½ ENRON CORPORATION October 23, 2001 8:30 a.m.*CT KLH/tkr-Revised 1/11/2006 4- * LAY: FASTOW: BOONE: GLISAN: LAUNER: RIEKER: KNOTT: NILES: SMITH: GRUBMAN: CAUSEY: KAMINSKY NORDBY: FLEISCHER: DIETERT: OLSON: UF: UM: UL: KENNETh LAY ANDREW FASTOW KEVIN BOONE BEN GLISAN CURT LAUNER PAULA RIEKER DAVID KNOTT RAYMOND NILES ROSE EIrAND-SMITH RICHARD GRUBMAN RICHARD CAUSEY HOWARD KAMJNSKY 4 DAN. NORDBY DAVID FLEISCHER JEFF DIETERT JOHN OLSON UNIDENTIFIED FEMALE UNIDENTIFIED MALE UNINTELLIGIBLE t. 4,' ~. 4% 4' a 4. t - 4- 4 1 * -, Y .4 i ENRON CORPORATION October 23, 2001 8:30 am. CT KLH~'tkr -. Revised 1/11/2006 -. UF: - Good morning, everyone and welcome to the Enron conference call. This call 2 is being recorded. At this time, I would like to turn the call civer to Chairman 3 and Chief Egecutive of Officer, Mr. Kenneth Lay. Please gd ahead, sir. 4 LAY: Good morning. This is Ken Lay. Thank you for joining us today. I have with 5 me in the room here Mark Frevert, the Vice Chairman; Greg Whalley, 6 President and Chief Operating Officer of Enron; Rick Causey, Executive VP 7 and Chief Accounting Officer; Andy Fastow, Ex&utive Vice President and 8 Chief Financial Officer; Steve Kean, Executive VicePresident and Chief of 9 Staff; Mark Koenig, of course, Executive Vice President of Investor Reltitions; I ½ to and Ben Glisan, Managing Director and Treasurer. We decided yesterday td 11 set~~s call to4ddress quiestions and concerns raised over the last few days. 12 To say the least, we .ar~ very, eveii extremely disappointdd with our'stock- 13 price, particularly since our bgsiness~s are perforffiin~verywell, and we are 14 continuing to conduct business as usual. We recognuie, however, that these 15 are uncertain times in the capital markets and We will continue to hold 16 additional investor calls, as needed to pro-actively communicate essential 17 information to all of our stakeholders. Theje ha~ been a lot of receilt attention .4 - 1 18 to transactions Enronpreviotisly entered into with LJM, a private equity p.. .- A 19 partnership. Let me reiter~.te a couple of things. We clearly heard investor 20 concerns earlier this year, and Andy Fastow, Enron's Chief Financial Officer, 4 21 ceased all affiliations with LJM. And as report&l in our second %juarter lO-Q 4 I. * 4 22 filing, LJM is no longer a related party instrument. During the third quarter, '4 23 we took additional steps and terminated the finance arrangetiients with LJM. + I C 2:, N ENRON CORPORATION October 23, 2001 8:30 tin. ct KLH!tkr - Revised 2 3 4 S 6 7 8 9 10 11 12 13 14 '5 16 17 i8 '9 20 21 22 23 1/11/2006 We announced yesterday that we had received a request for information tYoin the SEC regarding certain related party transactions. As we said yesterday, we welcome this request and the opportunity it provides us to put these matters to rest. We are cooperating fuily with the SEC, and we believe everything that needed to be considered and done in connection with these transactions was considered and done. They were reviewed by internal and external auditors and lawyers, approved by Enron's- Board of Directdrs, and appropriately disclosed. As you can appreciate, while this matter is pending; we cannot say much more about it, at least now. HoweVer, a number of other unrelated questions have been raised~ and we will do our best to address those here. First on the equity reduction. Our third quarter earnings conference call last Tuesday included information associated with a $1.2 billion reduction in shareholders' equity that would ordinarily have been disclosed in our 10-Q to be filed in mid-November. There have been a number of questions surrounding the equity adjustments since the call. So we want to take the opportunity to clearly spell out the basis of that adjustment. A structured finance vehicle in which LJM was an investor, was established to mitigat~ volatility associated with certain of Enron's merchant investments, including investments in The New Power Company, technology and other investments of Enron. hi conjunction with the recent termination of these vehicles, Enron recorded a $1.2 billion reddctibn in shareholders' equity and a corresponding reduction in notes receivable. These adjustments were the result of Enron's termination of bbligations to deliver Enron shares in future periods. Although 3 ENRON CORPORATION October 23, 2001 8:30 a.m. CT KLHItkr - Revised FASTOW: 1/11/2006 this obligation equated to 62 million shares, and this was reflected in our fully diluted shares outstanding, the obligation to issue shares in the future no longer exists. And as such, the shares will no longer be factored into the, our EPS calculation. The l0-Q will reflect the final, proper reduction of 62 million shares, as calculated, using Enrons actual share prices during the third quarter. If you have additional questions on these adjustments, I will address them at the end of the call. I now would like to turn the discussion over to our CFO, Andy Fastow, to discuss our current liquidity position and credit rating. I might add that I and Enron's Board of Directors continue to have the highest faith and confidence in Andy, and believe he is doing an outstanding job as CEO. Andy? Thank you very much, Ken, and thank you for those last comments. And we have, in fact, received questions recently about both our liquidity and the outlook for the Enron Corp. credit; I'd like to briefly addressboth of these issues now. First, regarding liquidity. Enron expects to continue to have sufficient liquidity to conduct normal operations and to meet all of its proj&ted capital requirements. We have committed credit facilities with domestic and foreign banks, which provide for an aggregate of $3.35 billion in credit. These bank lines are undrawn, but act as the backstop for the company's issuance of commercial paper. Additionally, the company utilizes I on a consistent basis, uncommitted lines in e*cess of $500 million. With respect to commercial paper, currently our commercial paper balance is approximately 1.85 billion, and that's net tifler consideration of cash balances 4 I 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 ENRON CORPORATION October 23, 2001 8:30 a.m. CT KLH/tkr - Revised I 2 3 4 5 6 7 8 9 i0 11 12 13 14 15 16 17 18 19 20 21 22 23 1/11/2006 on deposit, resulting in approximately $1.5 billion of liquidity available ftoin committed sources today. We continue to issue conuixercial paper, and we have not drawn on our bank revolvers. Additionally, we have not experienced t any material increase in our funded CP balances over the past two weeks. Our policy of maintaining liquidity levels under committed lines of credit that are a multiple of projected cash requirements remains in effect. In addition to the $1.5 billion in unused commitments, we expect to receive in excess of $600. - million in proceeds from asset sales, and these were discussed in the third quarter conference call. These proceeds should be realized in the fourth quarter, perhaps as soon as within 30 days. And I would like to remind everyonethat we have entered into a definitive agreement to sell Portland General to Northwest Natural (las for approximately $1.9 billion, and the t assumption of$l.l billion in Portland General debt. Subject to normal regulatory review, this transaction is scheduled to close by the end of 2002. Also with respect to liquidity, we have spoken to our key banks, all of dur key banks. And based on these conversations, we expect to havetheir continued support. Now, turning briefly to the credit ratings, both Standard & Poor's and Fitch have confirmed our triple B plus rating, and have kept us on stable outlook. We are currently rated B double A one at Moody's. That has not changed. However, Moody's has placed Enron on review, and we're now working with Moody¶s to address specific 4uestions in order to facilitate their review. We understand that our credit rating is critical both to the capital markets, as well as to our counter-parties. Ken? Back to you. 5. St ENR.ON CORPORATION October 23, 2001 8:30 am. CT £ KLH/t1a*~ Revised 1/11/2006 ! LAY: Great. Thank you,Andy. As we discussed in the earnings conference call last, 2 week, our third quarter recurring operating results were outstanding, with a 26 y 3 percent increase in recurring earnings per share, and a 65 percent increase in 4 our physical volumes. These results refl&t the superb p&formance of our 5 core wholesale, retail and pipeline businesses. We are continuing to~stay 6 focused on our businesses, and remain well positioned for continued sucaess. 7 And with those brief comments, we would welcome your questions: Is the 8 operator Ihere? 4. 9 UF: Yes. Are you ready to take questions? t 10 LAY: We're ready for questionsz 11 UP:. Great. Thank ou. The question-and-answer session will be conducted 12 ~ If you ~ to ask a question, ~ do so by pressing the 13 star or ~ste6sk key, follow~d bj~the digit one on your touch-totie telephone. 14 We will proceed in the order that you signal us. And we'll take as many is question~. as time permits. Once again, please press star one, on your touch- 16 tone telephone to ask a question. And we will pause for just a moment. 17 LAY: Operator, you got somebody on? Hello. 4' is UP: We'll take our first question from Kevin Boone with Bear Stearns. 19 BOONE: Hi. Can you tell me about the uiicdmniitted bank facilities you have, just in 20 terms of the size and potential maturity dates for thQse revolvers? 21 LAY: Ben Glisan, please. 22 GLISAN: Certainly. The largest of them is a $550 million loan sales facility that JP 23 Morgan Chase agents, on our behalf. That is a program that supplements our 6 4 a. S GLISAN: BOONE: UM: GLISAN: BOONE: GLISAN: A 4, -4 ENRON CORPORATION Octobet 23, 2001 8:30 am. CT: ~ KLH/tla - Revised 1/11/2006 r 4 CP program. And we issue under it actively and in fact, at the moni'ent, I 2 believe we have approximately 350 mil1io~n dollars funded uhder (UI). 3 BOONE: OK. That's the only - that's the only revolver ydu have butstandin'g,'other than .4 4 the ones we use for CP backup? s That's the only uncommitted facility we have outstanding, yes... 6 OK. 7 (whisper) .. .in addition to the 3 billion... 8 .;t in addition to the committed facility that Andy spoke to, totaling 3.35 9 billion. 'p ~ 10 But those are - those are 'again, for - primarily for CF backup. Is thai right? II The $3.35 billion of revolving Credit - committed revolving credit facilities are 12 composed of three facilities) One is $1.75 billion 364-day facility, which is 13 due in May of'02. The second isa $1.25 billion five-year facility due in May 14 of '05. And then, the third is a $355 million 364-day insurance wrap, A-i P-i 15 facility due in March of'02. All of those are committed facilities. N6ne of 16 them have been drawn and serve to back up our CP program. 17 I see. Great. That was the information I needed. Thanks.. 18 OK. Yes. I think it's important to note, on those facilities, there is no MAC 19 clause and there's a single financial covenant requiring debt to cap, tYot to -, , 4' . - 20 exceed 65 percent which is very lenient. And we, you know~ feel 'Qery 21 confident and comfortable in all of the terms and conditions ofthos&faciliti~s. 4* 22 Mr. Boone, was there anything flirther? - 23 No. That's it. Thanks. - * i I - 7 * BOONE: GLISAN: UF: BOONE: 4 4. 4 ENRON CORPORATION . October 23, 2001 8:30 a.m. CT 1/1 KLH/tkr - Revised 1/2006 UP: We'll take our next question from Curt Launer, from CS First 'Boston. 2 LAUNER: Good morning. Curt Launer, from CSFB. I just want to go back and try to 3 recreate some of the accounting that went on during the year 2000 jursuant to 4 what w~s already disclosed in the footnotes. In other words, had the 5 partnerships not beenpart of certain of the transactions during the year 2000 6 and, in fact, if we were trying to recreate the income statement, what would 7 have or could have the earnings been in broad terms? And then, if ~'e could s move that question ahead and talk about where we would be in the year 2000 9 and 2001, knowing that you've talked about $1.80 into 2001 and $2.15 in 10 2002. It looks to me like those would still be the estimates we would use ii regardless of the impact of the partnerships. But I do want to go back to 2000 12 first and establish the base iel&tive to the broadband and other entrids tat the 13 partnership was involved in. 14 LAY: Can we do that? Rick Causey, Chief Accounting Officer. 15 CAUSEY: Curt, it's flick Causey. The best guid~nce I can give you on that is that there .1 16 are disclosures that show the impacts of the transactions with these entities in 17 our related-party foottiotes and I would refer you to those as it relates to 18 looking backwards. If it relates to forward estimates, I can't comment on that. 19 LAY: The $1.80 for this year and the 2.15 for next year will remain unchanged, 20 unaffected. 21 LAUNER: OK. That is the critical issue; obviously. But I did want to go back to 2000 22 and refer~n~c some of the things that have already been disclosed. There's $35 23 million relative to dark fiber sales ahd s&on and so forih.' And to some degree, 8 -~t. -. * A * -~ -t ENRON CORPORATION. October 23, 2001 - 8:30 am. CT KLWtkr - Revised 1/11/2006 I those transactions could have occurred with or without the partnership. But 2 the fact of the matter is, they did occur with the partnership iii plac6. So if r 3 that's the order of magnitude that we're talking abbut, we know how to adjust t 4 4 for that. 5 CAUSEY: Well, that's correct. Again, what I referred to was, in fact, the revenues 6 associated with the partnerships that were disclosed have always been 7 disclosed as related-party transactions. You are correct in that obviously these 8 transactions were done wi the partnerships. They could have obviously been t~1 - 9 done with other entities, as v~ell, and if that were the ease, would have yielded 10 similar results. 11 LAY: Yes. I think that's the answer,' Curt. I mean, I think they were done at the K t I 12 partnerships. But they could have been and would have been done elsewWere. 13 And there would have been n&impact on the - onthe eariiings. 14 LAUNER: OK.'Thank you. That is the key question. 15 UP We'll A~~t take a question from Jonathan Reiss, with John Levin'& Company. 16 Mr. Reiss? 17 RIEKER: Operator, let's continue: is UF: OK. We'll take our next question from2: 21 FASTOW: This is Andy Fastow. Let me add to that, that as mentioned by Ken in the third 22 quatter call and we briefly touched on it here again today, we have, I think, - * 23 begun in earnest our asset disposition program. You've seen announcements I- 12 4 -t t 4- * *1- ENRON CORPORATION October23, 2001 , - 8:30 am. CT - KLH/tkr -Revised 1/11/2006 I over the course of the last couple of months aiinouncihg~the sale of' 2 agreeni~nts - definitive agreements for the sale of our CEG RIO propbrty in~' 3 South America, Eco Electrica, our India E&P properties, as well as Portland 4 General. And so, if you begin to add all of those cash proceeds together, 5 there's a significant amount of cash that should be received by Enron if, upon 6 closure of these' transactions. 7 SMITH: OK. I understand that. And I guessits in light of, you know, having heard a about those prior plans that I asked the B part of the question, which relates to 9 the rating implications 6f using asset sale proceeds to make these payments, 10 given that the trust structures were originally contemplated to be off balance II sheet in order to help preserve Enron's rating on the premise that Enron 12 wouldn't need to support these debt maturity repayments by selling their own 13 assets. 14 GLISAN: Well,I have two comments to that. One, over the life of these trust structures, 15 Enron has in fact issued a sizable amount of equity, principally through its 16 deferred compensation prdgrim. And so, from that perspective equitj' has 17 been issued over the life, and that was expected by the agencies. Secbndarily, 18 certainly we believe that we will dispose over time the assets held by the trusts. 19 We have discussed iththe agencies that it may well be that we dispose not 20 only of assets of the trust iiit additional assets as well. And the agencies have 21 taken those comments into cojisideration in their current ratings. -~ *1' 22 SMITH: What assurance do you hive that if you do use asset sale proceeds to pay off I. 23 these near term maturities that the agencies won't change their leverage S. 13~- ' f-4 ENRON CORPORATION S October23,2001 ~. 8:30 a.m. CT KLH!tkr - Revised 1/11/2006 calculationto put all your off balance sheet debt on balance sheet based on 2 this demonstrated support of off-balancesheet financing that occur~ with the ~ 3 repayment-of near term maturity with asset sale proceeds? St 4 GLISAN: Again, we have fully discussed these mechanic~ multiple times with the 5 - agencies and we remain confident and comfortable with the mechanics as 6 described. 7 SMITH: Okay. Thanks. My lat question is about C? finance fundings and cost trends. 8 Can you just comment on how recent CP issuance costs compare to, say, you 9 know, year-over-year 6osts or whatever in terms of giving us an idea of how 10 much those costs may have increased? 4 A ii GLISAN: Sure. As you know, the baserate has declined substahtially. So, the all-in rate 12 is very inexpensive on historical terms. The s~r~ad is wide by historical 13 standards, but not unreasonably so. Yesterday's cost of placement of CP wa~ 14 approximately three $ercent annualized. It pushed CP out into November. - A 15 SMITH: And how ddes that spread compare, say, year over year or... 16 GLISAN: The spread in that market is quite volatile so, at times the spread could be as 17 tight as 10 to 15 basis points to LIBOR and, at times, as wide as 50 or more. 18 So, by, you know, by historical standards, it's wide, but not unprecedentally so, 19 especially when there ~re forms of disrupti6n in th~ CP market and ihuitiple. 20 users in the H&P market special.. 21 SMITH: OK. So, it's on a 50 dr more end of that sp~ctmm right n&w? 22 GLISAN: Yes. 23 SMITH: OK, thank you. 14 .4 ENRON CORPORATION October 23, 2001 8:30 aim CT KLH!tkr - Revised UF: GRUBMAN: CAUSEY: GRUBMAN> 1/1 1/2006 We'll next hear from Richard Cirrubman with Highfield Capital. Yes. Hi. Good morning. To follow up on the last questioner's inquiry the assets tat you announced for sale, such as Portland General, are not assets of Marlin or Osprey. And I guess in light of the 3.35 billion of capacity you outlined against which one billion eight-fifty of CP is already drawh, Marlin - my question is about reserves with respect to Marlin. Marlin's got roughly a billion dollars of financing outstanding due in the next 18 hionts or so. All the proceeds from Marlin's debt issue were basically paid to repay the loan to Enron Water, which left Marlin with a third of Azurix, which based on the math you gave us on the write down of your own shares of Azurix last week is worth about $100 million. So, it would appear tat the support of your imminent strip remain in tat case to the tune of almost $1 billion. Have you taken any reserves against that liability? This is Rick Causey. The point I would make is that the Marlin Trust structure has assets in it, as you said of Azurix - obviously Azurix - I'm not sure of the math you've done to come up with that calculation. The point I would make is tat Azurix continues to owner of Wessex Water, which is a very successful utility with a lot of value, obviously located inthe U.K. Well, again, you valued Azurix at about $900 million When you bought the third in at eight and three-eighths a share. And you own two thirds aAd the Water Trust owns half and Marlin owns - I don't know if it's two thirds, but Marlin owns half of that. So, that's a third. So, if, if so, Marlin's stake is 300 on the original 900 and*then you wrote your 600 down 287 after tax, or 15 1 2 3 4 5 6 7 8 9 I0 11 12 13 14 Is 16 17 18 19 20 21 22 23 4. ENRON CORPORATION 4' October 23, 2001 8:30 am. CT , ~"''~ KLH/tkr - Revised 1/11/2006 - 4 I roughly 400 pretax. You wrote it down by two thirds. So, rough numbers, the' 4 '4. * 4 2 300 ~t Marlin becomes 100 and there are no other assets other than the block 3 of Azurix. And Azurix, as you say, owns Wessex. Azurix also has close to $2 4 billion of its own debt. So, if the piece is worth the same amount in both 5 pockets, and my question, I guess, still stands? It looks to me like you have 6 clcse to a billiondollar liability that is going tobe supported exclusively by 7 Enron's support agreement. And I'm curious why to the last question at this 8 point there have been no reserves or no inclusion of that liability in the overall 9 liabilities of the comp~iiy. to CAUSEY: I think the only clarification that might help you, Richard, is that the, the loss ii we recorded in the third quarter associated with our portion of Azurixs 12 impairment of certain assets on their books, n6t a write down of our 4 13 investment in Azurix as a whole. So, we had to, we picked up our equity 14 interest, in their income or loss. In this case a loss, we associated with the 15 write down of certain assets that are now being held for sale by Azurix. Tho~e 16 assets were written down to net realizable value, basically market value, to 17 reflect that they're being held for sale. We picked up our share of th~it loss as 18 would be required under accounting, equity accounting. The remaining assets I 19 of Azurix, principally Wessex, were considered in considering both Azurix's 20 overall poSition and any other additional impairments that needed to be made 4 21 and ours and we're comfortable with where we stand on those. 22 GRUBMAN: So, in the best case, the asset's worth 300 million, in which case the deficiency - .4 23 is 700 million. What's... -~ 16- t4 I *4 ,44~ , - 444 ENRON CORPORATION Octobei 23400k 8:30 am. CT - KLH/tI& - R'ised 1/11/2006 *~ 4 4 A. 1 CAUSEY: I would point out obviously that you can't - you're mixing historical cost V 2 accounting and market value, and any assets that hav&value in excess of what 3 they may be on the books that are not written up. 4 GRUBMAN: OK. So, please tell us what the $1 billion worth of assets at Marlin is. 5 CAUSEY: It's Azurix and Wessex Water. 6 LAY: It's mainly Wessex Water, Richard. And... 7 GRUBMAN: But the Wess~x is owned by Azurix. 8 CAUSEY Correct. 9 GRUBMAN: So, you can't count both. If the Wessex is owned by Azurix, what's the Azurix 10 worth including Wessex? 11 CAUSEY: Again, the charge taken in the third quarter reflects to - relates to reflecting all 12 assets held for salety Azurix to market value, and we picked up our share of '4 13 that 14 GRUBMAN: Fine. Let's'go back to the transaction where you bought a third of Azurix for 15 roughly... 16 LAY: Richard, let me intercede hare for a minute. Wessex Water is the asset *'1. -4 4 17 - remaining in Azurix.. Thhfs 99 or 90-something percent of it. And, in fact;. 44 - 4 4 4 4 44 18 .~. *. eyen over the last month or sixweeks our outside auditors have reviewed ~ 4 . ,. . 4 t 4~, * 19 ~. Wessex and in fact have determined that there is no impairment required. 4 ~- 4 44 20 Now,Iknow you want to drive the stock price down, and,you've dohe a good 21 job at doing that, but I think that's that: Let's move, on to the next question. : S - 22 GRUBMAN: Thats pointless. Let's... - - 23 LAY: Let's go to the next question Richard. You're monopolizing the conference. 4 -~ - 17 -4 '4 4 -I, 444 - - At ENRON CORPORATION . -. - a October 23,2001. .. 4 . - 8:30 a.niCT . ,. ~ KLHItkr- Revised 1/11/2006 *A - 'A 1 We've got a lot of people out there with real serious questions. K 2 GRUBMAN: In deference, I wotild appreciate an answer to the question. That's fine if you 4 3 move ott I think everybody understands wb~. Thanks. 4 LAY: I think in fact we've answered the question, but you won't accept our answer. s Let's move on. 6 UF: . Next we'll hear from Howard Kaminsky with King Street Capital. 7 KAMINSKY: Hi.] certainly don't want to beat a dead horse. What I would like to know is 8 there are a number of off-balance-sheet frnancings - Marlin, Osprey. And' -A 9 very confusing to me to try to understand what the true potential dilution 10 might be to the ektent that there was a trigger event. Now I'm not suggesting 11 that there will be one, but I'm just frying to gauge how much potential dilution 12 there might be to the shareholders tote extent that you were downgraded t9 13 - below investMent grade. That's... 14 LAY: Well, I will start off with that. I mean, first of all, we'd have to be downgraded 15 three notches to go below investnidnt grade. And there's - at least we don'i 16 think there's any chance of that. But, Ben or Andy, you v~'ant to add? K t 17 EASTOW: That's fihe, thanks. I think th~t says it all. 18 LAY: And, indeed, I will reemphasize, since I'm on the phoxie, that we are 4 - Jr 19 committed to maintaining our rating. We've said thatrepeatedly. We'r~ * p A * 20 working, KLH/tkr - Revised 8:30 £m. CT 1/11/2006 questionable. I gUess you need to do evei~thing in your power to explain to V - 2 investors, to demonstrate to investors tat their, your dealings are above board, r 3 that the impacts and potential impacts are not negative for Enron, that 4 4 everyone isn't'questioning all of these. And so, fwould urge you to have daily 5 conference calls or, you know, almost daily conference calls to try to explain 6 tis with outside auditors to; to - with whoever to really go through these 7 because I think its absolutely' critical to the compahy that you do tat. You 8 know, the disclosure in the foQtnotes that - one of te questions that Rick said 9 the disclosure is there in the footnotesl I, for one, find the disciosfire is not 10 complete ehough for me to understand and explain all the intricacies of those ii transaction~ And that's why there are so many questions here. And I think - ~- 4 12 - you're, you're now in a~iosition where you really need to give us a lot more ~ 13 -. information, notwithstanding the fact that you probably want to place limits t 14 on that. But that would be my comment to you. <15 LAY: Well, David, I appreciate tat: And certainly, as I also said earlier, there are * 16' limitations on what we can o~ should talk about with LJM in particular or 17 related party transactions in gen&al because of both lawsuits, potential 18 lawsuits as well as th6 SEC inquiry. But again, as you know, we are, I mean; 19 we're trying to be as transparent as we can. We're trying to provide 'A, 20 information. We'te not tying to conceal anything. We're not hiding anything. 21 Probably we scrubbed and rescrubbed and rescrubbed things more in the last 22 couple months than we have in along, longtime, if ever: And as you know, in 23 the second quarter well fast of all, the third quarter results we did in fact 25 t p ENRON CORPORATION October 23, 2001 8:30 am. CT KLH/tkr-Revised 1/11/2006 - break out our company in more segments providing more operating data. We 2 told you and everybody else that we're going to provide some, at least 3 allocation of ~apital numbers, some capital deployed numbers for all of those 4 different segments at year end so you can really begin tracking the returns on S investmetit in different segments. Andindeed, I'm very sorry about the 6 misunderstanding to the extent there was a misundertanding on the $1.2 1** 7 billioji equity reduction:~ That - it was deemed'that that was not necessary to 8 put in the earnings release or, for that matter, even put out publicly until the ¼> 9 10-Q, but we made the decision to put it but at the same time as the earnings. 10 And my conferetThe call comments just to get everything out there, as we did 11 some other things in those comments. We're really frying to make sure that the 12 analysts and the shareholders and the debtholders really know What's going on 13 here. So, we are not trying to hold anything back. 14 FLBISCHER: OK, thank you. I do think we need a lot more here. Thank you. IS UP: We will next hear from Jeff Dietert with Simmons. 16 DIETERT: - With Simmons. I applaud your move toWards more financial disclosure as 17 well. One of the things that tame out in the financial disclosure was ~he global is assets portfolio, which is a $6 billion portfolio with oftly about 12 million of 19 EBIT year to date, Could you tall about how you look at asset write downs in 20 this portfolio and what you intend to do to improve the earnings in the 21 portfolio and give some specifics if you can by some of the assets, in the * 4 22 portfolio? r A cArl r 23 LAY: Well, number one, am. a~am, as we oaita in the third quarter earnings call, we - 26 i 4 ., ENRON CORPORATION October 23,2001 , -. 8:30 a.m. C~ KLH/tkr -Revised 1/11/2006 - I ,. C in fact, both we and our outside auditors had~already looked at all of our assets 2 to determine if we had impairments under the neiv goodwill accounting rules 3 that take effect first quarter next year. And as you jnobably recall, out of that 4 review, indeed there was somewhat less than $200 million of adjustments that 5 will be required in the first quarter out of our whole portfolio. And clearly, if 6 there are impairments other than that, why then of course Arthur Andersen as 7 well as our internal accounting staff would require that we write that down C. 8 also; Now, as to those assets and earning so little, and I agree with that, I've 9 now put that, the operation of those assets under Stan Horton's group. Stan 10 Horton's been running our pipeline group and our utility group in North t + 11 America for quite som~ tinie. We think he's one of the best in the world 12 . running those kind of assets, assets and bu~inesses and 4tting the niost return A$ 13 out of them. I think, number one,he will find that, and he already has as a 14 matter of fact, just going through the budget reviews and everything he's done 15 over the lastIwo months finding ways to improve earnings from that group of 16 assets. But secondly, as yo~ well know, a lot of thos5 assets are targ&ed for 17 disposition. And, of course, at least CEO RIO, which is a gas distribution 18 business in Brazil, it's, we sold that to Petrobras and that should close, as 19 Andy said, over the next 30 days. And we have, we're actually making 20 progress on a number of other assets. So, we hope both to increase returns and 21 cash flows from this group of assets at the same time that we reduce the total. 22 dollars invested. - - - .4 & 23 DIETERT: Are you looking at any hdditional ca6ital investment in that portfolio? 27 - * ENRON CORPORATION October 23,2001 i v 8:30 aiji. CT ~ KLH./tkr - Revised 1/I 1/2006 i LAY: It will be modest. Obviously, you'll continue to do what's necessary to 2 maintain reliabilityand safety. And there may be a few incrementaL 3 investments that will in fact enhance earnings from issets we already own. 4 But as we've said for some time, we are de-emphasizing our investments in 5 large infrastructure proj edts in developing countries, and that's whatT most of 6 those are. 7 DIETERT: Very good. Thank you. 4 8 LAY: Okay, thank you. 4 9 UF: We'll next hear from John Olson with Sanders, Morris & Harris. 10 OLSON: Good morning, gentlemen. 11 LAY: Good morning, John. 12 OLSON: I think it would be important in terms of credibility to restore it a little bit if' 13 you would be so kind as to have Andy Fastow describ9 the role he played as a 14 g&tral partner in LJM1 and LJM2 and how closely monitored he was and 15 how, what kind of review was imposed on the general partner role. 4 16 LAY: I think, John, and particularljwith the SEC deciding that they're going to 17 come in and look at this, which as I said we welcome because this will finally 18 hopefully put all of these issues to i~est. But I think because of that I would 19 prefer that Andy not get into too'much detail as far as LJM. And let me s~y 20 there wa~ a Chinese wall between LJM and Enron. And what I did say earlier .4 4. 21 was that we - that the Board put in place and the company adhered to some 22 very strict procedures, which would ensure that any time anybody inside of 23 Enron was d&aling with LJM there would be a process whereby Enron and its I 28 A * A - ENRON CORPORATION 'I Octobei23,~2001 t 8:30 am. CT - - KLH/tkr-Revised 1/11/2006 shareholders' int&ests would be paramount. And again keep it in mind tat 2 we did hot have to put any projects or investments in LJM or any of the other 3 vehicles jelated to LJM. So, it's strictly discretionary. And obviously it had to 4 be in our, Enron's best interest before those investments or'pioj ects w&re put 5 in there. 6 OLSON: - I, you know the "Wall Street Jojirnal" makes a circumstantial case on a 7 number of points. It might be helpful if you would be able to put out something just answering them on a point-by-point issue at some point -t 4 -, 9 yourselves. Second qiiestioi~ if I may, is the $1.2 billion of equity that was basically created through a synthetic transaction, why did Arthur Andersen 11 have you put it on the books? I mean, was this .really equity or was it 12 something else, a piece 6f paper? 4 ,, A 13 LAY: Rick? 14 CAUSEY: It did relate to a contingent it was forward equity commitments and, in fact, 15 - equity and contingent share commitments. And those were recorded mid again, 16 obviously included in the earnings per share calculation until such time that S 17 those were terminated Is OLSON: OK. Third question it might be helpful, too, gentlemen, if yoit Would make - / .4 19 available the financial statements of the various partnerships. I don't think that * w 20 ,' it's any sweat off your backs in terms of disclosure or whatever. But if you ~1 21 would be able to make available Whitewing aM Atlantic and LJM1 and 2, I 4 22 think you would also gd a long way towards settling any real or imagined * 23 issues here. Final question, if I May, what is the maintenance capital spending -4 ft A P - 29 A ' -~ V I-ti -~ I' ENRON CORPORATION October 23, 2001 8:30 am, crC KLH/tkr - Revised 1/11/2006 ~ of the company now? 2 GLISAN: The maintenance 6apital for the balance of the year is approximately $275 3 million. I 4 OLSON: And is - can I annualize that to $1.1 billion or $1.2 billion or whatever? s GLISAN: I think that's dangerous. I guess I would prefer to address it again in a follow- 6 up call liecause F did not - I don't have that number at my fingertips and we 4 7 typically - it's straight annualizations. It doesn't necessarily hold. 8 OLSON: Thank... 4 9 LAY: But we will provide that, John. We'll be happy to provide that. And also, we I Ia certainly wilIlook at providing the financiaEstatements on these other 11 structures. ~ V 12 OLSON: . Thank you very much. .. 13 LAY: I think were going to have to stop there, &perator. And if I could just kind of .2 . 14 - wrap it up. Of course, as#e said in the release yesterday, we are continuing 15 to be focused on our core businesses and delivering value to our customers 16 around the world. But we also want to take the time we' need to keep all of you t 17 informed. We will set up another call in the next couple of weeks, maybe 18 sooner depending on eVents. Additionally, we will be posting on o& Web site - .1 19 frequently asking, frequently asked questions and answers in order to get* 4 20 information out to you quickly starting late this afternoon. So, agair, thanks 21 for participating in this call and thanks for the questions. 22 UF: That concludes today's conference. Thank you for &our participation; 4, I . 30 '1 '6