Business/Financial Desk; Section C Enron Tries To Dismiss Finance Doubts By FLOYD NORRIS 10/24/2001 The New York Times Page 1, Column 5 c. 2001 New York Times Company Enron has ample access to cash, the company's chief executive said yesterday as he assured investors that there was no need for additional write-offs stemming from unusual financing activities. In a conference call with investors that was hastily scheduled after Enron's stock plunged on Monday, the chief executive, Kenneth W. Lay, strongly defended the company's chief financial officer and said there was no conflict of interest involved in transactions that the Securities and Exchange Commission was looking into. But he refused to go into detail on the transaction that Enron made with partnerships run by Andrew S. Fastow, the chief financial officer. In addition, Mr. Fastow, while declaring that Enron ''expects to continue to have sufficient liquidity to meet normal obligations, '' declined to answer any questions about it. The conference call, which began just as trading opened on the New York Stock Exchange, at first seemed to be reassuring investors. Within minutes of the beginning of the call, the share price rallied to $23.25. But it soon began falling, and ended the day down 86 cents, at $19.79. The day's low of $19.62 was the lowest since Jan. 12, 1998, and was down 78 percent from the high set by the stock in the summer of 2000. Until recently, most investors focused on the company's reported operating earnings, which showed good results as it became a leading player in energy markets. But the focus has shifted to a series of transactions, some involving off-balance-sheet financing. One, involving partnerships controlled by Mr. Fastow, led to a $1.2 billion reduction in shareholder equity that raised concern last week and led to S.E.C. inquiries that the company disclosed on Monday. One of the company's strongest supporters has been David Fleischer, an analyst at Goldman, Sachs. But he told Mr. Lay on the call yesterday that Enron had to be more forthcoming with information. ''There is an appearance that you are hiding something, '' he said. After the call, Mr. Fleischer expressed disappointment. ''They've engaged in a number of transactions that one wonders about, and that are hard to understand, '' he said in an interview. ''They have not been as forthcoming in explaining them'' as is needed, he said. But he said he was still recommending the stock. ''I don't think accountants and auditors would have allowed total shenanigans, '' he said. ''In the absence of total shenanigans going on at this company, there is tremendous value here.'' Mr. Lay cited the S.E.C. inquiries as a reason for not discussing details on the transactions involving the partnerships that were controlled by Mr. Fastow. But he emphasized that both he and the company's board ''continue to have the highest faith and confidence in Andy.'' Mr. Lay said that auditors from Arthur Andersen had carefully reviewed Enron's reporting in conjunction with another off-balance-sheet vehicle, called Marlin. That company owns one-third of Azurix, an Enron subsidiary that owns Wessex, a British water utility. The auditors ''have determined there is no write-down required, '' he said under questioning by Richard Grubman of Highfields Capital Management, a money management firm. Mr. Grubman said that Marlin owed almost $1 billion on debt that was guaranteed by Enron but had no assets other than the Azurix stake. Noting that Enron had paid about $300 million to buy a third of Azurix from public shareholders and had since taken write-downs on its investment in Azurix, Mr. Grubman asked why the company was not setting up reserves to cover its exposure on that debt, which under a complicated arrangement could end up being satisfied through the issuance of Enron shares. Mr. Lay said that no action was needed but declined to address details. Eventually he cut off Mr. Grubman. ''I know you're trying to drive the stock price down, and you've done a pretty good job of it, '' Mr. Lay said. ''But let's move on to the next question.'' Mr. Fastow said the company was having no problem issuing commercial paper and had $1.85 billion in such debt outstanding. He said it was backed by $3.35 billion in bank lines of credit, of which $1.75 billion will expire next May if it is not renewed. Mr. Lay said he was sorry about ''the misunderstanding'' that resulted when his brief mention of the $1.2 billion reduction in shareholder equity in a conference call last week was not noticed by some analysts. That reduction would have been apparent if the company had released its balance sheet with the earnings report, but it did not. He said the company would consider releasing balance sheets with earnings reports in the future, but made no promises. The large reduction in shareholder equity did not affect reported earnings, and so was not in the earnings release. But it raised concerns that some of the sophisticated financing techniques used by the company might be effectively keeping losses off the earnings statement. The S.E.C. is expected to look into whether the accounting for that transaction was correct. After one questioner on the call said it would be easier to understand Enron if it released financial statements for the special purpose vehicles that were set up to enter into such transactions as Marlin, Mr. Lay said the company ''will look into providing'' such statements. 713-853-9287 888-703-0309.

"Alton, Thanks for the concern. Fortunately, I transferred to one of Enron's pipeline companies in mid-September (just before things started getting really crazy). This is the most stable part of the company and we will survive no matter what ... although we may be owned by someone other than Enron. I was also fortunate to have very little Enron stock exposure. Many of my friends have not been so fortunate. They are losing their jobs plus they've lost most of their net worth. Andersen is tight lipped because their butts are on the line also. I don't understand how they could have allowed Enron to guarantee so much debt and then keep it off-balance sheet. Are you all going to Port Neches for Thanksgiving? Renee and I are going tonight. I hope that you all have a very nice Thanksgiving and Christmas. Many Happy Returns, Paul -----Original Message----- From: Heckaman, Alton Sent: Tuesday, November 20, 2001 5:53 PM To: Y'barbo, Paul Subject: Status Someone was asking me the other day if I had any friends at Enron....you came to mind! Are you weathering the storm? Unbelievable is the word that comes to my mind. We use Andersen also and I know they are quite ""tight lipped"" about the situation! I sincerely hope everything works out for you and the other Enron employees that have done nothing more than ""bust your rears"" for the good of the ""Big E"". Stay in touch, Alton D. Heckaman, Jr. Swift Energy Company Senior Vice President Chief Financial Officer ----- If you are not the intended recipient of this message you are hereby notified that any use, distribution or reproduction of this message is prohibited. If you have received this message in error please notify Swift Energy Company immediately. Any views expressed in this message are those of the individual sender and may not necessarily reflect the views of Swift Energy Company.".

"Some points of interest for the week, =20 Equity Market Update=20 There is a tug-o-war in the market between the crisis in confidence caused = by the Enron debacle and the increasingly positive nature of the economic d= ata. First, let's chat about the Enron fall-out. The market seems to be suffering from a nasty case of Enron-itis, as some o= f the talking heads have called the recent negative sentiment in the market= . Clearly something changed with the bankruptcy of Enron. It is the largest= US bankruptcy ever. There are not one, but two official governmental inves= tigations of the company and further investigations are likely. The bankers= , accountants and the lawyers are also going to get a hard look. What has t= he market particularly bothered is the glaring oversight by Arthur Anderson= (AA), one of the big five accounting firms. Delta Airlines has been using = AA for over 50 years and they are looking for a new auditor. Also, the cred= it rating agencies dropped the ball too. One of them actually upgraded Enro= n's debt a few weeks before its demise. What is the investing public to thi= nk? Who can you trust? Generally, investors understand that the Street's ad= vice needs to be viewed with a critical eye, but the accountants were suppo= sed to be looking out for investors. It certainly makes you say hmmmmm... The market hates uncertainty and the level of uncertainty has increased gre= atly and it is not likely to dissipate for some time. Imagine the discussio= ns at the other accounting firms. Companies are not going to be able to sli= p anything by their accountants from now on. Standards are going to be toug= hened up and that may cause some pain for companies that have pushed the en= velope in the past. In addition, the market is going to search and destroy = every company that has Enron-like qualities. Off-balance sheet partnerships= or structures, complicated financial statements and foreign domiciled tax = structures. It started almost right away with the decimation of Enron's com= petitors, Williams (WMB), El Paso (EP), Mirant (MIR) and Calpine (CPN), who= have had to sell assets and issue stock in order to repair their balance s= heets. Some of those companies are trading as if we will never need power o= r natural gas again (EP is my favourite among these companies, as you know)= . Next, the market had its day or so with the asbestos-infected companies a= nd then more recently proceeded to anyone with off-balance sheet assets or = a history of accounting indiscretions. We had better get used to this sort = of roller-coaster existence. With over 6, 000 hedge funds, a hyper-active me= dia and market information available 24/7, the witch hunts will continue. S= till, it is important to note a few things:=20 First, not all companies with off-balance sheet items are guilty of transgr= essions and not every company that acquires others for a living (a la Tyco)= violates standard accounting principles. In fact, nobody has proven (yet) = that Tyco has done anything improper. The risk of impropriety makes people = sell, not the fact. Second, regardless of whether your company is guilty of doing anything nast= y, if it plays in the same sand-box as a company that attracts the ire of i= nvestors, it is going down. Period. Full stop. No matter if it is guilty of= anything or not. These are market events not business events. Consider the= pain and suffering experienced by El Paso (EP) thanks to Enron or Viacom (= VIA.b) thanks to Haliburton (HAL) and its asbestos exposure. Viacom bought = CBS which owned Westinghouse once upon a time, but that did not stop the st= ock from getting pasted even though it is insured and reserved up the wazoo= ('up the wazoo' is a technical term signifying a significant amount). Third, emotions and sentiment can push stock prices around a great deal in = the short term, but over the long term, stock prices are determined by a co= mpany's ability to generate cash. The best opportunities are likely to come= from buying companies with low debt levels that are relatively free of con= troversy, but have been beaten up because they resemble another company wit= h a real problem. Biovail (BVF), Viacom (VIA.b), El Paso (EP), etc. However= , each of these names also comes with an increased risk profile as a result= of the market's heightened sensitivity to 'issues' (accounting, asbestos, = debt levels, litigation, etc.).=20 On the economic front, the data seems to be point to an economic recovery t= hat is already underway.=20 Consumer confidence rose from 94.6 to 97.3 in January and was up for the se= cond straight month. The index is now above the pre-September 11 level. Als= o the expectations component of the index was the highest in over a year, s= uggesting that consumer spending should continue to hold up well.=20 Durable Goods orders rose in December and importantly the ex-transportation= orders rose for a third month in a row, the longest streak of gains in 4 y= ears.=20 New home sales rose stronger than expected and taken together with last wee= k's existing home sales, total home sales were above 6.1 million (annualize= d) and stable.=20 Today, the unemployment rate fell to 5.6% and the 4-week moving average of = jobless claims fell to its lowest level since August; and the ISM (NAPM) in= dex came in at 49.9 vs. 50.0 expected and new orders remained above 50, ind= icating order volume is expanding.=20 Finally, on the international front, the German Business Confidence index r= ose and is now close to its pre-September 11 level.=20 Unfortunately, Japan continues to struggle. The Japanese unemployment rate = rose to a record high 5.6% and real wage-earning household spending fell 4.= 4% compared to last year. Both figures were worse than expected and the dro= p in household spending does not bode well the prospects of an economic rec= overy. Also, the yen continues to slide as confidence in the government and= the economy wanes. The Japanese fiscal year ends on March 31st and there i= s widespread concern that the country's banks will have to mark down the va= lue of more loans and investments, potentially pushing some of them into ba= nkruptcy. Of course, a number of bankruptcies would be a good thing much li= ke the S&L crisis was for the US in the early 1990s. A cathartic cleansing = followed by an audible flush could lead to a great buying opportunity. Stay= tuned. Financials - The US banks are trading very poorly - no wonder. Credit quali= ty, which everybody knew was bad, has turned out to be at least as nasty as= expected or worse. PNC Financial (PNC) had to restate its earnings when th= e SEC forced the company to consolidate 3 subsidiaries, K-Mart (KM) filed f= or chapter 11, Global Crossings (GX) shuts its doors, and today, the 2nd bi= ggest European cable company defaulted on $6.4 billion in debt and preferre= d stock. When you add these events on to the Enron scenario, it makes inves= tors of all kinds hold a bit more cash, a few more government bonds and a l= ittle less equity. This is the kind of pain that is quite typical for the t= rough of the credit cycle. As you know, JP Morgan (JPM) has been a recommen= ded stock for many quarters, however it looks like it will be removed from = the US Focus List as it has broken our technical screen. The stock remains = buy or strong buy rated around the Street and a great deal of bad news woul= d seem to be already priced into the stock. However, the risk of further ne= gative credit events seems quite high, and as a result, we suggest that new= money go into Citigroup (C), which is trading at just under 14x 2002 EPS v= s. its historical range of about 12x to 20x. Out anlayst's comments on Sun = Life (SLC) suggest this is a name we should continue to accumulate. Sun Microsystems (SUNW) is under pressure following negative comments by Me= rrill. According to Merrill, recent comments by ORCL's Larry Ellison give c= ause for concern about SUNW's high-margin Unix server mkt; ORCL is replacin= g 3 Unix servers with a cluster of INTC servers running Linux; concern is t= hat SUNW's Unix biz will be attacked from below by INTC servers running NT = or Linux (particularly Linux, as it's easier to learn than SUNW's Solaris o= perating system). Microsoft (MSFT) was added to Goldman Sachs portfolio and= Oracle (ORCL) was removed.=20 Calpine (CPN) was downgraded to Deutche Bank to BUY from Strong Buy due to = a lack of near-term catalysts in the stock; current risks include: continue= d weakness in power prices and spark spreads, the California DWR contract r= enegotiations, a highly leveraged balance sheet, and a tight cash flow situ= ation. Price target is $20. We should get used to reading recommendations l= ike this one. The list of risks is large and imposing and yet many of you w= ill notice that the target is $20 suggesting a 72% return is possible over = the next 12 months. We would encourage investors to focus on the risks and = the likelihood of them happening rather than a highly subjective target. In Canada, focus on Focus List names Sun Life (SLC) and Shaw Communications= (SJR.b). Suitability is everything, never more so than in the current mark= et environment. Interest Rate Update=20 The big, but not so surprising news yesterday was the decision by the FOMC = to keep the Fed funds rate steady at 1.75%, while the discount rate remaine= d at 1.25%. also as expected, the Fed maintained their easing bias. This = was the first ""no change"" following an FOMC meeting since Dec/00, after 4.7= 5% of cuts in 11 steps through 2001. The committee noted that there are ""= signs that weakness in demand is abating and economic activity is beginning= to firm have become more prevalent"". This is different from the last comm= ent on Dec 11 when they stated ""weakness in demand shows signs of abating, = but those signs are preliminary and tentative"". The easing bias was justif= ied due to the uncertainty of the strength in business capital and consumer= spending. RBC CM Economics believe that this statement will be a sign of = things to come, with rates in a holding pattern, and an easing bias remaini= ng, until the recovery is firmly and sustainably in place. They are callin= g for the first hike to occur no earlier than September. - Fed funds future= s are pricing in earlier expectations - the July contract is indicating a 1= 00% chance of a 25 bps hike. Stocks are the bigger news with Nasdaq stock futures up 10.50 pts after an = upgrade to Intel by Merrill Lynch, gains in Oracle after the company reaffi= rmed its profit target, and Applied Materials stating that a bottom has com= e and gone for the industry.=20 Have a good weekend and be good, =20 Rod.".

"To Enron Employees: We want to take this opportunity to update all current employees of our ongoing plans for bringing our company out of bankruptcy. First, to be clear, there are valuable businesses at Enron. We intend to restructure the company and emerge from Chapter 11 as a healthy, albeit smaller, company. In evaluating each Enron business or asset, we have been asking ourselves two key questions: ""Is the business or asset more valuable to the creditors as a going concern that generates positive cash flow, or is it more valuable being sold and turned into cash?"" We have completed our preliminary analysis and have concluded that the majority of the U.S. assets are more valuable as a going concern. These include pipelines, power stations and oil and gas properties to name a few. Many of our emerging market assets are not generating adequate cash and, thus, may be more valuable being sold and turned into cash. The wholesale trading operation is clearly only valuable with a strong balance sheet behind it. Unfortunately, Enron does not currently have a strong balance sheet. Therefore, we are negotiating a transaction whereby Enron would contribute this business to a third party joint venture with a high credit rating while retaining a residual interest in its profit stream. We believe this is the best alternative to preserve the value of the wholesale business and maintain a cash flow for the remaining businesses of Enron. We know that everyone is concerned about the recent retention payments made to certain employees. Let me try to explain our rationale. As you know, Enron is an intellectual capital business. Without key people, we go into liquidation. The wholesale natural gas and power business has been the most profitable business at Enron for the past several years. It was this business that Dynegy was most interested in acquiring. Therefore, in early November as the proposed merger was being negotiated, approximately 75 employees related to this business received retention bonuses. These retention bonuses were paid to employees that were essential to the ultimate success of the merger. Last week, we took the additional step, related specifically to our bankruptcy filing, of offering payments to approximately 500 employees who are critical to operate our company. These payments came with the condition that the employees receiving such payments stay employed at Enron for a period of at least 90 days. Seventy-five percent of employees who received these payments were below the vice president level. The payments must be repaid, with a significant penalty, if the employee leaves the company early. With these people in place, these businesses have substantially greater value, which will enhance our ability to pay creditors and provide the greatest benefit to all of Enron stakeholders. The next step will be for us to work with creditors to agree to a retention plan strategy for the remaining employees. The goal is for this program to provide you with an incentive for you to stay with us while we work our way out of Chapter 11. We also intend to see if we can work with creditors to develop more generous severance for current employees who involuntarily lose their jobs in the future. This is an extraordinarily difficult time for all of us at Enron. With the constraints of bankruptcy and the deluge of reports from the media, it is difficult for any employee to feel certain of our situation. However, our previous and near-term actions are intended to preserve as much of the value of our businesses as possible so that we remain a viable company both in the short and long term. Thank you for your patience, your understanding and your continuing hard work and contributions. Office of the Chairman".