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Hidden Debts, Deals Scuttle Last Chance
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"Everything we know now, you know," he said.
He turned the hard questions over to Enron's new top operating officers, President Greg Whalley and Chief Financial Officer Jeffrey McMahon.
Whalley confirmed that energy companies that once looked to Enron as the industry leader now wanted no part of the long-term energy transactions that were Enron's specialty. But he said things were looking up.
Whalley denied that Enron was facing a cash drain. The company had the cash it needed, McMahon added.
Double-Edged Provision
But cash was draining out of Enron, undercutting the energy-trading operation that had been its crown jewel.
It would now become its millstone.
Nearly all of Enron's revenue was coming from its energy-trading operations. EnronOnline, its nearly two-year-old Web-based trading operation, was the leading U.S. trader of gas and electricity. The company praised it as the perfect synthesis of a dot-com "new economy" venture and a staple of the old economy, gas.
Enron's energy trading generated most of its record $101 billion in revenue in 2000, more than double the year before. But its profits were paper thin. In 2000, the company made only a penny on the dollar. Its profit picture was worsening in 2001, and its need for cash was increasing.
In 2000, the company's cash flow from operations had actually declined by $2.5 billion, analysts calculated. The company was spending cash faster than it was coming in in the first half of 2001, too, Causey had told the board in August.
In its customary hard-nosed fashion, Enron had insisted that its trading partners have adequate credit to make good on contracts when they came due. If a trading partner ran into financial trouble that lowered its credit rating, Enron could demand an immediate cash deposit to take care of the problem.
But this provision, written into Enron's contracts, cut both ways.
By mid-November, the energy traders still willing to do business with Enron were insisting on burdensome upfront cash deposits, accelerating the company's cash drain at the worst possible time.
