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DUKE ENERGY REPORTS YEAR-END AND FOURTH QUARTER 2003 RESULTS
Ongoing earnings per share (EPS) for 2003, which excludes special items, was $1.28 versus $1.88 in ongoing EPS in 2002. “To establish a stable platform for future growth, Duke Energy sold non-strategic assets, cut expenses and paid down debt in 2003 – while still funding capital expenditures at our core regulated businesses,” said Paul Anderson, Duke Energy chairman and chief executive officer. “We also announced our intention to exit the Australian and European markets, as well as the merchant generation business in the southeast United States. “Going forward, we expect our $1.10 dividend and modest earnings growth to provide an attractive return for long-term investors,” he added. “Reducing debt by $2.2 billion in 2003 was an important achievement in strengthening Duke Energy’s financial position. This effort will continue, as we expect to reduce debt between $3.5 billion and $4 billion during 2004.” In fourth quarter 2003, Duke Energy reported a loss of ($2.23) per share, or a $2.0 billion loss, compared to a loss of ($0.06) per share, or a $52 million loss, in fourth quarter 2002. Excluding special items, ongoing earnings per share for fourth quarter 2003 were $0.22 versus $0.32 in fourth quarter 2002. Special items for the quarter include:
BUSINESS UNIT RESULTS At the end of 2003, Duke Energy moved the results for certain business segments from EBIT to a separate line on the income statement called “Loss from Discontinued Operations.” The amounts reported as discontinued operations are reported net of tax. The business units affected by this reclassification are International Energy, Field Services and Other Operations. All reported periods have been restated. Franchised ElectricFourth quarter 2003 EBIT from Franchised Electric was $197 million, compared to fourth quarter 2002 EBIT of $248 million. Milder weather and lower bulk power sales led to a 6.7 percent decrease in overall electric sales. During the quarter, Franchised Electric expensed $28 million in clean air amortization. Also during the quarter, it recorded $32 million of severance and related costs. In fourth quarter 2002, Franchised Electric incurred $89 million in ice storm-related costs. Year-end 2003 EBIT for Franchised Electric was $1.4 billion, compared to $1.6 billion in 2002. During 2003, Franchised Electric successfully secured 20-year license extensions for the McGuire and Catawba nuclear stations. It also completed reactor vessel head replacements at two Oconee Nuclear Station units, completed a steam generator replacement at one of the Oconee Nuclear Station units, and posted record generation output for its fossil-fired power plants. Overall electric customers grew by more than 43,000 in 2003. Natural Gas TransmissionDuke Energy Gas Transmission (DEGT) reported fourth quarter 2003 EBIT of $308 million, compared to $294 million in fourth quarter 2002. Gains of $16 million from asset sales and increased earnings from new projects, partially offset by foregone earnings on assets sold, drove this increase. During the quarter, DEGT had $11 million in severance and related charges. Year-end 2003 EBIT for DEGT was $1.3 billion – an increase from $1.2 billion in 2002. For the year, more than 99 percent of customers in the northeast United States whose transportation contracts permitted notice of termination, decided to renew. DEGT also placed in service several projects totaling 850 million cubic feet per day (mmcf/d) of pipeline capacity. Duke Energy North AmericaDuke Energy North America (DENA) reported an EBIT loss of $3.16 billion in fourth quarter 2003, compared to EBIT of $26 million in fourth quarter 2002. Special items for the quarter totaled $3.1 billion, and included the decision to: a) sell DENA’s merchant plants in the southeast United States, b) reduce DENA’s interest in deferred plants, c) wind down its trading and marketing joint venture with ExxonMobil and d) redesignate certain hedging contracts to mark-to-market. Also included in the special items is $5 million in severance and related costs. Excluding special items, DENA had a fourth quarter EBIT loss of $74 million compared to ongoing EBIT of $63 million in fourth quarter 2002. Lower spark spreads and increased depreciation led to lower results. Year-end 2003 EBIT for DENA was a loss of $3.3 billion, compared with positive EBIT of $169 million in 2002. International EnergyAs a result of the decision to exit Europe and sell its Australian assets, the Duke Energy International (DEI) reporting segment will now include only operations in Latin America and its investment in National Methanol. For fourth quarter 2003, DEI reported EBIT from continuing operations of $36 million, compared to $23 million in fourth quarter 2002. Fourth quarter results for 2003 include improved operational performance due to higher margins, successful re-contracting in Brazil and lower expenses throughout Latin America. DEI had a special item of $26 million for a reserve and charges for estimated environmental settlements in Brazil. Year-end EBIT for DEI was $210 million versus $102 million in 2002. Field ServicesThe Field Services business segment, which represents Duke Energy's 70-percent interest in Duke Energy Field Services, reported fourth quarter 2003 EBIT of $52 million compared to $49 million in fourth quarter 2002. The favorable impact of higher natural gas liquids (NGL) prices during the period was offset by the effects of hedging results related to the price movements of NGLs, higher natural gas prices and increased general and administrative costs. The higher general and administrative costs included $4 million in severance and related charges. Year-end EBIT for Field Services was $192 million compared to $148 million in 2002. Other OperationsOther Operations, including Crescent Resources, DukeNet Communications, Duke Capital Partners, Duke/Fluor Daniel, Duke Energy Merchants and Energy Delivery Services, reported EBIT of $96 million in fourth quarter 2003, compared to $91 million in fourth quarter 2002. Year-end EBIT in 2003 for Other Operations was $153 million compared to $239 million in year-end EBIT in 2002. Discontinued Operations INTEREST EXPENSE Interest expense was $354 million for fourth quarter 2003, compared to $344 million for fourth quarter 2002. This increase was primarily due to lower capitalized interest of $15 million and $23 million of interest associated with the reclassification of certain trust preferred securities from minority interest to long-term debt, partially offset by lower borrowing costs in the quarter. INCOME TAX An income tax benefit of $707 million for 2003 results primarily from the large write-offs in fourth quarter 2003. CASH FLOW For the 12 months ending Dec. 31, 2003, cash flow from operations was $3.9 billion, compared to $4.5 billion for the 12 months ending Dec. 31, 2002. LIQUIDITY AND CAPITAL RESOURCES Duke Energy's consolidated capital structure as of Dec. 31, 2003, including short-term debt, was 58 percent debt, 37 percent common equity and 5 percent minority interests. Under various credit facilities, Duke Energy, Duke Capital and other subsidiaries had the ability to borrow up to $3.4 billion as of Dec. 31, 2003. The companies had borrowings and letters of credit outstanding under these programs of approximately $1.1 billion as of Dec. 31, 2003, resulting in unused capacity of approximately $2.3 billion. The company also had approximately $1.2 billion in cash and cash equivalents as of Dec. 31, 2003. ADDITIONAL INFORMATION Additional information, including EPS reconciliation data and a schedule
for Duke Energy Field Services gas volume and margin by contract type, can
be obtained at Duke Energy’s fourth quarter 2003 earnings information
Web site at: http://www.duke-energy.com/investors/financial/latest/default.asp.
The primary performance measure used by management to evaluate segment performance is EBIT from continuing operations, which at the segment level represents all profits from continuing operations (both operating and non-operating) before deducting interest and taxes, and is net of the minority interest expense related to those profits. Management believes EBIT from continuing operations is a good indicator of each segment’s operating performance as it represents the results of our ownership interests in continuing operations without regard to financing methods or capital structures. On a consolidated basis, EBIT from continuing operations is also used as one of the measures to assess performance and represents the combination of operating income and other income and expenses as presented on the consolidated statements of income. The use of EBIT from continuing operations as one of the performance measures on a consolidated basis follows the use of EBIT from continuing operations for assessing segment performance, and we believe EBIT from continuing operations is used by our investors as a supplemental financial measure in the evaluation of our consolidated results of operations. EBIT from continuing operations should not be considered an alternative to, or more meaningful than, net income, income from continuing operations, operating income or cash flow as determined in accordance with generally accepted accounting principles (GAAP). Duke Energy’s EBIT from continuing operations may not be comparable to a similarly titled measure of another company. Duke Energy’s management uses ongoing EPS, which represents income from continuing operations adjusted for special items as one of the measures to evaluate operations of the company. Special items represent certain charges which management believes will not be recurring on a regular basis. Management believes that the presentation of ongoing EPS provides useful information to investors, as it allows them to more accurately compare the company’s ongoing performance across all periods.
Duke Energy is a diversified energy company with a portfolio of natural gas and electric businesses, both regulated and unregulated, and an affiliated real estate company. Duke Energy supplies, delivers and processes energy for customers in North America and selected international markets. In 2004, the company celebrates a century of service with the 100th anniversary of its electric utility Duke Power. Headquartered in Charlotte, N.C., Duke Energy is a Fortune 500 company traded on the New York Stock Exchange under the symbol DUK. More information about the company is available on the Internet at: www.duke-energy.com. An earnings conference call for analysts is scheduled for 10 a.m. ET today. The conference call can be accessed via the investors' section of Duke Energy's Web site http://www.duke-energy.com/investors/financial/latest/default.asp or by dialing 800/946-0786 in the United States or 719/457-2662 outside the United States. The confirmation code is 474733. Please call in five to 10 minutes prior to the scheduled start time. A replay of the conference call will be available by dialing 888/203-1112 with a confirmation code of 474733. The international replay number is 719/457-0820, confirmation code 474733. A replay and transcript also will be available by accessing the investors' section of the company’s Web site http://www.duke-energy.com/investors/financial/latest/default.asp. The presentation may include certain non-GAAP financial measures as defined under SEC rules. In such event, a reconciliation of those measures to the most directly comparable GAAP measures will be available on our investor relations Web site at: http://www.duke-energy.com/investors/financial/gaap/. This document 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 Duke Energy 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 legislative and regulatory developments; the
outcomes of litigation and regulatory proceedings or inquiries; industrial,
commercial and residential growth in our service territories; the weather
and other natural phenomena; general economic conditions, including
any potential effects arising from terrorist attacks, the situation
in Iraq and any consequential hostilities or other hostilities; changes
in environmental and other laws and regulations to which Duke Energy
and its subsidiaries are subject or other external factors over which
Duke Energy has no control; the results of financing efforts, including
Duke Energy's ability to obtain financing on favorable terms; lack of
improvement or further declines in the market prices of equity securities
and resultant cash funding requirements for Duke Energy's defined benefit
pension plans; the level of creditworthiness of counterparties to Duke
Energy's transactions; the amount of collateral required to be posted
from time to time in Duke Energy's transactions; the timing and extent
of changes in commodity prices, interest rates and foreign currency
exchange rates; the extent of success in connecting natural gas supplies
to gathering and processing systems and in connecting and expanding
natural gas and electric markets and the effect of accounting pronouncements
issued periodically by accounting standard-setting bodies; the performance
of electric generation, pipeline and natural gas processing facilities;
the timing and success of efforts to develop domestic and international
power, pipeline, gathering, processing and other infrastructure projects;
conditions of the capital markets and equity markets during the periods
covered by the forward-looking statements; and other factors discussed
in Duke Energy's filings with the Securities and Exchange Commission.
(a) Includes financing expenses related to securities of subsidiaries of $27 million for the three months ended December 31, 2002 and $55 million and $130 million for the twelve months ended December 31, 2003 and 2002, respectively. The expense related to these securities is now accounted for in interest expense. (b) As a result of the implementation of SFAS No. 150 and FIN 46, approximately $900 million related to trust preferred securities and preferred stock with sinking fund requirements has been reclassified to debt and remains outstanding. Additionally, debt excludes approximately $880 million of debt that has been reclassified as liabilities associated with assets held for sale. (c) 2002 twelve months ended amount includes $1.7 billion (net of cash acquired) paid to Westcoast Energy shareholders related to the acquisition. (d) Beginning in 2003, Other Energy Services and Duke Ventures were combined into Other Operations. (e) Amounts relate to the elimination of intercompany EBIT that has been reclassified to discontinued operations.
(a) For the twelve months ended December 31, 2003, other income includes approximately $89 million of gains on sale of equity investments, including Alliance/Aux Sable, Foothills and Northern Border. (b) For the twelve months ended December 31, 2003, other income includes approximately $11 million gain on sale of TEPPCO Class B shares. (c) Includes DENA plant impairments of $2,640 million and redesignation of power contracts to mark-to-market of $262 million in the fourth quarter of 2003, and $254 million of goodwill in the third quarter of 2003. (d) For the twelve months ended December 31, 2003, amount includes approximately $18 million loss on the anticipated sale of 25% interest in Vermillion, a $66 million loss on the anticipated sale of turbines and DETM charges related to the sale of contracts of $127 million. (e) For the twelve months ended December 31, 2003, other income includes approximately $178 million gain on sale of the American Ref-Fuel Company equity investment. (f) Represents 100% of GWh. (g) Prior year amounts have been reclassified due to the current year discontinued
operations.
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