and factual defenses, and
intend to vigorously contest the claims. Although no aseurances can be given,
Enron believes that the ultimate resolution of these matters will not have a
material adverse effect on its financial position or results of operations. 02096

San Juan Gag. On November 21, 1996, an explosion occurred in the Humberto
Vidal Building in San Juan, Puerto Rico. The explosion resulted in fatalities,
bodily injuries and damage to the building and surrounding property. San Juan
Gas Company, Inc. (San Juan Gas), an Enron affiliate, operated a propane/air
distribution system in the vicinity, but did not provide service to the
building. Enron, San Juan Gas, four affiliates and their insurance carriers were
named as defendants, along with several third parties, including The Puerto Rico
Aqueduct and Sewer Authority, Puerto Rico Telephone Company, Heath Consultants
Incorporated, Humberto Vidal, Inc. and their insurance carriers, in numerous
lawsuits filed in U.S. District Court for the District of Puerto Rico and the
Superior Court of Puerto Rico, These suits seek damages for wrongful death,
personal injury, business interruption and Property damage allegedly caused by
the explosion. After nearly four yeara without determining the cause of the
explosion, all parties agreed net to litigate further that issue, but to move
these suits toward settlements or trials to determine whether each plaintiff was
injured as a result of the explosion and, if so, the lawful damages attributable

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01300000000704


Nickoloff, Peter

From: Carleton, Norman
Sent: Thursday, January 10, 2002 11:55 AM
To: Bair, Shella; Berardi, Steve; Bitsberger, Timothy; Eichner, Matthew, Gabilondo, Jose; Gross,

Jared; Hammer, Viva; Lori Sanatamorena (E-mail); Nickoloff, Peter; Novey, Michael;
Pietrangeli, Fred; Roseboro, Brian; Schultheiss, Heidilynne; Whaley, Jean; Wiedman, Mark
Subject: DJ: Bush: Worried By Lost Pensions In Bankruptcies

January 10, 2002

Bush: Worried By Lost Pensions In Bankruptcies

WASHINGTON -- President George W. Bush said Thursday that he wants to see a thorough
investigation into the sudden collapse of Enron (ENE) and has ordered a review of the U.S. laws
governing pensions.

On other matters, Bush also warned Iran not to thwart U.S. efforts in the war on terrorism and he
specifically warned Tehran not to harbor “al-Qaida murderers."

Speaking in a hastily arranged event in the Oval Office, the president made his comments as the
political heat mounted over Enron's collapse. The company and its head, Kenneth Lay, have a record
of making large political contributions to Bush. Bush acknowledged this by calling Lay "a supporter"
Enron has also backed Democratic candidates.

Flanked by some of his top economic advisers, Bush said, "One of the things that we are deeply
concerned about is that there has been a wave of bankruptcies that have caused workers to lose
their pensions and that is deeply troubling to me.”

“So | have asked the secretary of treasury, secretary of labor, secretary of commerce to convene a
working group to analyze pension rules and regulations to look into the effects of the current law on
hard-working Americans," Bush said.

Specifically, Bush said the group will look at ways to prevent workers from losing their life savings if
their companies go belly up.

On top of this, Bush said he was asking the Treasury, the Federal Reserve, the Securities and
Exchange Commission and the Commodities Futures and Trading Commission to convene a working
group look at corporate disclosure rules and regulations.

Bush said he was ordering these actions “in light of the most recent bankruptcy, Enron,”

"There needs to be a full review" of the events at Enron, Bush added.

Bush said he was particulary disturbed by reports that workers at Enron who held Enron stock in their
401K plans were prevented from selling their shares as the company collapsed.

2

01300000000442


10K Wizard - SEC filings Page 78 of 83

associated with this obligation as a reduction of "Revenues" in the accompanying
consolidated income statement. However, the loss is offset as Enron recognizes
its share of Whitewing's earnings through "Equity in Earnings of Unconsolidated
AffiliateaTM in the accompanying consolidated income statement. As of September
30, 2001, the amount due Whitewing under euch derivative totaled approximately
$1.0 billion and is included in “Other Liabilities" in the accompanying
consolidated balance sheet. Such

6

PART I. FINANCIAL INFORMATION - (CONTINUED)

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
PINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
ENRON CORP. AND SUBSIDIARIES

amount has increased by approximately $600 million as a result of the decline in
Enron's common stock price subsequent to September 30, 2001 through November 16,
2001. Based on the subsequent decline in the Enron stock price through November
16, 2001, there would currently exist an approximate $700 million charge to
earnings due to the shortfall in the recovery of Enron's book investment. Enron
is currently evaluating the fair value of Whitewing's other assets mentioned
above in conjunction with the restructuring plan discussed above which will
impact the amount of any writedown of Enron's investment in Whitewing, possibly
as early as the fourth quarter.

Atlantic Water Trust. Atlantic Water Trust is an entity formed by Enron
and unrelated institutional investors, investing through an entity named Marlin
Water Trust (Marlin), for the purpose of acquiring and holding an interest in
Azurix Corp. laAzurix). The primary asset of Azurix is Wessex Water Services Ltd.
(Wessex), a regulated water utility in the UK. Atlantic Water Trust currently
owns 67% of Azurix, with Enron owning the remaining 334. Marlin was capitalized
with approximately $915 million in debt and $125 million in equity. The Marlin
debt is supported by the assets of Atlantic Water Trust and Enron's contingent
obligation to cause the sale of Enron equity to retire such obligations. In the
event that the sale of equity is not sufficient to retire such obligations,
Enron is liable for the shortfall.

Description of Trigger Events. Osprey and Marlin's debt obligations
contain certain "Note Trigger Events" to protect the note holders, including (i)
an Enron senior unsecured debt rating below investment grade by any of the three
major credit rating agencies concurrent with an Enron stock closing price of
$59.78 per share or below in the case of Osprey and $34.13 per share or below in
the case of Marlin; (ii) a cross default to Bnron senior obligations in excess
of $50 million and $100 million for Osprey and Marlin, respectively; and (iii)
the requirement that an amount sufficient to redeem the notes be deposited with
a trustee 120 days prior to maturity dates of January 15, 2003 and July 15, 2003
for Osprey and Marlin, respectively. As of November 16, 2001 the Enron stock
closing price was $9.00 per share. 02 144

In the event a Note Trigger Event was to occur, Enron has 21 days to file
a registration statement for the issuance of equity to repay the notes and such
registration statement has 90 days from the Note Trigger Event to become
effective. Any Enron registration statement filed cannot become effective until
Enron files ite restated audited consolidated financial statements which is not
expected until completion of the Special Committee investigation. In the event
that Enron does not file its registration statement or the registration
ement is not effective during the respective time requirements, Enron must
pursue a private placement of equity, if permitted. If Enron does not sell
equity in an amount sufficient to repay the notes, Enron is obligated to pay the
difference in cash.

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01300000000752



Nickoloff, Peter

From: Carieton, Norman

Sent: Wednesday, January 09, 2002 1:45 PM
To: Schultheiss, Heldilynne; Nickoloff, Peter
Subject: FW: CFTC Daily Newsclips 01/09/02

Articles on retail swaps study, Enron, and Paul O'Neill

——Original Message-—--

From: McCoy, Antoinette B. [mailto:amccoy@CFTC.gov)
Sent: Wednesday, January 09, 2002 10:45 AM
Subject: (CFIC Dally Newsctps 02/09/02

ys]

rene pet

01300000000403


10K Wizard - SEC filings Page 41 of 83
income taxes $ 717 $ (22) $ 13

Nine Months Ended
September 30, 2001 .

Unaffiliated revenues (a) : $83,859 $49,023 $1,692
Intersegment revenues (b) (555) 46

Total revenues $85,108

Income (loss) before interest,
minority interests and
income taxes $ 235 $ 9

Portland Global Broadband

(In Millions) General Assets Services a
Three Months Ended
September 30, 2001

“
Unaffiliated revenues (a) $ ag $ 422 $ (125)
Intersegment revenues (b) 1 2 -

Total revenues $ 905 $ 424 $ (125)

Income (loss) before interest,
minority interesta and

income taxes $ (17) $ (268) $ (387)

Nine Months Ended
September 30, 2001

Unaffiliated revenues (a) $2,367 $1,131 $ (25)
Intersegment revenues (b) 136 3 (1)

Total revenues

Income (loss) before interest,
minority interests and
income taxes $ 108 $ (278) $ (494)

38

PART I. PINANCIAL INFORMATION - (CONTINUED) 02 1 07

ITEM 1, FINANCIAL STATEMENTS - (CONTINUED)
ENRON CORP. AND SUBSIDIARIES

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01300000000715


10K Wizard - SEC filings Page 80 of 83
facilities.
CAPITALIZATION

Aa discussed above in "Liquidity, Capital Resources and Outlook,” since

September 30, 2001, Enron has borrowed from committed lines of credit and new
secured lines of credit and received an equity infusion

1

PART I. FINANCIAL INFORMATION - (CONTINUED)

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS ~ (CONTINUED)
ENRON CORP. AND SUBSIDIARIES

from Dynegy. These events have increased Enron's debt as a percentage of total

capitalization.

Total capitalization at September 30, 2001 was $25.9 billion. Debt as a
percentage of total capitalization increased to 50.2% at September 30, 2001 as rs
compared to 44.3% at December 31, 2000. The increase in the ratio reflects
increased debt levels, including the issuance in January 2001 of $1.25 billion
of notes payable and increased net short-term borrowings in 2001 and the
transactions with LUM discussed in Note 4 to the Consolidated Financial
Statements and the impact of the decline in value of certain foreign currencies.

PINANCIAL RISK MANAGEMENT

Enron's Wholesale segments, Americas and Europe and Other, offer price
risk management services primarily related to commodities associated with the
energy sector (natural gas, crude oil, natural gas liquids and electricity).
Enron's other businesses also enter into forwards, swaps and other contracts
primarily for the purpose of hedging the impact of market fluctuations on
assets, liabilities, production and other contractual commitments. Enron
utilizes value at risk measures that assume a one-day holding period and a 95%
confidence level.

Summarized below illustrates the value at risk for each component of
market risk (in millions):

02146

September 30, December 31,
2001 2000
Total Market Riek:
Commodity price $60 $ 66
Interest rate 1 -
Foreign currency exchange rate - -
Bquity s9 59
Non-Trading Market Risk:
Commodity price 5 2
Interest rate Tlad 2
Foreign currency exchange rate 3 a
Equity 2 7

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01300000000754


national politics has changed in the

and military nerve

i iye>

01300000000415



The question of whether Enron bought influence in Washington is not the only one facing the
administration. A separate investigation is being carried out by Senator Joseph Lieberman, chairman
of the government affairs committee, into the role of federal regulators. So far, the most
embarrassing revelation has been the role of Wendy Gramm, wife of Phil Gramm, a Texas senator,
who served as the chairman of the Commodities Future Trading Commission before joining Enron's
board of directors. While at the CFTC, she kick-started regulations that exempted some energy
trading from government oversight, a move backed by Enron. Mrs Gramm is now a member of the
auditing committee of Enron's board, which has come under scrutiny.

The announcement by Mr Bush on Thursday will only add to the pressure on Washington figures
such as Mrs Gramm whose ties to Enron are now proving embarrassing. So far, the Enron affair has
been far less awkward for the administration than Whitewater was for Mr Clinton. Nor is there any
sign that any Bush official had direct knowledge of, or involvement in, the financial mismanagement
of the company. But Texas, like Arkansas, has come to Washington.

01300000000484


2002 WL #330026
Inaight on the Bows
Copyright (e) 2002 ProQuest taformation and Learning; All Rights Reserved.

Copyright Washington Tice Corporation Jan 7. 2002

Monday, Janwary 7, 2002
Volume 28, Issue 1; ISSMy 1052-4809

SERS nortan

there's enough blame te go around for the collapse of the energy
giant; from executives to auditors to tinancial snalyste to

Congress.

Lawsuits, class actions and congressional and federal probes now
are under way to try te ascertain hew much of Bnron Coxpe collapse
was due to corsuption and how such vase the result of bad investwent

decisions and the recession. As tar as those who lost on the energy
{radar are concerned, the main question jay Who Anew whar and woes
about the financial shenanigans used to obscure Enron's $40
billion-plus debt,

There were fev naysayers ‘eround wean Enron Chief Executive Ofticer
(cho) Jeffrey Skilling bragged last sumer that the Houston-based
energy tsader vould "brrens fqaeet corparation tn the woeld.*
Eww ye = 4 anabyste, Banke vad
2 retical new ways of

ata allke
for the eleacicn

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Page 17

Wacnesday, Jane

01300000000420


10K Wizard - SEC filings Page 64 of 83

Operating expenses for Europe and Other increased $256 million in the
first nine months of 2001 as compared to the same period of 2000 and
Gepreciation and amortization increased $15 million primarily due to the
expansion into new markets and the growth of the European operations.

Equity in earnings in the first nine months of 2001 increased as compared
to the same period of 2000 primarily due to the earnings from an affiliate
formed in 2002 to hold Enron's investment in forest product-related ete.
Other, net in both 2001 and 2000 primarily consisted of interest income.

RETAIL SERVICES

Significant components of Retail Services’ results are as follows (in
millions):

Revenues $1,737 $1,269
Cost of sales 1,084 935

Grose margin 653 “z 334
Operating expenses . 474 284
Depreciation and amortization 29 27
Equity in losses and impairmente of NPW (104) (32)
Other, net 53 68

IBIT $ 99 3 73

Revenues increased $468 million in the first nine months of 2001 compared
to the same period in 2000 primarily as a result of long-term energy contracts
originated in 2001 and the growth of Retail Services’ Buropean operations. Grose
margin increased $319 million in the first nine months of 2001 compared to the
same period in 2000 due to long-term energy contracts originated in 2001 and the
monetization of interests in a merchant asset for a gain of $21 million.
Operating expenses increased $190 million primarily as a result of risk
management support service expenses in 2001 and higher employee and computer
system-related expenditures. Equity losses for both periods reflect Retail
Services’ portion of losses of NPW and in 2001 a charge of $58 million to reduce
the carrying value of its investment in NPW, Other, net in 2001 and 2000
consisted primarily of gains associated with Retail Services' monetization of a
portion of its interest in NPW.

58
PART I. FINANCIAL INFORMATION - (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF 02 1 30

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
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01300000000738


WS..com -- From the Archives Page | of 2

Article Search

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ROM THE ARCHIVES

THE WALL STREET JOURNAL ONLINE

CATCH TODAY'S COMMENTARY. | Quotes & Research
January 11, 2002 @ Symbol C Name
TO ~ | Market

[us a
Tsy: Fisher Spoke With Enron Pres 6-8 Times | advances am

Hel
Oct-Nov “ee
WSJ.com Audio:
Business Update By Deborah Lagomarsino Advertisements
M: Recap cS id Ac
WSJ on Audible Of DOW JONES NEWSWIRES >]
Learn More M.1.T. SLOAN
. WASHINGTON -- Treasury Undersecretary for Domestic Finance a

Tene ont ts Peter Fisher spoke with Enron President and Chief Operating Officer Recognizing

7 eo antan Lawrence Whalley six or eight times in late October and carly business
Headlines November and rebuffed Whalley’s request to "call the banks" at at a leadershi
Business Index time when Enron Corp. (ENE) was engaging in negotiations for an eadership
Search extension of credit, a Treasury spokeswoman said Friday. and

News Search .

Past Editions The disclosure from Treasury about Enron's conversations with Fisher innovation

Briefing Books comes a day after the White House revealed that top Enron executives

Quotes sought help from the administration last fall not long before collapsing

in what was the biggest-ever corporate bankruptcy.

Tools: .
hipesei “Following (Enron Chairman) Ken Lay's call to the Secretary, the

President of Enron called Undersecretary Fisher," said Treasury

ohie A Wirslans spokeswoman Michele Davis.

Business Box

Market Browser The White House said Thursday that Lay called Treasury Secretary
WSJ Yogi Paul O'Neill in late October. The Treasury also has said Lay called

O’Ncill again in early November and at that time likened Enron's woes _
Resources: to that of Long-Term Capital Management, a hedge fund that failed in Recognizing
Help the fall of 1998. business
New Features
Your Account Fisher, who headed the New York Federal Reserve's open-market teadership
Contact Us operations at the time of LTCM's failure, helped to organize a Wall and
WSJ.com Gifts Street bailout of the troubled hedge fund. .
Glossary innovation

Davis said Fisher's six or eight conversations with Enron's Whalley
were "informational," and stressed that Fisher's job is to "monitor
capital markets and monitor the effects of any major economic

Free Journal Sites: developments on the capital markets.”

CareerJournal
CollegaJournal Fisher rebuffed Whalley's request to “call the banks" at a time when r@) 1 9 3 3
Online Investing Enron was negotiating for an extension of credit from its bankers,

http://interactive.wsj.com/archive/retrieve@0.cgi?Keithton/text/autowire/data/BT-CO-200201 1 1-002994.djm..£ 1/11/02

01300000000541


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01300000000416


10K Wizard - SEC filings Page 75 of 83

mutually acceptable amendment or waiver to the transaction documenta in order to
avoid an early Enron payment obligation.

In the event Enron loses its investment grade credit rating and Enron's
stock price is below a specified price, a note trigger event would occur. This
could require Enron to repay, refinance or cash collateralize additional
facilities totaling $3.9 billion, which primarily consist of $2.4 billion of
Gebt in Osprey Trust (Osprey) and $915 million of debt in Marlin Water Trust
(Marlin). For a description of the Marlin and Osprey Trusts, both of which are
unconsolidated iliates, and related debt obligations, see "Unconsolidated
Equity Affilia' " below. In the event a Note Trigger Event occurs, Enron must
either issue equity in an amount sufficient to repay the notes or Enron is
obligated to pay the difference in cash.

In the event that Enron faile to pay any debt cbligations when due,
including when such obligations may be accelerated, or is unable to refinance or
obtain a waiver of such obligations, a series of events would begin which could
impact Enron's compliance with the terms of its Revolving Credit Agreements
certain other obligations, including bank debt facilities.

It ig not possible to predict whether any or all of the actions described
above (including the sale of non-core businesses and assets and the refinancing
or waiver of Enron obligations that may become immediately payable upon
acheduled maturities or due to an acceleration event) will be adequate to
maintain Enron's investment grade credit rating or enable Enron to refinance or -
otherwise restructure its debt obligations that become due. An adverse outcome
with respect to any of these matters would likely have a material adverse impact
on Enron's ability to continue as a going concern.

NEAR TERM MATURITIES OF DEBT AND OTHER SIGNIFICANT OBLIGATIONS. As
discussed above, a key aspect of Enron's restructuring plan is restructuring
scheduled maturities of debt and the obligations discussed below in
"Unconsolidated Equity Affiliates" and "Minority Interests." The following
summarizes the maturities of debt and these obligations by quarter through 2002
as of November 16, 2001 (in millions), assuming no accelerations as a result
of events of default:

67

PART I. FINANCIAL INFORMATION - (CONTINUED)

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
EWRON CORP. AND SUBSIDIARIES

Outstanding Balance Matu

Short-Term Debt $6,434 $6,564 (a) $2,140 (a) (b) $72 $2,
Long-Term Debt 6,544 7,782 - -
Unconsolidated

Equity

Affiliates (e) - 1,819 - -
Minority

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01300000000749


10K Wizard - SEC filings Page 69 of 83

Equity in earnings
Other, net

Loss before interest and taxes

In the third quarter of 2001, Broadband Services recorded charges
totaling $277 million due to the continued weak market conditions in the
broadband and communications sectors. The charges related to the content
services business ($160 million), costs associated with restructuring Broadband
Services' business ($83 million) and the write down of the value of certain
broadband-related long-lived ete and excess network equipment to fair value
less estimated costs to sell ($34 million). The amount related to the content
services business included the write-off of the value of Broadband Services’
investment in content services entities, the impairment of related assets and a
valuation adjustment on a derivative instrument associated with the content
systems business. The cumulative adjustments to the derivative instrument were
reflected in revenues resulting in negative revenues for 2001. Gross margin for
the nine months ended September 30, 2001 also reflects continued weaknesses in
market conditions which negatively impacted results of operations. Gross margin
for 2000 primarily reflects earnings from sales of excess dark fiber, an
increase in the market value of Broadband Services’ merchant investments and an
increase inrthe value of the derivative instrument associated with the content
systems business.

CORPORATE AND OTHER

Corporate and Other realized a loss before interest, minoriey interests
and taxes of $947 million in the first nine months of 2001 compared to a lose of
$154 million for the same period in 2000.

In September 2001, as a result of deterioration in the credit quality of
the Raptor SPEs caused by a decline NPW's stock price, the increase in Raptor's
exposure under derivative contracts with Enron and the increasing dilutive
effect on Enron's earnings per share calculation, Enron acquired, for
approximately $35 million, LJM's interests,in the Raptor SPEs which were created
in 2000 to hedge certain of Enron's merchant and other investments. See Notes 3
and 4 to the Consolidated Financial Statements. Enron recorded charges totaling
$710 million ($462 million after tax) related to the acquisition of the Raptor
SPEs and a charge of $48 million ($31 million after-tax} to write down Enron's
investment in NPW warrants acquired in connection with the termination of the
Raptor SPEs.

INTEREST AND RELATED CHARGES, NET

Interest and related charges, net, is reported net of interest
capitalized of $45 million and $28 million for the first nine months of 2001 and
2000, respectively. Net expense decreased $13 million in the first nine months

of 2001 as compared to the same period of 2000, primarily due to lower interest
rates resulting from general market conditions within the U.S.

62

PART I. PINANCIAL INFORMATION - (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF 02 1 35

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
ENRON CORP. AND SUBSIDIARIES

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01300000000743


10K Wizard - SEC filings Page 76 of 83

Intereste (f) 691 690 690(£) :

(a) Short-term debt includes $1,267 million related to Enron's zero coupon
convertible senior notes that mature in 2021. Of this amount, $94 million
is included a@ maturity in the fourth quarter of 2001 which reflects the
convertible redemption value of the notes at November 16, 2001 based on
Enron's then current stock price. The remaining amount has been included as
a maturity in the third quarter of 2002, assuming closing of the Dynegy
merger as currently structured, at which time the holder of the notes may
request Enron to repurchase the notes at issue price plus accrued original
issue discount through repurchase date.

(b) Includes $1,026 million of demand notes payable to unconsolidated equity
affiliates (including $616 million due to Whitewing, see (€) below) under
long-term revolving credit agreements for cash management purposes which
can be requested as needed by the unconsclidated equity affiliates.

(c) Includes $1.75 billion of amounts borrowed under the revolving credit
agreements.

(d) Includes $550 million borrowed under the new secured lines of credit
discussed above.

{e) As discussed in "Unconsolidated Equity Affiliates" below, in the event that
Enron has not repaid its obligations to Osprey and Marlin prior to their
respective maturity dates of January 15, 2003 and July 15, 2003, Enron is
required to deposit an amount sufficient to redeem the notes 120 days prior
to the maturity dates. As such, the $2.4 billion deposit requirement
related to the Osprey obligation less $616 million of demand notes due to
Whitewing included in short-term debt. has been reflected a scheduled
maturity in the third quarter of 2002.

o
(£) As discussed below in "Minority Interests," absent Bnron repaying the note,
posting collateral or obtaining a waiver from the lenders, a $690 million
note payable will become a demand obligation on Novenber 27, 2001.

As discussed in "Liquidity Actions" above, on November 19, 2001, Enron
closed a $450 million new secured line of credit which will mature in the fourth
quarter of 2002.

CASH LIQUIDITY. As reflected on its Consolidated Balance Sheet as of
September 30, 2001, Enron had $1.0 billion in cash and cash equivalents. Of this
amount, §656 million related to domestic cash managed by Enron's corporate
treasury department. At November 16, 2001, Bnron had $1.2 billion of domestic
cash managed by Corporate treasury. Cash inflows during this period primarily
consisted of net collections from business operations and trade settlements, the
borrowing from committed lines of credit, obtaining new secured lines of credit,
the equity infusion from Dynegy and receipt of collateral deposits from trading
partners. Cash outflows during this period primarily consisted of operating
costs of business operations and trade settlements, repaying expiring commercial
paper cbligations and maturing short~ and long-term debt and payment of
collateral deposits to trading partners.

CREDIT LINES. As a result of Enron's loss of investor confidence
discussed above, Enron exited the commercial paper market for its short-term
liquidity needs and borrowed under ite committed lines of credit (approximately
§3.0 billion) to repay outstanding and expiring commercial paper obligations of
approximately $1.9 billion and to provide additional cash liquidity. Of its $3.3
billion in committed credit lines, at November 16, 2001, Enron had unused

68

commercial paper lines of credit of $103 million.
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01300000000750


Nickoloff, Peter

From: Carleton, Norman
Sent: Thursday, January 10, 2002 12:07 PM
To: Bair, Sheila; Berardi, Steve; Bitsberger, Timothy; Eichner, Matthew; Gabilondo, Jose; Gross,

Jared; Hammer, Viva; Lori Sanatamorene (E-mail); Nickoloff, Peter; Novey, Michael,
Pietrangeli, Fred; Roseboro, Brian; Schultheiss, Heidilynne; Whaley, Jean, Wiedman, Mark
Subject: Bloomberg: Bush Task Force to Study Disclosure Rules After Enron

O10 11:16

Bush Task Force to Study Disclosure Rules After Enron (Update2)
By David Morris

Washington, Jan. 10 (Bloomberg) -- President George W. Bush said he ordered Treasury Secretary Paul O'Neill and other
officials to review the adequacy of corporate disclosure rules after Enron Corp.'s bankruptcy,

“In light of the most recent bankruptcy, Enron, there needs to be a full review of disclosure rules to make sure the
American stockholder, or any stockholder, is protected,” Bush said.

The review marks Bush's first official public act in response to Enron's financial collapse. Multiple investigations of
Houston- based Enron, including a criminal probe by the Justice Department, carry political risks for the president who was
close to Enron Chairman Kenneth Lay, a large contributor to Bush's political campaigns.

The White House released a letter Tuesday saying Enron representatives met with Vice President Dick Cheney's energy
task force six times in seven months last year to talk about energy policy.

Bush, the former Texas governor, said he hasn't talked with Lay about Enron’s financial troubles and most recently saw
the Enran chief last spring at a literacy fundraiser held by the president's mother, former First Lady Barbara Bush.

Nest Eggs

The disclosure-rule task force, including O'Neil and Cornmerce Secretary Donald Evans, should look into ways to protect
pensioners from losing their nest eggs if their employer goes out of business, Bush said.

Enron, which was the biggest energy trader, said on Nov. 8 that profits had been inflated by $585 million since 1997
because of accounting errors. After the restatement, Enron shares plunged about 99 percent, to as little as 25 cents,
before the company on Dec. 2 filed the biggest U.S, bankruptcy case ever.

Enron's restatement involved transactions with partnerships and affiliates, some of which were set up by Enron officials.
The Securities and Exchange Commission is investigating whether Enron adequately disclosed information about
partnerships and affiliates, and whether its auditor, Arthur Andersen, acted property in its reviews of Enron's books.

The Justice Department yesterday said it had established a task force of prosecutors to conduct a criminal investigation of
the events surrounding Enron's collapse. Six congressional committees are conducting investigations of Enron's fall and
the impact on 401(k) retirement accounts, which held much of employees’ retirement savings in Enron stock,

Former CEO

Some of the investigative focus is on what former Enron Chief Executive Officer Jeffrey Skilling knew about partnerships
that allowed Enron to shift debt off the company books. Skilling has denied having detailed knowledge of the partnerships.

Skilling's spokeswoman Judy Leon said today the former Enron CEO would cooperate fully with the Justice Department
probe and “welcomes any inquiry aimed at clearing the air and finding out what really happened at Enron.”

Leon sald Skilling already had cooperated with inquiries by the SEC and Congress. “When the facts are in, we expect he
will be vindicated,” Leon said.

01300000000445


Nickoloff, Peter

From: Carleton, Norman
Sent: Thursday, January 10,2002 12:33 PM
To: Ceting, Jill; Sharer, James; Corfield, Anna; Bair, Sheila; Berardi, Steve; Bitsberger, Timothy;

Eichner, Matthew, Gabilondo, Jose; Gross, Jared; Hammer, Viva; Lori Sanatamorena (E-
mail); Nickoloff, Peter; Novey, Michael; Pietrangeli, Fred; Roseboro, Brian; Schultheiss,
Heidilynne; Whaley, Jean; Wiedman, Mark

Subject: Economist: Rites of passage - With Enron and Argentina, credit derivatives pass an important

Credit derivatives

Rites of passage

Jan 10t 2002
From The Econormést print eclition

With Enron and Argentina, credit derivatives pass an important test

ARGENTINA'S debt default and the collapse of Enron, America’s biggest bankruptcy, are together offering
the greatest test yet faced by dealers in the still young market for credit derivatives, These are
Instruments that allow lenders to pass on to others the risk that borrowers will default-in return for a fee.
Billions of dollars of credit-default swaps, one class of such derivatives, were written on Enron and on
Argentina. Here is @ chance, people who deal in credit derivatives think, to prove their Products’ worth.

In the early days, just a few years ago, the joke among traders at investment banks was that the busiest
Person on a credit-derivatives desk was the lawyer. In all too many cases, buyers of credit-derivative
Protection found that their interpretation of a contract differed vitally from that of the firm which had sold
it. Legal wrangles ensued, harming the young product's reputation. Yet so far, to the relief of the six or so
investment banks that dominate the market, there is no sign of trouble over the settlement of credit-
default swaps written on Enron.

Argentina might be more of a problem. In November, the government announced a restructuring of its
local debt on terms more favourable to itself. Some buyers of default protection on foreign-held debt
believe that, although the restructuring was described as voluntary, It met their contracts' definition of a
“credit event”, meaning that they should receive the debt's full face value. One hedge fund in New York,
whose default swap expired soon after the restructuring, plans to sue J.P. Morgan Chase, one of the banks
most active in the market for credit derivatives, for rejecting their interpretation. But most owners of
credit-default swaps are now clearly entitled to their money, after Adolfo Rodriguez Saa, briefly president
of Argentina, announced in December that the country would stop paying interest on its foreign debt.

Even so, dealers and hedge funds are quarrelling over whether two particular government bonds, maturing
in 2018 and 2031, are covered by the default protection, The argument springs from the fact that these
bonds were issued as part of a debt exchange by the Argentine government last June, Some sellers of
Protection fear that, because of this, the bonds may be treated less favourably than other government
debt in any future workout. Goldman Sachs and other credit-derivative dealers would prefer not to accept
these bonds-although they are reluctantly doing so. Ron Tanemura, the firm's head of credit derivatives,
says that there is a grey area, but that Goldman will fall into line with market consensus, once there is
one,

Disputes are thus still breaking out in the market, But dealers in credit derivatives have lately been keen
to make their products more reliable. When lawyers were called in by buyers and sellers of protection on
Railtrack, the owner of Britain's rail network that was forced into administration last year, they quickly

n6

01300000000455


discusses any interest in these instruments on the part
Of the retail public; it simply surveys select entities im
terested in offering them to the public. ond)

The Hill January 9, 2002 Wednesday

—————
Copyright 2002 Capitol Hill Publishing Corp.
The Hill

January 9, 2002 Wednesday

SECTION: Pg. 1

_HEADLINE: Corzine calls far-peabe.ot Enea foiure——_—_—

BYLINE: By Alexander Bolton

BODY:

Sen, Jon Corzine (D-N.2) said Monday he will urge the chairman of the Senate Banking
Committee to launch hearings on the collapse of the Enron Corp., and warned that failure to
do so would amount to a dereliction of the panel's oversight responsibility.

Even though five other congressional committees are investigating the bankrupt Houston-
based energy-trading giant, the Banking Committee so far has declined to take action.

Meanwhile, the Banking Committee's counterpart in the House, the Financial Services
Committee, has already heard testimony from Enron's auditor, Arthur Andersen LLP, and has
asked Enron CEO Kenneth Lay to appear before it. The Senate committee, which has primary
jurisdiction over the Securities and Exchange Commission (SEC) and accounting practices -
the two areas that are at the center of the controversial case - would have more justification
than other Senate panels in conducting an investigation of the largest corporate bankruptcy
in American history.

Senate sources suggested that Chairman Paul Sarbanes (O-Md.) is holding back because his
panel's ranking member, Phil Gramm (R-Texas), is married to Wendy Lee Gramm, who sits
‘on Enron's board of directors and is chairwoman of the board's audit committee.

Also, any investigation of Enron and the SEC oversight of its trading activities could quickly
turn to focus on the role Sen. Gramm allegedly played to shield Enron from government
regulation.

However, Corzine, a former co-chairman and co-CEO of Wall Street investment company
Goldman Sachs who is well acquainted with the intricacies of corporate finance, says
Gramm’s connections to Enron should not deter the Banking Committee from taking action.

“L have complete confidence in the ability of Phil Gramm to arrive at his own views:
independent of his wife's position on the board,” Corzine, who is a member of the committee,
told The Hill.

But he added, "I think it would be @ conflict if we didn't [look into this] because of that
situation. Not to perform oversight function on a legitimate issue strikes me as strete!
logic.” “Rowe ?

Wednesday, January 9, 2002 Page 7

01300000000410


Page 10 of 11

‘So, we have an advantage. It is not often you get a distinctive advantage and we are going to be working hard to keep that advantage for a long
time into the future,

DOBBS: Now in the -—- in terms of the addition of new customers, some analysts are a little disappointed by a relatively small shortfall in new
customers and in the third quarter. What's the fourth quarter look like for you?

ESREY: We haven't announced fourth quarter. Actually, we had a huge gain -- gain in the third quarter, We surprised people on the upside.

Fourth quarter we will be announcing in a few days, and as you know, under the rules of the SEC, I'll have wait ‘til then to make the
announcement.

DOBBS: Ob, | was just talking about the sign-ups of new customers. | wasn't talking about earnings, Bill.
ESREY: Well, that's one that is akin to the other.

DOBBS: Your stock, like the stocks of so many companies, in particular, telecom companies, languishing here, Tremendous overcapacity in
telecom in general. How long is it going to take to you work through the period’?

ESREY: It's been a tough time for the whole industry. | think it 5 going to be sometime particularly on the wire line side. On the wircless side
there isn't that. There's lot of competitors but there really isn't overcapacity.

I think most of the wireless companies are struggling to keep up with the demand of the marketplace. But on the wireline side there is a lot of
capacity, it is already being absorbed, but it is not going to go away tomorrow.

DOBBS: OK, Bill Esrey, congratulations, thanks for being here and good luck in managing through what | know will be another tough year.
‘Thanks.

ESREY: Thanks, Lou.
DOBBS: Bill Esrey.

Just abead, we will take a look at your thoughts, including an answer to a question troubling many investors: Is this market overvalued? Stay
with us.

(COMMERCIAL BREAK)

DOBBS; Now taking a look at your thoughts. Jim Davies writing in from Mexico says: “When I accentuate the positive, I'm doing viewers a
disservice." His beef? That we are ignoring the high valuation of the market.

Jim writes: "The P/E level of the markets now is about double the historical norm This might he understandable if we are in a boom economy,
but we are not. We are still trying to find our way back from an incredible equity bubble, yet irrational exuberance remains in tact.”

Based on the latest quarter, on an as-reported basis, it's trac. The S&P 500 is trading around 40 times earnings, that’s more than double the long
term average. But simply putting those numbers side-by-side distorts the whole picture. As Professor Jeremy Siegel, professor of finance at the
Wharton School points out, the historical average is skewed by very bad episodes im the econarmy, like double-digit inflation and severe
recessions. And That pulled valuations down.

‘The professor's conclusion, you cannot use today's recessionary eamings when determining the future profit potential of companies. They're
simply not out of line, he says, with the favorable economic conditions being built now.

Gordon Travis in Kalamazoo, Michigan writes in to say an economic stimulus package will only serve to stimulate the economies of other
countries, saying, “isn't there something we can do to boost our own manufacturing sector? I am a displaced steel worker and it is painful to see
the influx of foreign goods flooding our markets.”

Buy American means more now than ever before, and unfortunately, Gordon, you have analyzed the situation precisely as it is. The
manufacturing sector dwindling to its smallest level ever.

On to the government's special fund set up to help the families of those killed on September 11 and the growing outrage that we're receiving as
what's being viewed by some as apparent greed by some a few of those families.

Barb Harris writes in to say, "I don't want to minimize the tragedy of that day, but tell me, how much the survivors families in Oklahoma City
received."

Will Simpson im New York, writing in to say, "While our hearts are broken, and the loss of so many is a national tragedy, we have lost our
perspective, Such a major commitment to create a special class of victims to be supported by the federal government is unsound and ill-
conceived."

vi7e2 01888


““The second call, Ken called me to tell me they were in
discussions with Dynergy and it was an information-only call.
Subsequently, (Commerce Secretary) Don Bvans called me to say he'd
had a call and that Xen had told him that rating agencies were
looking at them and there wae real concern if the rating agencies
downgraded them that that could effectively scupper the deal with
Dynergy,'' he said.

On what he did following the call:

*“I subsequently asked (Fisher) to speak with the Enron
people, which he did, so that we could satisfy ourselves that the
Enron affairs were not going to have a negative impact on U.S.
capital markets,'' O'Neill told CNBC.

On whether he thinks ethics rules were broken:

“"“I thought it was business as usual,'' he told CNBC. ““I get
calls every day from the big players in the world. Enron was the
biggest trader of energy in the world. So I was not surprised at
all that I would get a call saying we've got a problem over here
and you should know about it.'*

On whether he was he asked by Ken Lay for a government bailout:
““aAbsolutely not,‘' he told CNBC. ““One of things I enjoy
about Treasury is I don't have a lot of giveaway programs so if he
wanted a giveaway from the government he sure wouldn't have called
me. I don't know if one were inclined to make bailouts why there

would be a bailout for a company that's gotten itself into
trouble. If you want to look at recent Chapter 11 filings or
Chapter seven filings you can look at Bethlehem Steel and Sunbeam
and they don't call the government for a bailout. I ran a Fortune
50 company, it never would have occurred to me to call the
government for a bailout if I got my company in trouble.''

On what President George W. Bush has asked him to do today:

““The president tasked me to one, head a committee that
includes Don Evans and (Labor Secretary) Elaine Chao to look at
the Enron case and other bankruptcy cases to pay special attention
to the question of whether we need to amend the rules that govern
pension plans and 401k plans to provide a greater deal of
aasurance to individuals who have a stake in pension plans and
401k plans,'' he told CNN. ““That is driven by the president's
concern about the individual employees. The president said to me
we need to see if there ia something we need to do so that we
learn from this. If there is a weakness in our rules let's fix the
rules.''

““and the second committee the president asked me to convene
is one that's a standing committee, the president's economic
committee. That includes myself and Alan Greenspan, the head of
(the Commodities Futures Trading Commission) and Harvey Pitt of
the SEC. The charge the president's given us is to look at the
Enron case and other cases and see if we need to adjust the
disclosure rules #o that shareholders and employees have all the
information they need to make intelligent decisions. This is not
about Enron, this is about making sure the rules that govern the
way our economic system works are worthy of the conditions that
we're dealing with these days to assure that individuals are not
hurt because of a weakness in our rules.''

--Simon Kennedy in the Washington newsroom (202) 624-1834, or at
skennedy4@bloomberg.net /jo

Story illustration: For graph of Enron's atock price, type:
{ENE US <Equity> OPO D <Go>}

ENE US <Equity> CN
£7]

01300000000480


Page 3 of 11

DOBBS: Congressman Tauzin's committee, staff conumittee.
CHERNOFF: Precisely.

DOBBS: Committee staff rather was informed, and then care the statement and the disclosure from Andersen. Now the statement from
Andersen, Allan, is intriguing for a number of reasons. And Id like to read, and I apologize to our audience for not having this up on the
screen.

‘Bur the firm says, “individuals in the firm involved with the Enron engagement disposed of 2 significant but undetermined number of
electronic and paper documents.” This appears at least to me to be the suggestion that there's some separation between the individuals of the
firm and the firm itself, which is unique amongst professional services firms.

CHERNOFF: Yes, And, Lou, the people from the House Commerce and Energy Committee are saying that the deletions of these documents
occurred in September, October and November when there already was some heat on Enron.

DOBBS: And the firm, the audit firm of Enron, Andersen, has retained former U.S. Senator John Danforth, as you know, to conduct an
immediate and comprehensive review of Andersen's record management policy. But it goes on here to say that they're also looking to him to
look for what they termed, "remedial and disciplinary actions within the firm". You're take on what that would mean?

CHERNOFF; Well, clearly they're looking for some people to blame. We don't know the full story just yet. And the investigators from the
House committee are actually planning to meet with the partner in charge of the audit of Enron next Wednesday.

DOBBS: And the next steps in Washington, in terms of Capitol Hill?

CHERNOFF: We have got a lot of investigations ongoing right now, at least four, five separate investigations on Capitol Hill. And we have got
also the Treasury secretary leading a number of policy reviews under direction of the president.

DOBBS: And, of course, 2 bankruptcy proceeding about to get underway in New York City, undetermined as yet as to whether it will be in
Houston, which is the desire of many of the creditors, of New York City. What is the latest there?

CHERNOFF; That is still being battled. And today, there was a mecting, in fact, reviewing bids for energy, for the Enron trading business. The
judge, Arthur Gonzalez, tomorrow in bankruptcy court may actually approve one of the bids for that business.

DOBBS: And Dynegy (Company: Dynegy Inc.; Ticker: DYN; URL: bttp./www.dynegy.com), the punitive white knight for Encon inthe
carly stages and later a litigant against Enron, reaching a settlement on the pipeline. Where does that stand!

CHERNOFF: Right. They have actually gone ahead. They're going to be able to go abead and purchase the pipeline business from Baron that
they wanted.

DOBBS: OK. Allan, thank you, Allan Cheroff following this story as are we all and appreciate your diligence on it, Thank you.

‘Well, a reminder once again, we will have much more on this developing story tonight. We will be talking with Treasury Secretary Paul
O'Neill about this and a sumber of other issues as well.

‘We want to turn now to the war against terrorism, and report to you that the first wave of al Qaeda and Taliban prisoners have been flown out
of Kandahar. But despite an extremely high level of security, gunfire was beard, flares were seen, as the C-17 transport aircraft sped down the
runway. That aircraft took off without incident, No U.S, servicepeople were injured. A Marine spokesman says some people penetrated the
outer perimeter. They were not identified, but presumably they're al Qaeda or Taliban, but they are no longer there after some search for them
by the military.

‘Twenty al Qaeda and Taliban prisoners are being flown to the U.S. naval base as expected, Guantanamo Bay Cuba their destination. That
journey covers about ,000 miles and is expected to take about 20 hours to camplete.

Our Bill Hemmer is at Kandahar airport tonight, and he heard a tracer fire while the transport plane was taking off. He joins us now from
Kandahar. Bill, if 1 may, I'd like to start with the Pentagon, which is now saying the gunfire that took place as the plane took off, that it actually
took place later and that it was not directed at the aircraft. You were an eyewitness, What can you tell us?

BILL HEMMER, CNN CORRESPONDENT: Lou, we got those reports again when they came out about 35 minutes ago. This is what we saw.
We saw the C-17 taxting toward the runway. There was tracer fire then shot up at the north end of the runway on the far side, And again, as the
C-17 tumed around and started heading down that runway, tracer fire was seen again.

Here is the confusion and here is why this is significant, Why was the tracer fire ignited at that time? Did they perceive shots or were they

simply responding to sensors that may have been tripped on the perimeter? The C-17, as you mentioned, Lou, took off without incident, But
about 15 minutes after that, there was significant red tracers crisscrossing the runway here. And we also heard several M-16s break out in a

ition 01881

01300000000489


10K Wizard - SEC filings Page 70 of 83
INCOME TAX EXPENSE

Income taxes decreased during the first three quarters of 2001 as
compared with ¢) me period of 2000 primarily as a result of pretax losses
related to the jet impairments recorded by Azurix Corp., the restructuring of
Broadband Services and the losses associated with the Raptor SPEa. The projected
effective tax rate for 2001 is lower than the statutory rate mainly due to
differences between the book and tax basis of certain assets and stock sales.

Enron recorded tax benefits in shareholders’ equity related to stock
options exercised by employees of approximately $174 million in the first nine
months of 2001.

CUMULATIVE EPFECT OF ACCOUNTING CHANGES

On January 1, 2001, Enron recognized an after-tax non-cash gain of $19
million in earnings and deferred an after-tax non-cash gain of $25 million in
“Accumulated Other Comprehensive Income," a component of shareholders’ equity,
and reclassified $277 million from "Long-Term Debt" to "Other Liabilities" to
reflect the initial adoption of Statement of Financial Accounting Standard No.
133, “Accounting for Derivative Instruments and Hedging Activities" (SFAS No.
133). SPAS No, 133 must be applied to all derivative instruments and requires
that such instruments be recorded in the balance sheet either as an asset or a
liability measured at its fair value through earnings, with special accounting
permitted for certain qualifying hedges.

NEW ACCOUNTING PRONOUNCEMENTS

« In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard No. 142, "Goodwill and Other
Intangible Assets" {SPAS No. 142). SPAS No. 142, which must be applied to fiscal
years beginning after December 15, 2001, modifies the accounting and reporting
of goodwill and intangible assets.

The pronouncement requires entities to discontinue the amortization of
goodwill, reallocate all existing goodwill among its reporting segments based on
criteria set by SFAS No. 142 and perform initial impairment tests by applying a
fair-value-based analysis on the goodwill in each reporting segment. Any
impairment at the initial adoption date shall be recognized as the effect of a
change in accounting principle. Subsequent to the initial adoption, goodwill
shall be tested for impairment annually or more frequently if circumstances
indicate a possible impairment.

Under SPAS No. 142, entities are required to determine the useful life of
other intangible assets and amortize the value over the useful life. If the
useful life is determined to be indefinite, no amortization will be recorded.
Por intangible ts recognized prior to the adoption of SFAS No. 142, the
useful life should be reassessed. Other intangible assets are required to be
tested for impairment in a manner similar to goodwill.

At September 30, 2001, Enron's goodwill related to consolidated entities
was approximately $3.5 billion. Additionally, unconsolidated equity affiliates
of Enron have an additional approximately $1.9 billion of goodwill. Estimated
annual amortization of such goodwill is approximately $195 million, of which
approximately $65 million relates to unconsolidated equity affiliates. Enron is
in the process of evaluating the application of SFAS No. 142 in light of the

recent events discussed above. 02 1 36

In August 2001, the FASB issued SPAS 143, "Accounting for Asset
Retirement Obligations." SPAS No, 143, which must be applied to fiscal years
beginning after June 15, 2002, addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
the jociated asset retirement costs. Enron is in the process of evaluating
the impact of SFAS No. 143 on the financial statemente.

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Page 8 of 11

DOBBS: Mr. Secretary, at this point, the SEC has an investigation, the Justice Departrnent, the Labor Department, is there a significant and
large role for the Treasury Department in the investigation of Enron here?

O'NEILL: No, I don't think so at all. Today the president asked me to do two different things, onc, to head a committee that includes Don
Evans, the secretary of commerce, and Elaine Chao at the Labor Department, to look at the Enron case and to other bankruptcy cases, to pay
special attention to the question of whether we need to amend the rules that govern pension plans and 401(k) plans to provide a greater degree
of assurance to the individuals who have a stake in pension plans and 401(k) plans, And this is driven by the president's concern about the
individual employees,

He's seen stories on television about people who lost all of the money that they had accumulated in 401(k) plans, that represented their life
savings. And the president said to me, we need to see if there's something we need to do. This is really a -- this is a tragic circumstance for
these individuals. And so you should have a commuttee, include Elaine Chao because of her Labor Department responsibility, and Don Evans,
and let's see if there’s something we need to do so that we learn from this, If there is a weakness in our rules, let's fix the rules,

And the second committee the president asked me to convene is a standing committee, that's the president's economic committee. It includes
myself, and Alan Greenspan, the bead the Commodities Future Trading Corporation, and Harvey Pitt at the SEC. And the charge the president
has given us there is to look at the Enron case and other cases and see if in this ever more complicated world we need to adjust the disclosure
tules so that sharcholders, employees, have all the information that they need to make intelligent ¢ decisions.

So this is not about Enron. This is about making sure that the rules and regulations that govern the way our cconomic system works are worthy:
of the conditions that we're dealing with these days to assure first and foremost that individuals are not hurt because of a weakness in the rules.

DOBBS: Mr. Secretary, you are certainly taking the long view when you say this is not about Enron and I understand I believe the implications
to what you're saying, but for the foreseeable future, it will definitely be about Enron in the way in which thousands of employees lost their 401
(k)s, pensions, bond funds, and the investors in them lost a considerable amount of money, And so would you rate this as a significant and
large task you have to assure protection for investors and employees in the years abead?

O'NEILL: Well, I don't know. I think I was asked this question earlier today and I said this, 'm one who believes before you do prescription,
you do analysis.

DOBBS: Right.

O'NEILL: If you think about this in # medical metaphor, you wouldn't want the doctor to start cutting your arms and legs off before he figured
out what was wrong with you. And so | don't know what we should do. I have a clear idea what the president asked me to do and we will do it.

DOBBS; Mr, Secretary, I have no doubt, We want to go to your colleague in the cabinet immediately after this short break, We're going to be
talking with Commerce Secretary Don Evans next. Stay with us.

(COMMERCIAL BREAK)

DOBBS: The world of money laundering, corruption and the role played by big corporations is the subject of a new novel by Stephen Cannell
and Shane Sculley, A character that Stephen Cannell created is one of my very favorites, so it is good to have you here.

STEPHEN CANNELL, AUTHOR, "THE VIKING FUNERAL": Nice to be here,

DOBBS; Some of our audience may be wondering why you and I are talking about this. And the reason is, one of the earliest questions I was
asked, as matter of fact, in the state of Texas, after September 11, if we're being so successful in this war on terrorism, why in the world weren't
we so successful in the war against drugs? Your book begins to suggest some answers to that.

CANNELL: Yeah, | think we're being very lazy about some aspects of law enforcement, and if we don't prosecute these cases, you know, we
aren't going to be able to shut down a good portion of the drug business.

You know that interdiction takes about 10 percent of what comes across the border, our best guess.

DOBBS: Our best guess.

CANNELL; So, what does that tell us? That means that if we are going to hit these guys, way you are gomg to hit them is by getting their
laundries. And if you don’t shut these laundries down then they continue to profit from their drug business and they continue to set-up new
businesses and expand.

And we have in our grasp here, I think, the opportunity to shut down some of these big laundries.

DOBBS: How much time did you spend researching the book?

CANNELL: Quite a bit. I started with some custom officials. Worked very closely with a guy named Bill Gately (ph) , who was the ASACK in

117/02 01886

01300000000494


10K Wizard - SEC filings Page 82 of 83
pipeline and other infrastructure projects. :

73

PART Il. OTHER INFORMATION
ENRON CORP. AND SUBSIDIARIES

ITEM 1. Legal Proceedings

See Part I. Item 1, Note 6 to Consolidated Financial Statements entitled
"Litigation and Other Contingencies," which is incorporated herein by reference.

ITEM 6. Exhibits and Reports on Form 8-K
ta) Exhibits.

Exhibit 10 Amendment No. 3 to Employment Agreement between Enron Corp.
and Kenneth L. Lay effective August 13, 2001.

{b) Reports on Form 8-K

Current Report on Form 8-K filed November 8, 2001, containing information
concerning (i) requirement of prior year financial statements to be restated,
(ii) the Special Committee appointed by Enron's Board of Directors to review
transactions between Enron and related parties and (iii) transactions between
Enron and other Enron employees.

Current Report on Form 8-K filed November 13, 2001, containing
information concerning credit facility commitment letters for Transwestern
Pipeline Company and Northern Natural Gas Company.

Current Report on Form 8-K filed November 14, 2001, containing
information concerning the proposed merger between Enron Corp. and Dynegy Inc.

7”

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

(megistranc) 02148

Date: November 19, 2001 By: Richard A. Causey

Richard A. Causey
Executive Vice President and Chief

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10K Wizard - SEC filings Page 11 of 83

scheduled maturities of debt and other obligations; (v) completing the
investigation by the Special Committee and its advisors with respect to related
party transactions; (vi) reviewing and strengthening Enron's corporate
governance; and (vii) expanding certain disclosures with a focus on increased
transparency. Management and the Board have not completed nor approved a
restructuring plan. Such restructuring plan is currently being prepared and,
therefore, Enron is unable to estimate the timing of implementation or the
financial impacts, Enron's fourth quarter 2001 results of operations will likely
be negatively impacted by severance, reatructuring and other charges resulting
from the repositioning of many of Enron's businesses.

In order to focus on Enron's core businesses and rationalize their cost
structure, management is in the process of dividing Enron into three fundamental
groups of businesses - Core, Non-Core and Under Review. Pollowing is a
description of each group of busine:

© Core Businesses are the consistent franchise businesses for which
Enron has a distinct competitive advantage. These businesses,
collectively, generate significant earnings and cash flows. These
businesses include:

© Gas and power businesses in North America and Europe;
© Coal businesses in North America and Europe;

© Retail businesses in North America and Burope; and

© Natural gas pipeline businesses.

© Non-Core businesses are businesses that do not provide value to
Enron's core busine: : These primarily are part of Enron's global
assets and broadband services segments. Enron has approximately $8
billion

10

PART I. FINANCIAL INFORMATION - (CONTINUED)

ITEM 1. PINANCIAL STATEMENTS - (CONTINUED)
ENRON CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

invested in these busines and the return from these investments is
below acceptable rates. Accordingly, Enron is developing a plan to
exit these businesses in an orderly fashion. Enron expects that the
sale of these non-core businesses will generate cash proceeds that
will be used to repay debt. Should the exit strategy, currently being
prepared, result in a lower value than Enron's current carrying value,
then Enron may be required te record related et writedowns,
possibly as early ae the fourth quarter of 20:

© Businesses Under Review are buginesses that Bnron believes have strong
future prospects; however, under the restructuring program, Enron is
in the process of looking closely at the capital requirements and
near-term growth prospects of these businesses. These businesses are
primarily Enron's wholesale businesses outside of power and gas, which
include both energy-related and industrial markets activities. The
in-depth assessment of each of these businesses will be completed very
quickly to determine the resources Enron intends to expend in these

_ 02077

impact of Recent Events. The recent deterioration in Enron's credit
rating and decline in its stock price has caused a negative impact on Enron's
projected 2001 fourth quarter profitability. This ig primarily the result of a
reduced level of transaction activity by Enron's trading counterparties,

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10K Wizard - SEC filings Page 15 of 83
employment contract with Enron, with respect to the merger with Dynegy.

SBC INVESTIGATION. On October 17, 2001, the SEC requested that Enron
voluntarily provide information regarding certain related Party transactions. on
October 31, 2001, the sec opened a formal investigation-of the matters that were
the subject of recent press reports and that were previously the subject of the
SEC informal inquiry. Bnron is cooperating fully with the SEC relative to ite
investigation, Enron cannot predict the term of the SEC investigation or its
potential outcome.

SPECIAL COMMITTEE. Based on various reporte and information concerning
Enron's transactions with certain related parties, on October 31, 2001 the Board
elected William K. Powers Jr., Dean of the University of Texas School of Law, to
the Board, and appointed Dean Powers as Chairman of a newly formed Special
Committee. The Special Committee is responsible for conducting an independent
investigation and review of transactions between Enron and certain related
parties. The Special Committee also was charged with taking any disciplinary
action that it deems appropriate, communicating with the SEC and recommending to
the Board any other appropriate actions. The other members of the Special
Committee are independent directors Frank Savage, CBO of Savage Holdings LLC,
Paulo Ferraz Pereira, Executive Vice President of investment bank Group Bozano,
and Herbert §. Winokur, Jr., Chairman and CEO of Capricorn Holdings, Inc.

The Special Committee has retained the law firm of Wilmer, Cutler &
Pickering (Wilmer, Cutler) as its counsel. The firm's representation is led by
William R. McLucas, former Director of the Division of Enforcement of the SEC.
Wilmer, Cutler has retained Deloitte & Touche LLP to provide related accounting
advice to the law firm. The Special Committee began ita review on October 26,
2001:The review will include an analysis of both the underlying substance and
business purposes of the transactions, as well as an analysis of their financial
impact on Enron and, to the extent information is available, on the related
parties. The duration of the Special Committee's review, and the ultimate
results of that review, have not yet been determined. Accordingly, Enron cannot
predict the ultimate results of the Special Committee investigation and the
related impact on Enron's reported Consolidated Pinancial Statements.

14

PART I. FINANCIAL INFORMATION - (CONTINUED)

ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
EWRON CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. RESTATEMENT

On November 8, 2001, Enron announced that it will restate its
Consolidated Financial Statements for the years 1997 through 2000 and the first
and second quarters of 2001 to (1) reflect its conclusion that three previously
unconsolidated entities did not meet certain accounting requirements and should
have been included in Enron's consolidated financial statements, (2) reflect an
adjustment to shareholders’ equity described below and (3) include prior-year
Proposed audit adjustments and recla ifications (which were previously
determined to be immaterial in the ye originally proposed). Specifically,
Enron has concluded that based on a review of related Party transactions:

© The financial activities of Chewco Investments, L.P. (Chewco), a 0208 1
related party which was an investor in Joint Energy Development
Investments Limited Partnership (JEDI), should have been consolidated
into Enron's consolidated financial statements beginning in November
1997;

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01300000000689


Nickoloff, Peter

From: Carleton, Norman
Sent: Tuesday, December 18, 2001 11:11 AM
To: Cetina, Ji; Bair, Sheila; Berardi, Steve; Bitsberger, Timothy; Eichner, Matthew, Gabilondo,

Jose; Gross, Jared; Hammer, Viva; Lori Sanatamorena (E-mail); Nickoloff, Peter; Novey,
Michael; Pietrangeli, Fred; Roseboro, Brian; Schultheiss, Heiditynne; Whaley, Jean; Wiedman,
Mark

Subject: DJ: Enron Bankruptcy Seen Spurring India Power Plant Sale

December 18, 2001

Enron Bankruptcy Seen Spurring India Power Plant Sale

Dow Jones Newswires

(This article was originally published Monday)

By Campion Walsh
Of DOW JONES NEWSWIRES

WASHINGTON -- Enron Corp.'s (ENE) sudden plunge into bankruptcy may turn its exit from the $2.9
billion Dabhol Power Co. project in western India into a fire sale, industry analysts say.

The Indian power plant was a high-profile albatross for Enron well before the alleged financial
mischief that sent the Houston-based company's share price and credit ratings into a free fall.

Work on the 2,184-megawatt plant near India's commercial capital of Bombay stopped this year after
its sole customer, the Maharashtra State Electricity Board, balked at earlier-agreed power prices.
Stymied by nonpayment, Enron said in August it would consider buyers for its controlling 65%
interest in Dabhol Power.

With Enron now planning to unload foreign assets under its Chapter 11 bankruptcy reorganization,
bidders on that stake may be move more quickly to take advantage of a distressed sale, analysts
say,

"The Indian government's hand has been strengthened in terms of negotiating,” said Krish Chettur, a
South Asia power analyst for Massachusetts-based Cambridge Energy Research Associates. "The
original shareholders are going to significantly lose out on their initial investments."

But Enron isn't the only one feeling a financial squeeze. Indian banks financed most of the project
through direct landing and guarantees to foreign lenders, and some could go under without a speedy
resolution, Chettur says.

The U.S. government also has a stake in the fate of Dabho! Power as it partially funded the project
through the U.S. Export-Import Bank and Overseas Private Investment Corp.

“Now that Enron is going out of business, negotiations are going to happen faster rather than slower,
259

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10K Wizard - SEC filings Page 5 of 83

ASSETS

Current Assets . .
Cash and cash equivalents . $1,
Trade receivables (net of allowance for doubtful
accounts of $437 and $35, respectively) 3%,
Other receivables i,
Assets from price risk management activities 9,
Inventories
Deposits 2,
Other

Total Current Assets 24,

Investments and Other Assets
Investments in and advances to unconsolidated

affiliates 7,
Assets from price risk management activities 9,
Goodwill 3,
Other 5,

Total Investments and Other Assets 26,
Property, Plant and Equipment, at cost
Natural gas transmission 6,
Electric generation and distribution 3,
Wiber-optic network and equipment
Construction in progress 1,
Other . 2,
14,
Less accumulated depreciation, depletion
and amortization 3,
Net Property, Plant and Bquipment 10,
Total Assets $61,

The accompanying notes are an integral part of these consolidated financial
statements.

PART I. FINANCIAL INFORMATION - (CONTINUED)
ITEM 1, FINANCIAL STATEMENTS - (CONTINUED)
ENRON CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
{In Millions)

(Unaudited)

02071 .

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01300000000679


Nickoloff, Peter

From: Carleton, Norman
Sent: Thursday, January 10, 2002 5:57 PM
To: Cetina, Jill; Bair, Sheila; Berardi, Steve; Batsberger, Timothy, Eichner, Matthew, Gabilondo,

Jose; Gross, Jared; Hammer, Viva; Lori Sanatamorena (E-mail); Nickoloff, Peter; Novey,
Michael; Pietrangeli, Fred; Roseboro, Brian; Schultheiss, Heidilynne; Whaley, Jean; Wiedman,
Mark

Subject: DJ: CAPITAL VIEWS: Aa Interesting Day In The Enron Trenches

January 10, 2002

CAPITAL VIEWS: An Interesting Day In The Enron Trenches

By JOHN CONNOR

A Dow Jones Newswires Column

WASHINGTON -- Today was a big day on the Enron front, with key developments coming fresh on
the heels of Wednesday's new that the Justice Department has opened a criminal investigation of
Enron's bankruptcy.

To briefly review the bidding:

- Arthur Andersen, LLP, already taking heavy fire for its auditing of the now-bankrupt Enron Corp.
(ENE), told the Justice Department and the Securities and Exchange Commission that individuals at
the firm “disposed of a significant but undetermined amount" of documents relating to its Enron work.

Andersen said the destruction, encompassing both paper documents and e-mail, was done in recent
months by individual employees involved in auditing Enron. The number of individuals involved was
not specified.

- White House Press Secretary Ari Fleischer disclosed that Enron Chairman Kenneth Lay, a big
campaign contributor to George W. Bush, contacted two senior Bush Administration officials last fall.
The officials in question were Treasury Secretary Paul O'Neill and Commerce Secretary Don Evans.
The contacts sound in the telling like a bid for help.

Fleischer related that O'Neill said he had been contacted by Lay last fall and that Lay brought to
O'Neill's attention “his concerns about whether or not Enron would be able to meet its obligations.
And he expressed his concern about the experience that Long-Term Capital (Management) went
through...

"Secretary O'Neill then contacted (Treasury) Undersecretary (Peter) Fisher to ask him to evaluate
whether the comparison was apt, and the Department of the Treasury advised that it was not apt as a
result of Secretary Fisher's review," Fleischer recounted.

- Peter Fisher to center stage once again. As a senior official of the Federal Reserve Bank of New

York, Fisher played a leading role in cobbling together a non-government-funded financial Heimlich
a4

01300000000473


1/0/02 Reuters Mews
@) Reveers Gimited 2002.

Tuceday, Janwary §, 2002

USA: CORRECTED - KCBT vote. anends Wo. 3 wheat for deliverable stocks.
In KANSAS CITY story headlined "ECET votes to drop Me. 2

wheat for deliverable stocks,* please read in Ciret paragreph

ao, "Kanaee City Board of Trade menbers on Tuesdsy voted to

make adjustments in the composition standards of lower-quality

romber three grade hard red winter wheat...* instead of -..

‘Kansas City Board of Trade members on Tuesday voted to renave

lower-quality umber three grade herd red winter wheat from
approved standards....* .., correcting to make clear ECET vote

amended. rather than dropped, Mo. 3 wheat for deliveries.
A corrected version follows.

KANSAS CITY, Jan. # (Reuters) - Kansas City Board of Trade mesbers on Tuesday
voted to make adjustments in the composition standards of lower-quality auaber

thee grade hacd red virter wheat Lor mixing to mast delivery requtranncts
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Wednesday, Jarsery 9, 2002

01300000000433


Enron ‘and directors apparently reaped
aro ition in stock sales in 2000 and 2001, [and] 500
Ringe level executives walked out with over $55 millon SYS
nigh enron declared bankruptcy,” Levin said last week.
Bete ee employees and creditors are left holding the bag.”

The announcement came amid press reports linking Lay and
former President Jeffrey Skiting te partnerships that may have
disguised the company’s fuzzy sccounting methads. A Jan. 2 yall
Street Journal erticle reported that Lay and Skilling, despite
earlier denials, may have been well aware of false partnerships
leading up to Enron's collayse ‘and unprecedented bankruptcy
court filing on Dec. 2 (see the 1/3 Greenwire.

Levin cited the article indirectly, describing the

partnerships as *a massive shell game with multipte fayvers of
conflict of interest." Debt may have been transferred to “paper
partnerships” in which Enron officials had personal financial
interests, he said. .

As for political connactions, Lieberman told reporters his
cemmittes would took into the close thes between tay and the
Bush edmimstration, ‘but cautioned against charecterizing
hearings to come as partisan

“This is a search for the truth, not a witeh hunt,” he
said,

Aigo under the microscope is whether the Federal Energy

Regulatory Commission, Securities and Exchange Commission,
Commodity Futures Trading Commission and Labor Department lived
up to their oversight duties in the months prior to Enron's

swoon

Beyond this, the policy implications of the Enran freefall

have been fuzzy, at best. On the House site, Democrats raised
red flags during December hearings and successfully forced
Republican leaders to punt consideration of electricity

legistation t early in the second session -- but Enercy and
Cammerce Committee Chairman Billy Tauzin {R-La.) has
nevertheless pledged to proceed with Rep. 2ve Barron's (R-Texas)
electricity bill when Congress resumes {see the 22/17
Environment and Eneray Daily).

Tauzin may hold investigative hearings ef his on, bringing

the Hill committee count with an eye on Enron to five. In

addition to Tauzin and Lieberman's commuttees, House Fisanciat
Services, House Education and Workforce and Senate Commerce have
hei ar plan to hold oversight hearings of Enron.

LOAD-DATE: Jamuery §, 2002

Page 16 Wednesday, Jansary 3, 2062

01300000000419


10K Wizard - SEC filings Page 33 of 83

developments in the California power market. Due to the uncertainties involved,
the ultimate outcome of the California power situation cannot be predicted, but
Enron believes these matter will not have a material adverse impact on Enron's
financial position or results of operations.

30

PART I. FINANCIAL INFORMATION - (CONTINUED)

ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
ENRON CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED PINANCIAL STATEMENTS

India. Enron indirectly owns 50% of the net voting intereat in Dabhol
Power Company (Dabhol), which owns # 740 megawatt Power plant and ig
pnstructing an additional 1,444 megawatt power plant together with an LNG
régasification facility (collectively Phase IT) in India. Enron accounts for its
investment in Dabhol under the equity method and the debt of Dabhol is
non-recourse to Enron. As of September 30, 2001, Enron's investment in and
advances to Dabhol and related activities was $1.2 billion. This amount is
included in "non-core businesses” as discuased in Note 2.

Dabhol has been in dispute with the Maharashtra State Electricity Board
(MSEB), the purchaser of power from Dabhol, and the Government of Maharashtra
(GOM} and the federal government of India (GOI), the guarantors of payments by
the MSEB purguant to the terms and conditions of the power purchase agreements
(PPA) and the other project documents. The contract disputes relate principally
to (a) the failure by the MSEB te pay certain capacity and energy payments under
the PPA, and the failure of the GOM and GOI to satisfy certain guarantee
obligations under the project documents and (b) MSEB's statements that MSEB has
“rescinded" the PPA and MSEB is therefore no longer bound by the PPA. As a
result of such disputes, the 740 megawatt power plant is not being dispatched by
MSEB, the Phase II lenders have stopped funding the continued construction of
Phase II, the construction contractora have terminated the construction
contracts for non-payment and Dabhol has suspended all conatruction activities,
Additionally, the lenders to Dabhol have assumed control of Dabhol'a bank
accounté in order to monitor the use of its remaining available funds, There ia
no assurance that Dabhol will be able to resolve the disputes with MSEB, GOM and
GOI to its favor and to successfully collect on and to enforce any judgment or
settlement. However, Dabhol believes that the MSEB's actions are in clear
violation of the terms of the PPA, and Dabhol intends to pursue all available
legal remedies under the project documents which would entitle Enron to receive
an amount in excess of its investment.

On November 5, 2001, Dabhol delivered notice stating its intent to sell
and transfer the power plant and the LNG regasification facility to MSEB
pursuant to the provisions of the PPA. Most recently, certain of the Indian
financial institutions providing loans to the project have obtained court orders
temporarily preventing Dabhol from terminating the PPA. These same lenders are
seeking broader orders requiring Dabhol to restart the power plant pending the
resolution of disputes between Dabhol and MSEB. In addition, the India
Commissioner of Customs has recently passed orders adversely altering the custom
duty rates applicable to substantial portions of the project and cther rulings
detrimental to the project. Dabhol intends to appeal these orders. Based on the
latest developments, Enron cannot predict the outcome of this dispute. However,
the ultimate outcome of these proceedings or negotiations may have a material
adverse effect on Enron's financial position and results of operations.

7. SALE OF PORTLAND GENERAL 02099

On October 5, 2001, Enron entered into an agreement with Northwest

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01300000000707


Nickoloff, Peter

————<——— $ LL

From: Carleton, Norman
Sent: Thursday, January 10, 2002 4:50 PM
To: Catina, Jill; Bair, Sheas; Berardi, Steve; Bitsberger, Timothy, Eichner, Matthew; Gabilondo,

Jose; Gross, Jared; Hammer, Viva; Lori Sanatarnorena (E-mail); Nickoloff, Peter, Novey,
Michael; Pietrangeli, Fred; Roseboro, Brian; Schultheiss, Heidilynne; Whaley, Jean; Wiedman,
Mark

Subject: DJ; Arthur Andersen Says It Destroyed Documents Related to Enron Account

January 10, 2002

Major Business News

Arthur Andersen Says It Destroyed
Documents Related to Enron Account

By JUDITH BURNS
Dow Jones Newswires

WASHINGTON — Arthur Andersen LLP, already under fire for its audits of Enron Corp., said it has
destroyed documents sought by federal law enforcement officials investigating the Enron debacie.

In a statement issued Thursday, Andersen said it notified the U.S. Justice Department and the
Securities and Exchange Commission that individuals at the firm "disposed of a significant but
undetermined amount” of documents relating to its work for Enron. The Houston energy company
declared bankruptcy in December after announcing it had overstated four-and-a-half years worth of
earnings.

The document destruction includes paper documents and e-mail correspondence.

Andersen said it has instructed employees to retain all existing documents “until further notice.”

In addition, the Chicago-based Big Five accounting firm said it has asked former Sen. John Danforth
(R., Mo.) to conduct “an immediate and comprehensive review" of the firm's policies on document
handling and recommend improvements.

Andersen said destruction of Enron documents occurred "in recent months" by individual employees
involved in auditing the energy company.

Michael Donovan, a Philadelphia attorney with Donovan Searles, LLC, which has filed a class-action
lawsuit against Andersen on behalf of Enron shareholders, said document destruction by an audit
firm is shocking.

“Auditors save everything,” including all work papers for audit clients, Mr. Donovan commented.

325

01300000000468


And why not? Nobody Is being forced to put his money into a company’s shares, after all. Employees of
such firms as Microsoft and Wal-Mart have been able to benefit mightily from their growth through share
ownership. In general, greater employee share ownership is a healthy way of giving staff more of a stake
in their company's success. If lots of workers freely choose to invest their 401(k) plans in the company's
shares, even if that offends against portfolio theory, should the government protect them against their
own folly?

Yes, it should, for the choice !s not as free as it looks. Quite apart from the company's contribution, many
managers encourage staff, implicitly if not explicitly, to put their 401(k) money into the company’s shares;
and they discourage selling. The pressure may intensify if the company’s finances are dodgy. The
consequences can be severe. Many Enron workers have lost their jobs and their retirement savings in one
blow. Worse, thanks to an administrative change that the company made in October, no 401(k) holders,
even those over 50, were allowed to sell any Enron shares over a crucial four-week period during which
the price fell by over two-thirds.

The simplest remedy would be to legislate that no more than, say, 10% of a 401(k) plan may be invested
in @ company’s own shares. That would replicate the limit set for defined-benefit pension schemes. Several
congressional bills to this effect are already being drawn up. The argument for earty action is not just to
avoid future Enrons, either. Most ideas for reforming Social Security involve its partial privatisation, with
beneficiaries investing directly in the markets (see article). If these plans are not to be discredited before
they are even tried, Congress should act now to limit the investment of workers’ retirement money in their
company's shares,

283

01300000000392


shareholder equity by $1.2 billion, as a result of several transactions including ones undertaken with
Mr. Fastow's investment vehicle.

Pi)

01300000000388


“It's appropriate to take a look into what led to the bankruptcy of Enron and whether or not anything

was done wrong in the process of Enron going bankrupt. But if that's a politically charged, a politically

motivated effort, then | think the American people are going to say that this is just another fishing

expedition, another endless investigation, the type that they soured on over the last many years,”
leischer said.

Bush Wams Iran Not To Shelter Fleeing Al-Qaida

Following reports that Iran may be sheltering small numbers of fleeing al-Qaida or Taliban fighters
and trying to control Afghanistan's western provinces, Bush bluntly warned Tehran it will be held
accountable for any moves to terrorism or terrorists.

“Any nation that thwarts our ability to rout terror out where it exists will be held to account one way or
the other,” Bush said.

"We had some positive signals early - early in this war from - from the Iranians. We would hope that
they would continue to be a positive force in helping us bring people to justice. We would hope, for
example, they wouldn't allow al-Qaida murderers to hide in their country. We would hope that if that
be the case, if someone tries to flee into Iran, that they would hand them over to us,” Bush added,

Bush also told Tehran to keep its hands off of Afghanistan's fragile government and hinted the U.S.
response could be sharp.

“If they, in any way, shape or form, try to destabilize the government, the coalition will be - will deal
with them in, you know, in diplomatic ways, initially," Bush said.

For what its worth, Iran denied it was either undercutting the Kabul government or hiding terrorists.

“It has been our policy not to allow terrorist groups such as al-Qaida in Iran," Vice President
Mohammad Ali Abtahi told The Associated Press,

The U.S. has long considered Iran a major backer of international terrorism.

Certainly, Abtahi's comments didn't sway Secretary of Defense Donald Rumsfeld.

"We know that (Afghanistan-Iran) has a porous border and we know people have moved back and
forth throughout history. And we also know they've been moving back and forth in recent history,”
Rumsfeld said.

-By Alex Keto, Dow Jones Newswires; 202-862-9256; Alex.Keto@Dowjones.com

01300000000472


10K Wizard - SEC filings Page 22 of 83
Transactions with LUM and Other Entities 7.8 ; 11.7 4.2

Transaction with LUM and Whitewing - - -

Total * $320.4 $233.5 $186.9)

(a) Enron's pre-tax earnings impact of transactions with LJM2 through the
Raptor SPRs was approximately $545 million and $49 million for the nine
montha ended September 30, 2001 and 2000, respectively, excluding the
pre-tax charge described below. During the nine monthe ended September 20,
2001 and 2000, the Raptor SPEe hedged losses related to Enron investments
of $453 million and $35 million, respectively. The 2001 pre-tax earnings
amount includes a $710 million pre-tax charge in the quarter ended
September 30, 2001 related to the termination of the Raptor SPs.

(b) This amount excludes a seller financed note from Enron to LJM of
approximately $70 million.

PART I. PINANCIAL INFORMATION - (CONTINUED)

ITEM 1. PINANCIAL STATEMENTS - (CONTINUED)
ENRON CORP. AND SUBSIDIARIBS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Cash and
LM Other Value LUM Net

(In Millions) Investment Received by LUM Cash Flow
2000
Sales of Assets § 30.0(b) $ 32.4 $ 2.4
Purchases of Equity/Debt in Enron-

Sponsored Special Purpose Entities 100.7 64.4 (36.3)
Investments in Enron Affiliates 66.5 51.2 (18.3)
Portfolio Special Purpose Entities 127.2 148.5 21.4
Call Option 11.3 12.5 1.2
Transactions with LJM and Other Entities 7.5 11.7 4.2
Transaction with LJM and Whitewing 40.3 - (40.3)

Total $363.4 $320.7 $(62.7)

1999 1) 2 0 8 8
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: 01300000000696


10K Wizard - SEC filings Page 25 of 83

company owning a power project in Brazil for $10.8 million, and acquired
redeemable preference shares in a related company for $500,000. Enron recognized
4 $1.7 million loss on the sale of these interests to LJM1. Enron recognized
revenues of $65 million, $14 million and $5 million from a commodity contract
with the company owning the power project in 1999, 2000 and 2001, respectively.
As part of an exclusive marketing arrangement to sell LJM1's equity in the
project to third parties and to limit LMl's return, Enron paid LJM1 a $240,000
fee in May 2000. In 2001, #nron repurchased LJM1's 13% equity interest and the
redeemable preference shares for $14.4 million. Enron currently owns this equity
interest and consolidates the Brazilian company .

In December 1999, L7M2 paid Enron $30 million for a 75% equity interest
in a power project in Poland. Enron recognized a $16 million gain in 1999 on the
sale. Enron paid $750,000 to LUM2 as an equity placement fee. In March 2000,
Enron repurchased 25% of the equity in the Polish Power project from LJM2 for
$10.6 million, and Whitewing acquired the remaining 50% from LJM2 for $21.3
million. Enron and Whitewing still own their respective equity interests.

In December 1995, LJM2 acquired a 90% equity interest in an Enron entity
with ownership rights to certain natural gas reserves for $3 million. As a
result, Enron recognized $3 million in revenue from an existing commodity
contract. Subsequently, LJM2 igned a portion of its ownership interest in the
entity to Enron and Whitewing mo cost (to achieve certain after-tax
benefits). Bnron believes LJM2 continues to ow its remaining interest.

Portfolio SPEs. Enron and LUM established a-series of SPEs to mitigate
market exposures on Enron investments, including investments in NPW, Rhythms
NetConnections, Inc., and other technology, energy, and energy-related
companies. LUM made $191 million in equity investments in five separate SPEs
($127 million in the four Raptor SPEs and $64 million related to the Rhythms
SPE), three of which (Raptor I, II and IV) were also capitalized with Boron
stock and derivatives which could have required the future delivery of Enron
stock. Raptor III was capitalized with an economic interest in warrants
convertible into stock of NPW. The Rhythms SPE is discussed in Note 3 in the
"LJM1 Subsidiary Consolidation* section. Enron subsequently engaged in hedging
transactions with these SPEs, which included price ewap derivatives, call
options and put options. The derivatives and options generally were intended to
hedge Enron's risk in certain investments having an aggregate notional amount of
approximately $1.9 billion.

In the firat quarter of 2001, Enron entered into a series of transactions
with the Raptor SPEs that could have obligated Enron to igseue Enron common stock
in the future in exchange for notes receivable. These transactions, along with a
transaction entered into in 2000, obligated Enron to deliver up to 30 million
shares of Enron common stock to the Raptor SPEs in March 2005.

23

PART I. FINANCIAL INFORMATION - (CONTINUED)

TY gion CORP. AND SUBSIDIARIES 02091
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Such transactions were to have been accounted for ag equity transactions when
settled.

In the third quarter of 2001, as a result of deterioration in the credit
quality of the Raptor SPEs caused by the decline in Enron and NPW's stock price,
the increase in Raptor's exposure under derivative contracts with Enron and the
increasing dilutive effect on Enron's earnings per share calculation, Enron
acquired LJM2's equity in the SPEs for $35 million and terminated the entities.

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10K Wizard - SEC filings Page 29 of 83

ENRON CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

OTHER. In September 2001, Enron acquired LJM's interests in the four
Raptor SPEs for $35 million (see Note 3 “Description of Restatement Items" and
Note 4). . -

6. LITIGATION AND OTHER CONTINGENCIES

Enron is a party to various claims and litigation, the significant items
of which are discussed below.

RECENT SECURITIES, FRAUD AND DERIVATIVE LAWSUITS

Since October 16, 2001, multiple class action lawsuits have been filed
against Enron and certain current and former officers and/or directors (the
Defendants) in the District Court for the Southern District of Texas. The
lawsuits allege that the Defendants violated sections 10(b) and 20(a) of the
Securities Exchange Act of 1934, and rule 10b-5 promulgated thereunder, by
issuing a series of material misrepresentations to the market during different
class periods ranging from June 1, 1999 to October 30, 2001, thereby
artificially inflating the price of Enron common and/or preferred stock. The
lawsuits generally claim that the alleged misrepresentations and omissions
involved the Broadband Services Division, transactions with the LUM entities and
Azurix and Bnron's accounting for various transactions. The Plaintiffs generally
seek to recover compensatory damages, expert fees, attorney's fees, costs of
court and pre- and post-judgment interest. Enron expects that these lawsuits
will be consolidated into a single action and Enron intends to vigorously defend
these lawsuits.

4

Enron also is @ nominal. defendant in numerous shareholder derivative
lawsuits pending in state courte in Texas and Oregon and in the United states
District Court for the Southern District of Texas. These lawsuits, which were
filed after October 16, 2001, purport to assert derivative Claims on behalf of
Enron against certain current and/or former officers and directors of Enron,
outside firms providing profeasional services to Enron and various other
companies. The claims asserted in these lawsuits include breach of the duty of
disclosure, abuse of control, fraud, unjust, enrichment and money had and
received, The plaintiffs seek actual and punitive damages, restitution, a
constructive trust, an accounting, injunctive relief, attorney's fees, expert
fees, pre- and post-judgment interest and court costs. These lawsuits were filed
very recently and Enron is investigating ite responsibilities with respect to
them. Bnron has aleo received requests from shareholders under Section 16(b) of
the Securities Exchange Act of 1934 to recover short-swing profits from
officers, directors and certain other parties. Enron is currently investigating
these requests.

On November 12, 2001, a shareholder filed a class action in state court
in Houston, Texas against Enron, its directors and Dynegy, seeking to enjoin the
merger between Enron and Dynegy. The petition alleges that Enron's directors
breached their fiduciary duties to Enron's shareholders by agreeing to sell
Enron for inadequate consideration, for improper purposes and without an
adequate investigation of the alternatives available to Enron. The shareholder
seeks to enjoin the merger. Enron intende to vigorously defend this lawsuit.

Although the outcome of these various lawsuits cannot be determined, the
resolution of these matters could well have material impact on Enron's financial
condition and/or results of operations. The cost of any resolution is not
currently estimable. In addition, as explained in Note 2 (see “Merger with
Dynegy and Related Equity Financing"), the completion of the merger with

02095

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01300000000703

27


Nickoloff, Peter

From: Carleton, Norman
Sent: Tuesday, January 08, 2002 4:56 PM
To: Bair, Sheila; Berardi, Steve; Bitsberger, Timothy, Eichner, Matthew, Gabilondo, Jose, Gross,

Jared; Hammer, Viva; Lori Sanatamorena (E-mail); Nickoloff, Peter; Novey, Michael;
Pietrangeli, Fred; Roseboro, Brian; Schultheiss, Heidilynne; Whaley, Jean, Wiedman, Mark
Subject: FT Article on Wendy Gramm, the CFTC, and Enron

COMPANIES & FINANCE INTERNATIONAL: Appointment may be probed
Financial Times; Jan 7, 2002
By NANCY DUNNE

Republican Texas Senator Phil Gramm and his wife, Wendy, former chairman of the Commodity Futures Trading
Commission, have both been strong proponents of deregulation.

Before jeaving her CFTC office in 1992, Mrs Gramm kick-started a rule-making process at the behest of various energy
companies and Wall Street banks, which exempted energy swaps from government oversight.

But it was not instituted until after she left the post and her subsequent appointment to a seat on Enron's board a few
months later is expected to come under scrutiny from one or more of the Senate committees investigating Enron's
downfall,

At the time of the CFTC rule-making, Enron was @ strong financial backer of Mrs Gramm's husband. Between 1996 and
2002, the company’s employees, officials and political action committees contributed Dollars 233,000 to the senator's
campaign war chest, according to the Center for Responsive Politics.

This included Dollars 22,000 given during the current Congress, although the senator is not running for re-election

William Albrecht, who became acting CFTC chairman after Mrs Grarnm's departure, says il was he who ultimately
instituted the rule. Now an economics professor in lowa, Mr Albrecht said the Commission had been directed by Congress
to exempt certain energy cerivatives from regulation.

“Everyone was on board for this,” he said. “We had dozens of meetings. If Enron is trading derivatives with Dynegy, they
don't need us in there watching it.”

Deregulation, however, had its opponents, and they flourished for a while during the Clinton years, Former Congressman
Glen English was chairman of the subcommittee with jurisdiction over the CFTC. He saw no difference between
derivatives and futures traded on regulated exchanges.

“Regulation is not just for the traders but for the impact (of not having regulation) on the economy,” he said. “It was the
responsibility of the CFTC to deal with derivatives.”

Brooksley Born, ex-president Bil Clinton's first appointee as CFTC chairwoman, was opposed to deregulation. But her
ideas were anathema to the Republican Congress of the time, which threatened to fold the agency into the Securities and
Exchange Commission, according to a former CFTC official,

In 1993, Mrs Gramm was offered a position on the Enron board. She became a member of the company's audit
committee. Mrs Gramm declined to return the FT's calls but it is common for retiring regulators to move over to industries
they oversaw.

She was paid Dollars 22,000 a year for the first three years. Her annual salary grew to Dollars 50,000, Between 1993 and
2001, she earned Dollars 346,000 plus Dollars 176,000 for attendance fees, according to a recent report from Public
Citizen, a liberal advocacy group.

She also received stocks and dividends worth between Dollars 915,317 and Dollars 1.85m over the period. Mr Gramm's

tax retums last year listed his wife with assets of Dollars 250,001-Dollars 500,000 in an Enron Deferred Compensation
295

01300000000401


10K Wizard - SEC filings Page 35 of 83

associated with this obligation as a reduction of “Revenues” in the accompanying
Conaclidated income statement. However, the loss is offset as Enron recognizes
ite share of Whitewing's earnings through "Equity in Earnings of Unconsolidated
Affiliates" in the accompanying consolidated income statement. As of September
30, 2001, the amount due Whitewing under such derivative totaled approximately
$1.0 billion and is included in "Other Liabilities* in the accompanying
consolidated balance sheet. Such amount has increased by approximately $600
million as a result of the decline in Enron's common stock price subsequent to
September 30, 2001 through November 16, 2001. Based on the subsequent decline in
the Enron stock price through November 16, 2001, there would currently exist an
approximate $700 million pre-tax charge to earnings due to the shortfall in the
recovery of Enron's book investment. Enron is currently evaluating the fair
value of Whitewing's other assets mentioned above in conjunction with the
restructuring plan discussed in Note 2

32

PART I. FINANCIAL INFORMATION - (CONTINUED)

ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
ENRON CORP. AND SUBSIDIARIES ”
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

which will impact the amount of any writedown of Enron's investment in
Whitewing, possibly as early as the fourth quarter.

ATLANTIC WATER TRUST. Atlantic Water Trust is an entity formed by Enron
and unrelated institutional investors, investing through an entity named Marlin,
for the purpose of acquiring and holding an interest in Azurix Corp. (Agurix).
The primary asset of Azurix is Wessex Water Services Ltd. (Wessex), a regulated
water utility in the UK. Atlantic Water Trust currently owns 67% of Azurix, with
Enron owning the remaining 33%. Marlin wae capitalized with approximately $915
million in debt and $128 million in equity. The Marlin debt is supported by the

ets of Atlantic Water Trust and Enron's contingent obligation to cause the
sale of Enron equity, if needed, in an amount sufficient to retire such
obligations. In the event that the sale of equity is not sufficient to retire
such obligations, Enron is liable for the shortfall.

DESCRIPTION OF TRIGGER EVENTS. Osprey and Marlin's debt obligations
contain certain "Note Trigger Events" to protect the note holders, including (i)
an Enron senior unsecured debt rating below investment grade by any of the three
major credit rating agencies concurrent with an Enron stock closing price of
$59.78 per share or below in the case of Osprey and $34.13 per share or below in
the case of Marlin; (ii) a croge default to Enron senior obligations in excess
of $50 million and $100 million for Osprey and Marlin, respectively; and (iii)
the requirement that an amount sufficient to redeem the notes be deposited with
@ trustee 120 days prior to maturity dates of January 15, 2003 and July 15, 2003
for Osprey and Marlin, reapectively. As of November 16, 2001 the Enron stock
closing price was $9.00 per share. 02 1 01

In the event a Note Trigger Event was to occur, Enron has 21 days to file
@ registration statement for the issuance of equity to repay the notes and such
registration statement has 90 days from the Note Trigger Event to become
effective. Any Enron registration statement filed cannot become effective until
Bnron files its restated audited consolidated financial statements which is not
expected until completion of the Special Committee investigation. In the event
that Enron does not file its registration statement or the registration
statement is not effective during the respective time requirements, Enron must
pursue a private placement of equity, if permitted. If Enron cannot timely sell
equity in an amount sufficient to repay the notes, Enron is obligated to pay the

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01300000000709


Nickoloff, Peter

ee

From: Carleton, Norman

Sent: Friday, January 11, 2002 10:53 AM

To: Cetina, Jill; Bair, Sheila; Berardi, Steve; Bitsberger, Timothy, Eichner, Matthew; Gabilondo,
Jose; Gross, Jared; Hammer, Viva; Lon Sanatamorena (E-mail); Nickoloff, Peter; Novey,
Michael; Pietrangeli, Fred; Roseboro, Brian; Schultheiss, Heidilynne; Whaley, Jean, Wiedman,
Mark

Subject: FT: Power politics

Power politics

The furore over Enron is starting to raise some uncomfortable questions about the Bush
administration's links with the collapsed energy giant, says Peter Spiegel

Published: January 10 2002 20:12 | Last Updated: January 10 2002 20:18

Home states have not been friendly to recent American presidents. For most of his administration,
Bill Clinton found himself haunted by his financial dealings in Arkansas. Disquiet over a failed land
development called Whitewater led to an investigation by an independent prosecutor that almost
brought down his presidency.

Now George W. Bush is starting to find embarrassment in his proud Texas roots. The Lone Star
State, of which Mr Bush used to be governor, is also home to Enron, the energy trading company.
Enron's spectacular collapse has prompted a criminal investigation and spurred Mr Bush to order on
Thursday a sweeping review of federal pension rules and corporate financial disclosure regulations.

Mr Bush's own connections to the company extend back to his time as Texas governor, when
Kenneth Lay, Enron chief executive, was head of the governor's business council. Mr Lay was an
early and eager supporter of Mr Bush's presidential campaign, signing on as a “pioneer” who raised
more than $100,000 for the race. Enron and its executives donated $114,000 themselves.

But Mr Lay's ties to the Bush family go back even further. He was a strong supporter of Mr Bush's
father, going so far as to hire former cabinet members James Baker and Robert Mosbacher as Enron
consultants after the 1992 election defeat. The president said yesterday that he had last seen Mr Lay
at a literacy fund-raising event organised by Barbara Bush, his mother. "| have never discussed with
Mr Lay the financial problems of the company,” he added.

For the Bush administration, the growing Enron controversy is proving a delicate tightrope. On the
one hand, Mr Bush appears eager to be seen as above the fray, ordering executive branch agencies
to pursue Enron without fear or favour. On the other, his stubbom and influential vice-president, Dick
Cheney, has been unwilling to release records regarding contacts his energy taskforce had with
Enron while it was formulating the administration's energy legislation, now before Congress.

"The vice-president could have put a lid on this early on," says Tom Fitton, president of Judicial
Watch, a conservative group that is sueing for Mr Cheney's taskforce records. “Instead, he's painted
himself into a corner. Supporters of the Bush administration have to ask themselves what would have
been their reaction if the Clintons came out with this. They would have gone ballistic.”

Mr Cheney also has links with Enron, as recent disclosures about a meeting between him and Mr Lay
in Washington last April have illustrated. The two had got to know each other in Texas, where Mr
Cheney was chief executive of Halliburton, another Houston-based energy company. indeed, Mr Lay

4

01300000000482


10K Wizard - SEC filings Page 54 of 83

the third quarter of 2000 primarily as a result of lower retail gas sales
partially offset by an increase in long-term energy contracts originated in 2001
and the monetization of interests in a merchant asset for a gain of §21 million.
Gross margin increased $111 million in the third quarter of 2001 compared to the
third quarter of 2000 due to long-term energy contracts originated in 2001 and
the gain associated with the monetization of a merchant a:
Operating expenses increased $27 million primarily as a r
management support service expenses in 2001 and higher computer system-related
expenditures. Equity losses for both periods reflect Retail Services! portion of
losses of New Power Holdings, Inc. (NPW), formerly The New Power Company. In the
third quarter of 2001, Retail Services recorded a $58 million charge which is
included in equity losses to reduce ite carrying value in its investment in NPW.
Other, net in the third quarter of 2000 consisted primarily of gains associated
with Retail Services’ monetization of a portion of its interest in NPW.

PART I. FINANCIAL INFORMATION - (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
ENRON CORP. AND SUBSIDIARIES ~
NATURAL GAS PIPELINES

The following table summarizes total volumes transported for each of
Enron's interstate natural gas pipelines. .

Third Quarter

Total Volumes Transported (BBtu/d) (a)

Northern Natural Gas 2,770 3,009
Transwestern Pipeline 1,823 1,746
Florida Gas Tranemission 1,927 1,649
Northern Border Pipeline 2,295 2,420

{a} Reflects 100% of each entity's throughput volumes.

Significant components of Natural Gas Pipelines' results are as follows
(in millions):

Net revenues $ 136 $ 132
Operating expenses 774 4
Depreciation and amortization 7 7

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2 02645

01300000001254


Page 6 of 7
indictment on our whole system.

It's the aura of power around Ken Lay and other Enron executives, his aecess to George Bush, his friendships with top Cabinet members that
we are seeing that somehow has a chilling effect on any kind of investigation, watchdogs.

We had really everybody not minding the store, from political leaders who are now falling all over themselves to investigate Enron, but who
really did nothing during the many months that led to the collapse, including allowing Harvey Peete (ph) to be named and confirmed by the
Senate as head of the SEC, even though he had had -- all his relationships with the -- with Arthur Andersen and with many accounting firms
and had lobbied against changes in the rules that would have perhaps prevented the kind of auditing that Arthur Andersen did that allowed all
these things to go on unchecked for so many months.

Also, we had financial journalists, financial watchdogs, everybody giving high marks to Enron without any real investigation. I think at the
heart of that is that glow of power around Ken Lay and Enron.

CRIER: Peter, to expand on that a little bit, we've got the SEC connection there. You've got the -- the head of the energy regulatory
commission that was basically flipped, many say at Enron's request, so that they had a buddy over there.

‘The commodities exchange is supporting legislation to deregulate. Just so happens that Senator Gramm's wife, Wendy ~- a top economist -- is
over there. Leaves them, joins Enron. This good senator is -- is very critical in passing through that deregulation and legistation.

You've got many former Enron employees and advisers, Larry Lindsey. Now our secretary of the Army, our -- our trade head, all of these
people. It is so incestuous and nobody seems to think that that access and influence could have brought down Enron,

PETER COY, “BUSINESS WEEK" ECONOMICS EDITOR: Right. | -- I think that the incest is quite remarkable, but | also think that people
are drawing a connection that is far from proven so far, which is that somebow this tars energy deregulation.

T happen to think that electricity deregulation has not worked the way if's been dane so far, particularly in California. But I think that the
argument that because Enron collapsed, therefore energy deregulation was a bad idea, just doesn't make sense.

CRIER: Well, energy deregulation is going on all over the world, It is probably going to be the trend. We aren't going to avoad that. But that's
sort of like focusing on the pension question, isn't it?

If you look at, oh, well, it's the deregulation politics or oh, it's the pension problem, that's a great way to ignore what I see as major political
corruption. When I say that, I'm not pointing a finger at George W. Bush or pointing a finger at Dick Cheney.
Because you've got Republicans and Democrats who were seduced by the power Arianna described, who were influenced by the corporate

contributions and who allowed tremendous access and literally direction of this country's energy policy by a company who wasn't coming
clean,

COY; Right, And the point I was trying to make is that connecting Enron to the failure of electricity deregulation, the reason it doesn't make
sense, if you think about it — if the purpose of electricity deregulation had been to protect large powerful firms from failing, then you could
say, yes, electricity deregulation failed to do that because Enron did fail.

‘That was never the point of it. The point of it was to lower rates for consumers. You could argue that that hasn't worked either. And I'm not
defending electricity deregulation, I'm going against the point that Arianna made that somehow this proves — Enron's failure proves the failure
of electricity deregulation,

CRIER: | don't buy that either. But in fact, William Bradley, we have to get into the whole notion of energy, natural gas and other things like
bandwidth as a commodity, which gets -- starts to get very complex and the regulations of a commodity,

But back to — Arianna mentioned it, but nobody is talking to me and I want to bear this -- about how much influence this company had on our
energy policy. How much Dick Cheney listened to them,

IT was shocked when he was confronted with the six meetings, the accounting office trying to get him to tell what happened in those meetings.
‘The White House basically said this reflects the open and inclusive approach of Cheney's energy task force, that it was dominated by Ken Lay
and Enron. I don't buy it. What do you think, William?

WILLIAM BRADLEY, "AMERICAN PROSPECT": It really doesn't make any sense at all. | think as Arianna was suggesting, there's a
tremendous connection between big money politics and unfettered markets. And that's what we see with Enron's role.

Enron was really the forerunner for both deregulation and for globalization in the energy markets. And both have -- have come a cropper.
‘There are tremendous problems around the world with U.S. firms investing, running into problems in India, as Enron did, In India, they...

CRIER: Before you go into that, we've got abaut 15 seconds left.

1/17/02 01 895

01300000000503


10K Wizard - SEC filings Page 37 of 83

or is unable to refinance or obtain a waiver of its obligations, a series of
events would begin which could impact Enron's compliance with the terms of its
Revolving Credit Agreements and certain other obligations, including bank debt
facilities.

34

PART I. FINANCIAL INFORMATION - (CONTINUED)
ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
ENRON CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. EARNINGS PER SHARE

The computation of basic and diluted earnings per share is as follows (in
millions, except per share amounts) :

Third Quarter s

Numerator:
Basic o
Income (loss) before cumulative effect
of accounting changes $ (644) $ 303 $ 20
Preferred stock dividends: 7
Second preferred stock (4) (5) a
Series B Preferred Stock (16) (16) (4

Income (loss) available to common
shareholders before cumlative

effect of accounting changes (664) 282 14
Cumulative effect of accounting
changes - - 1

income (loss) available to common

shareholders $ (664) $ 282 $16
pew eeeescnessesesseseeewnnezenzsss

Diluted

Income (loss) available to common

shareholders before cumlative

effect of accounting changes $ (664) $ 282 $14

Effect of assumed conversion

of dilutive securities (a);

Second preferred stock - s
Series B Preferred Stock - 16
Income (loss) before cumulative effect
of accounting changes (664) 303 “4
Cumulative effect of accounting
changes - 1

Income (loss) available to common 02 1 03

shareholders after assumed
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013000000007 11


(conde ..)

Weins sees the fall of Enron an Yet another exasp)
watohdoy system that iv mot working. He blanes Cong!
Problem, arguing that it undermined » legal deterrent
making it harder for Plaintiffs to sve those whe
fieancial fraud. iis bugbear is the Private Securi

ties Litigation Reform Act, passed hy Congress in 1995
strenuous lobbying by the Big-Pive auditing firms,

of » financial
s for the

the 19908 by
md aber

tter

“They teamed up with the high-tech industries, That was a powerful
alliance and well-funded with booming stocks in » booming economy.
‘They were able to pull off one of the most scandalous frauds on
Congress by selling the argument there vas a litigation explosion, *
says Weiss.

Ne adda: “We came in with charts showing that the nusbers of ca:
hadn't risen that auch @ time that capital formation had increased
by @ quitiple of thousands. The murber of public companies was hugely
Greater, The opportunities to commit fraud had increased and, if

anything, it was surprising that so few cases were brought,* be
argues

The changes in the law were detrimental, Welen contends, by making it
herder for plaintiffs to sue and by nuglecting a provision enabling
audivors and investwent banks to be sued for siding and abetting

fraud. *Two years later they added fuel te the fire by passing
that tock away the ability to file such securities-fraud cases in
state courte,*

Weiss argues that the Securiti
will be in @ position to know

and Commission (SEC) pever
et ly what te

going on inside large companies and that the threat of massive
lawauits would assist in keeping auditors and securities firme om the
Straight and narrow.

Ceiticn of Welas maintain that class-- action lawsuits can have a

trous effect on the financial matkets, paralysing companies and
deterring risk. They leo fear vexatious laweuite that companies in
the end decide to settle because it is mach cheaper to give in th

fight.

Dale Centerle, who has written papers for the free-market Cato
Institute, argues against « post-Enron increase in regulation and
litigation, saying the SBC haw contributed to the problem with audits
by insted -eine fits-all rule for auditing. ‘What ¥ find

: hn tte.* he syee ateher

st controlbieg thie rather char

(eect pod have # of differen: kindy of cudien thar

Pani Wedne!

01300000000425


Nickoloff, Peter

From: Carleton, Norman
Sent: Friday, January 11, 2002 9:47 AM
To: Cetina, Jill; Bair, Sheila; Berardi, Steve, Bitsberger, Timothy; Eichner, Matthew; Gabilondo,

Jose; Gross, Jared; Hammer, Viva; Lori Sanatamorena (E-mail); Nickoloff, Peter; Novey,
ee Pietrangeli, Fred; Roseboro, Brian; Schultheiss, Heidilynne; Whaley, Jean; Wiedman,
ir
Subject: FW: 1BN ) Treasury's O'Neill Comments on Enron Calls, Disclosur

-—Original Message——

From: Lori.Santamorena@bpd.treas.gov [mailto:Lori.Santamorena@bpd.treas.gov)
Sent: Friday, January 11, 2002 8:40 AM

To: norman.carleton@do.treas.gov

Subject: 18N ) Treasury's O'Neill Comments on Enron Calls, Disclosur

-—— Forwarded by Lori Santamorena/GPD on 01/11/02 06:39 AM —
“PUBLIC DEBT, US DEPT OF TREASURY* <GSRS@bloomberg.net>

O19 1002 0817 AM

To —antamorenafibod trees. gow
o
Subject’ — 1BN_) Treasury's O'Neil Comments on Enron Calls, Disciosur

Treasury's O'Neill Comments on Enron Calls, Disclosure Rules
2002-01-10 19:35 (New York)

Washington, Jan. 10 (Bloomberg) -- The following are comments
from U.S. Treasury Secretary Paul O'Neill on his conversations
with Enron Corp.'s chairman Ken Lay prior to Enron's bankruptcy
and a review by government regulators of the adequacy of corporate
disclosure rules. O'Neill spoke during interviews on Cable News
Network and CNBC.

“my first call from Ken Lay was for him to give me a heada-
up that they were struggling and to offer the president of his
company to speak with the Undersecretary of Domestic Finance
(Peter Fisher) to understand the positions they had so we could
make sure that we were taking care of our responsibility, which is
to make sure that the U.S. capital markets work,'' O'Neill told
CNN

““That was the purpose of Ken's call to me, to let me know we
were welcome to have access to information so we could understand
what they were doing and the possible exposure to the world's
capital markets.

2

01300000000479


White House spokesman An Fleischer called the collapse of Enron a “wake-up call.”

Bush said the two working groups would complement the criminal investigation into Enron's dealings
that have been started by the Justice Department.

Bush said he hadn't met with Enron's Lay personally but Lay did come to the White House early in
Bush's term as part of a delegation of businessmen who discussed the economy. Bush said former
Texas Governor Ann Richards, a Democrat, named Lay the head of Texas's Governor's Business
Council and Bush allowed him to stay on in that position.

Despite the political backing Lay gave to Bush, the president said he wanted to see the government
“fully investigate issues such as the Enron bankruptcy.”

On Iran, Bush reacted to reports that Iran may be sheltering small groups of al-Qaida fighters in
Afghanistan's lawless western provinces with a waming.

"First of all, Iran must be a contributor in the war on terror,” Bush said.

He vowed once again to uphold his doctrine “either you are with us or against us.”

“Any nation that thwarts our ability to fight terror will be held to account one way or another. We had
some positive signals early in our war on terror. We would hope that they would continue to be a
Positive force in helping us bring people to justice. We would hope, for example, they wouldn't allow
al-Qaida murderers to hide in their country. We would hope that if that would be the case, if someone
tries to flee into Iran, they would hand them over to us," Bush said.

Bush also warned Iran against trying to undermine the authority of the newly formed Afghan
government in Kabul and urged Tehran to cooperate with Kabul.

“If they try in any way shape or form, try to destabilize the government, the coalition will deal with
them, you know, in diplomatic ways, initially," Bush said.

Bush expressed the view that a stable Afghanistan was in Tehran's interests in any case,

On a related issue, Bush said that he suspected a shipload of weapons that was intercepted by
tsraeli commandos likely had been bound for the Palestinian Authority, Bush said it was time for
Palestinian leader Yasser Arafat to prove he is a man of peace and to renounce terrorism once and
for all.

-By Alex Keto, Dow Jones Newswires; 202-862-9256; Alex.Keto@dowjones.com

303

01300000000443


Carleton, Norman

Thursday, December 20, 2001 5:41 PM

Cetina, Jill; Bair, Sheila; Berardi, Steve; Bitsberger, Timothy; Eichner, Matthew; Gablondo,

Jose; Gross, Jared; Hammer, Viva; Lori Sanatamorena (E-mail); Nickoloff, Peter; Novey,

Moet Pietrangeli, Fred; Roseboro, Brian, Schultheiss, Heidilynne; Whaley, Jean; Wiedman,
rk,

Subject; Bloomberg column: Michael Lewis ("Liar's Poker) on Enron and Drexel

Is Enron the New Drexel?

Michael Lewis Commentary. Michael Lewis, the author of **Liar’s Poker" and “The New New
Thing,” is a columnist for Bloomberg News. The opinions expressed are his own.

By Michael Lewis

Berkeley, California, Dec. 20 (Bloomberg) - Enron Corp, |s rapidly expanding the American business journalists’ notion of
what is possible: No story can ever again be sald to be too outrageous to be true.

The boss, Kenneth Lay, was a friend of the current president of these United States, an adviser to his administration and
one of his biggest financial backers, The company itself was rated “strong buy” by analysts at almost every Wall Street
firm, considered @ shining example of modern accounting by reputable accounting firms, and plugged endlessly by the
business press. Six years running as Fortune's most innovalive company! And all the while this same operation was, at the
very lop, a fie.

Understandably, people long for some analogy to help them grasp this situation, but really there isn't a good one.

Other than fated hedge fund Long-Term Capital Management, Michael Milken's junk bond department at Drexel Burnham
Lambert offers the closest parallels on Wall Street, and several people nave written to me over the past week to suggest it.
But it really is unfair to Milken to compare him to Lay.

Alumni Will Flourish

True, in both cases profitable trading businesses collapsed because their creditors came to distrust the people who ran
them, And in both cases the core business — Drexel’s junk bonds and Enron's energy trading -- remain viable in the hands
of other companies that banks trust.

Just as the Drexel junk bond traders who didn’t go to jail went to other Wall Street firms and created replicas of their
former business, former Enron traders will soon be making lots of money for one-time rivals such as Dynegy Inc. and
Duke Energy Corp. Well before Kenneth Lay emerges from his legal hell, the energy trading business will return to normal.

But the morality of the cases are entirely different. Whatever you think of Milken's junk bond department -- and | think its
sins were minor beside its achievements — you must admit the people in it exhibited a certain honor among thieves.

There was never a moment when Milken betrayed the broad interests of his traders for his own narrow ones. He paid
hinself huge sums of money, but he also made huge sums for his firm. He wes careful to watch out for the liltie people
who worked for him, and they loved him for it. The Enron bosses, by contrast, pillaged their firm and left the little people
who worked for them holding the bag.

Different Motivations

Enron created the illusion that it was much more profitable than it actually was. Milken created an operation which was, if
anything, much more profitable than it looked. What Milken hid was the thuggish manner in which he made his profits.
‘What Enron hid was the sneaky way it made its losses.

01300000000394


Nickoloff, Peter

From: Carleton, Norman
Sent; Thursday, January 10, 2002 2:47 PM
To: Cetina, Jill; Bair, Sheila; Berardi, Steve; Bitsberger, Timothy, Eichner, Matthew; Gabilondo,

Jose; Gross, Jared; Hammer, Viva; Lori Sanatamorena (E-mail); Nickoloff, Peter; Novey,
Michael; Pietrangeli, Fred; Roseboro, Brian; Schultheiss, Heidilynne, Whaley, Jean; Wiedman,
Mark

Subject: DJ: White House Says Enron Sought Help, Was Rebuffed

January 10, 2002

White House Says Enron Sought Help, Was Rebuffed

Dow Jones Newswires

WASHINGTON - The Bush administration confirmed Thursday that Enron's (ENE) chief executive,
Kenneth Lay, contacted two top officials last autumn and warned his company was headed toward
bankruptcy, White House spokesman Ari Fleischer said.

However, Fleischer said that Lay's appeal for help from the government was rebuffed. In his appeal,
Lay compared Enron to Long-Term Capital, a hedge fund that collapsed in the 1990s and sparked
fears that its collapse could cause a shock to the financial system.

“What was told to me this morning was (Treasury) Secretary Paul O'Neill said that he had been
contacted by Mr. Lay in the fall of last year and Mr. Lay brought to the secretary's attention his
concerns about whether or not Enron would be able to meet its obligations. And he expressed his
concern about the experience that Long Term Capital went through when Long Term Capital went
bankrupt," Fleischer said.

“Secretary O'Neill then contacted (Treasury) Undersecretary (Peter) Fisher to ask him to evaluate
whether the comparison was apt, and the Department of Treasury was advised that it was not apt as
a result of Secretary Fisher's review,” Fleischer said.

Interest in the administration's ties to Enron have been high because Enron was a major donor to
President George W. Bush's political campaigns.

Democrats on Capitol Hill have begun hearings to see to if there was any impropriety in Enron's ties
to the White House,

Further complicating the situation is that fact that many Enron employees held company stock in
their 401K plans. Enron prevented the employees from selling their shares while the company
collapsed, wiping out their savings in some cases.

Fleischer also said that Lay talked to Commerce Secretary Don Evans and expressed concems
about Enron's credit rating as the company experienced financial troubles.

Earlier in the day, Bush announced that two government working groups would begin reviewing the
322

01300000000461


steps at the right time, though many didn't because the stock was long a highflier,

One of these is Kenneth Parrish, an electrician at Portland General Electric, an Enron subsidiary,
who essentially has lost additional benefits related to his pension from Jan. 1, 1999. That was when
the pension plan for unionized employees, including Mr. Parrish, was changed, The pension benefit
they already had earned was frozen; instead of continuing to add to the pension, the company gave a
cash contribution of 5% of employees’ pay to their 401(k) plan, where they could put it into a variety
of investments, including Enron stock.

Unfortunately, Mr. Parrish and many others elected to put the pension-related contribution into Enron
stock, along with his own 401(k) savings. “It seemed like such a good investment," says Mr. Parrish,
who is 43 years old. Moreover, the company’s matching contribution to his 401(k) was in Enron stock
that couldn't be sold till the employee turned 50. As a result, the value of his savings plan, including
the pension amounts, fell from about $200,000 to a couple of thousand dollars.

Mr. Parrish, a single father of two daughters, who are 16 and 17, now isn't sure what he will do. "| got
doubly slammed,” he says. "Not only did | lose all my retirement savings, | lost the pension savings,
too." He is selling his house and planning to buy a trailer. "This ruined me,” he says.

Meanwhile, salaried workers at Enron had a different kind of pension arrangement that exposed
them to fluctuations in Enron stock. The company coordinated their pension plan and their employee
stock ownership plan, so that the value of their ESOP accounts permanently erased benefits in their
pensions.

That is because Enron had a "floor-offset" arrangement, which has been used by many companies,
including Hewiett-Packard Co. and Airbome Inc. These arrangements are intended to provide
participants with the “better of" the two plans, the savings plan (either an ESOP or a profit-sharing
plan) and the pension.

In a simple floor-offset arrangement, if an employee leaves the company and his ESOP account is
worth, say, $60,000, the company figures out how much this would be worth if it were converted to an
annual pension in retirement. In this case, the ESOP's equivalent value might be $6,000 a year in
retirement. If the employee has already earned a pension worth $50,000 a year in retirement, the
employee wouldn't get $56,000 a year -- the combination of the two -- but just $50,000. (The $6,000
annual ESOP value is subtracted from the pension, so the person ends up with an annual pension of
$44,000, plus the $6,000 a year from his ESOP account of $60,000.)

If the ESOP performed really well, and was worth, say, $70,000 a year if converted to a pension, the
employee would simply keep the ESOP, and not get the pension. If the ESOP didn't perform well, the
pension would serve as the “floor” benefit. In other words, even if the ESOP fell to zero, the
employee would still have his full pension of $50,000 a year.

But it didn't work this way at Enron, even though the ESOP accounts have become virtually
worthless because of the decline in Enron's stock. In an unusual arrangement, Enron calculated the
ESOP “offsets” based on the price of the stock from 1996 to 2000, when it was trading between
$37.75 and $43.44. It then used the locked-in value of the ESOP accounts to permanently offset the
value of pensions that employees had earned between January 1987 and January 1995.

In other words, Enron has reduced the amount of the pension by subtracting the former -- and far

higher -- value of the ESOP, even though the ESOP today has virtually no value and thus can't make
up for the difference.

01300000000375


Nickoloff, Peter

From: Carleton, Norman
Sent: Thursday, January 10, 2002 11:57 AM
To: Bair, Sheila, Berardi, Steve; Bitsberger, Timothy; Eichner, Matthew; Gabilondo, Jose; Gross,

Jared; Hammer, Viva; Lori Sanatamorena (E-mail); Nickoloff, Peter; Novey, Michael;
Pietrangeli, Fred; Roseboro, Brian; Schultheiss, Heidilynne; Whaley, Jean; Wiedman, Mark
Subject: AP: Bush Orders Treasury To Eye Pension, 401K Rules - Sources

January 10, 2002

Bush Orders Treasury To Eye Pension, 401K Rules - Sources

WASHINGTON (AP}--U.S. President George W. Bush, in a follow-up to the criminal investigation of
Enron Corp. (ENE), has ordered the Treasury Department to review rules regulating company
pension and 401(k) plans, The Associated Press has leamed.

Administration sources, speaking on condition of anonymity, said Bush would announce the action
Thursday in the Oval Office, in part to inoculate himself politically from the bankruptcy of the Texas-
based energy company that has ties to Bush and administration officials.

The Justice Department announced Wednesday it has begun a criminal investigation of the bankrupt
energy company, whose collapse caused many employees to lose their life’s savings.

The Justice Department is forming a national task force to look into the company's dealings. The
group will be headed by lawyers at the department's criminal division and include prosecutors in
Houston, San Francisco, New York and several other cities, said a Justice Department official,
speaking on condition of anonymity.

As a follow-up, Treasury Secretary Paul O'Neill will head a review of laws and regulations to
determine if they can be tightened to protect worker pension plans. A senior official involved in
discussions on the issue said the Justice Department will determine whether Enron broke any laws
and the Treasury Department will study whether Enron's conduct, although potentially legal, exposed
loopholes in the system.

Enron's chairman and chief executive, Kenneth L. Lay, is a political ally of Bush's. He and other
Enron officials met six times with Vice President Dick Cheney or his aides last year, before and after
the release of the administration's energy plan.

Lay and his company have been leading contributors to Bush as well as to a long list of Democratic
and Republican candidates.

The Center for Public Integrity, a nonpartisan watchdog agency in Washington, says Enron's
executives contributed nearly $800,000 to Bush, members of Congress and the two national political
parties from 1999 to 2001.

A senior Bush adviser said the president wants to protect workers" pensions. His political team, the
adviser said, is worried that the administration could face intense criticism for its association with Lay
and Enron as hearings heat up on Capitol Hill.

14

01300000000444


Sales to Partnerships

Enron's financial statements show the division was in decline since late 2000. Revenue of $162 million in the third quarter
of that year slipped to $83 million by the first quarter of 2001 and $16 million by the second quarter, At the same time,
pretax losses rose from $20 miftion in the third quarter of 2000 to $102 million by the second quarter of 2001

Much of the revenue came from sources other than trading. Enron derived some of it from investments in companies such
as Rhythms Netconnections Inc., a provider of local high-speed networks whose shares rose more than fourfold in the
month after it went public in April 1999. The company fited for bankruptcy in August.

Enron generated about 20 percent of the $318 million gross profit reported for 2000 from selling a block of fiber to
partnerships controlled by Fastow, the former CFO.

Recording a Gain

In June 2000, the partnership, known as LJM2, paid $100 million —- $30 million in cash and $70 million in an interest-
bearing note — for some of Enron's fiber, according to SEC filings. Enron booked a $67 million pretax profit from the sale
and received $20 million for operating, maintaining and marketing the fiber.

Enron's profit from the transaction depended on LJM2's ability to find 2 buyer willing to pay a higher price for the fiber. In
December 2000, it found two. LJM2 sold part of the fiber to unnamed "industry participants" for $40 million and set up @
“special purpose entity" that bought the rest of the fiber for $113 miltion, according to SEC filings

In six months’ time, the value of the fiber, based on Enron's accounting, rose by $53 million. Banaszex said even the initial
$67 million profit seems unlikely because fiber prices fell during most of 2000.

Yeck decided to quit in October, after being transferred to the trading desk, She said “there was nothing to do” and the
staff battled over trades in the hope of winning performance bonuses that made up most of their compensation.

“It was like a piece of meat in a pack of wolves," Yeck said. “They would claw and scratch and do whatever i took to get
a”

Broadband Fails

Many of Enron's competitors had already given up on broadband. Koch, which set up a bandwidth trading business in
September 2000 under its Koch Investment Group unit, had three employees devoted to broadband. After signing one
contract, Koch stopped trading in the market because of lack of demand.

The amount that broadband cost Enron became clear in November, after the company restated earnings to reduce them
by $586 million over the past 4 1/2 years.

The unit took $277 million in charges for restructuring, soured equity investments, wriling down excess network equipment
and adjusting the value of a derivative investment. Enron didn't provide details on the derivative, which resulted in negative
revenue of $125 million for the quarter, according to statements filed with the SEC.

With bankruptcy looming, Enron said it would sell its broadband operation, along with other assets. During a conference

call on Nov. 14 to discuss the sale, Skilling's replacement, Greg Whalley, told analysts what Dixie Yeck had suspected a
year earlier: “The return for these investments and businesses is dismal.”

wi

01300000000450


were still worried, and Enron later closed out its deals with the partnerships.

Q. How did Enron do?

A. Badly, It took a $35 million loss, which, given the size of the transactions involved and the previous profits
taken, was not very much, But it also reduced shareholder equity by $1.2 billion.

Q. How did that happen?

A. That, like so much else, is not clear. But it looks as if the partnership owed Enron that much money, could
not pay and was let off the hook by Enron, In return, Enron terminated "previously recorded contractual
obligations to deliver Enron shares in future periods.” Enron treated that like a share buyback, even though the
shares in question had not been issued, and determined that there was no need to treat it as a loss that would

reduce reported earnings.
Q. Is that legal under the accounting rules?

A, Presumably it is. But Enron's limited disclosures make it impossible to say for sure. Enron may have
discovered ways to use the accounting rules to enable it to keep losses off income statements, while leaving
profits on them, That may become clearer when the Securities and Exchange Commission, which has begun
preliminary inquiries, completes its work, FLOYD NORRIS

<hitp: Copyright 2001 The New York Times Company becribefhel ight himl> Privacy Informal
http://www. nytimes.con/info/help/privacy html>

2 02647

01300000001256


Several Wall Street firms took steps last year to defuse criticism that conflicts of interest taint analysts’ research. in July,
Merrill Lynch announced that its analysts could no longer own shares in the companies they cover. CSFB soon followed
with similar announcements.

As of Dec. 17, wilh Enron a penny stock, fetching 57 cents a share, 7 of 17 Wall Street analysts rated the stock a “hold”
and 5 offered a “sell” recommendation.

Five other analysts advised their clients that the company at the center of the biggest bankruptcy filing in U.S. history was
still a “buy.”

01300000000371


The Justice Department Wednesday confirmed that it is forming a special task force to combine the
efforts of prosecutors nationwide who are investigating Enron. The nation's largest energy trader

filed for protection from creditors under federal bankruptcy law after its market value plunged upon
disclosures that it apparently misrepresented its financial condition.

-By Mark Wigfield, Dow Jones Newswires; 202-828-3397; mark.wigfield@dowjones.com

The Justice Department said Ashcroft made his decision without knowledge of a letter sent to him
Thursday by Rep. Henry Waxman, D-Calif., that raised questions regarding Enron's campaign
contributions to Ashcroft.

"As welcome as the Department of Justice's involvement is, it raises an awkward question regarding
your own personal background with Enron," Waxman wrote. "As you know, during your last election
campaign in 2000, Enron was one of your largest contributors."

Waxman also cited Federal Election Commission records showing that Ashcroft had received
contributions from Enron and its employees totaling more than $60,000 since 1994, including a
$1,000 1994 contribution from Enron's Kenneth Lay, when Ashcroft first ran for the Senate.

Waxman also cited criticism by the campaign finance watchdog group, Common Cause. The group
last January complained to Senate Judiciary Committee Chairman Patrick Leahy, D-Vt., that the
Ashcroft Victory Committee illegally mixed non-federal "soft money” that can only be used for party
building activities with "hard money” that can go directly to an election campaign in an effort to
exceed federal campaign contribution limits.

Leahy was ranking Democrat of the panel at the time because the Senate was still controlled by
Republicans.

Waxman didn't recommend a specific course of action for Ashcroft. But “at a minimum, | would hope
that you would immediately fully disclose your past background and contacts with Enron and
seriously consider whether it is appropriate for you to be involved in the criminal investigation of
Enron," he wrote.

The Justice Department said Ashcroft "voluntarily recused himself from any Enron matter," with the
concurrence of Justice Department ethics officials.

In a statement, Leahy praised Ashcroft's decision.

“Attomey General Ashcroft has taken the appropriate step, and | commend him for it,” Leahy said. “|
have full confidence in Deputy Attorney General Larry Thompson and his ability to pursue this
investigation."

-By Mark Wigfield, Dow Jones Newswires; 202-828-3397; mark.wigfiekd@dowjones.com

ne

01300000000478


Enron entered the 1990s as a Houston-based pipeline operator and transformed itself into the dominant trader of natural
gas futures, controlling as much as 30 percent of the gas futures contracts traded on the New York Mercantile Exchange.
The company repeated that success in markets for trading electricily and weather derivatives.

Skilling promised investors, including those at the meeting last January, that Enron would deliver 20 percent to 30 percent
profit growth annually by applying the same strategy to new markets. Enron began trading in metals, lumber and
broadband and set up companies such as New Power Holdings Corp. and Azurix Corp. to tap deregulated electricity
markets and buy and sell water.

Toll of Failures

None of the ventures generated the profits that flowed from Enron's early trading businesses. By the third quarter of 2001,
98S, power and weather trading generated $717 milion in pretax profit, Losses from other operations topped $1.4 billion,

“We made millions, and they just kept putting it into the next business hoping it would be the next big thing,” said Tom
Donohoe, an Enron natural gas trader who was fired in December. ““Azurix was a flop. Broadband was a flop. Any one of
them we probably could've absorded, but it was just one after the other,”

For a while, Enron endured the losses by shifting debt and assets off its books using partnerships capitalized by the
company’s shares, which rose 87 percent last year. Many of the partnerships were set up by former Chief Financial Officer
Andrew Fastow, who made $30 million running them, according to SEC filings.

Chain Reaction

When Enron's shares began falling, the company becarne liable for off-balance-sheet deol. That set off a chain reaction
that cut the company’s credit rating, scared off customers and drove Enron's shares 2s low as 26 cents. The stock's
decline wiped out the savings of thousands of employees who'd loaded their 401(k) retirement plans with Enron shares.
The SEC, the Justice Department and Congress are investigating.

Lay, Skilling and Fastow declined interview requests. They are named as defendants in more than 40 lawsuits filed by
shareholders and employees and are among Enron insiders who sold more than $1 billion of company stock during the
past three years.

Broadband Strategy

Enron set up its broadband unit @s Internet growth wes peaking and thousands of companies were creating retail Web
sites, electronic exchanges and inventory managernent systems that needed to move data over high-speed lines. Enron
planned to make a market in access to the lines, serving as a middleman between companies that wanted to sell
transmission capacity and those that wanted to buy it.

Enron also began building a fiber-optic network, spending $436 million in 2000 alone on 18,000 miles of cable that it
planned to connect to transmission equipment and lease to users.

In its first contract, the one Yeck signed with Global Crossing, a telephone and date network operator, Enron agreed to buy
bandwidth capable of moving data and streaming video between New York and Los Angeles. Enron planned to resell the
bandwidth at a profit.

“This is ‘Day One’ of a potentially enormous market," Skilling said in a news release on Dec. 2, 1999. ~The market
structure for bandwidth is currently inefficient and expensive. We are demonstrating that bandwidth can be traded under
flexible, market-based contract structures."

Enron began transferring hundreds of employees from other divisions, eventually assigning 1,500 to its broadband trading
unit. That was more than three times the number of employees Williams Communications Group Inc, hired for its
broadband business, which had 33,000 miles of fiber, almost twice as much as Enron.

Spending Plans

Ata Houston investor conference in September 2000, Lay said Enron had completed 90 bandwidth trades. He announced
@ plan to spend as much as $1.95 billion to beef up Enron's fiber network and trading operations in two to three years.

ci)

01300000000448


10K Wizard - SEC filings Page 48 of 83

Financial Statements included herein have been adjusted to reflect the
anticipated impacts of the restatements discussed in Note 3. For the impacts on
Enron's Consolidated Financial Statements for the years ended December 31, 1997
through 2000 and for the first and second quart: of 2001, see Note 3 to the
Consolidated Financial Statements. While these restatements reflect Enron's
current understanding of the relevant facts, it is possible that the Special
Committee's investigation will identify additional or different information
concerning these matters and Enron cannot predict what impact the information
gathered by the Special Committee may have on the financial information included
in this report. As a result, Enron will not isaue amendments to its annual
reports on Forma 10-K for the years ended December 31, 1997 through 2000, or its
quarterly reports on Forms 10-Q for the quarterly periods ended March 31, 2001
and June 30, 2001 to reflect the anticipated restatements of Enron's
Consolidated Financial Statemente until the Special Committee haa completed its
investigation.

CONSOLIDATED NET INCOME

Enron reported a logs of $644 million in the third quarter of 2001
compared to $303 million of earnings in the third quarter of 2000. The
significant decrease relates to losses on investing activities discussed in
“Corporate and Other", the impairments by Azurix Corp. discussed in "Global
Assets" and charges recorded by Broadband Services, Enron's business is divided
into eight reporting segments.

Wholesale - Americas. The Whole:
consists of Enron's gas and power ma:
activities in North and South America.

© - Americas segment (Americas)
t-making operations and merchant energy

44

PART I. FINANCIAL INFORMATION - (CONTINUED)

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
ENRON CORP. AND SUBSIDIARIES

Wholesale - Europe and Other Commodity Marketa. The Wholesale - Europe
and Other Commodity Markets segment (Europe and Other) includes Enron's European
gas and power operations and Enron's other commodity businesses, such as metals,
coal, crude and liquids, weather, forest products and steel.

Retail Services. Retail Services is extending Enron's energy expertise
and capabilities to end-use retail customers in the industrial and commercial
business sectors to manage their energy requirements and reduce their total
energy costs.

Natural Gas Pipelines. The Natural Gas Pipelines segment includes Enron's
interstate natural gas pipelines, primarily Northern Natural Gas Company

(Northern), Transwes’ Pipeline Company (Transwestern), Enron's 50% interest
in Florida Gas Transmission Company (Florida Gas) and Enron's interests in
Northern Border Partners, L.P. and BOTT Bnergy Partners, L. (BOTT) . 02 1 14

Portland General. This segment consists of Portland General Blectric, an
electric utility in the northwestern U.s.

Global Assets. The Global Assets segment includes energy-related assets
that are not part of Enron's wholesale or retail energy operations. Major asseta
of this segment include Elektro, an electric utility in Brazil; Dabhol, a power
plant in India; natural gas pipelines in South America; Enron Renewable Energy

http://ocbn. tenkwizard.com/print, php ?repo=tenk&ipage=1542028&doc=1 &TK=ENE&CK=1024401&exp=&(..d 1/9/02
01300000000722


Maneuver for the strickened LTCM, animinated in that effort by concerns of systemic risks. Sounds
like Lay was trying to float the systemic risk possibility - and Fisher blew it away.

Told by a questioning reporter that it sounds like Lay was asking for a bailout, the White House Press
Secretary said, "| don't characterize it one way or another, | just report to you what was said. | leave
the characterization to others. That was the conversation with Secretary O'Neill.”

He later added that O'Neill told him the O’Neill-Lay conversation occurred in October.

- With respect to the O'Neill and Evans conversations with Lay, Fleischer told reporters, "This
morning, Secretary O'Neill and Secretary Evans made the information known, and we immediately
shared it and provided it to you.”

Asked specifically when President Bush learned that the two secretaries had talked to Lay, Fleischer
said, “This morning.”

- Attorney General John Ashcroft, another recipient of Enron campaign contributions during his
unsuccessful Senate race in 2000, recused himself from the Enron investigation, as did David Ayers,
Ashcroft's chief of staff who previously served as his campaign manager.

Earlier in the day, Fleischer at the White House had said that "the president has full faith and
confidence in the professional prosectors of the Department of Justice, and in the attorney general,
to get to the bottom of all the allegations of criminal wrongdoing by Enron."

- Speaking of the president and Enron, Fleischer was asked when Bush learned of Enron's financial
difficulties. "He learned last fall," the press secretary said.

“And | couldn't tell you if he leamed as a result of media accounts when everybody wrote that Enron
had gone bankrupt or through other any other mechanism,” Fleischer added. "He learned last fall.”

35

01300000000474


In a separate phone call to Commerce Secretary Don Evans, Lay similarly worried that the company
might have to default on its obligations. He brought to the secretary's attention “that he was having
problems with his bond rating and he was worried about its impact on the energy sector," Fleischer
said,

After that conversation, Evans spoke to O'Neill “and they both agreed no action should be taken to
intervene with their bond holders," Fleischer said.

The spokesman had said Wednesday he did not know of anyone in the White House who discussed
Enron's financial situation.

Fleischer also brushed aside talk of any conflict in the Justice Department investigation and said
there was no reason to tum the probe over to a special counsel.

Lay gave $25,000 to a leadership committee headed by then-senator and now Attorney General
John Ashcroft, according to the Center for Public Integrity.

An attorney for Enron welcomed Ashcroft's inquiry, the latest in a series of governmental probes into
the company's demise, saying the investigation would “bring light to the facts."

“We want to get to the bottom of this too," said Robert Bennett, a Washington attorney representing
the Houston-based company. **A lot of decent and honorable people work at Enron and we should
wait until the facts are out.”

Bush ordered a separate review Thursday of pension and corporate disclosure rules that could
jeopardize workers' savings. ‘There has been a wave of bankruptcies that have caused many
workers to lose their pensions and that is deeply troubling to me," Bush said.

The Justice Department is forming a national task force to look into the company's dealings. The
group will be headed by lawyers at the department's criminal division and include prosecutors in
Houston, San Francisco, New York and several other cities, said a Justice Department official,
speaking on condition of anonymity.

The official declined to say when the investigation began. Enron faces civil investigations by the
Labor Department and the Securities and Exchange Commission and subpoenas from congressional
committees.

All are looking into the energy trading company’s collapse, the largest bankruptcy filing in U.S.
history.

The failure hit employees and investors hard. Workers were prohibited from selling company stock
from their Enron-heavy 401(k) retirement accounts as the company's stock plummeted, Many lost
their life's savings.

Enron executives cashed out more than $1 billion in stock when it was near its peak.

Former Enron chief executive Jeffrey Skilling, who left the helm nearly two months before the
company's swift descent, welcomes the investigation, said spokeswoman Judy Leon. Skilling has

said he had no idea, despite Enron's falling stock values, that the company was on the brink of
failure.

320

01300000000459


10K Wizard - SEC filings Page 40 of 83
36

\PART I. FINANCIAL INFORMATION - (CONTINUED)

ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
ENRON CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In August 2001, after Jeff Skilling resigned from his position as CEO,
Ken Lay, Chairman of the Board, assumed the additional responsibilities of CEO.
In addition, Greg Whalley and Mark Frevert were promoted to president and chief
operating officer and vice chairman, respectively, and joined Mr. Lay in the
Office of the Chairman. The Office of the Chairman serves aa Enron's chief
operating decision maker in allocating resources to and assessing the
performance of its business units. In connection with these events, Enron
reorganized the manner in which its business unite report to the Office of the
Chairman. Enron's new reporting segments are Wholesale - Americas, Wholesale -
Europe and Other Commodity Marke Retail Services, Natural Gas Pipelines,
Portland General, Global Assets, Broadband Services and Corporate and Other.
Year 2000 results in the following table have been restated to reflect this
change.

Additionally, beginning in 2001, the commodity-related risk management “
activities of Retail Services’ North American customer contracts were
transferred to the Americas segment, consolidating all North American energy
commodity risk management activities within one segment. In 2001, Retail
Services' business includes origination of new commodity and energy asset
management and services contracts, execution of energy asset management and
services activity and management of customer relationships. Year 2000 results in
the following tables have been updated to reflect this change.

37

PART I. FINANCIAL INFORMATION - (CONTINUED)

ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
ENRON CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Europe
and
Other
Commodity Retail
(In Millions) Americas (c) Markets Services (c)
Three Monthe Ended
September 30, 2001
Unaffiliated revenues (a) $26,581 $16,401 $ 504
Intersegment revenues (b) 371 7 (3)
Total revenues $28,952 $16,408 $ 501

Income {loss} before interest, 02 1 06

minority interests and

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013000000007 14


10K Wizard - SEC filings Page 43 of 83
September 30, 2000(e)

Unaffiliated revenues (a) $1,442 $1,136 $ 335
Intersegment revenues (b) 11s py =

Total revenues $1,557 . $1,150 $335

Income (loss) before interest,
minority interests and
income taxes $ 241 . $ 117 $ (38)

(a) Unaffiliated revenues include sales to unconsolidated affiliates.

(b) Intersegment sales are made at prices comparable to those received from
unaffiliated customers and in some instances are affected by regulatory
® considerations.

(c) The 2000 amounts have been changed to reflect the new segment presentation.
In the prior year, Retail Services reported revenues and IBIT of $1,476
million and $30 million, respectively, for the third quarter of 2000.
Updated full year 2000 revenues and IBIT were $1,766 million and $173
million, respectively. Operating results in 2001 include servicing charges
from Americas for management of Retail Services’ risk management
activities. These servicing charges are reflective of the applicable level
of risk management services provided and have been presented on a basis
consistent with how such charges are reported internally.

(ad) Includes consolidating eliminations. ~

.
(e) Restated (see Note 3).
39

PART I. FINANCIAL INFORMATION - (CONTINUED)
ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)

ENRON CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Total assets by segment are as follows (in millions):

02109

September 30, December

2001 2000(a

Americas $26,735 $31,123
Europe and Other Commodity Markets 14,786 21,81
Retail Services 1,476 1,27
Natural Gas Pipelines 3,457 3,52
Portland General 4,254 4,77
Global Assets 7,593 7,89
Broadband Services 1,277 1,32
Corporate and Other 2,235 3,18

Total Asseta $61,783 $64,92
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; 01300000000717


ET otlorloz
AFP takes over Enron:

offices in Scandinavia

Marvnewe Jones

Ammeriont
the Ste
ary

Fievteie Power
‘qroeap, svete
ttended itt Bure
y trading operation
late ‘le Moric region by
sesumang conn ol af Euron's
Mors be Okie avd Since

which tee math
fons)

th ey to Ben,
at beet hiewd ge of
former trodes ox well
middle amd back
equipment, The deat dues
fut include Enron's Sse
‘trading beck. out the oom:
pany stid it mvieht conieder
‘busing this in tho Sutere
The Neetic prviver wrsrb=t
th ame of the mot miter
dorercteted markets

A

Group says ‘mu

Shieh iecladed © lucrative
nendoulfs”

“golden
tiered

Ruropa tut ts wie Crom
RICE ALI nas bee
to date, The
innate f
und the UX
it Somgh
tausers’s Largest power sl
Uons cor tw: 4999ErG) trom
on. Missgen Kaeney of

well acs brastiong eutepy
orvay. hewlen, Dee
ht, Fiadcoed aut Corunans,
the Noni operanans til
centince w trade weather
terivnives, as Quy did
uncer Enron's ownership.
Te valve af (he teal ans
not enecicerd ban Meat
te be iru tues ia 9 similer
ay te the acnatihon of

deat

o1/oflez

oaditian te ube
hae pe r the
coal cal taal ime

traders

4 ins clog itt,
1 That Sempre
Energy of Ure 1S eas fot by
buy Karen's Loncisn-based
metal trading beaknens.
SLMYRS wmVeREE aa thei

Dut lastanimute
worst uni
Gray's structions mew it ty
y to take a few

Keren bonpht the metals
trodieg berdues UW cunts
age from MG. tee trader, for
Shum The dew <ih Sem
Tit 16. expect f fitch Taw
‘than thie becattce it wil) not

include the

urteations?
mat tied

(heelf

Itiple bids

received’ for trading arm

By Airetraw I eed Jule Ear
in me How Rive

hares, the dasicrent energy
Cader, aid yesterduy tt bad
rocrtved “nauttipie tals” far
tte trading eperations.

Two basks ~ Citigroup
wud URS ~ bave wonntet
Dds, according to preyh
close Gre process. Neither
company Ras cewmeutod,
aud Boron refosed to meme
the Bidder». The beck are
mnderstond, howeres, to
have Rid for a majorly
stale in New nesey Tetd~
img Cocipemy iNotea), tbe
pew jorne yendare for the
tearlbog Pais

HP, the wil eueapany, said
yesterday 3¢ had offered
sit for a suesit part of
Rnron’s trading bwsinose.
hat the London Races aoey

nas not Did fer a eugerit
the vere oprrutings.

The main bidders are
wetihels to have oftered
Jorge upfront easb pays
mots, inetead, Karen's wim
is to find & credi¢worthy
ocktr that if! alkew It to
revive ibe lading hesiaces.
Uatit Karon eollapsec into
bankrupts last anooth, the
trading operations werr the
forges combributor to the
eOUp'E THvETEHES,

Buiker WES or Citigroup,
which dave strung inlaser
sbpots, would Cit Cer Will as
creditworthy partners
which coukd bolp te restore
cwafdence in ‘6 bral
20 cei repweties.

BP said fe S25 Bik wow
smaoly for information tect
nology sseiems. tarladiug
software and Liowoor rigts

for middte and tavceoftive
wyedems. Borou would be
ahin t0 cortings sang thor
wsyslema idsclt, but BP, i ioe
bid was successful, could
adopt dhe same terbnelogy
for it, ovn treading
tperations. EMP suet it might
eagotinte for sdber parts of
the Bosines: if ts Md wos
aakucceustal.

The auction of the assets
is dow to take piace tomer.
row in the Nyw’ York bank
rapley court. The court hes
scheduled « heartug an Prt
day to approve a buyer.

A screcomifel auction vill
be important in Enron's
attempl to restructure and
emerge [reous YaBkrapery,
Addisionat reporimg by
Shade MeNway or Houster
aid Morchiw eves i

Gedi

Page 24

Wednesday, Janeasry 9, 2002

01300000000427


01300000000423


Enron, which filed for Chapter 11 bankruptcy-law protection on Dec. 2, has said that the sale of its
trading operations to a company with a stronger balance sheet is a vital part of its restructuring plan.

"We're worried that if we delay any longer, we won't have a trading company to sell," said Martin
Bienenstock, of Weil Gotshal & Manges, which represents Enron. The auction is also “urgently”
needed, he said, because Enron traders may leave if business doesn't pick up soon. All new trading
activity has ceased because Enron doesn't have capital to finance the transactions.

Enron has been negotiating with both Citigroup and UBS AG to take contro! of the unit, according to
people familiar with the matter, but it is unclear whether either company will emerge with a bid for
others to top in the court auction.

Write to Jathon Sapsford at jathon.saps ailto:ja
Chu ot kathy chufpwel comm “malities oot

som> and Kathy

275

01300000000384


M7 otfog lo.

By JEFF GERTH

WASHINGTON, Jan. 8 — Off
‘cals of the Enron Corpor ation met
four times last year with the staff
‘of Vice President Dick Cheney's
task force to disewss ener~

never

task force issued its report ie May
and well before Enrom began to
disclose its accounting problems.
‘The last meeting, oe Oct. 10, came
a wock before Enron made the
first in a series of disclosures

General Accounting Office, the
Congressional auditing arm, which
has been secking access to energy
task force cecards at the request of

Mr. Waxman and Representative
John D. Dingell, the Michigan
Democrat.

The task force's final recom
mendations on electricity deregu-

Wednesday, January 9, 2002

Page 11

01300000000414

Enron and Cheney Aides Met 4 Times



nuary 8, 2002

Copyright 2002 E & E Pl

Greenwire

shing, LLC

January 8, 2002

SECTION: ENERGY POLICY & MARKETS; Vol. 10, No. 9

BODY:
Colin Sullivan, Greenwire staff writer

A building Senate inquiry into fallen energy trader Enron
Corp. will likely culminate in directed electricity
rectrurturina anlicy hearinas this winter or spring to assess

01300000000418


Nickoloff, Peter

From: Carleton, Norman
Sent: Thursday, January 10, 2002 12:14 PM
To: Bair, Sheila, Berardi, Steve; Bitsberger, Timothy; Eichner, Matthew, Gabilondo, Jose; Gross,

Jared; Hammer, Viva; Lori Sanstamorena (E-mail); Nickoloff, Peter; Novey, Michael;
Pietrangeli, Fred; Roseboro, Brian; Schultheiss, Heidilynne, Whaley, Jean, Wiedman, Mark
Subject: Bloomberg Column: Enron Broadband Trading Losses Grew as Company Touted Success

01/10 10:31
Enron Broadband Trading Losses Grew as Company Touted Success
By Loren Steffy

Houston, Jan. 10 (Bloomberg) -- Dixie Yeck landed Enron Corp.'s first contract to trade space on high-speed phone lines,
@ milestone In the company’s plan to turn fiber-optic bandwidth into a commodity to be bought and sold like electricity and
natural gas,

Her bosses told Yeck her December 1999 agreement with Global Crossing Ltd. was a step toward realizing Enron's goal of
dominating a market that company executives projected would grow to $500 billion in 2005 because of the explosion of the
Intemet.

“Enron wanted to be the biggest buyer and seller of bandwicth," said Yeck, 36, who was in charge of finding
telecommunications companies in the midwestern U.S. that wanted to sell network capacity and businesses that wanted to
buy it. “They got you so pumped up, you just had to believe them.”

Yeck's dream faded in less than a year 2s Internet companies went out of business and those that remained had more
fiber-optic network space than they needed, Yeck said many of her 1,500 co- workers at Enron Broadband Services had
30 litte to do that they spent hours each day surfing the Internet.

“The whole market had started to dry up,” Yeck said. '"| knew EBS was going under.”

Yeck said she listened in cisdelief in January 2001 to an Internet broadcast in which Enron executives told investors the
company's broadband business was booming. Chairman Kenneth Lay said the division had reached the ‘‘critical mass" it
needed. Then-President Jeffrey Skilling touted “enormous growth prospects" for the business. The broadband division, he
said in an interview two months later, was worth $36 billion, or $40 a share, at a time when Enron's stock traded at $70.

“My experience did not match what was being presented,” said Yeck, who quit her job in October, fess than two months
before Enron filed the largest Chapter 11 bankruptcy in U.S. history.

‘Suspect Profits

Even as market prices for bandwidth tumbled in 2000, Enron Broadband recorded gains on its income statement from
equity investments in other companies, derivative instruments and sales of fiber-optic cable among Enron-affiliated
partnerships. Gains from those sales accounted for 20 percent of the division's pretax profit last year.

“There's something nat right about that," said Ron Banaszek, director of bandwidth trading for Tradition Financial
Services, an over-the-counter commodities broker in Stamford, Connecticut. “Prices have been eroding. If there was that
kind of money to be made, | think other (broadband) companies would be making a lot of money right now.”

Surge of Losses

When Enron restated earnings for the past four and a half years in November, the extent of the financial distortions
became clear. The broadband division's $60 million year-end loss ballooned to $357 milion by the third quarter of 2001,
and restructuring a derivative investment resulted in negative revenue of $125 million, according to statements fied with
the U.S. Securities and Exchange Commission.

~The broadband deal was the beginning of the end,” said Ogan Kose, a crude-oil trader who was one of 4,500 Houston
employees Enron fired in December. ‘Instead of writing it off, they continued to carry it."

01300000000447


10K Wizard - SEC filings Page 2 of 83

ENRON CORP. AND SUBSIDIARIES

TABLE OF CONTENTS

EXPLANATORY NOTE 3

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

Consolidated Income Statement - Three
Months Ended September 30, 2001 and 2000 and

Nine Months Ended September 30, 2001 and 2000 4
Consolidated Balance Sheet - September 30, 2001

and December 31, 2000 5
Consolidated Statement of Cash Flows - Nine

Months Ended September 30, 2001 and 2000 ?
Notes to Consolidated Financial Statements 8

ITEM 2. Management's Discussion and Analysia of
Financial Condition and Results of Operations 43

PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 74

ITEM 6. Sxhibits and Reports on Form 8-K 74

EXPLANATORY NOTE r@) 2 r@) 6 8

As explained in a November 6, 2001 Form 8-X filed by Enron Corp. (Enron)
with the Securities and Exchange Commission (SEC), Enron will be filing restated
consolidated financial statements for the fiscal years ended December 31, 1997
through 2000 and for the first and second quarters of 2001 but it has not yet
done so. As a result, the previously issued financial statements for these
periods and the audit reports covering the year-end financial atatements for
1997 through 2000 should not be relied upon. In addition, as discussed in Note 2
herein, Enron's Board of Directora has formed a Special Committee to conduct an
independent investigation and review of transactions between Enron and certain
related parties. The Special Committee has retained the law firm of Wilmer,
Cutler & Pickering (Wilmer, Cutler) as its counsel. Wilmer, Cutler has retained
Deloitte & Touche LLP to provide related accounting advice to the law firm. The

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01300000000676


Page 5 of 7
within certain parameters, because so many people were trying to bail out and couldn't.
CORZINE: We also have a 90-day rule here.
CRIER; Yeah, But, But to tell people, the government, financial planners, no better than you — since all these financial people couldn't figure
out what was happening with Enron, I don't have a lot of confidence -- but to tell us we can't hold more than x amount of stock begins to bother
me. Isn't that a bit Big Brother?
CORZINE: Well, there's two things that I'd comment, First of all, sometimes when there is fraud or deception in accounting statements, it's
easy for investors to draw the wrong conclusions. I think there's a whole set of issues with regard to Enron that surround their accounting
statements.

But as it relates to so-called interference with an individual's decision, the fact is that the federal government is sponsoring 401(k) programs.
It's giving tax advantages both to the employee and the employer for encouraging these 401(k) programs.

I think they're great. I think the defined contribution programs, as embedded in the 401(k) program and a number of the ESOP programs, are

great. But when the government is encouraging it, then I think we ought to follow sound principles of investment management within that
context.

CRIER: The government -- the government is giving people tax breaks, as it docs corporations and others in the IRS code. It's giving tax
breaks to encourage savings, It's not taking the place of either a financial investor or my own judgment as to what | want to invest in.

Now, for example, when Enron was $802 share, | would probably be pretty angry if the Senate was telling me I couldn't buy much of that stuff
that I wanted. Now, if I'm going to be foolish enough to do that, isn't that really my choice? Of course, it's very different from the company
telling me I have to buy their stock.

CORZINE: Again, when I think public monies are used to encourage retirement savings — and by the way, if you were in a divine benefit
program, the ERISA laws have a 10 percent limit when professional money managers are responsible — I think it is reasonable that the public
ought to say that we use our money consistent with sound financial planning advice.

CRIER: OK. Final question...

CORZINE: And that’s what you'd hear from anyone who has been involved in financial markets over time.

CRIER: Yeah, well, | do agree with the principle. But final question, Senator. All these people who have lost their retirement portfolios are
going to be desperate, Anything about the Enron investigation that can give them hope they'll see money back?

CORZINE: Well, I think there is the potential that there may be some recovery from some of the individuals who have benefited from Enron,
particularly inside the company.

If we find out with the fullness of time of investigations, either by the Justice Department or other entities that there was fraud involved, then 1
think we can go back for recovery, some people who may have assets, That's part of the process, the legal process, and | think it has to run sts
course.

CRIER: OK.

CORZINE: Thank you.

CRIER; Senator Jon Corzine, thank you very much,

And just as a side note, the judge down in Houston — for all of you at home -- the judge down in Houston that's looking at this is thinking about
freezing the financial assets of 29 current or former execs over at Enron. Still debating, and maybe there is some moncy there to glom on to.

In the meantime, anyone smell a rat in the whole Enron mess? Well, perhaps even more than one.

Joining us to do some sniffing around are "Business Weck" economics editor Peter Coy, who is in New York; in Los Angeles, syndicated
columnist Arianna Huffington; and in Sacramento, political writer William Bradley. He's a contributor to the "American Prospect.”

Arianna, | want to start out with you. You wrote a great editorial, really took off on the political question, And it's disturbing to me that we're
hearing a lot about the pension funds and money that people lost, which is critical.

We're hearing a Jot about Arthur Andersen and accounting firms not doing their job. We're not hearing a lot about outright corruption and
possible political connections. What about that?

ARIANNA HUFFINGTON, SYNDICATED COLUMNIST; Well, actually, that is probably the most interesting story, because it's really an

mines 01894

01 300000000502


Nickoloff, Peter

From: Carleton, Norman
Sent: Wednesday, December 19, 2004 3:43 PM
To: Wiedman, Mark; Bair, Shella; Bieger, Peter; Bitsberger, Timothy, DeMarco, Edward; Dorsey,

Karen; Ellett, Marta; Ellis, Dina; Gabilondo, Jose; Gross, Jared; Huffman, Lucy, Hi

Gerry, McGivern, Tom; Mcinemey, Roberta; Nickoloff, Peter; Roseboro, Brian; Salladin, ‘Anne;
Schultheiss, Heidilynne; Smith, Amy; Sutton, Gary; Tishuk, Brian

Subject: Converation with Frank Hampton and ABI Website: House Leaders Continue to Push Netting
rovisions

According to Frank Hampton of TBMA, Dick Armey is also pushing the netting legislation. However,
Sensenbrenner hopes to acheive a compromise on the larger bankruptcy legislation by February and is opposed
to passing the netting legislation separately. In the Senate, Grassley is also opposed to a separate netting bill and
is reportedly avoiding a meeting with Greenspan to discuss this.

Norman Carleton

ABI Website news:

December 19, 2001

House Leaders Continue to Push Netting Provisions

House leaders are trying to nudge forward legislation that seeks to prevent systemic financial crises by allowing
creditors to “net out” their derivatives losses with major counter parties that have filed for bankruptcy, The
American Banker reported. It is still unclear, however, whether even they will be successful in overcoming the
political obstacles that have stalled it for more than 2 year - especially considering that Congress is expected to
adjoum for the year as early as this week. Majority Whip Tom DeLay (R-Texas) “believes that it's important to
get the netting provisions done, either within the context of bankruptcy reform or elsewhere,” a spokesman said.

Such highly technical bills rarely attract the attention of top House or Senate leaders, but the recent collapse of
Enron Inc. has given the netting legislation newfound relevance. Federal Reserve Board Chairman Alan
Greenspan and Treasury Secretary Paul O’Neill say markets are at risk until a law is enacted that allows
contracts to be quickly and easily netted out without the approval of slow-moving bankruptcy courts. Holding it
up, however, is House Judiciary Committee Chairman James Sensenbrenner (R-Wis.), who heads the House-
Senate bankruptcy legislation conference committee. The netting legislation is a part of the bankruptcy reform
legislation. Sensenbrenner and some Senate Judiciary Committee members, including bill sponsor Charles
Grassley (R-lowa), oppose passing the netting authority separately because they still hope that the relatively
uncontroversial provisions will propel the bankruptcy package.

Though industry sources said they have reccived commitments from House leaders that netting will be enacted
by year-end or soon thereafter, they are not expected to force a vote without the support of Sensenbrenner, Even
afler a meeting last week with Greenspan, Sensenbrenner maintained that he was “going to try to keep it in the
bankruptcy package,” his spokesman said.

01300000000379


Page 7 of 7
BRADLEY: Oh, OK. Well. Well then,

CRIER: The point that you just made -- and I'll get you back on here, William, because this is such an important story. The point is that access
will breed complacency and possibly corruption and we better get to the bottom of that.

BRADLEY: Totally deregulated markets and big money politics go hand in hand together.

CRIER: You got it,

BRADLEY: Corruption follows.

CRIER: OK. William Bradley, Arianna Huffington, Peter Coy, thank you so very much. THE POINT will be right back.

(COMMERCIAL BREAK)

CRIER: I know you've got opinions about the Enron mess. We waat to know, Send that ¢-mail to thepoint@icnn.com.

I'm Catherine Crier in New York. Coming up next on Larry King, he takes up the issue of televising the Zacarias Moussaoui trial with guests
like Mark Geragos and Julian Epstein. We'll see you back here tomorrow night. TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE
CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www, fdch.com

LOAD-DATE: January 11, 2002

1/17/02 0 1 896

01300000000504


Coke. J

All looked rosy as Enroa's revenue soared from $14 billion in 1991
to $100 Biliiom in 2001. and ite average annual profit growth for
the decade was s startling 29 percent. That attracted an *A* from
Mall Street rating agencies such as Standard & Poor's amd Moody's
Investor Service. But behind the scenes the books ware being cooked
and the earnings figured inflated as competitors started to bite
into Buron's profit sarging and international investaents failed to
perform well

The first public signs to bresk through Snron‘s secretive corporate
culture came in Auguat when Lay nonchalantly dismissed questions
about # $1.2 billion keduction in shareholder equity related, bi
said, te accounting errors iavolving an Baron partrership run by
Fastow. Purthermore. he denied a1] kmovledge of the Baron
partnerships involving Pastow and Skilling, Belatedly that hae
saroed Lay condemnation . if he didn't know, he. too, was failing in
reuponsibiticy, and for many hin claim ie unbelievable.

“Piret, founders of companies don't tend te ignore what's going on
with their babies and, second, he knows all about accounting

Practices," says # Mall Street banker who spoke on condition of
anonymity. Tm fact, the $$-year-old Saron chairman studied scononics
at the University of Misscurt, earned a doctorate in the subject
and, as & navel officer serving in the Pentagon worked to develop
more efficient accounting aystere. Lay alec served as an aide to ®
federal-goverment regulator for the natural-gas industry.

ARC sources tell INSIGHT that they aleo find it unlikely that Lay
didn't know Enron was slipping rapidly into trouble; along with
Skilling, Lay steadily duaped personal Enron stock throughoct the
year, selling in 457 trades $74 million worth of shares.

Lay and Skilling were not alone in derping shares. other senior
executives sleo bailed cut, including Lou Pai, director of Enron's
energy-services operation, who sold shares totaling -7 willion,
Rebecca Mark-Jusbasche, heed of Enron's indian power plast and ite
water company, who walked away with $79.5 million, Ken Harrison,
‘Deed of Emron‘s Portland General Electric subsidiary, who took hone
#75 willion, and Kenneth Rice, head of Earon #roadbatd Services, who
sold shares worth $72.8 million. Speaking ca the Don Imus Ghow, Sen.
Yoh McCain (R-Ariz.} said it's going to be difficule to *explein

how executives of the company were unloading stock right and left
while the employees were not able to do so."

and Skil tine
Te cee bd

Done Page 19

01300000000422


endorse our stock as @ prerequisite for doing business with the firm," says spokesman Vance Meyer.

‘Taps on Shoulders’

Some Wall Street veterans say they don’t find that Genial persuasive, “Even if there were no spoken agreements, you can
bet analysts often got taps on the shoulders from the investment bankers making sure that they were reminded to keep
‘buy’ ratings intact,” says Phelps. “That's just the way Wall Street works.”

Enron spread the wealth across many Wall Street firms. In May 2001, Enron used six banks -- A. G. Edwards & Sons Inc.,
Banc of America Securities, Dain Rauscher Wessels, First Union Securities Inc., Salomon Smith Bamey Inc. and UBS
Warburg -- to manage a $151 million unit offering for Northern Border Partners LP, one of scores of Enron-controlled
partnerships,

Usually, no more than four underwriters are involved in deals that small, investment bankers say.

CSFB advised Enron on 2 pending $2.9 billion sale of Portland General Electric Co. in October -- one of 41 separate
mergers and acquisitions transactions Enron initiated since January 1999, according to Bloomberg data,

Enron Activity Dwarfs Rivals

That dwarfs the number of deals over that span announced by rivals Dynegy Inc., which struck 15 corporate combinations,
and Kinder Morgan Inc., which did a dozen deals,

Enron further cemented its relationship with Wall Street by borrowing from banks, obtaining letters of credit and trading in
derivatives -- financial instruments such as futures and options whose value is based on other assets.

When Enron filed for bankruptcy in December, its list of creditors was 54 pages long and included Citigroup Inc,, CSFB's
London branch, J. P, Morgan Chase & Co, and UBS.

Goldman Sachs is a dealer for Enron's $4 billion commercial paper program and has arranged six of the company's 15
preferred share sales.

In June 1999, Merrill Lynch managed the $695 million initial public offering of Azurix Corp., Enron's water business, Run by
Enron's former Vice Chairman Rebecca Mark, who resigned in August 2000, Azurix failed in its strategy to buy water
companies and win large projects. It lost a bid to acquire a 49 percent stake in Berlin's water utility, for example.

Enron Buys Back Stock

Enron bought back the stock in 2001, after it had fallen more than 55 percent during the company’s 18 months as a public
entity,

In October, J. P. Morgan and Citigroup's Citibank unit provided Enron with $1 billion in credit lines to help it pay down debt
and meet day-to-day costs. Those loans came just in time for the two firms to win the business of advising Enron on its
planned acquisition by Dynegy.

J. P. Morgan and Citigroup’s Salomon were set to charge $90 million -- $45 million each -- for that advice, according to
people familiar with the arrangement.

Dynegy was set to pay $15 million in advisory fees to Lehman Brothers. That would have been Lehman's biggest such
transaction in 2001.

Dynegy Deal Falls Through

In December, after the Dynegy deal fell through, Enron obtained as much as $1.5 billion in new financing from J. P.
Morgan and Citigroup. On December 11, J. P. Morgan filed a lawsuit in Enron's bankruptcy case, seeking $2.1 billion --
funds the bank said aren't part of the energy trader's assets shielded from creditors by the Chapter 11 filing.

Enron traded derivatives in energy, broadband and weather with a host of investment firms, and at the time it filed for
bankruptcy, it owed some of them hundreds of millions of dollars.

263

01300000000368


10K Wizard - SEC filings Page 34 of 83

Natural Gas Company (NW Natural) for the sale of Portland General for $1.9
billion, comprised of $1.55 billion in cash, $200 million in NW Natural
preferred stock and common stock purchase unite, $50 million in NW Natural
common stock and the assumption of Enron's $75 llion balance on its customer
benefits obligation, which was stipulated in its 1996 agreement to purchase
Portland General. In addition to the purchase price, NW Natural will assume
approximately $1.1 billion in Portland General debt and preferred stock. The
Proposed transaction, which is subject to customary regulatory approvals, is
expected to close by the fourth quarter of 2002; however, no assurances can be

31

PART I, FINANCIAL INFORMATION - (CONTINUED)

ITEM 1. PINANCIAL STATEMENTS - (CONTINUED)
ENRON CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

given that such regulatory approvals will be obtained. Enron currently believes
that the after-tax gain on the sale of Portland General will not be material.
However, certain regulatory and other contingencies could negatively impact
Enron's curYéent estimate. Enron's carrying amount of Portland General as of
September 30, 2001 was approximately $1.6 billion. Income before interest,
minority interest and income taxes for Portland General was $106 million and
$241 million for the nine month periods ended September 30, 2001 and 2000,
respectively, -

8. " * UNCONSOLIDATED BQUITY APPILIATES

Summarized below is a description related to two of Enron's
unconsolidated equity affiliates for which Enron has committed to issue equity
to satisfy obligations of these equity affiliates. As discuesed in Note 2,
Enron's current common share stock price, liquidity situation and credit ratings
may significantly impact Enron's ability to satisfy these obligations solely
with equity issuances. a

WHITEWING ASSOCIATES L.P. Whitewing is an entity formed by Enron and
various investors, investing through an entity named Osprey, to acquire and own
energy-related assets and other investments, Osprey is capitalized with
approximately $2.4 billion in debt and $220 million in equity. The Osprey debt
is supported by the assets within Whitewing, which include Enron Mandatorily
Convertible Junior Preferred Stock, Series B (which is convertible into 50
million shares of Enron common stock), and a contingent obligation of Enron to
iseue additional shares, if needed, to retire such debt obligation. In the event
that the sale of equity is not sufficient to retire such obligations, Enron is
liable for the shortfall.

At November 16, 2001, Whitewing held assets with a book value of
approximately $4.7 billion. This includes approximately $1.3 billion in energy
related projects in Europe and South America, including European power plants,
and an electric distribution company in Brazil, approximately $600 million of
merchant investments, approximately $600 million in demand notes due from Enron
and other assets of $100 million. The merchant portfolio includes both private
and publicly traded entities and consists of oil and gas investments, power
generation and energy investments and technology related and other investments.
In addition, Whitewing holds Mandatorily Convertible Junior Preferred Stock,
Series B, mentioned above, and a contingent obligation of Enron to iseue
additional shares, if needed, which together have a combined book value of
approximately $2.1 billion. This contingent obligation is in the form of a 02 1 00
derivative instrument. As such, both Enron and Whitewing account for this
contingent obligation at fair value. As a result, Enron recognizes losses

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_ 01300000000708


10K Wizard - SEC filings Page 58 of 83

PART I. PINANCIAL INFORMATION - (CONTINUED)

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS = (CONTINUED)
ENRON CORP. AND SUBSIDIARIES ‘

“Unconsolidated Equity Affiliates" below for a discussion of Atlantic Water
Trust.

BROADBAND SERVICES

Enron's network services intermediation business allows customers to
manage unexpected fluctuation in the price, supply and demand of network-related
requirements, including bandwidth and storage. The Enron Intelligent Network
(the BIN), a nationwide fiber optic network, which connects 25 pooling points in
North America, Burope and Japan, provides the infrastructure for Broadband
Services’ products.

Significant components of Broadband Services’ results are as follows (in
millions):

Revenues : ' : $(125) $ 162
Cost of sales 6 9
ee eenccnnneee eee

Gross margin (133) 153
Operating expenses 135 123
Depreciation and amortization 84 52
Equity in earnings (4) -
Other, net (1) 2
Loss before interest and taxes $(357) $ {20)

In the third quarter of 2001, Broadband Services recorded charges
totaling $277 million due to the continued weak market conditions in the
broadband and communications sectors. The charges related to the content
services business ($160 million), costs associated with restructuring Broadband
Services' business ($83 million) and the write down of the value of certain
broadband-related long-lived assets and excess network equipment to net
realizable value ($34 million). The amount related to the content services
business included the write-off of the value of Broadband Services’ investment
in content services entities, the impairment of related aseets and a valuation
adjustment on a derivative instrument associated with t content systems
business. The adjustment to the derivative instrument was reflected in revenue
resulting in negative revenue for 2001. Gross margin for the third quarter 2001
also reflects continued weakness in market conditions which negatively impacted
results of operations. Third quarter 2000 grose margin benefited from the
significant increase in the market value of Broadband Services! merchant
investments.

CORPORATE AND OTHER 02124

Corporate and Other realized a loss before interest, minority interests
and taxes of $618 million in the third quarter of 2001 compared to a loss of

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01300000000732



10K Wizard - SEC filings Page 81 of 83

(a) This increase is a result of contracts to hedge interest rate risks
associated with Yen-denominated notes issued by Enron during 2000.

72

PART I, FINANCIAL INFORMATION - (CONTINUED)

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
PINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
ENRON CORP. AND SUBSIDIARIES

INFORMATION REGARDING FORWARD LOOKING STATEMENTS

This Report and the Form 10-K include forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21£ of the
Securities Exchange Act of 1934. All statements other than statements of
historical facts contained in these documents are forward-looking statements.
Forward-looking statements include, but are not limited to, statements relating
to expansion opportunities for the Transportation Services, extension of Enron's
business model to new markets and industries, transaction volumes in the U.S.
power market, commencement of commercial operations of new power plants and
pipeline projects, completion of the sale of certain assets, growth in the
demand for retail energy outsourcing solutions, completion of the merger with

and effectiveness of Enron's action plan for restructuring its businesses
including restructuring scheduled maturities of debt and other obligations and
other efforte to assure adequate liquidity. When used in this document, the
words "anticipate,* "believe," "estimate," "expects," “intend,” "may,"
*project," "plan," “should" and similar expressions are intended to be among the
statements that identify forward-looking statements. Although Enron believes
that ite expectations reflected in these forward-looking statements are based on
reasonable assumptions, such statements involve risks and uncertainties and no
assurance can be given that actual results will be consistent with these
forward-looking statements. Important factors that could ca actual results to
differ materially from those in the forward-looking statement herein include
Enron's ability to maintain an investment grade credit rating; Enron's ability
to implement its action plan for restructuring its businesses outlined in this
Form 10-Q; Enron's ability to complete its merger with Dynegy, as well as the
sale of certain assets; developments in and the outcome of pending litigation
including securities class action litigation; the effectiveness of Enron's risk
management activities; willingness of counterparties to engage in financial risk
management and other contracts with Enron without requiring collateral for
obligations or increasing existing collateral requirements; the ability of
counterparties to financial risk management instruments and other contracts with
Enron to meet their financial commitments toe Enron; and Enron's ability to
access the capital markets and equity markets during the periods covered by the
forward-looking statements, which will depend on general market conditions and
Enron's ability to maintain the credit ratings for its unsecured senior
long-term debt obligations; success in marketing natural gas and power to
wholesale customers; the ability of Enron to penetrate new retail natural gas
and electricity markets (including energy outsourcing markets) in the United
States and foreign jurisdictions; the timing, extent and market effects of 02 1 47
deregulation of energy markets in the United States, including the current
energy market conditions in California, and in foreign jurisdictions; other
regulatory developments in the United States and in foreign countries, including
tax legislation and regulations; political developments in foreign countries;
the extent of efforts by governments to privatize natural gas and electric
utilities and other industries; the timing and extent of changes in commodity
prices for crude oil, natural gas, electricity, foreign currency and interest
rates; the timing and success of Enron's efforts to develop international power,

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10K Wizard - SEC filings Page 23 of 83

Sales of Assets $ - $ - $ -
Purchases of Equity/Debt in Snron-

Sponsored Special Purpose Entities 73.8 15.4 (88.4)
Investments in Enron Affiliates 44.5) 1.0 {43.5)
Portfolio Special Purpose Entities 64.0 95.2(c) 31.2
Call Option . - .
Transactions with LUM and Other Entities ba 7 -
Transaction with LUM and Whitewing - 38.5 38.5

Total $182.3 $150.1 $(32.2)

%

Estimated Fair Value of Existing
LM Investments $ 43.6(d)

fa) Enron's pre-tax earnings impact of transactions with LdM2 through the
Raptor SPEs was approximately $532 million in 2000. During 2000, the
Raptor SPEs hedged losses related to Enron investments of $501 million.

(b) This amount excludes a seller financed note from Enron to LM of
approximately $70 million. .

(e} This ancunt represents Enron's estimate of the value received in Enron
common stock, a portion of which was restricted. The estimate was based on
4 36% discount off the market price on the date of ias: ance for shares
that were restricted and estimated proceeds received by LUM from the sale
of the unrestricted shares.

(a) This amount represents Enron's estimated fair value of the six investments
made by LJM that remained outstanding as of September 30, 2001.

21

PART I. FINANCIAL INFORMATION - (CONTINUED)

ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
ENRON CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 02089

Sales of Assets. In June 2000, LJM2 purchased dark fiber optic cable from
Snron for a purchase price of $100 million. LJM2 paid Enron $30 million in cash
and the balance in an interest-bearing note for $70 million. Enron recognized
$67 million in pre-tax earnings in 2000 related to the asset sale. Pursuant to a
marketing agreement with LJM2, Enron was compénsated $20 million for marketing
the fiber to others and other fees for providing operation and maintenance
services to LJM2 with respect to the fiber. This arrangement gave Enron profit
potential in proceeds received after LJM2 achieved a specified return level.
LIM2 sold a portion of the fiber to industry participants for $40 million. LuM2
sold the remaining dark fiber assets for $113 million in December 2000 to an SPE
that was formed to acquire the fiber. In December 2000, LJM2 used a portion of
the proceeds to pay in full the note and accrued interest owed to Enron. At the

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———— 01300000000697


ET of(07@t

Washingt

on whispers leave

O’Neill looking vulnerable

secretary's future, writes Gerard Baker

fh Washington, wbisgers

Gon’ stay whispees for

Jong, expecially whea they
fevolve somesne's career
Suite wore armertions that
somecse tan the way up.
down, of out, cas quickly bull
to a deadeoine piteh.

The man in the echo
chamber a the start of Ube see
‘ond year of the sediministeation
af George W. Hush is Pasl
CF Meill. Treasury secretary

Throughout the holiday
bwenit, Washington was aur
‘with speculation ~ got ef &
positive sort — about Mr
(O/Meil's future, Ibe haas power
fed exithes tn Washington ~ i
Congress and even is the
adiminicteation.

Wis habit ef speaking ber
mind on what was driving the
Gellar, the efficacy of Interns
thoral Raanclal cooperation
ard the folly of Gaal demsaned
management rulled Mnanctal
eearkets, trewtled bis G7

les mmong his Repebiican

colleegues.

Mr OMedt was aut belped
either by a back of clarity
within the efministration
abort who bebt the reins of

politleaity mad personally, Sew
eral Llanes last year, Ube Tre
sary was freed to insist Unot
hi, rather than the White
Howse, was in charge of policy
en laternational ecnnomics
Undortunately, the claritics-
ucans bretpedt only te reudsty Chm
situation

But mone of this sewned to
rarry Ube ever<beertll former
chict executive of Alcoa, the
ahaniniues produces

Ax the year ware on, he
toned dows sme of bis more
@aotable remarks, After the
tragedy of September 11, be
gained considerable praise
fom cotieayues bt Ube US and
abroad for bis Banding of the
complex Sera of endoecing
tougher . financial action
agneant terrertita

That in the Last moomth, the
petitical context of Mr
O'Neill's apparent soetoom:
tran has changed. When his
nities wneily currency
ecorumists and Geaasce unless
ters of energing market ecena
kes, it did net seem tes reattiew
caueh. Gut recently be has
committed the cardinal sin of
alkenating the ceasrewtive
base of She Republican party.

In October, whee the Howe

speculation is mounting over Treasury

Pal OMe outraged:

of Representatives passed @
highly partisan post
Sepunbe: It econsmir slime
lus package of tax cets for
business and higher ine
Awericans, Mr O'N

tybsied as “show busines”

‘Republicans were cutraget
‘The Treasary secretary had
already sritated seme within
is own party with tis enol
apport for Ms Bush's $1 260be
tax cut in June. There were
reports of delegations ef
Republican congressmen pre.
paring to warch up to the
White House and coyvest Mr
O/NetIre renewal.

Middle ranking Wie Hire
officiate have been critical &
prwvale about what they ner as
Mr O'Neill's deGeiencses, A
month ago, same were sperua
ting Ubet bls successors were
alrmady toting lined up.

Te conservatives. the dys
function a Treasury ques
beyond Une secreeary, There is
aise criticism u€ Pever Fisher. 2
Demecrat and former New
York Paderal Reserve official
why was appointed by Mr
Bash to take charpe of domes
the Seamcied poly, Zobn Thy.
lot, 1Be respected monetary
ccommft wha hess tena
tonal policy. baw Deen bare
tacced for Mis handing of the

toy caeng

financial craxke ia Argentina

The Pree Congress Pounds
toe. & conservative think
tank, conselied its members
just detore Christmas and
Offered a pracing uf Mi Bush's
cabinet im ite first year. There
werw As far Donald Rumsfeld
the dofence secretary, and
Dick Chaney, the vice-pems-
deed, « B for John Axherott at
the duatice departoent,
tthe eameplcicusly auubillaterahat
Colin Powell at the State
depariment aed a straight O
for Mr O'te

© O'Neill altewcis
eritictsm trom mom
conserva too.

‘The suspicion that Treasury
may have been overrubsl mote
than once By tbe White Meuse
te datmaging ind wane teiteeve
it bas combritnrieg $9, and been
magnified Uy, a lack of engage
teak oa the part ef Trecary
fe some big selernational
lasues = such ae Argentina.
‘Mr O'Nesil has remained
above the fray, apparently
reluctant to be draws inte the
Mighting accund ben. But ther
ae signs that thre Trea
agit be starting to apea Up
politely tn the own deter
Before Christmas, whee &
faveucadle article about Mr

Crete Biney

GrNeill appeared ta. the editor
ial pager ot the Washingson
Post. a Treasury official
qaickly drew if to the atten
than of economics reporters

And it should not be feegut
ven that Mr O”Neill has power
fad allies. I8is Biggest spensor
Is Mr Cysney, the emimence
gree of the Bash White Howe,
‘whee workiot with Mir Ceti ln
the Ford adesislstration

Qn of tis admaicers is Alan
Grecnspan, chairman of the
Federal Reserve. “Paul ONT
saya what De believes” Mr
Greenspan sald yesterses. “He
docen't generally comeder
werthwhibe sifting staterents
so that they QM within the
politieaiity correct arena.”

‘And Mr O'Neill bieeelt
pointed this week to tbe
sauree of his gued humour
“Well, yoxs kisow, E have 9 crre
ple of climate. The mest impor
tant client is the peesicnnt of
the United Staies,” Be said os
NBC's Meet the Press inst Sun
Gay. "Ax hang ac they cones
te tell ume thst they’re happy
with weat Tm doing ...0m
geing to be here to help Ube
and be pert of Ubi team.

Gusll

Page 3

Wednesday, January 9, 2002

01300000000439


Nickoloff, Peter

From: Carleton, Norman

Sent: Thursday, December 20, 2001 5:26 PM

To: Cetina, Jill; Bair, Sheila, Berardi, Steve; Bitsberger, Timothy; Eichner, Matthew; Gabilondo,
Jose; Gross, Jared; Hammer, Viva; Lori Senatamorena (E-mail); Nickoloff, Peter; Novey,
Michael; Pietrangeli, Fred; Roseboro, Brian; Schultheiss, Heidilynne; Whaley, Jean; Wiedman,
Mark

Subject: DJ; JP Morgan Chase Surety Bond Suit Names 9 Insurers

December 20, 2001

JP Morgan Chase Surety Bond Suit Names 9 Insurers

Dow Jones Newswires

WASHINGTON -- J.P. Morgan Chase & Co.'s (JPM) suit involving Enron Corp. (ENE) surety bonds
names nine major insurance companies as defendants, ranging from Citigroup Inc.'s (C) Travelers
unit to Kemper Insurance Co.'s Lumbermens Mutual Casualty Co.

Executives at J.P. Morgan Chase have refused in interviews to identify the insurers they are suing,
and the suit itself is not yet publicly available in court files. But a person with knowledge of the case
said it names Travelers Casualty Surety Co., Travelers Indemnity Co., Kemper’s Lumbermens Co.,
Allianz AG's Fireman's Fund Insurance Co., Chubb Corp.'s (CB) Federal Insurance Co., St. Paul
Cos.'s (SPC) Fire and Marine Insurance, CNA Surety Corp.'s (SUR) Continental Casualty Co.,
Safeco Corp's (SAFC) Safeco Insurance Co., Hartford Financial Services Group Inc. (HIG), and
Liberty Mutual Insurance Co.

J.P. Morgan Chase said Wednesday that the insurers notified it that they don't plan to make a
Payment due Friday on Enron-related crude oil and gas derivative contracts. The insurers had made
commitments in the form of surety bonds of about $1.1 billion, of which J.P. Morgan Chase's share is
about $965 million.

-By Lynn Cowan, Dow Jones Newswires; 202-628-9783; Lynn,.Cowan@dowjones.com

u

01300000000393


WSs

otlowoz.

US. Delays for Year Rule About Poultry Products

is & consequence af antibacterial treat-
ment, Slaughtered chickens are rou-
Tinely chilled in cold water to stop bac-
teria growth.

The catthe and hog industries, strup-
giing to regain market share lost to
chicken products, have argued that it Is
‘tenfair for poultry to be sold with wp to
8% added water weight when beef and | {
pork can’t have any, Cattle and hog car- |
casses are chilled in freezers. :

A federal Judge ruled im 1997 that
those standards were unfair and oc-
dered the Agriculture Department to
come up with the new rules.

UI83

Officials Say Contraction
~ Could Last Longer;
Rates May Fall Further

“I believe recovery will occur around
mid-2002—a few months later than the me-
dian forecast predicts.” Antheay San-
tomeru, president of the Poderal Reserve
Bank of Philadetphia, sald in a speech, He
was one of five Fed officials to speak so far
this week. Thelr comments, while more up-
eat than they have been for mosths, sug:
gest they are less impressed with the run of
pasitive economic reports, ranging: from
capital goods orders tohame sabes, than pet-
vate forecasters and investors.

Mr, Santomero, for example, said itmay

otloglo&

rebuild inventories, something optimistic
analysts are counting on to generate higher
production and an imminent recovery. He
said consumer speeding, though resttient
so far, could retretch if big tayotts persist.

A Wall Street Journal poll of $4 forecast
ers found that two-thirds expect Lhe econ-
‘omy to grow In the current quarter, and al-
most all expect growth im the next quarter.

probable ow
think there's good chance that tbe econ:
‘omy may be at least a little softer than the
consensus over the next year of 90.” Tie
cited the risk that continued weak profits
‘will bold back business investment. On Man-

sus, at am anmeal rate,
‘The comments have prompted investors

(ena)

Than Analysts -

im the futures markets toralse the oxdets that
the Fed will cut rates again at its San. 22-90
mesting. But investors stil put the chances
‘at only 20% —meaning most Irwestors stilt
‘rink the Fed has finished easing. The Fed's
federal-funds target rate now stands at
LT5%, The markets also see the Ped start
ing to raise rates by Jume. Fed officiels
steered clear of what they expected to do
with interest rates,

‘The mest important voice on monetary
policy delongs to Chairman Alan
Greenspan, who has speeches schtculed
both tomorrow and Friday. His speech on
San Francisco oe Friday

‘Two other officials who invariably vote
with Mr. Greenspan on rate decisions gave
thelr mest upbent remarks In a while. but
tempered those remarks with warnings hal
itis too soon to say if the economy hess bil bot-
tom. *Bronomic dats have changod frem
mastly negative to more mixed recently,”
Fed Vice Chairman Roger Fergusson told re-
porters after a speech in Genewa, but “Ut is
tooearly tasay what the contours of the ture
around In the U.S. are likely to be” New
York Fed President William BMcDenough,
also speaking in , Said economic
data are mixed, whieh |s “typical when
‘you're getting near to the bottom, or are at
‘the bottoan,” bat it isn't clear the worst of

the downturn has passed. Mle? Sy

Page 34

Wednesday, January 9, 2002

01300000000437


10K Wizard - SEC filings Page 6 of 83

20
LIABILITIES AND SHAREHOLDERS’ BQUITY
Current Liabilities
Accounts payable $7,
Liabilities from price risk management activities 8,

Short-term debt
Customers’ deposits
Other

Total Current Liabilities

Long-Term Debt 6,

Deferred Credits and Other Liabilities

Deferred income taxes 1,
Liabilities from price risk management activities 3,
Other 3,

Total Deferred Credits and Other Liabilities 15,

Minority Interests 2,

Company-Obligated Preferred Securities of Subsidiaries

o sees
Shareholders’ Equity
Second preferred stock, cumulative, no par value *
Mandatorily Convertible Junior Preferred Stock,
Series B, no par value 1,
Common stock, mo par value (net of notes receivable
of none and $172, respectively} a,
Retained earnings 2,
Accumulated other comprehensive income Qa,
Common stock held in treasury (
Reatricted stock and other t
Total 3,
Total Liabilities and Shareholders’ Equity $61,

The accompanying notes are an integral part of these consolidated financial
statements.

PART I, PINANCIAL INFORMATION - (CONTINUED)
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01300000000680


St. Petersburg Times, January 08, 2002

01300000000430


a joint hearing of two House panels as Congress begins a painstaking investigation into the
company’s financial troubles. The energy-trading giant had aggressively lobbied Congress in support
of a little-noticed bill that allowed Enron to shape the industry without much government interference.

Dec. 11: The fallout continues to radiate, as Calpine, maybe the most aggressive power-plant builder
in the U.S., defends its financial! structure and says it doesn't deserve to be compared with Enron.
The 4,500 employees let go by Enron are stunned by the quick trip from what they deemed
corporate nirvana to the unemployment line.

Dec. 9; Citigroup and UBS work to finalize separate bids to take over Enron's trading operations, the
first step toward a potential bankruptcy-court auction for the flagship business. Learning from the
Enron experience, some rating agencies say they will try harder to tip off investors to potentially
devastating credit downgrades.

Dec. 6: Job cuts continue at Enron, with 200 Houston workers laid off at the company’s natural gas
and electricity trading unit, Enron Americas. The bankruptcy court proceedings start to take shape;
U.S. Bankruptcy Judge Arthur Gonzalez, who will hear the Enron case, is known as a stickler for
detail.

Dec. 5: Enron pays $55 million to about 500 employees that it considers critical to its survival, as it
seeks to emerge from bankruptcy-court protection as a slimmed down commodity trading outfit.
Enron's bonds climb as "vulture" investors scooped up Enron’s bonds and bank loans, sensing a
bargain. Despite Enron's plight, deregulation of energy remains a priority across the globe.
Meanwhile, Dynegy, seeking to reassure investors about its financial health, says its short-term
borrowings of nearly $1 billion over the past week aren't related to its failed attempt to acquire Enron.

Dec, 4: Enron's highly questionable financial engineering, misstated earnings and persistent efforts to
keep investors in the dark were behind its collapse. The Belfers, a wealthy New York oil family, could
stand to lose as much as $2 billion due to the tailspin in Enron's stock, while the collapse of talks

between Enron and Dynegy has raised a potential conflict in the negotiations involving Lehman Bros.

Dec. 3: Enron secures almost $1.5 billion in debtor-in-possession financing and presses negotiations
for an additional lifeline for its energy-trading operations, The company also announces it has laid off
4,000 people in Houston.

Dec. 2: Enron files for protection from creditors in a New York bankruptcy court, the biggest such
filing in U.S. history. Simultaneously, the Houston-based energy firm sued Dynegy for "not less than
$10 billion,” accusing it of wrongfully terminating their merger deal. Enron Europe cuts roughly 1,100
jobs in the United Kingdom just a day after its European energy-trading arm sought protection from
creditors.

Nov. 30: The Wall Street Journal reports the SEC is investigating the actions of Arthur Andersen
LLP, Enron's auditor, and federal prosecutors in New York and Texas want to monitor the SEC's
investigation into possible accounting fraud at Enron.

Nov, 29; Enron's financial travails reverberate around the globe, roiling markets and manufacturers
and threatening to derail deregulation of the U.S.'s energy markets. Large energy companies will fail
to collect about $600 million owed them by Enron if the energy-trading firm winds up in bankruptcy
court.

Nov. 28: Enron appeared near collapse after credit-ratings agencies downgraded its debt to junk

status. Dynegy called off its planned merger with the rival energy concern following the
277

01300000000386


Prepared by Office of Public Affairs @ Commodity Futures Trading Commission @ (202) 418-5080

Selected From Current Issues and the
Washington Wires of:

Futures World News
Reuters

The Financial Times
Bloomberg Business News
Investor's Business Daily

Wednesday, January 9, 2002

James Newsome, Former Mississippi
Farming Activist, Now Heads CFTC,
Clarion Ledger Reports, p2

Second Circuit Reviews Armstrong
Civil Contempt Case, p4

The New York Times Joint Regulators’ Report Concludes

The Wall Street Journal Congress Should Refrain from

USA Toda Regulating Retail Swaps, p6

» Senator Jon Corzine Calls for Probe of

‘The Washington Post Enron Failure, p7

Washington Times

Chicago Tribune Following Enron's Trail, p12

Chicago Sun-Times
Senator Lieberman Hopes to Channel
Enron Inquiry into Electricity Policy
Hearings, p15
Requiem for Enron, p17
Weather, Supply Talk Sink Crude;
Beans Rise Again; Silver Cools Off,
n32

Commodity Futures Trading Commission © Regulatory Agency fur Futures Trading ® 3 Lafayette Centre @ Washington. D.C 2058)

01300000000404


10K Wizard - SEC filings
Net Income Restated

Diluted shares outstanding, as
reported
DILUTED SHARES RESTATED

Diluted EPS as reported
DILUTED EPS RESTATED

Total assets as reported
Restatements:
Consolidation of JEDI and Chewco
Consolidation of Lymi subsidiary
Raptor equity adjustment
Prior period proposed audit
adjust ments and reclassifica-
tions

TOTAL ASSETS RESTATED

Debt as reported

Restatements:
Consolidation of JEDI and Chewco
Consolidation of LJM1 subsidiary
Raptor equity adjustment
Prior period proposed audit
adjustments and reclassifica-
tions

DEBT RESTATED

Equity as reported
Restatements:
Consolidation of JEDI and Chewco
Consolidation of LJM1 subsidiary
Raptor equity adjustment
Prior period proposed audit
adjustments and reclassifica-
tions

EQUITY RESTATED

Page 17 of 83

$ 26 $ 564 $ 635 $ 42 $

“555 695 769 a14

$53 686 755 801
0.16 1.02 1.10 1.12 )
0.02 0.82 0.78 0.97 o
$22,552 $29,350 $33,361 $65,503 $67,
451 160 181 (162)
- . (222) -
- - - {172) Qa,
(73) (68) (68) (244) a,
$22,924 $29,442 $33,272 $64,926 $65,
SESS OOUREER Seow erase seerrnassserennssesscerescccee
$ 6,254 $ 7,357 $ 8,152 $20,229 $11,
Flr $61 685 628

$ 6,965 $7,918 $ 8,837 $10,857

3 5,618 $ 7,048 $ 9,570 $11,470 $11,
(258) (391) (544) (a24)
7 - (166) 60

- - - (172) q,

($7) (136) (255) (

$ 5,309 $ 6,600 $ 6,724 $10,269

(a) After effect of significant contract restructuring charge totaling $463

million (after tax).

PART I, FINANCIAL INFORMATION - (CONTINUED)

ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
ENRON CORP. AND SUBSIDIARIES

02083

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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01300000000691


Lienice -- J

01300000000424



Nickoloff, Peter

From: Carleton, Norman
Sent: Thursday, December 20, 2001 11:30 AM
To: Cetina, Jill, Sharer, James; Bair, Sheila, Berardi, Steve; Bitsberger, Timothy, Eichner,

Matthew; Gabilondo, Jose; Gross, Jared; Hammer, Viva; Lori Sanatamorena (E-mail);
Nickoloff, Peter, Novey, Michael; Pietrangeli, Fred; Roseboro, Brian; Schultheiss, Heidilynne;
Whaley, Jean; Wiedman, Mark

Subject: Economist: Auditors - Who Fiddled What?
Auditors

Who fiddled what?

Dec 20h 2001

From The Economist pririt edition

“Errors of judgment” are piling up at Andersen

Get article background

AUDITING is a dull business, But it is also dangerous, as Andersen, the world's fifth-largest firm of
accountants, Is finding out. Andersen audited Enron for all 16 years since the company's formation. On top
of pure audit, it also sold internal-audit and consulting services. But despite this privileged insight,
Andersen did not spot the fact that Enron was publishing incorrect financial statements. For failing to do
its job, Andersen now faces the wrath and legal claims of thousands of staff, shareholders and creditors
who will lose billions from Enron's collapse.

In November, Enron announced that it would restate all its annual financial statements from 1997 to
2000, resulting in a cumulative profit reduction of $591m and an increase in debt of $628m. The reason, it
said, was that it should have added in three off-balance-sheet entities, vehicles used by some companies
to acquire more capital without adding debt to their balance sheets.

How could Enron's auditor have missed all of this at the time? Joseph Berardino, Andersen's chief
executive, admitted to Congress last week that his firm made an “error of judgment” over one of the
vehicles. But most of Enron's restatement, he said, came from a bigger "special purpose" vehicle called
Chewco: Enron's management did not provide the information about Chewco that would have led
Andersen to insist on its consolidation, He said Andersen warned Enron's audit committee about “possible
illegal acts".

Enron is fighting back. It says that it not only discovered and reported the relevant information on Chewco
to Andersen, but that Andersen was involved in “real-time” audit procedures on all of its main structured-
finance vehicles. If Andersen is found actually to have advised on the design of Enron's off-balance-sheet
vehicles, as the company implies, it will find it hard to plead ignorance over their construction.

The Securities and Exchange Commission (SEC) is investigating Andersen's audit work on Enron, and
lawsuits have been filed against the firm; doubtless more light will be shed on what happened, But
already, some observers are questioning whether Andersen will survive in its present form. This year, the
SEC imposed a $7m fine on Andersen for signing the accounts of Waste Management, another Texas firm,
knowing that the accounting methods it had used were designed to mislead investors. In the spring,
Andersen paid $110m to settle an accounting-fraud lawsuit over auditing work it did for Sunbeam, a
Florida consumer-products company that filed for bankruptcy. Given all these cases, it is even possible
that the SEC may bar Andersen from taking new audit clients for a time. If plaintiffs are successful, the
firm may have to pay out many more millions in compensation,

730

01300000000389


10K Wizard - SEC filings

Income (Loss) Before Interest, Minority
Interests and Income Taxes

Interest and Related Charges, net
Dividends on Company-Obligated Preferred
Securities of Subsidiaries

Minority Interests

Income Tax Expense (Benefit)

Net Income (Loss) Before Cumulative Effect
of Accounting Changes

Cumlative Effect of Accounting Changes,
net of tax

Net Income (Loss)
Preferred Stock Dividends

Earnings (Loss) on Common stock
Earnings (Loss)Per Share of Common Stock
Basic
Before Cumulative Effect of Accounting
Changes
Cumulative Effect of Accounting Changes
Basic Earnings (Loss) per Share
Diluted
Before Cumulative Effect of Accounting
s
Cumulative Effect of Accounting Changes
Diluted Earninge (Loss) per Share
Average Number of Common Shares Used in
Computation
Basic

Diluted

Page 4 of 83

(666) 679
201 259
20 20
33 24

(644) 303
(644) 303

20 al

S$ (664) $ 282

3 (0.87) $ 0.39

(0.87) $ 0.39

$ (0.87) $ 0.35

$ (0.87) $ 0.35

The accompanying notes are an integral part of these consolidated financial

statements.

PART I. FINANCIAL INFORMATION - (CONTINUED)
ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
ENRON CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET

(In Millions)
(Unaudited)

02070 20

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01300000000678


Nickoloff, Peter

From: Carleton, Norman

Sent: Thursday, January 10, 2002 12:44 PM

To; Whaley, Jean; Cetin, Jim; Pietrangeli, Fred, Novey, Michael, Hammer, Viva; Gross, Jared;
Wiedman, Mark; Pietrangeli, Fred; Sharer, James; Schultheiss, Heidilynne; Nickoloff, Peter

Subject: FT: A kerfuffle, indeed (Paul O'Neill, Enronism, excerpts)

A kerfuffle, indeed
Published: January 9 2002 23:17 | Last Updated: January 10 2002 00:12

Despite continued whispers around Washington that Paul O'Neill's job is in jeopardy, the White
House on Wednesday stood by its man, saying rumours of the outspoken Treasury secretary's
imminent downfall were nothing but "kerfuffle” and "nonsense".

Asked whether President George W, Bush's confidence extended to O'Neill's handling of the
Argentine crisis - while some critics have accused the Treasury of failing to give Buenos Aires more
support, others have slammed O'Neill for not cutting the strapped government loose earlier - White
House spokesman Ari Fleischer insisted it did.

“O'Neill has done an excellent job,” he told a gathering of reporters.

When the irascible Helen Thomas, a columnist for Hearst newspapers and the dean of the White
House press corps, reminded Fleischer that the riots and government collapse in Argentina have not
generally been viewed as successes where policymakers have done “excellent” jobs, a nonplussed
Fleischer said the blame did not fall at O'Neill's feet: "Not everything in the world is in the control of
the United States, or even the Treasury secretary.”

Enronism

Financiers have heard more than once the old joke explaining the differences between capitalism,
communism and many other isms:

"Capitalism - You have two cows. You sell one and buy a bull. Your herd multiplies, and the economy
grows, You sell them and retire on the income. Communism - You have two cows, Your neighbours
help take care of them and you all share the milk."

The latest version of the joke doing the rounds on Wall Street adds an “Enronism" to the list:

“You have two cows. You sell three of them to your publicly listed company, using letters of credit
opened by your brother-in-law at the bank, then execute a debt/equity swap with an associated
general offer so you get all four cows back, with a tax exemption for five cows. The milk rights of the
six cows are transferred via an intermediary to a Cayman Island company secretly owned by the
majority shareholder who sells the rights to all seven cows back to your listed company. The annual
report says the company owns eight cows, with an option on one more.”

Enron's shareholders will be hard-pressed to see the funny side.

01300000000457


10K Wizard - SEC filings Page 32 of 83

local environmental laws and regulations. These laws and regulations require
expenditures in connection with the construction of new facilities, the
operation of existing facilities and for remediation at various operating

29

PART I. FINANCIAL INPORMATION - (CONTINUED)

ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
ENRON CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

sites. The implementation of the Clean Air Act Amendmente is expected to result
in increased operating expenses. These increased operating expenses are not
expected to have a material impact on Enron's financial position or results of
operations.

Snron's natural gas pipeline companies conduct soil and groundwater
remediation on a number of their facilities. Enron does not expect to incur
material expenditures in connection with soil and groundwater remediation.

Enron has received a request for information from the Environmental
Protection Agency (EPA) asking for data regarding certain spills and discharges
since 1998 on oil pipelines operated by Enron and its subsidiaries. OTT Energy
Partnere, L.P. (BOTT), an unconsolidated affiliate of Enron, is the only entity
that has extensive domestic oil pipeline operations, and Enron's response will
include information on EOTT pursuant to the request. The responsive information
was originally to be filed with the EPA on or prior to November 7, 2001. In
October 2001, Enron received an extension from the EPA to file the responsive
information on or before January 31, 2002. Enron cannot predict the outcome of
the EPA inguiry but believes that the ultimate outcome will not have a material
adverse effect on its financial position or results of operations.

Developments in the California Power Market. During 2000, prices for
wholesale electricity in California significantly increased a: result of a
combination of factors, including higher natural gas prices, reduction in
available hydroelectric generation resources, increased demand, over-reliance on
the spot market for electricity and limitations on supply. California‘s
regulatory regime instituted in 1996 permitted wholesale price increases but
froze retail prices below market levels. The resulting disparity between costs
of supply and customer revenues caused two of California's public utilities,
Pacific Gas & Electric Company (PG&E) and southern California Edison Company
(SCE), to accrue substantial unrecovered wholesale Power costs and certain
obligations related to the difference between third party power purch costs
and frozen ra charged to retail customers. PG&E and SCE have defaulted on or
are challenging payments owed for certain outstanding obligations, including
wholesale power purchased through the California Power Exchange (the Power
Exchange), from the California Independent System Operator (the Independent
System Operator), and from qualifying facilit . In addition, PG&E and the
Power Exchange each have filed a voluntary petition for bankruptcy.

Various legislative, regulatory and legal remedies to the energy
situation in California have been implemented or are being pursued, and may
result in restructuring of markets in California and elsewhere. Additional
initiatives are likely at the Federal, state and local level, but it is not

possible to predict their outcome at this time. 02098

Enron has entered into a variety of transactione with California
utilities, the Power Exchange, the Independent System Operator, end users of
energy in California, and other third parties, and is owed amounte by certain of
these entities. Enron has established reserves related to such activities and
believes that the combination of such reserves in accounts receivables and other
credit offsets with such parties are adequate to cover its exposure to

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01300000000706



Cortinue . J

White acknowledging that Sarbanes must decide whether to hold hearings, Corzine said he
will push for action by the panel.

"Our jurisdiction and oversight of the SEC gives us & real reason to be with regard to
exploring accounting issues that surround the role of the auditors," he said.

*We'd be remiss if we didn't pursue that for the protection of the markets so that investors
have basic information to make sound investment decisions ... I don't understand how with
the Banking Committee having primary oversight of the SEC and oversight of accounting we
could afford not to be involved."

Congress curtailed oversight of Enron’s trading practices by the Commodity Futures
Trading Commission (CFTC) and SEC in December of 2000 when it passed the Commodity
Futures Modernization Act as a legisiative rider to the year-end catch-all spending bill, thanks
in large part to Gramm.

According to a former CFTC official, Gramm helped exempt Enron trading practices from SEC
oversight in the closing days of the 106th Congress, action hardly noticed at the time but
now the subject of growing scrutiny in the wake of Enron's catastrophic collapse.

Micheel Greenberger the one time director of CFTC's Trading and Markets Division, said the
legislation had passed the House but became bogged down in the Senate after numerous
lawmakers voiced their objections to what they considered sweeping changes in the bill.

"Suddenly we discovered that It was going to be added as a rider to the omnibus," said
Greenberger. “It contained what came to be known as the Enron provision, That bill was 200
pages long, I doubt that it was read through beginning to end before it was passed.”

Greenberger, who Is now a professor at the University of Maryland School of Law, said the
is highly confusing and was written by “private parties who had a special interest in having
that legislation passed.”

He added, "My understanding is that Gramm was very instrumental. If had to be cleared by
the committees of jurisdiction, Many parts of the bill dealt with the SEC.”

However, Gramm's spokesman Larry Neal asserted in a written statement that his boss "took
no role, had no say, and did not vote on the energy futures provisions of the Commodity
Futures Modernization Act.”

William Rainer, who was head of the CFTC at the time, said that scrutiny of Gramm ts
unwarranted and allegations of his work on behalf of Enron have been overblown.

Rainer told The Hill that his discussions with Gramm did not broach the subject of energy and
were “confined and restricted to financial instruments.” The bill codified internal regulations
at the CFTC that exempted Enron from the agency's oversight.

However, one Senate source sald Gramm was in fact concerned that the SEC would fill the
regulatory void left by the CFTC and worked to make sure that the exchange commission did
not extend its jurisdiction to Include the type of hybrid securities that Enron traded actively.

As Enron's trading activity grew more complex, it began to delve more and more into such
instruments as credit derivatives, instruments normally handled by banks.

“Some of what Enron was doing could have been in the gray area of being a security and not
being a security,” said Allen W. Williams Jr., an attorney Specializing in regulatory practice.
mMdher>
Page @ Wednesday, January 9, 2002

01300000000411


Mr Bennett said Enron has set up its own independent investigation committee, headed by a former
head of the SEC's enforcement division, and cautioned that the launch of a criminal investigation
does not necessarily signal any wrongdoing.

“People should keep their powder dry and not rush to judgment here," he said. "Enron wants to get to
the bottom of this as soon as possible.”

Enron is also subject to four major congressional inquiries, and Mr Bennett said he hoped
congressional leaders would consolidate their investigations as the Justice Department has.

In addition to the causes of Enron's collapse, a number of the congressional committees have
indicated they will also examine the company’s ties to the Bush administration. Kenneth Lay, Enron
chief executive, is close to Mr Bush, and Enron and its executives donated $114,000 to Mr Bush's
presidential campaign.

Earlier this week, the White House disclosed that vice president Dick Cheney and his staff had met
with Enron representatives six times last year, but never discussed the company’s financial condition.

Ari Fleischer, White House spokesman, said on Wednesday he was not aware of any other White
House staffers discussing the matter with Enron.

n3

01300000000452


10K Wizard - SEC filings Page 36 of 83
@ifference in cash.

In the event that Enron fails to pay any debt obligations when due,
including when such obligations may be accelerated, or ie unable to refinance or
obtain a waiver of or amendment to such obligations, a series of events would
begin which could impact Enron's compliance with the terms of its Revolving
Credit Agreements and certain other obligations, including bank debt facilities.

Either as a result of the restructuring Plan discussed in Note 2 or to
raise cash to repay Enron's obligations discussed above, Enron may sell the
assets of Whitewing and/or Atlantic Water Trusts for amounts below their
carrying values. The net proceeds from the sale of auch assets can be used to
repay Enron's obligations discussed above. Accordingly, Enron may be required to
record asset writedowns, possibly as early as the fourth quarter of 2001,

33

PART I. FINANCIAL INFORMATION - (CONTINUED)

ITEM 1. PINANCIAL STATEMENTS - (CONTINUED)
ENRON CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED PINANCIAL STATEMENTS

9. MINORITY INTERESTS

Enron consolidates a limited partnership (the Limited Partnership), for
which the consolidated third party's ownership interest is reflected in minority
interests on Enron's balance sheet in the amount of $691 million at September
30, 2001. The Limited Partnership assets include a $690 million note payable
from Enron and certain merchant investments, both domestic and international.
Enron anticipates the receipt of approximately $250 million from the sale of one
of the Limited Partnership's investments, a local gas distribution company in
Brazil, upon the closing of the sale which is pending certain regulatory and a
other approvals. Enron may be required to use the net proceeds upon the closing
of the sale, or a portion thereof, to repay a portion of the note payable.

The November 12, 2001 downgrade in Enron's senior unsecured debt rating
to BBB- by Standard & Poor's has caused a ratings event related to the Limited
Partnership. This ratings event started a nine business day period during which
Enron has the right, until November 26, 2001, to post an unsecured letter of
credit equal to Enron's note payable, to repay the note payable with the Limited
Partnership investing such proceeds in permitted investments, or to purchase the
investora’ interest in the Limited partnership. To the extent that Enron does
not satisfy this requirement by November 27, 2001, the investors have the right
to immediately begin to liquidate the Limited Partnership assets. Additionally,
as a result of the rating downgrade, the investors, subject to certain actions,
are able to accelerate and assign the note payable. Consistent with the
restructuring plan discussed in Note 2, Enron i¢ currently working with the
lenders to develop a mutually acceptable amendment or waiver to the transaction
documents in order to avoid an early Enron payment obligation.

Bither as a result of the restructuring plan discussed in Note 2 or to
raise cash to repay Enron's obligation discussed above, Enron may sell the
Limited Partnership assets for amounte below their carrying values. The net
proceeds from the sale of such assets can be used to repay Enron's obligation.
Accordingly, Enron may be required to record asset writedowns, possibly as early
as the fourth quarter of 2001. .

It is not possible to predict whether Enron will be able to favorably 02 1 02
complete the actions described above. In the event that Enron fails to pay any
debt obligations when due, including when such obligations may be accelerated,

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01300000000710


10K Wizard - SEC filings Page 72 of 83

Cash used in investing activities totaled $1,366 million in the first
nine months of 2001 as compared to $3,580 million in the same period of 2000.
Cash used in the first nine months of 2001 reflects investments in .
unconsolidated equity affilia and capital expenditures. Investments in
unconsolidated equity affiliates in 2001 include t quisition of a company
whose assets include a newsprint mill and related ets, a power generation
related entity and the purchase of all publicly traded shares of Azurix Corp.
Capital expenditures in 2001 related to Wholesale Services’ energy network.

Cash provided by financing activities totaled $1,880 million in the first
nine months of 2001 as compared to $3,673 million during the same period of
2000. The first nine months of 2001 include the net issuances of short~ and
long-term debt of $2,522, partially offset by payments of dividends.

64

PART I. FINANCIAL INFORMATION - (CONTINUED)

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OP
FINANCIAL CONDITION AND RESULTS OF OPERATIONS ~ (CONTINUED)
ENRON CORP. AND SUBSIDIARIES

LIQUIDITY, CAPITAL RESOURCES AND OUTLOOK

Following Enron's announcement of ite third quarter 2001 results on
October 16, 2001, there was a significant decrease in Enron's common share price
and subsequent decreases in the credit ratings of Enron's long-term debt to BBB-
and Baa3 (the lowest level of investment grade) with a warning that further
downgrades were possible. This situation resulted in a loss of investor
confidence and significantly affected Enron's ability to raise capital.

Maintaining an investment grade credit rating is a critical element in
maintaining liquidity for Enron's wholesale business which, together with the
natural gas pipeline operations and the retail business, comprise Enron's core
busine: discussed below. As a part of their standard contractual
arrangements, Enron and its trading counterparties regularly post cash deposits
or letters of credit to collateralize a portion of their trading obligations. A
downgrade to below investment grade could lead to a substantial increase in the
level of cash required for collateral and margin deposits with Enron's wholesale
trading partners. Additionally, Enron and its subsidiaries have outstanding
surety bonds and other instruments related to construction projects and other
performance obligations. Under certain circumstances, the issuers of such
sureties may request collateral.

LIQUIDITY ACTIONS. Enron has implemented a financial strategy to restore
investor confidence and will continue its initiatives in this regard. Enron has
taken the following steps to assure its customers and investors that it can
fulfill ite commitments in the ordinary course of business:

© Enron borrowed approximately $3.0 billion from its committed lines of
credit to repay outstanding and expiring commercial paper obligations
of approximately $1.9 billion and to provide immediate cash liquidity.
This action to convert Enron's committed lines of credit to cash was
done to eliminate any doubt as to their availability in the future;

© In an effort to further enhance short-term liquidity, on November 13,
2001, Enron (through ite wholly-owned subsidiary) obtained $550
million in a new secured line of credit from JP Morgan Chase Bank
(Chase) and Citicorp North America, Inc. (Citicorp), secured by 02 1 38
Enron's Transwestern Pipeline Company assets. Enron anticipates

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01300000000746


10K Wizard - SEC filings

gross margin from power marketing. The power and gas intermediation businesses
both benefited from price volatility in the 2001. Gross margin from merchant
investments was lower in the first nine months of 2001 as compared to the same
period of 2000 primarily due to a decline in the value of investments in 2001
and @ significant increase in the value of power-related investments in 2000.
The Whitewing Obligation resulted in a decrease in revenues of approximately
$773 million with a corresponding increase in equity in earnings.

Operating expenses increased by $97 million in the first three quarters
of 2001 compared to the same period in 2000 primarily due to the growth of
Americas' commodity intermediation business. Depreciation and amortization
increa $61 million primarily as a result of increased amortization related to
intangible eta acquired in the second quarter of 2001 and other assets and
depreciation associated with computer equipment placed into service in 2001.

PART I. FINANCIAL INFORMATION - (CONTINUED)

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
ENRON CORP. AND SUBSIDIARIES

Equity in earnings, excluding the impact of the Whitewing Obligation,
decreased $173 million in the first nine months of 2001 as compared to the same
period of 2000 primarily as a result of the decline in the value of merchant
investments held by unconsolidated equity affiliates combined with increases in
the value of merchant investments during the first nine months of 2000.

EUROPE AND OTHER

Significant components of Europe and Other's results are as follows (in
millions) ;

Nine Months Ended

September 30,
2001 2000
Revenues $48,468 $15,162
Cost of sales 47,824 14,455
Gross margin o44 707
Operating expenses 663 427

Depreciation and amortization
Equity in earnings
Other, net

IBIt

Burope and Other markets, transports and provides energy and other

amounts) :

Page 62 of 83

commodities as reflected in the following table (including intercompany 02 1 28

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01300000000736


THE NEW YORK TIMES, WEDNESDAY, JANUARY 9, 2002

| Big Banks Seeking Enron’s

Energy-Trading Business

_ByieNATINDGLATER Added value from
employees who know
how and when the

that allow companies, utilities or oth
er entitles to protect themselves
from Muctuations im the prices of.
energy products. Some traders
might watch the weather In different *~
paris of ihe country to amticipale

01300000000429


Nickoloff, Peter

From: Carleton, Norman
Sent: Thursday, January 10, 2002 12:24 PM
To: Cetina, Jill; Bair, Sheila; Berardi, Steve; Bilsberger, Timothy; Eichner, Matthew; Gabilondo,

Jose; Gross, Jared; Hammer, Viva; Lori Sanatamorena (E-mail); Nickoloff, Peter, Novey,
Michael; Pietrangeli, Fred; Roseboro, Brian; Schultheiss, Heidilynne; Whaley, Jean; Wiedman,
Mark

Subject: FT: Cheney under fresh pressure over Enron

Cheney under fresh pressure over Enron
By Peter Spiegel! in Washington
Published: January 9 2002 19:31 | Last Updated: January 10 2002 08:14

Critics of the Bush administration's handling of its energy policy continued to push on Wednesday for
more information on its contacts with Enron, the failed energy company. They say that Vice-President
Dick Cheney's disclosure of meetings between his office and company officials did not sufficiently
explain the breadth of the administration's activities,

The push for further disclosures is coming from both ends of the political spectrum, including the left-
leaning Natural Resources Defence Fund (NRDF) and the conservative watchdog group Judicial
Watch, both of which have filed suit against the administration seeking documents related to the
White House's energy task force, which Mr Cheney chaired.

"The fact the vice-president can say what wasn't discussed is not sufficient, it's not the way the
government works,” said Tom Fitton, president of Judicial Watch, which was one of the most
aggressive critics of the Clinton administration, “Enron's intent may have been other than policy. It
may have been something to do with their finances.”

In a January 3 letter to the Democrat Henry Waxman, a senior member of the House energy and
commerce committee, Mr Cheney's counsel said the vice-president and his staff had six meetings
with Enron representatives last year. The letter said Enron's financial difficulties were not raised in
the sessions, but did not give any other specifics, other than to say "energy policy matters" were
discussed.

In his own letter to the vice-president, Mr Waxman said the disclosure raised "additional questions”
about Enron's influence over White House energy policies and potential revelations it may have
made to the administration about its internal operations.

He asked the vice-president to provide additional information, including documents used during the
meetings and the names of those attending the sessions. He also asked for information on contacts
with any other White House officials not part of the Cheney task force.

“We're being stonewalled to the point they're ready to go to court,” said John Walke, an attorney with
the NRDF. "The letter raises the obvious question of, what are they afraid of?"

The White House on Wednesday did not rule out providing additional information, but remained
circumspect, saying only that the vice-president's office had received Mr Waxman's letter and was
reviewing it.

BS]

01300000000453


Page 2 of 11

to meet its obligations and asked for help securing, boosting up Enron’s bond reting. We're also told that Secretaries O'Neill and Evans
conducted a quick review, spoke to cach other and decided there was nothing the government could or should do. Top Bush administration
officials saying tonight perhaps they should have disclosed word of those conversations a bit earlier. But the White House press secretary, Ari
Pleischer, saying in the end, any investigation will show this administration did absolutely nothing wrong.

(BEGIN VIDEO CLIP)

ARI FLEISCHER, WHITE HOUSE PRESS SECRETARY: What's important here in the president's opinion is that this needs to be
investigated from a criminal point of view to determine what went wrong with Enron as well as from the Department of Labor to protect the
pensioners who worked for Enron, the employees of Enron. But in addition, it's very important to look at policies to make certain this doesn't
happen to anybody else.

{END VIDEO CLIP)

KING: Again, the administration saying any investigation will prove that when a major friend, a contributor of this president asks for help, the
answer was no. But Democrats say they still want more information on any contacts between Enron, CEO Ken Lay and other top officials with

the president, with the vice president and anyone else, senior officials of this administration, So as the investigations continuc, so, Lou, too will
the political fallout.

DOBBS: John, thank you very much, And we will be talking with Treasury Secretary Paul O'Neill here in this broadcast, perhaps Commerce
Secretary Don Evans as well as these events are unfolding and the investigation of the collapse of Enron.

For more now on the criminal investigation of Enron what it could mean for its audit firm, Andersen, we tum to CNN's Susan Candsotti —
Susan.

SUSAN CANDIOTTI, CNN CORRESPONDENT: Good evening, Lou.

With the recusal of the attorney general and his chief of staff, the Justice Department's Enron investigation will now be overseen by Deputy
Attormey General Larry Thompson. The Washington-based task force includes prosecutors based in Enron's hometown, Houston, as well as
San Francisco and New York, hame to the Stock Exchange and Security Exchange Commission.

National investigations like Enron's are rare because justice doesn’t usually focus on a single company, but an industry like big tobacco. And
the timing is critical when justice is concentrating so many of its resources on the 9/11 investigation and still unsolved anthrax attacks.

And tonight, a disturbing disclosure from Arthur Andersen, which did accounting and consulting work for Enron. The company admitting it
has gotten nid of documents that could be critical to the Enron investigation. Once more, the firm says it doesn’t know exactly bow many
documents are gone, but calls the number significant, a revelation that has the SEC hopping mad

Here's part of Arthur Andersen's statement: In recent months, documents including electronic files related to the Enron engagement were
disposed of or deleted. Millions of documents related to Enron still exist and the firm has successfully retrieved some of the electronic files.

Well, the SEC's enforcement chief, Steven Cutler, not happy, issuing this response: Destruction of documents is obviously an extremely
matter. Documents are an essential ingredient in our investigations. The destruction of documents by Arthur Andersen will not deter us from
pursuit of our investigation and will be included within the scope of our investigation.

Now Arthur Andersen says it has told not only the SEC, but the Justice Department and the congressional committees mvestigating Enron,
During congressional testimony last month, Arthur Andersen's chief auditor said he warned Enron it was involved im, quate, “possible illegal
acts for allegedly withholding information from its own auditors". Now Enron denied that charge.

And this night, we also have late word for you, Lou, that tonight a spokesman for Congressman Billy Tauzin of the House Energy and
Commerce Committee is saying that given the disclosures by Andersen about destruction of documents, he says that the company should be
prosecuted if those documents were destroyed intentionally -- Lou.

DOBBS: Susan, thank you. Congressman Billy Tauzin, who has been involved in this investigation on the onset, saying that anyone who did
this through negligence at Andersen should be fired, anyone who did it intentionally should be prosecuted. Susan, thank you very much, Susan
Candiotti from Washington.

‘The fallout from the collapse of Enron is far reaching of course, Yet another example: Enron has 3,500 subsidiaries; 34 of them already have
filed for bankruptcy protection, I want to turn, if I may now, to Allan Chernoff, who is following this investigation. Just how did we get here,
in your judgment? How has this been spiraling so quickly’?

ALLAN CHERNOFF, CNNfn CORRESPONDENT: Well, Lou, the latest item in terms of these Jost documents, apparently it alll started with
investigators from Billy Tauzin's committee. Four of them went down to Houston, were looking for the documents yesterday. And they were
told at the Andersen offices there was a problem. And earlier today, they were informed that in fact, potentially thousands of documents,
primarily electronic, they believe...

117102 01880

01 300000000488


10K Wizard - SEC filings Page 55 of 83

Equity in earnings 18 28
Other, net 22 “

IBIT $ BS $ 83

Revenues, net of cost of sales (net revenues) of Natural Gas Pipelines
increased $4 million in the third quarter of 2001 compared to the third quarter
of 2000 primarily due to higher transportation rates and volumes at
Transwestern. Equity in earnings decreased $10 million in the third quarter of
2001 as compared to the same period in 2000 primarily due to lower operating
results from Florida Gas and the monetization of Enron's investment in BOTT. In
2001, other, net consisted primarily of a gain related to the expiration of an
Bnron guarantee to fund the BOTT partnership. Other, net for the third quarter
of 2000 included a gain related to the sale of compressor-related equipment .

50

PART I. PINANCIAL INFORMATION - (CONTINUED)

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
ENRON CORP. AND SUBSIDIARIES

~
PORTLAND GENERAL

Statistics for Portland General for the third quarter of 2001 and 2000
are as follows:

2001 2000
Blectricity Sales (Thousand MWh) (a)
Residential 1,432 1,444
Commercial 1,870 1,964
Industrial 1,207 1,249
Total Retail 4,509 4,657
Wholesale 4,062 5,703
Total Electricity Sales 8,571 10,360
Saeeeewnereceeereseses
Average Billed Revenue (cents per kWh) 9.51 6.89
Resource Mix
Coal 16% of
Combustion Turbine 16 4
Hydro 4 4
Total Generation 36 27
Firm Purchase: se 63
Secondary Purchases 6 10
Total Resources 100% 100%

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01300000000729


Page 5 of 11

Afghanistan. Some of them have been closely linked to Libya. So they do have links to this broader network of states and movements that have
enabled and supported international terrorism.

PILGRIM: Abu Sayyaf has undeniable ties to al Qaeda. And convicted terrorists have studied in the Philippines, inchading Mohamed Sadeck
Odeb, who was convicted for helping in the 1998 bombings of the U.S. embassies in Kenya and Tanzania. Also Ramzi Yousef, the mastermind
of the first World Trade Center bombing in 1993,

(END VIDEOTAPE)

(on camera): The U.S. forces will set up a command center in the city of Zamboanga, And also expected, up to 10 helicopters and C-130
aircraft - night flying equipment will give them an added advantage -- thousands of rifles and up to 100 motor vehicles. Lou, the troops have
landed,

DOBBS: Kitty, thank you very much. Kitty Pilgrim,

Well, for more now on the U.S. military presence in the Philippines as well as the transport of the al Qaeda/Taliban fighters to Guantanamo and
the continuing engagement in Afghanistan, I'm joined by Jamie McIntyre at the Pentagon -- Jamie.

JAMIE MCINTYRE, CNN MILITARY AFFAIRS CORRESPONDENT: Well, Lou, | think one of the key questions about these military
trainers, special forces, going to the Philippines is exactly what they're going to be doing. And CNN has learned the mission guidance that
they've been given allows for armed U.S. observers to travel with Philippine military to forward areas. Now that could potentially put them into
a combat role even as the Pentagon says there are no plans to use them in direct combat, And the Philippine government says that such a use of
troops would require special authorization from their Congress,

But when asked point blank today about what they -- whether they might be engaged in those kind of operations, Secretary Rumsfeld,
following his well established policy, refused to speculate what they might do in the future,

And as for the detainees, the first flight is en route to Guantanamo Bay, Cuba, The United States is employing extraordinary security measures
onboard the plane, keeping the detainees hooded, chained. They're not allowed to get up and go to the bathroom. They're given a bucket for
that purpose, And the U.S. is extremely cautious about what these prisoners could do while they are in a confined airspace. They should arrive
in Cuba by sometime tomorrow and begin to be processed there, And again, extremely tight security and some nervousness even about the
transport of these very dangerous detainees -- Lou.

DOBBS: Jamic, thank you. Let me turn, if I may, to Bill Hemmer reporting from Kandahar, who says he heard and saw, of course, saw the
tracer fire as the C-17 taking the al Qaeda and Taliban prisoners to Guantanamo Bay took off. The Pentagon, as I understand it, is not
necessarily comfortable with that report, is that correct?

MCINTYRE; In any case like this they are trying to figure out exactly what happened. The report they got back to the U.S. central command,
was that the major exchange of gunfire occurred after the plane had taken off and was apparently not directed at the aircraft, but directed at the
base, testing the defenses or, you know, an assault there that coincided with the takeoff of the aircraft.

I don’t think they are disputing anything Bill Hemmer saw, including some of that tracer fire early on. But they are just saying that at this point,
as they go back and reassess, they don’t think that what happened is an attempt to shoot at the aircraft, but rather an attempt to shoot at the U.S.
forces that are at that base in Kandahar.

DOBBS: An indication, Jamie, tore at the Pentagon, that there will be a further beefing up of the outer perimeter, which Bill Hemmer reported
was at least momentarily

MCINTYRE; Well, they have very tight security there already, So I'm not sure exactly what they'll be doing. But the have = it just
underscores, that this continues to be a war zone in a very dangerous place.

DOBBS: Jamie Mclntyre, as always, thank you.

As I mentioned earlier. The first flight carrying the Taliban and al Qaeda prisoners from Kandahar are on their way to the U.S. Naval Base in
Guantanamo Bay. The fact of the matter is CNN military analyst, General David Grange is here to assess, at least give us his assessment of the
General, as always, good to have you bere. It is interesting we have an eyewitness, one of the few incidents in which we have an eyewimess, a
reporter on the ground and the Pentagon, at least in the initial stages wanting to, if you will, mold a somewhat different story. What's your
reaction?

BRIGADIER GEN. DAVID GRANGE (RET.), CNN MILITARY ANALYST: Well, it depends where you're located at the incident site. A lot
of people see different things.

DOBBS: Exactly.

v/17/02 01883

01300000000491


An SEC official said Atkins and Glassman would fill Republican slots on the commission. Their
appointments would leave two Democratic vacancies on the five-seat commission.

One of those vacancies was created yesterday when the term of Commissioner Isaac C. Hunt Jr.
expired with the end of the Congressional session. Hunt's term expired in 2000, but he stayed on
when no one was appointed to replace him. Hunt has not left the agency because officials anticipate
that he might be reappointed.

Bush's latest choices underscore a turnabout from the Clinton years, when Levitt battled the
accounting industry over regulatory efforts. Since replacing Levitt, Pitt has promised to make the SEC
a “kinder, gentler place" for accountants and others it regulates. He criticized the SEC for playing
"gotcha" on accounting issues.

Rep. John D. Dingell (O-Mich.) recently said Pitt's statements made him sound “a little like the fox
watching the hen roost.”

Pitt appointed Ernst & Young vice chairman Robert K. Herdman to be the SEC's chief accountant. He
recently said he sees a need for stronger oversight of the accounting profession, but he has not
explained what type of change he favors. Leaders of the Big Five said generally that they “will work to
make the right improvements in a timely way.”

Members of Big Five firms were among Bush's most generous donors during last year's presidential
campaign. Federal election records compiled by the Center for Responsive Politics show accountants
gave more than $1.1 million to Bush, led by nearly $180,000 from Ernst & Young employees.
PricewaterhouseCoopers workers gave about $128,000.

Individuals listing Ernst & Young as their employer also gave $135,000 to former vice president Al
Gore's campaign, his largest single source of funds. Accountants donated about $400,000 to his
campaign,

Atkins and Glassman both are recorded as giving maximum $1,000 donations to the Bush campaign.

Earlier, Bush named another Ernst & Young alumnus, Mark Weinberger, assistant secretary of the
Treasury for tax policy.

is

01300000000397


10K Wizard - SEC filings Page 16 of 83

© The financial activities of JEDI, in which Enron was an investor and
which were consolidated into Enron's financial statements beginning in
the first quarter of 2001, should have been consolidated beginning in
November 1997; and

© The financial activities of a wholly-owned subsidiary of LUM Cayman,
L.P. (LUM1), @ private investment limited Partnership for which the
general partner's managing member was Andrew S. Fastow, former
Executive Vice President and Chief Financial Officer of Enron (see
Note 4), should have been consolidated into gnron's consolidated
financial statements beginning in 1999.

The Consolidated Financial Statements included herein reflect such
anticipated restatements based on Enron's current understanding of the relevant
facts as of the date of the filing of thie report. It is possible that the
Special Committee's investigation (discussed in Note 2) will identify additional
or different information concerning these matters which will require additional
or different restatements. As a result, Enron will not issue amendments to its
annual reports on Forma 10-K for the years ended December 31, 1997 through 2000
or its quarterly reports on Forms 10-Q for the quarterly periods ended March 31,
2001 and June 30, 2001 to reflect the impacts of the anticipated restatements on
Gnron's Consolidated Financial Statements until the Special Committee has
completed ite investigation. Additionally, Enron has announced that the
previously-issued financial statements for these periods and the audit reports
covering the year-end financial statements for 1997 through 2000 should not be
relied upon.

The effects of the anticipated restatements, based on Enron's
understanding of the relevant facts as of the date of the filing of this report,
are outlined below and a description of the anticipated restatements follows the
table (dollars in millions, except per share amoun . Certain amounts in the
following table differ from those included in Enron's November 8, 2001 Form 8-K
due to further refinement of the identified restatement items.

1s *

PART I. FINANCIAL INFORMATION - (CONTINUED)

ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
ENRON CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED PINANCIAL STATEMENTS

(Amounte are subject te change pending the results of the Special Committee

. 02082

lst
1997 1998 1999 2000 20
Net income as reported $ 10S(a) $ 703 $ 893 $ 979 $
Restatements:
Consclidation of JEDI and Chewco (28) (133) (183) {91)
Consolidation of LJM1 subsidiary - - (95) (8)
Raptor equity adjustment - - - -
Prior peried proposed audit
adjustments and reclassifica-
tions (52) (6) (10) (38)

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01300000000690


10K Wizard - SEC filings Page 39 of 83

Nine Month
Third Quarter Septemb
2001 2000 2001(a)
Net income (loss) $ (644) $ 303 $ 225

Other comprehensive income (lous)
(met of tax):

Foreign currency translation

adjustment ae (117) (301) (b)

Derivative instruments:
Cumulative effect of
accounting changes - - 25
Deferred gain on derivative
instruments associated with
hedges of future cash flows 17 - {S)
Recognition in earnings of
previously deferred losses
related to derivative
instruments used as cash

flow hedges (34) - {55) (ce)
SPAS 71 deferral of net gains
to regulatory asset 12 - 12

Change in value of available-
for-sale investments

Total comprehensive income (loss) $(617) “ $§ 178 $(104)

Seen ernersesaseeemersscssssesenersscess

(a) Restated (see Note 3).

(b) Change primarily reflects the decline in value of the Brazilian real and
the British Pound.

(ec) Includes an after-tax gain of $10 million related to the discontinuation of
@ cash flow hedge on a forecasted transaction that became probable of not
occurring.

The accumulated other comprehensive income at September 30, 2001 was a $1.5
billion reduction in Shareholders' Equity. Of this amount, $1.1 billion relates
to currency translation impacts for assets in Brazil.

12. BUSINESS SEGMENT INFORMATION

As discussed in Note 2, management is in the process of dividing Enron
into three fundamental groups of businesses - Core, Non-Core and Under Review.
The following business segment information does not reflect the results of this
on-going evaluation.

As discussed in Note 3, the Consolidated Financial Statements included
herein have been adjusted to reflect the impacta of the anticipated restatements
ba on Enron's current understanding of the relevant facte. The following
business segment information reflectea the impact of such adjustments.

Enron's business is divided into reporting segments, defined as

components of an enterprise about which financial information is available and
evaluated regularly by the Office of the Chairman, which serves ae the chief

operating decision making group. 02 1 05

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01300000000713


Boxer acknowledged that Enron workers willingly concentrated their investments in Enron's
previously high-flying stock, but suggested that, through the plan lock-down, employees in effect
were forced to buy the company's stock because they couldn't sell their holdings.

Boxer called for the Internal Revenue Service to redirect the tax breaks Enron Corp. (ENE) obtained
for its contributions to employee retirement accounts to partially reimburse employees who lost their
retirement savings through the company’s 401(k) program.

The legislation Boxer sponsored with Corzine would limit employee 401(k) investments in company

stock to 20%, and it would limit to 90 days the period of time an employer can require its workers to
hold a matching stock contribution before divesting it.

Further, the bill would reduce to 50% the tax deduction an employer can take for its matching stock
contributions. Cash contributions would retain the 100% tax break, Boxer said.

Also, the bill would lower to 35 year of age, with at least five years of company service, the trigger
allowing employees to diversify their investments in employee stock ownership plans.

-By Bryan Lee, Dow Jones Newswires; 202-862-6647;
Bryan. Lee@dowjones .com

01300000000373


10K Wizard - SEC filings Page 66 of 83

PART I. PINANCIAL INFORMATION - (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
ENRON CORP. AND SUBSIDIARIES
PORTLAND GENERAL

Statistics for Portland General for the first nine months of 2001 and
2000 are as follows:

Nine Months Ended

September 30,
2001 2000

Electricity Sales (Thousand MWh) (a)
Residential 5,152 5,285
Commercial 5,475 $5,605
Industrial 3,546 3,653
Total Retail o 14,172 14,543
Wholesale 9,636 14,893
Total Electricity Sales 24,008 29,436
sanseeseseeeerrrrnenses
Average Billed Revenue (cents per kwh) 9.97 5.18

Resource Mix

Coal ise 108
Combustion Turbine 17 10
6 €
Total Generation 38 26
Firm Purchases sé 66
Secondary Purchases 6 8
Total Resources 200% 100%
Average Variable Power Cost (Mills/kWh) (b) 113.3 32.6
Retail Customers (end of period, thousands) 732 722

{a} Thousand megawatt-hours.
(b) Mills (1/10 cent) per kilowatt-hour.

Significant componente of IBIT are as follows (in millions): 02 1 3 2

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01300000000740


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Davis said.

"As Enron's negotiations with its bankers for an extension of credit
neared a decision point, the President of Enron asked Undersecretary
Fisher to call the banks," Davis said.

"Fisher inferred that he was being asked to encourage the banks to
extend credit. He made no such calls," she said.

White House spokesman Ari Fleischer on Thursday said O'Neill asked
Fisher to evaluate whether there were any LTCM comparisons to be
drawn from Enron's problems after Lay brought up LTCM's
experience.

Asked to confirm whether Fisher did, in fact, review whether there
were any comparisons between the two, Davis said: "The Secretary
passed along information from Ken Lay's call to Undersecretary Fisher
and asked him to look in to it.”

Briefing Book for: ENE

C4 swems GMaewims GrormeT ror ems

Return to top of page

Copyright © 2002 Dow Jones & Company, Inc. All Rights Reserved.
Copyright and reprint information.

01934

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01300000000542


10K Wizard - SEC filings Page 7 of 83

ITEM 1. PINANCIAL STATEMENTS - (CONTINUED)
EWRON CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Millions)

(Unaudited)

Cash Flows From Operating Activities
Reconciliation of net income to net cash
provided by (used in) operating activities
Net income $
Cumulative effect of accounting changes, net of tax
Depreciation, depletion and amortization
Deferred income taxes
Gains on sales of non-merchant assets
Investment losses
Changes in components of working capital:
Net margin deposit activity (
Other working capital
Net assets from price risk management activities
Merchant aesets and investments:
Realized (gains) losses on sales
Proceeds from sales
Additions
Unrealized losses
Other, net a

Net Cash Provided by (Used in) Operating Activities

Cash Plows Prom Investing Activities
Capital expenditures (
Equity investments (
Proceeds from sales of non-merchant assets
Acquisition of subsidiary stock
Business acquisitions, net of cash acquired
Other investing activities

Net Cash Used in Investing Activities (

Cash Flows From Financing Activities
Issuance of long-term debt
Repayment of long-term debt (
Net increase in short-term borrowings
Issuance of common stock
Net redemption of company-obligated preferred
securities of subsidiaries
Dividends paid
Net (acquisition) disposition of treasury stock
Other financing activities

Net Cash Provided by Financing Activities

Increase (Decrease) in Cash and Cash Equivalents 02073
Cash and Cash Equivalents, Beginning of Period

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01300000000681


10K Wizard - SEC filings Page 13 of 83

Under the terms of the merger agreement, Enron shareholders will receive
0.2685 shares of New Dynegy Class A common stock per share of Enron common
stock, subject to adjustment as provided below. Dynegy shareholders will receive
one share of New Dynegy Claas A common stock or Class B common atock for their
existing shares of Dynegy Clase A common stock or Class B common stock,
respectively. As a result of the merger, Dynegy's current stockholders will own
approximately 64 percent of the common stock of New Dynegy and Enron's
stockholders will own approximately 36 percent. .

The proposed merger is subject to the approval of Enron's and Dynegy's
shareholders, regulatory approvals and other customary conditions, including the
absence of any event after November $, 2001 that would have a material adverse
effect on Enron, excluding the effects of general economic and industry
conditions. If Enron's liabilities and expenses from and after November 9, 2001
associated with all pending or threatened lit. gation matters, in the reasonable
judgment of Dynegy, exceed, or are reasonably likely to exceed, $2 billion in
the aggregate (net of proceeds of insurance and litigation reserves reflected in
Enron's financial statements), the amount of such excess over $2 billion will be
tsken into account in determining whether a material adverse effect on Enron has
occurred, and, in any event, if the amount of such excess exceeds, or is
reasonably likely to exceed, $1.5 billion, a material adverse effect on Enron
will be deemed to have occurred. Assuming all approvals are obtained and
conditions satisfied or waived, the merger is expected to close by the end of
the third quarter of 2002.

The merger agreement also provides that, in the event the merger
agreement is terminated in certain circumstances involving a competing offer to
acquire Enron or a change in the Board's recommendation of the merger, Enron
would pay Dynegy a break-up fee of $350 million. Dynegy must pay a similar fee
to Enron in the event of corresponding actions with respect to Dynegy.

Under the merger agreement, Enron is entitled to issue up to $2 billion
of additional equity prior to closing of the merger. However, the Enron merger
ratio is subject to downward adjustment if Enron igesues equity at an Enron
common stock price below the implied Enron common stock Price determined

12

PART I. FINANCIAL INFORMATION - (CONTINUED)

ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
ENRON CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

by multiplying the Enron merger exchange ratio by the then current Dynegy common

stock price. 02079

In connection with the merger agreement, Dynegy entered into a
subscription agreement with Enron and Northern pursuant to which Dynegy agreed
to purchase 1,000 shares of Northern's Series A preferred stock for $1.5
billion. This purchase was consummated on November 13, 2001. Additionally,
Dynegy has agreed to invest an additional $1 billion in Enron at the closing of
the merger.

The preferred stock provides for cumlative dividends at the rate of 6%
per annum (subject to declaration by the Northern board of directors) payable
annually beginning on January 31, 2003, or, at Northern's option, quarterly.
Unpaid dividends accrue additional dividends at 6% per annum. Upon any
liquidation or winding up of Northern, the holders of the preferred stock would
be entitled to receive, in preference to the holders of the Northern common
stock, an amount equal to $1.5 million per share plug accrued and unpaid
dividends, if any. If the merger agreement is terminated for various specified

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01300000000687


Cait to order: & guard ovtuide the Spanish cormuiste in Buenos Aires
‘Argentines try to get vinas to ecrigrate to Eorope, turks look barbouss

Cheney staff held

aks applicants to fone 0 lew as hundreds of
in the lace, Page

series

of meetings with Enron

By Peter Spiegel ie Wiahington

Vinepresident Dick Cheney and
the staff of his energy taskforce
met Enron representatives six
times ver a sevenamenth period
last year but never drscussod the
energy giant's precarious finan
celal positien, according to #
senior White House alde.

‘The most recent meeting
ocourred om October W, just #
week before Earom revealed 9
$1.2be reduction in shareholder
equity, the evert precipitation, ts
collapse lato bankrupicy, accord
ing to a Setter from David
Addington, the vice-president's
counsel, to Democrat Henry Wax
man, a congressional critic

‘The January 3 letter is the firet
time the vice-president or bi
acknowlalged any cos
rom other thant &
half-hour meeting on April 17
between Mr Cheney formerly
chief executive of Halllburton.
another Houston-based enerey
company - and Kenneth Lay,
Baron chief executive.

‘The vice-president disclosed
that meeting last eammer and
the two discussed encrgy policy,
incloding the Culifermia crisis,

bot Mr Addingtoc sald they det
nea discuss Emron's finances.

Similarly, Mr Addington said
the October 10 meeting between
“Bnrom representatives” and &
spember of the vice president's
staff God mat cover any internal
Enron Mnancial problems. The
aide, who had been a senior sta
member on the disbanded esarcy
taskioece, only discurseé “energy
polley matters” with Baron, the
letter sald

Mr Cheney's interaction with
Brecon bas been the subject of
much scrutiny, including tw
civil laweuits, Became be has
previously refused to disclose
whe met the taskforce be chalred
when it formulated the Bush
administratioe’s energy legssia-
tion ~ currently before Congress
Envireamental groups bave said
they were not alkrwed to movt Mr
Cheney

"Access yeowaied to Enron bar
excraéed the access provided by
the Wisite Howse to other parties
interested im energy policy.” Mr
Wuxman wrote yesterday in
response te the vice-president
Enroo and its empioyees donated
$113.800 to the Bush campaign
during the 200 election, accord

ing to the Centre for Vorepansive
Politics, a watebdoy «roup

‘The Getaral Accounting Office,
ngress's lnfuential auditing
upency. also contemplating @
lawsuit against the vice-president
te compel him to reveal the task
fores's inner workings A CAO
spokesman would not comment
om Mr Addingion’s liter to Mr
Waxinan, @ senior member of the
House eeercy and commerce
committees, which Is investiga
ting the company’s collapse

Mr Addington said that otber
than the Cheney-Lay meeting,
three of the contacts occurred
during the taskforce's ine
dutles, and one of those came
during a meeting of several util
hy officials thet inchuded an
Enrun representative. The other
two mewlings ooourred after the
president iswed bis energy pol
cy repart bast summer.
Enron sessions

with task
4 series of meetings with “s
entation of peopte
affected by the

Gud)

Page 10

Wednesday, January 9, 2002

01300000000413


10K Wizard - SEC filings Page 68 of 83

2001 2000

Revenues $1,134 $1,150
Cost of sales 719 669
Operating expenses "352 364
Depreciation and amortization 134 134
Bquity in earnings (losses) (240) 112
Other, net 36 22
Income (loss) before interest and taxes $ (275) $ 117

Revenues decreased $16 million in the firat nine months of 2001 compared
to the same period in 2000 due to a decrease in revenues from Elektro which had
curtailed power sales due to the reduction in available hydro-generated power,
partially offset by an increase in project revenues at EREC. Cost of sales

creased $50 million in the first nine months of 2001 compared to the same
period in 2000 due to an increase in costs at EREC, partially offset by a
decrease in costa at Elektro. Operating expenses decreased due to reduced
developmental activities, partially offset by higher costs in EREC's European
operations.

Equity in earninga (losses) for the nine months ended September 30, 2001
reflects the recognition in the third quarter 2001 of a loss of $287 million
related to asset impairments by Atlantic Water Trust (the Parent of Azurix
Corp.), an equity method investment, These impairments primarily reflect
Azurix's planned disposition of its North American and certain South American
service-related businesses. See "Unconsolidated Equity Affiliates" below for a
discussion of Atlantic Water Trust. Equity earnings in 2000 consisted of a gain
from the monefization of a power plant by an equity method affiliate.

61

PART I. FINANCIAL INFORMATION - (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
ENRON CORP. AND SUBSIDIARIES
BROADBAND SERVICES

Significant components of Broadband Services’ results are as follows (in

| 02134

Nine Months Ended
September 30,

Revenues $ (26) $ 335
Cost of sales ss 64

Grogs margin (85) 271
Operating expenses 290 249
Depreciation and amortization 14 63

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01300000000742


Carleton, Norman

From: Schultheiss, Heidilynne

Sent: Monday, October 29, 2001 10:03 AM
To: Carleton, Norman; Nickoloff, Peter
Subject: Plumbing Mystery of Deals by Enron
October 28, 2001

Plumbing Mystery of Deals by Enron

AT the heart of the sudden collapse in investor confidence in the Enron Corporation are unusual trades it
entered into with partnerships led by its chief financial officer, Andrew S. Fastow, beginning in the summer of
1999, Because they were transactions among related parties, the company was required to disclose them, but the
disclosures raised as many questions as they answered. Following are some questions that investors arc asking,
and the currently available answers.

Q. Why did Enron enter into the deals?

A. Enron's first disclosures, in 1999, gave no reason. In later reports, it said it was seeking to "hedge certain
merchant investments and other assets," by which it apparently meant investments in technology and
telecommunications companies.

Q. How did those investments do?

A. It looks as if they plunged in value, although there is no clear disclosure on that.

Q. Why can't that be discemed?

A. The company never said just what the investments were. And the transactions with the partnerships were
complicated, involving a variety of derivative securities, Enron stock and various promissory notes. Enron's
financial disclosures do not provide cnough information to understand the arrangements completely.

Q. Why were they so complicated?

A. One reason may have been to use accounting rules to its advantage. One accounting rule dictates that
companics may not record profits or losses on transactions in their own stock. If a company sells its shares at
$10 each and then buys them back - whether for $1 or $50 - there is no gain or loss. But shareholder equity does

go up or down on the balance sheet - in that case reflecting how much extra cash the company took in, or paid
out, on the transactions, Enron's transactions appear to have been structured to fall under that rule,

Q. Who made money from these transactions?

A. Enron reported some profits along the way from the deals, although not all of the profits were spelled out in
its quarterly filings. And it appears that the partnerships distributed money to investors,

Q. If the deals began in 1999, why all the uproar now?

A. Many investors and analysts were not curious about them when everything secmed to be going well. As long
as Enron was exceeding its forecasted profits each quarter, they were willing to assume that what was not being
disclosed was not really important.

Q. When were concems raised with Enron?

A. The complaints grew as Enron's share price fell earlier this year. By this summer, Enron decided that Mr.

Fastow would sell his stake in the partnerships. Then, because the partnerships would no longer be considered
related to Enron, the company would no longer have to disclose anything about the transactions. But investors

, 02646

01300000001255


Nickoloff, Peter

From: Carleton, Norman
Sent: Tuesday, December 18, 2001 5:20 PM
To: Cetina, J®; Bair, Sheila; Berardi, Steve; Bitsberger, Timothy; Eichner, Matthew, Gabilondo,

Jose; Gross, Jared; Hammer, Viva; Lori Sanatamorena (E-mail); Nickoloff, Peter; Novey,
wicneet Pietrangeli, Fred; Roseboro, Brian; Schultheiss, Heiditynne; Whaley, Jean; Wiedman,

Subject: bie Senators Aim To Prevent Future Enron-Type 401(k) Problems

December 18, 2001

Senators Aim To Prevent Future Enron-Type 401(k) Problems

Dow Jones Newswires

WASHINGTON -- Two Senate Democrats unveiled legislation Tuesday that would limit the amount of
company stock employees can hold as part of their 401(k) retirement plans.

The legislation is a response to the financial collapse of Enron Corp. (ENE), whose employees lost
millions because they had concentrated their 401(k) plan holdings in company stock.

The legislation was announced by senators Barbara Boxer of California and Jon Corzine of New
Jersey.

Boxer described the legislation during a Senate Commerce Committee panel hearing Tuesday
featuring testimony from a handful of Enron employees who lost hundreds of thousands of dollars
because their 401(k) plans were primarily invested in Enron stock.

Enron entered into bankruptcy protection Dec. 2 after questionable accounting practices led to a
historic crash in the company's equity value. Shares that sold a year ago for more than $80 are today
worth less than a dollar.

Enron's shares had slid to the $20s in October, when the company’s 401(k) plan administrator
“locked down" the program, keeping employees from divesting their Enron holdings.

Witnesses at Tuesday's hearing described how the bulk of the remaining equity crash occurred

during the monthlong lockdown, causing them to lose more money than they would have had their
accounts been unfrozen and they'd been able to sell their holdings.

Sen. Ron Wyden, D-Ore., likened the events to the sinking of the Titanic. Enron "locked the workers
in the boiler room” as the Enron ship sank, Wyden said.

Boxer said Enron may have violated a tax-law provision she authored in 1997 addressing
diversification of 401(k) retirement funds.

The law prohibited companies from requiring employees to purchase company stock as part of 401
(k) plan participation.

267

01300000000372


ANCS otlorlor

and Circuit Reviews Armstrong Civil Contempt Case
— a
By Mark Hamblett

New York Law Journal

January 7, 2002

The arqument over the continued jailing of indicted financier Martin
Armstrong for his failure to turn over gold bullion and other assets has
come to resemble a merry-go-round that never stops.

For the second time in a year, the 2nd U.S. Circuit Court of Appeals
pondered the limits of civil contempt, and debated at what point Mr.
Armstrong's two-year incarceration for contempt turns into a criminal
manction. If the court finds his imprisonment is punitive in nature, it
would order his immediate release.

*There is no doubt that, at some point, thia morphs into {a criminal
penalty),” Circuit Judge Dennis G. Jacobse said yesterday, Me added that
while the length of civil incarceration is one factor in the analysis, "We
don't know what that point is."

The arguments before the Second Circuit came just ehy of two years to the
day that Southern District Judge Richard Owen sent Mr. Armstrong to the
Metropolitan Correctional Center for refusing to disclose the whereabouts of
$14 million in assets, The assets, which include ancient coins, are being
sought by a receiver appointed to protect the interests of Japanese
investors allegedly bilked by Mr. Armstrong and hie companies, Princeton
Economies International and Princeton Global Management Ltd.

‘The government, and lawyers for plaintiffs in the civil case, charge Chat
Mr. Armstrong raised hundreds of millions of dollars from Japanese corporate
investors through the issuance of "Princeton Note * and then, instead of
following through on his promise to invest the money in bonds, made
high-risk bets on derivatives and currencies.

Mr. Armstrong claims he has no access to the assets in question, but Judge
Owen refuses to believe him, While Judge Owen and the 2nd Circuit state that
there ia some limit to confinement for civil contempt, no one knows what

that limit ie - and Mr. Armstrong's lawyer said yesterday it is tiwe to end
his incarceration.

"Mr. Armstrong will never comply to the satisfaction of Judge Owen,” Bernard
V. Kleinman told Judges Jacobs, Fred I. Parker and Sonia Sotomayor. “Judge
Qwen can refer the case to the U.S. Attorney and the U.S. Attorney can
prosecute for criminal contempt

But Martin Glenn of O'Melveny & Myers, who represents receiver Alan Cohen,
said the time had yet to arrive when the court can consider Mr. Armstrong's
inearceration a criminal sanction, With the bounds of civil incarceration
being tested in the case, Mr. Glenn said that Mr. Armstrong is hoping to
wait out Judge Owen and use the $14 million for 4 comfortable retirement.

‘obviously, Mr. Armstrong has made an assumption that he is willing to sit
in jail for a long time,* Mr. Glenn said. "Hopefully the realities is

ALINE)

Page 4 Wednesday, January 9, 2002

01300000000407


Page | of 11
Carleton, Norman

From: Lori Santamorena@bpd trees gov
Sent: Friday, January 11, 2002 2:00
To: —_norman.carleton@do.treas.gov

SHOW: MONEYLINE 06:00 PM Eastern Standard Time

January 10, 2002 Thursday
‘Transcript # 011001¢eb110

SECTION: Business

LENGTH: 8009 words

HEADLINE: LOU DOBBS MONEYLINE; CNNfn

GUESTS; Paul O'Neill, Stephen Cannell, William Esrey

BYLINE: Lou Dobbs, John King, Susan Candiotti, Allan Chernoff, Bill Hemmer, Kitty Pilgrim, Jamie McIntyre, David Grange

BODY:
‘THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

LOU DOBBS, CNNfn ANCHOR, LOU DOBBS MONEYLINE; Good evening. The Enron (Company: Enron Corporation; Ticker: ENE;
URL: http.//,www.caron.conv’) debacle is taking on ominous and disturbing dimensions. It has already resulted in the largest corporate
‘bankruptcy in history, the loss of thousands of jobs, and the loss of billions of dollars in investments. Today, Enron's accounting firm,
Andersen, disclosed that it had destroyed a significant number of documents in recent months, something the Securities and Exchange
Commission is calling, quote, “extremely serious".

Also today, Attorney General John Ashcroft and a top aide recused themselves from the criminal investigation of Enron. For the latest, we head
to the White House, where senior White House correspondent John King is following the story -- John. JOHN KING, CNN SR. WHITE
HOUSE CORRESPONDENT: Lou, good evening. Not only dramatic developments today indicating how the investigations are expanding, but
also how the political ramifications of the Enron situation are stretching across Washington and deep within the Bush White House.

You mentioned the attorney general, John Ashcroft. He and his chief of staff announcing today they will recuse themselves from this relatively
new, two-week-old federal criminal investigation into whether Enron defrauded its employees and sts shareholders. The reason why: John
Ashcroft was a Repablican senator last year, secking re-clection, He received $60,000 in contributions from Enron and top company officials.
‘So he is stepping aside.

Here at the White House, the president announced two additional investigations, These government reviews to determine if the government
faceds to do more, new disclosure laws to require companies to tell their shareholders and their employees those invested in 401(k) plans,
especially when their finances are deteriorating. But, of course, because of the political connections of Enron CEO Ken Lay, the president was
also asked whether perhaps this long-time friend of the Bush family received any special treatment,

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: I have never discussed with Mr. Lay the financial problems of the company.
‘The last time that I saw Mr. Lay was at my mother’s fundraising event for literacy in Houston. That would have been last spring.

(END VIDEO CLIP)

KING: Now, Enron filed for bankruptcy in early December, We learned today that CEO Ken Lay did call two members of the Bush cabinet. In
late October, he called Commerce Secretary Don Evans and the Treasury secretary, Paul O'Neill. We're told he called Secretary O/Neill a
second time, a short time later, m early November. In those conversations, we are told Ken Lay said the company was at risk of not being able

1/17/02 01879

01300000000487


10K Wizard - SEC filings Page 74 of 83

Enron has a distinct competitive advantage. These businesses,

collectively, generate significant earnings and cash flows. These
businesses include:

© Gas and power businesses in North America and Europe;
© Coal businesses in North America and Burope;

© Retail businesses in North America and Burope; and

© Natural gas pipeline businesses.

© Non-Core businesses are businesses that do not provide value to
Enron's core businesses. These primarily are part of Enron's global
assets and broadband services segments. Enron has approximately $8
billion invested in these businesses and the return from these
investments is below acceptable rat Accordingly, Enron is
developing a plan to exit these businesses in an orderly fashion.
Enron expects that the sale of these non-core businesses will generate
cash proceeds that will be used to repay debt. Should the exit
strategy, currently being prepared, result in a lower value than
Enron's current carrying value, then Enron may be required to record
related asset writedowns, possibly as early as the fourth quarter of
2001.

© Businesses Under Review are businesses that Enron believes have strong
future prospects; however, under the restructuring program, Enron is
iw the process of looking closely at the capital requirements and
near-term growth prospects of these businesses. These businesses are
primarily Enron's wholesale businesses outside of power and which

include both energy-related and industrial markets activities. The
in-

az

PART I. FINANCIAL INFORMATION - (CONTINUED)

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
ENRON CORP. AND SUBSIDIARIES

depth assessment of each of these businesses will be completed very
quickly to determine the resources Enron intends to expend in the
areas.

IMPACT OF RECENT EVENTS. The recent deterioration in Enron's credit
rating has caused a negative impact on Enron's projected 2001 fourth quarter
profitability. This is primarily the result of a reduced level of transaction
activity by Enron's trading counterparties, particularly longer-term
transactions. It is too early to determine the impact these events will have on
Enron's fourth quarter 2001 operating results. Additionally, the fourth quarter
of 2001 will likely be negatively impacted by severance, restructuring and other
charges resulting from the repositioning of many of Enron's busine:
consistent with the restructuring plan, as well as potential writedowns as 02 1 40

discussed in "Unconsolidated Bquity Affiliates" below.

Enron has various financial arrangements which require Enron to maintain
specified credit ratings. The November 12, 2001 downgrade in Enron's senior
unsecured debt rating to BBB- by Standard & Poor's has caused a ratings event
related to a $690 million note payable that, absent Enron posting collateral,
will become a demand obligation on November 27, 2001. See "Minority Interests"
below for a description of this obligation. Consistent with the restructuring
plan discussed above, Enron is currently working with the lenders to develop a

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01300000000748


Nickoloff, Peter

SS

From: Carleton, Norman
Sent: Thursday, December 20, 2001 10:49 AM
To: Schultheiss, Heidilynne; Nickoloff, Peter
Subject: A Chronology of Enron’s Recent Woes
December 20, 2001

r Busin Ss

A Chronology of Enron's Recent Woes

Dec. 19: J.P. Morgan Chase & Co. said its exposure to Enron was nearly $1 billion more than the
$900 million that it already has disclosed, raising concern that the bank has more exposure still
lurking. Following in the footsteps of its energy-sector competitors, Williams Cos. will restructure to
appease jittery debt-rating agencies in the wake of Enron's collapse. The credit rating of Mirant was
downgraded to junk status by Moody's Investors Service Inc., making the power generator the latest
in a growing list of energy companies to suffer from tightening credit standards following Enron's
collapse. FleetBoston will take a $150 million pretax charge to write down troubled loans from
customers, including Enron.

Dec. 18: Many Enron employees face greater losses to their retirement income than was
immediately apparent, stemming not only from big hits in their 401(k) retirement-savings plans but
also as a result of changes involving pension and retirement-savings plans. Credit agencies crack
down on power companies, warming them to slash debt, after falling asleep when California's
deregulated energy market imploded and acting slowly to Enron's demise.

Dec. 17: Dynegy announces a $1.25 billion capital-restructuring program to boost its cash holdings
and trim debt. The company has been swept up in a crisis of confidence by investors in the energy
trading market following Enron's collapse. The Royal Bank of Scotland is under fire from fund
managers for its refusal to disclose its exposure to Enron. Volumes surge at several major online-
trading firms amid heavy trading in Enron shares as the company lurches toward bankruptcy.

Dec. 14: Moody's Investors Service downgrades its credit ratings of Calpine and Dynegy unit Dynegy
Holdings. Following Enron's collapse, Moody's stressed the risks posed by high leverage and
reduced access to capital markets.

Dec. 13: A handful of congressional panels and regulators are investigating the causes of Enron's
plunge into Chapter 11 bankruptcy protection, which may lead to new regulations spurring additional
oversight of accounting firms. Questions are also rising about Enron's outside auditor, Arthur
Andersen which did double-duty work for the company.

Dec. 12: Enron unveils a one-year plan to restructure its way out of trouble, including a

reorganization around its core businesses. Chief Executive Officer Kenneth Lay declines to testify at
276

01300000000385


Nickoloff, Peter

From: Carleton, Norman
Sent: Wednesday, December 19, 2001 3:45 PM
To: Cetina, Jill; Sharer, James; Bair, Sheila, Berardi, Steve; Bitsberger, Timothy, Eichner,

Matthew, Gabilondo, Jose, Gross, Jared; Hammer, Viva; Lori Sanatamorena (E-mail);
Nickoloff, Peter; Novey, Michael; Pietrangeli, Fred; Roseboro, Brian; Schultheiss, Heiditynne;
Whaley, Jean; Wiedman, Mark

Subject: ABI Website: ENRON UPDATE

ENRON UPDATE

Hollings Pledges Investigation of Enron Collapse

Senate Commerce Chairman Ernest Hollings (D-S.C.) yesterday pledged that his panel would conduct an
investigation into the circumstances surrounding the collapse of Enron Corp., which stripped thousands
of employee stockholders of their retirement savings, CongressDaily reported. At an initial hearing
convened by the Commerce Consumer Affairs, Foreign Commerce and Tourism Subcommittee, a
number of employee stakeholders provided testimony, painting a picture of a company that persuaded
them that Enron’s future was bright, even as top officers sold off their own holdings. “We're going to get
{Enron CEO Kenneth] Lay in here and... follow it on down as best we can,” Hollings said. The House
Financial Services Committee has embarked on a similar investigation.

Enron CEO to Testify Before Senate Panel Feb, 4

Kenneth Lay, chief executive of bankrupt Enron Corp., has agreed to testify before the Senate Commerce
Committee next year, Sen. Byron Dorgan (D-N.D.) said yesterday, Reuters reported. Lay “has committed
to appear before our committee and present testimony at a second hearing which will be held on Feb. 4,”
Dorgan said at the beginning of Tuesday’s hearing examining the downfall of Enron. Lawmakers had
invited Lay to testify at the hearing, but he declined. Enron filed for bankruptcy protection on Dec. 2
after its stock price and credit rating sank, undermined by a complex financial strategy that unraveled
when investors and customers began raising questions. Dorgan also said the Senate Commerce
Committee would invite former Enron CEO Jeffrey Skilling and Andrew Fastow, the company’s former
chief financial officer, to the second hearing,

Enron Contract Hearing Delayed Until Dec. 21

A federal bankruptcy court hearing regarding Enron’s effort to negotiate, end or sell certain contracts
has been rescheduled the second time for Friday, Dec. 21, Dow Jones reported. The hearing was
originally scheduled for Dec, 14, but was postponed until Dec. 18, then pushed back to Dec. 20, because of
objections. Enron is seeking the authority to negotiate and end certain contracts containing safe harbor
provisions without having to get bankruptcy court approval for each deal. More than 10 entities-
including the federal government, Cinergy Corp.’s Cinergy Services Inc. and American Electric Power
Co.-have filed objections.

a7

01300000000380


According to its bankruptcy filing, Enron owed $185 million to two offices of Chase Manhattan Bank, a subsidiary of J.P.
Morgan Chase; $74 milion to UBS; and $71 million to CSFB. Bear Stearns Cos. said it stood to lose $89 million from the
coltapse of the energy trader, Commerzbank AG said it would lose slightly less than $45 million

Schmoozing Wall Street

Enron's multiple business dealings with Wall Street caused firms to look favorably on the company’s new ventures, say
investors.

In late January 2001, for example, Enron's senior management hosted a meeting for 170 analysts and investors. Skilling
told the crowd that Enron's biggest immediate opportunity was its plan to trade broadband capacity: space on the fiber-
optic networks that zip voices, data and images around the planet.

‘Skilling said that based on his analysis, Enron's broadband business was worth $36 billion, or $40 @ share. Enron stock
was then trading at $82. The business had lost $60 million on $408 million in revenue in 2000.

The numbers never added up, but Wall Street didn't challenge them,” says Harris Investment's Coxe.

Ronald Barone, an analyst at UBS Warburg, wrote after the January meeting that he was “brain drained, having digested
Scores of detailed presentations." He also wrote that he was “enamored” with Enron's broadbend business, even though it
wouldnt generate earnings for al least a year because it would take that jong to generate enough trades.

$25 a Share

He estimated the business was worth $25 a share, or $22.5 billion. He kept his “strong buy" rating on the stock and, ine
January 25 report, raised his 12-month target on Enron stock to $102 from $100. The stock was trading at $82 at the time.
Barone declines to comment on his recommendations.

Lehman's Gross raised his 12-month target price on Enron to $100 from $90 after the company’s analysts’ conference. He
said he viewed Enron's foray into broadband as no different from any of its other endeavors.

“Given the treck record that has been displayed over the past 36 months, we have no reason to doubt the success of their
efforts,” Gross wrote a week after the conference in @ report dated Feb. 1. Enron stock was then trading at $78. "We
continue to recommend Enron as a core holding,” he wrote. Gross declines to comment,

$180 Mition Charge

Enron's fiber-optic business collapsed this past summer. In its third-quarter earings release, Enron said it had taken a
$180 million charge to restructure the business, including severance payments to 500 fired workers and @ reduction in the
value of its operations.

As Enron’s stock was rising on Wall Street, analysts often said they were in the dark about the company: how it made
money and booked seles and what was behind dozens of off-balance-sheet partnerships,

Their lack of knowedge didnt stop them from promoting Enron stock. Goldman Sachs analyst David Fleischer said in
March that Enron's “‘lack of disclosure and transparency is a long-standing hallmark,"

Enron had been a fixture on Goldman's “recommended list’’ of a couple hundred favored stocks since 1993, when
analyst Fleischer joined the firm.

“Extraordinary Franchises’
“Enron has built unique and, in our view, extraordinary franchises in several business units," Fleischer said in March.
On March 14, Commerzbank Capital Markets analyst Andre Meade raised his long-standing rating on Enron to

“accumulate” from “hold” because the stock had dropped 30 percent in the previous three months -- even though, he
Said, he couldn’ construct accurate earnings models. “Enron keeps a lot of facts close to the vest," he said,

264

01300000000369


Page 2 of 7
(END VIDEO TAPE)

ANNOUNCER: THE POINT. Now, from New York, Catherine Crier.

CATHERINE CRIER, HOST: Good evening. Well, you seed something else to worry about, especially if you're a frequent flier? We've got it.
Investigators have been looking over the shoes taken from shoebomb suspect Richard Reid, and they don't think he made them without help,

Now, flashpoint. Where are the others? CNN's Senior Intemational Correspondent Sheila Mac Vicar brings us up to date now on the
investigation,

(BEGIN VIDEO TAPE)

SHEILA MACVICAR, CNN CORRESPONDENT: Hidden in the immigrant neighborhoods of Paris are the secrets of Richard Reid's six days
in this city. Somewhere here, just hours before he was scheduled to leave, intelligence sources believe Richard Reid was given the shoes
containing the bombs ~- the bombs he tried to set off on the American Airlines flight to Miami.

French police are urgently trying to retrace his movements, The French anti-terrorism judge is so concerned, he is now working the case full
time. Investigators want to know if Reid's trip to Israel last summer was designed to test airline security, and intelligence sources say there is
growing evidence he traveled at least once to Afghanistan.

European investigators and intelligence sources say they now believe that Richard Reid, far from acting alone, is part of a previously unknown
terror network, one which may ultimately prove to be part of al Qaeda. And they warn that within the ranks of that network, there is a very

FBI analysis of the shoes showed the bombs were made of two explosives, a combination experts say they had not previously seen: a military
explosive called PETN and a homemade explosive called TATP.

TATP was the explosive used by the Harnas suicide bomber who blew himself up outside this Tel Aviv nightclub last June, killing more than
20 others.

MACVICAR: Joseph Almog is the former head of the Israeli police forensic laboratories. TATP was first analyzed in those labs,

JOSEPH ALMOG, HEBREW UNIVERSITY: It's an extremely sensitive material, Extremely sensitive. It's very sensitive to friction, to spots,
to blow, and it can explode just by itself.

MACVICAR: European intelligence sources say, quote, “it is absolutely impossible that Reid made the bombs." And the former bead of the
FBI Explosives Unit says the bombmaker was very skilled.

CHRIS RONAY, INST. OF MAKERS OF EXPLOSIVES; The combination of materials in the device and the priming mechanism appears to
be quite unusual and sophisticated. Hard to concoct it. Hard to put it together,

MACVICAR: Given the evidence, investigators now believe there is a logistics base somewhere in Europe, a place where the explosives and
the bombs could be manufactured, They do not yet know where.

It ts now clear, they say, the crew and passengers on board American Airlines Flight 63 averted a disaster. And they warm of the possibility of
more attempts by this previously unknown terror network, of more bombs that could bring down planes concealed in places beyond the limited
capabilities of airport screenmg. Sheila MacVicar, CNN, Paris.

(END VIDEO TAPE)

CRIER: So if there is a previously unknown terror group and bormbmaker out there, is it time for everyone to fly barefoot?
Joining us from Toronto is journalist and author Eric Margolies. His book "The War at the Top of the World" is about the struggle for
Afghanistan, Kashmir, and Tibet. And in Los Angeles, Mark Juergensmeyer. He's chairman of the Global Peace and Security Program at UC
‘Senta Barbara and the author of “Terror in the Mind of God."

Gentlemen, thanks so much. Mark, Iet me star with you. Do you buy the theory that there is an unknown terrorist group operating primarily in
Europe?

MARK JUERGENSMEYER, AUTHOR: Sure, it makes perfectly good sense. In fact, it fits in very well with what we know about al Qaeda. I
mean, the common-sense notion that there is a kind of corporate structure and if we get Osama bin Laden, we get the CEO of terronsm really
doesn't hold true with what we know about the way in which the network works,

‘There are all these small cells, these various groups, some of them working more or less independently, some with only somewhat tenuous ties
to the Osama bin Laden/al Qaeda network. And it appears as if Reid was a part of one of these groups.

1/17/02 (¢) 1 89 1

01300000000499


Nickoloff, Peter

From: Carleton, Norman

Sent: Thursday, January 10, 2002 6:01 PM.

To: Cetina, Jill; Bair, Sheila; Berardi, Steve; Bitsberger, Timothy; Eichner, Matthew; Gabilondo,
Jose; Gross, Jared; Hammer, Viva; Lori Sanatamorena (E-mail); Nickoloff, Peter, Novey,
Michael; Pietrangeli, Fred; Roseboro, Brian; Schultheiss, Heidilynne; Whaley, Jean; Wiedman,
Mark

Subject: DJ: Ashcroft Recuses Self From Enron Investigation

January 10, 2002

Ashcroft Recuses Self From Enron Investigation

By Mark Wigfield
Of DOW JONES NEWSWIRES

WASHINGTON -- Attorney General John Ashcroft and his chief of staff David Ayres have recused
themselves from the investigation of Enron Corp. (ENE).

In a prepared statement, the Justice Department said Ashcroft's decision was "due to the totality of
the circumstances of the relationship between Enron and the Attorney General.” Ashcroft hasn't
been involved in any aspect of the investigation to date, the Justice Department said.

The statement didn't explain why Ashcroft and Ayres were recusing themselves. However, according
to the Center for Responsive Politics, Enron gave $25,000 in so-called "soft money” to the Ashcroft
Victory Committee in the 2000 election cycle.

Enron Chairman Kenneth Lay also gave the Ashcroft Victory Committee $25,000. The committee
provided funds to the National Republican Senatorial Committee and Ashcroft's failed campaign for
re-election to the Senate.

Enron's political action committee also gave Ashcroft's Senate campaign $4,999 in the 2000 cycle,
while employees of the company gave $2,500, according to the Center for Responsive Politics. The
group analyzes campaign finance filings.

Deputy Attorney General Larry Thompson will oversee the investigation in Ashcroft's absence, the
Justice Department said.

Ashcroft’s recusal is another indication of the company’s ties with the Bush administration. Enron
also contributed to President George W. Bush's election campaign, and the White House has
acknowledged that Vice President Dick Cheney or his aides met six times with Enron representatives
on energy issues last year, with the final meeting held six days before the company’s financial
condition was known.

However, White House spokesman Ari Fleischer told reporters Wednesday that he wasn't aware of
anyone in the White House who discussed Enron's financial situation.

338

01300000000477


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01300000000436

Page

Wednesday, January 9, 2002


10K Wizard - SEC filings Page 67 of 83

Nine Months Ended
September 30, ©

Revenues
Purchased power and fuel

Net revenues

Operating expenses
Depreciation and amortization

Other, net

IBIT

Net revenues decreased $106 million in the first nine months of 2001
compared to the same period in 2000. The decrease was due to increased power
coats resulting from general market conditions, including lower hydroelectric
generation. Portland General entered into power contracts in prior periods to
ensure adequate supply for the recent quarter at prices that were significantly
higher than actual settled prices during the third quarter of 2001. Although the
rate mechaniem in place anticipated and substantially mitigated the effect of
the higher purchased power costs, only the amount in excess of a defined
baseline was recoverable from ratepayers. Increased power cost recovery was
incorporated into Portland General's new fifteen-month rate structure, which
became effective October 1, 2001 and included an average 40 percent rate
increase.

PART I. FINANCIAL INFORMATION - (CONTINUED)

ITEM 2, MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
ENRON CORP. AND SUBSIDIARIES

Operating expenses decreased primarily as a result of lower maintenance
costs and lower regulatory and overhead expenses. Depreciation and amortization
decreased in 2001 primarily as a result of a favorable energy efficiency rate
mechanism adjustment, partially offset by increased regulatory amortization. In
2000, other, net consisted primarily of a gain on the sale of a
generation-related asset and was favorably impacted by certain regulatory
events.

GLOBAL ASSETS

Significant componente of Global Assets’ results are as follows (in
millions):

Nine Months Ended
September 30,

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Mr Berardino's defence, beyond accusing Enron of withholding information, is that the accountancy
profession as a whole Is at fault, and a few others as well, such as credit-rating agencies and investment
bankers. The heads of the other “big-five” accountancy firms joined in: the standard setters are too slow,
they said, and failed to produce adequate rules on off-balance-sheet vehicles: the financial reporting
model is outdated and there should be firmer regulation and discipline, and improvements to audit
effectiveness.

There Is truth in this, but it remains to be seen how much change the American accounting profession will
accept. At the moment, auditors are supposedly kept honest by a longstanding system of self-regulation,
in which big firms conduct “peer reviews” of each others’ audit practices, The Public Oversight Board,
which monitors the process, lacks independence from the accounting profession, which funds and staffs it,
and has little ability to punish miscreant auditors. Lynn Turner, a former chief accountant of the SEC who
\s now at Colorado State University, says that America would do well to adopt something like Britain's
new, independent system for upholding audit standards.

The large part played by special purpose vehicles in Enron's collapse has spurred the Financial Accounting
Standards Board (FASB) to revisit its rules on how to account for them. Up to now, the FASB has been
chary of using the notion of control, rather than ownership, to decide on consolidation, because of its
subjectiveness. That, some say, has led to a too-lenient standard. Andersen did not follow the existing

rules anyway, says the FASB, which in the case of Enron's off-balance-sheet entities required
consolidation.

Will auditors blow the whistle on future Enrons? The big firms argue that every recession throws up @
number of corporate failures and tales of auditing mistakes: they simply pay up and walt for the next. The
sheer scale of Enron's demise, though, is likely to demand some meaningful change. Last year, the
oversight board's panel on audit effectiveness made some simple suggestions. It said that auditors should
use forensic methods. Audit thoroughness, as well as fee generation, should feature in deciding pay and
promotion. It should be the audit committee, not management, that decides whether an auditor should be
allowed to carry out non-audit work over a certain value.

The worst outcome of the Enron affair, for accounting firms, would be that regulators ban them from
selling consulting services to those they audit. Big firms worry that if they were left with audit alone,
which for most people is a tedious task, their ability to recruit talented staff would evaporate-and they
might as well hand the job to a government agency. Better audits would be the best way to assure
regulators that such a ban is unnecessary.

281

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10K Wizard - SEC filings Page 3 of 83

Special Committee began its review on October 26, 2001. Management believes
that, based on information currently available to it, the consolidated financial
statements set forth herein were compiled in accordance with generally accepted
accounting principles and fairly depict the financial condition and reaulte of
operations of Enron, and include adjustments designed to capture the anticipated
restatements. Information gathered during the Special Committee's investigation,
however, may impact the unaudited results set forth herein, including the
adjustments designed to reflect the necessary restatements as well as the
information set forth in the November 8, 2001 Form 8-K. In addition, Enron has
been advised by Arthur Andersen LLP, Rnron's independent auditors, that, due to
their need to complete review procedures and the ongoing Special Committee
investigation, Arthur Andersen LLP is unable at this time to finalize ite review
of Enron's consolidated financial statements set forth herein in accordance with
established professional standards and procedures for conducting such reviews,
as established by generally accepted auditing standards, which review is
required by Rule 10-01(d) of Regulation s-x,

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
ENRON CORP. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT

{In Millions, Except Per Share Amounts)

c (unaudited)
Three Months Ended
See Note 3
Revenues $46,877 $29,834
Costs and Expenses
Cost of gas, electricity and other products 45,742 28,036
Operating expenses 929 943
Depreciation, depletion and amortization 293 257
Investment losses 768 °
Taxes, other than income taxes 62 6s
47,794 29,301
Operating Income (Loss) (917) 533
Other Income and Deductions
Equity in earnings (losses) of unconsolidated
affiliat 194 72
Gains (logses} on sales of non-merchant assets a) 45

Other income (loss), net 02069 G3) a1)

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01300000000677


Employees might have been all right if Enron stock had continued to rise, because gains in the
accounts could eventually have made up for the permanent offset. (The increases would have
depended completely on stock appreciation, because the company stopped contributing to the ESOP
in 1995.)

"It was as if someone assumed the stock would never drop,” says Stephen Bruce, a pension lawyer
in Washington, D.C. "It was a bad deal if the stock dropped,” he says, because this precluded
employees from ever making up for the permanent offset.

Employees will still receive their pensions -- albeit at the reduced values, How much employees lost
depends on the size of the pension they had eamed, and the value of their ESOP accounts from
1996 to 2000.

Employees did have some opportunity to protect themselves from the subsequent exposure to Enron
stock in their ESOP. One time each year from 1996 to 2000, employees could transfer one-fifth of the
value of their ESOP accounts into a 401(k) or an Individual Retirement Account and diversify out of
company stock.

Separately, Sens. Barbara Boxer (D., Calif.) and Jon Corzine (D., N.J.) said Tuesday they will
propose limits on the amount of company stock employees can hold as part of their 401(k) retirement
plans.

The proposed legislation would limit employee 401(k) investments in company stock to 20%, and it
would limit to 90 days the period of time an employer can require its workers to hold a matching stock
contribution before divesting themselves of it.

-- Bryan Lee contributed to this article.

01300000000376


10K Wizard - SEC filings Page | of 83

UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 2001

Commission Pile Number 1-13159
ENRON CORP.
(Exact name of registrant as specified in its charter)

Oregon 47-0258140
(State or other jurisdiction of {I.R.S. Employer Identification
incorporation or organization} Number)

Enron Building
1400 Smith Street

Houston, Texas 77002.
(Address of principal executive > (Zip Code)
offices)

(713) 853-6162

(Registrant

telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for auch shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes [X) No ()

Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.

Class Outstanding at October 31, 2001

Common Stock, No Par Value 743,904,638 shares

1 OF 75 02067

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10K Wizard - SEC filings Page 44 of 83

(a) Restated (see Note 3).

The decrease in assets of the Americas segment is primarily related to
the decline in per unit commodity prices and the sale of five peaking power
plants. The increase in assets of the Europe and Other Commodity Markets segment
ia due to the growth of the segment's commodity business.

13. DERIVATIVE INSTRUMENTS

On January 1, 2001, Enron recognized an after-tax non-cash gain of $19
million in earnings and deferred an after-tax non-cash gain of $25 million in
"Accumulated Other Comprehensive Income" (OCI), a component of shareholders’
equity, and reclassified $277 million from "Long-Term Debt" to *Price Risk
Management Liabilities" to reflect the initial adoption of Statement of
Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS No. 133). SPAS No. 133 must be applied to all
derivative instruments and requires that such instruments be recorded in the
balance sheet either an asset or 4 liability measured at its fair value
through earnings, with special accounting permitted for certain qualifying
hedges as described in the following paragraphs.

In tMe ordinary course of business, Enron enters into derivative
instruments, as defined in SFAS No. 133, as part of its normal risk management
operations, which are subject to parameters established by Enron's Board of
Directors. The adoption of SFAS No. 133 has no impact on the way Enron accounts
for ite rigk management business activiti

4

On a much more limited basis, Enron's other businesses enter into
derivative instruments, such ag forwards, swaps and other contracts, to hedge
certain non-trading risks, including interest rate risk, commodity price risk
and foreign currency exchange rate risk. Enron primarily uses cash flow hedges,
for which Enron's objective is to provide protection against variability in cash
flows due to an associated variable risk. Enron accounts for such hedging
activity by initially deferring the gain or loss related to the fair value
changes in derivative instruments in OCI. he deferred change in fair value is
then reclassified into income concurrently with the recognition in income of the
cash flow item hedged. The net after-tax amount expected to be reclassified from
OCI within the next 12 months is approximately $5 million. Enron recognized a
logs of approximately $13 million related to ineffectiveness in cash flow
hedges. Enron has also entered into a limited number of fair value hedges to
protect the fair value of

40

PART I. FINANCIAL INFORMATION - (CONTINUED)

Wm ghton CORP. AND SUBSIDIARIES 02110
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

certain liabilities from variability caused by fluctuations in either interest
rates or foreign currency exchange rates. Enron accounts for these hedges by
recognizing the fair value of both the derivative instrument and the hedged item
inte income concurrently. There was no material ineffectiveness in fair value
hedges during the first nine months of 2001. Certain of Enron's unconsolidated
affiliates entered into net investment hedges to protect against the foreign
currency exposure related to foreign operations. Enron recorded an increase of
approximately $15 million in OCI related to such hedges in 2001. Enron also
holds a limited number of derivative instruments in its non-risk management
busine: 8, which do not meet the requirements of SPAS No. 133 for hedge

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013000000007 18



(This is something | still don’t understand, and would love for some enterprising reporter to explain, as Enron seems intent
‘on explaining nothing. The off-the-books partnerships that brought Enron down appear to have been a mechanism for
hiding bad investments in hard assets — Turkish gas pipelines, Indian power plants and the like. Why did Enron, which
made its money as an intermediary, invest in this stuff in the first place?)

The speed with which the markets have punished Enron reflects the differences between it and Drexel. In Drexel's case, it
took @ multiyear investigation by the U.S, government, together with a smear campaign in the press, to bring Gown the

business. In Enron's case, all it took was a couple of articles in the Wall Street Journal pointing out, among other things,
that senior executives were profiting at the company’s expense.

in Drexef's case, the demise of the firm and the jailing of Milken was pretty much the end of the story. In Enron's, the fate
of the company and its leaders may open up a much bigger scandal that reaches right up to the top. Anything is possible.

285

01300000000395


10K Wizard - SEC filings Page 26 of 83

Enron recognized pre-tax earnings (losses) (ae restated) relating to risk
management activities of none, $532 million and ($166) million in 1999, 2000 and
2001, respectively, including the effect of a $710 million pre-tax charge
recognized in 2001, related to the decline in credit quality and ultimate
termination of the Raptor SPEs, During 2000 and the nine months ended September
30, 2001, the Raptor SPs hedged losses of $501 million and $453 million,
respectively. The Rhythms SPE was used to hedge Enron's exposure arising from an
investment in the stock of Rhythms NetConnections, Inc. However, it was
subsequently determined that it did not meet the criteria to qualify an
adequately capitalized unconsolidated SPE. See Note 3 for a discussion of the
restatements related to the Rhythms SPE.

In total, LUMI and LJM2 invested $191 million and received $319 million
(an estimated $95 million of which is non-cash value from the receipt of 3.6
million shares of Enron restricted stock) related to their investmenta in these
five SPEs.

Call Option. In May 2000, Enron purchased a call option from LJM2 on two
gas turbines at the same time that LJM2 contracted to purchase the gas turbines
from the manufacturer. Enron paid LJM2 $1.2 million for this right during a
seven-month period in 2000. The call option gave Enron the right to acquire
these turbines from LJM2 at negotiated fair market value, which wae $11.3
million. The call option was subsequently assigned from Enron to an
Enron-sponaored SPE capitalized by a third-party financial institution. In
December 2000, the call option was exercised by the SPE, which acquired the
turbines from LJM2 at cost.

Transactions with LJM and Other Entities. Enron ecld its contractual
right to acquire a gas turbine to a utility for $15.8 million in July 2000.
Enron recognized a pre-tax gain of $3.5 million on the transaction. At the same
time, the utility entered into a put option agreement with LUM2 relating to the
turbine under which the utility paid LIM2 $3.5 million. Subsequently, upon the
execution of an engineering, procuremant and construction contract with a
wholly-owned subsidiary of Enron, the utility assigned the contractual right to
acquire the gas turbine to that subsidiary.

In December 2999, Enron sold an equity investment in Enron Nigeria Barge
Ltd. to an investment bank and provided seller financing. In June 2000, LJM2
purchased this equity investment directly from the investment bank for $7.5
million and the assumption of the seller-financed note from Enron. In September
2000, LJM2 sold the equity investment to an industry participant for $31.2
million. The proceeds from LJM2's sale were used by LUM2 to repay the principal
and interest on the note from Enron in the amount of $23.0 million. The
remaining $6.2 million repaid LUM2's $7.5 million purchase price and provided a
Profit of $700,000 to Lm2.

Transaction between LJM and Whitewing. In December 1999, a wholly-owned
subsidiary of Whitewing entered into a $38.5 million credit agreement with

24

PART I. FINANCIAL INFORMATION - (CONTINUED)

ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
ENRON CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

LJM2, the borrower, The loan had a term of one year and carried an interest rate
of LIBOR+2.5%. The loan amount (including interest) of $40.3 million was repaid
by LJM2 in 2000,

Currently Outstanding LJM2 Transactions. Enron believes that LoM2 02092
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01300000000700


10K Wizard - SEC filings Page 46 of 83

amortization of such goodwill is approximately $195 million, of which
approximately $65 million relates to unconsolidated equity affiliates. Bnron ie
in the process of evaluating the application of SFAS No. 142 in light of recent
events discussed in Note 2.

In August 2001, the FASB issued SPAS 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143, which must be applied to fiscal years
beginning after June 15, 2002, addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. Bnron is in the process of evaluating
the impact of SFAS No. 143 on the financial statements.

7 In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144, which must be
applied to fiscal years beginning after December 15, 2001, addresses the
financial accounting and reporting for the impairment or disposal of long-lived
assets. Enron is in the process of evaluating the impact of SFAS No. 144 on the
financial statements.

42

~ PART I. PINANCIAL INFORMATION - (CONTINUED)

ITEM 2. ‘MANAGEMENT'S DISCUSSION AND ANALYSIS OP
PINANCIAL CONDITION AND RESULTS OF OPERATIONS
ENRON CORP. AND SUBSIDIARIES

EXPLANATORY NOTE

As explained in a November 8, 2001 Form 8-K filed by Enron Corp. (Enron)
with the Securities and Exchange Commission (SEC), Enron will be filing restated
consolidated financial statements for the fiscal years ended December 31, 1997
through 2000 and for the first and second quarters of 2001 but it has not yet
done so. As a result, the previously issued financial statements for these
periods and the audit reports covering the year-end financial statements for
1997 through 2000 should not be relied upon, In addition, as discussed in Note 2
to the Consolidated Financial Statements, Enron's Board of Directors has formed
a Special Committee to conduct an independent investigation and review of
transactions between Enron and certain related parties. The Special Committee
has retained the law firm of Wilmer, Cutler & Pickering (Wilmer, Cutler) as ite
counsel. Wilmer, Cutler has retained Deloitte & Touche LLP to provide related
accounting advice to the law firm. The Special Committee began its review on
October 26, 2001. Management believes that, based on information currently
available to it, the consolidated financial statements set forth herein were
compiled in accordance with generally accepted accounting principles and fairly
depict the financial condition and results of operations of Enron, and include
adjustments designed to capture the anticipated restatements. Information
gathered during the Special Committee's investigation, however, may impact the
unaudited results set forth herein, including the adjustments designed to
reflect the necessary restatements as well as the information set forth in the
November 6, 2001 Form 8-K. In addition, Enron has been advised by Arthur
Andersen LLP, Enron's independent auditors, that, due to their need to complete
review procedures and the ongoing Special Committee investigation, Arthur
Andersen LiP is unable at thie time to finalize ite review of Enron's 021 12
consolidated financial statements set forth herein in accordance with
established professional standards and procedures for conducting such reviews,

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01300000000720



Nickoloff, Peter

From: Carleton, Norman
Sent: Thursday, January 10, 2002 2:54 PM
To: Cetina, Jill; Bair, Sheila; Berardi, Steve; Bitsberger, Timothy; Eichner, Matthew; Gabilondo,

Jose; Gross, Jared; Hammer, Viva; Lori Sanatarnorena (E-mail); Nickoloff, Peter, Novey,
Michael; Pietrangeli, Fred; Roseboro, Brian; Schultheiss, Heidilynne; Whaley, Jean; Wiedman,
Mark

Subject: Bioomberg: Attorney General Ashcroft Recuses Himself From Enron Probe

01/10 14:35

Attorney General Ashcroft Recuses Himself From Enron Probe
By Anna Marie Stolley

Washington, Jan. 10, (Bloomberg) -- U.S, Attorney General John Ashcroft said he won't participate in the Justice
Department's investigation into Enron Corp.'s collapse due to his “relationship” with the company.

The announcement followed a call to step aside by U.S. Representative Henry Waxman, The California Democrat pointed
to political contributions that Enron and its Chief Executive Officer Kenneth Lay made to Ashcroft's unsuccessful 2000
Senate campaign.

The Justice Department said yesterday that it is creating a task force in Washington to investigate the events that led to
the biggest corporate bankruptcy.

Ashcroft announced today that he and his chief of staff, David Ayres, have recused themselves from anything to do with
the Enron investigation “due to the totality of the circumstances of the relationship between Enron and the attorney
general.”

“The attorney general has not been Invalved in any aspect of initiating or conducting any investigation involving Enron,”
the Justice Department said in a statement.

01300000000465


Nickoloff, Peter

From: Carieton, Norman
Sent: Thursday, December 20, 2001 5:36 PM
To: Cetina, Jill; Saltadin, Anne; Bair, Sheila; Berardi, Steve; Bitsberger, Timothy, Eichner,

Matthew; Gabilondo, Jose; Gross, Jared; Hammer, Viva; Lori Sanatamorena (E-mail);
Nickoloff, Peter; Novey, Michael; Pietrangeli, Fred; Roseboro, Brian; Schultheiss, Heidilynne;
Whaley, Jean; Wiedman, Mark

December 20, 2001

Enron, GE, Bechtel Claim US Insurance On India Project

Dow Jones Newswires

WASHINGTON -- Enron Corp. (ENE), General Electric Co. (GE) and Bechtel Corp. (X.BTL) have
filed a total of nearly $200 million in insurance claims with the U.S. government for investment losses
in India.

Since last week the three companies have individually filed applications with the Overseas Private
Investment Corp. for “expropriation compensation” on their investments in Dabhol Power Co., OPIC
spokesman Larry Spinelli said Thursday.

Dabhol Power is a $2.9 billion power plant and liquefied natural gas, or LNG, import terminal near
Bombay in westem India. It's considered the largest foreign direct investment in India's history.

“We obviously regard this as a very serious development,” Spinelli said of the insurance claims. "And
we are looking to the Indian government for constructive involvement to settle these issues.”

OPIC is a government agency that finances U.S. companies’ overseas investments through
insurance and loans. In addition to OPIC financing, the U.S. government is owed $202.5 million for a
loan the Export-import Bank made to Dabhol Power.

Work on the 2,184-megawatt Dahbol power plant stopped this year after its sole customer, the
Maharashtra State Electricity Board, declined to pay earlier-agreed power prices.

Faced with nonpayment, Enron said in August it would consider buyers for its controlling 65%
interest in the project. Officials from the bankrupt Houston-based company met last week with Indian
lenders and government officials to discuss ways of disposing of its stake.

GE and Bechtel each hold a 10% interest in the project. The Maharashtra State Electricity Board
holds the remaining 15%.

Two Indian companies, Tata Power Co. (P.TPW) and BSES Ltd. (P.BSX), have shown interest in
bidding for the Dabhol power plant. Royal Dutch/Shell (RD) and BG Group Pic (BRG) have shown
interest in the Dabhol LNG import terminal.

-By Campion Walsh, Dow Jones Newswires; 202-862-9291; Campion. Walsh@dowjones.com

2 02001

01300000000609


Nickoloff, Peter

From: Carleton, Norman
Sent: Thursday, January 10, 2002 1:27 PM
To: Cetina, Jill; Sharer, James; Bair, Sheila; Berardi, Steve; Bitsberger, Timothy, Eichner,

Matthew; Gabsondo, Jose; Gross, Jared; Hammer, Viva; Lori Sanatamorena (E-mail);
Nickoloff, Peter, Novey, Michael; Pietrangeli, Fred; Roseboro, Brian; Schultheiss, Heid#ynne;
Whaley, Jean; Wiedman, Mark

Subject: AP: Enron Chairman Gave Warming to Bush Officials on Company's Collapse

January 10, 2002

Enron Chairman Gave Warning to Bush Officials on
Company's Collapse

By THE ASSOCIATED PRESS

Filed at 12:57 p.m. ET

WASHINGTON (AP) -- Enron Chairman Kenneth L. Lay reached out to two of President Bush's
Cabinet officers when the energy company was collapsing, the White House disclosed Thursday as
the Justice Department opened a criminal investigation of Enron's bankruptcy.

Bush, who received significant campaign contributions from Lay and other Enron executives, said he
himself has never discussed Enron's financial problems with its embattled corporate chairman. The
president said he last saw Lay in Texas at spring fund-raiser for former first lady Barbara Bush's
literacy foundation.

Lay also was among a group of some 20 business leaders who came to the White House early in the
Bush administration to discuss the state of the economy, Bush said.

Many Enron employees lost their life savings when the company filed for bankruptcy Dec. 2.
“What anybody's going to find out is that this administration will fully investigate issues such as the
Enron bankruptcy, to make sure we can learn from the past and make sure workers are protected,”
Bush said.

But Lay did seek the ear of other top-level administration officials last fall.

According to White House press secretary Ari Fleischer, Lay telephoned Treasury Secretary Paul
O'Neill amid Enron's collapse “to advise him about his concern about the obligations of Enron and
whether they would be able to meet those obligations.”

Lay also told O'Neill that Enron ‘was heading to bankruptcy,” Fleischer said.

O'Neill received calls from Lay on Oct. 28 and Nov, 8, said Treasury spokeswoman Michele Davis. It
was on Oct. 16 that Enron made its stunning disclosure of a $638 million third-quarter loss.

ug

01300000000458


10K Wizard - SEC filings Page 79 of 83

In the event that Enron fails to pay any debt obligations when due,
ineluding when such cbligations may be accelerated, or is unable to refinance or
obtain a waiver of such obligations, a series of events would begin which could
impact Enron's compliance with the terms of its Revolving Credit Agreements and
certain other obligations, including bank debt facilities.

70

PART I. PINANCIAL INFORMATION - (CONTINUED)

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
ENRON CORP. AND SUBSIDIARIES

Either as a result of the restructuring plan discussed above or to raise
cash to repay Enron's obligations discussed above, Enron may sell the assets of
Whitewing and/or Atlantic Water Trusts for amounts below their carrying values.
The net proceeds from the sale of such assets can be used to repay Enron's
obligations discussed above. Accordingly, Enron may be required to record asset
writedowns,-possibly as early as the fourth quarter of 2001.

MINORITY INTERESTS. Enron consolidates a limited partnership (the Limited
Partnership), for which the consolidated third party's ownership interest ie
reflected in minority interests on Enron's balance sheet in the amount of $691
million at September 30, 2001. The Limited Partnership assets inclatie a $690
million note payable from Enron and certain merchant investments, both domestic
and international. Enron anticipates the receipt of approximately $250 million
from the sale of one of the Limited Partnership's investments, a local gas
distribution company in Brazil, upon the closing of the sale which is pending
certain regulatory and other approvals.

The November 12, 2001 downgrade in Enron's senior unsecured debt rating
to BBB- by Standard & Poor's has caused a ratings event related to the Limited
Partnership. This ratings event started a nine business day period during which
Enron hag the right, until November 26, 2001, to post an unsecured letter of
credit equal to Enron's note payable, to repay the note payable with the Limited
Partnership investing such proceeds in permitted investments, or to purchase the
investora’ interest in the Limited Partnership. To the extent that Enron does
not satisfy thie requirement by November 27, 2001, the investors have the right
to immediately begin to liquidate the Limited Partnership assets. Additionally,
as a result of the rating downgrade, the investors, subject to certain actions,
are able to accelerate and assign the note payable. Consistent with the
restructuring plan discussed above, Enron is currently working with the lenders
to develop a mutually acceptable amendment or waiver to the transaction
documents in order to avoid an early Enron payment obligation. 02 1 45

Either as a result of the restructuring plan discussed above or to raise
cash to repay Enron's obligation discussed above, Enron may sell the Limited
Partnership assets for amounts below their carrying values. The net proceeds
from the sale of such assets can be used to repay Enron's obligation.
Accordingly, Enron may be required to record asset writedowns, possibly as early
as the fourth quarter of 2001.

It is not possible to predict whether Enron will be able to favorably
complete the actions described above. In the event that Enron fails to pay any
debt obligations when due, including when such obligations may be accelerated,
or is unable to refinance or cbtain a waiver of its obligations, a series of
events would begin which could impact Enron's compliance with the terms of its
Revolving Credit Agreements and certain other obligations, including bank debt

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10K Wizard - SEC filings Page 53 of 83

reflect an increase in credit reserves in the crude oil and liquids marketing
business and the settlement of certain construction related receivables for less
than book value subsequent to September 30, 2001 but prior to the filing date of
the Form 10-Q (these amounts were not reflected in Enron's announcement of its
third quarter 2001 results on October 16, 2001), partially offset by increased
earnings from the European gas marketing operations and steel, coal and liquids
marketing.

Operating expenses for Europe and Other increased $10 million in the
third quarter of 2001 as compared to the same period of 2000 primarily due to
the expansion into new markets and the growth of the European operations.

48

PART I. FINANCIAL INFORMATION - (CONTINUED)

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
ENRON CORP. AND SUBSIDIARIES

Other, net in the third quarter of 2001 included charges related to
losses on transactions in foreign currencies partially offset by interest
income. Other, net in the third quarter of 2000 primarily reflected interest
income.

RETAIL SERVICES

Retail Services sells or manages the delivery of natural gas,
electricity, liquids and other commodities to industrial and commercial
customers located in North America and Burope. Retail Services also provides
full energy management services. This integrated product includes the management
of commodity delivery, energy information and energy assets, and price risk
management activities.

Significant components of Retail Services' results are as follows {in
millions):

Third Quarter

Revenues $ 501 $ 535
Cost of sales 261 406
Gross margin 240 129
Operating expenses 142 115
Depreciation and amortization 10 10
Equity losses and impairment of New Power
Holdings, Inc. (76) (15)
Other, net 1 38
IBIT $ 13 $ 27

Revenues decreased $34 million in the third quarter of 2001 compared to
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01300000000727


Nickoloff, Peter

From: Carleton, Norman
Sent: Tuesday, December 18, 2001 5:22 PM
To: Catina, Jill; Bair, Sheila, Berardi, Steve; Bitsberger, Timothy; Eichner, Matthew; Gabliondo,

Jose; Gross, Jared; Hammer, Viva; Lori Sanatamorena (E-mail); Nickoloff, Peter; Novey,
Michael; Pietrangell, Fred; Roseboro, Brian; Schultheiss, Heidilynne; Whaley, Jean; Wiedman,
Mark

Subject: DJ: Enron's Fall May Spur New Look At Auditor independence

December 18, 2001

Enron's Fall May Spur New Look At Auditor Independence

By JupiTH BurRNS

Of DOW JONES NEWSWIRES

WASHINGTON -- Enron Corp.'s stunning collapse may prompt Congress and regulators to revisit
proposals to bar Big Five accounting firms from providing consulting work for audit clients, legal
experts testified Tuesday.

Arthur Levitt, the former Securities and Exchange Commission chairman, failed in a push last year to
ban auditors from acting as consultants for companies they audit. Levitt said he worried potential
profits from consulting could create a conflict of interest that undermines auditors’ independence. He
also proposed restricting internal audit work for audit clients, a move he said might result in Big Five
firms auditing their own work.

Faced with opposition from three Big Five firms, the SEC eventually adopted new rules that don't ban
auditors from acting as consultants or providing internal audit work.

“The time has come to recognize that Chairman Levitt may have been right," John Coffee, a
Columbia Law School professor testified Tuesday at a Senate Commerce Committee hearing on
Enron's collapse.

Arthur Andersen LLP, which opposed Levitt’s auditor independence Proposal, defended its work for
Enron. Most of the $52 million in annual fees from Enron was for audit work, including internal
auditing, not consulting, Andersen managing director C.E. Andrews testified.

"We did not audit our own work,” Andrews told the Senate panel.

While some lawmakers said they didn't think Andersen would risk its reputation and $10 billion
annual business to protect Enron, Coffee said the Houston energy company was "a very big client”
for Andersen and he urged Congress to revisit the issue of auditor independence.

SEC Chairman Harvey Pitt opposed Levitt's auditor-independence rules when he represented Big

Five accounting firms in his private law practice, but Coffee thinks he may have a different view now,

telling reporters Pitt is “very politically astute,” and will respond if Congress pressures him on auditor
269

01300000000377


Toronto-based theatrical production company that went down in flames in 1998. Though top
executives, including prominent Livent founder Garth Drabinsky were criminally indicted by the U.S.
Attorney's office, unloading assets of value went off without any issues related to the criminal
investigation getting in the way. (Remaining in Canada, the executives themselves, however, have
escaped the clutches of prosecutors here.)

Not to say that any potential criminal actions won't ultimately have an impact on plaintiffs pursuing
civil cases against Enron, be they shareholders or other creditors. Any findings in a potential fraud
complaint could help bolster future civil lawsuits, legal experts said.

“The criminal investigation as well as the Department of Labor and the SEC's investigation may
develop facts that would support asserting certain causes of action against officers or other entities
that dealt with Enron,” said Jack Williams, the outgoing scholar-in-residence at the American
Bankruptcy Institute in Alexandria, Va.

Further, a background of criminal activity that might emerge could help color any future efforts by
creditors to appoint an examiner or a trustee to manage the company during bankruptcy, said
Williams, who is returning to his former post teaching bankruptcy at Georgia State University College
of law.

"It can change the tone of a bankruptcy case,” said Williams. "The fact that you have a coordinated
criminal investigation involving prosecutors from several different cities suggests a very serious
investigation. It does raise the possibility of the ability of creditors and the like to successfully seek an
examiner or an appointment of a trustee.”

But the way things have been unfolding in bankruptcy court, that event is extremely unlikely, given
that the company is not giving creditors reason to take that unusual step, said Feldman. The
company appears to be trying to aggressively sell assets of value and retain critical employees and is
being represented by highly respected lawyers and bankers, he said.

“If it wasn't moving in that direction, you might see creditors, as a leverage point, try to bring in an
examiner, or in a dramatic scenario, a trustee," he said. "As long as it is moving in a direction people
generally think it should be, they won't want to be distracted by a criminal investigation, any more
than they already are."

-By Phyllis Plitch, Dow Jones Newswires, 201-938-2357; phyllis.plitch@dowjones.com

Rs

01300000000464


10K Wizard - SEC filings Page 47 of 83

ag established by generally accepted auditing standards, which review is
required by Rule 10-01(d4) of Regulation s-x.

RECENT EVENTS

As discussed in "Liquidity, Capital Resources and Outlook" below,
following Enron's announcement of its third quarter 2001 results on October 16,
2001 there was a significant decrease in Enron's common share price and
Subsequent decreases in the long-term credit ratings of Enron's debt. This
situation resulted in the loss of investor confidence and significantly affected
Enron's ability to raise capital. Additionally, on November 9, 2001, Enron and
Dynegy Inc. (Dynegy) announced the execution of a definitive merger agreement
between the two companies. As a result of the Dynegy merger agreement and the
loss of investor confidence, Enron hae initiated an action Plan for
restructuring its businesses. The key aspects of the action plan involve (i)
concentrating primarily on Enron's core businesses; (ii) taking aggressive steps
to rationalize the existing cost structure; (iii) accelerating the process of
divesting non-core businesses and ets; (iv) restructuring scheduled
maturities of debt and other obligations; (v) completing the investigation by
the Special Committee with respect to related party transactions; (vi) reviewing
and strengthening Enron's corporate governance; and (vii) expanding certain
disclosures with a focus on increased transparency. Management and the

a3

PART I. PINANCIAL INFORMATION - (CONTINUED)

ITEM 2. MANAGEMENT'S,,DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
BNRON CORP. AND SUBSIDIARIES

Board have not completed nor approved a restructuring plan. Such restructuring
plan is currently being prepared and, therefore, Enron ie unable to estimate the
timing of implementation or the financial impacts. Enron's fourth quarter 2001
results of operations will likely be negatively impacted by severance,
restructuring and other charges resulting from the repositioning of many of
Enron's businesses.

In order to focus on Enron's core businesses and rationalize their cost
structure, management is in the process of dividing Enron into three fundamental
groups of businesses - Core, Non-Core and Under Review. For a description of
each group of businesses, see "Liquidity, Capital Resources and Outlook" below.

The recent deterioration in Enron's credit rating has caused a negative
impact on Enron's projected 2001 fourth quarter profitability. This is primarily
the result of a reduced level of transaction activity by Enron's trading
counterparties, particularly longer-term transactions. However, it is too early
to determine the exact impact these events will have on Enron‘s fourth quarter
2001 operating results, Additionally, the fourth quarter of 2001 will likely be
negatively impacted by severance, restructuring and other charges resulting from
the repositioning of many of Enron's busine 8 consistent with the
restructuring plan as well as potential writedowns as discussed in "Liquidity,
Capital Resources and Outlook - Unconsolidated Equity Affiliates" below.

RESULTS OF OPERATIONS - THIRD QUARTER 2001 VS. THIRD QUARTER 2000 02 1 1 3

The following review of Enron's results of operations should be read in
conjunction with the Consolidated Financial Statements. The Consolidated

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01300000000721


Enron was one of Andersen's largest clients, generating $25 million a year in audit fees and $27
million of fees for consulting. Enron, a high-flying energy company which last year ranked No. 7 on
the Fortune 500 list, announced big losses last October in off-balance-sheet partnerships run by
former Chief Financia! Officer Andrew Fastow. In early November, Enron acknowledged it had
overstated earnings by $569 million over a four-and-a-half year period and said investors could not
rely on its past financial statements.

The SEC launched a formal investigation into Enron's accounting on Oct. 31.
Write to Judith Burns at judith.burns@dowjones.com’

01300000000469


10K Wizard - SEC filings Page 83 of 83

Accounting Officer
{Principal Accounting Officer}

7s

EXHIBIT INDEX

ITEM 6. Exhibite and Reports on Form 6-K
(3) - Exhibits.

Exhibit 10 Amendment Wo, 3 to Employment Agreement between Enron Corp.
and Kenneth L. Lay effective August 13, 2001.

02149

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10K Wizard - SEC filings Page 61 of 83
AMERICAS

Significant components of Americas’ results are as follows (in millions):

Revenues $65,108 $40,442
Cost of sales 83,137 38,969

Gross margin 1,971 1,473
Operating expenses 610 $13
Depreciation and amortization 132 71
Equity in earnings 718 118
Other, net 13 2

IBIt $ 1,960 $ 1,009

Americas markets, transports and provides energy commodities as reflected
in the following table (including intercompany amounts):

Nine Months Ended

Physical Volumes (BBtue/d) (a);

Gas 23,152
Power (b) 14,287
Total 37,439
wescseessccasscesccennes

Power Volumes Marketed (Thousand MWh) (c) 700,007 391,459
weneescreesssesseeenes

Pinancial Settlements (Notional) (Bbtue/d) 226,900 128,266

(a) Billion British thermal units equivalent per day.

(b) Represents electricity volumes, converted to BBtue/d.

02127

(c) Thousand megawatt -hours.

Gross margin of Americas, excluding the impact of a change in value of
Enron's contingent obligation to Whitewing (Whitewing Obligation) discussed in
Note 8 to the Consolidated Financial Statements, increased $1,271 million in the
first nine months of 2001 as compared to the first nine months of 2000,
primarily as a result of increased earnings from both power and gas marketing
operations. The sale of five peaking power plants in 2001 favorably impacted

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10K Wizard - SEC filings

Revenues
Cost of sales

Gross margin

Operating expenses
Depreciation and amortization

Equity in earnings
Other, net

Income (loss) before interest and taxes

Page 52 of 83

Third Quarter

2001 2000
$16,408 $7,159
16,174 6,900
234 289
218 208
ai 19
(7) (5)
{9) 26
§ (2) $ 53

Europe and Other markets and provides energy and other commodities as
reflected in the following tables {including intercompany amounts) :

Physical Volumes (BBtue/d) (a):
Gas
Power (b)
Crude oil and liquids

Total
Power Volumes Marketed (Thousand MWh) (c)
Financial Settlements (Notional) (Bbtue/d)

Other Commodity volumes:
Crude oil and liquids (mm Bbl)
Coal (thousand tons)
Weather (notional value $MM)
LNG (BBtue)
Metals (thousand tons)
Forest products (thousand tons)
Steel (thousand tons)

Third Quarter

2001 2000
9,338 3,595
11,306 1,080
9,410 5,754
30,054 10,429
Seeeeeweneacze: <=
104,006 9,932
Sreeeeeesseseeeenennne==
71,930 46,179
weeessesssseee, —
157 105
21,770 9,942
304 164
8,874 -
2,362 969
899 101
648 -

(a) Billion Britieh thermal units equivalent per day.

(b) Represents electricity volumes, converted to BBtue/d.

(ec) Thousand megawatt -hours.

02118

Gross margin of Europe and Other decreased $25 million in the third
quarter of 2001 as compared to the third quarter of 2000, primarily as a result
of lower earnings from European power marketing operations, an adjustment to

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Page | of 2
Carleton, Norman

From: Lori.Santamorena@bpd.trees.gov

Sent: Monday, December 10, 2001 2:47 PM

To: norman.careton@do.treas.gov; peter-nickolofi@do.treas.gov
Subject: 1BN ) Enron Records at SEC Sought by House Energy and

== Forwarded by Lori Santamceena/BPD on 12/10/01 02:45 PM

“PUBLIC DEBT, US DEPT OF TREASURYTM <GSRS@bloombergnet>
To:  LSANTAMORENAGSPD.TREAS.GOV

co
y2r10"s 02:34 PM Subject’ —-1BN_) Exeon Records at SEC Sought by House Energy and Comme

fmrca Records at SEC Sought by House Energy and Commerce panel
2002-12-10 13/15 (Mew York!

Snron Records at $£C Sought by House Fnergy and Commerce Panel

Wachington, Dec. 10 (wloarberg) -» The U., House Energy and
commerce Committee naked the Sucurities and Exchange Commission to
produce by next Monday a) reviews and reports it bas done cn
Enron Corp. since 1997,

Committee chairman Representative Billy Tauzin and Janes
Greenocd, chairman of the panel's oversight and investigaticam
gubcommttee, made the request in a Dec, 7 letter to SEC Chairsan
Marvey Pitt released by Tausin"s office today.

““the apparent collapse of the company has resulted in the

ef substantially a1 of the equity value in Enron, and the
by many participants of sizeable portions of their retirerent
ssvings,'' said Tauzin of Loutsians and Greenwood of Pennsylvania,
“*1e alsa highlighted the lack of transparency
in Enron's derivative positions in the enersy marker.''

Tauzin and Greenwood requented SEC reviews of all fnrca
quarterly and annual filings with the agency beginsing January
1997 up to the date the SEC launched its own forma) probe into
tinvon. Tauzin and Greenwood algo want all proposed adjuatments to
Enron filings guimitted te the SEC by Enron auditors.

--wieky Stamas in Washington (202) 624-2958, or
vatasavebloombers.net /ba

Story fllustration: To compare Enron's stock performance with
market indexes, type (ENE US <fquity> COMP <00>).

Company news
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01300000000485


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01300000000432


Wednesday, January 9, 2002 Page 3S

01300000000438


10K Wizard - SEC filings Page 60 of 83
Financial Statements. For the impacts on Enron's Consolidated Financial
Statements for the years ended December 31, 1997 through 2000 and for the first
and second quarters of 2001, see Note 3 to the Consolidated Financial
Statements. While these restatements included herein reflect Enron's current
understanding of the relevant facts, it is possible that the Special Committee's
investigation will identify additional or different information concerning these
matters and Enron cannot predict what impact the information gathered by the
Special Committee may have on the financial information included in this report.
As a result, Enron will not issue amendments to its annual reports on Forms 10-K
for the years ended December 31, 1997 through 2000, or its quarterly reports on
Forme 10-Q for the quarterly periods ended March 31, 2001 and June 30, 2001 to
reflect the anticipated restatements of Enron's Consolidated Financial
Statements until the Special Committee has completed its investigation.
CONSOLIDATED NET INCOME

Enron reported net income of $225 million for the first nine months of 2001
compared to $797 million during the same period in 2000. The significant
decrease relates to losses on investing activities discussed in Corporate and
Other, the impairments by Azurix Corp. discussed in Global Assets and charges
recorded by Broadband Services.
INCOME BEFORE INTEREST, MINORITY INTERESTS AND INCOME TAXES

The following table presenta IBIT for each of Enron's operating segments

(in millions):

~
Americas $1,960 $1,009
Europe and Other 235 26s
Retail Services 99 79
Natural Gas Pipelines 235 289
Portland General ice 241
Global Assets (275) 117
Broadband Services (494) (38)
Corporate and Other (947) (2184)

IBIT $ 981 $1,808

55
PART I. FINANCIAL INFORMATION - (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OP
FINANCIAL CONDITION AND RESULTS OP OPERATIONS - (CONTINUED) 02 1 26

ENRON CORP. AND SUBSIDIARIES

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01300000000734


any such thing, but, again, it seems better to keep looking. (After all, in pretty much every instance
cited here, the relevant accounting firm admitted no wrongdoing, even if it paid a multimillion dollar
settlement.)

Let's try KPMG. Actually, that firm was the outside auditor for Oxford Health Plans, whose stock blew
up in spectacular fashion a few years back after accounting problems emerged that had apparently
escaped KPMG's attention. That leaves the epic-named PricewaterhouseCoopers. Has it managed
to avoid signing off on books that later proved less than perfect? Not quite. The same Forbes story
cited above notes that Price Waterhouse (one of the mergees that formed the current company) was
the auditor for First American, the U.S. subsidiary of BCCI. More recently, the post-merger firm was
the auditor for Lucent during the period last year when it "misreported" $125 million in revenue,
contributing to an SEC probe and the crumbling of Lucent's share price. Oh, well.

Admittedly, Andersen's recent record is far more embarrassing than those of its rivals. A new lawsuit
accuses the firm of "knowingly participating in Enron's breaches of fiduciary duty." Its chief executive,
Joseph Berardino, found himself last week being questioned by the House Committee on Financial
Services, noting that he was on hand in part because “faith in our firm ... has been shaken."

On the other hand, just a few days earlier, Berardino contributed a lengthy op-ed to the Wall Street
Journal titled “Enron: A Wake-Up Call.” There he argued that “it’s time to rethink" complex accounting
rules, that "we need to fix" the "broken financial-reporting model" and “focus on ways to improve”
regulation and "accountability." He concluded: "Enron reminds us that the system can and must be
improved. We are prepared to do our part." Gosh. Maybe | should reconsider and go with Andersen
after all, after this reassuring burst of candor on the part of its head honcho, Sure, the Enron debacle
actually seems more like the third, or fifth, or maybe 10" "wake-up call" for auditors-but hey, who's
counting?

10

01300000000382


10K Wizard - SEC filings Page 20 of 83

PART I, FINANCIAL INFORMATION - (CONTINUED)

ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
. ENRON CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Enron, like many other companies, utilizes a variety of structured
financings in the ordinary course of its business to acce capital or hedge
risk. Many of these transactions involve "specia purpose entities," or *SPEs."
Accounting guidelines allow for the non-consolidation of SPZs with the
Sponsoring company's financial statements in certain circumstances. Accordingly,
certain transactions between the sponsoring company and the SPE may result in
gain or loss and/or cash flow being recognized by the sponsor, commonly referred
to by financial institutions as "monetizations."

The LIM Partnerships. Enron believes that, under the LJM1 and LJM2
limited partnership agreements {as with many similar agreements in private
equity investing), the general partners are entitled to receive a percentage of
the profits in excess of their portions of total capital contributed to the
partnerships depending upon the performance of the partnerships’ investments.
Bnron also believes that the general partners are entitled to receive annua
management fees based in part on formulas that take into account the total
amount of capital committed and/or invested by the limited partners. Enron now -
believes that Mr. Pastow earned in excess of $30 million relating to his LUM
management and investment activities. Enron believes that the initial capital
commitments of all partners to LJM1 were $16 million, and aggregate capital
commitments of all partners to LUM2 were $394 million.

LJM1 and LIM2 were described to the Enron Board of Directors as potential
sources of capital to buy ets from Enron, potential equity partners for Enron
investments and counterparties to help mitigate risks associated with Enron
investments. The Board algo was informed that LJM1 and LUM2 intended te transact
business with third parties. Prior to approving Mr. Fastow's affiliation with
LJM1 and LJM2, the Board determined that Mr. Fastow's participation in the
partnerships would not adversely affect the interests of Enron, The Board
approved the initial transaction with LUM1 and recognized that Enron could (but
was not required to) engage in additional transactiona with LUM.

The Board directed that certain controls be put into place relating to
Mr. Fastow's involvement with the partnerships and transactions between Enron
and the partnerships. The Board required review and approval of each transaction
by the Office of the Chairman, the Chief Accounting Officer and the Chief Risk
Officer, The Board also recognized the ability of the Chairman of the Board to
require Mr. Fastow to resign from the partnerships at any time and directed that
the Audit and Compliance Committee conduct annual reviews of transactions
between Enron and LJM1 and LJM2 completed during the prior year to ensure the
Board's requirements as to controls were met. Whether these controls and
Procedures were properly implemented is a subject of the Special Committee's
investigation.

Enron believes that, as of July 31, 2001, Mr. Fastow sold his interests
in LJM1 and LJM2 to Michael J. Kopper, and that Mr. Fastow ceased to be the
managing member of LJM's general partners. Prior to that time, Mr. Kopper
reported to Mr. Fastow as a non-executive officer of an Enron division. Mr.
Kopper resigned from Enron immediately before Enron believes he purchased Mr.
Pastow's interests in LUM. Mr. Fastow is no longer working for Enron.

19

02086

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Nickoloff, Peter

SS

From: Carleton, Norman

Sent: Thursday, January 10, 2002 3:54 PM

To: Schultheiss, Heidilynne; Nickoloff, Peter; Berardi, Steve, Pietrangeli, Fred
Subject: Bond sleuths were ahead on Enron. Now they have their sights on three others.
AGAINST THE GRAIN

Caught Off Balance

Bond sleuths were ahead on Enron. Now they have their sights on three others.
FORTUNE

Monday, January 21, 2002

By Herb Greenberg

If you learn nothing else from the Enron mess, take this lesson to heart: A company's inability to
handle its debt can be its downfall--no matter how much Wall Street likes its stock. Indeed, while
earings may be a window to a company's psyche, the balance sheet is what gives you a truer
picture of its well-being. Bond analysts make a beeline to this crucial piece of financial disclosure,
paying special attention to a company's ability to service its debt. And when the ratio of cash to debt
plunges--watch out!

The best balance-sheet snoops are often way ahead of the pack in finding signs of trouble.
Sometimes, however, the big credit-rating firms, Standard & Poor's and Moody's, which get paid by
the companies they rate, are slow off the mark--slower, as a rule, than independent bond-rating
services like Egan-Jones of Wynnewood, Pa., or research firms like New York-based Gimme Credit.
"We don't have the constraint of trying to keep a company happy,” says Egan-Jones President Sean
Egan, whose downgrade of Enron to junk beat the big guys by about a month. (To be fair, Moody's is
revising how it assesses companies, taking into account additional information that could lead to a
default. Standard & Poor's, for its part, argues that its existing methods are adequate.)

Given the scope—and the surprise--of the Enron failure, it's worth asking: Are there other companies
out there that these aggressive independent credit-rating agencies are flagging now? You can bet on
it. We're not necessarily talking future Enrons, but simply companies whose financial situation is
more dire than the market thinks. Certainly one where the alarm bells are ringing loudly (and which--
don't remind me--got a positive nod from this column a year ago) is Ford Motor. It's no secret that
Ford is having serious problems, but you wouldn't know it from its credit rating, which is still
investment grade. Egan-Jones, however, labels it BBB-, a few notches lower than the other rating
agencies do and just one step above junk. That's where Egan-Jones thinks Ford will arrive within six
months, as the sales boost from the much heralded 0% financing starts to wane and bad auto loans
pile up. Junk status raises the cost of borrowing and would be particularly damaging for Ford, whose
ability to cover its debt has been deteriorating rapidly. Egan and other bond analysts measure this by
calculating a company’s interest coverage ratio--pretax income plus interest expense divided by
interest expense.

The ratio, which varies widely by industry, is key to credit analysis. Egan calculates that Ford's
interest coverage has tumbled from 2.2 in September 2000 to just above 1 now. "That's akin to
saying that nearly everything you earn will have to be used to pay your interest expense, which
doesn't leave a lot of money to invest in the business,” he says. Ford responds that it's
"disappointed" by the Egan-Jones rating; both S&P and Moody's insist they haven't been laggards

vw

01300000000466


announcements.

Enron's woes could have widespread consequences for scores of companies across the economy.
The government is unlikely to bail out Enron if it goes under.

Energy trading is sent reeling as EnronOnline is shut down.

The merger was scuttled when Standard & Poor's lowered Enron's credit rating to "junk" status.
Enron CEO's political connections run silent during firm's crisis.

Mutual funds may get hit by Enron's meltdown,

Enron asks laid-off workers to waive legal claims against it in exchange for some of their severance
payments,

Nov, 27: Enron and Dynegy work to save their deal amid the threat of a credit downgrade to Enron's
debt. Bankers have a big stake in the merger succeeding.

Nov. 26; Enron has advanced talks to cut the price of the all-stock acquisition by Dynegy by more
than 40% to about $5 billion.

Nov. 23: The Wall Street Journal reports that Enron is being sued by members of its employee-
retirement plan, which has suffered losses because of its plunging stock price.

Nov. 20: Enron warned that continuing credit worries, a decline in the value of some of its assets and
reduced trading activity could hurt its fourth-quarter earnings.

Nov. 9: Dynegy announces a deal to buy Enron for about $7 billion in stock. ChevronTexaco will
inject $1.5 billion into the deal immediately, and an additional $1 billion upon closing.

Nov. 8: Enron reduces its previously reported net income dating back to 1997 by $586 million, or
20%, mostly due to improperly accounting for its dealings with the partnerships run by some
company officers.

Nov. 1: Enron says it has secured commitments for $1 billion in financing from units of J.P. Morgan
and Citigroup.

Oct. 31: The SEC elevates to a formal investigation its inquiry into Enron's financial dealings.

Oct. 29: Moody's lowers its ratings by one notch on the Enron's senior unsecured debt and kept the
company under review for a possible further downgrade.

Oct. 25: The company draws down about $3 billion, the bulk of its available bank credit lines.

Oct. 24: Enron replaces Mr. Fastow as CFO with Jeffrey McMahon, the 40-year-old head of the
company's industrial-markets division.

Oct. 22: Enron announces SEC will begin a probe of company’s “related party transactions,”
including those with Fastow partnerships. Enron says It will fully cooperate.

Oct. 19: The Wall Street Journal discloses that general partners of Fastow partnership realized more
than $7 million last year in management fees and about $4 million in capital increases on an
investment of nearly $3 million in the partnership, set up principally to do business with Enron,
according to an internal partnership document.

Oct, 16; Enron takes $1.01 billion charge related to write-downs of investments. Of this, $35 million

is attributed to partnerships until recently run by CFO Andrew Fastow. Enron also discloses it shrank
278

01300000000387


(Cheney. Aides

LP

Met With Enron

jose. © Times in 2001

Counsel: Energy Policy Was Topic

By Mike
¥

The White House told Congress in a letter released yeter
aay that Vice President inet six tienes with

xlueding 2 sesaun two
ay trading company made the largest

fing in American history
eed Bush released Une

Enree Corp. repr
months before the €
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The meetings contioucd after Pres
energy pol
the ietter. Five of the meetings were with Cheney 2
one was with the vice president, Ome: of th
Joys betore Ba 21
Ider equity by $1.2 bill
Cheney avet for half an hoe
Lay, Enron's chairman, aceording toa Jan. 3 letter by Ds
ington, the view president's counsel The letter was wr
nse toa Dex. 4 request by Rep. Heney A. Waxisir
(D-Calif.), ranking minority member of the House Committee
on Government Reform, who released the corresponde
Addington wrote that Cheney and La sod energy
policy matters, including the energy crisis in Calilowmia, and
did not discess infurmation concerning
the Bsirom Corpor -
ncy’s office has resisted inquirie
his emengy policy task force by the Ge Acc
the investigative arm of Congress, and by Sena

Democrats

re Encéai's influence on policy.
ebased compa Jangtime persia and fh

ish Waxonam said

the White Howse

for bankruptcy prot 2. Adilingtoe
Developencat Group ¢
through Sept. 3
it the group's stall met with Enron represen
tatives on Feb. 22 and March 7, Ox April 9, the staft met with
shout two duare representatives of ities, including
one from Enron, ( met with officials of a German
nga representatives
¢ losses 06 Oct. 16

“Enron did not inlorvnat
Jal position in any of the meetieys with the Ve
with the National Enengy Policy Dewelopaient
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the counsel wrute, “There was no cisex
ocerning the Fnamial posditsun of Rar
A White Hous: official said the meetings reflected the
iclusive” approach of Cheney's energy task horce:

reportersan Dec. 2 eis" y concomed

01300000000417


country's 401K regulations and corporate disclosure rules as a result of Enron's bankruptcy. On
Wednesday, the Justice Department announced it would launch a criminal investigation into Enron's
collapse, the largest bankruptcy in the nation's history.

However, Bush said he didn't meet with Lay personally and he said a full investigation into Enron
was warranted and would take place.

Fleischer maintained that Bush was never involved in the discussions about whether to extend
goverment assistance to Enron.

Asked if O'Neill or Evans approached Bush about the Enron matter, Fleischer said. “They did not."

Fleischer also said the two secretaries didn't tell Bush that Enron had approached them until
Thursday morning. He called the fact that Enron's Lay approached the two secretaries nothing
unusual.

"| think it should surprise no one that people in the administration receive phone calls from people
who are either in business or at unions. It happens everyday. | mean, it's not uncommon for people to
receive phone calls from business leaders across the country, from union officials across the country.
That happens as a common occurrence has always taken place,” Fleischer said.

“| want to remind you that, communication is not a wrongdoing. What took place here was, they
received phone calls and took no action. The charge has been, did the government take any action?
And the answer form these two officials is no,” Fleischer said.

Fleischer warned Democrats against seeking to reap political hay from Enron's woes and its ties to
the White House. He called such efforts a “fishing trip" and said it was the sort of investigation the
country tired of in the 1990s.

-By Alex Keto, Dow Jones Newswires; 202-862-9256; Alex.Keto@dowjones.com

323

01300000000462


Complicated, off-balance sheet transactions were Enron's undoing. Its stock collapsed after a Nov. 8
announcement that the firm had overstated its net income by $569 million over four years.

Creditors are now lining up to collect on the approximately $40 billion in debt owed by Enron.

Of that, roughly $22 billion is on the balance sheet in the form of bank debt, commodity-transaction
financing, bonds and other public securities. The remainder is made up of roughly $7 billion in bonds
and bank debt linked to other assets in special partnerships, as well as an additional $10.7 billion in
“project finance," a term that typically refers to money lent to build power plants or oil refineries.

-By Dawn Kopecki, Dow Jones Newswires; 202-862-6637; Dawn.Kopecki@dowjones.com

v7

01300000000399


10K Wizard - SEC filings Page 28 of 83

fifth limited partner was an entity associated with Mr. Fastow. These officers
and employees, and their most recent job titles with Enron, were Ben Glisan,
Managing Director and Treasurer of Enron Corp.; Kristina Mordaunt, Managing
Director and General Counsel of an Enron division; Kathy Lynn, Vice President of
an Enron division; and Anne Yaeger, a non-officer employee. Enron has terminated
the employment of Mr. Glisan and Ms. Mordaunt. Ms. Lynn and Ms. Yaeger are no
longer associated with Enron and Enron believes they are now associated with
LIM2, At the time these individuals invested in the limited partnership, LJM1
had ceased entering into new transactions with Enron. However, some pre-existing
investments involving LJM1 and Enron were still in effect, and gnron believes
that these investments resulted in distributions or payments to LJM1 and to the
limited partnership in which these individuals invested.

Pursuant to a services agreement among Enron, LJM1 and LJM2, Enron made
available to LJM1 and LUM2 a portion of the time of certain of its employees to
provide administrative istance to the general partners of LJM1 and LJM2. Mr.
Kopper, Ms. Lynn and Ms. Yaeger, among other Enron employees, were made
available to LUM1 or LJM2 from time to time @uring their employment by Enron.

OTHER TRANSACTIONS. In the first nine montha of 2001, Enron received
approximately $241.8 million from Whitewing, an unconsolidated equity affiliate,
related to monetizations. During the first nine months of 2001, Enron acquired
investments from Whitewing for approximately $28.8 million. No gains were
recorded by Enron in connection with these transactions. Management believes
that the terme of these transactions are reasonable compared to those which
could have been negotiated with third parties.

5. SUPPLEMENTAL CASH PLOW INFORMATION

Net cash paid for income taxes for the first nine months of 2001 and 2000
was $168 million and $37 million, respectively. Cash paid for interest for the
same periods, pet of amounts capitalized, was $640 million and $573 million,
respectively.

BUSINESS ACQUISITIONS. In September 2001, Retail Services contributed
subsidiary companies with net book value of $103 million in the formation of a
new company, ServiceCo Holdings Inc. (ServiceCo). Also contributing to the
formation of ServiceCo was a third party financial investor and technology
partner. ServiceCo provides facility management services to retail customers.
Retail Services received an 86% interest in ServiceCo in return for its
contributions.

In the third quarter of 2000, Enron, through a wholly-owned subsidiary,
acquired all of the outstanding common shares of MG pic, a leading independent
international metals market-making business that provides financial and
marketing services to the global metals industry, for approximately $413 million
in cash. Enron recorded goodwill of approximately $354 million. As of the date
of acquisition, MG plc's balance sheet primarily consisted of approximately $1.7
billion of metals inventory and $1.6 billion of short-term debt.

In 2000, Enron entered into an agreement with Azurix Corp. (Azurix) under
which the holders of Azurix's approximately 39 million publicly traded shares
would receive cash of §8.375 in exchange for each share. On March 16, 2001,
Azurix shareholders approved the agreement whereby Enron paid approximately $330
million for an equivalent number of shares held by the public and all publicly
traded shares of Azurix were redeemed.

26

PART I. PINANCIAL INFORMATION - (CONTINUED) (@) 209 4

ITEM i. FINANCIAL STATEMENTS - (CONTINUED)
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01300000000702


Page 3 of 7

CRIER:; When we talk about analyzing the — the explosive material and one being 2 military substance, one that the Israelis had discovered
through the Hamas bombing, it is -- it still sounds like this is same great revelation to investigators, be it the CIA or those over in Europe, and
that's a bit frightening.

JUERGENSMEYER: Yeah, it's...

CRIER: In other words, the premise being if they've looked at this before, there -- somebody has been making these sorts of combinations, why
would this be so new, so fresh?

JUERGENSMEYER: Well, I don't think it's new to the people who have studied the al Qaeda network closely, but I think it is shocking to
those of us who think that now that the war in Afghanistan seems to be over, that there is still these cells operating out someplace that we don't
know about,

‘The other thing that's very interesting is that this is not the usual suspect. This is not a Middle Eastern male between the ages of 16 and 30 that
‘we seem to have targeted as our prime suspect for international terrorism. This is ¢ guy of a different background, a different ethnic
background, resident of London.

All this shows that the unrest against America has a kind of larger show of strength of groups that would like to do America in in some way --
some loosely associated with al Qaeda, others more strongly -- is a much broader net than we had previously thought.

CRIER: On the other hand, Eric, this -- this guy doesn't strike me as a rocket scientist. This -- the Reid fellow. Does he seem like someone who

would be integral to a network who might be participating in the building of explosives and the blowing up of a plane or possibly an underling
of sorts?

ERIC MARGOLIES, AUTHOR: Catherine, he does not fit any of the normal patterns. In fact, to me, Reid looks -- fits the pattern of being
your typical drug nuule, that is, somebody who travels around hiding or smuggling drugs. And the pattern of his travels suggest that strongly,
the places he went to.

The fact he worked as a cook and an incense salesman, supposedly. Yet he went to Isracl, he went to Pakistan. He may have been in
Afghanistan. He traveled around Europe with cash suggests a criminal, And in fact, he had a criminal background.

Now, I've spent a good deal of time with -- with Islamic militants in Pakistan and in Kashmir and other parts of the Muslim world. And be is
totally atypical These are not criminals, petty criminals, as he was, These are -- are militant, committed people.

CRIER: But Eric, back up just a minute with your analysis before you move on, And that is criminal. I don't know about a criminal record. But
traveling with cash to Afghanistan, to Uzbekistan, even to Israel and across Europe, all of that could certainly be correlated with the terrorism
we've seen,

MARGOLIES: Yes, it's -- it could very truly. But he’s not the type of person that the terror or terrorist groups or the extremist groups would
normally pick. He's very obvious.

CRIER: Wouldn't that be a brilliant plan, though? Wouldn't that be brilliant?
UNIDENTIFIED MALE: Yeah, what a perfect person to choose.

CRIER: Read all this stuff — read all this stuff about the fact that they want to come into the United States. Here devout Muslims are wearing
Westem clothes, they're drinking in strip bars, for heaven's sakes, It doesn’t seem so far-fetched that they begin to reach out.

MARGOLIES: No, no not so, Catherine. Because when he was stopped by the Israclis, for example, he stood out like 2 sore thumb, He's as tall
-- almost as Osama bin Laden,

He looked like a wild man, an enrage, is the French would call him. He had Islamic texts in his backpack. And they -- so this -- he wasn't trying
to sort of hide in plain sight. So the best theory is that somehow he was some poor sort of very unintelligent or retarded person who was
somebow convinced to go and go on a suicide raid for reasons we still don't understand.

CRIER: Well, let me ask you about that, Mark, ‘Trying to understand the reasons. They have made some correlation with Moussaoui, who is
preparing to stand trial here in the United States because they went to the same mosque, apparently, for @ time period in London, There may be
even some telephonic links, I'm not sure. But they seem to be trying to tie him in through that.

JUERGENSMEYER: Yes, and what an excellent choice to make, somebody who was somewhat out of the box. I mean, we've assumed that
there would be no women involved. But is it entirely impossible that maybe one of the next carriers of one of these weapons might be a
woman’? Might be a blond, blue-eyed woman? Somebody that you might not at all expect?

T think part of the extraordinary character of this kind of war, this kind of struggle, is it involves a movement that is diverse, a movement that

1/17/02 01 892

01300000000500


Nickoloff, Peter

From: Carleton, Norman
Sent: Thursday, December 20, 2001 10:46 AM
To: Cetina, Jill; Bair, Sheila; Berardi, Steve; Basberger, Timothy; Eichner, Matthew; Gabilondo,

Jose; Gross, Jared; Hammer, Viva; Lori Sanatamorena (E-mail); Nickoloff, Peter; Novey,
Michael; Pietrangeli, Fred; Roseboro, Brian; Schultheiss, Heidilynne; Whaley, Jean; Wiedman,
Mark

Subject: WSJ: J.P. Morgan Says Exposure to Enron Is $1 Billion Above Earlier Estimates

December 20, 2001

J.P. Morgan Says Exposure to Enron
Is $1 Billion Above Earlier Estimates

By JATHON SAPSFORD and KATHY CHU
Staff Reporters of THE WALL STREET JOURNAL

J.P. Morgan Chase & Co. said its exposure to Enron Com. was nearly $1 billion more than the $900
million that it has already disclosed, which is likely to raise concerns among investors whether the
bank has even more exposure to the energy trader lurking beneath the surface.

The bank said it has sued several insurance companies which are seeking to back out of
commitments to assure $1.1 billion in payments related to crude-oil and gas contracts, Of that $1.1
billion, $965 million is owed to J.P. Morgan Chase. The bank's litigation seeks to force the insurers to
make good on the payments,

The development underscores the extensive ties between the nation's banks and the energy trader.
An official familiar with the matter said one of the several insurers seeking to back out of the
agreement is a unit of Citigroup Inc., which along with J.P. Morgan Chase represented Enron in its
failed attempt to merge with rival energy trader Dynegy Inc.

[G3]See full coverage of the risé"arid fall of Enron.

In a related development, a European financial institution has failed to make payment to J.P. Morgan
Chase on a $165 million letter of credit linked to a swap contract, the bank said. The bank said it
would seek legal enforcement of the letter of credit. The bank didn't disclose the name of the
institution.

J.P. Morgan officials insisted that with this disclosure, the bank was coming clean about its total
exposure to Enron. Yet it had made similar assurances when it made the earlier disclosure of overall
exposure of $900 million around the time Enron filed for bankruptcy.

The bank said that as a result of Enron's failure, it would take a charge of $220 million in loans during
the fourth quarter, and a further $235 million reduction in fourth-quarter trading revenue.

Separately, a New York federal bankruptcy judge granted Enron's motion to expedite the auction of a

majority stake in its core energy-trading operations, setting a Jan, 7 deadline for bids.
24

01300000000383


Wss olotloz

BP Makes Bid for Part, Not All of Enron Unit

Ry 0 Wart. Sramer JoimeaL Stall Repereer
LONDON-BP PLC said it submitted a
$25 million bid for the curnputer settlement
Support systems of Enrom Corp.’s energy-
trading subskllary, but isn't currently bid-
ding for coptrot of the whole anit.

BP, a global petrofeum concern based
in Londos, was one of several companies:
that met @ Monday deadline for bids in
advance of tomorrow's scheduled bank-
Tuptcy court “amctionTM for Enron's trad-
ing division. Emrun’s advisers are cur-
rently sorting through the sealed bids,
which also include offers trom New York-
based Citigroup Inc. and Switzerland's
UBS AG, people familiar with the matter

with backing from a credit-worthy part-
per. BP's bid. It sppears, wouldn't fulfill
that objective.

Wednesday, January 9, 2002

Page 25

01300000000428


10K Wizard - SEC filings Page 77 of 83

PART I. FINANCIAL INFORMATION - (CONTINUED)

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS .OF OPERATIONS - (CONTINUED)
ENRON CORP. AND SUBSIDIARIES

CREDIT RATINGS. Enron's credit ratings at September 30, 2001 and the date
of this filing are as follows:

Debt Instrument 2001 Current 2001 Current

Senior unsecured debt Baal Baa BBB plue BBB minus BB
Subordinated debt Baa2 Bal BBB BBB minus BB
Commercial paper P-2 Not Prime A-2 A-3 P2

Additionally, each of the above rating agencies have issued warnings that
further downgrades are possible.

UNCONSOLIDATED EQUITY AFFILIATES. Summarized below is a description
related to two of Enron's unconsolidated equity affiliates for which Enron has
committed to issue equity to satisfy obligations of these equity affiliates. As
discussed above, Enron's current common share stock price, liquidity situation
and credit ratings may significantly impact Enron's ability to satisfy these
obligations solely with equity issuances.

Whitewing Associates L.P. Whitewing is an entity formed by Enron and
various investors, investing through an entity named Osprey, to acquire and own
energy-related assets and other investments. Osprey is capitalized with
approximately $2.4 billion in debt and $220 million in equity. The Osprey debt
ig supported by the assets within Whitewing, which include Enron Mandatorily
Convertible Junior Preferred Stock, Series B (which ie convertible into 50
million shares of Enron common stock), and a contingent obligation of Enron to
igaue additional shares, if needed, to retire such debt obligation. In the event
that the sale of equity is not sufficient to retire such obligations, Enron is
liable for the shortfall.

At November 16, 2001, Whitewing held assete with a book value of
approximately $4.7 billion. This includes approximately $1.3 billion in energy
related projects in Europe and South America, including European power plants,
and an electric distribution company in Brazil, approximately $600 million of
merchant investments, approximately $600 million in demand notes due from Enron
and other assets of $100 million. The merchant portfolio includes both private
and publicly traded entities and consists of oil and gas investments, power
generation and energy investments and technology related and other investments.
In addition, Whitewing holds Mandatorily Convertible Junior Preferred Stock,
Series B, mentioned above, and a contingent obligation of Enron to issue
additional shares, if needed, which together have a combined book value of
approximately $2.1 billion. This contingent obligation is in the form of a 02 1 43
derivative instrument. As such, both Bnron and Whitewing account for this
contingent obligation at fair value, As a result, Enron recognizes losses

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01300000000751



Page 11 of 11

Please send us your thoughts. Our address: Moneyline@icnn.com. Please include you name and address.

“WOLF BLITZER REPORTS" begins in just a few minutes. Let's go to Wolf now to find out what's in store — Wolf.

WOLF BLITZER, HOST, WOLF BLITZER REPORTS: Thank you very much, Lou. The U.S. military is sending troops to 2 second far away
country in the war against terrorism. We will go live to the Pentagon for details. Also, U.S, Marines at the Kandahar base come under hostile
fire. Our Bill Hemmer is right there. And in our CNN WAR ROOM discussion, what are the new dangers facing American forces. All that and
much more at the top of the hour -- Lou,

DOBBS: Wolf, thanks, we are looking forward to it.

Coming up next here, some reports that may move at least in part, some part of the markets tomorrow. Stay with us.

(COMMERCIAL BREAK)

DOBBS: Tomorrow, on the economy, the Producer Price Index for December wil! be reported, Federal Reserve Chairman Alan Greenspan will
be talking before business leaders in San Francisco. He will be talking about the prospects of the economy. Talking in some detail for the first
time in point of fact, since October of last year.

Ford is announcing its restructuring, and reportedly those plans include as many as 20,000 layoffs.

And the Enron investigation is accelerating. Enron is expected to announce a winning bid for its trading operations. The judge in that case also
deciding where the bankruptcy proceedings will be held and of course Congress continuing its investigation, set tomorrow to send out
subpoenas to various parties, as many as 50 subpoenas expected to be issued tomorow,

For tonight that's MONEYLINE. Thank you for being with us. I'm Lou Dobbs, Good night from New York, "WOLF BLITZER REPORTS"
begins right now.

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01889

1/17/02

01300000000497


NI TRE
NI SEC
NI SCR
NI LAW
NT ACC
NI CNG
NI FIN
NI GOV
NI US
NI TX
NI NY
NI NASD
NI OTL
NI PIP
NI NRG
NI GAS
NI ERN
NI EXE
NI CNG
NI LAW
NI RULES
NI VOICES

#<40533>4

-O- {BN ) Jan/1i/2002 6:35 GMT

01300000000481


and Mr Cheney had worked closely on one of the city's most prominent new landmarks, a baseball
stadium for the home-team Astros, which was built by a Halliburton subsidiary and bears the name of
Mr Lay’s company: Enron Field.

On his trip to Washington last April, Mr Lay did not want to talk baseball. California was in the middle
of an energy crisis - the state's largest investor-owned utility, Pacific Gas and Electric, had just filed
for bankruptcy. Enron, which had helped to formulate the state's electricity deregulation plan, was
facing criticism.

Neither Mr Lay nor Mr Cheney has talked in detail about what the two discussed in the half-hour
session. A Cheney aide disclosed this week that the meeting was generally about "energy policy
matters", including the California situation. But the sit-down, along with five other contacts between
Enron representatives and the staff of the vice-president, who chaired Mr Bush's energy taskforce,
has begun to raise questions.

Henry Waxman, a senior Democrat member of the House energy and commerce committee, which is
conducting an inquiry into Enron's collapse, notes that the day after the Cheney-Lay meeting, the
vice-president gave an interview to the Los Angeles Times in which he stated that the administration
would not support price caps on electricity. Conservatives in Washington have long resisted price
caps of any kind, and opposition from the Bush administration was not particularly surprising. The
coincidence is nonetheless awkward.

These are not the only links between the administration and Enron. Both Lawrence Lindsey, the
White House economic adviser, and Robert Zoellick, the US trade representative, were employed as
consultants by Enron before taking jobs with Mr Bush. While there is no evidence so far of
impropriety by any White House official, the saga reinforces past questions over whether Mr Bush's
administration does the bidding of moneyed interests and corporations that provide political
donations,

“Enron is just one example of these self-interested energy companies that had special access," says
John Walke, a lawyer for the Natural Resources Defence Council, an environmental group that has
sued the administration seeking documents about how Mr Cheney's energy taskforce formulated the
White House's energy legislation.

Indeed, the taint of even an arm's-length association with Enron has become so great that several
high-profile political groups have decided to forgo contributions from the company. The Republican
Governors Association recently retumed a $60,000 Enron donation, and the National Republican
Senatorial Committee - the arm of the Republican party responsible for Senate races - sent back two
cheques totalling $100,000. The Democratic Senatorial Campaign Committee - which received an
identical $100,000 Enron donation - donated the money to charity.

Congressional inquiries into the ties between the Bush administration and Enron have their perils for
Democrats as well. Senator John Breaux, a powerful conservative Democrat, has called for the White
House to disclose all contacts with Enron, a move Mr Cheney in particular has resisted, But Mr
Breaux himself received more than $11,000 in donations from Enron over the past decade, according
to the Centre for Responsive Politics, a watchdog group. He is not alone. Senator Jeff Bingaman,
chairman of the energy committee, has been a recipient of thousands of dollars of Enron's largesse,
as has Congressman John Dingell, the top Democrat on the House energy and commerce committee
and one of the most outspoken critics of Mr Cheney's dealings with the company. Linda Robertson,
formerly a senior lobbyist for Enron, was an assistant Treasury secretary in the Clinton
administration,

3

01300000000483


~ Saying they don't understand it but still recommend it is a siap in the face to ramind us how useless analysts are,” seys
Robert Olstein, a 35-year Wall Street veteran who runs the $890 niillion Olstein Financial Alert Fund

After the market closed for trading on Aug. 14, Skilling, 48, abruptly resigned, citing personal reasons and raising concerns
among investors that dire financial news might be forthcoming.

Falling Stock
Enron stock dropped as much as $6, or 13 percent, the following day, ending the week at $36.67.

Analysts insisted nothing was awry. “There is nothing wrong with the company,” UBS's Barone said after meeting with
Lay, who had once again become Enron’s CEO. “There is no other shoe to fall — and no charges to be taken.” He kept his
“buy” rating on the stock.

Lehman's Gross also met with Lay and other senior managers on the night of Aug. 16. ‘“The Enron machine is in top
shape and continues to roll along,” Gross wrote to investors the next day.

He didn’ see a short-term catalyst to boost the stock -- then trading at $36.85 a share — yet he urged investors to get more
shares, maintaining his “strong buy” recommendation and a 12-month price target of $72.

CSFB anelyst Curt Launer wrote a brief note to clients after what he described as “intensive meetings" with management.
He said there was “no truth to any of the speculations" and kept his 12-month target of $84 and his “buy”
recommendation.

Enron a ‘Buy’

Of the 22 analysts who covered Enron, 19 rated the stock a “buy* as of mid-October 2001. That's when, one after
another, disclosures spilled out of the Houston-based company: Enron's partnerships had hidden billions of dollars in debt;
years of profits had been exaggerated; and the U.S, Securities and Exchange Commission was investigating Enron's
partnerships with affiliates.

The disclosures dashed Enron's credibility with landers and drove it to bankruptcy.

On Nov. 21, with Enron stock at less than $7 ~ down more than 90 percent from its high in August 2000 — Goldman's
Fleischer downgraded Enron to “market perform,” Wall Street parlance for “hold.” He didn’t respond to several phone
calls,

Easier Decision

Investors say Fleischer's decision to downgrade the stock was made easier by his firm’s failure to win a role advising
Enron on its planned sale to Dynegy. “| wouldn't doubt at all that being dropped from the ‘recommended list’ hac
something to do with not winning the advisory business,” says Phelps.

Fleischer and Goldman spokespeople didn't return phone calls,

To many investors, there were signals that should have tipped off analysts that something was amiss. In December 2000
and January 200%, 10 top Enron executives sold more than $73 million in stock. Lay and Skilling together sold stock
valued at more than $17.6 million, according to the Washington Service, which tracks insider stock sales and purchases.

Insider sales are often a strong sign to investors that something's wrong. Timothy Ghriskey, who at the time was a fund
manager at Dreyfus Corp., sold about 1.55 million Enron shares in late 2000. “It wasn't much of an endorsement that they
were bailing out too,” he says. “I didn't see much upside in the stock and figured that with the valuation so high, there was
a jot of downside #f they failed to deliver,”

Wake-Up Call for Analysts

Coxe and other investors say Enron's failure should provide a wake-up call for analysts, who pay too little altention to
company balance sheets. “"! pay the Street lots of commission dollars and expect that analysts are reading the footnotes
and kicking tires,” Coxe says.

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Formed in 1985, Enron had 20,000 employees and was once the world's top buyer and seller of
natural gas and the largest electricity marketer in the United States. It also marketed coal, pulp,
paper, plastics, metals and fiber-optic bandwidth.

One likely focus of the Justice Department investigation is possible fraud based on Enron's heavy
reliance on off-balance-sheet partnerships which took on Enron debt. The partnerships masked
Enron's financial problems and left its credit ratings healthy so it could obtain the cash and credit
crucial to running its trading business.

The Houston-based company went bankrupt after its credit collapsed and its main rival, Dynegy Inc.,
backed out of an $8.4 billion buyout plan late last year.

Just a year ago, stock of Enron, the nation's largest buyer and seller of natural gas, traded at $85 per
share. Today it is less than $1.

Lay has close ties to Bush and his father, the former president. Lay was a top contributor to the
younger Bush's 2000 presidential campaign.

The company played a key role earlier this year when a White House task force met with business
executives and other interests to fashion a national energy policy. The task force was headed by Vice
President Dick Cheney.

3

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BUSINESS

January 8, 2002

Chief of panel has tie to Miss.

By Arnold Lindsay
Garion-Ledger Stal Writer

A former Mississippi farming activist now heads the federal Commodity Futures Trading
Commission.

James E. "Jim" Newsome, 41, was recently confirmed as chairman of the five-member
commission charged with regulating commodity futures and opt-ion markets, in-cluding
agricultural products, crude oil, natural gas and financial documents such as treasury
bonds and securities.

In recent years, the commission has redirected its energies largely toward the financial
market place, giving agriculture, which once took the majority of their efforts, less than
15 percent of their current focus, Newsome said.

Therefore, Newsome heads the agency through a period of refocusing that began in
December 2000, with congressional passage of the Commodity Futures Modernization
Act, which broadened the commission's responsibilities.

“What we're going to do is continue to build upon that same theme," Newsome said. "In
addition to that, we're going to be involved in a restructuring of the comunission itself."

Mississippi's Republican congressional delegation said Newsome’s involvement has
proven helpful.

“1am delighted with the elevation of Jim Newsome to the chairmanship of this important
commission. He has been a steady influence for reasonable and practical supervision of
commodity trading under the jurisdiction of the commission. And | am sure he will win
high praise in this new role,” said U.S. Sen. Thad Cochran, R-Mississippi.

Mississippi cattleman Fred Stokes of Poplarville, president of the Lincoln, Neb.-based,
Organization for Competitive Markets, agreed Newsome's appointment spoke highly for
the slate, Stokes said he considers Newsome, a Plant City, Fla., native who spent three
years in Mississippi, a friend.

“The futures market plays a major role on establishing cash prices for Mississippi farm
commodities," Stokes said, "It is also used by many farmers and ranchers to hedge the
price for their production and manage risk. There is always the danger that big traders
will abuse the futures market to unduly enrich themselves or manipulate cash prices."

MOLE

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10K Wizard - SEC filings Page 18 of 83

DESCRIPTION OF RESTATEMENT ITEMS

information that Chewco did not meet the accounting criteria to qualify as an
adequately capitalized unconsolidated special purpose entity (SPE). See Mote 4
for a discussion of Chewco and a description of an SPE. As a result of Chewco's
failure to meet these criteria, JEDI, in which Chewco was a limited partner,
also did not qualify for nonconsolidation treatment. When the consolidation of
these two entities are taken into account, Enron's prior-year reported debt
amounts are incre; by both JEDI's and Chewco's borrowings. In addition,
Enron's net income is reduced for Specific JEDI revenues previously allocated to
Chewco, relating to the appreciation in value of Enron stock held by JEDI, which
eliminates upon consolidation. This, in effect, reduces Enron's share of JEDI's
earnings. The net effect reduces Enron's prior-years’ reported net income and
shareholders’ equity amounts.

> LIM1 Subsidiary Consolidation. Enron's decision that the Lum subsidiary
should be consolidated in 1999 and 2000 is based on Enron's current assessment
that the subsidiary did not qualify for nonconsolidation treatment because of
inadequate capitalization.

In 1999, Enron entered into a series of transactions involving a third
party and LJMl. The effect of the transactions waa ({) Bmron and the third party
amended certain forward contracts to purchase shares of Enron common stock,
resulting in Enron having forward contracta to purchase Enron common shares at
the market price on that day, (ii) LUM1 received 6.8 million shares of Enron
common stock subject to certain restrictions, 3.1 million shares of which it

from LUM1, which was repaid in December 1999; and certain financial instruments
hedging Enron's investment in the stock of Rhythms NetConnections, Inc. Enron
recorded the assets received and equity issued at timated fair value. In
connection with the transactions, LJM1 agreed that Mr. Pastow would have no
pecuniary interest in such Enron common shares and would be restricted from
voting on matters related te such shares. In March 2000, Enron and LJM1 entered
into an agreement to terminate the financial instruments. In connection with
this agreement, Enron received the 3.1 million shares of Enron common stock held
by the LgM1 subsidiary, A put option, which was originally entered into in the
first quarter of 2000 and gave LyMl the right to sell shares of Enron common
stock to Enron at a strike price of $71.31 per share, was terminated under thie
agreement. In return, Enron paid approximately $26.8 million to LUM1.

Consolidation of the Lum1 subsidiary has the effect of eliminating the
income recognized by Enron on derivative transactions with this LJM1 subsidiary,
thus reducing Enron's net income in 2999 and 2000. Shareholders! equity has been
reduced in 1999 and increased in 2000 to reflect the elimination of Enron common
stock contributed by LJM1 to the LJM1 subsidiary.

Shareholders' Equity Reduction. Enron's previously-announced $1.2 billion
reduction of shareholders’ equity primarily involves the correction of an
accounting error made in the second Quarter of 2000 and in the first quarter of
2001. As described in more detail below and in Note 4, four SPEs known as Raptor
I-IV (collectively, Raptor) were created in 2000 to permit Enron to hedge market
risk in certain of its investmente. (LJM2 Co-Investment, L.P. (M2), a private
investment limited partnership for which the general partner's managing member
was Mr. Pastow, invested in these entities, but the related-party nature of the
transaction is not relevant to the accounting correction.) Ag Part of the
capitalization of these entities, Enron issued

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GRANGE: Bill probably saw some tracer fire. Was the tracer fire red, was the tracer fire green? A lot of AK-47 fire is green tracers. So, it's
really hard to say, And no one knows if the perimeter was even breached. It may have been just fire. The fire could have been outgoing.

I think it is too early to tell, and J think that the security forces there took appropriate action from the rehearsals that they have conducted,
which all units do when they start an operation in an area, by firing mortar flairs, helicopters, launch and check the area net. So it seems very
small. This is one of those incidents that happened almost every day in Vietnam.

DOBBS: General, we have an axiom in the newscraft -- always go with your person in the field. I believe the military has a similar axiom, so it
is interesting and the good news is that no one, certainly, was injured in what did transpire.

General, let’s turn to the Philippines; 100 U.S. troops, special forces, arriving there, The first elements of a force estimated to rise to as many as
$00. How effective could such a small force be in a significant struggle against terrorism?

GRANGE: What we have in the Philippines is you have terrorist organizations, (UNINTELLIGIBLE) al Qaeda and probably some other
organizations that again are in a guernila force environment. In other words, you have a counter-insurgency effort going on with the Filipino
government against an insurgency to the south.

So you have fighters like the Taliban, very similar, with the terrorist nucleus within that. So what they have to do is conduct a counter terrorist
training to assist the Filipino Army taking down this insurgency, That will involve -- and it doesn't involve a lot, but some special forces
trainers to teach some advance techniques in this, as well as some other support and aviation units to help train and support the Filipino Army
to do this counter-insurgency.

DOBBS; General, would it surprise you to learn that the U_S. military has had a presence in the Philippines before today's announcements of
the arrival of U.S. Special Forces?

GRANGE; Not at all, I would think they've been there, And any -- any day of the year. Seriously, Any day of the year, you have - I would say
in over 70 countries, special ops forces, doing normal training with our allies.

DOBBS: I just wanted you to make the point if you would, General, and as you always do, the fact is that we have a significant oumber of
special operations, elements at work around the world, but particularly in certain parts of Asia Do you expect this to hold at S00 or do you see
@ more sizable commitment in the Philippines?

GRANGE: | guess it depends if this is going to be maybe truly the next major operation. You know, limited operations will take place for sure.
Mainly by the Filipino Army I would believe, It may be unilateral hostage rescue or direct assaults by American forces with the permission, of
course, of the Filipino government if that is necessary.

It could grow bigger. It's pretty big area down there, jungle fighting usually consumes quite a lot of troops.
DOBBS; General, thank you very much, General David Grange.
GRANGE; Thank you, Lou.

DOBBS: Corning up next, we will have more for you on tonight's developing story on the criminal investigation into Enron. We'll be joined by
Treasury Secretary Paul O'Neill to discuss this and a number of other issues. We'll be taking an inside look at the corrupt world of money
laundering from what you might consider an unusual source, Stay with us.

(COMMERCIAL BREAK)

DOBBS: The world of money laundering, corruption and the role played by big corporations is the subject of a new novel by Stephen Cannell
Cannell knows this material very well. He is the creator of more than 40 television crime series, such as "The Rockford Files" and "The A-
Team." And he’s one of the most prolific writers in television, a very astute businessman as well.

Through his production company Cannell still owns the rights to 1,000 hours of television series and movies. His new book is called "The
Viking Funeral." Is a fictional sccount of a group of rogue LAPD officers, but Cannell's research is based some very real cases. And we are
going to be turning to him in just 1 moment, I'm told, to discuss that book and what we have learned about the war on drugs and its relationship
to the against terrorism.

‘Stephen Cannell are you there? OK, I'm told he’s not there, and I want to apologize. Let's turn to the latest developments in the war against
terrorism.

Tracer fire, as you beard Bill Hemmer report carlier in this broadcast, heard today as the first plane carrying Taliban and al Qaeda prisoners
took off from Kandahar, Afghanistan. Small arms fire followed. Marines at the airport returned fire. Two Cobra gunships were launched in
retaliation, There are no reports of any American injuries; 20 al Qaeda Taliban prisoners are being flown to the U.S, Naval Base on
Guantanamo Bay Cuba, a trip expected to take about 20 hours.

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and that their ratings are appropriate.

Egan-Jones is even warier of computer maker Hewlett-Packard. Its credit picture is as imperiled as
its proposed Compaq merger, according to Egan-Jones—which has already tossed the tech giant's
debt on the junk heap with a rating of BB+, several notches below that of the major rating agencies.
"It's appropriate to view Hewlett-Packard on a stand-alone basis, which is not particularly attractive,”
Egan says. "Today it is hard to name any business where it's the undisputed leader-even its printer
business is being attacked.” Making matters worse: From October 2000, Hewlett-Packard's interest
coverage has sunk steadily from 19 to just 6.6. (By contrast, IBM's ratio, according to Egan-Jones, is
11.7.) Hewlett-Packard officials couldn't be reached for comment.

Finally, there's retailer Gap (another company this column once argued you should never bet against,
because of its miracle-working marketing genius of a CEO, Mickey Drexler). While Gimme Credit's
Carol Levenson says Gap’s balance-sheet condition is not yet critical, it's “not nearly as strong as it
used to be.” Egan-Jones points out that Gap's interest coverage ratio has plunged from 27.3 down to
8.8 over the past four quarters. As a result, the firm rates the retailer's debt one step above junk and
a couple of notches below that of both Standard & Poor's and Moody's ratings. Gap officials say they
have never "worked" with Egan-Jones and point to the retailer's standing with the major rating

agencies instead. The problem is, as Enron proved, those agencies are not always the first to sound
the alarm.

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Continue. .)

starting to hit home."

But Judge Jacobs told mr. Glenn, “Under your logic, he can be held until
this matter is presented to judges etill unborn.”

Criminal Contempt

Judge Sotomayor asked how long Mr. Armstrong could serve in prigon it he is
successfully prosecuted for criminal contempt. She was told five years.

"If we keep this up, he's going to serve that much and more," Judge
Sotomayor said.

One argument made by Mr. Kleinman wac that the underlying rationale for
Judge Owen's civil contempt order was that the anacts were needed to
compensate aggrieved investors, But that rationale became obsolete in
December, Mr. Kleinman said, when Republic National Securities Corporation,
which processed trades for Mr. Armstrong, pleaded guilty to commodities and
wecurities fraud. As part of a plea agreement with the Southern District
U.S, Attorney's Office, Republic's new owner agreed to pay $606 million in
restitution to the Japanese investors.

But Mr. Glenn and Mr. Cohen said following oral arguments that there is a
“significant shortfall” between the amount of money to be paid to investors
under the plea deal and their actual logses, and that there remains amble
reason to hold Mr. Armstrong's feet to the fire.

The Second Circuit panel took the matter under advisement and did not issue
® ruling in the case.

Date Received: January 07, 2002

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