Enron Seminar, Spring 2002 Class 2 Enron Before the Fall Randal C. Picker Leffmann Professor of Commercial Law The Law School The University of Chicago 773.702.0864/r-picker@uchicago.edu Copyright © 2002 Randal C. Picker. All Rights Reserved.

Copyright © 2002 Randal C. Picker Timeline 2/12/01: Skilling Named CEO 4/17/01: 1st Quarter Earnings Report “Enron’s wholesale business continues to generate outstanding results. Transaction and volume growth are translating into increased profitability,” said Jeff Skilling, Enron’s president and CEO. “In addition, our retail energy services and broadband intermediation activities are rapidly accelerating.” September 16, 2018 Copyright © 2002 Randal C. Picker

Copyright © 2002 Randal C. Picker Timeline 5/15/01: Files 1Q 2001 10-Q with SEC Describes acquisition of limited partnership interests in Joint Energy Development Investments LP Related Transactions Discussion During the first quarter of 2001, Enron entered into transactions with limited partnerships (the Related Party), whose general partner is a senior officer of Enron. The limited partners of the Related Party are unrelated to Enron. All transactions with the Related Party are approved by Enron's senior risk officers as well as reviewed annually by the Board of Directors. Management believes that the terms of the transactions with the Related Party were reasonable compared to those which could have been negotiated with unrelated third parties. Enron entered into transactions with the Related Party to hedge certain merchant investments and other assets. September 16, 2018 Copyright © 2002 Randal C. Picker

Copyright © 2002 Randal C. Picker Timeline 7/12/01: 2nd Quarter Earnings Report “Enron completed another quarter of exceptional performance. Our wholesale and retail energy businesses continue to dramatically expand business activity and increase profitability. In addition, Enron is distinct in developing a leading role in the European energy markets and in other high potential wholesale markets,” said Jeff Skilling, Enron president and CEO. September 16, 2018 Copyright © 2002 Randal C. Picker

Copyright © 2002 Randal C. Picker Timeline 8/14/01: Skilling Resigns “I am resigning for personal reasons. I want to thank Ken Lay for his understanding of this purely personal decision, and I want to thank the board and all of my colleagues at Enron,” said Skilling. “We regret Jeff’s decision to resign, as he has been a big part of our success for over eleven years,” said Lay. “But, we have the strongest and deepest talent we have ever had in the organization, our business is extremely strong, and our growth prospects have never been better.” September 16, 2018 Copyright © 2002 Randal C. Picker

Copyright © 2002 Randal C. Picker Timeline 8/14/01: Files 2Q 2001 10-Q with SEC During the second quarter of 2001, Enron did not recognize any material revenues or income from transactions with the limited partnerships discussed below. Additionally, the senior officer, who previously was the general partner of these partnerships, sold all of his financial interests as of July 31, 2001, and no longer has any management responsibilities for these entities. Accordingly, such partnerships are no longer related parties to Enron. All transactions with these partnerships (the Partnerships) have been approved by Enron's senior risk officers as well as reviewed annually by the Board of Directors. Management believes that the terms of the transactions were reasonable compared to those which could have been negotiated with unrelated third parties. In the first quarter of 2001, Enron entered into transactions with the Partnerships, now unrelated, to hedge certain merchant investments and other assets. 8/15/01: Sherron Watkins sends her letter to Ken Lay September 16, 2018 Copyright © 2002 Randal C. Picker

Copyright © 2002 Randal C. Picker Timeline 10/16/01: 3rd Quarter Earnings Report ENRON REPORTS RECURRING THIRD QUARTER EARNINGS OF $0.43 PER DILUTED SHARE; REPORTS NON-RECURRING CHARGES OF $1.01 BILLION AFTER-TAX; REAFFIRMS RECURRING EARNINGS ESTIMATES OF $1.80 FOR 2001 AND $2.15 FOR 2002; AND EXPANDS FINANCIAL REPORTING “Our 26 percent increase in recurring earnings per diluted share shows the very strong results of our core wholesale and retail energy businesses and our natural gas pipelines,” said Kenneth L. Lay, Enron chairman and CEO. “The continued excellent prospects in these businesses and Enron’s leading market position make us very confident in our strong earnings outlook.” $544 million related to losses associated with certain investments, principally Enron’s interest in The New Power Company, broadband and technology investments, and early termination during the third quarter of certain structured finance arrangements with a previously disclosed entity. September 16, 2018 Copyright © 2002 Randal C. Picker

Copyright © 2002 Randal C. Picker Timeline 10/24/01: Fastow, Enron CFO, placed on leave 11/8/01: 8-K Filing with SEC Chewco, JEDI, LJM a required restatement of prior period financial statements to reflect the previously disclosed $1.2 billion reduction to shareholders’ equity, as well as various income statement and balance sheet adjustments required as the result of a determination by Enron and its auditors, based on current information, that certain off-balance sheet entities should have been included in Enron’s consolidated financial statements pursuant to generally accepted accounting principles; the restatement of its financial statements for 1997 through 2000 and the first two quarters of 2001. As a result, financial statements for these periods and the audit reports relating to the year-end financial statements for 1997 through 2000 should not be relied upon; 11/19/01: Files 3Q 2001 10-Q with SEC Extensive follow-on discussion to 11/8 8-K regarding LJM transactions September 16, 2018 Copyright © 2002 Randal C. Picker

Copyright © 2002 Randal C. Picker Timeline 12/2/01: Enron files for Chapter 11 12/12/01: Berardino testifies in Congress “If there is one thing you take away from my testimony, I hope it is this: Andersen will not hide from its responsibilities. That’s why I’m here today. The public’s confidence is of paramount importance. If my firm has made errors of judgment, we will acknowledge them. We will make the changes needed to restore confidence.” 1/10/02: AA announces “significant but undetermined number of Enron-related documents were disposed of” 1/15/02: AA fires David Duncan partner in charge of Enron 2/1/02: Powers Committee releases report 3/14/02: US government indicts AA, one count, obstruction of justice September 16, 2018 Copyright © 2002 Randal C. Picker

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Copyright © 2002 Randal C. Picker Ann Report 2000: Page 39 Guarantees of liabilities of unconsolidated entities and residual value guarantees have no carrying value and fair values which are not readily determinable (see Note 15). September 16, 2018 Copyright © 2002 Randal C. Picker

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