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 March 31, 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)
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 April 30, 1998
Common Stock, No Par Value 311,611,708 shares
1 of 25
<PAGE>
ENRON CORP. AND SUBSIDIARIES
TABLE OF CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Income Statement - Three
Months Ended March 31, 1998 and 1997 3
Consolidated Balance Sheet - March 31, 1998
and December 31, 1997 4
Consolidated Statement of Cash Flows - Three
Months Ended March 31, 1998 and 1997 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 24
ITEM 6. Exhibits and Reports on Form 8-K 24
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ENRON CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED INCOME STATEMENT
(In Millions, Except Per Share Amounts)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1998 1997
<S> <C> <C>
Revenues $5,682 $5,344
Costs and Expenses
Cost of gas, electricity and other products 4,559 4,632
Operating expenses 437 273
Oil and gas exploration expenses 34 22
Depreciation, depletion and amortization 182 124
Taxes, other than income taxes 58 36
5,270 5,087
Operating Income 412 257
Other Income and Deductions
Equity in earnings of unconsolidated
subsidiaries 44 41
Gains on sales of assets and investments - 117
Other income, net 15 14
Income before Interest, Minority Interests
and Income Taxes 471 429
Interest and Related Charges, net 133 70
Dividends on Company-Obligated Preferred
Securities of Subsidiaries 19 15
Minority Interests 25 19
Income Taxes 80 103
Net Income 214 222
Preferred Stock Dividends 4 4
Earnings on Common Stock $ 210 $ 218
Earnings per Share of Common Stock
Basic $ 0.69 $ 0.88
Diluted $ 0.65 $ 0.81
Average Number of Common Shares Used in
Computation
Basic 305 248
Diluted 330 273
<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>
March 31, December 31,
1998 1997
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 173 $ 170
Trade receivables 1,636 1,697
Other receivables 569 454
Assets from price risk management activities 2,273 1,577
Other 737 771
Total Current Assets 5,388 4,669
Investments and Other Assets
Investments in and advances to unconsolidated
subsidiaries 2,649 2,656
Assets from price risk management activities 1,546 1,352
Goodwill 1,883 1,910
Other 4,007 3,665
Total Investments and Other Assets 10,085 9,583
Property, Plant and Equipment, at cost 13,942 13,742
Less accumulated depreciation, depletion
and amortization 4,695 4,572
Net Property, Plant and Equipment 9,247 9,170
Total Assets $24,720 $23,422
<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>
March 31, December 31,
1998 1997
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 2,075 $ 2,119
Liabilities from price risk management
activities 2,158 1,476
Other 669 817
Total Current Liabilities 4,902 4,412
Long-Term Debt 6,835 6,254
Deferred Credits and Other Liabilities
Deferred income taxes 2,158 2,039
Liabilities from price risk management
activities 1,149 1,190
Other 1,716 1,769
Total 5,023 4,998
Minority Interests 1,153 1,147
Company-Obligated Preferred Securities of
Subsidiaries 993 993
Shareholders' Equity
Second preferred stock, cumulative, no par value 133 134
Common stock, no par value 4,230 4,224
Retained earnings 1,989 1,852
Cumulative foreign currency translation
adjustment (147) (148)
Common stock held in treasury (256) (269)
Other (including Flexible Equity Trust) (135) (175)
Total 5,814 5,618
Total Liabilities and Shareholders' Equity $24,720 $23,422
<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>
Three Months Ended
March 31,
1998 1997
<S> <C> <C>
Cash Flows From Operating Activities
Reconciliation of net income to net cash
provided by (used in) operating activities
Net income $ 214 $ 222
Depreciation, depletion and amortization 182 124
Oil and gas exploration expenses 34 22
Deferred income taxes 54 54
Gains on sales of assets and investments (27) (107)
Changes in components of working capital (158) (71)
Net assets from price risk management activities (249) (228)
Amortization of production payment transaction (11) (11)
Other, net 113 (147)
Net Cash Provided by (Used in) Operating Activities 152 (142)
Cash Flows From Investing Activities
Proceeds from sale of assets and investments 3 298
Capital expenditures (288) (214)
Equity investments (59) (79)
Other, net (250) (73)
Net Cash Used in Investing Activities (594) (68)
Cash Flows From Financing Activities
Net increase in short-term borrowings 623 373
Issuance of long-term debt - 31
Repayment of long-term debt (42) (189)
Issuance of company-obligated preferred securities
of subsidiaries - 172
Issuance of common stock 2 -
Dividends paid (99) (83)
Net (acquisition) disposition of treasury stock 3 (32)
Other, net (42) (63)
Net Cash Provided by Financing Activities 445 209
Increase (Decrease) in Cash and Cash Equivalents 3 (1)
Cash and Cash Equivalents, Beginning of Period 170 256
Cash and Cash Equivalents, End of Period $ 173 $ 255
Changes in Components of Working Capital
Receivables $ (54) $ 453
Payables (44) (448)
Other (60) (76)
Total $(158) $ (71)
<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 included in
Enron's Annual Report on Form 10-K for the year ended
December 31, 1997 (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 1997
amounts to conform with the 1998 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. BUSINESS ACQUISITIONS
Effective July 1, 1997, Enron merged with Portland
General Corporation (PGC) in a stock-for-stock transaction
and in November 1997, Enron acquired the minority interest
in Enron Global Power & Pipelines L.L.C. (EPP) in a stock-
for-stock transaction. Additionally, during 1997, Enron
acquired renewable energy, telecommunications and energy
management businesses for cash, Enron and subsidiary stock
and notes.
Enron has accounted for these acquisitions using the
purchase method of accounting as of the effective date of
each transaction. The allocation of purchase price related
to the determination of reserves for certain contractual and
legal contingencies for the PGC merger is preliminary
pending completion of Enron's final studies and evaluations.
Enron does not anticipate that the final evaluation of these
issues will materially affect the allocation of the purchase
price.
The following summary presents unaudited pro forma
consolidated results of operations for the three months
ended March 31, 1997 as if the business acquisitions had
occurred at the beginning of 1997. 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 (in millions, except per share amounts).
<TABLE>
<CAPTION>
Three Months Ended
March 31,1997
<S> <C>
Revenues $5,712
Income before interest, minority
interests and income taxes 534
Net income 272
Earnings per share
Basic $ 0.87
Diluted $ 0.81
</TABLE>
3. SUPPLEMENTAL CASH FLOW INFORMATION
Net cash paid for income taxes for the first quarter of
1998 and 1997 was $21 million and $9 million, respectively.
Cash paid for interest expense for the same periods, net of
amounts capitalized, was $130 million and $81 million,
respectively.
4. LITIGATION AND OTHER CONTINGENCIES
Enron is a party to various claims and litigation, the
significant items of which are discussed below. Although no
assurances can be given, Enron believes, based on its
experience to date and after considering appropriate
reserves that have been established, that the ultimate
resolution of such items, individually or in the aggregate,
will not have a materially adverse impact on Enron's
financial position or its results of operations.
Litigation. 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 ratability claims. The Court
of Appeals has affirmed the trial court's order granting
class certification. An appeal to the Texas Supreme Court
has been filed. 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.
On November 21, 1996, an explosion occurred in or around
the Humberto Vidal Building in San Juan, Puerto Rico. The
explosion resulted in fatalities, bodily injuries and damage
to the building and surrounding property. San Juan Gas
Company, Inc. (San Juan), an Enron subsidiary, operates a
propane gas/air distribution system in the vicinity.
Although San Juan did not provide service to the building,
the National Transportation Safety Board (NTSB) has
concluded that the probable cause of the incident was gas
leaking from San Juan's distribution system. San Juan and
Enron strongly disagree with the NTSB findings. The NTSB
investigation (i) found no path of migration of gas from San
Juan's system to the building and (ii) discovered no
forensic evidence that propane gas fueled the explosion.
Enron and San Juan have been named as defendants in a number
of lawsuits filed in U.S. District Court for the district of
Puerto Rico and the Commonwealth court of Puerto Rico.
These suits, which seek damages for wrongful death, personal
injury, business interruption and property damage, allege
that negligence of Enron and San Juan, among others, caused
the explosion. Enron and San Juan are vigorously contesting
the claims. Although no assurances can be given, Enron
believes that the ultimate resolution of these matters will
not have a material adverse effect on its financial position
or results of operations.
Trojan Investment Recovery. In early 1993, Portland
General Electric Company (PGE) ceased commercial operation
of the Trojan Nuclear Plant. In April 1996 a circuit
court judge in Marion County, Oregon, found that the Oregon
Public Utilities Commission (OPUC) could not authorize
PGE to collect a return on its undepreciated investment in
Trojan, contradicting a November 1994 ruling from the same
court. The ruling was the result of an appeal of PGE's 1995
general rate order which granted PGE recovery of, and a return
on, 87% of its remaining investment in Trojan. The 1994
ruling was appealed to the Oregon Court of Appeals and was stayed
pending the appeal of the OPUC's March 1995 order. Both PGE
and the OPUC have separately appealed the April 1996 ruling,
which appeals were combined with the appeal of the November
1994 ruling at the Oregon Court of Appeals. Enron believes
that the authorized recovery of and return on the Trojan
investment and decommissioning costs will be upheld and that
these legal challenges will not have a materially adverse
impact on its financial position or results of operations.
Environmental Matters. Enron is subject to extensive
federal, state and local environmental laws and regulations.
These laws and regulations require expenditures in
connection with the construction of new facilities, the
operation of existing facilities and for remediation at
various operating sites. The implementation of the Clean
Air Act Amendments is expected to result in increased
operating expenses. These increased operating expenses are
not expected to have a material impact on Enron's 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.
5. EARNINGS PER SHARE
The computation of basic and diluted earnings per share
is as follows (in millions, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
<S> <C> <C>
Numerator:
Net income $ 214 $ 222
Preferred stock dividends (4) (4)
Numerator for basic earnings per
share - income available to common
shareholders 210 218
Effect of dilutive securities:
Preferred stock dividends 4 4
Numerator for diluted earnings per
share - income available to common
shareholders after assumed conversions $ 214 $ 222
Denominator:
Denominator for basic earnings per
share - weighted-average shares 305 248
Effect of dilutive securities:
Preferred stock 18 19
Stock options 7 6
Dilutive potential common shares 25 25
Denominator for diluted earnings per
share - adjusted weighted-average
shares and assumed conversions 330 273
Basic earnings per share $0.69 $0.88
Diluted earnings per share $0.65 $0.81
</TABLE>
On May 8, 1998, Enron sold 17.25 million shares of its
common stock representing an increase of approximately 5.5%
in the number of shares outstanding. Net proceeds of
approximately $837 million were used to reduce debt and for
general corporate purposes, including capital expenditures.
6. COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards (SFAS)
No. 130 - "Reporting Comprehensive Income." Enron had
adopted this standard which establishes standards for
reporting and displaying comprehensive income and its
components.
Comprehensive income includes the following (in
millions):
<TABLE>
<CAPTION>
First Quarter
1998 1997
<S> <C> <C>
Earnings on common stock $ 210 $ 218
Other comprehensive income:
Foreign currency translation adjustment (1) (15)
Total comprehensive income $ 209 $ 203
</TABLE>
<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
First Quarter 1998
vs. First Quarter 1997
The following review of Enron's results of operations
should be read in conjunction with the Consolidated
Financial Statements.
RESULTS OF OPERATIONS
Consolidated Net Income
Enron's first quarter 1998 net income was $214 million
compared to $222 million in the first quarter of 1997. The
results of operations discussion focuses on core businesses,
the retail energy services business (primarily serving
commercial and light industrial end-use customers) and items
impacting comparability of operations. Core businesses
include Exploration and Production (Enron Oil & Gas
Company), Transportation and Distribution (Gas Pipeline
Group and Portland General) and Wholesale Energy Operations
and Services (Enron Capital & Trade Resources, Enron
International and Enron Engineering & Construction). The
results of Portland General have been included in Enron's
Consolidated Financial Statements beginning July 1, 1997.
See Note 2 to the Consolidated Financial Statements. Items
impacting comparability are discussed in the respective
segment results. Net income includes the following (in
millions):
<TABLE>
<CAPTION>
First Quarter
1998 1997
<S> <C> <C>
After-tax results from:
Core businesses $ 233 $ 165
Retail Energy Services (19) (9)
214 156
Items impacting comparability(a)
Gains on sales of liquids assets - 66
Reported net income $ 214 $ 222
<FN>
(a) Tax affected at 35%.
</TABLE>
Basic and diluted earnings per share of common stock were
as follows:
<TABLE>
<CAPTION>
First Quarter
1998 1997
<S> <C> <C>
Reported basic earnings per share $0.69 $0.88
Diluted earnings per share:
Results from core businesses $0.71 $0.60
Results from Retail Energy Services (0.06) (0.03)
Items impacting comparability:
Gains on sales of liquids and
gathering assets - 0.24
Reported diluted earnings per share $0.65 $0.81
</TABLE>
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>
First Quarter
1998 1997
<S> <C> <C>
Exploration and Production $ 43 $ 42
Transportation and Distribution:
Gas Pipeline Group 126 237
Portland General 79 -
Wholesale Energy Operations and Services 249 167
Retail Energy Services (27) (14)
Corporate and Other 1 (3)
Reported income before interest,
minority interests and taxes $471 $429
</TABLE>
Exploration and Production
Enron's exploration and production operations are
conducted by Enron Oil & Gas Company (EOG). IBIT of
Exploration and Production totaled $43 million and $42
million for the first quarter of 1998 and 1997,
respectively.
Wellhead volume and price statistics (including
intercompany amounts) are as follows:
<TABLE>
<CAPTION>
First Quarter
1998 1997
<S> <C> <C>
Natural gas volumes (MMcf/d)(a)
North America(b) 745 738
Trinidad 109 112
India 47 -
Total 901 850
Average natural gas prices ($/Mcf)
North America(c) 1.93 2.58
Trinidad 1.09 1.04
India 2.70 -
Composite 1.86 2.38
Crude oil/condensate volumes (MBbl/d)(a)
North America 15.3 13.1
Trinidad 2.8 3.7
India 4.2 2.8
Total 22.3 19.6
Average crude oil/condensate prices ($/Bbl)
North America 14.55 21.55
Trinidad 14.03 21.56
India 15.33 22.99
Composite 14.64 21.76
<FN>
(a) Million cubic feet per day or thousand barrels per day,
as applicable.
(b) Includes 48 MMcf/d for the three-month periods ended
March 31, 1998 and 1997 delivered under the terms of a
volumetric production payment agreement effective October 1,
1992, as amended.
(c) Includes an average equivalent wellhead value of
$1.62/Mcf and $2.47/Mcf for the three-month periods ended
March 31, 1998 and 1997, respectively, for the volumes
detailed in Note (b), net of transportation costs.
</TABLE>
The following analyzes the significant changes in the
various components of IBIT for Exploration and Production
(in millions):
<TABLE>
<CAPTION>
First Quarter
1998 1997
<S> <C> <C>
Net revenues $206 $180
Operating expenses 42 37
Exploration expenses 34 22
Depreciation, depletion and amortization 72 63
Taxes, other than income taxes 14 17
Operating income 44 41
Other income, net (1) 1
Reported income before interest,
minority interests and taxes $ 43 $ 42
</TABLE>
Net Revenues
Exploration and Production's revenues, net of gas sold in
connection with natural gas marketing, increased $26 million
in the first quarter of 1998 as compared to the same period
in 1997. Production volumes increased in the first quarter
of 1998 as compared with the 1997 first quarter, although
wellhead revenues declined due to lower prices. The colder
winter in 1997 contributed to the higher prior year natural
gas prices. Other marketing activities, including natural
gas and crude oil hedging and trading transactions, resulted
in net revenues of $2 million in the first quarter of 1998,
an improvement from the prior year, which reflected a
reduction of $46 million in net revenues. Gains on sales of
reserves and related assets and other, net totaled $14
million in first three months of 1998 as compared to $1
million in the same period of 1997. Included in 1998 are
$27 million in gains on sales of producing properties,
partially offset by charges of $14 million associated with
the costs of terminating certain physical natural gas
contracts.
Costs and Expenses
Operating expenses, including taxes other than income
taxes, depreciation, depletion and amortization and
exploration expenses increased primarily due to increased
production and exploration activities and overall market
increases.
Transportation and Distribution
Transportation and Distribution consists of Gas Pipeline
Group and Portland General. Gas Pipeline Group includes
Enron's interstate natural gas pipelines, primarily Northern
Natural Gas Company (Northern), Transwestern Pipeline
Company (Transwestern) and Enron's 50% interest in Florida
Gas Transmission Company (Florida Gas). Portland General
primarily reflects the results of Portland General Electric
Company (PGE) since the July 1, 1997 merger (see Note 2 to
the Consolidated Financial Statements).
Gas Pipeline Group. Significant components of IBIT are
as follows (in millions):
<TABLE>
<CAPTION>
First Quarter
1998 1997
<S> <C> <C>
Net revenues $192 $206
Operating expenses 69 73
Depreciation and amortization 16 18
Equity in earnings 11 10
Other income, net 8 10
IBIT before items impacting comparability 126 135
Gains on sales of liquids and gathering assets - 102
Reported income before interest and taxes $126 $237
</TABLE>
Net Revenues
Revenues, net of cost of sales, of Gas Pipeline Group
(GPG) declined $14 million (7%) in the first quarter of 1998
as compared to the same period in 1997. The decrease is
primarily due to the sale of the liquids assets in the first
quarter of 1997 and the unusually warm winter in Northern's
service territory in the first three months of 1998.
Costs and Expenses
Operating expenses and depreciation and amortization
decreased $4 million (5%) and $2 million (11%),
respectively, during the first quarter of 1998 as compared
to the same period in 1997. The decline is primarily due to
reduced expenses related to the sale of natural gas liquids
assets in the first quarter of 1997.
Items Impacting Comparability
During the first quarter of 1997, gains of $102 million
were recognized related to the sales of liquids assets,
including processing plants and Enron's interest in the
Enron Liquids Pipeline L.P.
Portland General. Results for Portland General have been
included in Enron's Consolidated Financial Statements beginning
July 1, 1997. For the first quarter of 1998, Portland General
realized IBIT of $79 million, as follows (in millions):
<TABLE>
<CAPTION>
First Quarter
1998
<S> <C>
Revenues $320
Purchased power and fuel 124
Operating expenses 76
Depreciation and amortization 44
Other income, net 3
Reported income before interest and taxes $ 79
</TABLE>
The results for the first three months of 1998 include
the impact of the warmer than normal winter and costs of
damages resulting from the January 1998 ice storm in
Portland General's customer service area.
Statistics for PGE for the first quarter of 1998 and 1997
(including amounts for 1997 for comparative purposes only)
are as follows:
<TABLE>
<CAPTION>
First Quarter
1998 1997
<S> <C> <C>
Electricity Sales (Thousand MWh)(a)
Residential 2,076 2,142
Commercial 1,660 1,711
Industrial 990 983
Total Retail 4,726 4,836
Wholesale 3,575 6,419
Total Electricity Sales 8,301 11,255
Average Rate (Thousand MWh)(a)
Residential 5.91 5.45
Commercial 5.06 5.07
Industrial 3.09 3.36
Total Retail 5.02 4.89
Wholesale 1.82 1.81
Total Sales 3.64 3.13
Resource Mix
Coal 15% 5%
Combustion Turbine 7 -
Hydro 9 9
Total Generation 31 14
Firm Purchases 65 80
Secondary Purchases 4 6
Total Resources 100% 100%
Average Variable Power Cost (Mills/KWh)(b)
Generation 7.0 4.3
Firm Purchases 16.3 16.3
Secondary Purchases 14.2 12.2
Total Average Variable Power Cost 14.4 15.0
Retail Customers (end of period, thousands) 688 672
<FN>
(a) Thousand megawatt-hours.
(b) Mills (1/10 cent) per kilowatt-hour.
</TABLE>
Wholesale Energy Operations and Services
Enron's Wholesale Energy Operations and Services
businesses are conducted primarily by Enron Capital & Trade
Resources (ECT) and Enron International (EI). These
businesses provide integrated energy-related products and
services to wholesale customers worldwide, including the
development, construction and operation of power plants,
natural gas pipelines and other energy-related assets,
energy commodity sales and services, risk management
products and financial services.
Wholesale Energy Operations and Services (Wholesale) can
be categorized into four business lines: Asset Development
and Construction, Cash and Physical, Risk Management and
Finance and Investing. The following table reflects IBIT
for each business line (in millions):
<TABLE>
<CAPTION>
First Quarter
1998 1997
<S> <C> <C>
Asset Development and Construction $ 15 $ 9
Cash and Physical 153 136
Risk Management 31 34
Finance and Investing 80 16
Unallocated expenses (30) (28)
Reported income before interest,
minority interests and taxes $249 $167
</TABLE>
The following discussion analyzes the contributions to
IBIT and the outlook for each of the business lines.
Asset Development and Construction. This line of
business includes the development and construction of power
plants, pipelines and other energy infrastructure.
Earnings from the asset development and construction
business increased to $15 million in the first quarter of
1998 from $9 million in the same period of 1997, primarily
as a result of higher construction earnings on projects in
the U.K.
Cash and Physical. The cash and physical operations
include earnings from physical contracts of one year or less
involving marketing and transportation of natural gas,
liquids, electricity and other commodities, earnings from
the management of Enron's contract portfolio and earnings
related to the operating assets of this segment. Also
included are the effects of actual settlements of long-term
physical and notional quantity-based contracts.
Wholesale markets, transports and provides energy
commodities as reflected in the following table (including
intercompany amounts):
<TABLE>
<CAPTION>
First Quarter
1998 1997
<S> <C> <C>
Physical Volumes (BBtue/d)(a)(b)
Gas:
United States 7,276 8,611
Canada 2,876 2,107
Europe 1,125 460
11,277 11,178
Transport Volumes 450 207
Total Gas Volumes 11,727 11,385
Oil 1,756 663
Liquids 654 1,248
Electricity(c) 8,262 3,699
Total 22,399 16,995
Electricity Volumes Marketed (Thousand MWh)
United States 74,272 33,242
Europe 82 50
Total 74,354 33,292
Financial Settlements (Notional) (BBtue/d) 69,918 39,916
<FN>
(a) Billion British thermal units equivalent per day.
(b) Includes third-party transactions by Enron Energy
Services.
(c) Represents electricity transaction volumes marketed,
converted to BBtue/d utilizing the input method.
</TABLE>
The earnings from cash and physical increased 13% in
the first quarter of 1998 as compared to the same period of
1997 primarily due to the strong performance of Enron's
international operating assets and increased profits from
power marketing where volumes showed continued strength in
the growing deregulated market, partially offset by lower
gas marketing margins resulting from warmer weather and low
price volatility during the first quarter of 1998.
Risk Management. Wholesale's 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
development activity related to such contracts.
Earnings from risk management decreased 9% in the first
quarter of 1998 as compared to the first quarter of 1997
primarily due to lower originations in the European market
partially offset by higher North American originations.
Finance and Investing. The finance and investing
operations provides a variety of capital products to its
worldwide customers, including volumetric production
payments, loans and equity investments. These products are
offered directly or through joint ventures.
Additionally, the finance and investing business includes
the management of Wholesale's capital investments, both
operating and financial, as well as certain of Enron's
equity investments. Accordingly, the results of this
business include earnings from changes in the composition
and market value of these investments. Market value changes
result from both underlying operating strengths and
favorable conditions in the equity markets. Exposures
related to these investments are managed through certain
hedging transactions as well as through the overall
diversity of the investments. Enron's current balance of
financings and investments approximated $1 billion at
March 31, 1998.
Earnings from the finance and investing operations
increased to $80 million in the first quarter of 1998 as
compared to $16 million in the same period of 1997 as a
result of continued originations in the North American and
European markets and increased earnings associated with
Enron's energy investments.
Unallocated Expenses. Net unallocated expenses such as
rent, systems expenses and other support group costs
increased in 1998 due to continued expansion into new
markets and system upgrades.
Retail Energy Services
Enron Energy Services (EES) is extending Enron's energy
expertise to end-use customers. This includes sales of
natural gas, electricity and energy management services
directly to commercial and light industrial customers. In
the first quarter of 1998, EES continued to make significant
progress in expanding its customer base and contracting
activities by executing several significant commodity and
services contracts with new customers. EES reported an
operating loss before interest, minority interest and taxes
of $27 million in the first quarter of 1998 compared to a
loss of $14 million in the first quarter of 1997. These
results primarily reflect the costs associated with
developing the commodity, capital and services capability to
deliver on contracts signed to date by EES, as well as
income from investments in related businesses.
Corporate and Other
Corporate and Other, which includes results of Enron
Renewable Energy Corp., EOTT Energy Corp. (EOTT) and the
operations of Enron's methanol and MTBE plants, realized
IBIT of $1 million in the first quarter of 1998 compared to
a loss of $3 million for the same period in 1997.
Interest and Related Charges, net
Interest and related charges, net, is reported net of
interest capitalized of $6 million and $4 million for the
first three months of 1998 and 1997, respectively. The net
expense increased $63 million in the first quarter of 1998
as compared to the same period of 1997, primarily due to
higher debt levels, including $1.5 billion of debt issued by
Enron in the second half of 1997 and $1.1 billion of debt
assumed in connection with the merger with PGC.
Dividends on Company-Obligated Preferred Securities of
Subsidiaries
Dividends on company-obligated preferred securities of
subsidiaries increased from $15 million in the first quarter
of 1997 to $19 million in the first quarter of 1998,
primarily due to the issuance of approximately $200 million
of additional preferred securities by an Enron subsidiary
during in the second quarter of 1997.
Minority Interests
Minority interests increased $6 million to $25 million in
the first quarter of 1998 compared to the same period in
1997, primarily due to the minority owner's share of
dividends on preferred stock issued in connection with the
formation of an Enron-controlled joint venture in late 1997,
partially offset by Enron's acquisition of the Enron Global
Power & Pipelines, L.L.C. minority interest in November 1997.
Income Tax Expense
Income taxes decreased during the first quarter of 1998
as compared to the first quarter of 1997 primarily as a
result of lower pretax earnings and differences between the
book and tax basis of certain asset and stock sales.
NEW ACCOUNTING PRONOUNCEMENTS
On April 3, 1998, the AICPA issued Statement of Position
98-5 (SOP 98-5), "Reporting on the Costs of Start-Up
Activities," which generally requires that costs for start-
up activities and organization costs should be expensed as
incurred. SOP 98-5 is effective for financial statements
for fiscal years beginning after 1998 and initial adoption
is required to be reflected as a cumulative effect of
accounting change. Enron is evaluating the impact of SOP 98-
5 and is currently unable to estimate the impact of adopting
this accounting pronouncement.
FINANCIAL CONDITION
<TABLE>
Cash Flows
<CAPTION>
First Quarter
(In Millions) 1998 1997
<S> <C> <C>
Cash provided by (used in):
Operating activities $ 152 $(142)
Investing activities (594) (68)
Financing activities 445 209
</TABLE>
Cash provided by operating activities totaled $152
million during the first three months of 1998 as compared to
cash used of $142 in the same period last year. The change
in cash from operating activities in the first quarter of
1998 reflects increased earnings from Enron's core
businesses, partially offset by the increase in net assets
of risk management activities.
Cash used in investing activities totaled $594 million
during the first quarter of 1998 as compared to $68 million
during the same period in 1997. The increase primarily
reflects increased cash usage for capital expenditures and
other investments and a decrease in proceeds received from
asset sales, primarily related to the 1997 sale of the
liquids assets. Capital expenditures in the first quarter
of 1998 were $288 million, including $118 million by EOG,
$72 million by Wholesale and $65 million by Transportation
and Distribution. Other investments totaled $250 million in
the first three months of 1998 primarily as a result of
additional investments made by Enron to complement existing
businesses and activities by Wholesale in connection with
its finance and investing line of business.
Cash provided by financing activities totaled $445
million during the first quarter of 1998 as compared to $209
million during the same period in 1997. In the first three
months of 1998, net issuances of short- and long-term debt
totaled $581 million. Proceeds were primarily used to fund
investment activities.
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.
Capitalization
Total capitalization at March 31, 1998 was $14.8 billion.
Debt as a percentage of total capitalization increased to
46.2% at March 31, 1998 as compared to 39.6% at March 31,
1997. The increase primarily reflects increased debt,
partially offset by the issuance during 1997 of
approximately 62.0 million shares of common stock in
connection with the acquisitions of PGC and the minority
interest in EPP (see Note 2 to the Consolidated Financial
Statements). On May 8, 1998, Enron sold 17.25 million
shares of its common stock, resulting in net proceeds of
approximately $837 million. Giving effect to the sale of
common stock and assuming the 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 39.4% at March 31, 1998.
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, ability to
penetrate new retail natural gas and electricity markets in
the United States and Europe, 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 4 to Consolidated Financial
Statements entitled "Litigation and Other Contingencies,"
which is incorporated herein by reference.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit 12 Computation of Ratio of Earnings to Fixed Charges
(b) Reports on Form 8-K
Current Report on Form 8-K filed March 19, 1998,
containing Enron Corp. Consolidated Financial
Statements for the year ended December 31, 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: May 14, 1998 By: Richard A. Causey
Richard A. Causey
Senior Vice President and Chief
Accounting and Information Officer
(Principal Accounting Officer)
Exhibit 12
<TABLE>
ENRON CORP. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO
FIXED CHARGES
(Dollars in Millions)
(Unaudited)
<CAPTION>
Three Months
Ended Year Ended December 31,
3/31/98 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Earnings available for fixed charges
Net income $214 $105 $ 584 $ 520 $ 453 $333
Less:
Undistributed earnings and
losses of less than 50% owned
affiliates (19) (89) (39) (14) (9) (20)
Capitalized interest of
nonregulated companies (9) (16) (10) (8) (9) (26)
Add:
Fixed charges (1) 174 674 454 436 487 471
Minority interest 26 80 75 27 30 28
Income tax expense 84 (65) 297 310 190 148
Total $470 $689 $1,361 $1,271 $1,142 $934
Fixed Charges
Interest expense (1) $157 $624 $ 404 $ 386 $ 445 $436
Rental expense representative of
interest factor 17 50 50 50 42 35
Total $174 $674 $ 454 $ 436 $ 487 $471
Ratio of earnings to fixed charges 2.70 1.02 3.00 2.92 2.34 1.98
<FN>
(1) Amounts exclude costs incurred on sales of accounts receivables.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 173
<SECURITIES> 0
<RECEIVABLES> 2,123
<ALLOWANCES> 0
<INVENTORY> 163
<CURRENT-ASSETS> 5,388
<PP&E> 13,942
<DEPRECIATION> 4,695
<TOTAL-ASSETS> 24,720
<CURRENT-LIABILITIES> 4,902
<BONDS> 6,835
0
133
<COMMON> 4,230
<OTHER-SE> 1,451
<TOTAL-LIABILITY-AND-EQUITY> 24,720
<SALES> 4,555
<TOTAL-REVENUES> 5,682
<CGS> 4,559
<TOTAL-COSTS> 5,270
<OTHER-EXPENSES> (59)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 133
<INCOME-PRETAX> 294
<INCOME-TAX> 80
<INCOME-CONTINUING> 214
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 214
<EPS-PRIMARY> 0.69
<EPS-DILUTED> 0.65
</TABLE>
