October 18, 2000
TO: Members of the
SUBJECT: 2000 Third
Duke Energy Earnings
Duke Energy Corporation
earned $2.08 per share for the third quarter of 2000 or $1.41 excluding
a $0.67 gain on the sale of DukeNet Communications' interest in the
BellSouth PCS business. Earnings before interest and taxes (EBIT) for
the quarter were $1,556 million, including the $407 million pre-tax gain
on the sale of the PCS interest. Excluding the gain on sale, earnings
per share increased 18 percent over the third quarter of 1999 and earnings
before interest and taxes (EBIT) for the quarter increased nearly 27 percent
to $1,149 million. Revenues for the quarter increased 135 percent to $15,691
per share as of September 30, 2000 were $4.02, or $3.35 excluding the
$0.67 gain mentioned above. Year-to-date earnings per share for the same
period last year were $4.62, or $2.80 without the $1.82 extraordinary
after-tax gain on the sale of the Midwest Pipelines in 1999. EBIT for
the year to date was $3,252 million, compared to $2,159 million for the
year to date 1999. Revenues for the first nine months of 2000 were $33,907
million, compared to $15,545 million for the same period last year.
Duke Energy continues
to deliver substantial earnings growth for the quarter and year to date
as a result of the successful execution of its global energy strategy:
* Excluding $10 million
in 1999 for benefits related to an environmental cleanup program.
** Excluding $38 million
in benefits in 1999 related to environmental cleanup programs and $70
million of EBIT contributed by the Midwest Pipelines in the first quarter
A detailed reconciliation
of earnings per share is attached.
Wholesale Energy, comprised of Duke Energy North America (DENA) and
Duke Energy Merchants, reported third quarter EBIT of $231 million, a
175 percent increase over the $84 million reported a year ago. EBIT for
the year to date was $415 million, a 166 percent increase over the $156
million reported in the first nine months
The increase in EBIT
for both the quarter and year-to-date is primarily due to increased earnings
from generation positions and favorable trading results, partially offset
by increased operating and development costs.
During the quarter,
DENA sold its Attala Energy Facility, a merchant power facility under
construction in Mississippi. The increase in EBIT from this transaction
was more than offset by a similar gain on the sale of 50% interests in
DENA's Madison and Vermillion generating stations during the third
quarter last year.
Through the pursuit
of the company's energy merchant strategy, North American Wholesale
Energy now has more than 7,925 net MW of merchant power generation
in operation or under construction. This compares with 5,909 net MW a
Energy continued to deliver increased earnings during the quarter,
reporting EBIT of $81 million, compared to $20 million reported a year
ago. EBIT for the year to date was $267 million compared to $24 million
reported in the first nine months of 1999.
The Latin American
portfolio, especially Paranapanema in Brazil, and the Asia Pacific energy
portfolio continue to deliver strong results for both the quarter and
the year to date.
During the quarter,
Duke Energy International (DEI) completed construction of the Eastern
Gas Pipeline in Australia, which introduced gas competition to the states
of New South Wales and Victoria for the first time.
Through the pursuit
of the company's energy merchant strategy in markets outside the
U.S., International Energy now has nearly 4,400 net MW of power
projects and 321 MMcf/d of natural gas pipeline capacity.
Other Energy Services,
comprised of DukeSolutions, Duke Engineering & Services and Duke/Fluor
Daniel, reported an EBIT loss of $69 million, compared to a loss of $47
million in the same quarter last year. The results for the quarter include
the previously announced $42 million charge related to its Dearborn project
taken by Duke/Fluor Daniel and a $27 million adjustment at Duke Engineering
& Services reflecting a change to a more conservative revenue recognition
approach. Partially offsetting these charges were positive results from
DukeSolutions. For the year to date, Other Energy Services reported
an EBIT loss of $53 million, a $5 million improvement over the same period
The Field Services
business segment, which represents Duke Energy's majority interest
in Duke Energy Field Services (DEFS), reported third quarter EBIT of $81
million, a 65 percent increase over the $49 million earned during same
period last year. EBIT for the first nine months of 2000 was $218 million,
an increase of 125 percent over the year to
The increase in EBIT
for both the quarter and the year to date is due primarily to the positive
impact of the combination of Duke Energy's gas gathering and processing
business with Phillips' Gas Gathering, Processing and Marketing (GPM)
unit into a new company, Duke Energy Field Services, as well as stronger
NGL prices. Other recent acquisitions of gathering and processing assets
in central Oklahoma also contributed to strong earnings results.
Average NGL prices
per gallon for the third quarter of 2000 were $0.55 compared to $0.40
in third quarter of 1999.
Natural Gas Transmission
reported third quarter EBIT of $125 million, compared to $118 million
for the same period last year, excluding a $10 million benefit associated
with certain environmental cleanup programs in the third quarter of 1999.
Primary drivers for increased earnings reported this quarter include expansion
projects, including the connection of natural gas pipelines to new power
generation projects, and the completion of the East Tennessee Natural
Gas Company acquisition during the first quarter.
For the year to date,
EBIT for Natural Gas Transmission was $398 million, compared to $374 million
for the year-to-date 1999, which excludes $38 million in benefits relating
to environmental cleanup programs and $70 million of EBIT attributable
to the Midwest Pipelines which were sold in the first quarter last year.
The 6 percent increase in EBIT resulted from successful market expansion
projects and joint ventures, and the East Tennessee acquisition.
On September 18, 2000,
Duke Energy Gas Transmission acquired the natural gas salt cavern storage
business commonly known as Market Hub Partners (MHP). MHP has
23 billion cubic feet of storage capacity with significant expansion capabilities.
There are two active storage projects - Moss Bluff in Liberty County,
Texas, and Egan in Acadia Parish, Louisiana.
reported third quarter EBIT of $589 million, a $28 million decrease from
last year primarily due to milder summer weather and increased purchased
power expenses. Electric Transmission is included in Franchised
Electric for financial reporting purposes.
sales to customers decreased 2.2 percent for the quarter. Sales to general
service increased 1.0 percent. Sales to residential and industrial customers
decreased 3.5 percent and 1.0 percent, respectively, during the quarter.
The average number of customers for the quarter increased 2.5 percent.
Nuclear outage days
for the third quarter of 2000 totaled 29, compared with 31 days for the
same period last year. Capacity utilization of nuclear facilities during
the quarter was 94 percent, compared with 96 percent last year.
reported EBIT of $1,395 million for the year to date, a 4 percent increase
over last year. For the year to date, the average number of total customers
increased 2.5 percent and total kilowatt-hour sales increased 2.2 percent.
The Duke Ventures
business segment, comprised of Crescent Resources, DukeNet Communications
and Duke Capital Partners, reported third quarter EBIT of $444 million,
including a $407 million pre-tax gain on the sale of DukeNet's PCS
business. EBIT associated with continuing operations was $37 million for
the third quarter of 2000, compared to $28 million for the same period
last year. This increase is primarily attributable to gains realized on
commercial project sales at Crescent Resources. EBIT for the year to date
was $67 million excluding the PCS gain, a $2 million increase compared
to the same period last year.
completed the sale of its 20-percent interest in BellSouth PCS to BellSouth
Corporation for $400 million. DukeNet recorded an after-tax gain of $247
million on the transaction, or $0.67 per share. DukeNet will now focus
exclusively on its fiber optic communications business.
Duke Capital Partners,
a wholly owned finance company providing lending, merchant banking and
asset management services to the wholesale and commercial energy markets,
closed its first transaction during the quarter, underwriting a portion
of a $215 million credit facility with Toronto Dominion Bank for Canadian
88 Energy Corporation.
Interest expense for
the quarter increased $104 million to $257 million as a result of additional
interest expense from new debt issuances at Duke Capital and Duke Energy
Field Services, and debt associated with Latin American projects. Interest
expense for the year to date was $670 million, an increase of $265 million
over the same period last year.
Income taxes for the
third quarter of 2000 were $498 million compared to $283 million for the
third quarter of 1999. Income taxes for the year to date 2000 were $939
million, compared to $619 million from the same period in 1999.
Conference Call Notice
Today at 2:00 p.m.
ET, Rich Osborne, Executive Vice President, Chief Risk Officer and Chief
Financial Officer, will hold a conference call to review earnings. A question
and answer session will follow.
Please dial (800)
967-7140 or for international callers (719) 457-2629 with confirmation
code 852173. Please call at least 5 to 10 minutes prior to 2:00 p.m. ET.
A playback of the call will be available through October 30 and can be
heard by calling (888) 203-1112 or (719) 457-0820 for international callers
with the code for both being 852173.
In addition, you will
be able to participate in a live web cast of today's conference call.
Go to the company's website, www.duke-energy.com
and follow the instructions. By accessing the website, interested parties
may see slides and listen to the audio of the conference call but will
be unable to ask questions. You must dial the number listed above if you
would like the opportunity to participate in the question and answer portion
of the conference call.
If you have any questions
about these or other matters, please call John Arensdorf (704/382-5087)
or me (704/382-8695).
Vice President, Investor Relations