Jurors in the trial of Enron Corp. founder Kenneth Lay and former CEO Jeffrey Skilling were given a behind-the-scenes peek into the once mighty company on Wednesday, as the defense offered hours of audio and videotape from financial presentations and employee webcasts, some of which mixed business presentations with self-congratulatory pep rallies.

Daniel Petrocelli, Skilling’s defense lawyer, is attempting to discredit earlier testimony by former investor relations chief Mark Koenig, who was on the stand for the third straight day. As part of the cross examination, the jury heard recordings of Enron conference calls and watched an employee webcast. Koenig, testifying for the prosecution, has been the only witness in the trial, which began last week.

The defense’s strategy has become more apparent in recent days, as Petrocelli has worked to lay the groundwork to blame a few bad apples at the company — and not Skilling and Lay — for the company’s ultimate descent into bankruptcy. To counter testimony by Koenig that Skilling deceived analysts and Enron employees, Petrocelli replayed an hour-long webcast of a Feb. 21, 2001 all-employee meeting at Enron for the jury.

On the webcast, Lay discussed Enron’s performance into early 2001, including the company milestone of reaching $100 million in profit. “Enron is laser-focused on increasing earnings per share,” said Lay, and employees are seen cheering and applauding in the background. He also told employees the company planned to increase capital efficiency by selling less profitable businesses.

Skilling, named CEO a few weeks earlier, explained Enron’s planned sale of Oregon-based Portland General Electric (PGE), and said the sale might be held up by legislative action in California, following the energy crisis in the winter of 2000-2001. Skilling also said more international assets were going to be sold, all part of a plan to earn a stronger return on equity. Enron at the time had about $8.7 billion invested in assets, which he said were earning about 3% in returns.

“Return on equity stinks as a company,” said Skilling. “We have to get that up. That’s what will let us maintain our multiple, our price to earnings multiple.”

Skilling also admitted the new business, Enron Broadband Services, was not doing well.

“The enthusiasm people had for broadband was at a peak level” in early 2000, and “it’s probably through the floors now…I think bandwidth is going to go through an enormous change. Our business model is perfect for that change, but it’s going to be a rocky road.”

During the webcast, Skilling and Lay also unveil a strategic business plan.

“This is it,” Skilling said, as Lay displays a banner that reads “From World’s Leading Energy Company to World’s Leading Company.” As employees applaud, Skilling added, “Five years from now, I think there’s a good chance we could be the leading company in the world.”

After he had completed his strategy presentation, Skilling is heard taking questions from employees, including one concerning an article written in early 2001 by Fortune magazine. The article, “Is Enron Overpriced?” questioned the company’s lack of investor information, and said the company was a “black box” because it was difficult to know how the company made money.

“Sorry, it’s true,” Skilling said, in answer to the question about the magazine article. “It’s hard for us to show how money moves through, particularly the wholesale business.” Skilling claimed the article by Fortune was done after competitor BusinessWeek published a favorable article on Enron. Skilling said Enron was upfront with financial analysts, and said Enron tracked volume growth from physical energy deliveries as a good indicator of the wholesale business revenue expectations. He said Enron’s businesses were growing, so “that’s a good black box.”

Petrocelli also is framing an argument that efforts to sell Enron short by some investors helped to bring down the company’s share price in 2001. He questioned Koenig about a meeting in February 2001 set up by Kynikos Associates, a hedge fund based in New York. Its meeting, called “Bears in Hibernation,” focused on short-selling companies including Enron. He also showed the jury a report by Off Wall Street, a short-sellers research firm.

He played an audiotape of an analyst conference call in March 2001, in which Skilling addressed the company’s falling stock price (see Daily GPI, March 26, 2001). Skilling said the rumors about Enron were mostly “noise” with no basis in fact. He said, “I wish we didn’t have to make this call, but with what’s going on in the stock market, we thought we better have this call.” At the time, Enron’s stock had fallen to a 52-week low. Skilling detailed the problems with possible California legislation in the proposed sale of PGE.

Skilling also addressed the problems within the broadband services unit. Enron’s failure to maintain a proposed long-term contract with Blockbuster for video-on-demand was real, he admitted, but, the contract “was not providing us the content that we wanted.” The broadband unit was expected to eventually turn a profit, and Skilling said he was “very confident we’ll have specific contracts to show you” before the end of the year.

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