UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1 TO CURRENT REPORT
DATED OCTOBER 16, 1998
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report: November 2, 1998
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)
1 of 39
<PAGE>
ENRON CORP. AND SUBSIDIARIES
The undersigned registrant hereby amends the following items of its
Current Report on Form 8-K dated October 16, 1998, as set forth in
the pages attached hereto:
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Acquired Business -
Wessex Water Plc
Report of Independent Public Accountants
Group Profit and Loss Accounts -
Year Ended March 31, 1998 and 1997
Group Balance Sheets -
March 31, 1998 and 1997
Group Cash Flow Statements -
Year Ended March 31, 1998 and 1997
Group Statements of Total Recognized Gains and Losses -
Year Ended March 31, 1998 and 1997
Notes to Financial Statements
(b) Unaudited Pro Forma Financial Statements -
Enron Corp. Pro Forma Consolidated Financial Statements
(Unaudited)
Pro Forma Consolidated Balance Sheet -
June 30, 1998
Pro Forma Consolidated Statements of Income -
Year Ended December 31, 1997
Six Months Ended June 30, 1998
Notes to Pro Forma Consolidated Financial Statements
(c) Exhibits
23 - Consent of Coopers & Lybrand
<PAGE>
WESSEX WATER - STATUTORY ACCOUNTS FOR 1997 AND 1998
REPORT OF INDEPENDENT ACCOUNTANTS
We have audited the consolidated balance sheets of Wessex Water
Plc as at March 31, 1998 and 1997, and the consolidated profit
and loss accounts, statements of total recognized gains and
losses and cash flows of Wessex Water Plc for each of the years
in the two year period ended March 31, 1998, all expressed in
pounds sterling and prepared on the basis set forth in Note 1 to
the consolidated financial statements. As described in Note 39,
these financial statements are the responsibility of the
company's directors. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards in the United Kingdom, which are substantially
the same as auditing standards generally accepted in the United
States. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Wessex Water Plc as at March 31, 1998 and
1997, and the consolidated profits, total recognized gains and
losses and cash flows of Wessex Water Plc for each of the two
years in the period ended March 31, 1998 in accordance with
generally accepted accounting principles in the United Kingdom.
The financial statements have been prepared in accordance with
accounting principles generally accepted in the United Kingdom,
which differ in certain significant respects from those generally
accepted in the United States. The effects of the major
differences in the determination of net income and shareholders'
equity are shown in Note 38 to the financial statements.
Coopers & Lybrand
Chartered Accountants
Bristol, England
June 9, 1998, except for the information set out in Notes 37 and 38,
for which the date is October 29, 1998
<PAGE>
<TABLE>
GROUP PROFIT AND LOSS ACCOUNT
For the year to 31 March 1998 and 1997
<CAPTION>
Notes 1997 1998
Lm Lm
<S> <C> <C> <C>
Turnover 2 254.3 266.0
Operating profit 2 129.7 137.8
Share of results of associated undertakings 5 12.6 11.5
Profit on ordinary activities before interest 142.3 149.3
Net interest receivable/(payable) 6 2.7 (10.3)
Profit on ordinary activities before taxation 145.0 139.0
Taxation on profit on ordinary activities 7 (24.0) (23.2)
Utility tax 7 - (98.9)
Profit attributable to shareholders 121.0 16.9
Dividends (including non-equity) 8 (47.1) (53.1)
Transfer to reserves 22 73.9 (36.2)
Earnings per ordinary share 9 52.2p 3.7p
Fully diluted earnings per ordinary share 10 43.5p 3.9p
Earnings per ordinary share before utility tax 9 52.2p 50.5p
Fully diluted earnings per ordinary share
before utility tax 10 43.5p 50.0p
Dividend per ordinary share 8 18.0p 20.6p
<FN>
The group's turnover and operating profit were generated from continuing
activities.
</TABLE>
<PAGE>
<TABLE>
GROUP BALANCE SHEETS
At 31 March 1998 and 1997
<CAPTION>
Notes 1997 1998
Lm Lm
<S> <C> <C> <C>
Fixed assets
Tangible assets 11 1,021.5 1,099.4
Investments 12 63.6 69.5
1,085.1 1,168.9
Current assets
Stock and work in progress 13 10.4 1.1
Debtors 14 52.3 53.4
Listed investments 15 0.7 0.7
Cash investments 16 40.3 1.1
103.7 56.3
Creditors - amounts falling due
within one year 17 (196.0) (277.7)
Net current liabilities (92.3) (221.4)
Total assets less current liabilities 992.8 947.5
Creditors - amounts falling due after
more than one year 18 (124.4) (103.1)
Provisions for liabilities and charges 19 (5.3) (8.1)
Deferred income 20 (23.5) (22.9)
Net assets 2 839.6 813.4
Capital and reserves
Called up share capital 21 280.2 282.1
Capital redemption reserve 22 30.5 30.5
Share premium account 22 22.4 25.7
Profit and loss account 22 506.5 475.1
Shareholders' funds 23 839.6 813.4
Shareholders' funds comprise:
Equity shareholders' funds 685.1 658.9
Non-equity shareholders' funds 23 154.5 154.5
839.6 813.4
</TABLE>
<PAGE>
<TABLE>
GROUP CASH FLOW STATEMENT
For the year to 31 March 1998 and 1997
<CAPTION>
Notes 1997 1998
Lm Lm
<S> <C> <C> <C>
Net cash inflow from operating activities 24 146.2 165.4
Returns on investments and servicing of finance 25 (5.7) (13.3)
Taxation (13.6) (52.7)
Utility tax 7 - (49.4)
Capital expenditure and financial investment 26 (75.5) (100.8)
Acquisitions and disposals 27 - 1.4
Equity dividends paid (29.8) (32.2)
Cash inflow/(outflow) before use of liquid
resources and financing 21.6 (81.6)
Management of liquid resources 28 160.9 40.3
Financing 29 (189.9) 45.3
(Decrease)/increase in cash in the period (7.4) 4.0
Reconciliation of cash movement to the movement
in net debt
(Decrease)/increase in cash - above (7.4) 4.0
Movement in liquid resources 28 (160.9) (40.3)
Movement in loans and leases 29 8.3 (41.3)
Movement in net debt 30 (160.0) (77.6)
Opening net funds/(debt) 30 61.6 (98.4)
Closing net debt 30 (98.4) (176.0)
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
For the year to 31 March 1998 and 1997
<CAPTION>
1997 1998
Lm Lm
<S> <C> <C>
Profit attributable to shareholders 121.0 16.9
Advance corporation tax on repurchase of
ordinary shares (35.2) -
Foreign exchange difference 0.1 (0.2)
Total recognised gains relating to the year 85.9 16.7
</TABLE>
<PAGE>
NOTES TO THE WESSEX GROUP ACCOUNTS
1 Accounting policies
a. Basis of preparation
The accounts have been prepared under the historic cost
convention and in accordance with applicable accounting
standards in the United Kingdom and, except for the treatment
of certain grants and contributions (see note 1g) in
accordance with the Companies Act 1985.
The symbol "L" in these consolidated financial statements
refer to British Pounds Sterling.
References to "the group" and to "Wessex" should be read as
reference to Wessex Water Plc and its subsidiaries.
b. Basis of consolidation
The consolidated accounts incorporate the audited accounts
of Wessex Water Plc and all its subsidiary undertakings.
c. Associated undertakings
The accounts incorporate the group's share of the results of
associated undertakings, where material. The consolidated
profit and loss account incorporates the group's share of
profits less losses and the group's share of net assets is
included in the consolidated balance sheet.
d. Turnover
Turnover represents income receivable in the ordinary course
of business, excluding VAT, for services provided to external
customers.
e. Tangible fixed assets and depreciation
Tangible fixed assets comprise infrastructure assets and other
assets.
i Infrastructure assets comprise a network of systems of
mains and sewers, impounding and pumped raw water storage
reservoirs, dams, sludge pipelines, sea outfalls and
infrastructure investigations and studies. Expenditure on
infrastructure assets relating to enhancements of the
network is treated as additions which are included at cost
after deducting connection charges and grants. Expenditure
on maintaining the operating capability of the network in
accordance with defined standards of service is charged as
an operating cost. The timing of the expenditure may
fluctuate from the planned service level, and consequently
accruals or deferrals are made in respect of infrastructure
renewals expenditure. No depreciation is charged on
infrastructure assets because the network of systems is
required to be maintained in perpetuity and therefore has
no finite economic life.
ii Other assets include properties, plant and equipment and
are shown at cost less accumulated depreciation.
Freehold land is not depreciated. Other assets are
depreciated evenly over their estimated economic lives,
which are principally as follows:
Buildings and operational structures 15 - 80 years
Plant machinery and vehicles 3 - 30 years
Other assets 4 - 15 years
f. Leased assets
Where assets are financed by leasing arrangements which
transfer substantially all the risks and rewards of ownership
of an asset to the lessee (finance leases), the assets are
treated as if they had been purchased and the corresponding
capital cost is shown as an obligation to the lessor. Leasing
payments are treated as consisting of a capital element and
finance costs, the capital element reducing the obligation to
the lessor and the finance charge being written off to the
profit and loss account over the period of the lease in
reducing amounts in relation to the outstanding obligations.
The assets are depreciated over the shorter of their estimated
useful lives and the period of the lease.
All other leases are regarded as operating leases. Rental
costs arising under operating leases are written off in the
year they are incurred.
g. Grants and contributions
Grants and contributions in respect of specific expenditure on
non-infrastructure fixed assets are treated as deferred income
and recognised in the profit and loss account over the
expected useful economic lives of the related assets.
Grants and contributions relating to infrastructure assets
have been deducted from the cost of those assets. This is not
in accordance with the Companies Act 1985 which requires
assets to be stated at their purchase price or production
cost, without deduction of grants and contributions which
would be accounted for as deferred income. The departure from
the requirements of the Act is, in the opinion of the
directors, necessary to give a true and fair view. This is
because infrastructure assets are not depreciated and
accordingly the related grants and contributions would not be
recognised through the profit and loss account. The effect on
the value of fixed assets is disclosed in note 11.
h. Investments
Investments held as fixed assets are stated at cost less any
provisions for permanent diminution in value. Those held as
current assets are stated at the lower of cost and net
realisable value.
i. Stock and work in progress
Stock and work in progress are stated at the lower of cost and
net realisable value. In respect of work in progress, cost
includes labour, materials and attributable overheads.
Long term contract turnover and profit are recognised
according to the value of work done. Where amounts received
are different from the turnover recognised, they are included
in debtors or creditors according to the circumstances of each
individual contract.
j. Foreign currency
All transactions of UK companies denominated in foreign
currencies are translated into sterling at the actual rates of
exchange ruling at the dates of the transactions. Foreign
currency balances are translated into sterling at the rates of
exchange ruling at the balance sheet date.
The results of overseas subsidiaries are translated at average
rates of exchange for the year. Differences arising from the
translation of retained profits at closing rates are taken to
reserves, as are differences on the translation of opening
balance sheets and foreign currency funding.
k. Interest rate instruments
Interest rate instruments are used to hedge against interest
rate movements on the group's external financing. Interest
payable or receivable is accounted for on an accruals basis
over the life of the hedge.
l. Research and development
Research and development expenditure is written off in the
year in which it is incurred.
m. Acquisition accounting
Goodwill arising on acquisition, being the excess of purchase
consideration over the fair value of assets and liabilities
acquired, is eliminated immediately against reserves.
n. Taxation
The charge for taxation is based on the profit for the period
adjusted in accordance with tax legislation. Tax deferred or
accelerated is accounted for in respect of all material timing
differences to the extent that it is probable that a liability
or asset will crystallise. Timing differences arise from the
inclusion of items of income and expenditure in tax
computations in periods different from those in which they are
included in the accounts. Provision is made at the rate which
is expected to apply when the liability or asset crystallises.
o. Pensions
The cost of providing benefits is charged to the profit and
loss account on a basis designed to spread the cost over the
expected average service lives of employees. Differences
between the amounts funded and amounts charged to the profit
and loss account are treated either as provisions or
prepayments in the balance sheet. The pension schemes are of
the defined benefit type, which are externally funded and
valued by an independent actuary.
2 Segmental analysis
<TABLE>
<CAPTION>
1997 1998
Lm Lm
Analysis by class of business
a. Turnover
<S> <C> <C>
Water supply 82.1 84.7
Waste treatment 172.2 181.3
254.3 266.0
b. Operating profit
Water supply 32.6 34.2
Waste treatment 97.1 103.6
129.7 137.8
</TABLE>
Operating profit by class of business is determined after
allocating central costs on the basis of estimated time spent on
each class of business. The share of results of associated
undertakings and net interest payable cannot be allocated to
class of business.
c. Net assets
<TABLE>
<CAPTION>
1997 1998
Lm Lm
<S> <C> <C>
Water supply 299.1 325.0
Waste treatment 596.2 649.1
895.3 974.1
Interest bearing operating assets (55.7) (160.7)
839.6 813.4
</TABLE>
Interest bearing operating assets include cash, loans, taxation,
interest and dividends payable.
3 Operating profit
a. Operating profit is shown after charging/(crediting) the
following items:
<TABLE>
<CAPTION>
1997 1998
Lm Lm
<S> <C> <C>
Operational costs
Manpower costs (note 4) 25.0 23.1
Materials and consumables 22.4 23.8
Other operational costs 37.4 38.7
84.8 85.6
Depreciation
Depreciation 29.0 30.8
Amortisation of grants and contributions (0.7) (0.7)
Loss on disposals of fixed assets 0.8 1.5
29.1 31.6
Infrastructure renewals charge (note 19) 10.7 11.0
Total costs 124.6 128.2
</TABLE>
b. Operational costs include:
<TABLE>
<CAPTION>
1997 1998
Lm Lm
<S> <C> <C>
Operating leases for plant and machinery 0.8 0.8
Other operating leases 0.3 0.3
Research and development 0.4 0.2
Directors' remuneration (note 4) 0.6 0.9
Audit fees (Company L25,000) 0.1 0.1
Fees to auditors for other professional advice 0.2 -
</TABLE>
4 Employment costs
a. Total employment costs of the group:
<TABLE>
<CAPTION>
1997 1998
Lm Lm
<S> <C> <C>
Wages and salaries 30.3 29.0
Social security costs 2.4 2.2
Other pension costs 3.2 2.6
35.9 33.8
</TABLE>
b. Total employment costs are charged as follows:
<TABLE>
<CAPTION>
1997 1998
Lm Lm
<S> <C> <C>
Capital schemes 9.4 9.5
Infrastructure renewals expenditure 1.5 1.2
Manpower costs 25.0 23.1
35.9 33.8
</TABLE>
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
c. Full time equivalent employees including
executive directors at 31 March 1,451 1,378
Monthly average number during the financial year 1,460 1,414
</TABLE>
d. Directors' remuneration
i Fees, salaries, performance related bonuses
and benefits in kind
<TABLE>
<CAPTION>
1997 1998
Total Total
L000 L000
<S> <C> <C>
W N Hood 202 206
C F Skellett 184 200
C J Bishop - 114
E J Gawith - 118
N A W Wheatley 162 172
P A Barrett 14 18
E G Falkman - 18
Sir Terry Heiser 17 18
R D Kent * 17 18
Lord McGowan * 17 18
613 900
<FN>
* Fees in respect of R D Kent and Lord McGowan were paid
to their principal employers.
</TABLE>
ii Highest paid director
The highest paid director was W N Hood. His aggregate
emoluments consisting of salary, performance related bonus
and benefits in kind are shown above, pension details are
shown below.
iii Pension benefits
<TABLE>
<CAPTION>
Accrued Increase in Transfer value
pension at accrued pension of increase
31.3.98 during year during year
L000 L000 L000
<S> <C> <C> <C>
W N Hood 80 8 102
C F Skellett 96 10 133
C J Bishop 42 4 42
E J Gawith 29 6 62
N A W Wheatley 58 10 135
</TABLE>
The accrued pension is the annual amount to which the
director would be entitled, at his or her normal retirement
date, based on pensionable service to 31 March 1998.
The increase in accrued pension during the year,
compares the accrued pension at 31 March 1998 with the
amount at 31 March 1997, adjusted for inflation.
The transfer value is the amount calculated in
accordance with actuarial guideline note GN11, required to
provide the level of increase in accrued pension, less
directors' individual contributions.
In addition to the accrued pension C F Skellett and C J
Bishop are entitled, under the Wessex Water Mirror Image
Pension Scheme, to lump sum payments at normal retirement
date of L235,000 and L114,000 respectively. The increases
in these lump sums, over inflation, during the year were
L19,000 and L11,000, with transfer values of L20,000 and
L9,000 respectively.
iv Share options
Details of the gain on exercise of share options are shown
in note 21e.
5 Share of results of associated undertakings
The financial statements incorporate Wessex Water Plc's share
of the results of Wessex Waste Management Ltd (trading as UK
Waste) for the 12 months to 31 March 1998. The accounting
reference date of Wessex Waste Management Ltd is 31 December.
<TABLE>
<CAPTION>
1997 1998
Lm Lm
<S> <C> <C>
UK Waste
Turnover 150.0 173.7
Operating costs (125.3) (151.6)
Operating profit 24.7 22.1
Interest receivable 0.4 0.8
Profit before tax 25.1 22.9
Wessex Water Plc's share 12.6 11.5
</TABLE>
6 Net interest receivable/(payable)
<TABLE>
<CAPTION>
1997 1998
Lm Lm
<S> <C> <C>
Interest payable
On bank loans (4.5) (6.0)
On other loans (0.3) (0.5)
On finance leases (7.0) (6.5)
Total interest payable (11.8) (13.0)
Interest receivable 14.5 2.7
Net interest receivable/(payable) 2.7 (10.3)
</TABLE>
7 Taxation
a. Taxation on profit on ordinary activities
<TABLE>
<CAPTION>
1997 1998
Lm Lm
<S> <C> <C>
UK corporation tax at 31% (1997 - 33%) 24.9 21.6
Advance corporation tax utilised relating to
prior years (14.0) (13.3)
Advance corporation tax on dividends for the year 9.8 10.9
Share of tax charge of associated undertaking 3.3 4.0
24.0 23.2
</TABLE>
The cumulative amount of advance corporation tax written off
of L55.7m (1997 - L58.1m) remains available to reduce future
liabilities to UK corporation tax.
The UK corporation tax charge is reduced by L22.4m (1997 -
L23.2m) in respect of accelerated capital allowances.
b. Utility tax
The Finance (No. 2) Act 1997 required the payment of utility
tax, which for Wessex Water Plc was L98.9m, and was charged in
full in the results to 31 March 1998. The tax is payable in
two equal instalments, the first was paid on 1 December 1997
and the second is due on 1 December 1998.
c. Deferred taxation
No deferred tax has been provided as projections indicate that
the potential liability will not crystallise within the
foreseeable future. The full potential amount of deferred
taxation calculated at 31% (1997 - 33%) on all timing
differences is as follows:
<TABLE>
<CAPTION>
1997 1998
Lm Lm
<S> <C> <C>
Accelerated capital allowances 197.6 208.0
Other timing differences (5.2) (4.6)
Advance corporation tax recoverable (58.1) (55.7)
134.3 147.7
</TABLE>
Included in accelerated capital allowances are timing
differences on infrastructure assets.
8 Dividends
<TABLE>
<CAPTION>
1997 1998
Lm Lm
<S> <C> <C>
On equity shares
Ordinary shares
Interim dividend of 6.5p per share (1997 - 5.7p) 12.3 13.8
Proposed final dividend of 14.1p per share
(1997 - 12.3p) 25.9 30.1
38.2 43.9
On non-equity shares
B ordinary shares
Total dividend of 0.7785p per share 0.2 -
C ordinary shares
Total dividend of 1.26675p per share 0.2 -
Preference shares
At 5.3% net for the period 1 April 1997 to
6 September 1997 and 6.45% net for the period
7 September 1997 to 31 March 1998 8.5 9.2
47.1 53.1
</TABLE>
9 Earnings per ordinary share
The calculation of earnings per ordinary share is based on the
profit attributable to shareholders, less the dividend payable
on preference shares (and in 1997 on B and C ordinary shares).
The weighted average number of ordinary shares used in the
calculation is 211.3m (1997 - 214.7m).
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
Earnings per ordinary share 52.2p 3.7p
Adjustment for utility tax - 46.8p
Earnings per ordinary share before utility tax 52.2p 50.5p
</TABLE>
10 Fully diluted earnings per ordinary share
The calculation of fully diluted earnings per ordinary share
is based on the profit attributable to shareholders, less the
dividend payable on preference shares, plus notional interest
on outstanding share options, as if they had been exercised on
1 April 1997. The weighted average number of ordinary shares
used in the calculation is 214.4m (1997 - 266.3m).
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
Fully diluted earnings per ordinary share 43.5p 3.9p
Adjustment for utility tax - 46.1p
Fully diluted earnings per ordinary share
before utility tax 43.5p 50.0p
</TABLE>
11 Tangible fixed assets
<TABLE>
<CAPTION>
Payments
on account
Plant and assets
Freehold Infra- machinery in course
land and structure and Other of con- Group
buildings assets vehicles assets struction Total
Lm Lm Lm Lm Lm Lm
<S> <C> <C> <C> <C> <C> <C>
Cost
At 1 April 1997 356.5 434.6 355.5 24.9 53.3 1,224.8
Additions 14.5 25.8 22.3 2.1 50.5 115.2
Transfers on
commissioning 0.4 16.4 7.8 4.2 (28.8) -
Disposals (0.3) - (16.0) (3.4) - (19.7)
Grants and contri-
butions - (4.2) - - - (4.2)
At 31 March 1998 371.1 472.6 369.6 27.8 75.0 1,316.1
Depreciation
At 1 April 1997 59.0 - 129.6 14.7 - 203.3
Provision for year 6.5 - 20.8 3.5 - 30.8
Disposals (0.1) - (13.9) (3.4) - (17.4)
At 31 March 1998 65.4 - 136.5 14.8 - 216.7
Net Book Value
At 31 March 1997 297.5 434.6 225.9 10.2 53.3 1,021.5
At 31 March 1998 305.7 472.6 233.1 13.0 75.0 1,099.4
</TABLE>
Capital expenditure for the year was L129.9m (1997 - L99.6m)
comprising fixed asset additions of L115.2m (1997 - L86.3m) plus
infrastructure renewals expenditure of L14.7m (1997 - L13.3m), (see
note 19).
Infrastructure assets comprise a network of systems of mains and
sewers, impounding and pumped raw water storage reservoirs, dams,
sludge pipelines, sea outfalls, and infrastructure investigations and
studies.
Other assets include furniture and fittings, laboratory and other
equipment.
The net book value of assets held under finance leases is L83.7m (1997 -
L85.6m).
The depreciation charge for the year on assets held under finance
leases is L1.9m (1997 - L1.9m).
The net book value of infrastructure assets at 31 March 1998 is stated
after the deduction of grants and contributions amounting to L45.3m
(1997 - L41.1m) in order to give a true and fair view (see note 1g).
12 Investments
<TABLE>
<CAPTION>
Associated
undertakings
Lm
<S> <C>
Fixed asset investments at cost
At 1 April 1997 63.6
Refund of amounts subscribed (1.4)
Additions -
Share of retained profit 7.5
Share of goodwill written off (0.2)
At 31 March 1998 69.5
</TABLE>
The principal subsidiary companies and associated
undertakings are listed in note 36.
The group's share of goodwill written off by Wessex Waste
Management Ltd relates to the finalisation of the fair value
of acquisitions made in previous years.
13 Stock and work in progress
<TABLE>
<CAPTION>
1997 1998
Lm Lm
<S> <C> <C>
Stock 0.3 0.3
Work in progress 10.1 0.8
10.4 1.1
</TABLE>
14 Debtors
<TABLE>
<CAPTION>
1997 1998
Lm Lm
<S> <C> <C>
Amounts falling due within one year
Trade debtors 23.0 25.9
Amounts owed by subsidiary undertakings - -
Infrastructure renewals prepayment (note 19) - 2.0
Other debtors 4.3 4.8
Prepayments and accrued income 25.0 20.7
52.3 53.4
</TABLE>
15 Listed investments
The market value of listed investments at 31 March 1998 was
L2.8m (1997 - L2.1m).
16 Cash investments
<TABLE>
<CAPTION>
1997 1998
Lm Lm
<S> <C> <C>
Cash investments with maturities less than 3 months 40.3 1.1
</TABLE>
17 Creditors - amounts falling due within one year
<TABLE>
<CAPTION>
1997 1998
Lm Lm
<S> <C> <C>
Bank overdraft repayable on demand 3.3 0.4
Loans repayable 1.7 59.9
Obligations under finance leases 9.7 11.9
Payments received on account 10.6 1.0
Trade creditors 4.4 5.0
Amounts owed to associated companies - 3.7
Other creditors 0.5 0.8
Corporation tax 18.0 18.1
Advance corporation tax 45.0 11.5
Utility tax - 49.5
Other taxation and social security 0.8 0.8
Accruals and deferred income 59.1 65.6
Proposed dividend 42.9 49.5
196.0 277.7
</TABLE>
Wessex Water Plc has acted as guarantor for certain
borrowing facilities made available to Wessex Water Services
Ltd. As part of the group's banking arrangements the
company has entered into a cross undertaking with Wessex
Water Services Ltd in relation to that company's overdraft
and related facilities.
18 Creditors - amounts falling due after more than one year
<TABLE>
<CAPTION>
1997 1998
Lm Lm
<S> <C> <C>
Loans repayable - within 1-2 years 10.9 3.3
- within 2-5 years 40.1 38.2
- after 5 years 1.6 -
52.6 41.5
Obligations under finance leases - within 1-2 years 11.6 14.0
- within 2-5 years 49.3 45.7
- after 5 years 10.5 -
Other 0.4 1.9
124.4 103.1
</TABLE>
The interest rate on loans outstanding of L41.5m have been
swapped into floating rates through a combination of
currency and interest rate swaps, the interest rates payable
being between 5.9% and 8.3%. There is no exchange rate
exposure under the currency swaps.
19 Provisions for liabilities and charges
<TABLE>
<CAPTION>
at 1 April at 31 March
1997 Provided Utilised 1998
Lm Lm Lm Lm
<S> <C> <S> <C> <C>
Pensions 5.3 - 0.1 5.2
Office relocation - 2.9 - 2.9
5.3 2.9 0.1 8.1
</TABLE>
Infrastructure renewals expenditure is estimated over the
period between regulatory reviews and is charged to the
profit and loss account, subject to movements in the
construction price index, on an even basis.
A provision is made for the difference between the
cumulative actual expenditure and the amount charged to
profit and loss. At 31 March 1997 there was a provision of
L1.7m for future expenditure.
During the course of the year this provision was fully
utilised as expenditure was L3.7m greater than the charge to
profit and loss. The resulting net L2.0m is carried as a
debtor.
20 Deferred income
<TABLE>
<CAPTION>
1997 1998
Lm Lm
<S> <C> <C>
Grants and contributions
At 1 April 24.0 23.5
Received in year 0.2 0.1
Less amortisation (0.7) (0.7)
At 31 March 23.5 22.9
</TABLE>
21 Called up share capital
<TABLE>
<CAPTION>
1997 1998
Lm Lm
<S> <C> <C>
Authorised
346,666,670 ordinary shares of 60p each
(1997 - 300,000,000) 180.0 208.0
Nil B ordinary shares of 60p each (1997 - 33,333,335) 20.0 -
Nil C ordinary shares of 60p each (1997 - 13,333,335) 8.0 -
310,000,000 50p redeemable preference shares
(1997 - 310,000,000) 155.0 155.0
363.0 363.0
Allotted and Fully Paid
212,677,552 ordinary shares of 60p each
(1997 - 209,507,244) 125.7 127.6
308,984,402 50p redeemable preference shares
(1997 - 308,984,402) 154.5 154.5
280.2 282.1
</TABLE>
a. On 10 September 1997 the authorised but unissued B and C
ordinary shares were redesignated as 46,666,670 authorised
ordinary shares of 60p each.
b. Preference shares are redeemable by the company at par in
four equal tranches on the dividend payment date in each of
the years 1998, 1999, 2000 and 2001. The preference dividend
is paid annually in arrears at a gross dividend rate, fixed
in advance, of 12 month LIBOR plus one half per cent.
Preference shares have priority on winding up, but are non
voting unless a resolution is proposed to vary their rights.
c. On 7 April 1997 295,403 ordinary shares were issued at L3.71
per share and on 1 October 1997 1,063,864 ordinary shares
were issued at L4.60 per share. These shares were issued to
existing shareholders in lieu of a cash dividend.
d. During the year 546,909 ordinary shares were issued at
prices between L0.86 and L2.80 per share under the savings
related share option scheme. 1,126,734 ordinary shares were
issued at prices between L1.39 and L3.68 per share under the
executive share option scheme and 137,398 ordinary shares at
L4.84 per share under the profit sharing scheme. These
issues resulted in a share premium on allotment of
L3,417,511.
e. The company had the following share schemes for employees:
i A profit sharing scheme whereby employees can apply for
free shares and purchase shares which are matched by the
company up to a set limit. The cost of the free and
matching shares is written off to profit and loss in the
year of issue. Employees are entitled to all dividends on
the shares.
At 31 March 1998 452,623 ordinary shares of the company
were held by Wessex Water Trustee Company Ltd on behalf of
employees who were beneficially entitled to the shares
under this scheme. The market value of the shares at 31
March 1998 was L2,346,850.
W N Hood and C F Skellett are directors of Wessex Water
Trustee Company Ltd.
ii A savings-related share option scheme, based on SAYE
contracts, under which options were granted between August
1991 and August 1997, at prices between L1.47 and L3.58 per
share. At 31 March 1998 there were options outstanding in
respect of 2,367,465 shares, exercisable between 1 April
1998 and 28 February 2005.
The directors' holdings under this scheme are shown below.
<TABLE>
<CAPTION>
C F E J N A W
Date of grant Price W N Hood Skellett C J Bishop Gawith Wheatley
<S> <C> <C> <C> <C> <C> <C>
12 August 1992 L1.90 4,736 4,736 4,736 4,736 3,946
31 August 1994 L2.48 - - - - 1,392
21 July 1995 L2.31 5,064 4,480 5,064 4,480 2,987
At 31 March 1997 9,800 9,216 9,800 9,216 8,325
6 August 1997 L3.58 2,178 1,927 2,178 2,178 1,927
Exercised - - - - (3,946)
At 31 March 1998 11,978 11,143 11,978 11,394 6,306
</TABLE>
The options exercised by N A W Wheatley were granted at
L1.90. If the shares had been sold on the day of exercise
at the market price of L4.895, there would have been a gain
of L11,818, subject to taxation.
iii An executive share option scheme whereby options
outstanding in respect of 762,116 ordinary shares were
granted at prices between L1.85 and L3.16 per share. These
options are exercisable between 1 April 1998 and 1 August
2004. The directors' holdings under this scheme,
exercisable between 3 and 10 years after the date of each
grant, are shown below.
<TABLE>
<CAPTION>
C F E J N A W
Date of grant Price W N Hood Skellett C J Bishop Gawith Wheatley
<S> <C> <C> <C> <C> <C> <C>
3 July 1990 L1.39 38,848 - - - -
28 February 1991 L2.09 23,864 23,864 14,318 7,160 31,026
5 August 1991 L1.80 - - 16,446 - -
10 January 1992 L1.85 82,278 82,262 12,344 10,284 41,146
26 March 1993 L3.16 70,000 60,000 20,000 10,000 50,000
2 August 1994 L3.13 50,000 35,600 40,000 20,000 45,200
At 31 March 1997 264,990 201,726 103,108 47,444 167,372
Exercised (197,490) (106,126) (43,108) (39,944) (143,572)
At 31 March 1998 67,500 95,600 60,000 7,500 23,800
</TABLE>
The share options exercised were granted at prices between
L1.39 and L3.16. If the shares had been sold on the day of
exercise at the market price the gain, subject to taxation,
would have been:
W N Hood L520,259; C F Skellett L311,001; C J Bishop
L130,608; E J Gawith L93,592 and N A W Wheatley L342,836.
Certain of the above options were granted at an alternative
discounted exercise price, dependent upon earnings per
share increasing by 2% per annum above RPI over the 5 years
preceding the date of exercise.
<TABLE>
<CAPTION>
Discounted C F C J E J N A W
Date of grant option price W N Hood Skellett Bishop Gawith Wheatley
<S> <C> <C> <C> <C> <C> <C>
26 March 1993 L2.69 17,500 15,000 16,110 2,500 12,500
2 August 1994 L2.66 12,500 8,900 10,000 5,000 11,300
</TABLE>
iv A long term incentive plan whereby ordinary shares are
conditionally awarded to employees, and released dependent
upon the achievement of the performance criteria set for
the group. At 31 March 1998 175,725 (1997 - 95,306) shares
have been conditionally awarded with award dates of 1
October 1999 and 4 September 2000. The directors' holdings
under this scheme were:
<TABLE>
<CAPTION>
N A W
Conditional award W N Hood C F Skellett C J Bishop E J Gawith Wheatley
<S> <C> <C> <C> <C> <C>
2 October 1996 16,973 15,388 8,486 7,468 13,295
10 September 1997 13,080 11,898 7,172 7,172 10,379
30,053 27,286 15,658 14,640 23,674
</TABLE>
The quoted share price of ordinary shares at 31 March 1998 was
L5.185 and during the year varied between L3.625 and L5.485.
f. The beneficial interests of the directors, including shares held
in trust, together with those of their families, in the shares
of the company were:
<TABLE>
<CAPTION>
31 March 1997 31 March 1998 8 June 1998
ordinary preference ordinary preference ordinary preference
<S> <C> <C> <C> <C> <C> <C>
W N Hood 79,338 32,692 127,004 32,692 127,004 32,692
C F Skellett 45,460 14,115 72,664 14,115 65,864 14,115
C J Bishop 10,121 4,952 29,103 4,952 29,445 4,952
E J Gawith 27,029 37,375 51,106 37,659 50,906 37,659
N A W Wheatley 42,879 50,946 32,039 133 32,039 133
P A Barrett 2,500 - 2,566 - 2,597 -
Sir Terry Heiser 1,666 2,000 1,666 2,000 1,666 2,000
R D Kent 12,869 15,444 12,869 15,444 12,869 15,444
</TABLE>
No director, including E G Falkman and Lord McGowan, had any
other interest in the shares of the company or any other group
company.
22 Reserves
<TABLE>
<CAPTION>
Capital Share Profit
redemption premium & loss
reserve account account
Lm Lm Lm
<S> <C> <C> <C>
At 1 April 1997 30.5 22.4 506.5
Shares issued - 3.4 -
Shares issued from scrip dividends - - 5.2
Issue costs - (0.1) -
Goodwill written off - - (0.2)
Foreign exchange adjustment - - (0.2)
Transfer to reserves - - (36.2)
At 31 March 1998 30.5 25.7 475.1
</TABLE>
Group profit and loss account includes the group's share of post
acquisition reserves of associated undertakings of (L93.9m),
(1997 - (L101.3m)). These comprise retained profits of L40.6m
(1997 - L33.0m) less accumulated goodwill written off amounting
to L134.5m (1997 - L134.3m).
23 Reconciliation of movements in shareholders' funds
<TABLE>
<CAPTION>
1997 1998
Lm Lm
<S> <C> <C>
Profit attributable to shareholders 121.0 16.9
Dividends (47.1) (53.1)
73.9 (36.2)
Share capital issued 1.5 7.1
Repurchase of ordinary shares (220.1) -
Share premium created 4.1 3.3
Goodwill written off (0.7) (0.2)
Foreign exchange adjustment 0.1 (0.2)
Net (reduction)/addition to shareholders' funds (141.2) (26.2)
Opening shareholders' funds 980.8 839.6
Closing shareholders' funds 839.6 813.4
</TABLE>
Non-equity interests in preference shares within shareholders'
funds are L154.5m (1997 - L154.5m).
24 Reconciliation of operating profit to net cash
inflow from operating activities
<TABLE>
<CAPTION>
1997 1998
Lm Lm
<S> <C> <C>
Operating profit 129.7 137.8
Depreciation of tangible fixed assets 29.0 30.8
Amortisation of grants and contributions (0.7) (0.7)
Provisions and infrastructure renewals (1.9) 0.8
Loss on disposals of fixed assets 0.8 1.5
(Increase)/decrease in stock and work in progress (0.7) 9.3
Increase in debtors (1.3) (4.1)
Decrease in creditors (8.7) (10.0)
146.2 165.4
</TABLE>
25 Returns on investments and servicing of finance
<TABLE>
<CAPTION>
1997 1998
Lm Lm
<S> <C> <C>
Interest received 15.7 7.5
Interest paid (4.8) (6.2)
Dividends paid on non-equity shares (9.8) (8.2)
Interest element of finance lease rental payments (6.8) (6.4)
(5.7) (13.3)
</TABLE>
26 Capital expenditure and financial investment
<TABLE>
<CAPTION>
1997 1998
Lm Lm
<S> <C> <C>
Purchase of tangible fixed assets (82.0) (105.9)
Sale of tangible fixed assets 1.1 0.8
Connection charges, grants and deferred
income received 5.4 4.3
(75.5) (100.8)
</TABLE>
27 Acquisitions and disposals
<TABLE>
<CAPTION>
1997 1998
Lm Lm
<S> <C> <C>
Investment in associated undertaking - 1.4
</TABLE>
28 Management of liquid resources
<TABLE>
<CAPTION>
1997 1998
Lm Lm
<S> <C> <C>
Cash investments 169.0 40.3
Cash repayable on demand within 24 hours (8.1) -
160.9 40.3
</TABLE>
29 Financing
<TABLE>
<CAPTION>
1997 1998
Lm Lm
<S> <C> <C>
Issue of ordinary share capital 3.1 4.0
Loans and finance leases (8.3) 37.6
Loans from associated companies - 3.7
Repurchase of ordinary shares (184.7) -
(189.9) 45.3
</TABLE>
30 Movement in net debt
<TABLE>
<CAPTION>
at 1 April at 31 March
1997 Cash Flow 1998
Lm Lm Lm
<S> <C> <C> <C>
Bank overdraft (3.3) 2.9 (0.4)
Cash investments 40.3 (39.2) 1.1
Loans and finance leases repayable
within one year (11.4) (60.4) (71.8)
Loans and finance leases repayable
after one year (124.0) 22.8 (101.2)
Amounts owed to associated companies - (3.7) (3.7)
(98.4) (77.6) (176.0)
</TABLE>
31 Commitments
a. Operating lease payments under leases on land and buildings due
within the next year in respect of leases which expire:
<TABLE>
<CAPTION>
1997 1998
Lm Lm
<S> <C> <C>
Between 2 and 5 years - 0.2
Over 5 years 0.2 0.2
0.2 0.4
</TABLE>
b. At 31 March 1998 the group had interest rate and currency
instrument agreements outstanding with commercial banks with a
principal value of L114.8m (1997 - L283.8m).
c. Capital expenditure contracted but not provided at 31 March 1998
was L47.2m (1997 - L62.0m).
32 Contingent liabilities
Wessex Water Plc has provided guarantees on loan notes and
performance bonds on behalf of Wessex Waste Management Ltd,
the maximum liability at 31 March 1998 was L4.2m.
Wessex Water Plc has provided performance guarantees on behalf
of SC Technology AG on the tendering for contracts, the
maximum liability at 31 March 1998 was L2.9m.
33 Pensions
The defined benefit schemes operated by the group, which cover
the majority of staff, are the Wessex Water Pension Scheme
("WWPS"), the Wessex Water Mirror Image Pension Scheme ("WWMIS")
and the Wessex Water Executive Pension Scheme ("WWEPS"). The
assets are held in separate trustee administered funds. The
pension cost charged to the profit and loss account has been
determined on the advice of independent qualified actuaries
and is such as to spread the cost of pensions over the service
lives of the members of the schemes.
The pension cost for the year, including amounts set aside for
early retirees, was L4.3m (1997 - L4.0m).
The latest actuarial valuations for WWPS, WWMIS and WWEPS were
undertaken as at 31 March 1996. The projected unit method was
used for the WWPS valuation and the attained age method for
the WWMIS and WWEPS valuations. The assumptions which have
the most significant effect on the results of a valuation are
those relating to the rate of return on investments and the
rates of increase in salaries and pensions. It was assumed
that the investment returns would be 8% per annum for all
schemes, that salary increases would average 6% per annum in
the WWPS and WWMIS, and 7.5% in the WWEPS, and that present
and future pensions would increase at the rate of 3.75% per
annum in the WWPS and WWEPS, and 4% per annum in the WWMIS.
The same actuarial methods and assumptions were used for
assessing pension costs. The market value of the WWPS assets
as at 31 March 1996 was L84.8m, for WWMIS L33.9m and for WWEPS
L1.6m. The valuation showed that the actuarial value of the
assets at 31 March 1996 represented 103%, 110% and 105% of the
actuarial value of the accrued benefits for the WWPS, WWMIS
and WWEPS respectively.
The next actuarial valuation will be as at 31 March 1999.
34 Related party transactions
a. A director of SC Technology AG owns certain of the assets at
the company's operation in Biel, Switzerland, for which a
charge was made to SC Technology AG of L0.2m in the year.
b. At 31 March 1998 a loan of L3.7m had been received from Wessex
Waste Management Ltd. Other transactions with the associated
undertaking are disclosed in note 12.
35 Wessex Water Services Ltd - dividend policy
The policy adopted by the board of Wessex Water Services Ltd
is to declare ordinary dividends of two thirds of the historic
profit attributable to shareholders, subject to a current cost
ordinary dividend cover of one, plus an amount equal to the
charge for utility tax.
36 Principal subsidiary companies and associated undertakings
a. Subsidiary companies
Wessex Water Plc owns 100% of the issued ordinary share
capital of each subsidiary company.
Country of
incorporation
Company and operation Principal activities
Wessex Water Services Ltd United Kingdom Water supply and waste
water services
Wessex Water Trustee United Kingdom Trustee of employee
Company Ltd share scheme
Wessex Water BV Netherlands Financial services
SC Technology AG Switzerland Waste treatment processes
Other subsidiary companies are dormant or not material to the
group.
b. Associated undertakings
Proportion of
Class of issued shares Principal
Company shares held held activities
Wessex Waste B shares 50 per cent Waste management
Management Ltd of L1 each
Brunel Insurance i. Management shares 50 per cent
Company Ltd of L1 each
ii. Funding shares 53 per cent Insurance
of L1 each -
50p paid
The interests in the associated undertakings are held directly
by Wessex Water Plc. Wessex Waste Management Ltd is
incorporated and operates in the United Kingdom, and Brunel
Insurance Company Ltd in Guernsey.
37 Subsequent events
a. On Friday 24 July 1998 Enron Corp. ("Enron") of Houston, Texas,
United States, made a cash offer of 630p per share for the shares
in Wessex Water Plc. This offer was recommended to the shareholders
by the Board of Wessex Water Plc.
Enron is one of the world's leading integrated electricity and natural
gas companies, with approximately US$24 billion energy-related assets.
The offer ran to 28 August 1998, but was extended to 18 September
1998 to allow the Secretary of State for Trade and Industry to consider
if there should be an investigation by the Monopolies and
Mergers Commission ("MMC"). On 10 September 1998 it was announced that
there would be no reference to the MMC.
On 21 September 1998 Enron announced that the offer had become
unconditional, having received by 18 September 1998 acceptances
representing 87.2 per cent of all ordinary shares. On 2 October
1998, Enron announced that it had received acceptances representing
more than 90 per cent of all ordinary shares.
b. Following the offer by Enron the Scrip Dividend Offer on the
1997/98 final dividend of 14.1 pence was extended.
Scrip dividends do not attract Advance Corporation Tax ("ACT").
The 1997/98 tax charge assumed that shareholders in respect of
16.5m shares would elect for scrip dividends which would attract
no ACT. Following the extension of the scrip dividend offer,
shareholders in respect of 153.5m shares elected for scrip
dividends, and as a result there will be an ACT credit in
1998/99 of L4.8m.
c. At the Annual General Meeting on 29 July 1998 ordinary and
preference shareholders voted to allow the company to offer to
redeem all preference shares in September 1998, rather than the
25% redemption previously in place.
As a result 180.6m preference shares were redeemed in September
1998, compared with an expectation of 77.2m under the original
redemption rules.
d. On 7 September 1998 Wessex Water Plc and Waste Management
International Plc ("WMI") announced the signing of a letter of
intent for WMI to purchase from Wessex Water Plc its 49% holding
in Wessex Waste Management Ltd, the joint venture waste
management company operating as UK Waste.
The cash consideration is L205m and is conditional upon the
Enron offer for Wessex becoming unconditional (now fulfilled)
and approval of the WMI shareholders, or WMI board if a High
Court Scheme of Arrangement has taken place.
e. P A Barrett, E G Falkman, Lord McGowan and Sir Terry Heiser
resigned as directors of Wessex Water Plc on 16 October
1998, R D Kent resigned as a director on 23 September 1998.
38 Summary of differences between UK generally accepted accounting
principles and US generally accepted accounting principles
The group's consolidated financial statements have been prepared
in accordance with UK GAAP, which differs in certain significant
respects from US GAAP. The effect of the application of US GAAP
to net income and shareholders' equity is set out in the tables
below.
Reconciliation of profit to US GAAP:
<TABLE>
<CAPTION>
For the year ended 31
March
Notes 1997 1998
Lm Lm
<S> <S> <C> <C>
Net income under UK GAAP 121.0 16.9
US GAAP adjustments
Goodwill amortisation a (0.7) (0.7)
Goodwill amortisation - associated company a (3.4) (3.3)
Infrastructure renewal costs b 9.6 9.9
Depreciation of infrastructure assets c (6.7) (7.1)
Capitalisation of interest d 3.7 5.1
Amortisation of capitalised interest d (1.0) (1.2)
Deferred taxes - application of FAS 109 e (31.0) (13.5)
Deferred tax on US GAAP adjustments e (2.5) (1.7)
Other h 1.8 2.9
Net income under US GAAP 90.8 7.3
Less - dividend on redeemable
preference shares f (8.5) (9.2)
Income (loss) available to common
shareholders 82.3 (1.9)
Basic earnings (loss) per share under
US GAAP (pence) i 38.1 (0.9)
Dilutive earnings (loss) per share
under US GAAP (pence) i 32.3 (0.9)
</TABLE>
Reconciliation of shareholders' equity:
<TABLE>
<CAPTION>
For the year ended 31
March
Notes 1997 1998
Lm Lm
<S> <C> <C>
Shareholders' equity under UK GAAP 839.6 813.4
US GAAP Adjustments
Goodwill recognition a 14.5 14.5
Goodwill amortisation a (0.8) (1.5)
Goodwill recognition - associated company a 134.3 134.5
Goodwill amortisation - associated company a (15.1) (18.4)
Infrastructure renewal costs b 78.1 88.0
Depreciation of infrastructure assets c (41.0) (48.2)
Capitalisation and amortisation of interest d 33.4 37.3
Deferred tax on US GAAP adjustments e (26.4) (28.0)
Deferred taxes - application of FAS 109 e (140.1) (153.6)
Redeemable preferred stock f (154.5) (154.5)
Dividends g 25.9 30.1
Other h 9.1 13.1
Shareholders' equity under US GAAP 757.0 726.7
</TABLE>
a. Goodwill
Under UK GAAP, on the acquisition of a business, fair values are
attributed to the group's share of the net tangible assets.
Where the cost of acquisition exceeds the values attributable to
such net assets, the difference is treated as purchased
goodwill, which, through 31 March 1998, was written off
directly to reserves in the year of acquisition. Under US GAAP,
goodwill arising from the acquisition of a business should be
held as an intangible asset in the balance sheet and amortised
over its expected useful life, estimated to be 40 years for UK
Waste and 20 years for SC Technology. In addition, its carrying
value will be reviewed annually for permanent diminution in
value.
b. Infrastructure renewals costs
Under UK GAAP, the group's expenditure on maintaining the
operating capability of the network of water and wastewater
systems is charged as an operating cost. Under US GAAP, the
enhancement element of the cost is capitalised and depreciated
in accordance with the paragraph below. The repair element of
the cost is expensed as incurred.
The timing of the investment programme and other operational
considerations may result in uneven patterns of infrastructure
renewals expenditure. Under UK GAAP, charges to the profit and
loss account are adjusted by way of accruals or prepayments, as
appropriate, to take account of any significant fluctuations
between actual and planned expenditure. Under US GAAP, repair
costs are expensed as incurred.
c. Depreciation of infrastructure assets
Depreciation is not provided on infrastructure assets in the
group's consolidated financial statements prepared under UK GAAP
because the network of systems is required to be maintained in
perpetuity and therefore has no finite economic life.
Expenditure on maintaining the operating capability of the
network in accordance with defined standards of service are
charged as an operating cost. Under US GAAP, depreciation is
required to be charged on all assets, excluding land, and
infrastructure assets are written off in equal annual
instalments over a period of 85 years, being the estimated
economic life under US GAAP.
d. Capitalisation of interest
Under UK GAAP, the capitalisation of interest is not required.
Under US GAAP, interest is required to be capitalised on
qualifying assets during the time required to prepare them for
their intended use. The capitalised interest should be amortised
over the life of the asset.
e. Deferred taxes
Under UK GAAP the group provides for deferred tax in respect of
the tax attributable to timing differences only to the extent
that such timing differences are expected to reverse in the
foreseeable future. US GAAP requires recognition of all
deferred tax assets and liabilities for temporary differences
using enacted tax rates in effect at the year-end in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" ("FAS 109"). A valuation allowance is posted
to the extent that it is more likely than not that all or part
of the deferred tax asset will not be realised. Deferred tax
assets are also recognised for operating loss carry-forwards.
Deferred tax has also been calculated in respect of the US GAAP
adjustments.
f. Redeemable preferred stock
Under US GAAP all issues of mandatorily redeemable stock are
excluded from the shareholders' equity section of the balance
sheet and presented separately. Dividends on such shares are
excluded from net income.
g. Ordinary dividends
Under UK GAAP, final ordinary dividends and the related UK
ACT are recognised in the financial year in respect of which
they are recommended by the Board of directors for approval
by shareholders. ACT is accounted for by the company as a
tax charge in the current year. Under US GAAP dividends are
recognised only when they are irrevocable. Hence, such
dividends and tax are not recognised until formally declared
by the Board of directors. The ACT charge is set off by
its corresponding deferred tax asset, created under US GAAP, and
therefore has no effect on net income and shareholders' equity.
h. Other
There are also differences between UK and US GAAP in relation
to pension schemes, stock option plans, investments in marketable
securities and the provision for office relocation. None of
these differences are individually material and they are
therefore shown as a combined total.
i. Earnings per share
Under UK GAAP, primary EPS is based on the weighted average
number of ordinary shares outstanding during the period.
Earnings per share is the profit in pence attributable to each
equity share, based on the profit of the period after tax,
minority interests and extraordinary items, divided by the
number of equity shares issued and ranking for dividend in
respect of that period. This method is also used for basic EPS
under US GAAP.
Under UK GAAP, the calcuation of fully diluted earnings per
ordinary share is based on the profit attributable to share-
holders, less the dividend payable on preference shares,
plus notional interest on outstanding share options, as if
they had been exercised on 1 April 1997. Under US GAAP,
diluted earnings per share must also be disclosed. Diluted
earnings or loss per share is determined by dividing the net
earnings or loss by the sum of (1) the weighted average number
of common shares outstanding and (2) if not anti-dilutive,
the effect of outstanding warrants and stock options determined
utilising the treasury stock method. Under this method, the funds
that would be received from the exercise of options are assumed
to be utilised in reacquiring shares. The potential dilution
caused by the exercise of share options therefore represents
the difference between the number of shares that would be issued
on the exercise of the option and the theoretical number of shares
that could be reacquired utilising the funds received.
Earnings per share computed in accordance with US GAAP has been
based on the following number of shares:
<TABLE>
<CAPTION>
For the year ended 31 March
1997 1998
Number Number
(m) (m)
<S> <C> <C>
Weighted average number of shares
under US GAAP - basic EPS 214.7 211.3
Common stock equivalents - dilutive
share options 40.1 -
Weighted average number of shares
under US GAAP - diluted EPS 254.8 211.3
</TABLE>
j. Cash flow information
Under UK GAAP, the group complies with Financial Reporting
Standard 1 (revised) "Cash Flow Statements" ("FRS 1"), the objective
and principles of which are similar to those set out in
Statement of Financial Accounting Standards No. 95 "Statement of
Cash Flows" ("FAS 95"). The principal difference between the two
standards is in respect of classification. Under UK GAAP, cash
flows are presented separately for operating activities, returns
on investments and servicing of finance, taxation, capital
expenditure, and financial investment, acquisition and
disposals, equity dividends paid, management of liquid resources
and financing. Under US GAAP, only three categories of cash flow
activity are reported: operating activities, investing activities
and financing activities.
Under UK GAAP cash paid or received for interest and income
taxes is presented separately from operating activities and
dividends paid are presented separately from financing
activities. Under US GAAP cash flows from operating activities
are based on net income which includes interest and income
taxes. Under US GAAP dividends paid would be included within
financing activities. Under UK GAAP, cash is defined as cash in
hand and deposits repayable on demand. The US GAAP cash flow
statement reports changes in cash and cash equivalents which
includes short-term highly liquid investments with an original
maturity of three months or less but excludes bank overdrafts.
Under a US GAAP presentation the following amounts would have
been reported:
<TABLE>
<CAPTION>
For the year ended 31 March
1997 1998
Lm Lm
<S> <C> <C>
Net cash provided by operating activities 126.9 50.0
Net cash used in investing activities (75.5) (99.4)
Net cash (used in) provided by financing
activities (220.4) 10.2
Net decrease in cash and cash equivalents (169.0) (39.2)
Cash and cash equivalents at beginning of year 209.3 40.3
Cash and cash equivalents at end of year 40.3 1.1
</TABLE>
39 UK Company Law Requirements (unaudited)
The directors are required by UK company law to prepare financial
statements for each financial year that give a true and fair view
of the state of affairs of the company and the group as at the
end of the financial year and of the profit or loss of the group
for that period.
The directors confirm that suitable accounting policies have been
used and applied consistently, and reasonable and prudent
judgements and estimates have been made in the preparation of the
financial statements for the year ended 31 March 1998. The
directors also confirm that applicable accounting standards have
been followed.
The directors are responsible for keeping proper accounting
records, for safeguarding the assets of the company and of the
group and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial
statements reflect the acquisition by Enron Corp. ("Enron")
of Wessex Water Plc ("Wessex") on October 2, 1998. The unaudited
pro forma consolidated financial statements should be read in
conjunction with the historical financial statements of
Enron included in its Annual Report on Form 10-K for the
year ended December 31, 1997, Enron's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998, and the
historical financial statements of Wessex included
elsewhere in this Form 8-K/A. The pro forma adjustments
are based on current information about Wessex's net
assets and results of operations.
On July 24, 1998, Enron announced an all cash offer,
which was unanimously recommended by the board of directors
of Wessex, for all outstanding ordinary shares of Wessex
(the "Offer"), a water and wastewater services company based
in southwestern England. The Offer, which was made by Enron
Water (Europe) Plc, an indirectly wholly-owned subsidiary of
Enron and a public limited company organized under the laws
of England and Wales ("EWE"), was made on the basis of
British Pounds 6.30 for each ordinary share outstanding
and valued the ordinary share capital of Wessex, on a
fully diluted basis, at approximately British Pounds
1.4 billion (approximately US$2.2 billion based on then
applicable exchange rate). The Offer was made subject
to certain regulatory and other customary conditions.
On October 2, 1998, Enron announced that it had
received valid acceptances of the Offer by EWE for Wessex
in respect of more than 90 percent of Wessex's issued
ordinary share capital. On the same date, EWE made
payment for 91.9 percent of Wessex's issued ordinary
share capital. Further, on October 2, 1998, Enron issued
notices to those Wessex ordinary shareholders who had not
already accepted the Offer, informing them that it
intended to exercise its rights under section 429 of the
Companies Act 1985 (as amended) to acquire compulsorily
all the outstanding ordinary shares of Wessex. The
compulsory share acquisition is expected to be
consummated in November 1998.
Enron contributed US$1.8 billion to the acquisition of
Wessex. The remaining purchase price was funded by debt
incurred by subsidiaries which is guaranteed by Enron.
Wessex presents its financial statements based on UK
GAAP denominated in British pounds sterling. The financial
statements have been converted to US GAAP and US dollars
for the purposes of the following pro forma presentation.
Wessex's balance sheet denominated in British pounds sterling
was translated to US dollars at the rate of 1.6677, which was
the exchange rate at June 30, 1998. British pounds sterling
amounts in the income statement were translated at the
rate of 1.6533 for the six months ended June 30, 1998 and
1.6476 for the year ended December 31, 1997, which were
the average exchange rates for the respective periods combined.
The following unaudited pro forma consolidated
financial statements have been prepared as if the
acquisition of Wessex had taken place on June 30, 1998,
in the case of the pro forma consolidated balance sheet,
and as of January 1, 1997 for the consolidated pro
forma income statements for the six months ended June 30, 1998
and the year ended December 31, 1997. Enron will account
for the acquisition as a purchase for financial reporting
purposes. Accordingly, the purchase price has been allocated
to the assets and liabilities based upon the estimated fair
value as of the acquisition date. The allocation of purchase
price is preliminary. Management does not anticipate that the
final allocation will materially affect the company's equity
in earnings of this unconsolidated subsidiary.
Although Enron currently owns more than 50 percent of the
subsidiary which acquired Wessex, the subsidiary is being presented
under the equity method because management is actively
pursuing the sale of 50 percent of this entity and expects
the completion of the sale prior to year-end.
These unaudited pro forma financial statements should
be read in conjunction with the notes thereto and with
the historical financial statements and related notes of
Enron and Wessex. The unaudited pro forma financial
statements have been prepared based upon assumptions
deemed appropriate by management and are for
informational purposes only and are not necessarily
indicative of the actual or future results of operations
or financial conditions that would have been achieved had
the acquisition occurred at the dates assumed.
<PAGE>
<TABLE>
ENRON CORP.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
(In Millions)
(Unaudited)
<CAPTION>
Historical Adjustments Pro Forma
ASSETS
<S> <C> <C> <C>
Current Assets
Cash and cash equivalents $ 175 $ - $ 175
Trade receivables 2,815 - 2,815
Other receivables 703 - 703
Assets from price risk management
activities 2,971 - 2,971
Other 814 - 814
Total Current Assets 7,478 - 7,478
Investments and Other Assets
Investments in and advances to
unconsolidated subsidiaries 2,761 1,832(A) 4,593
Assets from price risk management
activities 2,536 - 2,536
Goodwill 1,884 - 1,884
Other 4,091 - 4,091
Total Investments and Other Assets 11,272 1,832 13,104
Property, Plant and Equipment, at cost 14,318 - 14,318
Less accumulated depreciation,
depletion and amortization 4,810 - 4,810
Net Property, Plant and Equipment 9,508 - 9,508
Total Assets $28,258 $1,832 $30,090
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
ENRON CORP.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
(In Millions)
(Unaudited)
<CAPTION>
Historical Adjustments Pro Forma
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C> <C>
Current Liabilities
Accounts payable $ 2,730 $ - $ 2,730
Liabilities from price risk management
activities 2,739 - 2,739
Other 920 - 920
Total Current Liabilities 6,389 - 6,389
Long-Term Debt 6,989 1,832(B) 8,821
Deferred Credits and Other Liabilities
Deferred income taxes 2,052 - 2,052
Liabilities from price risk management
activities 2,252 - 2,252
Other 1,707 - 1,707
Total 6,011 - 6,011
Minority Interests 1,089 - 1,089
Company-Obligated Preferred Securities
of Subsidiaries 993 - 993
Shareholders' Equity
Second preferred stock, cumulative, no
par value 132 - 132
Common stock, no par value 5,084 - 5,084
Retained earnings 2,051 - 2,051
Cumulative foreign currency translation
adjustment (159) - (159)
Common stock held in treasury (247) - (247)
Other (including Flexible Equity Trust) (74) - (74)
Total 6,787 - 6,787
Total Liabilities and Shareholders' Equity $28,258 $1,832 $30,090
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
ENRON CORP.
UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(In Millions, Except Per Share Amounts)
(Unaudited)
<CAPTION>
Historical Adjustments Pro Forma
<S> <C> <C> <C>
Revenues $12,239 $ - $12,239
Costs and Expenses
Cost of gas, electricity and other
products 10,087 - 10,087
Operating expenses 1,007 - 1,007
Oil and gas exploration expenses 60 - 60
Depreciation, depletion and amortization 372 - 372
Taxes, other than income taxes 103 - 103
Contract restructuring charge - - -
11,629 - 11,629
Operating Income 610 - 610
Other Income and Deductions
Equity in earnings of unconsolidated
subsidiaries 153 33 (C) 186
Gains on sales of assets and investments 4 - 4
Other income, net 49 - 49
Income Before Interest, Minority
Interests and Income Taxes 816 33 849
Interest and Related Charges, net 264 47 (D) 311
Dividends on Company-Obligated Preferred
Securities of Subsidiaries 39 - 39
Minority Interests 44 - 44
Income Tax Expense (Benefit) 110 (16)(E) 94
Net Income 359 2 361
Preferred Stock Dividends 9 - 9
Earnings on Common Stock $ 350 $ 2 $ 352
Earnings Per Share of Common Stock
Basic $ 1.12 $ 0.01 $ 1.13
Diluted $ 1.06 $ 0.01 $ 1.07
Average Number of Common Shares Used in
Computation
Basic 312 312 312
Diluted 338 338 338
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
ENRON CORP.
UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1997
(In Millions, Except Per Share Amounts)
(Unaudited)
<CAPTION>
Historical Adjustments Pro Forma
<S> <C> <C> <C>
Revenues $20,273 $ - $20,273
Costs and Expenses
Cost of gas, electricity and other
products 17,311 - 17,311
Operating expenses 1,406 - 1,406
Oil and gas exploration expenses 102 - 102
Depreciation, depletion and amortization 600 - 600
Taxes, other than income taxes 164 - 164
Contract restructuring charge 675 - 675
20,258 - 20,258
Operating Income 15 - 15
Other Income and Deductions
Equity in earnings of unconsolidated
subsidiaries 216 (70)(F) 146
Gains on sales of assets and investments 186 - 186
Other income, net 148 - 148
Income (Loss) Before Interest, Minority
Interests and Income Taxes 565 (70) 495
Interest and Related Charges, net 401 100 (D) 501
Dividends on Company-Obligated Preferred
Securities of Subsidiaries 69 - 69
Minority Interests 80 - 80
Income Tax Expense (Benefit) (90) (35)(E) (125)
Net Income (Loss) 105 (135) (30)
Preferred Stock Dividends 17 - 17
Earnings (Loss) on Common Stock $ 88 $ (135) $ (47)
Earnings (Loss) Per Share of Common Stock
Basic $ 0.32 $(0.49) $ (0.17)
Diluted $ 0.32 $(0.49) $ (0.17)
Average Number of Common Shares Used in
Computation
Basic 272 272 272
Diluted 277 277 277
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
ENRON CORP.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(A) To reflect Enron's investment and advances to the subsidiary
that holds the investment in Wessex.
(B) To reflect the debt issued by Enron to fund the investment
and advances pertaining to the acquisition. For pro forma
purposes, the borrowings have been reclassified as long-term
debt based upon the availablity of committed credit facilities
with expiration dates exceeding one year.
(C) To reflect the pro forma equity in the earnings for the six-
month period ended June 30, 1998. It is derived by combining
the unaudited net income of Wessex for the six months ended
June 30, 1998 and adjusting for an appropriate amount of
goodwill amortization and interest expense. The pro formas
include a preliminary goodwill amount of $1.1 billion that
is being amortized over a 40-year period.
(D) To reflect the pro forma interest expense on the debt issued
by Enron to fund the investment and advances pertaining to
the acquisition. The interest rate used is either Enron's
weighted-average short-term interest rate or, where applicable,
the underlying contractual rate.
(E) To reflect the pro forma income tax benefit (35%) associated
with the pro forma interest expense.
(F) To reflect the pro forma equity in the earnings for the year
ended December 31, 1997. It is derived by combining the
audited net income of Wessex for the year ended March 31,
1998 adjusting for an appropriate amount of goodwill
amortization and interest expense. The equity in earnings
amount for the year ended December 31, 1997 includes a one-
time utility tax offset of $163 million. Exclusive of the
tax, equity in earnings would have been $93 million, and
Enron's pro forma basic and diluted EPS would have increased
to $0.42.
<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 , 1998 By: /s/ Richard A. Causey
Richard A. Causey
Senior Vice President and Chief
Accounting, Information and
Administrative Officer
(Principal Accounting Officer)
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the
registration statements of Enron on Form S-3 (File No. 33-
13397)(Savings Plan), (File No. 33-34796)(Savings Plan), (File
No. 33-52261)(Savings Plan), (File No. 33-13489)(1986 Stock
Option Plan), (File No. 33-27893)(1998 Stock Option Plan), (File
No. 33-52768)(1991 Stock Plan), (File No. 33-52143)(955,640
Shares of Common Stock), (File No. 33-60821)(1994 Stock Plan),
(File No. 333-22739)(347,793 Shares of Common Stock), (File No.
333-42645)(Debt Securities Warrants to Purchase Common Stock,
Preferred Stock and Depository Shares), (File No. 333-
44133)(244,283 Shares of Common Stock) and (File No. 333-
38253)(176,634 Shares of Common Stock) of our report dated
June 9, 1998, except for the information set out in Notes 37
and 38, for which the date is October 29, 1998, on our audits
of the consolidated financial statements of Wessex Water Plc as
at March 31, 1998 and 1997, and for the years ended March 31,
1998 and 1997, which report is included in this Form 8-K/A.
Coopers & Lybrand
Bristol, England
October 29, 1998
