Evidence room, before and after

Enron: what the April 2001 filing said, and what later filings established

Two dated columns. The left uses only the fiscal 2000 Form 10-K filed on , the record behind the original call. The right adds two later Form 8-K filings that were not available on that date. All amounts are USD millions.

Then: filed 2001-04-02EN1, Enron Corp. fiscal 2000 Form 10-K. The only document the original call used. EN1 Form 10-K, SEC EDGAR,
Later: 2001-11-08 and 2001-12-17EN2, Form 8-K restatement announcement, and EN3, Form 8-K filed on 2001-12-17 reporting an event of 2001-12-02. Not available on 2001-04-02. EN2 Form 8-K, SEC EDGAR, EN3 Form 8-K, SEC EDGAR, filed , reporting the event of

The original call, preserved as made

Made on 2001-04-02 from EN1 only

EXIT

Exit the existing Enron exposure in an orderly way and commit no new capital until the documents listed under unknowns establish what this packet leaves open.

Rule. Keep an existing position only if the filing in hand establishes (a) that reported operating cash is largely recurring and (b) that material revenue recognized from a related party is backed by a counterparty with capacity independent of Enron. EN1 as excerpted establishes neither.

A prudence judgement on the evidence in hand. It is not a forecast of Enron's share price, credit or results.

EN1 Form 10-K, ; wording copied unchanged from the original record

This page does not rewrite that call, score it, or claim that the April filing alone predicted the later bankruptcy filing. It sets the later record beside it.

Chronology

  1. Fiscal 2000 Form 10-K filed (EN1). Original EXIT call made on this record alone.
  2. Form 8-K (EN2): Enron announces it intends to restate 1997 to 2000 and the first two quarters of 2001, publishes an unaudited table, and says prior statements and audit reports should not be relied upon.
  3. Event date: Enron Corp. and certain subsidiaries file voluntary chapter 11 petitions in the Southern District of New York, as stated in EN3.
  4. Form 8-K (EN3) filed, reporting the December 2 petitions. The filing date is fifteen days after the event date.

The evidence room

Each row sets what EN1 showed beside what EN2 and EN3 later stated. Statements attributed to the issuer are the issuer's, not findings of this page.

  1. Can the statements be relied upon?

    Then, 2001-04-02

    Audited annual statements as filed. The original record measured them as filed and listed what the excerpt left open: the full cash-flow statement, the composition of other operating activities, and the Entities' capacity to pay.

    EN1 Form 10-K,
    Later, 2001-11-08

    The issuer announced an intended restatement of 1997 to 2000 and said the earlier statements and audit reports should not be relied upon. Its Table 1 is labelled unaudited. This is an announcement, not a finalized audited restatement.

    EN2 Form 8-K, , Item 5

  2. Net income

    Then, 2001-04-02
    979Net income 2000, as reported
    893Net income 1999, as reported
    703Net income 1998, as reported
    EN1 Form 10-K, , F-4 and F-6
    Later, 2001-11-08, unaudited
    847Net income restated 2000, announced
    (132)Change, -13.5 percent
    643Net income restated 1999, announced
    (250)Change, -28.0 percent

    EN2 net income as reported for 1998 to 2000 matches EN1 exactly. Full bridge below.

    EN2 Form 8-K, , Table 1

  3. Debt

    Then, 2001-04-02

    Short-term debt 1,679 plus long-term debt 8,550 gives reported debt of 10,229 at the end of 2000 (8,152 for 1999). Preferred securities of 904 are a separate class and were not added.

    EN1 Form 10-K, , F-5
    Later, 2001-11-08, unaudited

    EN2 prints debt as reported of 10,229 for 2000, the same figure, then adds 628 for consolidation of JEDI and Chewco: debt restated 10,857, up 6.1 percent. For 1999 it adds 685 to reach 8,837, up 8.4 percent.

    EN2 Form 8-K, , Table 1

  4. Operating cash flow

    Then, 2001-04-02

    Operating cash 4,779 exceeded net income by 3,800. Working capital (1,769) and merchant sale proceeds (1,838) supplied 3,607; without them 1,172 remained, and 59 after also removing unitemized other operating activities of 1,113. Prior years: 1,228 in 1999 and 1,640 in 1998.

    Net cash provided by operating activities increased $3,551 million in 2000, primarily reflecting decreases in working capital, positive operating results and a receipt of cash associated with the assumption of a contractual obligation.
    Issuer's statement, MD&A; the increase of 3,551 ties to the cash-flow statement EN1 Form 10-K, , F-6 and MD&A
    Later, 2001-11-08 and 2001-12-17

    Neither later filing restates operating cash flow. Table 1 restates net income and debt only. The only operating cash figure on record is still the 4,779 filed in April, now covered by the issuer's non-reliance statement. No restated operating cash figure exists here, and LJM amounts are not subtracted from the April figure: EN2 gives the LJM1 subsidiary only a net income adjustment.

    EN2 Form 8-K, , Item 5 and Table 1

  5. Related parties and the people behind them

    Then, 2001-04-02
    In 2000 and 1999, Enron entered into transactions with limited partnerships (the Related Party) whose general partner's managing member is a senior officer of Enron.
    Issuer's statement; the officer is not named

    Visible risks: about 500 of 2000 revenue on derivatives with the Entities, notional about 2,100 (not cash, not debt), and 1,200 of special distribution notes receivable, with Enron stock and Enron notes among the assets contributed. No financial statements for the Entities were given.

    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.
    Issuer's statement EN1 Form 10-K, , Note 16
    Later, 2001-11-08

    Identities, stated by the issuer:

    Andrew S. Fastow, then Executive Vice President and Chief Financial Officer of Enron, was (from inception through July 2001) the managing member of the general partners of LJM1 and LJM2.
    Issuer's statement in EN2, not a finding of this page

    Consolidation findings, announced by the issuer: Chewco, described as a related party investing in JEDI, and JEDI itself should have been consolidated from November 1997; a wholly-owned LJM1 subsidiary that hedged an equity investment in Rhythms NetConnections should have been consolidated from 1999. In 2000 those categories reduce net income by (91) and (8); in 1999 by (153) and (95).

    The EN2 excerpt does not state that the April Related Party is LJM1 or LJM2, or that the unnamed officer is the person it names. The descriptions are consistent; this page does not equate them.

    EN2 Form 8-K, , Item 5, sections 1 and 2

  6. Guarantees and commitments

    Then, 2001-04-02

    Four contingent guarantee classes, off the balance sheet, overlap not stated: 556 under leases, 264 for letters of credit, about 1,863 on liabilities of affiliates and others, and 386 of indemnified lease obligations. Management did not consider performance likely. No total was formed.

    EN1 Form 10-K, , Note 15
    Later, 2001-11-08

    The restated debt adds a consolidation category, JEDI and Chewco. EN2 does not say any April guarantee became debt, and no guarantee amount equals or explains the 628. Guarantees and restated debt stay separate here.

    EN2 Form 8-K, , Table 1

  7. Solvency events

    Then, 2001-04-02

    No such event is in EN1, and the original call made no forecast of one.

    EN1 Form 10-K,
    Later, event 2001-12-02, reported 2001-12-17
    On December 2, 2001, Enron Corp. (the "Company") and certain other subsidiaries of the Company (collectively, the "Debtors") each filed voluntary petitions for relief under chapter 11 of title 11 of the United States Code (the "Bankruptcy Code")
    Issuer's report in EN3

    What creditors eventually received is not in this record. No recovery amount is given or estimated.

    EN3 Form 8-K, filed , reporting the event of , Item 3

The passage that changed the status of the April numbers

On the issuer said the statements the April call measured should not be relied upon. Open the passage below; it works by touch, click, or keyboard (Enter or Space) without scripts.

Reveal the EN2 non-reliance passage
Enron intends to restate its financial statements for the years ended December 31, 1997 through 2000 and the quarters ended March 31 and June 30, 2001. As a result, the previously-issued financial statements for these periods and the audit reports covering the year-end financial statements for 1997 to 2000 should not be relied upon;
Issuer's statement in EN2, not a finding of this page EN2 Form 8-K, , Item 5

Income and debt bridge, in the categories of EN2 Table 1

Announced Unaudited Rows and labels follow EN2 Table 1, which omits some rows and years in the excerpt. The printed rows foot. A double dash in the filing is shown as 0.

Net income, USD millions
EN2 category1997199819992000
Net income as reported105703893979
Consolidation of JEDI and Chewco(45)(107)(153)(91)
Consolidation of LJM1 subsidiary00(95)(8)
Prior year proposed audit adjustments and reclassifications(51)(6)(2)(33)
Net income restated9590643847
Debt, USD millions
EN2 category1997199819992000
Debt as reported6,2547,3578,15210,229
Consolidation of JEDI and Chewco711561685628
Debt restated6,9657,9188,83710,857
EN2 Form 8-K, , Table 1; as-reported rows checked against EN1

EN2 also prints three columns headed 2001 whose quarters the excerpt does not label; they are kept in the data file but not compared here.

Reported versus announced restated net income and debt, 1999 and 2000, USD millions Same scale for all bars, starting at zero. Net income 1999: 893 reported, 643 restated. Net income 2000: 979 reported, 847 restated. Debt 1999: 8,152 reported, 8,837 restated. Debt 2000: 10,229 reported, 10,857 restated. Net income, 1999 893 643 Net income, 2000 979 847 Debt, 1999 8,152 8,837 Debt, 2000 10,229 10,857 0 = zero baseline; one scale for all bars Sources: EN1 2001-04-02; EN2 2001-11-08
Reported, as filed (EN1; same figures in EN2)Announced restated, unaudited (EN2)

USD millions, one scale, zero baseline. Net income bars are short because net income is small beside debt on the same scale.

EN2 Form 8-K, , Table 1 EN1 Form 10-K, , F-4 and F-5

Reading the call beside the later record

The EXIT call asked for documents that would show recurring operating cash and a related-party counterparty able to pay without relying on Enron. The later filings in this record do not supply those documents. Instead, the issuer withdrew reliance on the statements the call had measured, announced unaudited reductions to net income and increases to debt, and seven months after the April filing named the officer and partnerships. The chapter 11 petitions came later still.

None of this turns the April record into a forecast. The call was a prudence rule about what EN1 did not establish, and it stays as written.

Still unknown in this record