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DUKE ENERGY REPORTS YEAR-END AND FOURTH QUARTER 2004 RESULTS
CHARLOTTE, N.C. – Duke Energy today reported 2004 basic earnings per share (EPS) of $1.59, or $1.49 billion in net income, compared to a loss of ($1.48) per share in 2003, or a $1.32 billion loss. On a fully diluted basis, 2004 earnings were $1.54 per share, compared to a loss of ($1.48) in 2003. Ongoing basic EPS for 2004, which excludes special items, was $1.38 versus $1.28 in 2003. "In 2004, we regained control of our own destiny," said Paul Anderson, Duke Energy chairman of the board and chief executive officer. "We exceeded the 2004 targets we set to rebuild our financial strength and finished this year in the driver's seat to pursue new growth opportunities. "We maintained our dividend, exceeded our goals in reducing debt and asset sales, and improved our merchant operation. As we move into 2005, we will build on those accomplishments and continue to fine-tune our portfolio." Anderson added that the 2005 earnings target for employee incentive bonuses, which should track ongoing basic earnings, is $1.60 per share -- 33 percent higher than 2004's incentive target. He said the anticipated increase will come primarily from higher earnings at Field Services, a smaller loss from Duke Energy North America and lower interest expenses due to the company's successful debt reduction, which should produce about $200 million in interest expense savings in 2005. In fourth quarter 2004, Duke Energy reported basic earnings of $0.38 per share, or $358 million, compared to a loss of ($2.23) per share, or a $2.02 billion loss, in the fourth quarter 2003. Fully diluted earnings for the quarter were $0.36, compared to a loss of ($2.23) in the previous year's quarter. Excluding special items, ongoing basic earnings per share for fourth quarter 2004 were $0.24 versus $0.22 in fourth quarter 2003. Special items impacting basic EPS for the quarter include:
Special items impact on basic EPS year-to-date:
* Includes results from operations in International Energy, DENA, Crescent Resources, Field Services and Other that have been discontinued. BUSINESS UNIT RESULTS Franchised Electric Year-end segment EBIT for Franchised Electric was $1.47 billion, compared to $1.40 billion in 2003. Ongoing segment EBIT for 2004 was $1.46 billion, compared to $1.51 billion in 2003. Going forward, Franchised Electric expects to see a segment EBIT compound annual growth rate through 2007 in the zero to 2 percent range based on 2004 ongoing segment EBIT. Natural Gas Transmission Results were positively affected by pipeline expansion projects, which more than offset losses in foregone earnings due to asset sales. Results were also favorably impacted by $11 million from the stronger Canadian currency and the absence of $11 million in severance costs from 2003's fourth quarter. Gains on asset sales of $15 million for the fourth quarter 2004 were offset by a similar amount in the previous year's quarter. The favorable Canadian currency impacts on DEGT's segment EBIT were partially offset in Duke Energy's net income by currency impacts on Canadian interest and taxes. Year-end 2004 segment EBIT for DEGT was $1.31 billion versus $1.32 billion in 2003. Ongoing segment EBIT for 2004 was $1.28 billion, compared to $1.25 billion in 2003. Going forward, DEGT expects to see a segment EBIT compound annual growth rate through 2007 in the 3 percent to 5 percent range based on 2004 ongoing segment EBIT. Field Services The increase was primarily driven by higher commodity prices realized, compared to last year's fourth quarter. During the quarter, DEFS paid a dividend, of which Duke Energy's portion was $174 million. This payment reflects continuing strong cash flow and earnings at DEFS. Year-end segment EBIT from continuing operations for Field Services was $380 million, compared with $187 million in 2003. For 2005, Field Services expects to see ongoing segment EBIT in the range of $350 million to $500 million based on the price of crude oil being $30 or $40 a barrel, respectively. Duke Energy North America Excluding special items, DENA had an ongoing segment EBIT loss from continuing operations of $50 million in the fourth quarter 2004. That compares to an ongoing segment EBIT loss of $77 million in the previous year's quarter. Results for fourth quarter 2004 were helped by lower operating costs of $82 million. DENA also recognized a $146 million net gain, including a minority interest benefit of $20 million, on asset sales during the quarter. These results were partially offset by lower margins and lower than expected electricity production due to warmer weather. Year-end 2004 segment EBIT from continuing operations for DENA was a loss of $535 million, compared with a segment EBIT loss of $3.34 billion in 2003. Excluding special items, ongoing segment EBIT loss from continuing operations for 2004 was $288 million, which includes mark-to-market losses of $25 million. Going forward, DENA expects a 2005 ongoing segment EBIT loss of approximately $150 million. International Energy The quarter-to-quarter increase was largely driven by the absence of a $26 million reserve and charges for environmental settlements in Brazil taken in fourth quarter 2003. Year-end segment EBIT from continuing operations for DEI was $222 million versus $215 million in 2003. Ongoing segment EBIT from continuing operations for 2004 was $236 million, compared to $244 million in 2003. Going forward, DEI expects to see a segment EBIT compound annual growth rate through 2007 in the 2 percent to 3 percent range based on 2004 ongoing segment EBIT. Crescent Resources The results were driven by lower legacy land sales and $38 million of impairment and other charges, net of minority interest of $12 million, related to residential developments in Texas and Arizona, which were partially offset by improved residential and commercial sales in other areas. Year-end segment EBIT from continuing operations for Crescent Resources was $240 million versus $134 million in 2003. Crescent continues to manage a healthy portfolio of commercial and residential properties. After record earnings in 2004, segment EBIT should return to about $150 million in 2005. Other The improvement was partially driven by a $64 million adjustment to insurance reserves related to Bison. Year-end EBIT from continuing operations in 2004 was a $77 million loss compared to a loss of $272 million in year-end 2003. Going forward, Other should return to a normal ongoing EBIT loss of about $200 million. Discontinued Operations Year-end 2004 earnings for Discontinued Operations were $258 million, which consisted mainly of asset sales. That compared to a loss of $158 million in 2003. INTEREST EXPENSE Interest expense was $314 million for fourth quarter 2004, compared to $353 million for fourth quarter 2003 – primarily due to a $55 million decrease from net debt reduction and refinancing activities. This was partially offset by lower capitalized interest of $7 million and $5 million for movements in the Canadian currency. For 2004, interest expense was $1.35 billion, compared to $1.38 billion in 2003. INCOME TAX Fourth quarter 2004 income tax expenses from continuing operations were $245 million, compared to a tax benefit of $1.08 billion in fourth quarter 2003, primarily due to impairments and charges in the previous year's quarter. Due to the American Jobs Creation Act of 2004, Duke Energy expects to repatriate approximately $500 million of accumulated foreign earnings in 2005, which resulted in a $45 million tax expense in the fourth quarter of 2004. Year-end income tax expenses from continuing operations were $540 million, compared to a tax benefit of $707 million in 2003. LIQUIDITY AND CAPITAL RESOURCES Duke Energy's consolidated capital structure as of Dec. 31, 2004, including short-term debt, was 51 percent debt, 45 percent common equity and 4 percent minority interests. The company had approximately $1.85 billion in cash and cash equivalents as of Dec. 31, 2004. 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 2004 earnings information Web site at: http://www.duke-energy.com/investors/. NON-GAAP FINANCIAL MEASURES The primary performance measure used by management to evaluate segment performance is segment 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 segment EBIT from continuing operations, which is the GAAP measure used to report segment results, 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. Duke Energy's management uses ongoing basic EPS, which is a non-GAAP financial measure as it represents basic EPS adjusted for the impact of 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 basic EPS provides useful information to investors, as it allows them to more accurately compare the company's ongoing performance across all periods. Ongoing basic EPS is also the basis used for employee incentive bonuses. The most directly comparable GAAP measure for ongoing basic EPS is reported basic EPS, which includes the impact of special items. Due to the forward-looking nature of ongoing basic EPS for future periods, information to reconcile such a non-GAAP financial measure to the most directly comparable GAAP financial measure is not available at this time as the company is unable to forecast any special items for future periods. Duke Energy also uses ongoing segment EBIT as a measure of historical and anticipated future segment performance. Management also uses a forecasted ongoing segment EBIT growth rate for certain segments, which is based on historical and forecasted ongoing segment EBIT, as an indicator of anticipated future compound annual growth rates. When used for future periods, ongoing segment EBIT may also include any amounts that may be reported as discontinued operations. Ongoing segment EBIT, and related growth rates, are non-GAAP financial measures as they represent reported segment EBIT adjusted for special items. Management believes that the presentation of ongoing segment EBIT, and related growth rates, provides useful information to investors, as it allows them to more accurately compare a segment's ongoing performance across all periods. The most directly comparable GAAP measure for ongoing segment EBIT is reported segment EBIT, which represents EBIT from continuing operations, including any special items. Due to the forward-looking nature of forecasted ongoing segment EBIT and related growth rates for future periods, information to reconcile these non-GAAP financial measures to the most directly comparable GAAP financial measures is not available at this time as the company is unable to forecast any special items or any amounts that may be reported as discontinued operations for future periods. This release includes a statement that actual 2004 debt pay down exceeded our 2004 goal of $3.5 billion to $4 billion. The amounts referred to in this statement represent a non-GAAP measure because they include changes in amounts that are presented in the consolidated balance sheet as other than "debt," including amounts classified as liabilities associated with assets held for sale and minority interests. Management believes the presentation of this non-GAAP measure presents useful information to investors as it summarizes the overall change in amounts related to the company’s various financing instruments, other than equity, except for certain changes primarily related to the impact of changes in exchange rates. This release also includes a statement that asset sales topped our original goal of $1.5 billion. The amounts referred to in this statement represent non-GAAP measures primarily because they include cash proceeds from asset sales, amounts related to net tax benefits triggered by the sales of these assets and amounts related to debt assumed or repaid by the buyers of the assets. Management believes that presentation of this non-GAAP measure provides useful information to investors because it presents a more complete financial impact of the sales of the assets as compared to the corresponding GAAP measure of net proceeds received directly from the purchasers of the assets. For 2004, this difference was significant due to the tax basis of many of the assets sold and the structuring of the sale of the Australian assets, whereby the buyer retired approximately $840 million of debt rather than remitting these proceeds to the company. 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 the Americas. 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/ or by dialing 800/475-3716 in the United States or 719/457-2728 outside the United States. The confirmation code is 434060. 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 434060. The international replay number is 719/457-0820, confirmation code 434060. A replay and transcript also will be available by accessing the investors' section of the company's Web site. 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/publications/gaap/. This release includes statements that do not directly or exclusively relate to historical facts. Such statements are "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. Those statements represent Duke Energy's intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside Duke Energy's control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include: state, federal and foreign legislative and regulatory initiatives that affect cost and investment recovery, have an impact on rate structures, and affect the speed at and degree to which competition enters the electric and natural gas industries; the outcomes of litigation and regulatory investigations, proceedings or inquiries; industrial, commercial and residential growth in Duke Energy's service territories; the weather and other natural phenomena; the timing and extent of changes in commodity prices, interest rates and foreign currency exchange rates; general economic conditions, including any potential effects arising from terrorist attacks 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, which can be affected by various factors including Duke Energy's credit ratings and general economic conditions; lack of improvement or 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; growth in opportunities for Duke Energy's business units, including the timing and success of efforts to develop domestic and international power, pipeline, gathering, liquefied natural gas, processing and other infrastructure projects; the performance of electric generation, pipeline and gas processing facilities; the extent of success in connecting natural gas supplies to gathering and processing systems and in connecting and expanding gas and electric markets; the effect of accounting pronouncements issued periodically by accounting standard-setting bodies; and conditions of the capital markets and equity markets during the periods covered by the forward-looking statements. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than Duke Energy has described. Duke Energy undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Information contained in this release is unaudited, and is subject to change pending completion of the 2004 financial audit by the company's registered public accounting firm.
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