SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1999
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number 1-3423-01
ENRON CAPITAL TRUST II
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction 76-6122939
of incorporation or organization) (IRS Employer Identification No.)
1400 Smith Street, Houston Texas 77002
(Address of principal executive offices) (Zip Code)
(713) 853-6161
(Registrant's telephone number, including area code)
Securities registered pursuant Name of Exchange on which registered:
to Section 12(b) of the Act:
8 1/8% Trust Preferred Securities New York Stock Exchange
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act:
None
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.
[X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 15, 2000, the registrant had an aggregate of
6,000,000 8 1/8% Trust Preferred Securities and 186,000 8 1/8%
Trust Common Securities outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
<PAGE>
PART I
ITEM 1. BUSINESS.
Enron Capital Trust II (the "Trust") is a statutory business
trust created under the Delaware Business Trust Act, as amended
(the "Trust Act"), pursuant to an amended and restated
declaration of trust (the "Declaration") and the filing of a
certificate of trust with the Secretary of State of the State of
Delaware. On January 16, 1997, the Trust completed its initial
public offering of the Trust Preferred Securities described
below, as a result of which the Trust's sole assets are 6,186,000
8 1/8% Partnership Preferred Securities ($25 liquidation amount
per security) representing an 85% limited partnership interest in
Enron Preferred Funding II, L.P., a Delaware limited partnership
(the "Partnership"). Ownership of the assets of the Trust is
evidenced by an aggregate of 6,000,000 8 1/8% Trust Preferred
Securities (the "Trust Preferred Securities"), which are listed
and traded on the New York Stock Exchange under the symbol "ENE
PrR", and 186,000 Trust Common Securities (the "Trust Common
Securities," and, together with the Trust Preferred Securities,
the "Trust Securities"), all of which are owned by Enron Corp.,
an Oregon corporation ("Enron"). The Trust makes distributions
on the Trust Securities to the extent it receives distributions
from the Partnership on the Partnership Preferred Securities.
Payments on the Partnership Preferred Securities represent the
sole source of cash for the Trust. Distributions on the Trust
Securities are guaranteed by Enron, but only to the extent that
the Trust has available funds to pay such distributions. The
Trust was created for the sole purpose of issuing the Trust
Securities, investing the proceeds of such issuance in the
Partnership Preferred Securities and engaging in only those other
activities necessary or incidental thereto. The Trust Securities
are subject to redemption at any time on or after March 31, 2002
or earlier in the event of certain tax law changes or other
events.
The general partner of the Partnership is Enron, which owns a
15% general partnership interest in the Partnership. Since
completion of the offering of the Trust Preferred Securities on
January 16, 1997, the assets of the Partnership have been
invested primarily in a $136,450,000 principal amount 7.75%
Subordinated Debenture due 2016, Series II of Enron (the "Enron
Debenture") and $21,836,000 principal amount 7.75% Debentures due
2016, Series II, of each of Enron Capital & Trade Resources Corp.
and Enron Pipeline Company (the "Subsidiary Debentures" and,
together with the Enron Debenture, the "Debentures"), each of
which is a wholly owned subsidiary of Enron. The obligations
under the Subsidiary Debentures are guaranteed by Enron. The
respective issuers of the Debentures have certain rights to elect
to defer any payments of principal and interest on the Debentures
for up to five years at a time. In addition to the Debentures,
the Partnership owns an aggregate of approximately $1,900,000 in
short-term, investment grade debt securities (the "Eligible Debt
Securities"). Under certain circumstances, upon repayment of one
or more of the Debentures, the assets of the Partnership may be
reinvested in one or more debt securities of Enron or its
subsidiaries. Payments of interest and principal on the Enron
Debenture and the Subsidiary Debentures (or the guarantees
thereof) and the Eligible Debt Securities are the sole source of
revenue for the Partnership. The Partnership pays distributions
to the Trust as holder of the Partnership Preferred Securities
when and if Enron, as the general partner, determines to do so,
although Enron has no obligation to do so.
For more information concerning the Trust, the Partnership and
the rights of the holders of the Trust Securities, see the
Amended and Restated Declaration of Trust relating to the Trust,
the Amended and Restated Agreement of Limited Partnership
relating to the Partnership, the Indentures relating to each of
the Debentures and the Guarantee Agreements of Enron with
respect to the Trust Preferred Securities, the Partnership
Preferred Securities and the Subsidiary Debentures, each of which
is included as an exhibit to this Form 10-K.
Enron Corp., an Oregon corporation, is an energy and
communications company with headquarters in Houston, Texas. The
common stock of Enron is traded on the New York Stock Exchange
under the symbol "ENE." Enron's operations are conducted through
its subsidiaries and affiliates which are principally engaged in
the transportation of natural gas through pipelines to markets
throughout the United States; the generation, transmission and
distribution of electricity to markets in the northwestern United
States; the marketing of natural gas, electricity and other
commodities and related risk management and finance services
worldwide; the development, construction and operation of power
plants, pipelines and other energy related assets worldwide; and
the development of an intelligent network platform to provide
bandwidth management services and deliver high bandwidth
applications.
The location of the principal executive offices of the Trust
and the Partnership is c/o Enron Corp., 1400 Smith Street,
Houston, Texas 77002, and its phone number at such address is
(713) 853-6161.
ITEM 2. PROPERTIES.
Not applicable.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Trust Preferred Securities are listed on the New York
Stock Exchange ("NYSE") under the symbol "ENE PrR." From
January 16, 1997 through December 31, 1999, the high and low
prices of the Trust Preferred Securities on the NYSE were
$26.75 and $20.50, respectively. As of March 15, 2000, the
approximate number of holders of record of the Trust Preferred
Securities was 70. All of the Trust Common Securities are
held by Enron.
On March 31, 1997, the Trust made the first scheduled
regular quarterly distribution on the Trust Preferred Securities
of $0.4232 per Trust Preferred Security payable, such initial
distribution accruing from January 16, 1997, the date of original
issuance of the Trust Preferred Securities. During 1999 and
1998, the Trust paid quarterly distributions on the Trust
Preferred Securities of $0.5078 per quarter, and the Trust
expects to continue to pay distributions on the Trust Preferred
Securities of $0.5078 per quarter to the extent the Trust has
funds available for the payment of such distributions.
The Trust issued an aggregate of 186,000 Trust Common
Securities to Enron on January 16, 1997 in a transaction exempt
from the Securities Act of 1933 pursuant to Section 4(2) thereof.
ITEM 6. SELECTED FINANCIAL DATA (UNAUDITED).
<TABLE>
<CAPTION>
Period from Inception
Year Ended December 31, (January 13, 1997)
1999 1998 to December 31, 1997
(In Thousands) (In Thousands)
<S> <C> <C> <C>
Revenues $12,565 $12,565 $12,042
Income from Continuing
Operations 12,565 12,565 12,042
Distributions 12,565 12,565 12,042
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
1999 1998 1997
(In Thousands)
<S> <C> <C> <C>
Total Assets $154,650 $154,650 $154,650
Shareowners' Equity 154,650 154,650 154,650
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
On January 16, 1997, the Trust issued $150 million of Trust
Preferred Securities to the public. The Trust used the
proceeds from the offering combined with $4.7 million of proceeds
from the issuance of Trust Common Securities to Enron to acquire
Partnership Preferred Securities of the Partnership. The proceeds
received by the Partnership were invested primarily in 20-year
debentures of Enron and two wholly-owned subsidiaries of Enron.
During 1999, 1998 and 1997, holders of the 6,000,000 Trust
Preferred Securities were paid quarterly cash distributions
totaling $12.2 million, $12.2 million and $11.7 million,
respectively. During 1999, 1998 and 1997, holders of the 186,000
Trust Common Securities were paid quarterly cash distributions
totaling $0.4 million per year. On those same quarterly
distribution dates, the Trust received quarterly distributions
from the Partnership totaling $12.6 million per year for 1999 and
1998 and $12.1 million for 1997.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required herein is included in this report as
set forth in the "Index to Financial Statements" on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
Not Applicable.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Trust is administered by four trustees. Two of the
Trustees, Keith A. Crane and Phillip M. Sisneros (the
"Regular Trustees") are employees of Enron or its subsidiaries.
The third trustee is The Chase Manhattan Bank, which is
unaffiliated with Enron and acts as indenture trustee for
purposes of compliance with the provisions of the Trust Indenture
Act (the "Property Trustee"). The fourth trustee, Chase
Manhattan Bank Delaware, is also unaffiliated with Enron and
serves as Delaware Trustee to fulfill a requirement of the Trust
Act.
ITEM 11. EXECUTIVE COMPENSATION.
The Regular Trustees are not compensated by the Trust or Enron
for their services as trustees. The Property Trustee and
Delaware Trustee are not compensated by the Trust but are paid
customary compensation for their services by Enron.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Not applicable.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Except as described above under Item 1, the Trust is not party
to any transactions with affiliates.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
(a)(1) and (2) Financial Statements and Financial Statement
Schedules
See "Index to Financial Statements" set forth on page F-1.
(a)(3) List of Exhibits
4.1 Certificate of Trust (incorporated by reference to
Exhibit 4(a) of the Registration Statement on Form S-1
of the Trust (No. 333-18669)).
4.2 Amended and Restated Declaration of Trust dated as of
January 13, 1997 (incorporated by reference to Exhibit
4.2 to Enron Capital Trust II Form 10-K for the year
ended 1996).
4.3 Amended and Restated Agreement of Limited Partnership
of the Enron Preferred Funding II, L.P. dated as of
January 16, 1997 (incorporated by reference to Exhibit
4.3 to Enron Capital Trust II Form 10-K for the year
ended 1996).
4.4 Trust Preferred Guarantee Agreement dated as of January
16, 1997 (incorporated by reference to Exhibit 4.4 to
Enron Capital Trust II Form 10-K for the year ended
1996).
4.5 Partnership Preferred Guarantee Agreement dated as of
January 16, 1997 (incorporated by reference to Exhibit
4.5 to Enron Capital Trust II Form 10-K for the year
ended 1996).
4.6 Indenture dated as of January 16, 1997 relating to the
Enron's 7.75% Subordinated Debentures due 2016, Series
II (incorporated by reference to Exhibit 4.6 to Enron
Capital Trust II Form 10-K for the year ended 1996).
4.7 Indenture dated as of January 16, 1997 relating to
Enron Pipeline Company's 7.75% Debentures due 2016,
Series II (incorporated by reference to Exhibit 4.7 to
Enron Capital Trust II Form 10-K for the year ended
1996).
4.8 Indenture dated as of January 16, 1997 relating to the
Enron Capital & Trade Resources Corp. 7.75% Debentures
due 2016, Series II (incorporated by reference to
Exhibit 4.8 to Enron Capital Trust II Form 10-K for the
year ended 1996).
4.9 Guarantee Agreement of Enron dated as of January 16,
1997 relating to Enron Pipeline Company's 7.75%
Debentures due 2016, Series II (incorporated by
reference to Exhibit 4.9 to Enron Capital Trust II Form
10-K for the year ended 1996).
4.10 Guarantee Agreement of Enron dated as of January
16, 1997 relating to Enron Capital & Trade Resources
Corp. 7.75% Debentures due 2016, Series II
(incorporated by reference to Exhibit 4.10 to Enron
Capital Trust II Form 10-K for the year ended 1996).
4.11 Form of certificate representing Trust Preferred
Securities (included in Exhibit 4.2)
27 Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed during the last
quarter of the period covered by this report.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
ENRON CAPITAL TRUST II
Financial Statements of Enron Capital Trust II Page
Report of Independent Public Accountants F-2
Income Statement for the years ended December 31,
1999 and 1998 and the period from inception
(January 13, 1997) to December 31, 1997 F-3
Balance Sheet as of December 31, 1999 and 1998 F-4
Statement of Cash Flows for the years ended
December 31, 1999 and 1998 and the period from
inception (January 13, 1997) to December 31, 1997 F-5
Statement of Changes in Shareowners' Equity for the
years ended December 31, 1999 and 1998 and the period
from inception (January 13, 1997) to December 31, 1997 F-6
Notes to the Financial Statements F-7
Exhibit 99 - Financial Statements of Enron Preferred
Funding II, L.P. F-10
Financial Statement Schedules
Financial statement schedules have been omitted because they
are inapplicable as the information required therein is included
elsewhere in the financial statements or notes thereto.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareowners of Enron Capital Trust II:
We have audited the accompanying balance sheet of Enron
Capital Trust II (a Delaware statutory business trust) as of
December 31, 1999 and 1998, and the related statements of
income, cash flows and changes in shareowners' equity for
the years ended December 31, 1999, 1998 and the period from
inception (January 13, 1997) through December 31, 1997.
These financial statements are the responsibility of the
Enron Capital Trust II's management. Our responsibility is
to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing
standards generally accepted in the United States. Those
standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial
position of Enron Capital Trust II as of December 31, 1999
and 1998, and the results of its operations and its cash
flows for the years ended December 31, 1999, 1998 and the
period from inception (January 13, 1997) through December
31, 1997, in conformity with accounting principles generally
accepted in the United States.
ARTHUR ANDERSEN LLP
Houston, Texas
March 28, 2000
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
Enron Capital Trust II
Income Statement
(In Thousands)
<CAPTION>
Period from Inception
Year Ended December 31, (January 13, 1997)
1999 1998 to December 31, 1997
<S> <C> <C> <C>
Revenues from Partnership
Preferred Securities $12,565 $12,565 $12,042
Net Income $12,565 $12,565 $12,042
<FN>
The accompanying notes are an integral part of these financial
statements.
</TABLE>
<PAGE>
<TABLE>
Enron Capital Trust II
Balance Sheet
(In Thousands)
<CAPTION>
As of December 31,
1999 1998
ASSETS
<S> <C> <C>
Investment in Limited Partnership Interest $154,650 $154,650
Total Assets $154,650 $154,650
SHAREOWNERS' EQUITY
Shareowners' Equity
Trust Preferred Securities -
authorized, issued and outstanding
6,000,000 securities, $25 liquidation
value $150,000 $150,000
Trust Common Securities -
authorized, issued and outstanding
186,000 securities, $25 liquidation
value 4,650 4,650
Total Shareowners' Equity $154,650 $154,650
<FN>
The accompanying notes are an integral part of these financial
statements.
</TABLE>
<PAGE>
<TABLE>
Enron Capital Trust II
Statement of Cash Flows
(In Thousands)
<CAPTION>
Period from Inception
Year Ended December 31, (January 13, 1997)
1999 1998 to December 31, 1997
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Reconciliation of Net Income to Net
Cash Provided by Operating Activities
Net Income $ 12,565 $ 12,565 $ 12,042
Net Cash Provided by Operating
Activities 12,565 12,565 12,042
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of Partnership
Preferred Securities - - (154,650)
Net Cash Used in Investing Activities - - (154,650)
CASH FLOW FROM FINANCING ACTIVITIES:
Issuance of Trust Preferred Securities - - 150,000
Issuance of Trust Common Securities - - 4,650
Dividends Paid (12,565) (12,565) (12,042)
Net Cash Provided by (Used in)
Financing Activities (12,565) (12,565) 142,608
Increase (Decrease) in Cash and
Cash Equivalents - - -
Cash and Cash Equivalents,
Beginning of Period - - -
Cash and Cash Equivalents,
End of Period $ - $ - $ -
<FN>
The accompanying notes are an integral part of these financial
statements.
</TABLE>
<PAGE>
<TABLE>
Enron Capital Trust II
Statement of Changes in Shareowners' Equity
(In Thousands)
<CAPTION>
Period from Inception
Year Ended December 31, (January 13, 1997)
1999 1998 to December 31,1997
<S> <C> <C> <C>
Trust Preferred Securities
Balance, Beginning of Period $150,000 $150,000 $ -
Issuances (6,000,000 securities) - - 150,000
Balance, End of Period 150,000 150,000 150,000
Trust Common Securities
Balance, Beginning of Period 4,650 4,650 -
Issuances (186,000 securities) - - 4,650
Balance, End of Period 4,650 4,650 4,650
Retained Earnings
Balance, Beginning of Period - - -
Net Income 12,565 12,565 12,042
Dividends:
Trust Preferred Securities (12,187) (12,187) (11,680)
Trust Common Securities (378) (378) (362)
Balance, End of Period $ - $ - $ -
<FN>
The accompanying notes are an integral part of these financial
statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF THE TRUST
Enron Capital Trust II (the "Trust") is a statutory
business trust created under the Delaware Business Trust
Act. Ownership of the assets of the Trust is evidenced by
an aggregate of 6,000,000 8.125% Trust Preferred Securities
(the "Trust Preferred Securities"), which are listed and
traded on the New York Stock Exchange under the symbol "ENE
PrR", and 186,000 Trust Common Securities (the "Trust Common
Securities" and, together with the Trust Preferred
Securities, the "Trust Securities"), all of which are owned
by Enron Corp. ("Enron"). The Trust's sole assets are
6,186,000 8.125% Partnership Preferred Securities ($25
liquidation amount per security) representing an 85% limited
partnership interest in Enron Preferred Funding II, L.P.
(the "Partnership"). The Trust and the Partnership are
consolidated subsidiaries of Enron for financial accounting
purposes. The Trust makes distributions on the Trust
Securities to the extent it receives distributions from the
Partnership on the Partnership Preferred Securities, which
represents the sole source of cash for the Trust. Enron is
obligated to pay all fees and expenses of the Trust and the
Partnership.
The Trust was created for the sole purpose of issuing the
Trust Securities, investing the proceeds of such issuance in
the Partnership Preferred Securities and engaging in only
those other activities necessary or incidental thereto.
Of the four trustees for the Trust, two are employees or
officers of Enron or its affiliates ("the Regular
Trustees"), one is a financial institution that acts as
indenture trustee for purposes of compliance with the Trust
provisions and one is an entity that maintains its principal
place of business in Delaware for the purposes of compliance
with the Business Trust Act. The Regular Trustees are
authorized and directed to conduct the affairs of and to
operate the Trust. Enron, at its discretion as holder of
the Trust Common Securities, may appoint, remove or replace
the trustees.
In the event of liquidation of the Trust, holders are
entitled to receive $25 per Trust Preferred Security plus
any accrued and unpaid distributions (together the "Trust
Liquidation Distribution"), unless Partnership Preferred
Securities are distributed to such holders. If the Trust
has insufficient assets to pay the Trust Liquidation
Distribution in full, then the holders of the Trust
Preferred Securities will receive distributions on a pro
rata basis. The holders of the Trust Common Securities are
entitled to receive distributions on liquidation pro rata
with the holders of the Trust Preferred Securities, except
that under certain events of default the holders of the
Trust Preferred Securities will have preference over the
holders of the Trust Common Securities with respect to
payments upon liquidation of the Trust.
2. DESCRIPTION OF THE PARTNERSHIP
The general partner of the Partnership is Enron, which
owns a 15% general partnership interest in the Partnership.
Since completion of the offering of the Trust Preferred
Securities on January 16, 1997, the assets of the
Partnership have been invested primarily in a $136,450,000
principal amount 7.75% Subordinated Debenture, Series II,
due 2016 of Enron (the "Enron Debenture") and $21,836,000
principal amount 7.75% Debentures, Series II, due 2016 (the
"Subsidiary Debentures" and, together with the Enron
Debenture, the "Debentures"), of each of Enron Capital &
Trade Resources Corp. and Enron Pipeline Company, each of
which is a wholly-owned subsidiary of Enron. The
obligations under the Subsidiary Debentures are guaranteed
by Enron. The respective issuers of the Debentures have
certain rights to elect to defer any payments of principal
and interest on the Debentures for up to five years at a
time. In addition to the Debentures, the Partnership owns
an aggregate of approximately $1,900,000 in short-term,
investment grade debt securities (the "Eligible Debt
Securities") as of December 31, 1999 and 1998. Under
certain circumstances, upon repayment of one or more of the
Debentures, the assets of the Partnership may be reinvested
in one or more debt securities of Enron or its subsidiaries.
Payments of interest on the Debentures (or the guarantees
thereof) and the Eligible Debt Securities are the sole
source of revenue for the Partnership. The Partnership pays
distributions to the Trust as holder of the Partnership
Preferred Securities when and if Enron, as the general
partner, determines to do so.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation. The Trust, as the limited
partner of the Partnership, accounts for its investment in
the Partnership under the equity method.
Use of Estimates. 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, 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.
4. INCOME TAXES
The Trust is classified for U.S. federal income tax
purposes as a grantor trust. For U.S. federal income tax
purposes, the Trust is a non-taxable entity and each holder
of Trust Preferred Securities and Trust Common Securities is
considered the owner of an individual interest in the
Partnership Preferred Securities held by the Trust, and each
holder is required to include in its gross income its
distributive share of income attributable to the
Partnership, which generally is equal to such holder's
allocable share of amounts accrued on the Partnership
Preferred Securities. Accordingly, no recognition has been
given to income taxes in the accompanying financial
statements.
5. DISTRIBUTIONS
Holders of the Trust Securities are entitled to receive
quarterly cash distributions at an annual rate of 8.125%.
Distributions on the Trust Preferred Securities are
guaranteed by Enron, but only to the extent that the Trust
has available funds to pay such distributions. Any
distributions not paid on the scheduled payment date will
accumulate and compound quarterly at a rate per annum equal
to 8.125%.
Neither the Trust Preferred Securities nor the
Partnership Preferred Securities have any scheduled maturity
but are subject to redemption at any time, upon not less
than 30 nor more than 60 days notice, on or after March 31,
2002 or earlier in the event of certain tax law changes or
other events.
6. SUMMARIZED FINANCIAL INFORMATION OF THE PARTNERSHIP
Summarized financial information for the Partnership,
accounted for by the equity method, is as follows (in
thousands):
<TABLE>
<CAPTION>
December 31,
Balance Sheet 1999 1998
<S> <C> <C>
Current Assets $ 1,852 $ 1,876
Noncurrent Assets 180,122 180,122
Shareowners' Capital 181,974 181,998
</TABLE>
<TABLE>
<CAPTION>
Period from Inception
Year Ended December 31, (January 16,1997)
Income Statement 1999 1998 to December 31,1997
<S> <C> <C> <C>
Revenues $14,051 $14,062 $13,471
Net Income 14,051 14,062 13,471
</TABLE>
<PAGE>
Exhibit 99 - FINANCIAL STATEMENTS OF ENRON PREFERRED FUNDING
II, L.P.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of Enron Preferred Funding II, L.P.:
We have audited the accompanying balance sheet of Enron
Preferred Funding II, L.P. (a Delaware limited partnership)
as of December 31, 1999 and 1998, and the related statements
of income, cash flows and changes in shareowners' equity for
the years ended December 31, 1999, 1998 and the period from
inception (January 16, 1997) through December 31,1997.
These financial statements are the responsibility of the
Enron Preferred Funding II, L.P.'s management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing
standards generally accepted in the United States. Those
standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial
position of Enron Preferred Funding II, L.P. as of December
31, 1999 and 1998, and the results of its operations and its
cash flows for the years ended December 31, 1999, 1998 and
the period from inception (January 16, 1997) through
December 31,1997, in conformity with accounting principles
generally accepted in the United States.
ARTHUR ANDERSEN LLP
Houston, Texas
March 28, 2000
<PAGE>
<TABLE>
Enron Preferred Funding II, L.P.
Income Statement
(In Thousands)
<CAPTION>
Period from Inception
Year Ended December 31, (January 16,1997)
1999 1998 to December 31,1997
<S> <C> <C> <C>
Interest Income $14,051 $14,062 $13,471
Net Income $14,051 $14,062 $13,471
<FN>
The accompanying notes are an integral part of these financial
statements.
</TABLE>
<PAGE>
<TABLE>
Enron Preferred Funding II, L.P.
Balance Sheet
(In Thousands)
<CAPTION>
As of December 31,
1999 1998
ASSETS
<S> <C> <C>
Cash and Cash Equivalents $ 1,852 $ 1,876
Notes Receivable 180,122 180,122
Total Assets $181,974 $181,998
LIABILITIES AND SHAREOWNERS' EQUITY
Shareowners' Equity
Partnership Preferred Securities -
authorized, issued and outstanding
6,186,000 securities, $25 liquidation
value $154,650 $154,650
General Partner Contribution 27,292 27,292
Retained Earnings 32 56
Total Liabilities and Shareowners' Equity $181,974 $181,998
<FN>
The accompanying notes are an integral part of these financial
statements.
</TABLE>
<PAGE>
<TABLE>
Enron Preferred Funding II, L.P.
Statement of Cash Flows
(In Thousands)
<CAPTION>
Period from Inception
Year Ended December 31, (January 16, 1997)
1999 1998 to December 31, 1997
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Reconciliation of Net Income to Net
Cash Provided by Operating Activities
Net Income $ 14,051 $ 14,062 $ 13,471
Net Cash Provided by Operating
Activities 14,051 14,062 13,471
CASH FLOW FROM INVESTING ACTIVITIES:
Issuance of Notes Receivable - - (180,122)
Net Cash Used in Investing Activities - - (180,122)
CASH FLOW FROM FINANCING ACTIVITIES:
Issuance of Partnership
Preferred Securities - - 154,650
General Partner Contribution - - 27,292
Dividends Paid (14,075) (14,006) (13,471)
Net Cash Provided by (Used in)
Financing Activities (14,075) (14,006) 168,471
Increase (Decrease) in Cash and (24) 56 1,820
Cash Equivalents
Cash and Cash Equivalents,
Beginning of Period 1,876 1,820 -
Cash and Cash Equivalents,
End of Period $ 1,852 $ 1,876 $ 1,820
<FN>
The accompanying notes are an integral part of these financial
statements.
</TABLE>
<PAGE>
<TABLE>
Enron Preferred Funding II, L.P.
Statement of Changes in Shareowners' Equity
(In Thousands)
<CAPTION>
Period from Inception
Year Ended December 31, (January 16, 1997)
1999 1998 to December 31,1997
<S> <C> <C> <C>
Partnership Preferred Securities
Balance, Beginning of Period $154,650 $154,650 $ -
Issuances (6,186,000 securities) - - 154,650
Balance, End of Period 154,650 154,650 154,650
General Partner Contribution
Balance, Beginning of Period 27,292 27,292 -
Contribution Received - - 27,292
Balance, End of Period 27,292 27,292 27,292
Retained Earnings
Balance, Beginning of Period 56 - -
Net Income 14,051 14,062 13,471
Dividends:
Partnership Preferred Securities (12,565) (12,565) (12,042)
General Partner (1,510) (1,441) (1,429)
Balance, End of Period $ 32 $ 56 $ -
<FN>
The accompanying notes are an integral part of these financial
statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF THE PARTNERSHIP
Enron Preferred Funding II, L.P. (the "Partnership") is a
limited partnership that was formed on January 16, 1997 in
connection with the creation of Enron Capital Trust II (the
"Trust"). Pursuant to the certificate of limited partnership, as
amended, and the Limited Partnership Agreement, Enron Corp.
("Enron") is the sole general partner of the Partnership.
On January 16, 1997 the Partnership issued $154.7 million of
Partnership Preferred Securities to the Trust. The Trust is the
sole limited partner of the Partnership. The Trust and the
Partnership are consolidated subsidiaries of Enron for financial
accounting purposes. The Partnership, in turn, used proceeds
from the issuance of the Partnership Preferred Securities and
general partner contributions of $27.3 million to invest
primarily in 20-year debentures of Enron and two wholly-owned
subsidiaries of Enron (the "Debentures"). In addition to the
Debentures, the Partnership owns an aggregate of approximately
$1.9 million in short-term, investment grade debt securities as
of December 31, 1999 and 1998. Interest and principal payments
related to the Debentures issued by Enron's subsidiaries have
been guaranteed, on a subordinated basis, by Enron.
The Partnership Preferred Securities, which have no scheduled
maturity date, are redeemable at the option of Enron, upon notice
and in whole or in part, on or after March 31, 2002 or ealier in
the event of certain tax law changes or other events, at $25 per
Partnership Preferred Security plus any accrued unpaid
distributions.
In the event of liquidation of the Partnership, holders of the
Partnership Preferred Securities are entitled to receive $25 per
Partnership Preferred Security plus any accrued and unpaid
distributions, before any distribution is made to Enron as
general partner.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition. Interest income on the Debentures is
recorded on the accompanying Income Statement when due from Enron
and its wholly-owned subsidiaries.
Cash and Cash Equivalents. The Partnership considers all
highly liquid investments with an original maturity of three
months or less to be cash equivalents.
Use of Estimates. 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, 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.
3. ADMINISTRATION OF THE PARTNERSHIP
The Partnership is managed by Enron and exists for the sole
purpose of (i) issuing its partnership interests, (ii) investing
the proceeds thereof in Debentures, and to a lesser extent,
certain short-term investments and (iii) engaging in only those
other activities necessary or incidental thereto. To the extent
that aggregate payments to the Partnership on the Debentures and
investments exceed distributions payable with respect to the
Partnership Preferred Securities, the Partnership may at times
have excess funds which shall be allocated to and may, in Enron's
sole discretion, be distributed to Enron. Enron is obligated to
pay all fees and expenses of the Trust and the Partnership.
4. INCOME TAXES
The Partnership is classified for U.S. federal income tax
purposes as a limited partnership. The profit or loss of the
Partnership for federal income tax purposes is included in the
income tax returns of the partners. Accordingly, no recognition
has been given to income taxes in the accompanying financial
statements.
5. DISTRIBUTIONS
Holders of Partnership Preferred Securities are entitled to
receive cumulative cash distributions, if, as and when declared
by Enron in its sole discretion out of assets of the Partnership
legally available for payment. The distributions payable on each
Partnership Preferred Security will be fixed at a rate per annum
of 8.125% of the stated liquidation preference of $25 per
Partnership Preferred Security. Distributions on the Partnership
Preferred Securities are guaranteed by Enron to the extent that
the Partnership has available funds to pay such distributions.
Distributions not paid on the scheduled payment date will
accumulate and compound quarterly at the rate per annum equal to
8.125%.
6. DEBENTURE RECEIVABLE FROM AFFILIATES
The Debentures (due 2016), bear interest at 7.75% per annum
and are guaranteed by Enron (see Note 1). Of the Debentures
purchased, $136.5 million are obligations of Enron,
$21.8 million are obligations of an affiliate,
Enron Capital & Trade Resources Corp., and another $21.8 million
are obligations of another affiliate, Enron Pipeline Company. The
Debentures contain redemption provisions that correspond to those
applicable to the Partnership Preferred Securities. As of
December 31, 1999 and 1998, based on the discounted present value
of cash flows, the estimated fair value of the Debentures was
$182.3 million and $193.5 million, respectively. Judgment is
necessarily required in interpreting market data and the use of
different market assumptions or estimation methodologies may
affect the estimated fair value amounts.
<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 CAPITAL TRUST II
(Registrant)
Date: March 29, 2000 By: PHILLIP M. SISNEROS
Name: Phillip M. Sisneros
Title: Regular Trustee
Pursuant to the requirements of the Securities Exchange Act
of 1934, this Report has been signed below by the following
persons on behalf of the Registrant and in the capacities
indicated as of March 29, 2000.
Name Title
KEITH A. CRANE Regular Trustee
Keith A. Crane
PHILLIP M. SISNEROS Regular Trustee
Phillip M. Sisneros
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 154,650
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
150,000
<COMMON> 4,650
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 154,650
<SALES> 0
<TOTAL-REVENUES> 12,565
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 12,565
<INCOME-TAX> 0
<INCOME-CONTINUING> 12,565
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,565
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
