Footnote 8

• Funds flow from operations, defined as net cash provided by operatingactivities (from the cash flow statement) less cash provided from decreasesin working capital (or plus cash used for increases in working capital).• Balance sheet debt, defined as short-term and long-term debt appearing onthe face of the balance sheet.• Total obligations, defined as balance sheet debt, plus guarantees of debtof third parties and guarantees of lease residual values, plus any excess ofprice risk management liabilities over price risk management assets.Guaranteed debt was reduced by the value Enron attributed to the assetssupporting the underlying debt. Debt of unconsolidated equity affiliateswas not included because (unless guaranteed) it was nonrecourse toEnron.• Shareholders equity and certain other items, defined as shareholders’equity, plus “mezzanine” items, minority interests and company-obligatedpreferred securities of subsidiaries.• Adjusted earnings for credit analysis, defined as IBIT, less gain on sale ofnonmerchant assets and the excess of earnings from equity method investeesover distributions from those investees, plus impairment losses.• Interest expense, defined as interest incurred, less interest capitalized, plusestimated lease interest expense.Enron 2000 Annual Report, “Financial Review – Selected Financial and Credit Information(Unaudited)” at 52 (emphasis added).169. Understanding the effect these components had on Enron’s credit ratios gave theInsiders the power to manage the ratios by managing Enron’s financial statements. Simply stated,and measured by their impact on Enron’s credit ratios, the Insiders recognized that:• raising money by increasing debt (and interest) which showed up on Enron’sbalance sheet was bad,• raising money by issuing stock and increasing shareholders’ equity was bad,and• raising money by guaranteeing others’ obligations was bad.170. Moreover, the Insiders learned early that the rating agencies viewed MTM accountingitself as having a possible negative effect on Enron’s credit ratios. The fact that MTM accounting604041v1/007457-43-