Enron december 31 2000 financial statements

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, 2001

Commission File Number 1−13159 ENRON CORP. (Exact name of registrant as specified in its charter)

Oregon 47−0255140 (State or other jurisdiction of (I.R.S. Employer Identification incorporation or organization) Number)

Enron Building 1400 Smith Street Houston, Texas 77002 (Address of principal executive (Zip Code) offices)

(713) 853−6161 (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Class Outstanding at April 30, 2001

Common Stock, No Par Value 746,105,146 shares

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ENRON CORP. AND SUBSIDIARIES

TABLE OF CONTENTS

Page No.

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

Consolidated Condensed Income Statement − Three Months Ended March 31, 2001 and 2000 3 Consolidated Balance Sheet − March 31, 2001 and December 31, 2000 4 Consolidated Statement of Cash Flows − Three Months Ended March 31, 2001 and 2000 6 Notes to Consolidated Financial Statements 7

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 17

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings 29

ITEM 6. Exhibits and Reports on Form 8−K 29

PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ENRON CORP. AND SUBSIDIARIES CONSOLIDATED CONDENSED INCOME STATEMENT (In Millions, Except Per Share Amounts) (Unaudited)

Three Months Ended March 31, 2001 2000

Revenues $50,129 $13,145 Costs and Expenses Cost of gas, electricity and other products 48,159 11,888 Operating expenses 993 747 Depreciation, depletion and amortization 213 172 Taxes, other than income taxes 88 66 49,453 12,873 Operating Income 676 272 Other Income and Deductions Equity in earnings of unconsolidated equity affiliates 74 264 Gains on sales of non−merchant assets 32 18 Other income, net 13 70 Income before Interest, Minority Interests and Income Taxes 795 624 Interest and Related Charges, net 201 161 Dividends on Company−Obligated Preferred Securities of Subsidiaries 18 18 Minority Interests 40 35 Income Taxes 130 72 Net Income Before Cumulative Effect of Accounting Changes 406 338 Cumulative Effect of Accounting Changes, net of tax 19 − Net Income 425 338 Preferred Stock Dividends 20 20

Earnings on Common Stock $ 405 $ 318

Earnings per Share of Common Stock Basic Before Cumulative Effect of Accounting Changes $ 0.51 $ 0.44 Cumulative Effect of Accounting Changes 0.03 − Basic Earnings per Share $ 0.54 $ 0.44

Diluted Before Cumulative Effect of Accounting Changes $ 0.47 $ 0.40 Cumulative Effect of Accounting Changes 0.02 − Diluted Earnings per Share $ 0.49 $ 0.40

Average Number of Common Shares Used in Computation Basic 752 723 Diluted 872 852

The accompanying notes are an integral part of these consolidated financial statements.

PART I. FINANCIAL INFORMATION − (Continued) ITEM 1. FINANCIAL STATEMENTS − (Continued) ENRON CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (In Millions) (Unaudited)

March 31, December 31, 2001 2000

ASSETS

Current Assets Cash and cash equivalents $ 1,086 $ 1,374 Trade receivables (net of allowance for doubtful accounts of $416 and $133, respectively) 8,949 10,396 Other receivables 2,361 1,874 Assets from price risk management activities 12,672 12,018 Inventories 650 953 Deposits 2,349 2,433 Other 1,100 1,333 Total Current Assets 29,167 30,381

Investments and Other Assets Investments in and advances to unconsolidated equity affiliates 5,694 5,294 Assets from price risk management activities 9,998 8,988 Goodwill 3,609 3,638 Other 7,217 5,459 Total Investments and Other Assets 26,518 23,379

Property, Plant and Equipment, at cost Natural gas transmission 6,987 6,916 Electric generation and distribution 4,518 4,766 Fiber−optic network and equipment 912 839 Construction in progress 696 682 Other 2,184 2,256 15,297 15,459 Less accumulated depreciation, depletion and amortization 3,722 3,716 Property, Plant and Equipment, net 11,575 11,743

Total Assets $67,260 $65,503

The accompanying notes are an integral part of these consolidated financial statements.

PART I. FINANCIAL INFORMATION − (Continued) ITEM 1. FINANCIAL STATEMENTS − (Continued) ENRON CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (In Millions) (Unaudited)

March 31, December 31, 2001 2000

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities Accounts payable $ 8,686 $ 9,777 Liabilities from price risk management activities 10,840 10,495 Short−term debt 2,159 1,679 Customers' deposits 3,495 4,277 Other 2,390 2,178 Total Current Liabilities 27,570 28,406

Long−Term Debt 9,763 8,550

Deferred Credits and Other Liabilities Deferred income taxes 1,625 1,644 Liabilities from price risk management activities 10,472 9,423 Other 2,781 2,692 Total Deferred Credits and Other Liabilities 14,878 13,759

Minority Interests 2,418 2,414

Company−Obligated Preferred Securities of Subsidiaries 904 904

Shareholders' Equity Second preferred stock, cumulative, no par value 121 124 Mandatorily Convertible Junior Preferred Stock, Series B, no par value 1,000 1,000 Common stock, no par value 9,513 8,348 Retained earnings 3,525 3,226 Accumulated other comprehensive income (1,193) (1,048) Common stock held in treasury (1,082) (32) Restricted stock and other (157) (148) Total Shareholders' Equity 11,727 11,470

Total Liabilities and Shareholders' Equity $67,260 $65,503

The accompanying notes are an integral part of these consolidated financial statements.

PART I. FINANCIAL INFORMATION − (Continued) ITEM 1. FINANCIAL STATEMENTS − (Continued) ENRON CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (In Millions) (Unaudited)

Three Months Ended March 31, 2001 2000

Cash Flows From Operating Activities Reconciliation of net income to net cash used in operating activities Net income $ 425 $ 338 Cumulative effect of accounting changes, net of tax (19) − Depreciation, depletion and amortization 213 172 Deferred income taxes 113 30 Gains on sales of non−merchant assets (32) (18) Changes in components of working capital (599) (313) Net assets from price risk management activities (270) (52) Merchant assets and investments: Realized gains on sales 26 (31) Proceeds from sales 135 199 Additions and unrealized gains (74) (517) Other operating activities (382) (265) Net Cash Used in Operating Activities (464) (457) Cash Flows From Investing Activities Capital expenditures (382) (496) Equity investments (716) (316) Proceeds from sales of non−merchant investments 339 17 Acquisition of subsidiary stock − (485) Business acquisitions, net of cash acquired (33) (144) Other investing activities (332) (69) Net Cash Used in Investing Activities (1,124) (1,493) Cash Flows From Financing Activities Issuance of long−term debt 1,747 1,361 Repayment of long−term debt (996) (393) Net increase in short−term borrowings 799 962 Issuance of common stock 119 179 Issuance of preferred securities of subsidiaries − 105 Dividends paid (143) (156) Net (acquisition) disposition of treasury stock (226) 70 Net Cash Provided by Financing Activities 1,300 2,128 Increase in Cash and Cash Equivalents (288) 178 Cash and Cash Equivalents, Beginning of Period 1,374 288 Cash and Cash Equivalents, End of Period $ 1,086 $ 466

Changes in Components of Working Capital Receivables $ 627 $ (824) Inventories 169 156 Payables (1,062) 732 Other (333) (377) Total $ (599) $ (313)

The accompanying notes are an integral part of these consolidated financial statements.

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, 2000 (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 2000 amounts to conform with the 2001 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 quarter of 2001 and 2000 was $100 million and $11 million, respectively. Cash paid for interest for the same periods, net of amounts capitalized, was $200 million and $164 million, respectively.

In 2000, Enron entered into an agreement with Azurix under which the holders of Azurix's approximately 39 million publicly traded shares would receive cash of $8.375 in exchange for each share. On March 16, 2001, Azurix shareholders approved the agreement whereby Enron paid approximately $330 million for an equivalent number of shares held by the public and all publicly traded shares of Azurix Corp were redeemed.

Non−Cash Activity. In March 2001, Enron acquired the limited partner's interests in an unconsolidated equity affiliate, Joint Energy Development Investments Limited Partnership (JEDI), for $35 million. As a result of the acquisition, JEDI has been consolidated. JEDI's balance sheet as of the date of acquisition consisted of net assets of approximately $500 million, including an investment of 12 million shares of Enron common stock valued at approximately $785 million, merchant investments and other assets of approximately $670 million and third−party debt and debt owed to Enron of approximately $950 million. Enron repaid the third−party debt of approximately $620 million prior to March 31, 2001. Also see Note 8.

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 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 claims have been settled. 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 (PGE) ceased commercial operation of the Trojan nuclear power generating facility. The Oregon Public Utility Commission (OPUC) granted PGE, through a general rate order, recovery of, and a return on, 87 percent of 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 the 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, the CUB agreed to withdraw from the litigation and to 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 the CUB's withdrawal, the URP is the one remaining significant adverse party in the litigation. The URP has indicated that it plans to continue to challenge the OPUC order allowing PGE recovery of and a return on 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.

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):

Three Months Ended March 31, 2001 2000

Numerator: Basic Income before cumulative effect of accounting changes $ 406 $ 338 Preferred stock dividends: Second Preferred Stock (4) (4) Series B Preferred Stock (16) (16) Income available to common shareholders before cumulative effect of accounting changes 386 318 Cumulative effect of accounting changes 19 − Income available to common shareholders $ 405 $ 318 Diluted Income available to common shareholders before cumulative effect of accounting changes $ 386 $ 318 Effect of assumed conversion of dilutive securities: Second Preferred Stock 4 4 Series B Preferred Stock 16 16 Income before cumulative effect of accounting changes 406 338 Cumulative effect of accounting changes 19 − Income available to common shareholders after assumed conversion $ 425 $ 338

Denominator: Denominator for basic earnings per share − weighted−average shares 752 723 Effect of dilutive securities: Preferred stock: Second Preferred Stock 33 35 Series B Preferred Stock 50 50

Stock options and other equity instruments 37 44 Dilutive potential common shares 120 129 Denominator for diluted earnings per share − adjusted weighted−average shares and assumed conversions 872 852

Basic earnings per share: Before cumulative effect of accounting changes $0.51 $0.44 Cumulative effect of accounting changes 0.03 − Basic earnings per share $0.54 $0.44

Diluted earnings per share: Before cumulative effect of accounting changes $0.47 $0.40 Cumulative effect of accounting changes 0.02 − Diluted earnings per share $0.49 $0.40

5. COMPREHENSIVE INCOME

Comprehensive income includes the following (in millions):

First Quarter 2001 2000

Net income $ 425 $ 338 Other comprehensive income (net of tax): Foreign currency translation adjustment (150)(a) (2) Derivative instruments: Cumulative effect of accounting changes 25 − Deferred loss on derivative instruments associated with hedges of future cash flows (8) − Recognition in earnings of previously deferred gaines related to derivative instruments used as cash flow hedges (13)(b) − Change in value of available−for−sale investments 1 (13) Total comprehensive income $ 280 $ 323

(a) Change primarily reflects the decline in value of the Brazilian real. (b) Includes an after−tax gain of $10 million related to the discontinuance of a cash flow hedge of a forecasted transaction that became probable of not occurring.

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.

Beginning in 2001, the commodity−related risk management activities of Retail Energy Services' North American customer contracts were transferred to the Wholesale Services segment, consolidating all energy commodity risk management activities within one operating segment. In 2001, Retail Energy Services' business includes origination of new commodity and energy asset management and services contracts, execution of energy asset management and services activity and management of customer relationships. Year 2000 results in the following table have been restated to reflect this change.

Retail Transportation Corporate Wholesale Energy Broadband and and (In Millions) Services(c) Services(c) Services Distribution Other(d) Total

Three Months Ended March 31, 2001

Unaffiliated revenues(a) $48,407 $ 642 $ 85 $ 933 $ 62 $50,129 Intersegment revenues(b) 99 51 (2) 80 (228) − Total revenues $48,506 $ 693 $ 83 $1,013 $ (166) $50,129 Income (loss) before interest, minority interests and income taxes $ 755 $ 40 $ (35) $ 193 $ (158) $ 795

Three Months Ended March 31, 2000

Unaffiliated revenues(a) $12,162 $ 288 $ 59 $ 599 $ 37 $13,145 Intersegment revenues(b) 167 26 − 4 (197) − Total revenues $12,329 $ 314 $ 59 $ 603 $ (160) $13,145 Income (loss) before interest, minority interests and income taxes $ 429 $ 6 $ − $ 233 $ (44) $ 624