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, 2000
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, 2000
Common Stock, No Par Value 732,044,320 shares
1 of 27
<PAGE>
ENRON CORP. AND SUBSIDIARIES
TABLE OF CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Condensed Income Statement - Three
Months Ended March 31, 2000 and 1999 3
Consolidated Balance Sheet - March 31, 2000
and December 31, 1999 4
Consolidated Statement of Cash Flows - Three
Months Ended March 31, 2000 and 1999 6
Notes to Consolidated Financial Statements 7
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 15
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 26
ITEM 6. Exhibits and Reports on Form 8-K 26
<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,
2000 1999
<S> <C> <C>
Revenues $13,145 $7,632
Costs and Expenses
Cost of gas, electricity and other products 11,888 6,300
Operating expenses 747 670
Depreciation, depletion and amortization 172 215
Taxes, other than income taxes 66 62
12,873 7,247
Operating Income 272 385
Other Income and Deductions
Equity in earnings of unconsolidated affiliates 264 68
Gains on sales of assets and investments 18 12
Other income, net 70 68
Income before Interest, Minority Interests
and Income Taxes 624 533
Interest and Related Charges, net 161 175
Dividends on Company-Obligated Preferred
Securities of Subsidiaries 18 19
Minority Interests 35 33
Income Taxes 72 53
Net Income Before Cumulative Effect of
Accounting Changes 338 253
Cumulative Effect of Accounting Changes,
net of tax - (131)
Net Income 338 122
Preferred Stock Dividends 20 4
Earnings on Common Stock $ 318 $ 118
Earnings per Share of Common Stock
Basic
Before Cumulative Effect of Accounting Changes $ 0.44 $ 0.36
Cumulative Effect of Accounting Changes - (0.19)
Basic Earnings per Share $ 0.44 $ 0.17
Diluted
Before Cumulative Effect of Accounting Changes $ 0.40 $ 0.34
Cumulative Effect of Accounting Changes - (0.18)
Diluted Earnings per Share $ 0.40 $ 0.16
Average Number of Common Shares Used in Computation
Basic 723 683
Diluted 852 745
<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,
2000 1999
ASSETS
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 466 $ 288
Trade receivables (net of allowance for doubtful
accounts of $35 and $40, respectively) 3,899 3,030
Other receivables 453 518
Assets from price risk management activities 3,139 2,205
Inventories 437 598
Other 939 616
Total Current Assets 9,333 7,255
Investments and Other Assets
Investments in and advances to unconsolidated
equity affiliates 6,020 5,036
Assets from price risk management activities 3,428 2,929
Goodwill 2,905 2,799
Other 5,101 4,681
Total Investments and Other Assets 17,454 15,445
Property, Plant and Equipment, at cost
Natural gas transmission 6,935 6,948
Electric generation and distribution 3,640 3,552
Construction in progress 1,409 1,491
Oil and gas, successful efforts method 705 690
Other 1,323 1,231
14,012 13,912
Less accumulated depreciation, depletion
and amortization 3,315 3,231
Property, Plant and Equipment, net 10,697 10,681
Total Assets $37,484 $33,381
<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,
2000 1999
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities
Accounts payable $ 2,914 $2,154
Liabilities from price risk management
activities 2,697 1,836
Short-term debt 1,884 1,001
Other 1,695 1,768
Total Current Liabilities 9,190 6,759
Long-Term Debt 8,288 7,151
Deferred Credits and Other Liabilities
Deferred income taxes 1,791 1,894
Liabilities from price risk management
activities 3,510 2,990
Other 1,594 1,587
Total Deferred Credits and Other Liabilities 6,895 6,471
Minority Interests 1,872 2,430
Company-Obligated Preferred Securities
of Subsidiaries 1,099 1,000
Shareholders' Equity
Second preferred stock, cumulative, no par value 129 130
Manditorily Convertible Junior Preferred
Stock, Series B, no par value 1,000 1,000
Common stock, no par value 7,041 6,637
Retained earnings 2,922 2,698
Accumulated other comprehensive income (756) (741)
Common stock held in treasury (16) (49)
Restricted stock and other (180) (105)
Total Shareholders' Equity 10,140 9,570
Total Liabilities and Shareholders' Equity $37,484 $33,381
<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,
2000 1999
<S> <C> <C>
Cash Flows From Operating Activities
Reconciliation of net income to net cash
provided by (used in) operating activities
Net income $ 338 $ 122
Cumulative effect of accounting changes, net of tax - 131
Depreciation, depletion and amortization 172 215
Deferred income taxes 30 2
Equity in earnings of unconsolidated affiliates (264) (68)
Gains on sales of assets and investments (18) (12)
Changes in components of working capital (313) (556)
Net assets from price risk management activities (52) (518)
Merchant assets and investments:
Realized gains on sales (31) (22)
Proceeds from sales 199 26
Additions and unrealized gains (517) (135)
Other operating activities (1) 155
Net Cash Used in Operating Activities (457) (660)
Cash Flows From Investing Activities
Capital expenditures (496) (519)
Equity investments (316) (409)
Proceeds from sales of investments and other assets 17 43
Acquisition of subsidiary stock (619) -
Business acquisitions, net of cash acquired (10) (38)
Other investing activities (69) (207)
Net Cash Used in Investing Activities (1,493) (1,130)
Cash Flows From Financing Activities
Issuance of long-term debt 1,361 114
Repayment of long-term debt (393) (68)
Net increase in short-term borrowings 962 1,119
Issuance of common stock 179 839
Issuance of preferred securities of subsidiaries 105 -
Dividends paid (156) (113)
Net disposition of treasury stock 70 119
Other financing activities - (35)
Net Cash Provided by Financing Activities 2,128 1,975
Increase in Cash and Cash Equivalents 178 185
Cash and Cash Equivalents, Beginning of Period 288 111
Cash and Cash Equivalents, End of Period $ 466 $ 296
Changes in Components of Working Capital
Receivables $ (824) $ (549)
Inventories 156 56
Payables 732 159
Other (377) (222)
Total $ (313) $ (556)
<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, 1999 (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 1999
amounts to conform with the 2000 presentation.
"Enron" is used from time to time herein as a collective
reference to Enron Corp. and its subsidiaries and
affiliates. The businesses of Enron are conducted by the
subsidiaries and affiliates whose operations are managed by
their respective officers.
2. SUPPLEMENTAL CASH FLOW INFORMATION
Net cash paid for income taxes for both the first quarter
of 2000 and 1999 was $11 million. Cash paid for interest
for the same periods, net of amounts capitalized, was $164
million and $185 million, respectively.
Non-Cash Activity. In the first quarter of 2000, Enron
and LJM Cayman, L.P. (LJM), a related party, entered into an
agreement which resulted in an exchange of assets. See Note 7.
3. 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 material 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 trial court certified a
class action with respect to ratability claims. On March 9,
2000, the Texas Supreme Court ruled that the trial court's
class certification was improper and remanded the case to
the trial court. 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 material 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, operated a
propane/air distribution system in the vicinity. Although
San Juan did not provide service to the building, the
National Transportation Safety Board (NTSB) concluded that
the probable cause of the incident was propane leaking from
San Juan's distribution system. San Juan and Enron strongly
disagree. The NTSB found no path of migration of propane
from San Juan's system to the building and no forensic
evidence that propane fueled the explosion. Enron, San
Juan, and four San Juan affiliates have been named, along
with several third parties, as defendants in numerous
lawsuits filed in U.S. District Court for the district of
Puerto Rico and the Superior Court of Puerto Rico. These
suits, which seek damages for wrongful death, personal
injury, business interruption and property damage, allege
that negligence of Enron, San Juan and its affiliates, among
others, caused the explosion. Enron, San Juan and its
affiliates 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, PGE ceased
commercial operation of Trojan. In April 1996 a circuit
court judge in Marion County, Oregon, found that the 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 March 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 separately appealed the April 1996 ruling,
which appeals were combined with the appeal of the November
1994 ruling at the Oregon Court of Appeals. On June 24,
1998, the Court of Appeals of the State of Oregon ruled that
the OPUC does not have the authority to allow PGE to recover
a rate of return on its undepreciated investment in the
Trojan generating facility. The court upheld the OPUC's
authorization of PGE's recovery of its undepreciated
investment in Trojan.
PGE and the OPUC each filed petitions for review with the
Oregon Supreme Court. On August 26, 1998, the Utility
Reform Project filed a petition for review with the Oregon
Supreme Court seeking review of that portion of the Oregon
Court of Appeals decision relating to PGE's recovery of its
undepreciated investment in Trojan. On April 29, 1999, the
Oregon Supreme Court accepted the petitions for review. On
June 16, 1999, Oregon House Bill 3220 authorizing the OPUC
to allow recovery of a return on the undepreciated
investment in property retired from service was signed. One
of the effects of the bill is to affirm retroactively the
OPUC's authority to allow PGE's recovery of a return on its
undepreciated investment in the Trojan generating facility.
Relying on the new legislation, on July 2, 1999, PGE
requested the Oregon Supreme Court to vacate the June 24,
1998, adverse ruling of the Oregon Court of Appeals, affirm
the validity of the OPUC's order allowing PGE to recover a
return on its undepreciated investment in Trojan and to
reverse its decision accepting the Utility Reform Project's
petition for review. The Utility Reform Project and the
Citizens Utility Board, another party to the proceeding,
opposed such request and submitted to the Oregon Secretary
of State sufficient signatures in support of placing a
referendum to negate the new legislation on the November
2000 ballot. The Oregon Supreme Court has indicated it will
defer hearing the matter until after the November 2000
elections. Enron cannot predict the outcome of these
actions. Additionally, due to uncertainties in the
regulatory process, management cannot predict, with
certainty, what ultimate rate-making action the OPUC will
take regarding PGE's recovery of a rate of return on its
Trojan investment. 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.
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. To date, the EPA has identified no other
potentially responsible parties with respect to this site.
Under the terms of administrative orders, Enron replaced
affected topsoil and removed impacted subsurface soils in
certain areas of the tract where the plant was formerly
located. Enron completed the final removal actions at the
site in November 1998 and concluded all remaining site
activities in the spring of 1999. Enron submitted a final
report on the work conducted at the site to the EPA. Enron
does not expect to incur material expenditures in connection
with this site.
Enron's natural gas pipeline companies conduct soil and
groundwater remediation on a number of their facilities.
Enron does not expect to incur material expenditures in
connection with soil and groundwater remediation.
4. 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,
2000 1999
<S> <C> <C>
Numerator:
Basic
Income before cumulative effect of
accounting changes $ 338 $ 253
Preferred stock dividends:
Second Preferred Stock (4) (4)
Series B Preferred Stock (16) -
Income available to common shareholders
before cumulative effect of accounting
changes 318 249
Cumulative effect of accounting changes - (131)
Income available to common shareholders $ 318 $ 118
Diluted
Income available to common shareholders
before cumulative effect of accounting
changes $ 318 $ 249
Effect of assumed conversion of
dilutive securities:
Second Preferred Stock 4 4
Series B Preferred Stock 16 -
Income before cumulative effect of
accounting changes 338 253
Cumulative effect of accounting changes - (131)
Income available to common shareholders
after assumed conversion $ 338 $ 122
Denominator:
Denominator for basic earnings per
share - weighted-average shares 723 683
Effect of dilutive securities:
Preferred stock:
Second Preferred Stock 35 36
Series B Preferred Stock 50 -
Stock options 44 26
Dilutive potential common shares 129 62
Denominator for diluted earnings per
share - adjusted weighted-average
shares and assumed conversions 852 745
Basic earnings per share:
Before cumulative effect of
accounting changes $0.44 $0.36
Cumulative effect of accounting changes - (0.19)
Basic earnings per share $0.44 $0.17
Diluted earnings per share:
Before cumulative effect of
accounting changes $0.40 $0.34
Cumulative effect of accounting changes - (0.18)
Diluted earnings per share $0.40 $0.16
</TABLE>
5. COMPREHENSIVE INCOME
Comprehensive income includes the following (in
millions):
<TABLE>
<CAPTION>
First Quarter
2000 1999
<S> <C> <C>
Net income $ 338 $ 122
Other comprehensive income:
Foreign currency translation adjustment (2) (549)
Change in value of available-for-sale
investments (13) -
Total comprehensive income (loss) $ 323 $(427)
</TABLE>
6. BUSINESS SEGMENT INFORMATION
Enron's business is divided into operating segments,
defined as components of an enterprise about which financial
information is available and evaluated regularly by the
Office of the Chairman, which serves as the chief operating
decision making group.
In the first quarter of 2000, Enron's communications
business is being managed as a separate operating segment
named Broadband Services and therefore, based on criteria
set by Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related
Information," is reported separately.
Enron's broadband services business includes the
construction and management of the Enron Intelligent
Network, a nationwide fiber optic network, the marketing and
management of bandwidth and the delivery of high-bandwidth
media rich content such as video streaming, high capacity
data transport and video conferencing.
<TABLE>
<CAPTION>
Wholesale
Transportation Energy Retail Corporate
and Operations Energy Broadband and
(In Millions) Distribution and Services Services Services Other(c) Total
Three Months Ended
March 31, 2000
<S> <C> <C> <C> <C> <C> <C>
Unaffiliated revenues(a) $ 599 $11,847 $ 603 $ 59 $ 37 $13,145
Intersegment revenues(b) 4 154 39 - (197) -
Total revenues $ 603 $12,001 $ 642 $ 59 $ (160) $13,145
Income (loss) before interest,
minority interests and
income taxes $ 233 $ 419 $ 16 $ - $ (44) $ 624
</TABLE>
<TABLE>
<CAPTION>
Wholesale
Transportation Energy Retail Exploration Corporate
and Operations Energy and and
(In Millions) Distribution and Services Services Production(d) Other(c) Total
Three Months Ended
March 31, 1999
<S> <C> <C> <C> <C> <C> <C>
Unaffiliated revenues(a) $ 477 $ 6,516 $ 363 $ 149 $ 127 $ 7,632
Intersegment revenues(b) 4 79 7 54 (144) -
Total revenues $ 481 $ 6,595 $ 370 $ 203 $ (17) $ 7,632
Income (loss) before interest,
minority interests and
income taxes $ 218 $ 320 $ (31) $ 12 $ 14 $ 533
<FN>
(a) Unaffiliated revenues include sales to unconsolidated affiliates.
(b) Intersegment sales are made at prices comparable to those received
from unaffiliated customers and in some instances are affected by
regulatory considerations.
(c) Includes consolidating eliminations.
(d) Reflects results through August 16, 1999, when Enron completed the
exchange and sale of shares in Enron Oil & Gas Company (EOG).
</TABLE>
Total assets by segment are as follows (in millions):
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
<S> <C> <C>
Transportation and Distribution $ 7,984 $ 7,959
Wholesale Energy Operations
and Services 24,416 20,674
Retail Energy Services 1,134 956
Broadband Services 687 511
Corporate and Other 3,263 3,281
Total Assets $37,484 $33,381
</TABLE>
7. RELATED PARTY TRANSACTION
During the first quarter of 2000, Enron and LJM, through
a wholly-owned subsidiary, entered into an agreement. A
senior officer of Enron is the managing member of LJM's
general partner. The agreement resulted in (i) the
termination of certain financial instruments hedging an
investment held by Enron, (ii) the payment, by Enron, of
approximately $26.8 million to LJM, (iii) the transfer to
Enron of approximately 3.1 million shares of Enron common
stock held by LJM and (iv) the termination of a put option
held by LJM. The put option, which was originally entered
into in the first quarter of 2000, gave LJM the right to
sell shares of Enron common stock to Enron at a strike price
of $71.31 per share. The agreement closed in April 2000.
Additionally, in the first quarter of 2000, Enron advanced
to LJM $10 million, at a market rate of interest, which was
repaid in April 2000.
Management believes that the terms of the transactions
with related parties were reasonable and are representative
of terms that would be negotiated with unrelated third
parties.
<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 2000
vs. First Quarter 1999
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 2000 net income was $338 million
compared to $253 million (excluding a charge of $131 million
related to a cumulative effect of accounting changes) in the
first quarter of 1999. Enron's operating segments include
Transportation and Distribution (Gas Pipeline Group and
Portland General), Wholesale Energy Operations and Services
(Enron's North America, Europe and international energy
businesses), Retail Energy Services (Enron Energy Services),
Broadband Services (Enron Broadband Services), Exploration
and Production (through August 16, 1999) and Corporate and
Other, which includes certain other businesses.
Basic and diluted earnings per share of common stock were
as follows:
<TABLE>
<CAPTION>
First Quarter
2000 1999
<S> <C> <C>
Basic earnings per share:
Before cumulative effect of accounting
changes $ 0.44 $ 0.36
Cumulative effect of accounting changes - (0.19)
$ 0.44 $ 0.17
Diluted earnings per share:
Before cumulative effect of accounting
changes $ 0.40 $ 0.34
Cumulative effect of accounting changes - (0.18)
$ 0.40 $ 0.16
</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
2000 1999
<S> <C> <C>
Transportation and Distribution:
Gas Pipeline Group $128 $126
Portland General 105 92
Wholesale Energy Operations and Services 419 320
Retail Energy Services 16 (31)
Broadband Services - -
Exploration and Production - 12
Corporate and Other (44) 14
Income before interest,
minority interests and taxes $624 $533
</TABLE>
Transportation and Distribution
Transportation and Distribution consists of the Gas
Pipeline Group and Portland General. The Gas Pipeline Group
includes Enron's interstate natural gas pipelines, primarily
Northern Natural Gas Company (Northern), Transwestern
Pipeline Company (Transwestern), Enron's 50% interest in
Florida Gas Transmission Company (Florida Gas) and Enron's
interests in Northern Border Pipeline and EOTT Energy
Partners, L.P. (EOTT).
Gas Pipeline Group. The following table summarizes total
volumes transported for each of Enron's interstate natural
gas pipelines.
<TABLE>
<CAPTION>
First Quarter
2000 1999
<S> <C> <C>
Total Volumes Transported (BBtu/d)(a)
Northern Natural Gas 4,147 4,464
Transwestern Pipeline 1,566 1,393
Florida Gas Transmission 1,563 1,225
Northern Border Pipeline 2,464 2,388
<FN>
(a) Billion British thermal units per day. Reflects
100% of each entity's throughput volumes. Florida Gas
and Northern Border Pipeline are unconsolidated equity
affiliates.
</TABLE>
Significant components of IBIT are as follows (in
millions):
<TABLE>
<CAPTION>
First Quarter
2000 1999
<S> <C> <C>
Net revenues $201 $181
Operating expenses 65 61
Depreciation and amortization 16 17
Equity in earnings 7 8
Other income, net 1 15
Income before interest and taxes $128 $126
</TABLE>
Operating Results
Revenues, net of cost of sales (net revenues) of the Gas
Pipeline Group increased $20 million in the first quarter of
2000 as compared to the same period in 1999 primarily due to
increased margin from Northern as a result of implementing,
in November 1999, rates based on a June 1999 rate case
settlement. Other income, net decreased $14 million in the
first quarter of 2000 as compared to the same period in
1999. Other income, net in 1999 included earnings from the
early settlement of an interest rate contract.
Portland General. Statistics for Portland General for
the first quarter of 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
First Quarter
2000 1999
<S> <C> <C>
Electricity Sales (Thousand MWh)(a)
Residential 2,361 2,342
Commercial 1,872 1,816
Industrial 1,169 1,020
Total Retail 5,402 5,178
Wholesale 4,281 1,338
Total Electricity Sales 9,683 6,516
Average Billed Revenue (cents per kWh) 4.00 4.36
Resource Mix
Coal 13% 18%
Combustion Turbine 10 4
Hydro 8 13
Total Generation 31 35
Firm Purchases 62 47
Secondary Purchases 7 18
Total Resources 100% 100%
Average Variable Power Cost (Mills/kWh)(b) 20.8 15.0
Retail Customers (end of period, thousands) 724 708
<FN>
(a) Thousand megawatt-hours.
(b) Mills (1/10 cent) per kilowatt-hour.
</TABLE>
Significant components of IBIT are as follows (in
millions):
<TABLE>
<CAPTION>
First Quarter
2000 1999
<S> <C> <C>
Revenues $397 $299
Purchased power and fuel 202 100
Operating expenses 78 70
Depreciation and amortization 46 46
Other income, net 34 9
Income before interest and taxes $105 $ 92
</TABLE>
Operating Results
Revenues and purchased power and fuel costs increased $98
million and $102 million, respectively, in the first quarter
of 2000 as compared to the first quarter of 1999, primarily
as a result of an increase in the number of customers served
by Portland General and a significant increase in wholesale
sales. Other income, net increased $25 million, primarily
due to the impact of an OPUC order, issued in the first
quarter of 2000, allowing certain deregulation costs to be
deferred and recovered through rate cases.
On November 8, 1999, Enron announced that it had entered
into an agreement to sell Portland General to Sierra Pacific
Resources. The proposed transaction, which is subject to
regulatory approval, is expected to close in late 2000.
Wholesale Energy Operations and Services
Enron's wholesale business (Enron Wholesale) includes its
wholesale energy businesses around the world. Enron
Wholesale operates in developed and deregulated markets such
as North America and Europe, as well as developing or newly
deregulating markets including South America, India and
Japan.
Enron builds its wholesale businesses through the
creation of networks involving asset ownership, contractual
access to third-party assets and market-making activities.
Each market in which Enron Wholesale operates utilizes these
components in a slightly different manner and is at a
different stage of development. This network strategy has
enabled Enron Wholesale to establish a leading position in
its markets. Enron Wholesale's activities are categorized
into two business lines: (a) Commodity Sales and Services
and (b) Assets and Investments. Activities are often
integrated into a bundled product offering for Enron's
customers.
Enron Wholesale manages its portfolio of contracts and
assets in order to maximize value, minimize the associated
risks and provide overall liquidity. In doing so, Enron
Wholesale uses portfolio and risk management disciplines,
including offsetting or hedging transactions, to manage
exposures to market price movements (commodities, interest
rates, foreign currencies and equities). Additionally,
Enron Wholesale manages its liquidity and exposure to third-
party credit risk through monetization of its contract
portfolio or third-party insurance contracts. Enron
Wholesale also sells interests in certain investments and
other assets to improve liquidity and overall return.
The following table reflects IBIT for each business line
(in millions):
<TABLE>
<CAPTION>
First Quarter
2000 1999
<S> <C> <C>
Commodity Sales and Services $246 $224
Assets and Investments 220 136
Unallocated expenses (47) (40)
Income before interest, minority
interests and taxes $419 $320
</TABLE>
The following discussion analyzes the contributions to
IBIT for each of the business lines.
Commodity Sales and Services. Enron Wholesale provides
reliable commodity delivery and predictable pricing to its
customers through forward contracts. This market-making
activity includes the purchase, sale, marketing and delivery
of natural gas, electricity, liquids and other commodities,
as well as the management of Enron Wholesale's own portfolio
of contracts. Enron Wholesale's market-making activity is
facilitated through a network of capabilities including
asset ownership. Accordingly, certain assets involved in
the delivery of these services are included in this business
(such as intrastate natural gas pipelines, power plants and
gas storage facilities).
Enron Wholesale markets, transports and provides energy
commodities as reflected in the following table (including
intercompany amounts):
<TABLE>
<CAPTION>
First Quarter
2000 1999
<S> <C> <C>
Physical Volumes (BBtue/d)(a)(b)
Gas:
United States 16,217 9,088
Canada 4,389 3,954
Europe and Other 2,469 1,799
23,075 14,841
Transport Volumes 456 556
Total Gas Volumes 23,531 15,397
Crude Oil and Liquids 6,134 4,284
Electricity(c) 12,170 9,594
Total 41,835 29,275
Electricity Volumes Marketed (Thousand MWh)
United States 102,903 85,962
Europe and Other 7,844 384
Total 110,747 86,346
Financial Settlements (Notional) (BBtue/d) 141,865 95,151
<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 commodity sales and services increased
by $22 million in the first quarter of 2000 as compared to
the same period of 1999. Earnings from commodity marketing
were favorably impacted by increased profits from North
American gas marketing, European power marketing and other
marketing activities. These improvements were partially offset
by decreased profits from North American power marketing,
European gas marketing and favorable changes, in 1999, in
credit markets worldwide. Gas volumes were also positively
impacted by the first full quarter's operation of
EnronOnline, an internet-based eCommerce system, launched in
late 1999, that allows customers to complete transactions
with Enron as principal.
Assets and Investments. Enron's Wholesale businesses
make investments in various energy-related assets as a part
of its network strategy. Enron Wholesale either purchases
the asset from a third party or develops and constructs the
asset. In most cases, Enron Wholesale operates and manages
such assets. Earnings from these investments principally
result from operations of the assets or sales of ownership
interests.
Additionally, Enron Wholesale invests in debt and equity
securities of energy and certain communications-related
businesses, which may also utilize Enron Wholesale's
products and services. With these merchant investments,
Enron's influence is much more limited relative to assets
Enron develops or constructs. Earnings from these
activities result from changes in the market value of the
security.
Earnings from assets and investments increased to $220
million in the first quarter of 2000 as compared to $136
million in the same period of 1999, primarily as a result of
increased market values of Enron Wholesale's merchant
investments, partially offset by lower earnings from sales
of interests in energy assets and construction profits. A
portion of the increase in the value of merchant investments
was reflected in the increase in earnings of equity
affiliates. Results from international energy asset
operations in the first quarter of 2000 were comparable to
those for the same period of 1999.
Retail Energy Services
Enron Energy Services (Energy Services) is extending
Enron's energy expertise and capabilities to end-use retail
customers in the industrial and commercial business sectors,
to manage their energy requirements and reduce their total
energy costs. Energy Services sells or manages the delivery
of natural gas, electricity, liquids and other commodities
to industrial and commercial customers located throughout
the United States and the United Kingdom. Energy Services
also provides outsourcing solutions to customers for full
energy management. This integrated product includes the
management of commodity delivery, energy information and
energy assets, and price risk management activities.
Significant components of Energy Services' results are as
follows (in millions):
<TABLE>
<CAPTION>
First Quarter
2000 1999
<S> <C> <C>
Revenues $642 $370
Gross margin $102 $ 45
IBIT $ 16 $(31)
</TABLE>
Operating Results
Revenues and gross margin increased $272 million and $57
million, respectively in the first quarter of 2000 compared
to the first quarter of 1999, primarily resulting from long-
term energy contracts originated in the first quarter of
2000, increased values of Energy Services' contract
portfolio and the commencement, in the second half of 1999,
of operations in the United Kingdom. Also included in
Energy Services' results were gains recognized associated
with the securitization of equity instruments, offset by
certain compensation expenses.
Broadband Services
Enron's broadband services business (Broadband Services)
provides customers with a single source for broadband
services. In implementing Enron's network strategy,
Broadband Services is constructing the Enron Intelligent
Network (EIN), a nationwide fiber optic network that
consists of both fiber deployed by Enron and acquired
capacity on non-Enron networks. The EIN, managed by Enron's
Broadband Operating System software, provides a bandwidth-on-
demand platform allowing Broadband Services to deliver high-
bandwidth media rich content such as video streaming, high
capacity data transport and video conferencing. In
addition, Enron is extending its market-making and risk
management skills from its energy business to develop the
bandwidth intermediation business to help customers manage
unexpected fluctuation in the price, supply and demand of
bandwidth. Broadband Services also makes investments in
companies with related technologies and with the potential
for capital appreciation. Earnings from these merchant
investments result from changes in fair value.
The components of Broadband Services' businesses include
the development and construction of the EIN and the sales of
excess fiber capacity and software, the marketing and
management of bandwidth and the delivery of content. First
quarter 2000 results included earnings from sales of excess
fiber capacity as well as software licenses and increased
market values of Broadband Services' merchant investments,
offset by expenses related to the business.
Corporate and Other
Corporate and Other realized a loss before interest,
minority interests and taxes of $44 million in the first
quarter of 2000 compared to IBIT of $14 million in the same
period of 1999. Results of the current year quarter reflect
expenses related to information technology and advertising.
Interest and Related Charges, net
Interest and related charges, net, is reported net of
interest capitalized of $13 million for the first three
months of each of 2000 and 1999. The net expense decreased
$14 million in the first quarter of 2000 as compared to the
same period of 1999, primarily due to the replacement of
higher interest rate debt related to a Brazilian subsidiary
with lower interest rate debt, partially offset by increased
debt levels.
Minority Interests
Minority interests increased $2 million to $35 million in
the first quarter of 2000 compared to the same period in
1999, primarily due to the minority owner's share of the
results of a limited partnership formed in the second
quarter of 1999 and the elimination of minority interest
attributable to losses of EOG in the first quarter of 1999,
partially offset by amounts related to Whitewing Associates,
L.P. which is no longer consolidated.
Income Tax Expense
The projected effective tax rate for 2000 is lower than
the statutory rate mainly due to equity earnings and
differences between the book and tax basis of certain assets
and stock sales. Income taxes increased during the first
quarter of 2000 as compared to the first quarter of 1999
primarily as a result of increased pretax earnings.
CUMULATIVE EFFECT OF ACCOUNTING CHANGES
In the first quarter of 1999, Enron recorded an after-tax
charge of $131 million to reflect the initial adoption (as
of January 1, 1999) of two new accounting pronouncements,
the AICPA Statement of Position 98-5 (SOP 98-5), "Reporting
on the Costs of Start-Up Activities," and the Emerging
Issues Task Force Issue No. 98-10, "Accounting for Contracts
Involved in Energy Trading and Risk Management Activities."
The first quarter 1999 charge was primarily related to the
adoption of SOP 98-5.
NEW ACCOUNTING PRONOUNCEMENT
In 1998, the Financial Accounting Standards Board issued
SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." SFAS No. 133 establishes accounting
and reporting standards requiring that every derivative
instrument (including certain derivative instruments
embedded in other contracts) be recorded on the balance
sheet as either an asset or liability measured at its fair
value. The statement requires that changes in the
derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains
and losses to offset related results on the hedged item in
the income statement, and requires that a company must
formally document, designate and assess the effectiveness of
transactions that receive hedge accounting.
In June 1999, the FASB issued SFAS No. 137, which
deferred the effective date of SFAS No. 133 to fiscal years
beginning after June 15, 2000. A company may implement SFAS
No. 133 as of the beginning of any fiscal quarter after
issuance, however, the statement cannot be applied
retroactively. Enron does not plan to effect the early
adoption of SFAS No. 133, as important interpretations
regarding implementation continue to be made. Enron
believes that SFAS No. 133 will not have a material impact
on its accounting for price risk management activities but
has not yet quantified the effect on its hedging activities
or physical based contracts.
FINANCIAL CONDITION
<TABLE>
Cash Flows
<CAPTION>
First Quarter
(In Millions) 2000 1999
<S> <C> <C>
Cash provided by (used in):
Operating activities $ (457) $ (660)
Investing activities (1,493) (1,130)
Financing activities 2,128 1,975
</TABLE>
Cash used in operating activities totaled $457 million
during the first three months of 2000 as compared to cash
used of $660 million in the same period last year. The
change in cash from operating activities in the first
quarter of 2000 reflects increased working capital
requirements and net cash used in acquiring merchant assets
and investments.
Cash used in investing activities totaled $1,493 million
during the first quarter of 2000 as compared to $1,130
million during the same period in 1999. The first quarter
2000 amount reflects cash used for capital expenditures, equity
investments and the acquisition of certain minority owner's
interests.
Cash provided by financing activities totaled $2,128
million during the first quarter of 2000 as compared to
$1,975 million during the same period in 1999. The first
three months of 2000 includes the net issuances of short-
and long-term debt of $1,930.
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, 2000 was $23.3 billion.
Debt as a percentage of total capitalization increased to
43.7% at March 31, 2000 as compared to 38.5% at December 31,
1999. The increase in the ratio reflects increased debt
levels and the first quarter 2000 acquisition of certain
minority owner's interests, partially offset by the issuances
of Enron common stock related to the exercise of employee
stock options and of company-obligated preferred securities of
subsidiaries.
FINANCIAL RISK MANAGEMENT
Enron Wholesale's business offers price risk management
services primarily related to commodities associated with
the energy sector (natural gas, crude oil, natural gas
liquids and electricity). Enron's other businesses also
enter into forwards, swaps and other contracts primarily for
the purpose of hedging the impact of market fluctuations on
assets, liabilities, production and other contractual
commitments. Enron utilizes value at risk measures that
assume a one-day holding period and a 95% confidence level.
For a complete discussion of the types of financial risk
management products used by Enron, the types of market risks
associated with Enron's portfolio of transactions, and the
methods used by Enron to manage market risks, see Enron's
Annual Report on Form 10-K for the year ended December 31,
1999.
Enron's value at risk for trading commodity price risk
increased to $32 million at March 31, 2000 as compared to
$21 million at December 31, 1999. This increase is
attributable to increased natural gas prices, combined with
increased price volatility in the power markets in
anticipation of the peak summer season.
In addition, value at risk for trading securities, which
primarily relate to Enron's merchant investments, increased
to $32 million at March 31, 2000, compared to $26 million at
December 31, 1999. This increase is a result of increased
values of existing investments as well as new investments
and increased volatility attributable to the communications-
related merchant investments.
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. All statements other than statements
of historical facts contained in this document are forward-
looking statements. Forward-looking statements include, but
are not limited to, statements relating to expansion
opportunities for the Gas Pipeline Group, demand in the
market for broadband services and high bandwidth
applications, transaction volumes in the U.S. power market,
commencement of commercial operations of new power plants
and pipeline projects, and growth in the demand for retail
energy outsourcing solutions. When used in this document,
the words "anticipate," "believe," "estimate," "except,"
"intend," "may," "project," "plan," "should" and similar
expressions are intended to be among the statements that
identify forward-looking statements. Although Enron
believes that its expectations reflected in these forward-
looking statements are based on reasonable assumptions, such
statements involve risks and uncertainties and no assurance
can be given that actual results will be consistent with
these forward-looking statements. Important factors that
could cause actual results to differ materially from those
in the forward-looking statements herein include political
developments in foreign countries; the ability of Enron to
penetrate new retail natural gas and electricity markets
(including energy outsourcing markets) in the United States
and Europe; the ability to penetrate the broadband services
market; the timing and extent of deregulation of energy
markets in the United States and in foreign jurisdictions;
other regulatory developments in the United States and in
foreign countries, including tax legislation and
regulations; the extent of efforts by governments to
privatize natural gas and electric utilities and other
industries; the timing and extent of changes in commodity
prices for crude oil, natural gas, electricity, foreign
currency and interest rates; the extent of success in
acquiring oil and gas properties and in discovering,
developing, producing and marketing reserves; the timing and
success of Enron's efforts to develop international power,
pipeline and other infrastructure projects; the
effectiveness of Enron's risk management activities; the
ability of counterparties to financial risk management
instruments and other contracts with Enron to meet their
financial commitments to Enron; and Enron's ability to
access the capital markets and equity markets during the
periods covered by the forward-looking statements, which
will depend on general market conditions and Enron's ability
to maintain or increase the credit ratings for its unsecured
senior long-term debt obligations.
<PAGE>
PART II. OTHER INFORMATION
ENRON CORP. AND SUBSIDIARIES
ITEM 1. Legal Proceedings
See Part I. Item 1, Note 3 to Consolidated Financial Statements entitled
"Litigation and 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
None.
<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 12, 2000 By: RICHARD A. CAUSEY
Richard A. Causey
Executive Vice President and Chief
Accounting Officer
(Principal Accounting Officer)
<TABLE>
Exhibit 12
ENRON CORP. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO
FIXED CHARGES
(Dollars in Millions)
(Unaudited)
<CAPTION>
Three Months
Ended Year Ended December 31,
3/31/00 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Earnings available for fixed charges
Net income $338 $1,024 $ 703 $105 $ 584 $ 520
Less:
Undistributed earnings and
losses of less than 50%
owned affiliates (17) (12) (44) (89) (39) (14)
Capitalized interest of
nonregulated companies (15) (61) (66) (16) (10) (8)
Add:
Fixed charges(a) 258 948 809 674 454 436
Minority interest 35 135 77 80 75 27
Income tax expense 88 137 204 (65) 297 310
Total $687 $2,171 $1,683 $689 $1,361 $1,271
Fixed Charges
Interest expense(a) $247 $ 900 $ 760 $624 $ 404 $ 386
Rental expense representative
of interest factor 11 48 49 50 50 50
Total $258 $948 $ 809 $674 $ 454 $ 436
Ratio of earnings to fixed charges 2.66 2.29 2.08 1.02 3.00 2.92
<FN>
(a) 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-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 466
<SECURITIES> 0
<RECEIVABLES> 3,899
<ALLOWANCES> 0
<INVENTORY> 437
<CURRENT-ASSETS> 9,333
<PP&E> 14,012
<DEPRECIATION> 3,315
<TOTAL-ASSETS> 37,484
<CURRENT-LIABILITIES> 9,190
<BONDS> 8,288
0
1,129
<COMMON> 7,041
<OTHER-SE> 1,970
<TOTAL-LIABILITY-AND-EQUITY> 37,484
<SALES> 11,581
<TOTAL-REVENUES> 13,145
<CGS> 11,888
<TOTAL-COSTS> 12,873
<OTHER-EXPENSES> (352)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 161
<INCOME-PRETAX> 410
<INCOME-TAX> 72
<INCOME-CONTINUING> 338
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 338
<EPS-BASIC> 0.44
<EPS-DILUTED> 0.40
</TABLE>
