Enron reports third quarter loss on $1 billion charge for non-energy assets

By the OGJ Online Staff

HOUSTON, Oct. 16, 2001 — Enron Corp. reported a third quarter loss of $618 million after taking $1 billion in charges. The charges mostly resulted from write-downs on the value of Azurix Corp., New Power Co., and Broadband Services.

Enron's core energy businesses, however, reported operating income of $393 million on $47.6 billion of revenue, compared with $292 million on revenue of $30 billion for last year's third quarter.

After years of downplaying the importance of its energy businesses, Enron's CEO Kenneth Lay stressed the growth potential of energy in a conference call with financial analysts today.

"The continued excellent prospects in these businesses and Enron's market position make us very confident in our strong earnings outlook," he said. "We tried to clean up what needed cleaning up to focus on our core businesses."

Wholesale services that consist of Enron's gas and power marketing and merchant energy activities showed strong growth of 31% to $701 million income before interest and taxes from $536 million a year ago. But earnings from wholesale services in Europe stayed flat because of low volatility in the gas and power markets, the company said.

Enron's retail services segment that includes pricing and delivery of gas and power and demand management services to business customers generated $71 million compared to $27 million a year ago. The company is now providing services to small businesses as well as large businesses. And Enron's retail business is "poised to scale" rapidly, Lay said.

Pipeline income was steady at $85 million but will benefit in future quarters as expansions of pipelines serving Florida and California are underway.

Analysts questioned Lay about possible additional write downs on other noncore assets. Elektro, an electric utility in Brazil, was specifically mentioned by analysts as having lost value recently.

"We may operate this asset for a while," said Lay. "We will hold it. It's not part of our first priority list of assets to sell."

Instead, Lay claimed the only three areas of concern to the company were being addressed.

"In California, we think we are adequately reserved. The regulatory climate is moving our way ," he said.

In India, he said, there are "substantial" legal remedies available to the company to deal with the magnitude of the problem with the Dabhol power plant. The state has not purchased the power from Dabhol at the contracted price.

Enron placed the plant on the sales block months ago but without much apparent success.

The broadband investment has been written down to a more appropriate $600 million, he said.

Lay said the company was resolving uncertainty associated with Enron's investment in Azurix, a water company; New Power Co., electricity retailer; and its own business segment Broadband Services.

The $1 billion charge was divided as follows: Azurix accounted for $287 million; Broadband, $180 million; about $375 for New Power, and the balance for other investments in technology and broadband businesses.

For broadband, the losses will continue to decline until that part of the company is "right sized."

He said the loss before interest and taxes will be $60 million for broadband for the first quarter of 2002 compared to $80 million loss for the current quarter. So far this year, broadband has lost $217 million.

"We see long term opportunities there," Lay said. "We are reducing the cost structure of this business and trying to preserve it for future opportunities."

Lay said the company will meet a previously announced earnings target of $2.15/share for 2002 and the $1.80/share announced for this year.

Despite his effort to respond to analyst complaints and to clarify the earnings statement, Enron's shares drifted higher by only a dime to $33.29/share in midday trading.

Sponsored by FLSmidth

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