Message-ID: <2168925.1075851662344.JavaMail.evans@thyme> Date: Tue, 23 Oct 2001 15:52:32 -0700 (PDT) From: courtney.votaw@enron.com Subject: Enron Mentions Mime-Version: 1.0 Content-Type: text/plain; charset=ANSI_X3.4-1968 Content-Transfer-Encoding: quoted-printable X-From: Votaw, Courtney X-To: X-cc: X-bcc: X-Folder: \Dasovich, Jeff (Non-Privileged)\Dasovich, Jeff\Inbox X-Origin: DASOVICH-J X-FileName: Dasovich, Jeff (Non-Privileged).pst Cauley Geller Bowman & Coates, LLP Announces Class Action Lawsuit Against E= nron Corp. on Behalf of Investors PR Newswire- 10/23/01 Heading up --- Trade body to go ahead with conference in Qatar The Toronto Star- 10/23/01 Inside Money SEC INQUIRY OF ENRON RATTLES STOCK Orlando Sentinel- 10/23/01 Enron Keeps Analysts Happy as Investors Flee: Call of the Day Bloomberg- 10/23/01 Enron Asks Citigroup for $750 Mln Loan, People Say (Update1) Bloomberg- 10/23/01 How Enron Blew It Texas Monthly- November 2001 Edition Enron Fails to Smooth Things Over TheStreet.com- 10/23/01 Stocks=20 More Static For Enron=20 Forbes.com- 10/23/01 AES Says Indian State Interfering In Ops, Complains To PM Dow Jones International News- 10/23/01 U.S.-based AES Corp. complains about harassment from Indian state governmen= t Associated Press Newswires- 10/23/01 Cauley Geller Bowman & Coates, LLP Announces Class Action Lawsuit Against E= nron Corp. on Behalf of Investors 10/23/2001 PR Newswire (Copyright (c) 2001, PR Newswire) LITTLE ROCK, Ark., Oct. 23 /PRNewswire/ -- The Law Firm of Cauley Geller Bo= wman & Coates, LLP announced today that a class action has been filed in th= e United States District Court for the Southern District of Texas, Houston = Division on behalf of purchasers of Enron Corp. ("Enron" or the "Company") = (NYSE: ENE) common stock during the period between January 18, 2000 and Oct= ober 17, 2001, inclusive (the "Class Period"). A copy of the complaint file= d in this action is available from the Court, or can be viewed on the firm'= s website at http://www.classlawyer.com/pr/enron.pdf .=20 The complaint charges that Enron and certain of its officers and directors = violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, a= nd Rule 10b-5 promulgated thereunder, by issuing a series of material misre= presentations to the market between January 18, 2000 and October 17, 2001, = thereby artificially inflating the price of Enron common stock. Specificall= y, the complaint alleges that Enron issued a series of statements concernin= g its business, financial results and operations which failed to disclose (= i) that the Company's Broadband Services Division was experiencing declinin= g demand for bandwidth and the Company's efforts to create a trading market= for bandwidth were not meeting with success as many of the market particip= ants were not creditworthy; (ii) that the Company's operating results were = materially overstated as a result of the Company failing to timely write- d= own the value of its investments with certain limited partnerships which we= re managed by the Company's chief financial officer; and (iii) that Enron w= as failing to write-down impaired assets on a timely basis in accordance wi= th GAAP. On October 16, 2001, Enron surprised the market by announcing that= the Company was taking non-recurring charges of $1.01 billion after-tax, o= r ($1.11) loss per diluted share, in the third quarter of 2001, the period = ending September 30, 2001. Subsequently, Enron revealed that a material por= tion of the charge related to the unwinding of investments with certain lim= ited partnerships which were controlled by Enron's chief financial officer = and that the Company would be eliminating more than $1 billion in sharehold= er equity as a result of its unwinding of the investments. As this news beg= an to be assimilated by the market, the price of Enron common stock dropped= significantly. During the Class Period, Enron insiders disposed of over $7= 3 million of their personally-held Enron common stock to unsuspecting inves= tors. If you bought Enron common stock between January 18, 2000 and October 17, 2= 001, inclusive, and you wish to serve as lead plaintiff, you must move the = Court no later than December 21, 2001. If you are a member of this class, y= ou can join this class action online at http://www.classlawyer.com/sign_up.= html . Any member of the purported class may move the Court to serve as lea= d plaintiff through Cauley Geller Bowman & Coates, LLP or other counsel of = their choice, or may choose to do nothing and remain an absent class member= .=20 Cauley Geller Bowman & Coates, LLP has substantial experience representing = investors in securities fraud class action lawsuits such as this. The firm = has offices in Florida, Arkansas and California, but represents investors t= hroughout the nation. If you have any questions about how you may be able t= o recover for your losses, or if you would like to consider serving as one = of the lead plaintiffs in this lawsuit, you are encouraged to call or e-mai= l the Firm or visit the Firm's website at www.classlawyer.com . CAULEY GELL= ER BOWMAN & COATES, LLP=20 Investor Relations Department:=20 Jackie Addison, Sue Null or Charlie Gastineau=20 P.O. Box 25438=20 Little Rock, AR 72221-5438=20 Toll Free: 1-888-551-9944=20 E-mail: info@classlawyer.com=20 Contacts: (for media)=20 Charlie Gastineau or Sue Null=20 1-888-551-9944=20 MAKE YOUR OPINION COUNT - Click Here=20 http://tbutton.prnewswire.com/prn/11690X34851784 /CONTACT: Charlie Gastineau or Sue Null of Cauley Geller Bowman & Coates, L= LP, +1-888-551-9944/ 11:37 EDT=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 BUSINESS Heading up --- Trade body to go ahead with conference in Qatar FROM THE STAR'S WIRE SERVICES; AP PHOTO 10/23/2001 The Toronto Star Ontario E02 Copyright (c) 2001 The Toronto Star World Trade Organization chief Mike Moore says the 142-country body will go= ahead with a key conference in Qatar from Nov. 9-13 that he hopes will giv= e a major boost to the ailing global economy.=20 The announcement at a news briefing yesterday in Doha, Qatar, ended weeks o= f uncertainty over the meeting's venue, which had been thrown into question= by security fears, mounting international concern over terrorism and a sur= ge of anti-Western feeling in Muslim countries since the start of U.S. atta= cks on Afghanistan. "If something seismic or catastrophic happens, we will reconsider, but we a= re planning to come here in just over two weeks' time," Moore said.=20 The focus of the conference will be efforts to launch a new round of negoti= ations among all member countries to remove many of the remaining barriers = to free global trade.=20 3M's profit sags=20 Minnesota Mining & Manufacturing Co. says third-quarter profit fell 21 per = cent as a slumping global economy reduced sales and workforce cuts increase= d expenses.=20 Profit fell to $394 million (U.S.), or 99 cents a share, from $499 million,= or $1.25, in the year-ago quarter. Sales fell 7.1 per cent to $3.97 billio= n from $4.27 billion, the company added in a statement yesterday.=20 3M, which makes products that range from Post-It Notes to circuit boards, h= as been eliminating 5,000 workers and cutting costs to cope with slowing sa= les.=20 Copper plunges=20 Copper fell in London yesterday, nearing the lowest price in almost 15 year= s, on expectations for slowing demand from users such as electronics makers= and construction companies.=20 Copper for delivery in three months fell as much as $8 (U.S.) to $1,366 a t= onne on the London Metal Exchange, where prices are down 25 per cent this y= ear. A move through the 1999 intraday low of $1,365 will mark the lowest pr= ice since February, 1987.=20 Enron information sought=20 Houston-based energy-trading giant Enron Corp. says the U.S. Securities and= Exchange Commission has sought information on company transactions with li= mited partnerships that were managed by an Enron senior officer.=20 In a statement yesterday, Enron said it will provide the federal regulatory= agency with information in response to an inquiry last week.=20 The transactions to "hedge certain merchant investments and other assets" t= ook place in 1999 and 2000, according to Enron's 2000 annual report, and re= sulted in a $16 million (U.S.) pre-tax gain to Enron in 1999 and a $36 mill= ion loss in 2000.=20 Enron officials declined to provide details about the transactions or name = the limited partnerships.=20 Upset investors sent shares of Enron down $5.40 more than 20 per cent to cl= ose at$20.65 in heavy trading in New York.=20 Moulinex takeover okayed=20 A court in the Paris suburb of Nanterre has approved a takeover offer by ho= usehold-appliance maker Groupe SEB SA for troubled rival Moulinex SA.=20 SEB is expected to retain nearly 3,500 jobs at Moulinex, about half of them= in France, the court said yesterday. Moulinex has 8,800 employees worldwid= e, almost 5,600 of them in France.=20 SEB was to disclose financial details of its offer at a news conference tod= ay.=20 Small jets seen on rise=20 Bombardier Inc. chief executive Robert Brown says use of the company's regi= onal jets is actually increasing, even though air traffic is down in North = America a crushing 30 per cent since the terrorist attacks in the United St= ates.=20 Brown said yesterday he has "anecdotal evidence" that airlines are flying t= he company's 50-seat jets more often and on more routes because the planes = are more efficient than large planes to fly when traffic is light.=20 The trend has not brought new sales, Brown said, but has helped firm up ord= ers for the aircraft that typically take up to more than a year from the da= te of purchase to delivery.=20 He was speaking at an opening ceremony for Bombardier's vast new aircraft-a= ssembly plant in Mirabel, Que.=20 Aliant shedding jobs=20 Aliant Telecom Inc. plans to reduce its non-unionized workforce by 140 peop= le, the Atlantic region's largest phone company said yesterday.=20 A statement said that 70 of those people will receive retirement packages, = but did not indicate when the other 70 employees in Nova Scotia, New Brunsw= ick, Prince Edward Island and Newfoundland would lose their jobs or what se= verance they'd receive. Swissair planes stand on the tarmac at Zurich's Kloten Airport yesterday as= Switzerland's government announced a rescue package totalling 4.24 billion= Swiss francs, or about $4 billion (Canadian).=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 MONEY Inside Money SEC INQUIRY OF ENRON RATTLES STOCK Associated Press 10/23/2001 Orlando Sentinel METRO B5 (Copyright 2001 by The Orlando Sentinel) HOUSTON -- Shares of Enron Corp. plunged Monday after the energy trading gi= ant said the Securities and Exchange Commission had sought information abou= t the company's transactions with limited partnerships, which were managed = by an Enron senior officer.=20 In a statement, Enron said it had provided the regulatory agency with infor= mation in response to an inquiry last week. "We welcome this request," Enron chairman and chief executive officer Kenne= th L. Lay said Monday. "We will cooperate fully with the SEC and look forwa= rd to the opportunity to put any concern about these transactions to rest."= =20 Investors were upset by the news, however, sending shares of Enron down $5.= 40 to close at $20.65 on the New York Stock Exchange.=20 The transactions took place in 1999 and 2000, according to Houston- based E= nron's 2000 annual report. They resulted in a $16 million pre- tax gain to = Enron in 1999 and a $36 million loss in 2000.=20 Enron officials would not provide details about the transactions or identif= y the limited partnerships, instead referring questions to a section of the= annual report on related party transactions.=20 "Enron entered into transactions with [limited partnerships] to hedge certa= in merchant investments and other assets," according to the section.=20 Enron spokesman Mark Palmer said the SEC first contacted Enron last week an= d described the request is an "informal inquiry."=20 "This is not an investigation," he said. "We see the request as an opportun= ity to put this issue behind us."=20 SEC spokesman John Heine said he could not comment on the filings.=20 The electricity marketer and natural gas provider says both internal and ex= ternal auditors and attorneys reviewed the arrangements, the company's boar= d was fully informed of and approved them, and they were disclosed in the c= ompany's SEC filings. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Enron Keeps Analysts Happy as Investors Flee: Call of the Day 2001-10-23 17:08 (New York) Enron Keeps Analysts Happy as Investors Flee: Call of the Day New York, Oct. 23 (Bloomberg) -- Over lunch in a conference room at Boston's Four Seasons Hotel last Thursday, Enron Corp. Chairman Kenneth Lay tried to convince analysts and investors that the company has no more surprises. With the analysts, he apparently succeeded. Enron remains one of Wall Street's most highly rated stocks, even after the largest energy trader acknowledged that transactions with partnerships run by its chief financial officer led to a writedown of $1.2 billion in shareholder equity. Lay wasn't so successful with investors, who have abandoned Enron shares, slashing their value 42 percent in a week. ``You've got a lot of people lining up to say the emperor has no clothes,'' said Richard Gross of Lehman Brothers Inc., who today repeated his ``strong buy'' rating on Enron. Analysts at Credit Suisse First Boston, Goldman, Sachs & Co. and other firms have also kept their highest ratings on Enron. Gross still likes the look of Enron's finery. ``The core franchise here is very valuable,'' he said, and the stock's decline more than reflects the ``worst case'' for the company. In Boston and at similar meetings in Houston and New York, Lay had to explain the unwinding of the partnerships. He and other Enron executives assured investors the company has no more surprises in store, according to Greg Phelps, who manages $1.1 billion at John Hancock Advisers Inc., and attended the Boston session. The partnerships functioned somewhat like private equity funds, according to analysts and investors, and included investments that lost money. The Securities and Exchange Commission has asked for more information about them, Enron said yesterday. One Hold, One Sell While two analysts have cut their Enron ratings after learning about the partnerships, they only dented the company's popularity on Wall Street. Michael Heim of A.G. Edwards & Sons Inc. in St. Louis lowered his rating to ``hold'' from ``buy'' on Friday. He said he has been looking for discussion of the partnerships in Enron's SEC filings and is only seeing ``vague references'' that don't leave him with a ``good comfort level.'' With Heim's rating change, Enron went from being the second most highly rated stock in the Standard & Poor's 500 Index to the 10th, according to Thomson Financial/First Call. Today, Zach Wagner at Edward Jones & Co. in St. Louis cut Enron to ``reduce'' from ``accumulate.'' Ratings by Edward Jones, which caters to individual investors rather than institutions, aren't tracked by First Call. First Call translates analyst ratings into numbers, with ``strong buy'' a one, ``buy'' a two, and so on, then averages the ratings to rank a company's Wall Street popularity. The most highly rated stock is Tyco International Ltd., which has fallen 12 percent this year. Enron shares fell 86 cents to $19.79 today. Remaining Skeptical However highly brokerage analysts rate the stock, ``I have to remain skeptical,'' said Barry Borak, energy analyst at David L. Babson & Co., which manages $60 billion in Cambridge, Massachusetts. ``There's been a huge loss of management credibility at Enron,'' Borak said, because of the partnerships and the unexpected departure in August of Jeffrey Skilling, who had held the post of chief executive officer for six months and was heir apparent to Lay. ``Nobody I've talked to thinks (Skilling's departure) is for personal reasons,'' Borak said. Skilling helped transform Enron from a gas pipeline company into the biggest energy trading company. Enron also owns power plants in deregulated markets. Borak said Babson doesn't own Enron shares and won't be a buyer ``until I can get better, more thorough information about what else might pop up in the future.'' Borak and other investors said Enron has a reputation for not providing enough information about its businesses, and they said this makes the positive view of the company on Wall Street more difficult to understand. After Skilling resigned, Lay said the company would be more open about its businesses. A bullet point in his talk in Boston was ``increased transparency of financial and operating results,'' according to a handout provided at the Boston meeting. Amazed, Dismayed Prudential Securities Inc. analyst Carol Coale wrote in a note to clients last week that she was ``amazed at the willingness of Enron's management to break out earnings and expenses to the degree that it disclosed in the third quarter.'' Coale also wrote that she was ``dismayed by the apparent `disguise' of the additional $1.2 billion equity hit that was not disclosed in (Enron's) press release and was briefly mentioned in the earnings conference call.'' Coale kept her rating on Enron at ``buy.'' Phelps at John Hancock said that his ``cynical side'' believes that investment banking business has helped keep Wall Street recommending Enron stock. ``They provide some good underwriting business,'' he said. Credit Suisse First Boston managed a secondary sale of 12 million Enron shares in 1999, with Lehman Brothers acting as co-manager. Credit Suisse has also managed bond sales for Enron this year. Enron Asks Citigroup for $750 Mln Loan, People Say (Update1) 2001-10-23 16:38 (New York) Enron Asks Citigroup for $750 Mln Loan, People Say (Update1) (Updates with closing share price in sixth paragraph.) New York, Oct. 23 (Bloomberg) -- Enron Corp., the biggest energy trader, has asked Citigroup Inc. to arrange a $750 million loan, ensuring access to credit if the company is cut off from money markets, say people familiar with the matter. Enron's shares and bonds plunged yesterday after the company said the Securities and Exchange Commission was investigating its finances. The company depends on a $3 billion commercial paper, or short-term debt, program to finance day-to-day operations. Moody's Investors Service last week placed all $13 billion of the company's long-term debt securities on watch for possible downgrade. Any drop in the rating may cut off Enron from the commercial paper market, raising the costs of short-term debt. ``We understand that our credit rating is critical to both the capital markets and our counterparties,'' Enron's Chief Financial Officer Andrew Fastow said on a conference call today. He said Enron has $3.5 billion available on bank credit lines, giving it enough cash to operate normally. Dan Noonan, a spokesman for Citigroup's Citibank NA unit, declined to comment. Mark Palmer, a spokesman for Enron, also wouldn't comment. Shares of Enron, based in Houston, fell 86 cents to $19.79. They have fallen 76 percent this year. Complex Financing An investor sued Enron last week, saying dealings with two partnerships run by Fastow, LJM Cayman and LJM2 Co-Investment, cost the company $35 million. The suit also calls Fastow's leadership of the partnerships, set up to remove debt from Enron's books, a conflict of interest. Enron bought back 62 million shares to unwind positions in some partnerships run by Fastow, said Chief Executive Officer Ken Lay on the conference call with investors today. The number of shares differs from a Wall Street Journal report on Thursday that said Enron had bought back 55 million shares. The buyback reduced shareholder equity by $1.2 billion, the Journal said. The company set up the partnerships and other affiliated companies to buy Enron assets such as power plants. The partnerships allow Enron to take debt off its books, letting it borrow to invest in its main business of commodities trading, Enron said. Enron trades electricity, natural gas, oil, coal and other commodities. ```They have complex off-balance sheet financing,'' said Commerzbank analyst Andre Mead. ``It's difficult to ascertain the full impact on shareholders.'' The SEC has asked Enron about partnerships and affiliated companies headed by Fastow. The company has at least $3 billion in such ``off-the-books'' financing in affiliated companies, Ray Niles, a Salomon Smith Barney analyst, wrote in a report to investors. Depends on Asset Sales One partnership, Whitewing Management, owns 250,000 preferred shares that Enron may have to convert to common stock. Whitewing partners can demand their preferred shares be converted if Enron common stock falls below a certain price or if Enron's credit rating drops under investment grade. Whitewing and other Enron partnerships and trusts include company executives as officers and directors, according to records from the Texas secretary of state. ``Over the life of these trust structures, Enron has in fact issued a sizable amount of equity,'' Enron Treasurer Ben Gilsan said. Most of that was shares issued to Enron executives as part of a deferred compensation plan, Gilsan said. The Whitewing partnership was financed with $1.4 billion in bonds sold last year. The partnership used some of the proceeds to buy Enron power plants and plans to retire the debt by selling them, officials said on the conference call. Other company partnerships operate with the same strategy. ``Some investors are worried the asset sales won't cover the full amount (borrowed), and Enron will have to furnish support to the detriment of shareholders,'' said Commerzbank analyst Meade. Commercial Paper Rates Enron was paying 3.15 percent to issue commercial paper until Oct. 31, which is as much as 15 basis points more than companies with the same ``A2/P2'' short-term credit ratings that are not on credit watch. Enron's short-term debt is not on review for a possible downgrade. Based on Bloomberg composite ratings, most of Enron's long- term debt is rated at BBB2 and BBB1, two or three levels above investment grade. Fitch, Standard & Poor's and Moody's rate the company's debt at investment grade. Enron has previously turned to Citigroup for finance and advice. In 1999, Citigroup's Salomon Smith Barney unit advised the company on its $1.45 billion acquisition of three natural gas- fired power plants from Cogen Technologies Inc. Citibank, along with J.P. Morgan Chase & Co., this year arranged a $1.75 billion loan. How Enron Blew It Texas Monthly November 2001 Less than a year ago, the Houston-based energy behemoth had everything: mon= ey, power, glitz, smarts, new ideas, and a CEO who wanted to make it the mo= st important company in the world. Now its stock is down, wall street is be= arish, and the CEO is gone. What went wrong? by Mimi Swartz =20 THE ENRON SKYSCRAPER NEAR THE SOUTH END OF HOUSTON'S DOWNTOWN feels like th= e international headquarters of the best and the brightest. The lobby in no= way resembles the hushed, understated entryways of the old-fashioned oil c= ompanies, like Shell and Texaco nearby. Enron, in contrast, throbs with mod= ernity. The people hustling in and out of the elevators are black, white, b= rown; Asian, Middle Eastern, European, African, as well as American-born. T= hey are young, mostly under 35, and dressed in the aggressively casual unif= orm of the tech industry-the guys wear khakis, polo shirts, and Banana Repu= blic button-downs. Almost preposterously fit, they move through the buildin= g intently, like winners. Enron is nothing if not energetic: A Big Brother-= size TV screen frantically reports on the stock market near a bank of eleva= tors, while another hefty black television relaying the same news greets pe= ople entering from the garage. A sculpture of the corporate symbol, an E ti= pped at a jaunty angle, radiates colors as it spins frenetically on its axi= s; a Starbucks concession on the ground floor keeps everyone properly caffe= inated. Multicolored, inspirational flags hang from the ceiling, congratula= ting Enron on its diversity and its values; one more giant banner between e= levator banks declares Enron's simple if grandiose goal: "From the World's = Leading Energy Company to . . . The World's Leading Company!" For a while, that future seemed guaranteed, as Enron transformed itself fro= m a stodgy, troubled pipeline company in 1985 to a trading colossus in 2000= . It was a Wall Street darling, with a stock price that increased 1,700 per= cent in that sixteen-year period, with revenues that increased from $40 bil= lion to $100 billion. "The very mention of the company in energy circles th= roughout the world creates reactions ranging from paralyzing fear to envy,"= notes a 2001 report from Global Change Associates, a firm that provides ma= rket intelligence to the energy business. This Enron was largely the creation of Jeff Skilling, a visionary determine= d to transform American business. Hired sixteen years ago as a consultant b= y then-CEO Ken Lay, Skilling helped build a company that disdained the old = formula of finding energy in the ground, hauling it in pipelines, and then = selling it to refineries and other customers. Instead, it evolved into a co= mpany that could trade and market energy in all its forms, from natural gas= to electricity, from wind to water. If you had a risky drilling venture, E= nron would fund it for a piece of the action. If you wanted your megacorpor= ation's energy needs analyzed and streamlined, Enron could do the job. If y= ou were a Third World country with a pitiful infrastructure and burgeoning = power needs, Enron was there to build and build. Basically, if an idea was = new and potentially-and fantastically-lucrative, Enron wanted the first cra= ck. And with each success, Enron became ever more certain of its destiny. T= he company would be the bridge between the old economy and the high-tech wo= rld, and in February of this year, Skilling reaped his reward when he succe= eded Lay as chief executive officer. Enron, says Skilling, "was a great mar= riage of the risk-taking mentality of the oil patch with the risk-taking me= ntality of the financial markets." The Enron story reflects the culture that drove American business at the en= d of the twentieth century. Like the high-tech companies it emulated, Enron= was going to reinvent the American business model and, in turn, the Americ= an economy. Maybe it was natural that this Brave New World also produced a = culture that was based on absolutes: not just the old versus the new, but t= he best versus the mediocre, the risk takers versus the complacent-those wh= o could see the future versus those who could not. The key was investing in= the right kind of intellectual capital. With the best and the brightest, a= company couldn't possibly go wrong. Or could it? Today Enron's stock trades at around $35, down from a high of = $80 in January. The press cast Enron as the archvillain of California's ene= rgy crisis last spring, and Skilling caught a blueberry pie in the face for= his relentless defense of the free market. A long-troubled power plant pro= ject in India threatened the company's global ambitions. Telecommunications= , in which Enron was heavily invested, imploded. Wall Street analysts who o= nce touted the company questioned its accounting practices. Some of the cha= nge in Enron's fortunes can be attributed to the economic downturn in uncer= tain times that has afflicted all of American business. But the culture tha= t the company created and lived by cannot escape blame. ENRON, JEFF SKILLING SAYS, HAD "a totally different way of thinking about b= usiness-we got it." At Enron, in fact, you either "got it" or you were gone= -it was as simple as black and white. It is not coincidental, then, that th= e color scheme of Skilling's River Oaks mansion mirrors the corporation he = once headed. Here, the living room's white walls shimmer against the mahoga= ny floors. Black leather trims the edge of snowy carpets. Billowy sofas set= off the jet-black baby grand. In the entry, white orchids cascade from a b= lack vase on a black pedestal table that in turn pools onto cold, white mar= ble. There is only one off-color note: After almost twenty years, Jeff Skil= ling is no longer associated with Enron, having resigned abruptly after jus= t six months as CEO. Once, Skilling was hailed as the next Jack Welch (Gene= ral Electric's masterful CEO), as one of Worth magazine's best CEO's in Ame= rica (anointed in 2001), and even as a daredevil who hosted the kind of unc= hained adventure junkets in which, a friend told BusinessWeek, "someone cou= ld actually get killed." Today, he sounds more like Ebenezer Scrooge on Chr= istmas morning. "I had no idea what I'd let go of," Skilling says of all th= e personal sacrifices he made while retooling Enron.=20 From a black chair in the white library, across from a huge black and white= photograph of his daughter and two sons, Skilling clarifies. The demands o= f working 24-7 for Enron caused him to ignore his personal finances. Divorc= ed, he lived in a 2,200-square-foot house without a microwave or a dishwash= er. He almost missed his brother's wedding. "Learning a foreign language-I = never learned a foreign language!" he exclaims. He never once took his youn= gest son to school. "I'm interested in the kids. You don't do kids in fifte= en-minute scheduling." Travel: "You can't go to Africa for a week and get a= nything out of it!" Skilling includes the study of architecture and design = on his list of missed opportunities, then he stops and sighs. "I'm not sure= that fulfillment in life is compatible with a CEO's job," he says, finally= . Then his eyes lock on mine, and his voice, which had softened, regains it= s pragmatic edge. "It would have been easy to stay," he says. "But that wou= ld not have been good for me."=20 He's a smallish, ruddy-faced man who keeps himself at fighting weight, hand= some in the way of corporate titans, with piercing cheekbones and that assi= duously stolid gaze. But the impatience Skilling once reserved for cautious= underlings and dull-witted utility company executives is now targeted at r= eporters who have labeled his resignation "bizarre" and associates who are = bitterly skeptical of his need for family time. His shrug stretches the lim= its of his shimmering blue button-down, and his matching blue eyes look put= upon. "I'm surprised," he says, "that people have so much trouble understa= nding this." PEOPLE WHO PASSED THROUGH DOWNTOWN HOUSTON in the late eighties or early ni= neties couldn't help but notice a funny and, for its time, novel scene unfo= lding throughout the workday at the base of the Enron Building. From nine t= o five and before and after, you could see people slipping out of the prist= ine silver skyscraper to smoke. They perched on the chrome banisters or lur= ked near the glass doors at the entry, puffing like mad. They always looked= hurried and furtive, even ashamed. Whatever people knew about Enron in tho= se days (and most people didn't know much), it was often associated with th= at scene: Enron boasted one of the first nonsmoking corporate headquarters = in Houston, and there couldn't have been clearer evidence of its break with= the energy world of the past. What macho engineer would have put up with s= uch humiliation? But this company was a child of another time, that period in the mid-eighti= es when chaos enveloped the gas business. Federal deregulation of natural g= as turned a steady, secure industry, in which gas pipeline companies freque= ntly enjoyed a monopoly in portions of the areas that they served, into a v= olatile free-for-all. The situation was compounded five years later by fede= ral deregulation of the pipeline business. So it happened that a gentlemanl= y gas pipeline company, Houston Natural Gas (HNG) found itself under attack= from Coastal Corporation, Oscar Wyatt's less than gentlemanly firm. HNG wa= s then run by Lay, a sturdy, taciturn former economics professor and Transc= o chief operating officer who had a passion for military strategy. (His doc= toral thesis at the University of Houston was on supply and demand in the V= ietnam War.) Lay, who was from Missouri and never succumbed-at least outwar= dly-to Texas brashness, had done well enough: Thanks to canny expansions, H= NG's pipelines stretched from Florida to California and throughout the stat= e of Texas. HNG fended off Coastal, but to protect the company from other takeover atte= mpts, Lay nimbly engineered the sale of HNG in 1985 to a friendly Nebraska = pipeline concern called InterNorth, one of the largest pipeline companies i= n the country at the time. Then, a funny thing happened: HNG started acting= in a way that would characterize the company for years to come-a lot like = Coastal. What the Nebraskans blithely labeled "the purchase" was being call= ed "the merger" back in Houston, and before long, following some particular= ly brutal politicking between Omaha and Houston, the company's center of gr= avity started shifting toward Texas, and shortly after that, Ken Lay was ru= nning a new company called Enron. "Over time it became clear that Lay had a= better vision of the future," says one person associated with Enron at tha= t time. "He never fought change. He embraced change." Lay had won, but what exactly did that mean? Enron was saddled with massive= debt from the takeover attempt, and thanks to deregulation, no longer had = exclusive use of its pipelines. Without new ideas-for that matter, a whole = new business plan-the company could be finished before it really even got s= tarted.=20 LIKE MANY PEOPLE WHO TEAMED UP WITH ENRON IN THE EIGHTIES, Jeff Skilling ha= d spent a lot of time in the Midwest, and he was self-made-at fourteen he h= ad been the chief production director at a start-up TV station in Aurora, I= llinois. (His mother would drop him off there every day after school.) "I l= iked being successful when I was working, and I was smart," he told Busines= sWeek earlier this year. But unlike many of his Enron colleagues, Skilling = wasn't deliberate and soft-spoken and happy to go home at five o'clock; he = was anxious and excitable, and nothing, but nothing excited him more than w= hat he would come to call "intellectual capital." He loved being smart, and= he loved being surrounded by smart people. He graduated from Southern Meth= odist University, went into banking-assets and liability management-and too= k on Harvard Business School, where he graduated in the top 5 percent of hi= s class. Then Skilling took the next step on what was then the new, souped-= up path to American success: He joined Manhattan's McKinsey and Company as = a business consultant, and that is where Ken Lay found him in 1985.=20 It is often said of Lay that his instincts for hiring the best are flawless= , and his choice of Skilling probably saved the company. Skilling was above= all an expert at markets and how they worked. While everyone else was worr= ying about the gluts and the shortages that defined the gas industry, he al= one saw the parallels between gas and other businesses. And so in a world w= here credit was nearly impossible to come by, Skilling came up with what he= called the Gas Bank, which contractually guaranteed both the supply and th= e price of gas to a network of suppliers and consumers. Enron would not be = a broker but a banker. It would buy and sell the gas itself and assume the = risk involved. And Enron would make money on transactions, much like an inv= estment bank would. Skilling worked up some numbers and found them "absolutely compelling." The= n the McKinsey consultant took the idea to a meeting of about 25 Enron exec= utives. He had a one-page presentation. "Almost to a person," Skilling says= , "they thought it was stupid." Almost. After Skilling left the meeting dej= ected, he walked Ken Lay to an elevator and apologized. Lay listened and th= en said, "Let's go." The Gas Bank was not an overnight success. For months Skilling woke up in a= cold sweat, sure he had ruined not only his career but the careers of doze= ns of colleagues who had assisted him. In fact, he had come upon one of tho= se divides that seem to define his life: "I believed this whole world would= be different, a huge breakthrough" is the way Skilling puts it today, and = even if he is typically immodest, he was right. Fairly soon after launching= , the company sold $800 million worth of gas in a week. True to Skilling's = character, success turned out to be a matter of old versus new: He says the= joke around Enron was that if a company's CEO was under fifty, "We were in= ." And he was in too: In 1990 Skilling finally left McKinsey and joined Enr= on as the head of Enron Finance Corporation, a new division created just fo= r him. In 1991 that company closed a deal that earned $11 million in profit= . After that, says Skilling, "we never looked back." Skilling and Lay also realized that the Gas Bank couldn't work unless it ha= d a trading component. Myriad trades were needed to build the market that w= ould make the project go. But by buying and selling enormous quantities of = gas, Enron not only constructed a market but almost instantly came to domin= ate it. The company had the best contacts, the best intelligence, and the b= est access to supplies. That, in turn, attracted more customers who wanted = to be part of the play. With so many customers in its pocket, Enron could b= etter predict the direction of the market and could use that knowledge to m= ake trades for its own benefit-Enron could in effect bet on which way the p= rice of gas would go, as one might do with pork bellies or soybeans, but wi= th startling accuracy, thereby generating profits higher than anyone could = have ever imagined. THIS CHANGE COULD NEVER HAVE OCCURRED without another change Skilling had m= ade: He created, within Enron, a new culture to match its new trading busin= ess. The idea was to build a "knowledge-based business," which demanded a s= kill set not exactly prized by Enron's employees from the old HNG days. Mos= t were deliberate, cautious, responsible, somewhat defensive people, most o= f them men, of course-the kind of people you'd expect to find working in an= industry regulated by the federal government. But now the company needed b= older people for its bold new era: that included anyone who wanted to make = money-lots of money-for themselves and for the company. "Enron was going to= create a niche for itself or die," one former executive explains. "The peo= ple who had narrow views eventually were forced out, because if they had na= rrow views about other things, they had narrow views about the market." Skilling wanted smart people but not just any smart people. He wanted the s= martest people from schools like Harvard, Stanford, and maybe, Rice. And be= cause his firm was now acting more like a bank than a pipeline company, he = wanted to draw from the pool of recruits that would be attracted to the big= gest and best investment banks, like Merrill Lynch or Credit Suisse First B= oston. In addition to being smart, Enron people were also supposed to be "a= ggressive." You were right for Enron if you didn't want to wait until you w= ere thirty to close your own deals or move up in an organization.=20 You could see what he was looking for on "Super Saturdays" at the Houston h= eadquarters: eight fifty-minute interviews with ten minute breaks in betwee= n-the company might herd as many as four hundred people through in just one= day. They were scored from 1 to 5 on their smarts, their problem-solving a= bility, their passion for hard work, and what at Enron was called "a sense = of urgency." People who scored less than 2.5 were scratched. The shrewdest = candidates knew how to work Enron before they were even hired: These were t= he types that automatically turned down the company's first offer, knowing = Enron would come back with more. The starting salary was around $80,000. Ma= ybe it wasn't a fortune-yet-but the signing bonus, about $20,000, was more = than enough for a lease on the obligatory Porsche Boxster or one of the lof= ts being renovated close to downtown. (Enron people didn't live in far-flun= g suburbs. Suburbs were uncool and too far from the office.) For the lucky winners, Enron offered the corporate equivalent of a gifted-a= nd-talented program. New associates learned the latest techniques for struc= turing energy deals, and there were rotations at Enron offices around the g= lobe. The hours were long, but every possible need was taken care of. A com= pany concierge handled all the things important people couldn't be bothered= with: picking up dry cleaning or prescriptions, shining shoes, cleaning th= e house, planning a vacation. Of course, a lot of people who worked for Enr= on never got to take vacations-they were too busy making money-but they cou= ld use the company gym and the company's personal trainers. If they were ov= erweight or wanted to quit smoking, they could join Enron's Wellness Progra= m. Massages were offered six days a week, from seven in the morning until t= en at night. "They were so cutting edge," rhapsodizes someone involved with= the company health care program at the time. "They really thought about th= e psychology and what it took to keep these people going." Skilling handed out titles analogous to those at Wall Street firms-analysts= , associates, directors, and managing directors-but everyone knew that thos= e titles didn't really matter. Money did. Instead of competitive salaries a= nd decent bonuses, Enron offered competitive salaries and merit-based bonus= es-with no cap. "If you really worked hard and delivered results, you could= make a lot of money," says Ken Rice, who stayed with Enron for 21 years un= til resigning recently as the head of the company's faltering broadband div= ision. Or, as the saying goes, you got to eat what you killed. Gas traders = with two or three years of experience could wind up with a $1 million bonus= . And the more you produced, the closer you got to Jeff: Real hot dogs join= ed him glacier hiking in Patagonia, Land Cruiser racing in Australia, or of= f-road motorcycling in a re-creation of the Baja 1,000 race, ending at a sp= ectacular Mexican villa. "Every time he'd speak, I'd believe everything he'= d say," one loyalist says.=20 And why not? By 1995 Enron had become North America's largest natural-gas m= erchant, controlling 20 percent of the market. But at a company where the b= uzzword was "aggressive," that was no place to stop: Skilling and Lay belie= ved the Gas Bank model could easily be applied to the electricity business.= Firmly committed to the notion that a deregulated market meant better serv= ice at lower prices for consumers (and untold profits for Enron), they bega= n barnstorming the country, pressing their case with entrenched power compa= ny presidents (who, with their multimillion-dollar salaries and monopoly se= rvice areas, had little incentive to change) and energy regulators (who wer= e somewhat more receptive, thanks in part to Enron's generous lobbying effo= rts). But the biggest winner of all was probably Jeff Skilling. In 1997 Ken Lay m= ade him the president and chief operating officer of the company. By then, = the division known as Enron Capital and Trade Resources was the nations lar= gest wholesale buyer and seller of natural gas and electricity. The divisio= n had grown from two hundred to two thousand employees, and revenues from $= 2 billion to $7 billion. "Mr. Skilling's experience so far with the turmoil= in the industry has convinced him that he is on the right track," the New = York Times noted. Everyone would certainly have thought so: Enron and Skill= ing had totally transformed one industry and were well on their way to tran= sforming another. "FIRING UP AN IDEA MACHINE; Enron Is Encouraging the Entrepreneurs Within,"= sang the New York Times in 1999. "In the staid world of regulated utilitie= s and energy companies, Enron Corp is that gate-crashing Elvis," crowed For= tune in 2000. Wall Street was demanding tech-size growth on a tech timetabl= e, and Enron, in 2000, obliged with second quarter earnings of $289 million= , up 30 percent from the previous year. That year the company seemed to dis= cover a market a minute: Under Skilling, Enron was trading coal, paper, ste= el, and even weather. No one blinked when a London wine bar became an Enron= client. People drank more in warm weather than cold, so why not buy a hedg= e against the usual winter downturn? But most exciting to the financial world was Enron's entry into high-tech c= ommunications. Because of the company's marketing dominance, EnronOnline be= came another overnight success, handling $335 billion in commodity trades o= nline in 2000. Enron, as usual, made its money on the spread between the bi= d price and the asking price. Then there was the broadband business: To Enr= on, trading excess capacity in large, high-speed fiber-optic networks (empt= y lanes on the fabled information highway) wasn't that different from tradi= ng the capacity of natural gas pipelines. So Enron created a market for wha= t the industry calls bandwidth. Soon after, it also announced a twenty-year= deal with Blockbuster to deliver movies on demand electronically to people= in their homes. Enron looked like a company that couldn't lose. "Its strat= egy of building businesses, shedding hard assets, and trading various commo= dities can help it do well even in an uncertain market," BusinessWeek insis= ted. There was, however, another reason Enron did so well in such a short time: = the company's hard-nosed approach toward its customers. The old notion of c= ustomer service was based on the long haul-you had to nurse and coddle cust= omers to keep them. But Enron had new markets and new ideas-customers had t= o come to it. Over time, the company stopping referring to its business cli= ents as customers and began calling them "counterparties." Skilling wanted the biggest profits on the shortest timetable: Gains were m= aximized by creating, owning, and then abandoning a market before it became= overtaxed and overregulated. So if you wanted to launch a high-risk ventur= e quickly-such as Zilkha Energy's new high-tech approach to drilling for oi= l-you got your financing from Enron because a bank would take forever to un= derwrite the project, if it ever would. But because Enron invented its mark= ets and subsequently dominated them, Enron could set the terms of its deals= , from the timeline to the method of accounting to whether the deal happene= d at all.=20 While many businesses used what was known in the industry as "mark-to-marke= t accounting," for instance, Enron used it on an unprecedented scale. The c= ompany priced their deals at current market value-but it was always Enron's= idea of the market value; companies that balked at their pricing didn't ge= t deals. And while old-fashioned companies spread their profits out like an= nuities over a period of years, Enron took most of its profit up-front. How= ever many millions would be made on a deal that covered several years, they= went on the books in the current year. If a few analysts thought there mig= ht be something fishy about what they called "subjective accounting," inves= tors didn't particularly care as long as the profits rolled in. As the mark= et fluctuated and the landscape changed, the company might abandon a projec= t that had been in the works for months because its profit margins weren't = going to be high enough. "Enron is known for leaving people at the altar," = says one former employee. Winning the highest possible profits for the comp= any could even extend to Enron's attitude toward charity. When a fundraiser= for the Houston READ Commission, a literacy group, called on Enron for a c= ontribution, it was suggested that he start raising money for Enron's compe= ting literacy charity: "Even the person who was supposed to give money away= for Enron was supposed to make money for Enron," he says. As Enron became more and more successful, the culture Skilling had created = took on a dark side: The competition turned inward. As one member of the En= ron family put it, "It became a company full of mercenaries." The change st= arted at the bottom. As Enron's domination of the energy market grew, most = of the recruiting frills fell away. New associates were treated much like t= he commodities the company traded. Global Change's Enron spies reported ove= rhearing orders like "I need a smart person-go buy me one" or "Buy me an in= telligent slave, quick." Enron had never been the kind of place where peopl= e sang to you on your birthday, but now the workaholism bordered on self-pa= rody: A Random Acts of Kindness program lasted only a few months. It was to= o disruptive. People couldn't get their work done. And, of course, Enron had a program for institutionalizing creative tension= . The Performance Review Committee, which had initially been installed by S= killing in the Capital group, became known as the harshest forced ranking s= ystem in the country. Employees were rated on a scale of one to five, and t= hose with fives were usually gone within six months. (The PRC's nickname qu= ickly became "rank and yank.") It was a point of pride that Skilling's divi= sion replaced 15 percent of its workforce every year. As one Skilling assoc= iate put it, "Jeff viewed this like turning over the inventory in a grocery= store." Skilling's approach to business-get in and get out-had become Enro= n's attitude toward its workers. In time, it would become many workers' att= itude toward the company. Teamwork, never that valuable in a trading cultur= e, went the way of the eyeshade and the abacus. If protocol required an Enr= on higher-up to come from Europe to help with a project in the Third World,= he might help-or he might not, depending on whether another, potentially m= ore lucrative project was pending elsewhere. Everyone felt the pressure to perform on a massive scale at massive speed: = "They were so goal oriented toward immediate gratification that they lost s= ight of the future," says one former employee. Anyone who couldn't close de= als within a quarter was punished with bad PRC scores, as were the higher-u= ps who had backed them. Past errors and old grudges were dredged up so ofte= n as new ammunition in PRC meetings that the phrase "No old tapes" became a= n Enron clich?. "People went from being geniuses to idiots overnight," says= one former Enron executive. In such a hothouse, paranoia flowered. New contracts contained highly restr= ictive confidentiality agreements about anything pertaining to the company.= E-mail was monitored. A former executive routinely carried two laptops, on= e for the company and one for himself. People may have been rich at Enron, = but they weren't necessarily happy. One recruiter described the culture thi= s way: "They roll you over and slit your throat and watch your eyes while y= ou bleed to death." BEFORE JEFF SKILLING COULD TRANSFORM ENRON from the world's leading energy = company into the world's leading company, he had to make one more change: J= ust as he had done ten years before, Skilling had to purge the company of i= ts remaining old order. Where Enron once prized cautious executives who dea= lt with tangible assets like pipelines, it now valued bold executives who d= ealt with intangible assets. Pipelines, power plants-they may have been Enr= on's pride, but Skilling wanted them gone. Expensive, long-term building pr= ojects had no place when Wall Street was devoted to quick profits and enorm= ous returns on investment capital, and Skilling knew it. "It wasn't the tim= e for long-term approaches," an Enron executive says of Wall Street's mood.= "It was the technology era." To rid Enron of the last vestiges of its past, Skilling had to take on Rebe= cca Mark, long considered his rival for the CEO's job. Mark was for many ye= ars the poster child for the Enron way: Young, attractive, aggressive-her n= ickname was Mark the Shark-she came from sturdy Midwestern stock but had th= e requisite Harvard MBA. Mark was largely responsible for the success of En= ron International, the asset-heavy side of the company where she developed = $20 billion worth of gas and power plants, which accounted for 40 percent o= f Enron's profits in 1998. For this she reaped breathtaking compensation-on= e Enron executive estimated $10 million-and adoring press clips, including = two appearances on Fortune's list of the fifty most powerful women in corpo= rate America. But then Mark ran into trouble with a gas-fired power plant in Dabhol, Indi= a, one of the largest ever constructed. She had played the game the Enron w= ay: Taking Enron into a new market, she had finagled low import taxes (20 p= ercent instead of the usual 53) and hung in through 24 lawsuits and three c= hanges in government. But the time and expense needed to make India and oth= er Enron plants around the globe successful did not mesh with Enron's goals= , and Skilling's impatience with Mark grew. Forcing Mark out, however, was no easy matter. Key executives left, divisio= ns were dismantled, but she remained. The truth was Enron didn't mind firin= g lower-level employees, but it hated to fire the kind of aggressive, relen= tless people it tended to promote. The company preferred humiliation-keepin= g a director in his cubicle, say, but failing to include him in the glamour= deals, or kicking someone upstairs with a fancy title. (One particularly d= ifficult executive won a few years at graduate school, gratis.) A company a= s smart as Enron could probably deduce too that dispatching one of the most= visible businesswomen in the country would provoke a public-relations disa= ster. So Lay and Skilling did something classically Enronian: They gave Mar= k her own company. Despite Skilling's contempt for asset-heavy businesses, = Enron spent more than $2 billion to buy a run-of-the-mill British water uti= lity that could serve as Enron's entry into the emerging world of water pri= vatization. Mark was put in charge of making Enron, yes, the world's greate= st water company. Azurix, as the new business was called, looked like anoth= er sure thing: Its IPO in 1999 raised $695 million.=20 But Mark had to succeed on Enron's increasingly abbreviated timetable in a = business fraught with political and emotional complexities. Water is not li= ke gas or electricity-owners and governments are a lot less willing to give= it up, even for lots of money. The company stumbled, layoffs commenced, an= d confidence evaporated. By August 2000 the stock price, which had started = out at $19, had fallen to $5. Mark's resignation followed, and Azurix, much= diminished, was folded into Enron. "I think it's best for Rebecca to start= afresh," Lay, who had been a mentor to Mark, told the Wall Street Journal.= Or as one critic put it, "They were more interested in destroying the old = culture than running a business."=20 As 2000 drew to a close, Skilling was in total command. In December Ken Lay= announced the inevitable: "The best time for the succession to occur is wh= en the company is doing well," he told the press. "Enron is doing extremely= well now." In February 2001 Jeff Skilling took over the CEO's job. ALMOST IMMEDIATELY THE TROUBLE STARTED. Enron's domination of the electric-= power market made it an instant target in the California deregulation debac= le. Both PBS's Frontline and the New York Times took on Enron, portraying t= he company as a heartless colossus that used its influence in Washington (L= ay and Enron's political action committee are the top contributors to Georg= e W. Bush) to force old people on fixed incomes to choose between buying fo= od or electricity. Skilling and Lay appeared on camera singing belligerent = anthems to the free market, while another memorable scene juxtaposed one of= the company's jackallike traders against a hapless state employee in Calif= ornia, as both tried to buy power online. The Times reported that Lay had t= ried to persuade a new federal commissioner to change his views on energy d= eregulation. The bad press was, to say the least, ironic: Just as the media= was pounding Enron for its omnipotence, Wall Street was discovering its we= aknesses. By late March the stock price had slid to $50 a share from $80 in= January. Within Enron, the asset-based divisions took the rap for the decline. (The = India plant continued to be enormously costly, at least in part because of = constant turnover within Enron's management team.) But the California situa= tion was more visible and therefore more damaging, despite Enron's claim th= at the state had never built enough power plants to service its population = and never properly managed those it had. "For three months Gray Davis did a= very good job of blaming us," says Mark Palmer, a vice president for corpo= rate communications. "We were a Texas company. There was a Texan in the Whi= te House. California was a state that didn't put him in office, and his big= gest contributor was a Texas energy company. Performance is going to take c= are of our stock price. The truth will take care of Gray Davis." (Californi= a utilities still owe Enron $500 million, another reason stockholders might= be panicky.) But more problematic than the crisis itself was Skilling's al= l too apparent lack of contrition. Facing down his critics, he cracked a jo= ke comparing California with the Titanic. ("At least the Titanic went down = with its lights on.") But the biggest problem was Enron's telecommunications division, which had = been responsible for at least one third of its heady stock price. Investors= believed that Enron could revolutionize high-speed communications, just as= it had revolutionized gas and power. Enron estimated the global market for= buying and selling space over fiber-optic cable would grow from $155 billi= on in 2001 to $383 billion by 2004-but then the tech bubble burst. So too d= id the much-hyped movies-on-demand deal with Blockbuster. For the first tim= e in its confoundingly successful life, Enron had nothing new to take to ma= rket. Like the popular high school girl who suddenly packs on a few pounds,= Enron suddenly looked less alluring to Wall Street. Skilling launched a campaign to keep Enron's most important cheerleaders, t= he stock analysts, in the tent, but he wasn't cut out to be a supplicant. D= uring the reporting of first quarter profits, he called an analyst who chal= lenged Enron's financial reporting an "asshole." When the company reported = hefty second quarter profits, many analysts questioned whether those profit= s had come from the generation of new business or from the sale of old asse= ts. Ignoring the growing chorus critical of Enron's accounting, Skilling pr= omised, as he always had, that innovations were just around the corner. "Th= ere wasn't any positive news," Carol Coale, of Prudential Financial, says n= ow. "Basically, he talked me out of a downgrade." The business press, so generous in the past, turned surly. Fortune had aske= d in March whether Enron was overpriced. ("Start with a pretty straightforw= ard question: How exactly does Enron make its money?") The routine cashing = in of stock options that were about to expire by key executives was portray= ed in the media as a fire sale. (Skilling had sold $33 million worth, Ken L= ay and Ken Rice close to four times that amount.) Then the Wall Street Jour= nal reported on a fund run by the CFO that had been a source of strife with= in the company. (It was essentially risk management against Enron's possibl= e failures.) Every negative story seemed to produce a concurrent drop in th= e stock price: By late August it had fallen below $40. Enron, so institutio= nally unforgiving, finally got a taste of its own medicine. "When Wall Stre= et is in love with a stock, they're forgiving of something like accounting,= " says Carol Coale. "When a company falls out of favor, all these issues ca= rry more weight." This fact was not lost on people inside the company, who suddenly started e= xperiencing an attack of conscience. Those who had looked the other way as = the most powerful Enron executives dumped their wives and married their sec= retaries or carried on flagrant interoffice affairs now saw the error of th= eir ways. "It just created an attitude," one executive still at Enron says.= "If senior people are doing that, why are we held to a higher standard? Th= ere was a real culture of 'We're above everyone else.'"=20 Loyalty had never been prized at Enron, so there was no reason to expect it= now. An old-fashioned, slow-moving company like Exxon could demand hardshi= p duty in Baku with the promise of greater rewards down the road. "But," as= one Houston oilman explains, "if you have to negotiate a hardship duty wit= h someone who doesn't have loyalty and has money, then you have a corporati= on that's better suited for good times than bad." As it turned out, that description applied to Jeff Skilling too. As the sto= ck price stubbornly refused to ascend, he made no secret of his unhappiness= and frustration. Then, after a trip to visit the families of three employe= es killed at a plant in England, he had an epiphany: Life was short; for hi= m, Enron was over. Ever stoic, Ken Lay returned to the CEO's office, named = a new president, arranged a trip to New York to calm analysts and investors= , and promised a kinder, gentler Enron in the future. Trading anything and = everything was out. The company, Lay says, will still innovate but "innovat= e much closer to our core." As for the culture: "Things like the Performanc= e Review Committee, I think we could have applied better. By trying to cate= gorize people into so many different categories, you ended up creating a mo= rale problem." That Skilling's supposedly brilliant colleagues were as shocked at the news= of his departure as the rest of the business community may be testament to= their lack of emotional intelligence. Despite Skilling's lengthy tenure wi= th Enron, he'd always been contemptuous of the long haul; he'd always belie= ved in cutting losses and moving on. But now that he was abandoning them wh= en the company was in trouble, it was different. "Even Jeff's biggest detra= ctors wouldn't have wanted him to walk out the door," one loyalist admits. But on the day we meet, Skilling is looking forward, not back. "Look," he s= ays with finality, "ninety percent of my net worth is in Enron. Were my int= erests aligned with the shareholders? Absolutely." Free of falling stock prices and shareholder pressures, he is nestling hims= elf back into the world of ideas. His eyes flash as he talks about new tech= nologies. "The first wave never gets it right," he says. "The stand-alone d= ot-coms didn't work, but the technological applications will create a secon= d wave that will change the world." Houston, he promises, will become the w= orld's center of commodity trading, and he intends to be a part of it. In f= act, he is already shopping for office space. "This is the second wave, and Enron's got it," he says, almost breathless. = "There are thousands of people running around the streets of Houston that g= et it." Enron Fails to Smooth Things Over By Peter Eavis Senior Columnist TheStreet.com 10/23/2001 01:07 PM EDT URL: Enron (ENE:NYSE - news - commentary) held a special conference call Tuesday= to address investor concerns that have weighed heavily on its stock.=20 But worries may persist after the energy trader offered few new details and= the CEO publicly sparred with a gadfly investor over a shadowy off-balance= sheet transaction.=20 The transaction that has drawn most attention in the past week is a complex= financing that Enron entered into with a partnership called LJM2, which wa= s led by Enron's finance chief Andrew Fastow. Terminating this arrangement = led to a $1.2 billion equity reduction in the third quarter. Monday, Enron = stock plunged 20% after the company said the Securities and Exchange Commis= sion is probing "related party transactions." Executives declined to respon= d to questions about Fastow's role in the LJM2 partnership on the Tuesday c= all.=20 Another key issue is the impact of the equity reduction. The company said o= n the call that its share count would decline by 60 million in the fourth q= uarter, due to the termination of the LJM2 financing. But CEO Ken Lay said = the company wouldn't be increasing its earnings guidance of $1.80 a share f= or 2001 and $2.15 for 2002.=20 When a share count drops, earnings per share should normally increase, assu= ming the earnings number stays constant. The 60 million shares are equivale= nt to about 6.5% of the company's diluted total in the third quarter. As a = result, Enron should have raised its per-share profits forecast by about th= at much, assuming constant earnings.=20 When asked on the call if earnings per share guidance would be increasing, = CEO Lay replied that the company had previously increased its guidance for = this year. He then affirmed the 2002 number.=20 Now, to be fair, Enron may not be forecasting lower earnings. The planned r= eduction in shares may simply bring the total share count back close to a l= evel in the fourth quarter and 2002 that analysts had originally expected. = Notably, the share count in the third quarter jumped by 20 million, meaning= a fourth-quarter reduction might not change matters that much. Alternative= ly, Enron may beat fourth-quarter estimates by 6.5%; perhaps the company ha= s simply chosen not to increase guidance at this stage, given uncertainties= in the economy. In any case, more clarity on this matter is clearly needed= .=20 Calls to Enron weren't immediately returned. The stock edged up 2% Tuesday = after falling nearly 40% since last week amid worries about complex off-bal= ance sheet deals.=20 The call, arranged after Enron's Monday plunge, contained a lot of queries = about two trusts, called Marlin II and Whitewing, against which Enron borro= wed some $3.4 billion. Lay became testy after questioning by Richard Grubma= n of Boston-based hedge fund Highfields Capital Management. Grubman, who wa= s called an "a--hole" by Enron's former CEO Jeff Skilling on an April confe= rence call, was trying to find out the value of water assets held by Marlin= II. The optimal way of paying back money borrowed through the trust is to = sell the water assets.=20 Grubman's line of questioning implied that the Marlin assets were worth onl= y about $100 million, meaning Enron would have to find about $900 million t= o pay off the Marlin II-related debt. Grubman arrived at $100 million after= factoring in what he saw as the effects of a third-quarter writedown to wa= ter assets, some of which are included in Marlin II.=20 Lay disputed the $100 million number. At one point, he accused Grubman of d= riving Enron's stock down and monopolizing the Tuesday conference call. In = the middle of Grubman's comments, Lay told the call operator to go to the n= ext caller.=20 Grubman didn't immediately return a call seeking comment.=20 If Enron has to find $900 million, this can be done by issuing stock or rai= sing cash on its balance sheet. If the latter route is taken, Enron says it= 's likely to use asset sales to generate the cash. Enron executives said li= quidity would be sufficient and detailed at least $3.35 billion in availabl= e credit lines.=20 But if Enron's debt-to-capital ratio exceeds 65%, the covenants on some of = those lines are broken. After the $1.2 billion equity writedown and other c= harges taken in the third quarter, that ratio is probably about 50%-55% (En= ron hasn't released a third-quarter balance sheet to arrive at an exact cal= culation). It would take $3 billion in further writedowns or charges to pus= h Enron's debt-to-capital ratio up to 65%.=20 Stocks=20 More Static For Enron=20 Forbes.com staff, Forbes.com 10.23.01, 11:15 AM ET=20 NEW YORK - Enron scrambled again to reassure investors this morning, after = it disclosed yesterday that the U.S. Securities and Exchange Commission had= asked for information on partnerships run by Chief Financial Officer Andre= w Fastow and other executives.=20 Enron (nyse: ENE ) last week reported a third-quarter loss of $638 million = after taking $1.01 billion in charges on ill-fated investments. The market = took that in stride until media reports parsed the earnings announcement an= d disclosed that $35 million of those losses were connected with the two li= mited partnerships run by Fastow. Enron shares, which plunged 23% last week= , nosedived another 21% yesterday. Enron bounced back slightly in morning t= rading.=20 The turmoil makes it clearer than ever that the energy trader's problems we= ren't solved by the recent departure of Chief Executive Jeffrey Skilling.= =20 AES Says Indian State Interfering In Ops, Complains To PM 10/23/2001 Dow Jones International News (Copyright (c) 2001, Dow Jones & Company, Inc.) NEW DELHI (AP)--After Enron Corp. it is the turn of U.S.-based AES Corp. to= seek the Indian prime minister's help to settle its grievances with a stat= e government.=20 In a letter to Atal Bihari Vajpayee, AES Corp.'s President Dennis W. Bakke = said his company's determination to continue in India was being tested by t= he government of eastern Orissa state. The letter, a copy of which was made available to the Associated Press Tues= day, was dated Oct. 1 and appeared to have been faxed to the office of Prim= e Minister Atal Bihari Vajpayee.=20 The Virginia-based energy company operates two power plants in Orissa, hold= s 49% of the Orissa Power Generation Corp. and manages the main power distr= ibution company in the state.=20 AES Corp. is the other major American power company besides Enron Corp. to = have made big investments in India after the government allowed foreign inv= estment in the power sector in the early 1990s.=20 In his letter, Bakke drew Vajpayee's attention to the "expropriation, repea= ted contract violations, intimidation ... and direct interference with day-= to-day management" by the state government and its agencies. The letter als= o complained about government-run agencies failing to pay 2.1 billion rupee= s ($1=3DINR47.985) in bills.=20 "If the situation faced by AES is not remedied urgently, it will undermine = the trust and confidence of foreign investors in India," Bakke wrote. "Whil= e AES still remains committed to India as a country it would very much like= to serve, our determination to continue is being tested."=20 The prime minister's office said it wasn't ready to comment on the report. = Officials of the Orissa state government weren't available to respond to Ba= kke's charges in view of a Hindu festival.=20 AES Corp. has already offered to withdraw from the distribution company - k= nown as the Central Electricity Supply Company of Orissa. However, it has s= aid that the company will continue with its interests in electricity genera= tion.=20 If AES Corp. decides to pull out completely, it will the third American com= pany to do so.=20 Cogentrix Inc. quit a power project in southern India before it was started= , while Houston-based Enron is in the process of withdrawing from the Dabho= l Power Project in western Maharashtra state, India's biggest ever foreign = investment project.=20 On Sept. 14, Enron Corp. Chairman Kenneth L. Lay wrote a letter to Vajpayee= threatening legal action to pursue claims of up to $5 billion relating to = the Dabhol Power Co. dispute and questioned India's ability to honor its co= ntracts.=20 Lay had also warned that India may find it hard to attract foreign investor= s in the future because of the payment dispute with the Dabhol project, whi= ch stopped production and construction in May. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 U.S.-based AES Corp. complains about harassment from Indian state governmen= t By RAJESH MAHAPATRA Associated Press Writer 10/23/2001 Associated Press Newswires Copyright 2001. The Associated Press. All Rights Reserved. NEW DELHI, India (AP) - The U.S.-based operator of two Indian power plants = is seeking the help of Prime Minister Atal Bihari Vajpayee in its battle ag= ainst alleged corporate intimidation leveled by local government authoritie= s.=20 AES Corp. President Dennis W. Bakke addressed the concerns in an Oct. 1 let= ter to Vajpayee, obtained Tuesday by the Associated Press. In the letter, the Virginia-based energy company cited the "expropriation, = repeated contract violations, intimidation ... and direct interference with= day-to-day management" by the local government in the Indian state of Oris= sa.=20 AES operates two power plants in Orissa, holds 49 percent of the Orissa Pow= er Generation Corp. and manages the main power distribution company in the = state.=20 The complaint follows a similar appeal made to Vajpayee on Sept. 14 by Enro= n Corp., the only other major U.S. power company to make big investments in= India after the government allowed foreign investment in the power sector = in the early 1990s.=20 In that case, Enron Chairman Kenneth L. Lay threatened legal action to purs= ue claims of up to dlrs 5 billion over a dispute with the Dabhol Power Co.,= and questioned India's ability to honor contracts.=20 The prime minister's office said it was not ready to comment AES's complain= t. Officials of the Orissa state government were not available to respond t= o Bakke's charges.=20 "If the situation faced by AES is not remedied urgently, it will undermine = the trust and confidence of foreign investors in India," Bakke wrote. "Whil= e AES still remains committed to India as a country it would very much like= to serve, our determination to continue is being tested."=20 AES Corp. has already offered to withdraw from the power distribution compa= ny - known as the Central Electricity Supply Company of Orissa.=20 If AES Corp. decides to pull out completely, it will the third American com= pany to do so.=20 Cogentrix Inc. quit a power project in southern India before it was started= , while Houston-based Enron is in the process of withdrawing from the Dabho= l Power Project in western Maharashtra state, India's biggest ever foreign = investment project.=20 (rkm/lak/hg)