UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
Commission File Number 1-13159
ENRON CORP.
(Exact name of registrant as specified in its charter)
Oregon 47-0255140
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
Enron Building
1400 Smith Street
Houston, Texas 77002
(Address of principal executive (Zip Code)
offices)
(713) 853-6161
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90
days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest
practicable date.
Class Outstanding at October 31, 1997
Common Stock, No Par Value 298,960,846 shares
1 of 30
<PAGE>
ENRON CORP. AND SUBSIDIARIES
TABLE OF CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Statement of Income - Three
Months Ended September 30, 1997 and 1996 and
Nine Months Ended September 30, 1997 and 1996 3
Consolidated Balance Sheet - September 30, 1997
and December 31, 1996 4
Consolidated Statement of Cash Flows - Nine
Months Ended September 30, 1997 and 1996 6
Notes to Consolidated Financial Statements 7
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 29
ITEM 6. Exhibits and Reports on Form 8-K 29
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION - (Continued)
ITEM 1. FINANCIAL STATEMENTS
ENRON CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(In Millions, Except Per Share Amounts)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenues $5,806 $3,225 $14,401 $9,240
Costs and Expenses
Cost of gas, electricity and other
products 4,927 2,472 12,270 7,124
Operating expenses 418 378 999 956
Oil and gas exploration expenses 22 24 68 62
Depreciation, depletion and
amortization 169 116 418 346
Taxes, other than income taxes 45 29 114 98
Contract restructuring charge - - 675 -
5,581 3,019 14,544 8,586
Operating Income (Loss) 225 206 (143) 654
Other Income and Deductions
Equity in earnings of unconsolidated
subsidiaries 57 35 138 106
Other income, net 29 21 197 182
Income Before Interest, Minority Interests
and Income Taxes 311 262 192 942
Interest and Related Charges, net 122 66 271 200
Dividends on Company-Obligated Preferred
Securities of Subsidiaries 19 8 50 24
Minority Interests 22 17 58 55
Income Tax Expense (Benefit) 14 48 (123) 210
Net Income (Loss) 134 123 (64) 453
Preferred Stock Dividends 5 4 13 12
Earnings (Loss) on Common Stock $ 129 $ 119 $ (77) $ 441
Earnings (Loss) Per Share of Common Stock
Primary $ 0.44 $ 0.48 $ (0.29) $ 1.79
Fully Diluted $ 0.42 $ 0.45 $ (0.29) $ 1.68
Average Number of Common Shares Used in
Primary Computation 294 247 264 246
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION - (Continued)
ITEM 1. FINANCIAL STATEMENTS - (Continued)
ENRON CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In Millions)
(Unaudited)
<CAPTION>
September 30, December 31,
1997 1996
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 194 $ 256
Trade receivables 1,755 1,841
Other receivables 823 414
Assets from price risk management activities 1,127 841
Other 865 627
Total Current Assets 4,764 3,979
Investments and Other Assets
Investments in unconsolidated subsidiaries 2,305 1,701
Assets from price risk management activities 1,930 1,632
Goodwill 1,666 87
Other 3,116 1,626
Total Investments and Other Assets 9,017 5,046
Property, Plant and Equipment, at cost 13,476 11,348
Less accumulated depreciation, depletion
and amortization 4,447 4,236
Net Property, Plant and Equipment 9,029 7,112
Total Assets $22,810 $16,137
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION - (Continued)
ITEM 1. FINANCIAL STATEMENTS - (Continued)
ENRON CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In Millions)
(Unaudited)
<CAPTION>
September 30, December 31,
1997 1996
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 2,036 $ 2,035
Liabilities from price risk management
activities 839 1,029
Other 750 644
Total Current Liabilities 3,625 3,708
Long-Term Debt 6,931 3,349
Deferred Credits and Other Liabilities
Deferred income taxes 2,270 2,290
Liabilities from price risk management
activities 1,556 980
Other 1,629 740
Total 5,455 4,010
Minority Interests 767 755
Company-Obligated Preferred Securities of
Subsidiaries 993 592
Shareholders' Equity
Second preferred stock, cumulative, no par
value and $1 par value, respectively 134 137
Common stock, no par value and $0.10 par
value, respectively 3,755 26
Additional paid in capital - 1,870
Retained earnings 1,750 2,007
Cumulative foreign currency translation
adjustment (129) (127)
Common stock held in treasury (306) (30)
Other (including Flexible Equity Trust) (165) (160)
Total 5,039 3,723
Total Liabilities and Shareholders' Equity $22,810 $16,137
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION - (Continued)
ITEM 1. FINANCIAL STATEMENTS - (Continued)
ENRON CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Millions)
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
1997 1996
<S> <C> <C>
Cash Flows From Operating Activities
Reconciliation of net income to net cash
provided by (used in) operating activities
Net income (loss) $ (64) $ 453
Depreciation, depletion and amortization 418 346
Oil and gas exploration expenses 68 62
Deferred income taxes (193) 163
Gain on sales of assets (129) (177)
Changes in components of working capital (427) 111
Net assets from price risk management activities (198) (240)
Amortization of production payment transaction (32) (33)
Other, net (31) (199)
Net Cash Provided by (Used in) Operating Activities (588) 486
Cash Flows From Investing Activities
Proceeds from sale of investments and other
assets 441 348
Capital expenditures (953) (518)
Equity investments (692) (664)
Business acquisitions, net of cash acquired
(see Note 4) (77) -
Other, net (215) (58)
Net Cash Used in Investing Activities (1,496) (892)
Cash Flows From Financing Activities
Net increase in short-term borrowings 723 466
Issuance of long-term debt 2,059 172
Repayment of long-term debt (419) (142)
Issuance of common stock - 102
Issuance of company-obligated preferred
securities of subsidiaries 372 15
Dividends paid (255) (206)
Net (acquisition) disposition of treasury stock (396) (19)
Other, net (62) 8
Net Cash Provided by Financing Activities 2,022 396
Decrease in Cash and Cash Equivalents (62) (10)
Cash and Cash Equivalents, Beginning of Period 256 115
Cash and Cash Equivalents, End of Period $ 194 $ 105
Changes in Components of Working Capital
Receivables $ (95) $ 235
Payables (124) (86)
Other (208) (38)
$ (427) $ 111
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION - (Continued)
ITEM 1. FINANCIAL STATEMENTS - (Continued)
ENRON CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The consolidated financial statements included herein
have been prepared by Enron Corp. (Enron) without audit
pursuant to the rules and regulations of the Securities and
Exchange Commission. Accordingly, these statements reflect
all adjustments (consisting only of normal recurring
entries) which are, in the opinion of management, necessary
for a fair statement of the financial results for the
interim periods. Certain information and notes normally
included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations, although
Enron believes that the disclosures are adequate to make the
information presented not misleading. These consolidated
financial statements should be read in conjunction with the
financial statements and the notes thereto incorporated into
Enron's Annual Report on Form 10-K for the year ended
December 31, 1996 (Form 10-K).
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
Certain reclassifications have been made in the 1996
amounts to conform with the 1997 presentation.
"Enron" is used from time to time herein as a collective
reference to Enron Corp. and its subsidiaries and
affiliates. In material respects, the businesses of Enron
are conducted by the subsidiaries and affiliates whose
operations are managed by their respective officers.
2. PRICE RISK MANAGEMENT AND DERIVATIVE FINANCIAL
INSTRUMENTS
As more fully discussed in Notes 1 and 3 to the
Consolidated Financial Statements included in Enron's Form
10-K, Enron engages in price risk management activities for
trading and non-trading purposes. Derivative and other
financial instruments utilized in connection with trading
activities are accounted for using the mark-to-market
method, under which changes in the market value of
outstanding derivatives and other financial instruments are
recognized as gains or losses in the period of change.
Derivative and other financial instruments are also utilized
for non-trading purposes to hedge the impact of market
fluctuations on assets, liabilities, production and other
contractual commitments. Hedge accounting is utilized in
non-trading activities when there is a high degree of
correlation between price movements in the derivative and
the item designated as being hedged. In instances where the
anticipated correlation of price movements does not occur,
hedge accounting is terminated and future changes in the
value of the derivative are recognized as gains or losses.
If the hedged item is sold, the value of the derivative or
other financial instrument is recognized in income. Gains
and losses on derivative financial instruments used for
hedging purposes are recognized in the Consolidated Income
Statement in the same manner as the hedged item and are
recognized in the Consolidated Balance Sheet as other
assets or liabilities. The cash flow impact of
derivative and other financial instruments used for
trading and non-trading purposes is reflected as cash flows
from operating activities in the Consolidated Statement of
Cash Flows.
3. SUPPLEMENTAL CASH FLOW INFORMATION
Net cash paid for income taxes for the first nine months
of 1997 and 1996 was $43 million and $78 million,
respectively. Cash paid for interest expense for the same
periods, net of amounts capitalized, was $282 million and
$205 million, respectively.
4. BUSINESS ACQUISITIONS
Effective July 1, 1997, Enron merged with Portland
General Corporation (PGC) in a stock-for-stock transaction.
PGC, through its wholly-owned subsidiary Portland General
Electric Company (PGE), serves retail electric customers in
northwest Oregon as well as wholesale electricity customers
throughout the western United States. Enron issued
approximately 50.5 million common shares, valued at $36.88
per share, to shareholders of PGC in a ratio of 0.9825
shares of Enron common stock for each share of PGC common
stock and assumed PGC's outstanding debt of approximately
$1.1 billion.
The acquisition of PGC by Enron has been accounted for
using the purchase method of accounting as of the effective
date of the merger. Accordingly, the purchase price has
been allocated to the assets and liabilities acquired based
upon the estimated fair value of those assets and
liabilities as of the acquisition date. The excess of the
aggregate purchase price over estimated fair value of the
net assets acquired, approximately $1.5 billion, has been
reflected as goodwill in the Consolidated Financial
Statements and is being amortized on a straight-line basis
over 40 years. Additionally, in January 1997, Enron
acquired certain renewable energy businesses for $119
million in cash, Enron and subsidiary stock and notes.
Assets acquired, liabilities assumed and consideration paid
as a result of businesses acquired were as follows (in
millions):
<TABLE>
<S> <C>
Fair value of assets acquired, other than cash $ 3,494
Goodwill 1,588
Fair value of liabilities assumed (3,086)
Common stock of Enron and subsidiary issued (1,919)
Net cash paid $ 77
</TABLE>
The allocation of purchase price related to the
determination of reserves for certain contractual
obligations, estimated environmental and other obligations
and the effect of PGE's disaggregation plan filed with the
Oregon Public Utilities Commission (OPUC), as discussed
below, on the value of PGE's generating assets is
preliminary pending completion of Enron's final studies and
evaluations.
The following summary presents unaudited pro forma
consolidated results of operations as if the business
acquisitions had occurred at the beginning of each period
presented. The pro forma results are for illustrative
purposes only and are not necessarily indicative of the
operating results that would have occurred had the business
acquisitions been consummated at that date, nor are they
necessarily indicative of future operating results.
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
(In millions, except per share amounts) 1997 1996
<S> <C> <C>
Revenues $15,078 $10,034
Income Before Interest, Minority
Interests and Income Taxes 350 1,158
Net Income (Loss) (12) 529
Earnings (Loss) per Common Share (0.08) 1.75
</TABLE>
PGE applies accounting standards that recognize the
economic effects of regulation, and accordingly, has
recorded regulatory assets and liabilities related to its
operations. At September 30, 1997, net regulatory assets of
PGE were $539 million.
On September 2, 1997, pursuant to the OPUC's condition to
its approval of the Enron/PGC merger, PGE submitted to the
OPUC a Customer Choice Plan to open its service territory to
competition. This plan will separate PGE's potentially
competitive businesses, primarily generation, from its
regulated businesses and allow customers to choose their
energy provider. Enron is unable to predict what changes
may be required by the OPUC for approval or when the OPUC
will approve a Customer Choice Plan.
Trojan Nuclear Plant. PGE is a 67.5% owner of Trojan
Nuclear Plant (Trojan). In early 1993, PGE ceased
commercial operation of the nuclear plant. Since plant
closure, PGE has committed itself to a safe and economical
transition toward a decommissioned plant. PGE has received
approval of its decommissioning plan submitted to the
Nuclear Regulatory Commission and Oregon Energy Facilities
Siting Council. PGE's remaining cost to decommission and
close Trojan of $343 million has been reflected in other non-
current liabilities in the Consolidated Balance Sheet at
September 30, 1997.
In March 1995, the OPUC issued an order authorizing PGE
to recover all of the estimated costs of decommissioning
Trojan and 87% of its remaining investment in the plant. At
September 30, 1997, PGE's regulatory asset related to
recovery of Trojan costs from customers was $519 million.
Amounts are to be collected over Trojan's original license
period ending in 2011. The OPUC's order and the agency's
authority to grant recovery of the Trojan investment under
Oregon law are being challenged in state courts. Enron
believes that the ultimate resolution of this matter will
not have a materially adverse impact on its financial
position or the results of operations.
5. SETTLEMENT OF CONTRACTUAL ISSUES
On June 2, 1997, Enron announced the settlement of all
contractual issues involving the J-Block contract in the U.K.
North Sea with the J-Block producers, Phillips Petroleum
Company United Kingdom Limited, BG Exploration & Production
Limited and Agip (U. K.) Limited. As reported in the Form
10-K, the J-Block contracts are long-term gas contracts that
an Enron subsidiary entered into in March 1993 with the J-
Block producers. As a consideration for the settlement,
Enron made a cash payment of approximately $440 million to
the producers. Enron recorded a second quarter non-
recurring contract restructuring charge of $675 million
($450 million after tax), primarily reflecting the impact of
the amended contract under current market conditions.
Under the terms of the settlement agreement, the former
take-or-pay depletion contract was amended to become a firm
long-term supply contract, and the fixed contract price for
J-Block gas has been reduced to reflect current market
conditions for long-term gas sales contracts in the U.K.
gas market. The settlement concluded all J-Block litigation
between Enron and the J-Block producers.
6. LITIGATION AND CONTINGENCIES
On June 3, 1997, the London Commercial Court ruled in
favor of the "CATS" parties in their dispute over the
availability of the CATS (Central Area Transmission System)
transportation facilities. As reported in the Form 10-K,
the CATS parties sued Teesside Gas Transportation Limited
(TGTL), an Enron subsidiary, and Enron (on the basis of its
guaranty of TGTL's obligations under the transportation
agreement between TGTL and the CATS parties) for allegedly
failing to make quarterly "send-or-pay" payments under the
transportation agreement. TGTL had refused to make these
payments based upon its position that the transportation
facilities were not available as required by the contract.
The effect of the Court's decision is that TGTL has released
withheld "send-or-pay" payments to the CATS parties in the
amount of approximately 81 million Pounds Sterling, plus
interest and costs. This judgment has no effect on the
above referenced settlement of the J-Block gas sales
agreements. Enron is appealing the decision of the London
Commercial Court in the CATS litigation. Enron believes
that the ultimate resolution of this matter will not have a
materially adverse effect on its financial position or
results of operations.
As reported in the Form 10-K, in 1995 several parties
(the Plaintiffs) filed suit in Harris County District Court
in Houston, Texas against Intratex Gas Company (Intratex),
Houston Pipe Line Company and Panhandle Gas Company
(collectively, the Enron Defendants), each of which is a
wholly-owned subsidiary of Enron. The Plaintiffs were
either sellers or royalty owners under numerous gas purchase
contracts with Intratex, many of which have terminated.
Early in 1996, the case was severed by the Court into two
matters to be tried (or otherwise resolved) separately. In
the first matter, the Plaintiffs alleged that
the Enron Defendants committed fraud and negligent
misrepresentation in connection with the "Panhandle
program," a special marketing program established in the
early 1980s. This case was tried in October 1996 and
resulted in a verdict for the Enron Defendants. In the
second matter, the Plaintiffs allege that the Enron
Defendants violated state regulatory requirements and
certain gas purchase contracts by failing to take the
Plaintiffs' gas ratably with other producers' gas at certain
times between 1978 and 1988. The Court has certified a
class action with respect to these ratability claims. The
Enron Defendants have appealed the court's decision to
certify a class action. The Enron Defendants deny the
Plaintiffs' claims and have asserted various affirmative
defenses, including the statute of limitations. The Enron
Defendants believe that they have strong legal and factual
defenses, and intend to vigorously contest the claims.
Although no assurances can be given, Enron believes that the
ultimate resolution of these matters will not have a
materially adverse effect on its financial position or
results of operations.
The Environmental Protection Agency (EPA) has informed
Enron that it is a potentially responsible party at the
Decorah Former Manufactured Gas Plant Site (the Decorah
Site) in Decorah, Iowa, pursuant to the provisions of the
Comprehensive Environmental Response, Compensation and
Liability Act (CERCLA, also commonly known as Superfund).
The manufactured gas plant in Decorah ceased operations in
1951. A predecessor company of Enron purchased the Decorah
Site in 1963. Enron's predecessor did not operate the gas
plant and sold the Decorah Site in 1965. The EPA alleges
that hazardous substances were released to the environment
during the period in which Enron's predecessor owned the
site, and that Enron's predecessor assumed the liabilities
of the company that operated the plant. Enron contests
these allegations. The EPA is interested in determining
whether materials from the plant have adversely affected
subsurface soils at the Decorah Site. Enron has entered
into a consent order with the EPA by which it has agreed,
although admitting no liability, to replace affected topsoil
and remove impacted subsurface soils in certain areas of the
tract where the plant was formerly located. To date, the EPA
has identified no other potentially responsible parties with
respect to this site. Enron believes that expenses incurred
in connection with this matter will not have a materially
adverse effect on its financial position or results of
operations.
<PAGE>
PART I. FINANCIAL INFORMATION - (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ENRON CORP. AND SUBSIDIARIES
RESULTS OF OPERATIONS
Third Quarter 1997
vs. Third Quarter 1996
The following review of Enron's results of operations
should be read in conjunction with the Consolidated
Financial Statements.
CONSOLIDATED NET INCOME
Enron's third quarter 1997 net income increased to $134
million ($0.44 per share) as compared with $123 million
($0.48 per share) during the third quarter of 1996. Net
income in the third quarter of 1997 benefited primarily from
strong performances in the capital and trade resources and
international operations and development segments. In
addition, results from Portland General Electric are
included in the 1997 period as a result of the merger
effective July 1, 1997 (see Note 4 to the Consolidated
Financial Statements). These increases were partially
offset by decreased earnings from Gas Pipeline Group, losses
in the retail energy services segment and increased interest
expense, dividends on company-obligated preferred securities
of subsidiaries and minority interests.
INCOME BEFORE INTEREST, MINORITY INTERESTS AND INCOME TAXES
The following table presents income before interest,
minority interests and income taxes (IBIT) for each of
Enron's operating segments (in millions).
<TABLE>
<CAPTION>
Third Quarter Increase
1997 1996 (Decrease)
<S> <C> <C> <C>
Regulated Operations:
Gas Pipeline Group $ 71 $ 86 $(15)
Portland General Electric 51 - 51
Ventures Group 9 12 (3)
Capital and Trade Resources 98 74 24
Retail Energy Services (25) - (25)
International Operations and
Development 65 38 27
Exploration and Production 49 49 -
Corporate and Other (7) 3 (10)
Total $311 $262 $ 49
</TABLE>
REGULATED OPERATIONS
The regulated operations segment consists of Gas Pipeline
Group, Portland General Electric and Ventures Group. Gas
Pipeline Group includes Enron's interstate natural gas
pipelines. The Portland General Electric group reflects
results since the July 1, 1997 merger. Ventures Group
includes construction of power, pipeline and liquids
projects, management and operation of pipelines and clean
fuels plants and Enron's investment in crude oil marketing
and transportation operations conducted by EOTT Energy
Partners, L.P. (EOTT).
Gas Pipeline Group
IBIT for Gas Pipeline Group decreased $15 million in the
third quarter of 1997 as compared to the same period in
1996.
<TABLE>
<CAPTION>
Third Quarter
1997 1996
(In Millions)
<S> <C> <C>
Net Revenues $143 $163
Operating Expenses 77 79
Depreciation & Amortization 16 17
Equity in Earnings 11 8
Other Income, Net 10 11
Income Before Interest & Taxes $ 71 $ 86
</TABLE>
Revenues, net of cost of sales, of Gas Pipeline Group
decreased $20 million (12%) during the third quarter of 1997
as compared to the same period in 1996, primarily due to the
turnback of certain capacity at Transwestern Pipeline
Company (Transwestern) beginning in November 1996.
Portland General Electric
Results for Portland General Electric have been included
in Enron's Consolidated Financial Statements beginning July 1,
1997. For the third quarter of 1997, Portland General
Electric realized IBIT of $51 million, as follows:
<TABLE>
<CAPTION>
Third Quarter
1997
(In Millions)
<S> <C>
Revenues $386
Purchased Power & Fuel 221
Operating Expenses 69
Depreciation & Amortization 45
Income Before Interest & Taxes $ 51
</TABLE>
Statistics for Portland General Electric (including
amounts for the third quarter of 1996 for comparative
purposes only) are as follows:
<TABLE>
<CAPTION>
Third Quarter
1997 1996
<S> <C> <C>
Electricity Sales (Thousand MWh)
Residential 1,391 1,358
Commercial 1,831 1,741
Industrial 1,093 1,004
Total Retail 4,315 4,103
Wholesale 8,556 2,913
Total Electricity Sales 12,871 7,016
Resource Mix
Coal 7% 13%
Combustion Turbine 5 14
Hydro 4 6
Total Generation 16 33
Firm Purchases 77 54
Secondary Purchases 7 13
Total Resources 100% 100%
Average Variable Power Cost
(Millions/KWh)
Generation $ 8.8 $ 7.4
Firm Purchases 19.2 14.7
Secondary Purchases 13.0 8.7
Total Average Variable Power Cost 17.7 12.9
Retail Customers (end of period,
thousands) 681 661
</TABLE>
Ventures Group
IBIT for Ventures Group decreased $3 million in the third
quarter of 1997 as compared to the same period in 1996.
This decrease is primarily due to losses incurred by EOTT as
a result of lower crude oil gathering margins compared to
earnings reported in the third quarter of 1996.
CAPITAL AND TRADE RESOURCES
Enron Capital & Trade Resources (ECT) conducts energy
commodity marketing, purchasing and financing activities and
manages the portfolio of commitments arising from these
activities. ECT's services can be categorized into three
business lines: cash and physical, risk management and
finance. The capital and trade resources segment's IBIT for
the third quarter of 1997 increased $24 million from the
same period in 1996. The following discussion analyzes the
contributions to IBIT for each of these business lines.
Statistics for ECT (including intercompany amounts) are
as follows:
<TABLE>
<CAPTION>
Third Quarter
1997 1996
<S> <C> <C>
Physical Volumes (Bbtue/d)(1)
Gas:
United States 7,321 6,935
Canada 2,353 1,445
Europe 748 817
10,422 9,197
Transport Volumes 456 600
Total Gas Volumes 10,878 9,797
Oil 684 289
Liquids 858 1,187
Total Physical Volumes 12,420 11,273
Electricity Volumes Marketed
(Thousand MWh) 72,257 18,713
Financial Settlements (Notional)
(Bbtue/d) 51,953 35,965
Fixed Price Contract Market Activity
(Tbtue)(2) 741 328
Production Payments and Financings
Arranged (Millions) $ 364 $ 175
<FN>
(1) Billion British thermal units equivalent per day.
(2) Trillion British thermal units equivalent.
</TABLE>
Cash and physical operations include earnings from
physical contracts of one year or less involving marketing
and transportation of physical natural gas, liquids,
electricity and other commodities, earnings from the
management of ECT's contract portfolio and earnings related
to the physical assets of ECT. Also reported in this
business are the effects of actual settlements of ECT's long-
term physical and notional quantity-based contracts. The
cash and physical operations' earnings before overhead
expenses were $10 million in the third quarter of 1997 and
$19 million in the same period in 1996. This decline was
primarily attributable to decreased earnings from North
American commodity marketing and contract portfolio
management. These declines were partially offset by
increased earnings from the management of ECT's portfolio of
European contracts and increased earnings from natural gas
assets.
The risk management operations consist of market
origination activity on new long-term contracts
(transactions greater than one year) and restructuring of
existing long-term contracts including income from
development activity related to such contracts. Third
quarter earnings before overhead expenses from this unit
were $72 million in 1997 compared to $40 million in 1996.
Earnings from this unit increased primarily due to
originations and related activities in the European market.
ECT's finance operations provide capital to customers
through various product offerings, and equity participation
to third parties in various merchant banking investments.
The finance operations had earnings before overhead expenses
of $55 million in the third quarter of 1997 as compared to
$42 million in 1996. The increase in earnings relates
primarily to increased activity in the Canadian market.
ECT's overhead expenses such as rent, systems expenses
and other support group costs were $39 million in the third
quarter of 1997 and $27 million in the same period in 1996.
This increase is primarily due to continued expansion into
new markets and an increased volume of transactions.
RETAIL ENERGY SERVICES
Enron's retail energy services are provided by Enron
Energy Services (EES), which was formed in late 1996 to
serve the U.S. retail natural gas and electricity markets.
EES has participated successfully in selected natural gas
and electric retail marketing pilots. EES reported a loss
of $25 million in the third quarter of 1997 as a result of
significant investments in the product development,
regulatory and branding efforts of positioning EES to
aggressively compete at the retail level.
Enron expects that losses in the fourth quarter of 1997
will approximate those incurred in the third quarter. While
no assurances can be given, Enron is evaluating the
potential sale of up to 10% of its retail energy business in
a private transaction in the fourth quarter of 1997, to
offset these losses and in an effort to establish a
valuation benchmark. An additional percentage may be sold
in 1998.
INTERNATIONAL OPERATIONS AND DEVELOPMENT
Enron's international operations and development
activities are conducted by Enron International (EI). Such
activities include the development of power, pipeline and
other energy infrastructure in emerging markets. EI also
manages and operates the projects once commercial operation
has been achieved. In addition, EI provides merchant and
finance products and services for third parties, including
equity participation in energy infrastructure projects. The
segment includes results of Enron Global Power & Pipelines
L.L.C. (EPP) and Enron Americas, Inc.
The segment's third quarter IBIT increased $27 million in
the 1997 period compared to the same period in 1996, as
follows:
<TABLE>
<CAPTION>
Third Quarter
1997 1996
(In Millions)
<S> <C> <C>
Net Revenues $ 79 $ 30
Operating Expenses 30 17
Equity in Earnings 16 19
Other Income, Net - 6
Income Before Interest, Minority
Interest & Taxes $ 65 $ 38
</TABLE>
The following discussion analyzes the significant changes
in the segment's results.
NET REVENUES
Revenues, net of cost of sales, for the international
operations and development segment increased $49 million to
$79 million in the third quarter of 1997 as compared with
1996, primarily reflecting an increase in earnings from EI's
portfolio of capital investments and increased international
merchant activities. The increase also reflects management
fees earned in connection with the operation of power
plants, which previously had been reported in the capital
and trade resources segment.
COSTS AND EXPENSES
Operating expenses increased $13 million (76%) in the
third quarter of 1997 compared with the same period in 1996
due primarily to expenses related to the operation of power
plants, which previously had been reported in the capital
and trade resources segment.
OTHER INCOME AND DEDUCTIONS
Equity in earnings of unconsolidated subsidiaries
declined by $3 million (16%) in the third quarter of 1997
compared to the same period in 1996 due primarily to the
1996 sale of a portion of Enron's interest in Teesside,
partially offset by earnings from Enron's increased
ownership of CIESA.
EXPLORATION AND PRODUCTION
Enron's exploration and production activities are
conducted by Enron Oil & Gas Company (EOG). The exploration
and production segment's IBIT was $49 million in both the
third quarter of 1997 and the same period of 1996, as
follows:
<TABLE>
<CAPTION>
Third Quarter
1997 1996
(In Millions)
<S> <C> <C>
Net Revenues $193 $175
Operating Expenses 51 41
Oil & Gas Exploration Expenses 22 24
Depreciation, Depletion & Amortization 72 60
Other Income (Expense), Net 1 (1)
Income Before Interest, Minority
Interest & Taxes $ 49 $ 49
</TABLE>
The following discussion analyzes the significant changes
in the segment's results.
Wellhead volume and price statistics (including
intercompany amounts) are as follows:
<TABLE>
<CAPTION>
Third Quarter
1997 1996
<S> <C> <C>
Natural Gas Volumes (MMcf/d) (1)
North America (2) 748 670
Trinidad 115 104
India 34 -
Total 897 774
Average Natural Gas Prices ($/Mcf)
North America (3) $1.91 $1.70
Trinidad 1.04 1.00
India 2.93 -
Composite 1.84 1.60
Crude Oil/Condensate Volumes (MBbl/d) (1)
North America 14.8 10.8
Trinidad 3.4 4.5
India 2.4 2.4
Total 20.6 17.7
Average Crude Oil/Condensate Prices ($/Bbl)
North America $18.88 $21.29
Trinidad 18.91 19.73
India 18.21 19.60
Composite 18.81 20.67
<FN>
(1) Million cubic feet per day or thousand barrels per day,
as applicable.
(2) Includes 48 MMcf per day for the three-month periods
ended September 30, 1997 and 1996 delivered under the
terms of a volumetric production payment agreement
effective October 1, 1992, as amended.
(3) Includes an average equivalent wellhead value of
$1.14/Mcf and $0.91/Mcf for the three-month periods ended
September 30, 1997 and 1996, respectively, for the
volumes described in note (2), net of transportation
costs.
</TABLE>
NET REVENUES
The exploration and production segment's revenues, net of
gas sold in connection with natural gas marketing, increased
$18 million (10%) during the third quarter of 1997 as
compared to the same period in 1996. Wellhead revenues
increased 28% to $192 million in the third quarter of 1997
as compared to $150 million in the third quarter of 1996.
This increase primarily reflects increased worldwide natural
gas volumes and increased average wellhead prices for
natural gas, partially offset by lower crude oil and
condensate volumes in Trinidad and lower overall crude oil
and condensate average wellhead prices compared to the third
quarter of 1996.
Other marketing activities associated with sales and
purchases of natural gas, natural gas and crude oil price
hedging and trading transactions and margins related to the
volumetric production payment reduced net operating revenues
by $2 million during the third quarter of 1997, compared to
an $18 million increase in the third quarter of 1996. This
decrease reflected revenue reductions of $5 million related
to natural gas commodity price hedging activities in the
third quarter of 1997 compared to a $17 million increase in
the comparable prior period, as well as a decrease in
margins due to higher costs of natural gas delivered in
1997.
COSTS AND EXPENSES
Operating expenses, including taxes other than income
taxes, increased $10 million (24%) in the third quarter of
1997 as compared with the 1996 quarter, primarily due to
continually expanded operations and increases in production
activity.
Depreciation, depletion and amortization (DD&A) expense
increased $12 million (20%), primarily reflecting the
increase in production volumes previously discussed.
CORPORATE AND OTHER
The corporate and other segment realized a loss of $7
million in the third quarter of 1997 compared to IBIT of $3
million in the third quarter of 1996. The third quarter
1996 results include an $11 million gain from the sale of
0.6 million EOG shares held by Enron.
INTEREST AND RELATED CHARGES, NET
Interest and related charges, net increased from $66
million in the third quarter of 1996 to $122 million in the
third quarter of 1997, primarily due to the increase in
debt, including the assumption of $1.1 billion of debt in
connection with the PGC merger and debt incurred for
payments made in connection with the J-Block settlement and
CATS send-or-pay payments.
DIVIDENDS ON COMPANY-OBLIGATED PREFERRED SECURITIES OF
SUBSIDIARIES
Dividends on company-obligated preferred securities of
subsidiaries increased from $8 million in the third quarter
of 1996 to $19 million in the same period of 1997, primarily
due to the issuance of $587 million of additional preferred
securities during 1996 and the first nine months of 1997.
Company-obligated preferred securities of subsidiaries also
increased by $29 million at July 1, 1997 for securities of
PGE.
MINORITY INTERESTS
Minority interests increased to $22 million in the third
quarter of 1997 from $17 million in the comparable prior
period, primarily due to increased earnings from EPP.
INCOME TAX EXPENSE (BENEFIT)
Income taxes decreased during the third quarter of 1997
as compared to the third quarter of 1996 primarily as a
result of decreased pretax income and tax benefits
recognized from differences in financial and tax basis in
assets.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1997
vs. Nine Months Ended September 30, 1996
The following review of Enron's results of operations
should be read in conjunction with the Consolidated
Financial Statements.
CONSOLIDATED NET INCOME
Enron reported a net loss of $64 million ($0.29 per
share) for the first nine months of 1997 compared with net
income of $453 million ($1.79 per share) during the same
period in 1996. Included in the results for the first nine
months of 1997 are non-recurring charges of $675 million
(pretax) primarily to reflect the impact of Enron's amended
J-Block contract and $100 million (pretax) to reflect
depressed MTBE margins on committed production. The capital
and trade resources and international operations and
development segments contributed improved income before
interest, minority interests and income taxes for the nine
months ended September 30, 1997. In addition, results from
Portland General Electric are included in the 1997 period as
a result of the merger effective July 1, 1997 (see Note 4 to
the Consolidated Financial Statements). These increases
were offset by decreased earnings from Gas Pipeline Group,
Ventures Group and the exploration and production segment,
losses realized by the newly formed retail energy services
segment and increased interest and related charges and
dividends on company-obligated preferred securities of
subsidiaries. An income tax benefit partially offset the
effect of the non-recurring charges.
INCOME BEFORE INTEREST, MINORITY INTERESTS AND INCOME TAXES
The following table presents IBIT for each of Enron's
operating segments (in millions).
<TABLE>
<CAPTION>
Nine Months Increase
1997 1996 (Decrease)
<S> <C> <C> <C>
Regulated Operations:
Gas Pipeline Group $381 $393 $ (12)
Portland General Electric 51 - 51
Ventures Group (73) 39 (112)
Capital and Trade Resources 280 224 56
Retail Energy Services (64) - (64)
International Operations and
Development 165 117 48
Exploration and Production 121 156 (35)
Corporate and Other (669) 13 (682)
Total $ 192 $942 $(750)
</TABLE>
REGULATED OPERATIONS
Gas Pipeline Group
Gas Pipeline Group realized a $12 million decrease in
IBIT for the first nine months of 1997 as compared to the
same period in 1996, as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1997 1996
(In Millions)
<S> <C> <C>
Net Revenues $488 $537
Operating Expenses 226 245
Depreciation & Amortization 50 51
Equity in Earnings 29 25
Other Income, Net 140 127
Income Before Interest & Taxes $381 $393
</TABLE>
The following discussion analyzes the significant changes
in the various components of IBIT for Gas Pipeline Group.
NET REVENUES
Revenues, net of cost of sales, of Gas Pipeline Group
decreased $49 million (9%) during the first nine months of
1997 as compared to the same period in 1996. The decrease
primarily reflects the turnback of certain capacity at
Transwestern beginning in November 1996.
COSTS AND EXPENSES
Operating expenses of Gas Pipeline Group decreased by
$19 million (8%) during the first nine months of 1997 as
compared to the same period in 1996. The decrease primarily
reflects a reduction of regulatory surcharges and timing of
field operations expenses at Northern Natural Gas Company.
OTHER INCOME AND DEDUCTIONS
Equity in earnings of unconsolidated subsidiaries
increased by $4 million to $29 million during the first nine
months of 1997 as compared to the same period in 1996,
reflecting increased earnings from Citrus Corp.
Other income, net, increased $13 million to $140 million,
primarily due to gains related to the disposition of non-
strategic natural gas processing and gathering facilities.
Portland General Electric
Portland General Electric contributed $51 million in IBIT
to the nine months 1997 consolidated results, following the
merger on July 1, 1997. See Note 4 to the Consolidated
Financial Statements. For information regarding the
Portland General Electric results, see "Results of
Operations" for the third quarter.
Ventures Group
Ventures Group reported a loss before interest and taxes
of $73 million for the first nine months of 1997, compared
with IBIT of $39 million in the comparable prior year
period. The 1997 results reflect primarily the $100 million
charge to reflect depressed MTBE margins on committed
production. In addition, earnings from EOTT decreased due
to lower crude oil gathering margins in the first nine
months of 1997.
CAPITAL AND TRADE RESOURCES
The capital and trade resources segment reported a $56
million increase in income before interests, minority
interests and income taxes for the nine months ended
September 30, 1997 as compared to the same period in 1996.
The following discussion analyzes the contributions to IBIT
by each of the business lines in this segment.
Statistics for ECT (including intercompany amounts) are
as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1997 1996
<S> <C> <C>
Physical Volumes (Bbtue/d)
Gas:
United States 7,749 6,894
Canada 2,195 1,330
Europe 594 275
10,538 8,499
Transport Volumes 451 537
Total Gas Volumes 10,989 9,036
Oil 600 292
Liquids 1,061 1,187
Total Physical Volumes 12,650 10,515
Electricity Volumes Marketed
(Thousand MWh) 144,185 39,589
Financial Settlements (Notional)
(Bbtue/d) 45,865 33,513
Fixed Price Contract Market Activity
(Tbtue) 1,894 1,407
Production Payments and Financings
Arranged (Millions) $ 434 $ 647
</TABLE>
Cash and physical operations earnings before overhead
expenses were $166 million and $149 million in the first
nine months of 1997 and 1996, respectively. This increase
was primarily attributable to increased earnings from the
management of ECT's European contract portfolio, partially
offset by a decrease in North American commodity marketing
and contract portfolio management.
Earnings before overhead expenses for the risk management
business were $133 million in the first nine months of 1997
and $100 million in the same period in 1996. Earnings from
this unit were generated primarily from originations and
related activities in the European market, partially offset
by lower originations from long-term contracts in North
America for both gas and power.
ECT's finance operations had earnings before overhead
expenses of $79 million in the first nine months of 1997
compared with $56 million for the same period in 1996. The
1997 earnings related primarily to increased earnings from
ECT's investment portfolio and increased activity in the
Canadian market.
ECT's overhead expenses were $98 million in the first
nine months of 1997 and $81 million in the same period in
1996. The increase is primarily due to continued expansion
into new markets and an increased volume of transactions.
RETAIL ENERGY SERVICES
EES reported a loss of $64 million in the first nine
months of 1997 as a result of significant investments in the
product development, regulatory and branding efforts of
positioning EES to compete at the retail level.
INTERNATIONAL OPERATIONS AND DEVELOPMENT
The international operations and development segment's
IBIT increased $48 million in the first nine months of 1997
compared to the same period in 1996, as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1997 1996
(In Millions)
<S> <C> <C>
Net Revenues $176 $ 94
Operating Expenses 84 60
Equity in Earnings 59 65
Other Income, Net 14 18
Income Before Interest & Taxes $165 $117
</TABLE>
The following discussion analyzes the significant changes
in the segment's results.
NET REVENUES
Revenues, net of cost of sales, for the international
operations and development segment increased by $82 million
(87%) in the first nine months of 1997 as compared with
1996. This increase primarily resulted from an increase in
earnings from EI's portfolio of capital investments,
increased international merchant activities and earnings
from the development of the Guam power project. The
increase also reflects management fees earned in connection
with operation of power plants, which previously had been
reported in the capital and trade resources segment.
COSTS AND EXPENSES
Operating expenses increased $24 million (40%) during the
first nine months of 1997 as compared to the first nine
months of 1996 due primarily to expenses related to the
operation of power plants, which previously had been
reported in the capital and trade resources segment.
OTHER INCOME AND DEDUCTIONS
Equity in earnings of unconsolidated subsidiaries
decreased $6 million to $59 million in the first nine months
of 1997, primarily as a result of the 1996 sale of a portion
of Enron's interest in Teesside, partially offset by
earnings from Enron's increased ownership of CIESA.
EXPLORATION AND PRODUCTION
The exploration and production segment's IBIT decreased
to $121 million in the first nine months of 1997 from $156
million in the same period of 1996, as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1997 1996
(In Millions)
<S> <C> <C>
Net Revenues $545 $533
Operating Expenses 155 131
Oil & Gas Exploration Expenses 68 62
Depreciation, Depletion & Amortization 204 182
Other Income (Expense), Net 3 (2)
Income Before Interest, Minority
Interest & Taxes $121 $156
</TABLE>
The following discussion analyzes the significant changes
in the segment's results.
Wellhead volume and price statistics (including
intercompany amounts) are as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1997 1996
<S> <C> <C>
Natural Gas Volumes (MMcf/d)
North America (1) 756 695
Trinidad 114 126
India 11 -
Total 881 821
Average Natural Gas Prices ($/Mcf)
North America (2) $2.09 $1.72
Trinidad 1.04 1.00
India 2.93 -
Composite 1.96 1.61
Crude Oil/Condensate Volumes (MBbl/d)
North America 13.8 11.0
Trinidad 3.5 5.6
India 1.8 2.8
Total 19.1 19.4
Average Crude Oil/Condensate Prices ($/Bbl)
North America $19.72 $20.09
Trinidad 18.88 18.95
India 20.78 19.09
Composite 19.66 19.62
<FN>
(1) Includes 48 MMcf per day for the nine-month periods ended
September 30, 1997 and 1996 delivered under the terms of
a volumetric production payment agreement effective
October 1, 1992, as amended.
(2) Includes an average equivalent wellhead value of
$1.61/Mcf and $0.86/Mcf for the nine-month periods ended
September 30, 1997 and 1996, respectively, for the
volumes described in note (1), net of transportation
costs.
</TABLE>
NET REVENUES
The exploration and production segment's revenues, net of
cost of gas sold, increased $12 million (2%) during the
first nine months of 1997 as compared to the same period in
1996. Wellhead revenues increased 24% to $587 million in
the first nine months of 1997 as compared to $472 million in
the same period of 1996. This increase primarily reflects
increased average wellhead prices for natural gas, crude oil
and condensate and natural gas liquids and increased North
America volumes compared to the first nine months of 1996.
Other marketing activities associated with sales and
purchases of natural gas, natural gas and crude oil price
hedging and trading transactions and margins related to the
volumetric production payment reduced net operating revenues
by $55 million during the first nine months of 1997,
compared to a $29 million increase in the first nine months
of 1996. This decrease reflected revenue reductions of $47
million related to natural gas commodity price hedging
activities in the first nine months of 1997 compared to a
$17 million increase in the comparable prior period, as well
as a decrease in margins due to higher costs of natural gas
delivered in 1997.
COSTS AND EXPENSES
Operating expenses, including taxes other than income
taxes, for the exploration and production segment increased
$24 million (18%) during the first nine months of 1997 as
compared to the same period in 1996, primarily reflecting
continually expanding operations and increases in production
activity.
DD&A expense increased $22 million (12%) primarily
reflecting increased North America production volumes.
CORPORATE AND OTHER
The corporate and other segment's IBIT before non-
recurring charges decreased $7 million to $6 million in the
first nine months of 1997 as compared to the first nine
months of 1996. As discussed in Note 5 to the Consolidated
Financial Statements, included in the results for the first
nine months of 1997 is a non-recurring charge of $675
million, primarily reflecting the impact of Enron's amended
J-Block contract in the U.K. The 1996 amount includes gains
of $56 million related to the sale of 3.2 million shares of
EOG stock held by Enron, partially offset by a $25 million
reserve established for litigation contingencies.
INTEREST AND RELATED CHARGES, NET
Interest and related charges, net, increased $71 million
in the first nine months of 1997 compared to the same period
a year ago, primarily due to the increase in debt, including
the assumption of $1.1 billion debt in the PGC merger and
debt incurred for payments made in connection with the J-
Block settlement and CATS send-or-pay payments.
DIVIDENDS ON COMPANY-OBLIGATED PREFERRED SECURITIES OF
SUBSIDIARIES
Dividends on company-obligated preferred securities of
subsidiaries increased from $24 million in the first nine
months of 1996 to $50 million in the same period of 1997,
primarily due to the issuance of $587 million of additional
preferred securities during 1996 and the first nine months
of 1997. Company-obligated preferred securities of
subsidiaries also increased by $29 million at July 1, 1997
for securities of PGE.
MINORITY INTERESTS
Minority interests increased $3 million in the first nine
months of 1997 from the comparable 1996 period, resulting
from higher net income from EPP, partially offset by lower
net income from EOG.
INCOME TAX EXPENSE (BENEFIT)
Income taxes decreased during the first nine months of
1997 compared with the same period of 1996 primarily as a
result of pretax losses due to the non-recurring charges for
the restructuring of Enron's J-Block contract and for
depressed MTBE margins on committed production.
FINANCIAL CONDITION
Cash used in operating activities totaled $588 million
during the first nine months of 1997 as compared to $486
million provided during the same period last year. The 1997
amount reflects payments made in connection with the J-Block
settlement and higher working capital requirements.
Partially offsetting the impact of these payments were lower
funds used in price risk management activities.
Cash used in investing activities totaled $1,496 million
during the first nine months of 1997 as compared to $892
million during the same period in 1996. The increase
primarily reflects increased capital expenditures in the
exploration and production segment, reflecting increased
acquisitions and developmental drilling activities in North
America, as well as CATS send-or-pay payments.
Cash provided by financing activities totaled $2,022
million during the first nine months of 1997 as compared to
$396 million during the same period in 1996. During the
first nine months of 1997, net issuances of debt totaled
$2,363 million. Additionally, $372 million of company-
obligated preferred securities of subsidiaries were issued.
Proceeds from these issuances were used primarily to fund
payments made in connection with the J-Block settlement and
CATS send-or-pay payments and for capital and other
expenditures. These amounts were partially offset by net
repurchases of $396 million of Enron and EOG common stock in
the open market during the first nine months of 1997.
Enron is able to fund its normal working capital
requirements mainly through operations or, when necessary,
through the utilization of credit facilities and its ability
to sell commercial paper and accounts receivable.
On August 18, 1997, Enron and the Oversight Committee of
the Board of Directors of EPP agreed to a merger whereby
Enron would purchase all outstanding EPP common shares not
already owned by Enron. Under the proposal, the
shareholders of EPP other than Enron would receive Enron
common stock having a market value (based on the average
trading price of Enron common stock for a 20 trading day
period prior to the completion of the merger) of $35 per
share. The merger proposal has been sent to, and will be
submitted to a vote at a meeting of, the EPP shareholders,
which meeting is scheduled for November 18, 1997.
A lawsuit was filed on November 10, 1997 by one of EPP's
shareholders seeking to enjoin the merger with Enron. EPP
and Enron believe that the lawsuit is without merit and does
not take into consideration the lengthy and careful arm's
length negotiating process which led to the approval of the
merger agreement by a unanimous vote of EPP's independent
Oversight Committee, which is composed of independent
directors on EPP's board. EPP and Enron intend to
vigorously defend against the allegations in the litigation.
Total capitalization at September 30, 1997 was $13.7
billion. Debt as a percentage of total capitalization was
50.5% at September 30, 1997 as compared to 39.8% at year-end
1996 and 46.8% at June 30, 1997. The increase primarily
reflects increased debt, partially offset by the issuance of
50.5 million common shares in connection with the PGC merger
(see Note 4 to the Consolidated Financial Statements).
Assuming the mandatory conversion in late 1998 of 10.5 million
Exchangeable Notes into EOG shares held by Enron, the pro
forma debt to capitalization percentage would be
approximately 49.4% at September 30, 1997.
INFORMATION REGARDING FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes forward
looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Although Enron believes that its
expectations are based on reasonable assumptions, it can
give no assurance that its goals will be achieved. Important
factors that could cause actual results to differ materially
from those in the forward looking statements herein include
political developments in foreign countries, the pace of
deregulation of retail natural gas and electricity markets
in the United States, the timing and extent of changes in
commodity prices for crude oil, natural gas, electricity and
interest rates, the extent of EOG's success in acquiring oil
and gas properties and in discovering, developing and
producing reserves, the timing and success of Enron's
efforts to develop international power, pipeline and other
infrastructure projects and conditions of the capital
markets and equity markets during the periods covered by the
forward looking statements.
<PAGE>
PART II. OTHER INFORMATION
ENRON CORP. AND SUBSIDIARIES
ITEM 1. Legal Proceedings
See Part I. Item 1, Note 3 to Consolidated Financial
Statements entitled "Litigation and Contingencies," which is
incorporated herein by reference.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit 10 Remarketing Agreement, dated as of November 6,
1997, by and between Enron Corp. and Merrill
Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated
Exhibit 11 Calculation of Earnings Per Share
Exhibit 12 Computation of Ratio of Earnings to Fixed Charges
(b) Reports on Form 8-K
Current Report on Form 8-K filed July 15, 1997 to
report the completion of the merger with Portland
General Corporation as of July 1, 1997.
Current Report on Form 8-K filed August 29, 1997 to
present June 30, 1997 pro formas for the merger with
Portland General Corporation as of July 1, 1997.
Current Report on Form 8-K filed September 17, 1997 to
include financial statements of Portland General
Corporation as of June 30, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
ENRON CORP.
(Registrant)
Date: November 13, 1997 By: RICHARD A. CAUSEY
Richard A. Causey
Senior Vice President and Chief
Accounting and Information Officer
(Principal Accounting Officer)
<PAGE>
REMARKETING AGREEMENT
REMARKETING AGREEMENT, dated as of November 6, 1997 (the
"Remarketing Agreement"), by and between Enron Corp. (the
"Company") and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("Merrill Lynch").
WHEREAS, the Company will issue $200,000,000 aggregate
principal amount of Remarketed Reset Notes due November 15, 2037
(the "Notes"), such Notes to be issued under the indenture dated
as of November 1, 1985, as supplemented and amended (the
"Indenture"), by and between the Company and Harris Trust and
Savings Bank, as trustee (the "Trustee"); and
WHEREAS, the Notes are to be initially offered to the public
through Merrill Lynch; and
WHEREAS, the Company has requested Merrill Lynch to act as
Remarketing Underwriter (as defined in Section 2(a) hereof) in
connection with the Notes, and as such to perform the services
described herein; and
WHEREAS, Merrill Lynch is willing to act as Remarketing
Underwriter in connection with the Notes, and as such to perform
such duties on the terms and conditions expressly set forth
herein.
NOW, THEREFORE, for and in consideration of the covenants
herein made, and subject to the conditions herein set forth, the
parties hereto agree as follows:
Section 1. Definitions. Capitalized terms used and
not defined in this Agreement shall have the respective meanings
assigned to them in the Notes or, if not therein stated, in the
Indenture relating to the offering of the Notes.
Section 2. Appointment and Obligations of Merrill
Lynch. (a) The Company hereby appoints Merrill Lynch, and
Merrill Lynch hereby accepts such appointment, as the exclusive
remarketing underwriter (the "Remarketing Underwriter") for the
purpose of (x) recommending to the Company the Spread for each
Subsequent Spread Period that, in the opinion of the Remarketing
Underwriter, will enable the Remarketing Underwriter to remarket,
for delivery on the Tender Date, tendered Notes at 100% of the
principal amount thereof, (y) if the Company and the Remarketing
Underwriter agree on the Spread referred to in (x) above,
entering into a remarketing underwriting agreement (each, a
"Remarketing Underwriting Agreement") with the Company,
substantially in the form attached hereto as Exhibit A, pursuant
to which the Remarketing Underwriter will agree to purchase the
Notes tendered by the beneficial owners thereof (the "Beneficial
Owners") and remarket such Notes (each such purchase and
remarketing being hereinafter referred to as a "Remarketing"),
and (z) performing such other duties as are assigned to the
Remarketing Underwriter in the Notes and/or the Indenture and/or
the applicable Remarketing Underwriting Agreement.
Section 3. Fees and Expenses. The obligations of the
Company to pay to the Remarketing Underwriter on each Tender Date
the fees and expenses set forth in the applicable Remarketing
Underwriting Agreement shall survive the termination of this
Agreement and remain in full force and effect until all such
payments shall have been made in full.
Section 4. Removal of the Remarketing Underwriter. With
respect to any Subsequent Spread Period, the Company may in its
absolute discretion remove the Remarketing Underwriter by giving
notice to the Remarketing Underwriter prior to 3:00 p.m., New
York City time, on the Duration/Mode Determination Date
applicable thereto, such removal to be effective upon the
Company's appointment of a successor Remarketing Underwriter. In
such case, the Company will use its best efforts to appoint a
successor Remarketing Underwriter and enter into such a
remarketing agreement with such persons as soon as reasonably
practicable.
Section 5. Dealing in the Notes. Subject to its
compliance with applicable laws and regulations, Merrill Lynch,
when acting as Remarketing Underwriter or in its individual or
any other capacity, may buy, sell, hold and deal in any of the
Notes. Merrill Lynch may exercise any vote or join in any action
which any Beneficial Owner of Notes may be entitled to exercise
or take with like effect as if it did not act in any capacity
hereunder. Merrill Lynch, in its individual capacity, either as
principal or agent, may also engage in or have an interest in any
financial or other transaction with the Company as freely as if
it did not act in any capacity hereunder. Likewise, it or any
affiliate thereof may act as the "Reference Treasury Dealer" as
defined in the Company's Prospectus Supplement, dated November 6,
1997, relating to the Notes.
Section 6. Current Prospectus. If Merrill Lynch
determines, based on advice of counsel, that changes in
applicable law, regulations or interpretations of the Securities
and Exchange Commission make it necessary or advisable to deliver
a current prospectus in connection with a Remarketing, the
Company shall furnish a current prospectus to be used by the
Remarketing Underwriter in such Remarketing.
Section 7. Representations and Warranties by the
Company. The Company represents and warrants to Merrill Lynch,
as of the date hereof, and as of each Tender Date as follows:
(a) Financial Statements. The financial statements of
the Company included in the Company's most recently filed
Annual Report on Form 10-K and Quarterly Reports on Form
10-Q, if any (the "34 Act Documents"), together with the
related schedules and notes, as well as those financial
statements, schedules and notes of any other entity included
therein, if any, present fairly the financial position of
the Company and its consolidated subsidiaries, or such other
entity, as the case may be, at the dates indicated and the
statement of operations, stockholders' equity and cash flows
of the Company and its consolidated subsidiaries, or such
other entity, as the case may be, for the periods specified.
Such financial statements have been prepared in conformity
with generally accepted accounting principles ("GAAP")
applied on a consistent basis throughout the periods
involved, except as otherwise disclosed in such financial
statements or the notes thereto. The supporting schedules,
if any, included in the Company's 34 Act Documents present
fairly in accordance with GAAP the information required to
be stated therein. The selected financial data and the
summary financial information, if any, included in the
Company's 34 Act Documents present fairly the information
shown therein and have been compiled on a basis consistent
with that of the audited financial statements included in
the Company's 34 Act Documents. In addition, any pro forma
financial statements of the Company and its subsidiaries and
the related notes thereto included in the Company's 34 Act
Documents present fairly the information shown therein, have
been prepared in accordance with the Commission's rules and
guidelines with respect to pro forma financial statements
and have been properly compiled on the basis described
therein, and the assumptions used in the preparation thereof
are reasonable and the adjustments used therein are
appropriate to give effect to the transactions and
circumstances referred to therein.
(b) No Material Adverse Change in Business. Since the
respective dates as of which information is given in the
Company's 34 Act Documents, except as otherwise stated
therein, (A) there has been no material adverse change in
the business, consolidated financial position or
consolidated results of operations of the Company and its
subsidiaries considered as one enterprise (a "Material
Adverse Effect"), (B) there have been no transactions
entered into by the Company or any of its subsidiaries,
other than those arising in the ordinary course of business,
which are materially adverse with respect to the Company and
its subsidiaries considered as one enterprise and (C) except
for regular distributions on the Company's common or
preferred shares of beneficial interest, in amounts per
share that are consistent with past practice or the
applicable declaration of trust document or supplement
thereto, respectively, there has been no dividend or
distribution of any kind declared, paid or made by the
Company on any class of its capital shares.
(c) Good Standing of the Company. The Company has
been duly organized and is validly existing as a corporation
in good standing under the laws of the State of Oregon and
has the corporate power and authority to own and lease its
properties and to conduct its business as described in the
Company's 34 Act Documents and to enter into and perform its
obligations under, or as contemplated under, this
Remarketing Agreement and the Remarketing Underwriting
Agreement. The Company is duly qualified as a foreign
corporation to transact business and is in good standing in
each other jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the
failure to so qualify or be in good standing would not
result in a Material Adverse Effect.
(d) Good Standing of Subsidiaries. Each "significant
subsidiary" of the Company (as such term is defined in Rule
1-02 of Regulation S-X promulgated under the 1933 Act)
(each, a "Subsidiary" and, collectively, the
"Subsidiaries"), if any, has been duly organized and is
validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, has corporate
power and authority to own, lease and operate its properties
and to conduct its business as described in the Company's 34
Act Documents and is duly qualified as a foreign corporation
to transact business and is in good standing in each
jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of property or
the conduct of business, except where the failure to so
qualify or be in good standing would not result in a
Material Adverse Effect. Except as otherwise stated in the
Company's 34 Act Documents, all of the issued and
outstanding capital stock of each Subsidiary owned by the
Company, directly or through subsidiaries, has been duly
authorized and is validly issued, fully paid and non-
assessable and is owned by the Company, directly or through
subsidiaries, free and clear of any security interest,
mortgage, pledge, lien, encumbrance, claim or equity. None
of the outstanding shares of capital stock of any Subsidiary
was issued in violation of preemptive or other similar
rights of any securityholder of such Subsidiary.
(e) Capitalization. If the Prospectus contains a
"Capitalization" section, the authorized, issued and
outstanding capital shares of the Company is as may be set
forth in such section, or in the Company's financial
statements incorporated by reference in such Prospectus
(except for subsequent issuances thereof, if any,
contemplated pursuant to reservations, agreements or
employee benefit plans or pursuant to the exercise of
convertible securities or options). Such capital shares
have been duly authorized and validly issued by the Company
and are fully paid and non-assessable, and none of such
capital shares were issued in violation of preemptive or
other similar rights of any securityholder of the Company.
(f) Authorization of this Remarketing Agreement and
the Remarketing Underwriting Agreement. This Remarketing
Agreement and the Remarketing Underwriting Agreement have
been duly authorized, executed and delivered by the Company.
(g) Authorization of Notes. The Notes have been duly
authorized by the Company for issuance and sale pursuant to
the Underwriting Agreement. Such Notes, when issued and
authenticated in the manner provided for in the Indenture
and delivered against payment of the consideration therefor
specified in the Underwriting Agreement, will constitute
valid and legally binding obligations of the Company,
entitled to the benefits of the Indenture and enforceable
against the Company in accordance with their terms, except
as the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by
general equitable principles.
(h) Authorization of the Indenture. The Indenture has
been duly authorized, executed and delivered by the Company
and, assuming due authorization, execution and delivery by
the Trustee, constitutes a valid and legally binding
agreement of the Company, enforceable against the Company in
accordance with its terms, except as the enforcement thereof
may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable
principles.
(i) Descriptions of the Notes. The Notes being sold
pursuant to this Agreement conform in all material respects
to the statements relating thereto contained in the
Prospectus and will be in substantially the form filed or
incorporated by reference, as the case may be, as an exhibit
to the Registration Statement.
(j) Absence of Defaults and Conflicts. Neither the
Company nor any of its subsidiaries is in violation of its
charter or by-laws or in default in the performance or
observance of any obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage,
deed of trust, loan or credit agreement, note, lease or
other agreement or instrument to which the Company or any of
its subsidiaries is a party or by which it or any of them
may be bound, or to which any of the property or assets of
the Company or any of its subsidiaries is subject
(collectively, "Agreements and Instruments"), except for
such defaults that would not result in a Material Adverse
Effect. The execution, delivery and performance of this
Remarketing Agreement and the Remarketing Underwriting
Agreement, the Indenture, and any other agreement or
instrument entered into or issued or to be entered into or
issued by the Company in connection with the transactions
contemplated hereby or thereby and the consummation of the
transactions contemplated herein or therein (including the
issuance and sale of the Notes and the use of the proceeds
from the sale thereof as described under the caption "Use of
Proceeds") and compliance by the Company with its
obligations hereunder and thereunder have been duly
authorized by all necessary corporate action, and do not and
will not, whether with or without the giving of notice or
passage of time or both, conflict with or constitute a
breach of, or default or Repayment Event (as defined below)
under, or result in the creation or imposition of any lien,
charge or encumbrance upon any assets, properties or
operations of the Company or any of its subsidiaries
pursuant to, any Agreements and Instruments (except for such
conflicts, breaches, defaults, events or liens, charges or
encumbrances that would not result in a Material Adverse
Effect) nor will such action result in any violation of the
provisions of the charter or by-laws of the Company or any
of its subsidiaries or any applicable law, statute, rule,
regulation, judgment, order, writ or decree of any
government, government instrumentality or court, domestic or
foreign, having jurisdiction over the Company or any of its
subsidiaries or any of their assets, properties or
operations. As used herein, a "Repayment Event" means any
event or condition which gives the holder of any note,
debenture or other evidence of indebtedness (or any person
acting on such holder's behalf) the right to require the
repurchase, redemption or repayment of all or a portion of
such indebtedness by the Company or any of its subsidiaries.
(k) Absence of Labor Disputes. No labor dispute with
the employees of the Company or any of its subsidiaries
exists, or to the knowledge of the Company, is imminent,
which, in either case, may reasonably be expected to result
in a Material Adverse Effect.
(l) Absence of Proceedings. Except as described in
the Company's 34 Act Documents, there is not pending or
threatened any action, suit, proceeding, inquiry or
investigation before or brought by any court or governmental
agency or body, domestic or foreign, now pending, or to the
knowledge of the Company threatened, against or affecting
the Company or any of its subsidiaries which is required to
be disclosed in the Company's 34 Act Documents (other than
as stated therein), or which might reasonably be expected to
result in a Material Adverse Effect, or which might
reasonably be expected to materially and adversely affect
the assets, properties or operations thereof or the
consummation of the transactions contemplated under this
Remarketing Agreement or the Remarketing Underwriting
Agreement or the Indenture or the performance by the Company
of its obligations hereunder and thereunder.
(m) Absence of Further Requirements. No filing with,
or authorization, approval, consent, license, order,
registration, qualification or decree of, any court or
governmental authority or agency, domestic or foreign,
having jurisdiction over the Company is required for the
performance by the Company of its obligations under this
Remarketing Agreement or the Remarketing Underwriting
Agreement or in connection with the transactions
contemplated under this Remarketing Agreement or the
Remarketing Underwriting Agreement or the Indenture, except
such as have been already obtained or as may be required
under state securities laws.
(n) Title to Property. The Company and its
subsidiaries have good and indefeasible title to all real
property owned by the Company and its subsidiaries, in each
case, free and clear of all mortgages, pledges, liens,
security interests, claims, restrictions or encumbrances of
any kind, except (A) as otherwise stated in the Company's 34
Act Documents or (B) those which do not, singly or in the
aggregate, materially affect the value of such property and
do not interfere with the use made and proposed to be made
of such property by the Company or any of its subsidiaries.
All of the leases and subleases material to the business of
the Company and its subsidiaries considered as one
enterprise, and under which the Company or any of its
subsidiaries holds properties described in the Company's 34
Act Documents, are in full force and effect, and neither the
Company nor any of its subsidiaries has received any notice
of any material claim that has been asserted by anyone
adverse to the rights of the Company or any of its
subsidiaries under any of the leases or subleases mentioned
above, or affecting or questioning the rights of the Company
or such subsidiary of the continued possession of the leased
or subleased premises under any such lease or sublease.
(o) Investment Company Act. The Company is not, and
upon the sale of the Notes on the Tender Date as herein
contemplated and the application of the net proceeds
therefrom will not be, an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
(p) Public Utility Holding Company Act. The Company
is not subject to, or is exempt from, regulation as a
"holding company" under the Public Utility Holding Company
Act of 1935, as amended.
(q) Officers' Certificates. Any certificate signed by
any officer of the Company or any of its subsidiaries and
delivered to any Underwriter or to counsel for the
Underwriters in connection with the offering of the Notes
shall be deemed a representation and warranty by the Company
to each Underwriter as to the matters covered thereby on the
date of such certificate and, unless subsequently amended or
supplemented, at each Closing Date subsequent thereto.
Section 8. Conditions to the Remarketing Underwriter's
Obligations. The obligations of the Remarketing Underwriter to
purchase and remarket the Notes shall be subject to the terms and
conditions of the applicable Remarketing Underwriting Agreement.
Section 9. Termination of this Remarketing Agreement.
Subject to Section 3 hereof relating to the payment of fees and
expenses, this Agreement shall terminate as to the Remarketing
Underwriter on the effective date of the removal of such
Remarketing Underwriter pursuant to Section 4 hereof.
Section 10. Remarketing Underwriter's Performance; Duty
of Care. The duties and obligations of the Remarketing
Underwriter hereunder shall be determined solely by the express
provisions of this Agreement and the Notes and the Indenture and
the applicable Remarketing Underwriting Agreement.
Section 11. GOVERNING LAW. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE
PERFORMED IN SUCH STATE.
Section 12. Term of Agreement. Unless otherwise
terminated in accordance with the provisions hereof, this
Agreement shall remain in full force and effect from the date
hereof until the first day thereafter on which no Notes are
outstanding.
Section 13. Successors and Assigns. The rights and
obligations of the Company hereunder may not be assigned or
delegated to any other person without the prior written consent
of Merrill Lynch, the rights and obligations of Merrill Lynch
hereunder may not be assigned or delegated to any other person
without the prior written consent of the Company, and any attempt
by either party to do so will be unenforceable. This Agreement
shall inure to the benefit of and be binding upon the Company and
Merrill Lynch and their respective permitted successors and
assigns. The terms "successors" and "assigns" shall not include
any purchaser of any Notes merely because of such purchase.
Section 14. Headings. Section headings have been
inserted in this Agreement as a matter of convenience of
reference only, and it is agreed that such section headings are
not a part of this Agreement and will not be used in the
interpretation of any provisions of this Agreement.
Section 15. Severability. If any provision of this
Agreement shall be held or deemed to be or shall, in fact, be
invalid, inoperative or unenforceable as applied in any
particular case in any or all jurisdictions because it conflicts
with any provision of any constitution, statute, rule or public
policy or for any other reason, such circumstances shall not have
the effect of rendering the provision in question invalid,
inoperative or unenforceable in any other case, circumstances or
jurisdiction, or of rendering any other provision or provisions
of this Agreement invalid, inoperative or unenforceable to any
extent whatsoever.
Section 16. Counterparts. This Agreement may be executed
in several counterparts, each of which shall be regarded as an
original and all of which shall constitute one and the same
document.
Section 17. Amendments. This Agreement may be amended by
any instrument in writing signed by each of the parties hereto.
Section 18. Notices. Unless otherwise specified, any
notices, requests, consents or other communications given or made
hereunder or pursuant hereto shall be made in writing or
transmitted by any standard form of telecommunication or by
telephone and confirmed in writing. All written notices shall be
deemed to be validly given or made, if delivered by hand, when so
delivered, or if mailed, when mailed registered or certified
mail, return receipt requested and postage prepaid. All notices
by telecommunication (including telephone) shall be deemed to be
validly given or made when received. All such notices, requests,
consents or other communications shall be addressed as follows:
if to the Company, to 1400 Smith Street, Houston, Texas 77002,
Attention: William D. Gathmann, Vice President, Finance and
Treasurer, Facsimile No. (713) 646-5930; and if to Merrill Lynch,
to Merrill Lynch, Pierce, Fenner & Smith Incorporated, Merrill
Lynch World Headquarters, World Financial Center, North Tower,
New York, New York 10281-1209, Attention: Debt Syndicate, or to
such other address as either of the above shall specify to the
other in writing.
Section 19. Benefit. Nothing in this Agreement, express
or implied, is intended or shall be construed to confer upon or
give any person other than the parties hereto any remedy or claim
under or by reason of this Agreement or any term, covenant or
condition hereof, all of which shall be for the sole and
exclusive benefit of the parties.
IN WITNESS WHEREOF, each of the Company and Merrill Lynch
has caused this Agreement to be executed in its name and on its
behalf by one of its duly authorized officers as of the date
first above written.
ENRON CORP.
By: RICHARD A. CAUSEY
Name: Richard A. Causey
Title: Senior Vice President
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: DAVID MILLER
Name: David Miller
Title: Vice President
<PAGE>
EXHIBIT A
REMARKETING UNDERWRITING AGREEMENT
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated (the "Remarketing Underwriter") hereby agrees to
purchase the Notes described below (the "Notes") that have been
tendered by the holders thereof for sale on ___________ __, ____
(the "Tender Date").
It is acknowledged and agreed that the Notes need not be
further registered under the Securities Act of 1933, as amended
(the "Act"), and that, in connection with the remarketing of the
Notes by the Remarketing Underwriter in accordance with the terms
of the Remarketing Agreement dated November 6, 1997, no
prospectus meeting the requirements of Section 10 of the Act need
be delivered, or filed pursuant to Rule 424 under the Act.
It is understood that the Remarketing Underwriter will
deliver to purchasers and prospective purchasers, in connection
with the remarketing, one or more forms of written communication
describing the terms of the Notes (each, a "Remarketing
Memorandum"), the form of each of which shall be delivered to
Enron Corp. (the "Company") not less than two Business Days prior
to its use and subject to the approval of the Company prior to
its use by the Remarketing Underwriter, which approval shall not
be unreasonably withheld or delayed.
The Remarketing Underwriter shall offer to purchase Notes
and purchase validly tendered Notes on the Tender Date in
accordance with all applicable laws and regulations and
interpretations of the Securities and Exchange Commission.
The representations and warranties made pursuant to the
above-referenced Remarketing Agreement (other than paragraphs (g)
and (h)); Section 6(l) of the attached Underwriting Agreement
(which dates shall be the date of the Remarketing Underwriting
Agreement and the Closing Date for the relevant Tender Date);
Section 9 of the attached Underwriting Agreement (except that
Section 9 is amended to allow termination of this Agreement by
the Underwriter if the Company's representations and warranties
therein are not accurate and correct); paragraphs (c), (e) and
(h) of Section 5 of the attached Underwriting Agreement; and
Section 11 of the attached Underwriting Agreement are
incorporated in their entirety into this Agreement and made
applicable to the obligations of the Remarketing Underwriter to
the extent applicable to any remarketing of the Notes, except as
explicitly amended hereby. The terms "Registration Statement"
and "Prospectus" shall be deemed to refer to each such document
as amended to the date hereof and the Tender Date, and the term
"Incorporated Documents" shall similarly be deemed to include
those filed and incorporated by reference through such dates.
If the Remarketing Underwriter determines, based on advice
of counsel, that changes in applicable law, regulations or
interpretations of the Securities and Exchange Commission make it
necessary or advisable to deliver a current prospectus in
connection with this Remarketing, the attached Underwriting
Agreement shall apply in its entirety. All references in such
Underwriting Agreement to (i) the "Underwriter" shall be deemed
to refer to the Remarketing Underwriter, (ii) the "Purchased
Securities" shall be deemed to refer to the Notes, (iii) the
Underwriting Agreement shall be deemed to refer to the
Remarketing Underwriting Agreement, and (iv) "Closing Date"
shall be deemed to refer to the Tender Date. To the extent the
provisions of such Underwriting Agreement refer to the
"Prospectus" or the "Registration Statement," such references
shall be deemed to refer to any Remarketing Memorandum or
registration statement, if any, that the Company is required to
prepare or file pursuant to applicable law, regulations or
interpretations of the Securities and Exchange Commission in
effect at the time of such remarketing of the Notes, including
all documents incorporated by reference therein. For the
purposes of Section 8 of the attached Underwriting Agreement, the
relative benefit received by the Company on the one hand and the
Remarketing Underwriter on the other in connection with the
remarketing of the Notes pursuant to this Agreement shall be
deemed to be in the same respective proportions as the aggregate
public offering price of the Notes bears to the remarketing fee
received by the Remarketing Underwriter pursuant to this
Agreement.
All capitalized terms not otherwise defined in this
Agreement have the respective meanings assigned thereto in the
Notes, the form of which is attached hereto.
Company: Enron Corp.
1400 Smith Street
Houston, Texas 77002
Remarketing Underwriter and Merrill Lynch & Co.
Address: Merrill Lynch, Pierce, Fenner
& Smith Incorporated
Merrill Lynch World
Headquarters
World Financial Center
North Tower, 26th Floor
New York, New York 10281-1209
Title of Notes: Remarketed Reset Notes due
November 15, 2037
Principal Amount of Notes to
be Purchased:
Title of Indenture: Indenture dated as of
November 15, 1985, as
supplemented and amended, by
and between the Company and
the Trustee
Trustee: Harris Trust and Savings Bank
Current Ratings: Moody's Investors Service Inc.:
Standard & Poor's Corporation:
Duff & Phelps, Inc.:
Certain Terms of the Notes:
Maturity: November 15, 2037
Spread Determination Date:
Duration/Mode Determination
Date:
Tender Notice Date:
Interest Reset Dates:
Tender Date:
New Interest Rate: As determined by application
of the provisions set forth in
the attached form of the Notes
on the LIBOR Determination
Date or the Fixed Rate
Determination Date, as
applicable.
Spread:
Interest Payment Dates:
Subsequent Spread Period:
Redemption Provisions:
Beneficial Owner Tender As set forth in the attached
Provisions: Prospectus Supplement dated
November 6, 1997. In the
event that the Remarketing
Underwriter fails to purchase
all Notes validly tendered for
purchase on the Tender Date,
then the Remarketing
Underwriter shall promptly
notify the Company and the
Trustee of such failure.
Shorter Subsequent Spread In the event that (A) the
Period: Remarketing Underwriter fails
to purchase all Notes validly
tendered for purchase on the
Tender Date for any reason,
and (B) the Company has not
given notice of redemption of
all of the Notes then
outstanding in accordance with
the provisions described in
the attached form of the
Notes, then the Subsequent
Spread Period shall be a
period of one year, which
Subsequent Spread Period shall
be deemed to have commenced
upon the Commencement Date
that coincides with the Tender
Date.
Legal Opinion: If required to be delivered
pursuant to this Remarketing
Underwriting Agreement, the
opinion to be delivered
pursuant to Section 5(f) of
the attached Underwriting
Agreement shall be modified to
read as follows: "the Notes
have been duly authorized; a
single global Note registered
in the name of CEDE & Co., a
nominee of The Depository
Trust Company ("DTC"), has
been duly authenticated in
accordance with the provisions
of the Indenture, paid for and
delivered to DTC, and
constitutes a valid and
binding obligation of the
Company; and the Underwriter
will acquire the rights of a
bona fide purchaser (as such
terms are defined in the
Uniform Commercial Code as in
effect in the State of New
York (the "UCC")) in any
portion of the Notes
transferred to the Underwriter
by a prior owner thereof as
recorded on the books of DTC,
provided that (i) the portion
of the Notes transferred is an
authorized denomination of the
Notes, (ii) the transfer is
recorded on the books of DTC
by a debit to the transferor's
account with DTC and a credit
to the Underwriter's account
with DTC, (iii) the
Underwriter makes payment to
such transferor of value for
such transfer and (iv) the
Underwriter purchases such
interest in good faith and
without notice of any adverse
claim, within the meaning of
the UCC.
If required to be delivered
pursuant to this Remarketing
Underwriting Agreement, the
opinion to be delivered
pursuant to Section 5(g) of
the attached Underwriting
Agreement may be delivered by
any counsel designated by the
Remarketing Underwriter and
reasonably acceptable to the
Company.
Form of Notes: Global certificate registered
in the name of the nominee,
which currently is CEDE & Co.,
of the depository of the
Notes, which is DTC. The
beneficial owners of the Notes
("Beneficial Owners") are not
entitled to receive definitive
certificates representing
their Notes, except under
limited circumstances. A
Beneficial Owner's ownership
of a Note currently is
recorded on or through the
records of the brokerage firm
or other entity that is a
participant in DTC and that
maintains such Beneficial
Owner's account.
Purchase Price:
100% of the principal amount _____% of the principal amount
of the Notes. Payable to DTC of the Notes outstanding on
for the Beneficial Owners of each Tender Date multiplied by
Tendered Notes.Remarketing the number of years remaining
Fee: in the Stated Maturity.
Closing: Bracewell & Patterson, L.L.P.,
711 Louisiana Street, Suite
2900, Houston, Texas 77002 at
9:00 a.m., Houston, Texas
time, on the Tender Date.
The foregoing terms are hereby confirmed and agreed to as of
this ____ day of ___________, ____.
ENRON CORP.
By:
Name:
Title:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By:
Name:
Title:
<PAGE>
Exhibit 11
<TABLE>
ENRON CORP. AND SUBSIDIARIES
CALCULATION OF EARNINGS PER SHARE
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
(in millions, except share and per share amounts)
<S> <C> <C> <C> <C>
Primary Earnings Per Share
Earnings on common stock
Net income $ 134 $ 123 $ (64) $ 453
Preferred stock dividends (5) (4) (13) (12)
$ 129 $ 119 $ (77) $ 441
Average number of common shares
outstanding 294 247 264 246
Primary earnings per share of
common stock $0.44 $0.48 $(0.29) $1.79
Fully Diluted Earnings Per Share
Adjusted earnings on common stock
Net income $ 134 $ 123 $ (64) $ 453
Preferred stock dividends (5) (4) (13) (12)
Add back:
Dividends on convertible preferred stock 5 4 13 12
$ 134 $ 123 $ (64) $ 453
Average number of common shares outstanding
on a fully diluted basis
Average number of common shares outstanding 294 247 264 246
Additional shares issuable upon:
Conversion of preferred stock 18 19 18 19
Exercise of stock options reduced by the
number of shares which could have been
purchased with the proceeds from
exercise of such options 5 5 5 5
317 271 287 270
Fully diluted earnings per share of
common stock $0.42 $0.45 $(0.22)(a) $1.68
<FN>
(a) This calculation is submitted in accordance with Regulation S-K item
601(b)(ii) although it is contrary to paragraph 40 of APB Opinion No. 15
because it produces an antidilutive result.
</TABLE>
<PAGE>
Exhibit 12
<TABLE>
ENRON CORP. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO
FIXED CHARGES
(In Millions)
(Unaudited)
<CAPTION>
Nine Months
Ended Year Ended December 31,
9/30/97 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
Earnings available for fixed charges
Net income (loss) $ (64) $ 584 $ 520 $ 453 $333 $329
Less:
Undistributed earnings and
losses of less than 50% owned
affiliates (56) (39) (14) (9) (20) (33)
Capitalized interest of
nonregulated companies (11) (10) (8) (9) (26) (66)
Add:
Fixed charges (a) 421 454 436 487 471 452
Minority interests 58 75 27 30 28 18
Income tax expense (benefit) (109) 297 310 190 148 88
Total $ 239 $1,361 $1,271 $1,142 $934 $788
Fixed Charges
Interest expense (a) $ 384 $ 404 $ 386 $ 445 $436 $430
Rental expense representative of
interest factor 37 50 50 42 35 22
Total $ 421 $ 454 $ 436 $ 487 $471 $452
Ratio of earnings to fixed charges (b) 3.00 2.92 2.34 1.98 1.74
<FN>
(a) Amounts exclude costs incurred on sales of accounts receivables.
(b) For the nine months ended September 30, 1997, earnings were inadequate
to cover fixed charges by $182 million.
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 194
<SECURITIES> 0
<RECEIVABLES> 2,578
<ALLOWANCES> 0
<INVENTORY> 198
<CURRENT-ASSETS> 4,764
<PP&E> 13,476
<DEPRECIATION> 4,447
<TOTAL-ASSETS> 22,810
<CURRENT-LIABILITIES> 3,625
<BONDS> 6,931
0
134
<COMMON> 3,755
<OTHER-SE> 1,150
<TOTAL-LIABILITY-AND-EQUITY> 22,810
<SALES> 8,146
<TOTAL-REVENUES> 14,401
<CGS> 12,270
<TOTAL-COSTS> 14,544
<OTHER-EXPENSES> (335)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 271
<INCOME-PRETAX> (187)
<INCOME-TAX> (123)
<INCOME-CONTINUING> (64)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (64)
<EPS-PRIMARY> (0.29)
<EPS-DILUTED> (0.29)
</TABLE>
