Notes to Consolidated Financial Statements for the
Years Ended December 31, 2001, 2000 and 1999
2. BUSINESS ACQUISITIONS AND DISPOSITIONS
BUSINESS ACQUISITIONS Using the purchase method for acquisitions, Duke Energy consolidates assets and liabilities as of the purchase date, and includes earnings from acquisitions in consolidated earnings after the purchase date. Assets acquired and liabilities assumed are recorded at estimated fair values on the date of acquisition. The purchase price minus the estimated fair value of the acquired assets and liabilities is recorded as goodwill. In accordance with SFAS No. 142, goodwill is subject to a fair-value-based annual impairment assessment beginning January 1, 2002. The allocation of the purchase price may be adjusted if additional information on asset and liability valuations becomes available within one year after the acquisition.
_MARKET HUB PARTNERS (MHP) In September 2000, Duke Energy, through a wholly owned subsidiary, completed the acquisition of MHP from subsidiaries of NiSource Inc. for approximately $250 million in cash and the assumption of $150 million in debt. MHP provides natural gas storage services in Louisiana and Texas. Approximately $228 million of goodwill was recorded in the transaction. MHP debt agreements required a tender offer for $115 million of the assumed debt. As of December 31, 2001, approximately $88 million of this debt was retired.
_PHILLIPS PETROLEUM’S GAS GATHERING, PROCESSING AND MARKETING UNIT In March 2000, Duke Energy, through a wholly owned subsidiary, completed the approximately $1.7 billion transaction that combined Field Services’ and Phillips Petroleum’s gas gathering, processing and marketing business to form a new midstream company, Duke Energy Field Services, LLC (DEFS). In connection with the combination, DEFS issued approximately $2.75 billion of commercial paper in April 2000 and used the proceeds to make one-time cash distributions of approximately $1.53 billion to Duke Energy and $1.22 billion to Phillips Petroleum. Duke Energy owns approximately 70% of DEFS and Phillips Petroleum owns approximately 30%. Goodwill of approximately $432 million was recorded in the transaction.
_EAST TENNESSEE NATURAL GAS COMPANY (ETNG) In March 2000, Duke Energy, through a wholly owned subsidiary, completed the approximately $390 million acquisition of ETNG from El Paso Energy. ETNG owns a 1,100-mile interstate natural gas pipeline system that crosses Duke Energy’s Texas Eastern Transmission, LP’s pipeline and serves the southeastern region of the U.S. Goodwill of approximately $125 million was recorded in the transaction.
_DOMINION RESOURCES’ HYDROELECTRIC, NATURAL GAS AND DIESEL POWER GENERATION BUSINESSES In April 2000, Duke Energy, through its wholly owned subsidiary Duke Energy International, LLC (DEI), completed the acquisition (which began, and parts of which had already closed, in 1999) of Dominion Resources Inc.’s 1,200-megawatt portfolio of hydroelectric, natural gas and diesel power generation businesses in Latin America. The total purchase price was approximately $405 million. Goodwill totaling $109 million was recorded in the transaction.
_COMPANHIA DE GERACAO DE ENERGIA ELÉTRICA PARANAPANEMA (PARANAPANEMA) In January 2000, Duke Energy, through its wholly owned subsidiary DEI, completed a series of transactions to purchase for approximately $1.03 billion an approximate 95% interest in Paranapanema, an electric generating company in Brazil. Goodwill of approximately $134 million was recorded in the transaction.
_PENDING ACQUISITION OF WESTCOAST ENERGY INC. (WESTCOAST) In September 2001, Duke Energy announced its plans to acquire Westcoast for approximately $8 billion, including the assumption of debt. Westcoast, headquartered in Vancouver, British Columbia, is a North American energy company with interests in natural gas gathering, processing, transmission, storage and distribution, as well as power generation and international energy businesses. In the pending transaction, Duke Energy would acquire all outstanding common shares of Westcoast in exchange for a combination of cash, Duke Energy common shares and exchangeable shares of a Canadian subsidiary of Duke Energy such that 50% of the consideration will be paid in cash and 50% in stock. The transaction is expected to close by the end of the first quarter of 2002, subject to regulatory approvals. The transaction will be accounted for using the purchase method of accounting.
DISPOSITIONS _BELLSOUTH CAROLINA PCS In September 2000, Duke Energy, through its wholly owned subsidiary DukeNet Communications, LLC (DukeNet), sold its 20% interest in BellSouth Carolina PCS for approximately $400 million to BellSouth Corporation. Operating revenues in 2000 include the resulting pre-tax gain of $407 million, or an after-tax gain of $0.34 per basic share.
The pro forma results of operations for acquisitions and dispositions do not materially differ from reported results.
