UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
Commission File Number 1-3423
ENRON CORP.
(Exact name of registrant as specified in its charter)
Delaware 47-0255140
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
Enron Building
1400 Smith Street
Houston, Texas 77002
(Address of principal executive (Zip Code)
Offices)
(713) 853-6161
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90
days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of
the issuer's classes of common stock, as of the latest
practicable date.
Class Outstanding at April 30, 1997
Common Stock, $0.10 Par Value 255,124,541 shares
1 of 21
<PAGE>
ENRON CORP. AND SUBSIDIARIES
TABLE OF CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Income Statement - Three
Months Ended March 31, 1997 and 1996 3
Consolidated Balance Sheet - March 31, 1997
and December 31, 1996 4
Consolidated Statement of Cash Flows - Three
Months Ended March 31, 1997 and 1996 6
Notes to Consolidated Financial Statements 7
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 20
ITEM 6. Exhibits and Reports on Form 8-K 20
<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
March 31,
1997 1996
<S> <C> <C>
Revenues $5,344 $3,054
Costs and Expenses
Cost of gas, electricity and other products 4,632 2,341
Operating expenses 273 297
Oil and gas exploration expenses 22 19
Depreciation, depletion and amortization 124 120
Taxes, other than income taxes 36 37
5,087 2,814
Operating Income 257 240
Other Income and Deductions
Equity in earnings of unconsolidated
subsidiaries 41 31
Other income, net 131 144
Income before Interest, Minority Interests
and Income Taxes 429 415
Interest and Related Charges, net 70 69
Dividends on Company-Obligated Preferred Stock
of Subsidiaries 15 8
Minority Interests 19 15
Income Taxes 103 110
Net Income 222 213
Preferred Stock Dividends 4 4
Earnings on Common Stock $ 218 $ 209
Earnings per Share of Common Stock
Primary $ 0.88 $ 0.86
Fully diluted $ 0.81 $ 0.80
Average Number of Common Shares Used in
Primary Computation 248 244
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION - (Continued)
ITEM 1. FINANCIAL STATEMENTS - (Continued)
ENRON CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In Millions)
(Unaudited)
<CAPTION>
March 31, December 31,
1997 1996
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 255 $ 256
Trade receivables 1,496 1,841
Other receivables 228 328
Transportation and exchange gas receivable 78 86
Inventories 111 164
Assets from price risk management activities 657 841
Other 448 463
Total Current Assets 3,273 3,979
Investments and Other Assets
Investments in and advances to unconsolidated
subsidiaries 1,685 1,701
Assets from price risk management activities 1,266 1,632
Other 1,845 1,713
Total Investments and Other Assets 4,796 5,046
Property, Plant and Equipment, at cost 11,324 11,348
Less accumulated depreciation, depletion
and amortization 4,245 4,236
Net Property, Plant and Equipment 7,079 7,112
Total Assets $15,148 $16,137
<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, Except Per Share Amounts)
(Unaudited)
<CAPTION>
March 31, December 31,
1997 1996
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 1,488 $ 1,955
Transportation and exchange gas payable 99 80
Accrued taxes 62 70
Accrued interest 58 56
Liabilities from price risk management
activities 699 1,029
Other 376 518
Total Current Liabilities 2,782 3,708
Long-Term Debt 3,564 3,349
Deferred Credits and Other Liabilities
Deferred income taxes 2,359 2,290
Liabilities from price risk management
activities 531 980
Other 480 740
Total 3,370 4,010
Minority Interests 754 755
Company-Obligated Preferred Stock of Subsidiaries 764 592
Shareholders' Equity
Second preferred stock, cumulative, $1 par value 137 137
Common stock, $0.10 par value 26 26
Additional paid in capital 1,879 1,870
Retained earnings 2,172 2,007
Cumulative foreign currency translation
adjustment (142) (127)
Common stock held in treasury (7) (30)
Other (including Flexible Equity Trust) (151) (160)
Total 3,914 3,723
Total Liabilities and Shareholders' Equity $15,148 $16,137
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION - (Continued)
ITEM 1. FINANCIAL STATEMENTS - (Continued)
ENRON CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Millions)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1997 1996
<S> <C> <C>
Cash Flows From Operating Activities
Reconciliation of net income to net cash
provided by (used in) operating activities
Net Income $ 222 $ 213
Depreciation, depletion and amortization 124 120
Oil and gas exploration expenses 22 19
Deferred income taxes 54 80
Gains on sale of assets (107) (111)
Changes in components of working capital (71) 137
Net assets from price risk management activities (228) (144)
Amortization of production payment transaction (11) (11)
Other, net (147) (7)
Net Cash Provided by (Used in) Operating Activities (142) 296
Cash Flows From Investing Activities
Proceeds from sale of investments and other assets 298 58
Additions to property, plant and equipment (214) (119)
Equity investments (79) (162)
Other, net (73) (22)
Net Cash Used in Investing Activities (68) (245)
Cash Flows From Financing Activities
Net increase in short-term borrowings 373 32
Issuance of long-term debt 31 139
Repayments of long-term debt (189) (110)
Issuance of company-obligated preferred stock
of subsidiaries 172 -
Issuance of common stock - 50
Dividends paid (83) (67)
Net acquisition of treasury stock (32) (20)
Other, net (63) 9
Net Cash Provided by Financing Activities 209 33
Increase (Decrease) in Cash and Cash Equivalents (1) 84
Cash and Cash Equivalents, Beginning of Period 256 115
Cash and Cash Equivalents, End of Period $ 255 $ 199
Changes in Components of Working Capital
Receivables $ 453 $ (39)
Inventories 53 39
Payables (448) 109
Accrued taxes (8) (25)
Accrued interest 2 8
Other (123) 45
Total $ (71) $ 137
<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, 1996 (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 1996
amounts to conform with the 1997 presentation.
"Enron" is used from time to time herein as a collective
reference to Enron Corp. and its subsidiaries and
affiliates. In material respects, the businesses of Enron
are conducted by the subsidiaries and affiliates whose
operations are managed by their respective officers.
2. Supplemental Cash Flow Information
Net cash paid for income taxes for the first quarter of
1997 and 1996 was $9 million and $44 million, respectively.
Cash paid for interest expense for the same periods, net of
amounts capitalized, was $81 million and $66 million,
respectively.
Non-cash investing activities during the first quarter of
1997 included the issuance of common stock and notes
payable, with a combined aggregate value of $78.8 million,
as partial consideration in the acquisition of wind energy
assets.
3. Litigation and Contingencies
As reported in the Form 10-K, in 1995 several parties
(the Plaintiffs) filed suit in Harris County District Court
in Houston, Texas against Intratex Gas Company (Intratex),
Houston Pipe Line Company and Panhandle Gas Company
(collectively, the Enron Defendants), each of which is a
wholly-owned subsidiary of Enron. The Plaintiffs were
either sellers or royalty owners under numerous gas purchase
contracts with Intratex, many of which have terminated.
Early in 1996, the case was severed by the Court into two
matters to be tried (or otherwise resolved) separately. In
the first matter, the Plaintiffs alleged that the Enron
Defendants committed fraud and negligent misrepresentation
in connection with the "Panhandle program," a special
marketing program established in the early 1980s. This case
was tried in October 1996 and resulted in a verdict for the
Enron Defendants. In the second matter, the Plaintiffs
allege that the Enron Defendants violated state regulatory
requirements and certain gas purchase contracts by failing
to take the Plaintiffs' gas ratably with other producers'
gas at certain times between 1978 and 1988. The Court has
certified a class action with respect to these ratability
claims. The Enron Defendants have appealed the court's
decision to certify a class action. The Enron Defendants
deny the Plaintiffs' claims and have asserted various
affirmative defenses, including the statute of limitations.
The Enron Defendants believe that they have strong legal and
factual defenses, and intend to vigorously contest the
claims. Although no assurances can be given, Enron believes
that the ultimate resolution of these matters will not have
a materially adverse effect on its financial position or
results of operations.
On March 29, 1996, Enron and two of its wholly-owned
subsidiaries filed suit in the state district court of
Harris County, Texas seeking a ruling that the Capacity
Reservation and Transportation Agreement (CRTA) dated
September 10, 1990 between Teesside Gas Transportation
Limited (TGTL), an Enron subsidiary, and the "CATS" parties
has terminated due to consistent material breaches of that
agreement by the CATS parties. The suit was removed to the
federal district court in Houston, Texas. Proceedings in
the Houston lawsuit have been enjoined by an English court.
Enron is appealing the injunction. In April 1996, TGTL,
reserving its position in the Houston lawsuit, notified the
CATS parties in accordance with the provisions of the CRTA
that as a result of their failure to make available the
Transportation Service (as defined in the contract) by April
1, 1996, the CRTA was terminated. The CATS parties were to
have provided transportation under the CRTA to ship gas
through the Central Area Transmission System (CATS)
pipeline, owned by the CATS parties. In a separate lawsuit
filed in the English court, the CATS parties are suing TGTL
and Enron (on the basis of its guarantee of TGTL's
obligations under the CRTA) for allegedly failing to make
quarterly "send-or-pay" payments under the CRTA. TGTL has
refused to make these payments for the same reason that it
terminated the CRTA: its position is that the
Transportation Service (as defined in the CRTA) was not
available. Termination of the CRTA may lead to termination
of the "J-Block Contracts". Trial on these matters
commenced in the English court on October 28, 1996. The
trial concluded in March 1997, and a decision is anticipated
in June 1997.
The J-Block Contracts are long-term gas contracts that
Enron entered into in March 1993 with Phillips Petroleum
Company United Kingdom Limited, British Gas Exploration and
Production Limited and Agip (U.K.) Limited to purchase
future gas production from the J-Block field which is
located in the North Sea offshore the United Kingdom. Such
agreements provide for Enron to take or pay for gas at a
fixed price (with possible escalations throughout the
contract period) on an annual basis. The contract price is
in excess of market prices as of May 1997; however, United
Kingdom natural gas prices have been volatile. The
agreements provide that gas paid for, but not taken, can be
recovered in later contract years. In September 1995, Enron
announced that, in accordance with its contractual rights,
it had notified the J-Block sellers that Enron's nominations
for gas from the J-Block fields were estimated to be zero
from the first delivery date of September 25, 1996 through
September 30, 1997. In addition, in accordance with its
contractual rights, Enron made no estimated nominations for
J-Block gas under the J-Block Contracts for the contract
year ending September 30, 1998. While not challenging these
actions, the J-Block sellers have, in a proceeding commenced
in English court on March 29, 1996, sought a declaration
that Enron should have agreed to a "Commissioning Date"
(which might trigger Enron's take-or-pay obligations) of
earlier than September 25, 1996, the date set forth in the J-
Block Contracts as the Commissioning Date in the absence of
an agreement on an earlier date. In October 1996, an
English Court of Appeal ruled that Enron was not obligated
to agree on an earlier Commissioning Date, thus making the
contract period ending September 30, 1997 the first year in
which Enron has a potential take-or-pay obligation. This
ruling is being appealed to the House of Lords by the J-
Block sellers.
Enron continues to believe that there are many reasons
for the parties to resolve any contract issues commercially,
but efforts have not been successful to date. The ultimate
outcome of settlement discussions or the results of
litigation and changes in market conditions could result in
a material adverse impact on earnings in any given period.
However, although no assurances can be given, based upon
information currently available and Enron's expectation of
the ultimate outcome of the matters discussed above, Enron
anticipates that the J-Block and CRTA contracts will not
have a materially adverse effect on its financial position.
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 to connect its natural gas pipeline to the
local distribution pipeline system serving the city of
Decorah. Enron's predecessor did not operate the gas plant
and sold the Decorah Site in 1965. The EPA alleges that
hazardous substances were released to the environment during
the period in which Enron's predecessor owned the site, and
that Enron's predecessor assumed the liabilities of the
company that operated the plant. Enron contests these
allegations. The EPA is interested in determining whether
materials from the plant have adversely affected subsurface
soils at the Decorah Site. Enron has entered into a consent
order with the EPA by which it has agreed, although
admitting no liability, to replace affected topsoil in
certain areas of the tract where the plant was formerly
located, and to take deep soil samples in those areas where
subsurface contamination would most likely be located. To
date, the EPA has identified no other potentially
responsible parties with respect to this site. Enron
believes that expenses incurred in connection with this
matter will not have a materially adverse effect on its
financial position or results of operations.
4. Proposed Merger
As previously reported, Enron announced on July 22, 1996
that it had signed an agreement to merge with Portland
General Corporation (PGC) in a stock-for-stock transaction.
PGC is an electric utility holding company, serving retail
electric customers in northwest Oregon as well as wholesale
electricity customers throughout the western United States.
Enron initially proposed to issue approximately 51 million
common shares to shareholders of PGC in a one for one
exchange of shares, as a result of which Enron would be the
surviving corporation. On April 14, 1997, Enron and PGC
announced that their respective boards of directors had
approved a revised merger agreement providing for, among
other things, a revised share exchange ratio of 0.9825
shares of Enron common stock for each share of PGC common
stock, or approximately 50 million Enron shares. Enron will
account for the transaction on a purchase accounting basis.
The original merger agreement was approved by each
company's shareholders on November 12, 1996. The amended
merger agreement requires PGC shareholder approval, but does
not require Enron shareholder approval. Supplemental proxy
materials were filed with the Securities and Exchange
Commission (the Commission) in April 1997, and, subject to
Commission review, a PGC shareholder vote is expected to
occur at PGC's annual shareholder meeting scheduled for June
24, 1997. The merger also remains subject to satisfactory
receipt of regulatory approval from the Oregon Public
Utility Commission (OPUC) consistent with certain conditions
in the amended Enron/PGC merger agreement. On April 29,
1997, Enron and PGC finalized a settlement agreement with
OPUC staff and other interested parties. The OPUC's final
decision is currently scheduled for June 4, 1997. Enron and
PGC have received all other regulatory approvals required
for the merger.
5. Sale of Liquids Assets
During the first quarter of 1997, Enron completed the
sale of (i) the stock of Enron Liquids Pipeline Company, the
general partner and 15% owner and operator of Enron Liquids
Pipeline, L.P., (ii) the stock of Enron Louisiana Energy
Company, a natural gas processor and natural gas liquids
producer and fractionator in Louisiana, (iii) its wholesale
propane business, (iv) the stock of Enron Gas Processing
Company, which owns interests in the Bushton gas processing
and natural gas liquids storage complex in Kansas, and (v)
the general and limited partner interests in Enron Gathering
Limited Partnership, which owns and operates an extensive
natural gas gathering system in the Hugoton basin of Kansas
and Oklahoma. Proceeds from the sales totaled approximately
$295 million. The sale of these non-strategic North
American liquids assets is consistent with Enron's
previously announced strategy of focusing on core
businesses, and is not material to Enron's operations. Pre-
tax income of $102 million was recognized in the first
quarter of 1997 on these sales. Additionally, as part of
the sales transaction, Enron was relieved of its obligations
as primary obligor under an operating lease with
undiscounted minimum payments totaling approximately $356
million. Enron has guaranteed such minimum lease payments
and has been indemnified by an investment grade company.
6. Earnings Per Share
In February 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards
(SFAS) No. 128 - "Earnings per Share" effective for interim
and annual periods ending after December 15, 1997. This
statement replaces primary earnings per share (EPS) with a
newly defined basic EPS and modifies the computation of
diluted EPS. Enron's basic and diluted EPS computed using
the requirements of SFAS No. 128 are the same as the
currently disclosed primary and fully diluted EPS,
respectively.
<PAGE>
PART I. FINANCIAL INFORMATION - (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ENRON CORP. AND SUBSIDIARIES
RESULTS OF OPERATIONS
First Quarter 1997
vs. First Quarter 1996
The following review of Enron's results of operations
should be read in conjunction with the Consolidated
Financial Statements.
CONSOLIDATED NET INCOME
Enron's first quarter 1997 net income increased to $222
million as compared to $213 million during the first quarter
of 1996. Net income in the first quarter of 1997 benefited
primarily from increased income before interest, minority
interests and income taxes in the transportation and
operation, domestic gas and power services and exploration
and production segments and decreased income taxes. These
increases were partially offset by losses before interest,
minority interests and income taxes from the retail energy
services and corporate and other segments and increased
dividends on company-obligated preferred stock of
subsidiaries and minority interests. Earnings per share
rose to $0.88 in the first quarter of 1997 from $0.86 in the
same period in 1996.
INCOME BEFORE INTEREST, MINORITY INTERESTS AND INCOME TAXES
The following table presents income before interest,
minority interests and income taxes (IBIT) for each of
Enron's operating segments (in millions).
<TABLE>
<CAPTION>
First Quarter Increase
1997 1996 (Decrease)
<S> <C> <C> <C>
Transportation and Operation $249 $233 $ 16
Domestic Gas and Power Services 123 98 25
Retail Energy Services (14) - (14)
International Operations and
Development 38 40 (2)
Exploration and Production 42 30 12
Corporate and Other (9) 14 (23)
Total $429 $415 $ 14
</TABLE>
TRANSPORTATION AND OPERATION
The transportation and operation segment is comprised of
the Enron Gas Pipeline Group, which includes results of
Northern Natural Gas Company (Northern), Transwestern
Pipeline Company (Transwestern) and Enron's 50% interest in
Florida Gas Transmission Company (Florida Gas); and Enron
Ventures Corp., which includes results of Enron Engineering
& Construction and the operation of clean fuels plants.
Results from Enron's investment in crude oil marketing and
transportation operations conducted by EOTT Energy Partners,
L.P. (EOTT) are also included in this segment. The segment's
IBIT increased $16 million in the first quarter of 1997 as
compared to the same period in 1996. The following discussion
analyzes the significant changes in the various components of
IBIT for the transportation and operation segment.
NET REVENUES
Revenues, net of the cost of gas and other products sold,
of the transportation and operation segment declined $5
million (2%) during the first quarter of 1997 as compared to
the same period in 1996, primarily due to the turnback of
capacity at Transwestern effective in November 1996.
COSTS AND EXPENSES
Operating expenses in the transportation and operation
segment declined $14 million (18%) during the first quarter
of 1997 as compared to the same period in 1996. The decline
primarily reflects lower operating expenses on the
interstate pipelines primarily as a result of reduced
expenses due to lower regulatory amortization and field
operation expenses.
OTHER INCOME AND DEDUCTIONS
Other income, net, was $110 million in both the first
quarter of 1997 and the same period in 1996. Income of $102
million was recognized in 1997 primarily due to the sales of
the liquids assets (see Note 5), compared with gains of
$90 million on the sale of non-strategic natural gas processing
and gathering facilities in the first quarter of 1996.
DOMESTIC GAS AND POWER SERVICES
The domestic gas and power services segment reflects
results of operations for Enron Capital & Trade Resources
(ECT), which conducts Enron's energy commodity marketing,
purchasing and financing activities and the management of
the portfolio of physical and financial commitments arising
from these activities. ECT can be categorized into three
business lines: cash and physical, risk management and
finance. ECT's IBIT was $123 million for the first quarter
of 1997 as compared to $98 million for the same period in
1996. The following discussion analyzes the contributions
to IBIT for each of these business lines.
Statistics for ECT (including intercompany amounts) are
as follows:
<TABLE>
<CAPTION>
First Quarter
1997 1996
<S> <C> <C>
Natural Gas and Crude Oil
Physical/Notional Quantities (BBtue/d)(1)
Firm(2) 8,699 6,350
Interruptible 3,142 1,780
Transport Volumes 207 413
Subtotal 12,048 8,543
Financial Settlements (Notional) 39,916 35,682
Total 51,964 44,225
Production Payments and Financings
Arranged (In Millions) $ 14 $237
Fixed Price Contract Originations (TBtue)(3) 352 471
Electricity (Thousand Megawatt hours)
Owned Production 719 804
Transaction Volumes Marketed 33,292 9,868
<FN>
(1) Billion British thermal units equivalent per day.
(2) Commitments to deliver a specified volume of gas at a
fixed or market responsive price.
(3) Trillion British thermal units equivalent.
</TABLE>
The cash and physical operations include earnings from
physical contracts of one year or less involving marketing
and transportation of physical natural gas, liquids,
electricity and other commodities, earnings from the
management of ECT's contract portfolio and earnings related
to the physical assets of ECT. Also included in this line
of business are the effects of actual settlements of ECT's
long-term physical and notional quantity-based contracts.
The cash and physical operations earnings before overhead
expenses were $113 million in the first quarter of 1997 and
$91 million in the same period in 1996. This increase was
primarily attributable to increased earnings from ECT's
portfolio of European contracts. North American commodity
marketing and contract portfolio management contributed
significant earnings in the first quarter of both 1997 and
1996 due to strong margins and volumes related to seasonal
volatility.
The risk management operations consist of long-term
energy commodity contracts (transactions greater than one
year). First quarter earnings before overhead expenses from
this unit were $34 million in 1997 compared to $38 million
in 1996. Earnings from this unit decreased primarily due to
lower originations from long-term contracts in North America
for both gas and power, partially offset by increased
originations in the European market.
ECT's finance operations provide a variety of capital
products to the energy sector including volumetric
production payments, loans and equity investments. The
finance operations had earnings before overhead expenses of
$4 million in the first quarter of 1997 as compared to a
loss of $4 million in 1996. The 1997 increase in earnings
relates primarily to increased equity earnings from ECT's
investment in Joint Energy Development Investments Limited
Partnership (JEDI), which carries its capital investments at
fair value.
ECT's overhead expenses such as rent, systems expenses
and other support group costs were $28 million in the first
quarter of 1997 and $27 million in the same period in 1996.
RETAIL ENERGY SERVICES
Enron's retail energy services are provided by Enron
Energy Services (EES), which was formed in late 1996 to
serve the U.S. retail natural gas and electricity markets.
EES has participated successfully in selected natural gas
and electric retail marketing pilots. EES reported a loss
of $14 million in the first quarter of 1997 as a result of
significant systems, regulatory and branding costs related
to positioning EES to aggressively market natural gas and
electricity to end users.
INTERNATIONAL OPERATIONS AND DEVELOPMENT
Enron's international operations and development
activities are conducted by Enron International (EI). Such
activities include the development of power, pipeline and
other energy infrastructure in emerging markets.
Additionally, EI manages and operates the projects once
commercial operation has been achieved. The segment
includes results of Enron Global Power & Pipelines L.L.C.
(EPP) and Enron Americas, Inc. The segment's first quarter
IBIT decreased $2 million from 1996 to 1997. The following
discussion analyzes the significant changes in the segment's
results.
Revenues, net of cost of sales, and operating expenses for
the international segment were relatively unchanged in the
first quarter of 1997 as compared with 1996.
Equity in earnings of unconsolidated subsidiaries
increased from $18 million in the first quarter of 1996 to
$22 million in the same period in 1997 due primarily to
increased ownership of Compania de Inversiones de Energia
S.A., which indirectly owns and operates Transportadora de Gas
del Sur S.A. (TGS), a 4,104 mile natural gas pipeline system
in Argentina.
EXPLORATION AND PRODUCTION
Enron's exploration and production activities are
conducted by Enron Oil & Gas Company (EOG). The exploration
and production segment's IBIT increased $12 million to
$42 million in the first quarter of 1997 compared with the
same period of 1996. The following discussion analyzes the
significant changes in the segment's results.
Wellhead volume and price statistics (including
intercompany amounts) are as follows:
<TABLE>
<CAPTION>
First Quarter
1997 1996
<S> <C> <C>
Natural Gas Volumes (Mmcf/d)(1)
North America(2) 738 715
Trinidad 112 133
Total 850 848
Average Natural Gas Prices ($/Mcf)
North America(3) $ 2.58 $ 1.74
Trinidad 1.04 1.00
Total Composite 2.38 1.62
Crude/Condensate Volumes (Mbbl/d)(1)
North America 13.1 11.3
Trinidad 3.7 7.1
India 2.8 3.0
Total 19.6 21.4
Average Crude/Condensate Prices ($/Bbl)
North America $21.55 $18.41
Trinidad 21.56 17.96
India 22.99 17.36
Total Composite 21.76 18.11
<FN>
(1) Million cubic feet per day or thousand barrels per day,
as applicable.
(2) Includes 48 MMcf per day for the three-month periods
ended March 31, 1997 and 1996 delivered under the terms
of volumetric production payment and exchange agreements
effective October 1, 1992, as amended.
(3) Includes an average equivalent wellhead value of
$2.47/Mcf and $0.91/Mcf for the three-month periods ended
March 31, 1997 and 1996, respectively, for the volumes
described in note (2), net of transportation costs.
</TABLE>
NET REVENUES
The exploration and production segment's revenues, net of
gas sold in connection with natural gas marketing, increased
$23 million (15%) during the first quarter of 1997 as
compared to the same period in 1996. Wellhead revenues
increased 38% to $226 million in the first quarter of 1997
as compared to $163 million in the first quarter of 1996.
This increase reflects increased North America volumes and
increased average wellhead prices for natural gas, crude oil
and condensate and natural gas liquids, partially offset by
decreased wellhead crude oil and condensate volumes compared
to the first quarter of 1996. The reduction in wellhead
crude oil and condensate volumes resulted primarily from a
decline in crude oil production offshore Trinidad, partially
due to a reduction in purchaser nominations to base contract
levels.
Other marketing activities associated with sales and
purchases of natural gas, natural gas and crude oil price
hedging and trading transactions and margins related to the
volumetric production payment reduced net operating revenue
by $46 million during the first quarter of 1997 due to the
overall increase in product prices during the period,
compared to an $8 million reduction in the first quarter of
1996. Deferred revenue reductions of $26 million related to
the closing of 1997 natural gas price hedging transactions
will be recognized by EOG during the remainder of 1997.
COSTS AND EXPENSES
Operating expenses increased $4 million (13%) in the
first quarter of 1997 as compared with the 1996 quarter,
primarily due to increased production activity at higher
costs in North America to realize the higher product prices
available in the first quarter of 1997 and higher costs
associated with the start-up of operations offshore India.
Worldwide increases in exploration activities in the first
quarter of 1997 over the first quarter of 1996 increased
exploration expenses by $3 million (17%). Taxes other than
income were $6 million higher in the first quarter of 1997
compared to the same period in 1996 primarily reflecting
increased wellhead revenues in North America.
CORPORATE AND OTHER
The corporate and other segment realized a loss of $9
million in the first quarter of 1997 as compared to earnings
of $14 million in the same quarter of 1996. The first
quarter 1996 results include a $17 million gain from the
sale of EOG shares held by Enron.
MINORITY INTERESTS
Minority interests increased to $19 million in the first
quarter of 1997 from $15 million in the comparable prior
period, primarily due to increased net income from EPP.
DIVIDENDS ON COMPANY-OBLIGATED PREFERRED STOCK OF SUBSIDIARIES
Dividends on company-obligated preferred stock of
subsidiaries increased from $8 million in the first quarter
of 1996 to $15 million in the same period of 1997, primarily
due to the issuance of $387 million of additional preferred
securities during 1996 and the first quarter of 1997.
INCOME TAXES
Income taxes decreased during the first quarter of 1997
as compared to the first quarter of 1996 primarily as a
result of tax benefits recognized from differences in
financial and tax basis in assets and lower deferred state
tax requirements resulting from state tax planning
strategies, partially offset by increased pretax income.
FINANCIAL CONDITION
Cash used in operating activities totaled approximately
$142 million during the first quarter of 1997 as compared to
$296 million of cash provided during the same period last
year. The decrease in cash from operating activities
reflects increased working capital requirements due, in
part, to the repayment of obligations incurred in connection
with the purchase of Enron's additional interest in CIESA
during 1996 and increased cash used in connection with price
risk management activities.
Cash used in investing activities totaled $68 million
during the first quarter of 1997 as compared to $245 million
during the same period in 1996. The decrease primarily
reflects increased proceeds from the sale of assets and
investments, partially offset by higher additions to
property, plant and equipment primarily in the exploration
and production, domestic gas and power services and
transportation and operations segments.
Cash provided by financing activities totaled $209
million during the first quarter of 1997 as compared to $33
million during the same period in 1996. During the first
three months of 1997, net issuances of short- and long-term
debt totaled $215 million. In addition, company-obligated
preferred stock of subsidiaries totaling $172 million was
issued in the first quarter of 1997. Proceeds from these
issuances were used primarily to fund capital and other
expenditures.
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.
Total capitalization at March 31, 1997 was $9.0 billion.
Debt as a percentage of total capitalization was 39.6% at
March 31, 1997 as compared to 39.8% at year-end 1996 and
42.1% at March 31, 1996. Assuming the mandatory conversion
in late 1998 of 10.5 million Exchangeable Notes into EOG
shares held by Enron, the proforma debt to capitalization
percentage would be approximately 37.8% at March 31, 1997.
INFORMATION REGARDING FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes forward
looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Although Enron believes that its
expectations are based on reasonable assumptions, it can
give no assurance that its goals will be achieved. Important
factors that could cause actual results to differ materially
from those in the forward looking statements herein include
political developments in foreign countries, the pace of
deregulation of retail natural gas and electricity markets
in the United States, the timing and extent of changes in
commodity prices for crude oil, natural gas, electricity and
interest rates, the extent of EOG's success in acquiring oil
and gas properties and in discovering, developing and
producing reserves, the timing and success of Enron's
efforts to develop international power, pipeline and other
infrastructure projects and conditions of the capital
markets and equity markets during the periods covered by the
forward looking statements.
<PAGE>
PART II. OTHER INFORMATION
ENRON CORP. AND SUBSIDIARIES
ITEM 1. Legal Proceedings
See Part I. Item 1, Note 3 to Consolidated Financial
Statements entitled "Litigation and Contingencies," which is
incorporated herein by reference.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit 11 Calculation of Earnings Per Share
Exhibit 12 Computation of Ratio of Earnings to Fixed Charges
(b) Reports on Form 8-K
Current Report on Form 8-K filed March 17, 1997,
containing Enron Corp. Consolidated Financial
Statements for the year ended December 31, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
ENRON CORP.
(Registrant)
Date: May 13, 1997 By: Richard A. Causey
Richard A. Causey
Senior Vice President and
Chief Accounting and Information
Officer
(Principal Accounting Officer)
<PAGE>
Exhibit 11
<TABLE>
ENRON CORP. AND SUBSIDIARIES
Calculation of Earnings Per Share
(In Millions, Except Per Share Amounts)
(Unaudited)
Three Months Ended
March 31,
1997 1996
<S> <C> <C>
Primary Earnings Per Share
Earnings on common stock
Net income $ 222 $ 213
Preferred stock dividends (4) (4)
$ 218 $ 209
Average number of common shares outstanding 248 244
Primary earnings per share of common stock $0.88 $0.86
Fully Diluted Earnings Per Share
Adjusted earnings on common stock
Net income $ 222 $ 213
Preferred stock dividends (4) (4)
Add back:
Dividends on convertible preferred stock 4 4
$ 222 $ 213
Average number of common shares outstanding
on a fully diluted basis
Average number of common shares outstanding 248 244
Additional shares issuable upon:
Conversion of preferred stock 19 19
Exercise of stock options reduced by the
number of shares which could have been
purchased with the proceeds from exercise
of such options 5 4
272 267
Fully diluted earnings per share of common stock $0.81 $0.80
</TABLE>
<PAGE>
Exhibit 12
<TABLE>
ENRON CORP. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO
FIXED CHARGES
(Dollars in Millions)
(Unaudited)
Three Months
Ended Year Ended December 31,
3/31/97 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
Earnings available for fixed charges
Net income $222 $ 584 $ 520 $ 453 $333 $329
Less:
Undistributed earnings and
losses of less than 50% owned
affiliates (3) (39) (14) (9) (20) (33)
Capitalized interest of
nonregulated companies (3) (10) (8) (9) (26) (66)
Add:
Fixed charges (1) 130 454 436 487 471 452
Minority interest 19 75 27 30 28 18
Income tax expense 110 297 310 190 148 88
Total $475 $1,361 $1,271 $1,142 $934 $788
Fixed Charges
Interest expense (1) $111 $ 404 $ 386 $ 445 $436 $430
Rental expense representative of
interest factor 19 50 50 42 35 22
Total $130 $ 454 $ 436 $ 487 $471 $452
Ratio of earnings to fixed charges 3.65 3.00 2.92 2.34 1.98 1.74
<FN>
(1) Amounts exclude costs incurred on sales of accounts receivables.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 255
<SECURITIES> 0
<RECEIVABLES> 1,724
<ALLOWANCES> 0
<INVENTORY> 111
<CURRENT-ASSETS> 3,265
<PP&E> 11,324
<DEPRECIATION> 4,245
<TOTAL-ASSETS> 15,148
<CURRENT-LIABILITIES> 2,782
<BONDS> 3,564
0
137
<COMMON> 26
<OTHER-SE> 3,751
<TOTAL-LIABILITY-AND-EQUITY> 15,148
<SALES> 3,807
<TOTAL-REVENUES> 5,344
<CGS> 4,632
<TOTAL-COSTS> 5,087
<OTHER-EXPENSES> (172)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 70
<INCOME-PRETAX> 325
<INCOME-TAX> 103
<INCOME-CONTINUING> 222
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 222
<EPS-PRIMARY> 0.88
<EPS-DILUTED> 0.81
</TABLE>
