1. How does the trend in Enron’s operating income compare with the trend in its income after other income and deductions (i.e., Income before interest, minority interests, and income taxes)?
2. What items appear to be non-recurring as opposed to being a result of routine operations?
How significant are these items?
3. The Enron testimony of short seller James Chanos before US Congress referred to “a number of one-time gains that boosted Enron’s earnings” as one of the items that “strengthened our conviction that the market was mispricing Enron’s stock” (Chanos 2002). What does Chanos’s statement indicate about how Enron’s earnings information was being used in valuation?

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EXHIBIT 6 Excerpts from Enron and Subsidiaries Consolidated Income Statement, Year- Ended 31 December (In millions, except per share amounts) Total revenues Total costs and expenses Operating income Other income and deductions Equity in earnings of unconsolidated equity affiliates Gains on sales of non-merchant assets Gain on the issuance of stock by TNPC, Inc. Interest income Other income, net Income before interest, minority interests, and income taxes 2000 1999 1998 $100,789 $40,112 $31,260 98,836 39,310 29,882 $1,953 $802 $1,378 $87 146 121 212 -37 $2,482 $309 541 0 162 181 $1,995 $97 56 0 88 -37 $1,582