UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 October 31, 2000
Common Stock, No Par Value 746,550,863 shares
1 of 36
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ENRON CORP. AND SUBSIDIARIES
TABLE OF CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Income Statement - Three
Months Ended September 30, 2000 and 1999 and
Nine Months Ended September 30, 2000 and 1999 3
Consolidated Balance Sheet - September 30, 2000
and December 31, 1999 4
Consolidated Statement of Cash Flows - Nine
Months Ended September 30, 2000 and 1999 6
Notes to Consolidated Financial Statements 7
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 16
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 34
ITEM 2. Recent Sales of Unregistered Equity Securities 34
ITEM 6. Exhibits and Reports on Form 8-K 34
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ENRON CORP. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT
(In Millions, Except Per Share Amounts)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Revenues $30,007 $11,835 $60,038 $29,139
Costs and Expenses
Cost of gas, electricity and
other products 28,289 10,489 55,501 25,137
Operating expenses 855 671 2,494 2,140
Depreciation, depletion and amortization 256 225 620 676
Impairment of long-lived assets - 441 - 441
Taxes, other than income taxes 65 45 190 163
29,465 11,871 58,805 28,557
Operating Income (Loss) 542 (36) 1,233 582
Other Income and Deductions
Equity in earnings of unconsolidated
affiliates 46 38 365 269
Gains on sales of assets
and investments 45 456 135 468
Other income, net 33 62 166 203
Income Before Interest, Minority
Interests and Income Taxes 666 520 1,899 1,522
Interest and Related Charges, net 247 187 604 537
Dividends on Company-Obligated Preferred
Securities of Subsidiaries 20 19 59 57
Minority Interests 35 38 109 94
Income Tax Expense (Benefit) 72 (14) 208 69
Net Income Before Cumulative Effect of
Accounting Changes 292 290 919 765
Cumulative Effect of Accounting Changes,
net of tax - - - (131)
Net Income 292 290 919 634
Preferred Stock Dividends 21 19 62 42
Earnings on Common Stock $ 271 $ 271 $ 857 $ 592
Earnings Per Share of Common Stock
Basic
Before Cumulative Effect of Accounting
Changes $ 0.37 $ 0.38 $ 1.17 $ 1.03
Cumulative Effect of Accounting Changes - - - (0.19)
Basic Earnings per Share $ 0.37 $ 0.38 $ 1.17 $ 0.84
Diluted
Before Cumulative Effect of Accounting
Changes $ 0.34 $ 0.35 $ 1.07 $ 0.96
Cumulative Effect of Accounting Changes - - - (0.17)
Diluted Earnings per Share $ 0.34 $ 0.35 $ 1.07 $ 0.79
Average Number of Common Shares Used in
Computation
Basic 741 714 732 702
Diluted 870 781 861 766
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION - (Continued)
ITEM 1. FINANCIAL STATEMENTS - (Continued)
ENRON CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In Millions)
(Unaudited)
<CAPTION>
September 30, December 31,
2000 1999
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 697 $ 288
Trade receivables (net of allowance for doubtful
accounts of $35 and $31, respectively) 6,494 3,030
Other receivables 1,181 518
Assets from price risk management activities 7,294 2,205
Inventories 1,942 598
Other 1,198 616
Total Current Assets 18,806 7,255
Investments and Other Assets
Investments in and advances to unconsolidated
affiliates 5,376 5,036
Assets from price risk management activities 7,367 2,929
Goodwill 3,646 2,799
Other 6,348 4,681
Total Investments and Other Assets 22,737 15,445
Property, Plant and Equipment, at cost
Natural gas transmission 6,908 6,948
Electric generation and distribution 4,284 3,552
Construction in progress 1,382 1,491
Oil and gas, successful efforts method 720 690
Other 1,839 1,231
15,133 13,912
Less accumulated depreciation, depletion
and amortization 3,680 3,231
Net Property, Plant and Equipment 11,453 10,681
Total Assets $52,996 $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>
September 30, December 31,
2000 1999
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 5,390 $2,154
Liabilities from price risk
management activities 6,187 1,836
Short-term debt 3,117 1,001
Other 2,408 1,768
Total Current Liabilities 17,102 6,759
Long-Term Debt 10,664 7,151
Deferred Credits and Other Liabilities
Deferred income taxes 1,565 1,894
Liabilities from price risk
management activities 7,314 2,990
Other 2,282 1,587
Total Deferred Credits and Other Liabilities 11,161 6,471
Minority Interests 1,889 2,430
Company-Obligated Preferred Securities of Subsidiaries 904 1,000
Shareholders' Equity
Second preferred stock, cumulative, no par value 127 130
Mandatorily Convertible Junior Preferred Stock,
Series B, no par value 1,000 1,000
Common stock, no par value 8,003 6,637
Retained earnings 3,277 2,698
Accumulated other comprehensive income (958) (741)
Common stock held in treasury (18) (49)
Other (155) (105)
Total 11,276 9,570
Total Liabilities and Shareholders' Equity $52,996 $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>
Nine Months Ended
September 30,
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 $ 919 $ 634
Cumulative effect of accounting changes - 131
Depreciation, depletion and amortization 620 676
Deferred income taxes 22 (38)
Equity in earnings of unconsolidated affiliates (365) (269)
Impairment of long-lived assets - 441
Gains on sales of assets and investments (135) (461)
Changes in components of working capital (188) (1,072)
Net assets from price risk management activities (952) 55
Merchant assets and investments:
Realized gains on sales 15 (252)
Proceeds from sales 683 708
Additions and unrealized gains and losses (1,414) (657)
Other operating activities 895 61
Net Cash Provided by (Used in) Operating Activities 100 (43)
Cash Flows From Investing Activities
Capital expenditures (1,549) (2,022)
Equity investments (870) (718)
Proceeds from sales of investments
and other assets 222 245
Acquisition of subsidiary stock (743) -
Business acquisitions, net of cash acquired (515) (213)
Other investing activities (147) (447)
Net Cash Used in Investing Activities (3,602) (3,155)
Cash Flows From Financing Activities
Issuance of long-term debt 2,725 1,570
Repayment of long-term debt (545) (1,417)
Net increase in short-term borrowings 1,694 2,038
Net redemption of preferred securities
of subsidiaries (95) -
Issuance of subsidiary equity - 513
Issuance of common stock 182 889
Dividends paid (396) (346)
Net disposition of treasury stock 354 223
Other financing activities (8) (67)
Net Cash Provided by Financing Activities 3,911 3,403
Increase in Cash and Cash Equivalents 409 205
Cash and Cash Equivalents, Beginning of Period 288 111
Cash and Cash Equivalents, End of Period $ 697 $ 316
Changes in Components of Working Capital
Receivables $ (3,694) $ (994)
Inventories 339 (112)
Payables 3,081 (45)
Other 86 79
Total $ (188) $(1,072)
<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 the first nine months
of 2000 and 1999 was $37 million and $23 million,
respectively. Cash paid for interest for the same periods,
net of amounts capitalized, was $540 million and $544
million, respectively. Enron recorded tax benefits related
to stock options exercised by employees of approximately
$410 million in the first nine months of 2000.
In the third quarter of 2000, Enron, through a wholly-
owned subsidiary, acquired all of the outstanding common
shares of MG plc, a leading independent international
metals market-making business that provides financial and
marketing services to the global metals industry, for
approximately $470 million in cash. Enron recorded
goodwill of approximately $260 million. As of the date of
acquisition, MG plc's balance sheet primarily consisted of
approximately $1.7 billion of metals inventory and $1.5
billion of short-term debt.
Non-Cash Activity. In the second quarter of 2000, Enron acquired
all minority shareholders' interests in Enron Energy Services LLC.
Enron issued 4.9 million shares of Enron Corp. common stock,
contributed common stock and warrants of an unconsolidated equity
affiliate and paid cash in exchange for the Enron Energy Services LLC
shares held by the minority shareowners. As a result of these
transactions, Enron recorded goodwill of approximately $470 million.
On May 15, 2000, Enron acquired WarpSpeed Communications, a
provider of on-demand switched connectivity to business enterprises,
for 617,000 shares of Enron Corp. common stock valued at approximately
$42 million.
In the first nine months of 2000, Enron entered into various
transactions with related parties and a third party which resulted in
the non-cash exchange of certain assets and a non-cash increase in
common stock of $171 million. 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 Gas), an
Enron affiliate, operated a propane/air distribution system in the
vicinity, but did not provide service to the building. Enron, San Juan
Gas, four affiliates and their insurance carriers were named as
defendants, along with several third parties, including The Puerto
Rico Aqueduct and Sewer Authority, Puerto Rico Telephone Company,
Heath Consultants Incorporated, Humberto Vidal, Inc. and their
insurance carriers, in numerous lawsuits filed in U.S. District Court
for the District of Puerto Rico and the Superior Court of Puerto Rico.
These suits seek damages for wrongful death, personal injury, business
interruption and property damage allegedly caused by the explosion.
After nearly four years without determining the cause of the
explosion, all parties have agreed not to litigate further that issue,
but to move these suits toward settlements or trials to determine
whether each plaintiff was injured as a result of the explosion and,
if so, the lawful damages attributable to such injury. The defendants
have agreed on a fund for settlements or final awards. Numerous suits
have been settled and 20 cases have been set for trial in the federal
court beginning in February 2001. 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 power
generating facility (Trojan). The Oregon Public Utility Commission
(OPUC) granted PGE, through a general rate order, recovery of, and a
return on, its remaining investment in Trojan.
The OPUC's general rate order related to Trojan has been subject to
litigation in various state courts, including rulings by the Oregon
Court of Appeals and petitions to the Oregon Supreme Court filed by
parties opposed to the OPUC's order, including the Utility Reform
Project(URP) and the Citizens Utility Board (CUB).
In August 2000, PGE entered into agreements with CUB and
the staff of the OPUC to settle the litigation related to PGE's recovery
of its investment in the Trojan plant. Under the agreements, CUB agreed
to withdraw from the litigation and support the settlement as the
means to resolve the Trojan litigation. The OPUC approved the
accounting and ratemaking elements of the settlement on September 29,
2000. As a result of these approvals, PGE's investment in Trojan is
no longer included in rates charged to customers, either through a
return on or a return of that investment. Collection of ongoing
decommissioning costs at Trojan is not affected by the settlement
agreements or the September 29, 2000 OPUC order. With CUB's
withdrawal, URP is the one remaining significant adverse party in the
litigation. URP has indicated that it plans to continue to challenge
the OPUC order allowing PGE recovery of its investment in Trojan.
Enron cannot predict the outcome of these actions. 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 any additional 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>
Nine Months Ended
Third Quarter September 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Numerator:
Basic
Income before cumulative effect
of accounting changes $ 292 $ 290 $ 919 $ 765
Preferred stock dividends:
Second preferred stock (5) (4) (13) (13)
Series B Preferred Stock (16) (15) (49) (29)
Income available to common
shareholders before cumulative
effect of accounting changes 271 271 857 723
Cumulative effect of accounting
changes - - - (131)
Income available to common
shareholders $ 271 $ 271 $ 857 $ 592
Diluted
Income available to common
shareholders before cumulative
effect of accounting changes $ 271 $ 271 $ 857 $ 723
Effect of assumed conversion
of dilutive securities:
Second preferred stock 5 4 13 13
Series B Preferred Stock 16 - 49 -
Income before cumulative effect
of accounting changes 292 275 919 736
Cumulative effect of accounting
changes - - - (131)
Income available to common
shareholders after assumed
conversions $ 292 $ 275 $ 919 $ 605
Denominator:
Denominator for basic earnings per
share - weighted-average shares 741 714 732 702
Effect of assumed conversion of
dilutive securities:
Preferred stock:
Second preferred stock 35 36 35 36
Series B Preferred Stock 50 - 50 -
Stock options 44 31 44 28
Dilutive potential common shares 129 67 129 64
Denominator for diluted earnings per
share - adjusted weighted-average
shares and assumed conversions 870 781 861 766
Basic earnings per share:
Before cumulative effect of
accounting changes $0.37 $0.38 $1.17 $1.03
Cumulative effect of accounting
changes - - - (0.19)
Basic earnings per share $0.37 $0.38 $1.17 $0.84
Diluted earnings per share:
Before cumulative effect of
accounting changes $0.34 $0.35 $1.07 $0.96
Cumulative effect of accounting
changes - - - (0.17)
Diluted earnings per share $0.34 $0.35 $1.07 $0.79
</TABLE>
5. COMPREHENSIVE INCOME
Comprehensive income includes the following (in millions):
<TABLE>
<CAPTION>
Nine Months Ended
Third Quarter September 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net income $ 292 $ 290 $ 919 $ 634
Other comprehensive income:
Foreign currency
translation adjustment (89) (93) (190) (691)
Change in value of available-
for-sale investments (8) - (27) -
Total comprehensive income (loss) $ 195 $ 197 $ 702 $ (57)
</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.
<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
September 30, 2000
<S> <C> <C> <C> <C> <C> <C>
Unaffiliated revenues(a) $ 789 $27,669 $1,289 $ 135 $ 125 $30,007
Intersegment revenues(b) 69 476 187 - (732) -
Total revenues $ 858 $28,145 $1,476 $ 135 $ (607) $30,007
Income (loss) before interest,
minority interests and
income taxes $ 157 $ 627 $ 30 $ (20) $ (128) $ 666
Nine Months Ended
September 30, 2000
Unaffiliated revenues(a) $1,933 $54,787 $2,662 $ 345 $ 311 $60,038
Intersegment revenues(b) 125 906 296 - (1,327) -
Total revenues $2,058 $55,693 $2,958 $ 345 $(1,016) $60,038
Income (loss) before interest,
minority interests and
income taxes $ 529 $ 1,483 $ 70 $ (28) $ (155) $ 1,899
</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
September 30, 1999
<S> <C> <C> <C> <C> <C> <C>
Unaffiliated revenues(a) $ 567 $10,677 $ 345 $ 105 $ 141 $11,835
Intersegment revenues(b) 2 385 197 14 (598) -
Total revenues $ 569 $11,062 $ 542 $ 119 $ (457) $11,835
Income (loss) before interest,
minority interests and
income taxes $ 137 $ 378 $ (18) $ 33 $ (10) $ 520
Nine Months Ended
September 30, 1999
Unaffiliated revenues(a) $1,461 $25,751 $1,009 $ 429 $ 489 $29,139
Intersegment revenues(b) 13 600 243 97 (953) -
Total revenues $1,474 $26,351 $1,252 $ 526 $ (464) $29,139
Income (loss) before interest,
minority interests and
income taxes $ 483 $ 1,054 $ (75) $ 65 $ (5) $ 1,522
<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>
September 30, December 31,
2000 1999
<S> <C> <C>
Transportation and Distribution $ 8,022 $ 7,959
Wholesale Energy Operations
and Services 37,768 20,674
Retail Energy Services 2,745 956
Broadband Services 1,118 511
Corporate and Other 3,343 3,281
Total Assets $52,996 $33,381
</TABLE>
The increase in assets of the Wholesale Energy Operations
and Services segment is primarily a result of an increase in
price risk management assets and trade receivables related
to increased activity in Enron's gas and power marketing
businesses and, to a lesser extent, the acquisition of MG
plc.
7. RELATED PARTY TRANSACTIONS
In the first nine months of 2000, Enron entered into
transactions with limited partnerships (the Related Party),
whose general partner's managing member is a senior officer
of Enron. The limited partners of the Related Party are
unrelated to Enron.
During the first quarter of 2000, Enron and the Related
Party entered into an agreement to terminate certain
financial instruments that had been entered into during
1999. In connection with this agreement, Enron received
approximately 3.1 million shares of Enron common stock held
by the Related Party. A put option, which was originally
entered into in the first quarter of 2000 and gave the
Related Party the right to sell shares of Enron common stock
to Enron at a strike price of $71.31 per share, was
terminated under this agreement. In return, Enron paid
approximately $26.8 million to the Related Party. The
agreement closed in April 2000. Additionally, in the first
quarter of 2000, Enron advanced to the Related Party $10
million, at a market rate of interest, which was repaid in
April 2000.
In the second quarter of 2000, Enron sold a portion of
its excess dark fiber inventory to the Related Party in
exchange for $30 million cash and a $70 million note
receivable that matures in seven years and bears a market
rate of interest. Enron recognized gross margin of $67
million on the sale.
In the second and third quarters of 2000, Enron entered
into transactions with the Related Party to hedge certain
merchant investments and other assets. As part of the
transactions, Enron (i) contributed to newly-formed entities
(the Entities) assets valued at approximately $1.2 billion,
including 3.7 million restricted shares of outstanding Enron
common stock, $150 million in Enron notes payable, the right
to receive up to 18.0 million shares of outstanding Enron
common stock in March 2003 (subject to certain conditions)
and (ii) transferred to the entities assets valued at
approximately $309 million, including a $50 million note
payable and an investment in an entity that indirectly
holds warrants convertible into common stock of an Enron
equity method investee. In return, Enron received
economic interests in the Entities, $309 million in notes
receivable and a special distribution from the Entities in
the form of $1.2 billion in notes receivable, subject to
changes in the principal for amounts payable by Enron in
connection with the execution of additional derivative
instruments. In addition, Enron paid $123 million to
purchase share-settled options from the Entities on 21.7
million shares of Enron common stock. The Entities paid
Enron $10.7 million in the third quarter to terminate the
share-settled options on 14.6 million shares of Enron common
stock outstanding at June 30, 2000.
In the third quarter of 2000, Enron entered into
derivative transactions with the Entities with a combined
notional value of approximately $1.2 billion to hedge
certain merchant investments and other assets. Enron's
notes receivable balance was reduced by $36 million as a
result of premiums owed on derivative transactions. Enron
recognized revenues of approximately $60 million related to
the derivative transactions, which offset market value
changes of certain merchant investments. In addition, Enron
recognized $10.2 million and $1.5 million of interest income
and interest expense, respectively, on the notes receivable
from and payable to the Entities.
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
Third Quarter 2000
vs. Third 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 third quarter 2000 net income was $292 million
compared to $223 million (excluding items impacting
comparability) in the third quarter of 1999. Items
impacting comparability in the third quarter of 1999 include
a $345 million gain on the sale of Enron Oil & Gas Company
(EOG) stock and a $278 million charge to reflect impairment
of MTBE assets. Enron's operating segments include
Transportation and Distribution (Transportation Services,
formerly Gas Pipeline Group, and Portland General),
Wholesale Energy Operations and Services (Enron's North
American, European 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. Items
impacting comparability are discussed in the respective
segment results.
Basic and diluted earnings (loss) per share of common
stock were as follows:
<TABLE>
<CAPTION>
Third Quarter
2000 1999
<S> <C> <C>
Basic earnings per share $ 0.37 $ 0.38
Diluted earnings (loss) per share:
Results before items impacting
comparability $ 0.34 $ 0.27
Items impacting comparability:
Gain on sale of EOG - 0.44
Charge to reflect impairment of
MTBE assets - (0.36)
Diluted earnings per share $ 0.34 $ 0.35
</TABLE>
Income Before Interest, Minority Interests and Income Taxes
The following table presents income (loss) before
interest, minority interests and income taxes (IBIT) for
each of Enron's operating segments (in millions):
<TABLE>
<CAPTION>
Third Quarter
2000 1999
<S> <C> <C>
Transportation and Distribution:
Transportation Services $ 83 $ 85
Portland General 74 52
Wholesale Energy Operations and Services 627 378
Retail Energy Services 30 (18)
Broadband Services (20) -
Exploration and Production - 33
Corporate and Other (128) (10)
Income before interest, minority
interests and taxes $ 666 $ 520
</TABLE>
Transportation and Distribution
Transportation and Distribution consists of
Transportation Services and Portland General.
Transportation Services 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.
Transportation Services. The following table summarizes
total volumes transported for each of Enron's interstate
natural gas pipelines.
<TABLE>
<CAPTION>
Third Quarter
2000 1999
<S> <C> <C>
Total Volumes Transported (Bbtu/d)(a)
Northern Natural Gas 3,009 3,525
Transwestern Pipeline 1,746 1,575
Florida Gas Transmission 1,649 1,659
Northern Border Pipeline 2,420 2,419
<FN>
(a) Reflects 100% of each entity's throughput volumes.
</TABLE>
Significant components of IBIT are as follows (in
millions):
<TABLE>
<CAPTION>
Third Quarter
2000 1999
<S> <C> <C>
Net revenues $ 119 $ 145
Operating expenses 63 64
Depreciation and amortization 16 18
Equity in earnings 28 14
Other income, net 15 8
Income before interest and taxes $ 83 $ 85
</TABLE>
Revenues, net of cost of sales (net revenues) of
Transportation Services decreased $26 million in the third
quarter of 2000 as compared to the same period in 1999. The
decrease in net revenues is primarily due to the sale in
1999 of gas from Northern's gas storage inventory and lower
transport rates resulting from a rate case settlement. The
rate case, which was settled in June 1999 and implemented in
November 1999, requires Northern to charge higher rates
during the winter season and lower rates during the summer
months. Equity in earnings of affiliates and other income,
net increased $14 million and $7 million, respectively, in
the third quarter of 2000 as compared to the same period of
1999. The increase in equity in earnings relates primarily
to Enron's investment in Florida Gas. Other income, net for
the third quarter of 2000 included a gain related to the
sale of compressor-related equipment. The 1999 period
included interest earned in connection with Enron's
financing of an acquisition by an unconsolidated affiliate.
Portland General. Statistics for Portland General for
the third quarter of 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
Third Quarter
2000 1999
<S> <C> <C>
Electricity Sales (Thousand MWh)(a)
Residential 1,444 1,440
Commercial 1,964 1,951
Industrial 1,249 1,162
Total Retail 4,657 4,553
Wholesale 5,703 4,921
Total Electricity Sales 10,360 9,474
Average Billed Revenue (cents per kWh) 6.89 4.15
Resource Mix
Coal 9% 14%
Combustion Turbine 14 8
Hydro 4 5
Total Generation 27 27
Firm Purchases 63 61
Secondary Purchases 10 12
Total Resources 100% 100%
Average Variable Power Cost (Mills/kWh)(b) 48.8 24.7
Retail Customers (end of period, thousands) 722 714
<FN>
(a) Thousand megawatt-hours.
(b) Mills (1/10 cent) per kilowatt-hour.
</TABLE>
For the third quarter of 2000, Portland General realized
IBIT of $74 million as compared to $52 million in the same
period in 1999. Significant components of IBIT are as
follows (in millions):
<TABLE>
<CAPTION>
Third Quarter
2000 1999
<S> <C> <C>
Revenues $729 $407
Purchased power and fuel 522 241
Operating expenses 85 74
Depreciation and amortization 60 43
Other income, net 12 3
Income before interest and taxes $ 74 $ 52
</TABLE>
Revenues and purchased power and fuel costs increased
$322 million and $281 million, respectively, in the third
quarter of 2000 as compared to the third quarter of 1999.
The increase in revenue is primarily a result of increases
in the price of power and increases in sales to wholesale
and industrial customers. Higher purchased power and fuel
costs partially offset the revenue increase. Operating
expenses increased primarily due to increased plant
maintenance costs related to periodic overhauls. Other
income, net increased $9 million in the third quarter of
2000 as compared to the same period in 1999 primarily as a
result of gains on the sale of certain generation-related
assets. Depreciation and amortization increased $17
million, primarily as a result of increased regulatory
amortization.
On November 8, 1999, Enron announced that it had entered
into an agreement to sell Portland General Electric Company
(PGE) to Sierra Pacific Resources for $2.1 billion. The
proposed transaction, which is subject to regulatory
approval, is expected to close in early 2001.
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 may be
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
timing of which is dependent on market conditions and
management's expectations of the investments' value.
The following table reflects IBIT for each business line
(in millions):
<TABLE>
<CAPTION>
Third Quarter
2000 1999
<S> <C> <C>
Commodity Sales and Services $404 $172
Assets and Investments 305 240
Unallocated expenses (82) (34)
Income before interest, minority
interests and taxes $627 $378
</TABLE>
The following discussion analyzes the contributions to
IBIT for each business line.
Commodity Sales and Services. Enron Wholesale provides
reliable commodity delivery and predictable pricing to its
customers through forward and other 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, gas
storage facilities and certain power plants).
Enron Wholesale markets, transports and provides energy
commodities as reflected in the following table (including
intercompany amounts):
<TABLE>
<CAPTION>
Third Quarter
2000 1999
<S> <C> <C>
Physical Volumes (BBtue/d)(a)(b)
Gas:
United States 17,176 8,573
Canada 7,449 4,748
Europe and Other 3,605 1,640
28,230 14,961
Transport Volumes 618 537
Total Gas Volumes 28,848 15,498
Crude Oil and Liquids 5,754 4,699
Electricity(c) 18,857 12,406
Total 53,459 32,603
Electricity Volumes Marketed (Thousand MWh)
United States 162,963 111,336
Europe and Other 10,525 2,795
Total 173,488 114,131
Financial Settlements (Notional) (BBtue/d) 212,174 109,351
<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.
</TABLE>
The earnings from commodity sales and services increased
by $232 million in the third quarter of 2000 as compared to
the same period of 1999. Earnings from commodity marketing
were favorably impacted by increased profits from North
American operations, attributable to significant price
volatility in both the gas and power markets, and increased
earnings from European power marketing. Gas and power
volumes, which increased 86% and 52%, respectively, were
positively impacted in the third quarter of 2000 by
EnronOnline, an internet-based eCommerce system which allows
customers to transact with Enron as the 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
securities. Enron Wholesale uses risk management
disciplines, including hedging transactions, to manage the
impact of market price movements on its merchant
investments.
Earnings from assets and investments increased to $305
million in the third quarter of 2000 as compared to $240
million in the same period of 1999, primarily as a result of
a net increase in the market value of Enron Wholesale's
merchant investments and increased earnings from
international energy asset operations, partially offset by
development costs. Earnings from merchant investments were
favorably impacted by a significant increase in the market
value of Enron Wholesale's power-related investments,
partially offset by the decline in value of investments in
certain energy-intensive industries.
Unallocated Expenses. Net unallocated expenses such as
rent, systems expenses and performance-related costs
increased in 2000 due to the growth of Enron Wholesale's
existing businesses and continued expansion into new
markets.
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>
Third Quarter
2000 1999
<S> <C> <C>
Revenues $1,476 $542
Cost of sales 1,325 485
Operating expenses 134 72
Depreciation and amortization 9 9
Equity in earnings (15) -
Other income, net 37 6
Income before interest and taxes $ 30 $(18)
</TABLE>
Revenues and gross margin increased $934 million and $94
million, respectively, in the third quarter of 2000 compared
to the third quarter of 1999, primarily resulting from sales
of power to Energy Services' increasing base of customers,
long-term energy contracts originated in the third quarter
of 2000, and the commencement, in the second half of 1999,
of operations in the United Kingdom. Operating expenses
increased as a result of the growth of Energy Services'
business. Included in other income, net in the third
quarter 2000 were gains associated with the securitization
of non-merchant equity instruments. Equity in earnings
reflects equity losses in Enron's investment in The New
Power Company, a company formed to market energy to
residendial and small commercial customers.
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, which are accounted for on a fair value basis
and are included in revenues, result from changes in the
market value of the securities. Broadband Services uses
risk management disciplines, including hedging transactions,
to manage the impact of market price movements on its
merchant investments.
The components of Broadband Services' businesses
include the development and construction of the EIN, sales
of excess fiber and software, the marketing and management
of bandwidth and the delivery of content. Significant
components of Broadband Services' results are as follows
(in millions):
<TABLE>
<CAPTION>
Third Quarter
2000
<S> <C>
Gross Margin $154
Operating expenses 123
Depreciation and amortization 52
Other income, net 1
Income before interest and taxes $(20)
</TABLE>
Broadband Services recognized a loss before interest,
minority interests and taxes of $20 million in the third
quarter of 2000. Gross margin benefited from the
significant increase in the market value of Broadband
Services' merchant investments. Expenses incurred during
the period include certain incentive-based compensation
costs, expenses related to building the business and
depreciation and amortization.
Corporate and Other
Corporate and Other realized a loss before interest,
minority interests and taxes of $128 million in the third
quarter of 2000 compared to a loss of $10 million in the
same period of 1999. Significant components of IBIT are as
follows (in millions):
<TABLE>
<CAPTION>
Third Quarter
2000 1999
<S> <C> <C>
IBIT before items impacting comparability $(128) $ (23)
Items impacting comparability:
Gain on sale of EOG - 454
Charge to reflect impairment of MTBE
assets - (441)
IBIT $(128) $ (10)
</TABLE>
Results of the current year quarter reflect increased
expense, including information technology costs and long-term
employee compensation, as well as equity losses related to
Azurix Corp.
Interest and Related Charges, net
Interest and related charges, net is reported net of
interest capitalized of $3 million and $16 million for the
third quarter of 2000 and 1999, respectively. The net
expense increased $60 million in the third quarter of 2000
as compared to the same period of 1999, primarily due to
increased long-term debt levels, increased average short-
term borrowings, short-term debt assumed as a result of the
acquisition of MG plc (see Note 2 to the Consolidated
Financial Statements) and higher interest rates resulting
from general market conditions within the U.S.
Income Tax Expense
The projected effective tax rate for 2000 is lower than
the statutory rate mainly due to equity earnings,
consolidated foreign earnings and differences between the
book and tax basis of certain assets and stock sales.
Income taxes, excluding taxes related to items impacting
comparability, increased during the third quarter of 2000 as
compared to the third quarter of 1999 primarily as a result
of increased pretax earnings.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 2000
vs. Nine Months Ended September 30, 1999
RESULTS OF OPERATIONS
Consolidated Net Income
Enron reported net income of $919 million for the first
nine months of 2000 compared to $698 million, excluding
items impacting comparability, during the same period in
1999. Items impacting comparability in 1999 include a $345
million gain on the sale of EOG stock, a $278 million charge
to reflect impairment of MTBE assets and a $131 million
charge to reflect the cumulative effect of accounting changes.
Basic and diluted earnings (loss) per share of common
stock were as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
2000 1999
<S> <C> <C>
Basic earnings per share $ 1.17 $ 0.84
Diluted earnings (loss) per share:
Results before items impacting
comparability $ 1.07 $ 0.87
Items impacting comparability:
Gain on sale of EOG - 0.45
Charge to reflect impairment of
MTBE assets - (0.36)
Cumulative effect of accounting changes - (0.17)
Diluted earnings per share $ 1.07 $ 0.79
</TABLE>
Income Before Interest, Minority Interests and Income Taxes
The following table presents IBIT for each of Enron's
operating segments (in millions):
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
2000 1999
<S> <C> <C>
Transportation and Distribution:
Transportation Services $ 288 $ 283
Portland General 241 200
Wholesale Energy Operations and Services 1,483 1,054
Retail Energy Services 70 (75)
Broadband Services (28) -
Exploration and Production - 65
Corporate and Other (155) (5)
Income before interest, minority
interests and taxes $1,899 $1,522
</TABLE>
Transportation and Distribution
Transportation Services. The following table summarizes
total volumes transported for each of Enron's interstate
natural gas pipelines.
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
2000 1999
<S> <C> <C>
Total Volumes Transported (Bbtu/d)(a)
Northern Natural Gas 3,464 3,847
Transwestern Pipeline 1,639 1,462
Florida Gas Transmission 1,601 1,477
Northern Border Pipeline 2,438 2,404
<FN>
(a) Reflects 100% of each entity's throughput volumes.
</TABLE>
Significant components of IBIT are as follows (in
millions):
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
2000 1999
<S> <C> <C>
Net revenues $468 $450
Operating expenses 204 190
Depreciation and amortization 49 52
Equity in earnings 45 30
Other income, net 28 45
Income before interest and taxes $288 $283
</TABLE>
Revenues, net of cost of sales increased in the first
nine months of 2000 as compared to the same period in 1999
primarily due to higher gas sales in 2000 from Northern's
storage inventory, partially offset by lower transport fees.
Operating expenses increased $14 million primarily as a
result of higher overhead costs and costs related to
increased regulatory amortization. The increase in equity
in earnings relates primarily to Enron's investment in
Florida Gas. Other income, net decreased $17 million in the
first nine months of 2000 as compared to the same period of
1999. Included in the first nine months of 2000 were gains
related to an energy commodity contract and the sale of
compressor-related equipment. The 1999 period included
interest earned in connection with Enron's financing of an
acquisition by an unconsolidated affiliate and the early
settlement of an interest rate contract.
Portland General. Statistics for Portland General for the
first nine months of 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
2000 1999
<S> <C> <C>
Electricity Sales (Thousand MWh)(a)
Residential 5,285 5,400
Commercial 5,605 5,513
Industrial 3,653 3,265
Total Retail 14,543 14,178
Wholesale 14,893 9,312
Total Electricity Sales 29,436 23,490
Average Billed Revenue (cents per kWh) 5.18 4.10
Resource Mix
Coal 10% 15%
Combustion Turbine 10 6
Hydro 6 9
Total Generation 26 30
Firm Purchases 66 57
Secondary Purchases 8 13
Total Resources 100% 100%
Average Variable Power Cost (Mills/kWh)(b) 32.6 19.1
Retail Customers (end of period, thousands) 722 714
<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>
Nine Months Ended
September 30,
2000 1999
<S> <C> <C>
Revenues $1,557 $1,002
Purchased power and fuel 976 460
Operating expenses 239 223
Depreciation and amortization 152 137
Other income, net 51 18
IBIT $ 241 $ 200
</TABLE>
Revenues and purchased power and fuel costs increased
$555 million and $516 million, respectively, in the first
nine months of 2000 as compared to the same period in 1999.
The increase in revenue is primarily the result of a
significant increase in the price of power, an increase in
wholesale sales and increased sales to industrial and
commercial customers. Higher purchased power and fuel costs
partially offset the revenue increase. Operating expenses
increased primarily due to increased plant maintenance costs
related to periodic overhauls. Other income, net increased
$33 million in the first nine months of 2000 as compared to
the same period in 1999 primarily as a result of the impact
of an OPUC order allowing certain deregulation costs to be
deferred and recovered through rate cases and gains on the
sale of certain generation-related assets. Depreciation and
amortization increased $15 million in the first nine months
of 2000 primarily as a result of increased regulatory
amortization.
Wholesale Energy Operations and Services
The following table reflects IBIT for each of Enron
Wholesale's business lines (in millions):
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
2000 1999
<S> <C> <C>
Commodity Sales and Services $1,092 $ 477
Assets and Investments 580 701
Unallocated expenses (189) (124)
Income before interest, minority
interests and taxes $1,483 $1,054
</TABLE>
The following discussion analyzes the contributions to
IBIT for each of the business lines.
Commodity Sales and Services. Enron Wholesale markets,
transports and provides energy commodities as reflected in
the following table (including intercompany amounts):
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
2000 1999
<S> <C> <C>
Physical Volumes (BBtue/d)(a)(b)
Gas:
United States 16,418 8,564
Canada 6,146 4,395
Europe and Other 3,223 1,553
25,787 14,512
Transport Volumes 557 535
Total Gas Volumes 26,344 15,047
Crude Oil and Liquids 5,645 5,937
Electricity(c) 15,373 10,889
Total 47,362 31,873
Electricity Volumes Marketed (Thousand MWh)
United States 389,955 292,264
Europe and Other 31,281 5,012
Total 421,236 297,276
Financial Settlements (Notional) (BBtue/d) 169,048 95,786
<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.
</TABLE>
The earnings from commodity sales and services increased
by $615 million in the first nine months of 2000 as compared
to the same period of 1999. Earnings from commodity
marketing were favorably impacted by increased profits from
North American operations attributable to significant
increases in natural gas prices combined with price
volatility in both the gas and power markets and European
power marketing activities. Gas and power volumes, which
increased 75% and 41%, respectively, were positively
impacted in the first nine months of 2000 by EnronOnline.
Assets and Investments. Earnings from assets and
investments decreased to $580 million in the first nine
months of 2000 as compared to $701 million in the same
period of 1999, due to lower earnings from sales of
interests in international energy assets and a decline in
the value of Enron Wholesale's merchant investments,
partially offset by increased earnings from international
energy asset operations. Earnings from merchant investments
were impacted by the decline in value of communications and
energy-intensive industry investments, partially offset by
increases in the market value of power-related investments.
Unallocated Expenses. Net unallocated expenses such as
rent, systems expenses and performance-related costs
increased in 2000 due to growth of Enron Wholesale's
existing businesses and continued expansion into new
markets.
Retail Energy Services
Energy Services reported IBIT of $70 million in the first
nine months of 2000 compared to a loss of $75 million for
the same period of 1999.
Significant components of Energy Services' results are as
follows (in millions):
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
2000 1999
<S> <C> <C>
Revenues $2,958 $1,252
Cost of sales 2,585 1,116
Operating expenses 331 197
Depreciation and amortization 27 19
Equity in earnings (32) -
Other income, net 87 5
Income before interest and taxes $ 70 $ (75)
</TABLE>
Revenues and gross margin increased $1,706 million and
$237 million, respectively, in the first nine months 2000
compared to the first nine months of 1999, primarily
resulting from sales of power to Energy Services' increasing
base of customers, long-term energy contracts originated in
2000, increased values of Energy Services' contract
portfolio and the commencement, in the second half of 1999,
of operations in the United Kingdom. Operating expenses
increased as a result of certain compensation expenses and
the growth of Energy Services' business. Included in other
income, net in the first nine months of 2000 were gains
recognized associated with the securitization of non-
merchant equity instruments. Equity in earnings reflects
equity losses in Enron's investment in The New Power
Company.
Broadband Services
Broadband Services reported a loss before interest,
minority interests and taxes for the first nine months of
2000 of $28 million.
Significant components of Broadband Services' results are
as follows (in millions):
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 2000
<S> <C>
Gross margin $281
Operating expenses 249
Depreciation and amortization 63
Other income, net 3
Income before interest and taxes $(28)
</TABLE>
Broadband Services recognized a loss before interest,
minority interests and taxes of $28 million in the first
nine months of 2000. Gross margin included earnings from
sales of excess fiber and the significant increase
in the market value of Broadband Services' merchant
investments. Expenses incurred during the period include
certain incentive-based compensation costs, expenses related
to building the business and depreciation and amortization.
Corporate and Other
Corporate and Other realized a loss before interest,
minority interests and taxes of $155 million in the first
nine months of 2000 compared to a loss of $5 million for the
same period in 1999. Significant components of IBIT are as
follows (in millions):
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
2000 1999
<S> <C> <C>
IBIT before items impacting comparability $(155) $ (18)
Items impacting comparability:
Gain on sale of EOG - 454
Charge to reflect impairment of MTBE
assets - (441)
IBIT $(155) $ (5)
</TABLE>
Results in 2000 include increased expenses, including
information technology costs and long-term employee
compensation, and equity losses related to Azurix Corp.,
partially offset by a gain on the sale of certain assets and
earnings from Enron Renewable Energy Corp. related to the
completion and sale of a wind project.
Interest and Related Charges, net
Interest and related charges, net, is reported net of
interest capitalized of $28 million and $45 million for the
first nine months of 2000 and 1999, respectively. The net
expense increased $67 million in the first nine months of
2000 as compared to the same period of 1999, primarily due
to increased long-term debt levels, increased average short-
term borrowings, short-term debt assumed as a result of the
acquisition of MG plc and higher interest rates resulting
from general market conditions within the U.S. The increase
was partially offset by the replacement of debt related to a
Brazilian subsidiary with lower interest rate debt.
Minority Interests
Minority interests increased $14 million to $109 million
in the first nine months 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, 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,
consolidated foreign earnings and differences between the
book and tax basis of certain assets and stock sales.
Income taxes, excluding taxes related to items impacting
comparability, increased during the same period 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 PRONOUNCEMENTS
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. In June 2000,
the FASB issued SFAS No. 138, which amended certain guidance
within SFAS No. 133. Enron believes that the adoption of
SFAS No. 133 (as amended) will not have a material impact on
its financial statements. The assessment of the impact of
adopting SFAS No. 133 excludes PGE, the sale of which is
expected to close in early 2001. PGE has not yet completed
the quantification of the impact of adopting SFAS No. 133
pending final interpretation of the statement by accounting
regulatory bodies.
FINANCIAL CONDITION
<TABLE>
Cash Flows
<CAPTION>
Nine Months Ended
September 30,
(In Millions) 2000 1999
<S> <C> <C>
Cash provided by (used in):
Operating activities $ 100 $ (43)
Investing activities (3,602) (3,155)
Financing activities 3,911 3,403
</TABLE>
Cash provided by operating activities totaled $100 million in
the first nine months of 2000 as compared to cash used in
operating activities of $43 million in the same period last year.
Net cash provided by operating activities in the first nine
months of 2000 primarily reflects increased earnings and proceeds
from sales of merchant assets and investments, partially offset
by net cash used in price risk management activities and
net cash used in acquiring merchant assets and investments.
Higher volatility in the gas and power markets in the second
and third quarters of 2000 and higher prices of commodities
purchased and sold by Enron resulted in an increase in cash
used in price risk management activities. Management anticipates
an increase in operating cash flow in the last quarter of 2000
due to expected reductions in working capital, net price risk
management assets and merchant investments.
Cash used in investing activities totaled $3.6 billion in
the first nine months of 2000 as compared to $3.2 billion in
the same period of 1999. The 2000 amount reflects cash used
for capital expenditures, the acquisition of certain
minority owners' interests, equity investments and the
acquisition of MG plc, partially offset by proceeds received
from sales of investments and assets.
Cash provided by financing activities totaled $3.9
billion in the first nine months of 2000 as compared to $3.4
billion during the same period of 1999. The first nine
months of 2000 includes the net issuances of short- and long-
term debt of $3.9 billion.
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 September 30, 2000 was $27.9
billion. Debt as a percentage of total capitalization
increased to 49.5% at September 30, 2000 as compared to
38.5% at December 31, 1999. The increase in the ratio
reflects increased debt levels, the first quarter 2000
acquisition of certain minority owners' interests, the
retirement of certain company-obligated preferred securities
of a subsidiary and the decline in the value of the British
pound sterling, partially offset by the issuances, in the
first nine months of 2000, of Enron common stock and company-
obligated preferred securities of subsidiaries and the
contribution of common shares (see Note 7 to the
Consolidated Financial Statements). The issuances of Enron
common stock related to the acquisition of a minority
owner's interest in Enron Energy Services LLC and the
exercise of employee stock options.
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 $55 million at September 30, 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 and gas markets
related to overall market conditions.
In addition, value at risk for non-trading foreign
currency exchange rate risk increased to $10 million at
September 30, 2000, compared to $4 million at December 31,
1999. This increase is a result of contracts to hedge
currency translation risks associated with Yen-denominated
notes issued by Enron during 2000.
Enron's value at risk for trading equity risk was $31
million at September 30, 2000. Equity trading market risk
relates to Enron's merchant assets and investments and
certain derivative instruments associated with merchant
activities.
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 Transportation Services, 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 2. Recent Sales of Unregistered Equity Securities
During the third quarter of 2000, pursuant to a private
placement exemption from the registration requirements of
the Securities Act of 1933, Enron exchanged 214,141 shares
of common stock in connection with the acquisition of Weiss
Holding Company, the minority owner of a company in the
facility maintenance and repair business, in a transaction
valued at approximately $16.9 million.
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: November 14, 2000 By: RICHARD A. CAUSEY
Richard A. Causey
Executive Vice President and
Chief Accounting Officer
(Principal Accounting Officer)
