Business Acquisitions. Duke Energy consolidates assets and liabilities from acquisitions 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. 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.

Acquisition of Westcoast Energy Inc. (Westcoast). On March 14, 2002, Duke Energy acquired Westcoast for approximately $8 billion, including the assumption of $4.7 billion of debt. The assumed debt consists of debt of Westcoast, Union Gas Limited (Union Gas) (a wholly owned subsidiary of Westcoast) and various project entities that are wholly owned or consolidated by Duke Energy. The interest rates on the assumed debt range from 1.8% to 15.0%, with maturity dates ranging from 2002 through 2031. 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 transaction, a Duke Energy subsidiary acquired all of the outstanding common shares of Westcoast in exchange for approximately $1.7 billion in cash (net of cash acquired) and approximately 49.9 million shares of Duke Energy common stock (including exchangeable shares of a Duke Energy Canadian subsidiary that are substantially equivalent to and exchangeable on a one-for-one basis for Duke Energy common stock). The value of the Duke Energy common stock issued was approximately $1.7 billion and was determined based on the average market price of Duke Energy’s common shares over the two-day period before and after the terms of the transaction became fixed, in accordance with EITF No. 99-12, “Determination of the Measurement Date for the Market Price of Acquirer Securities Issued in a Purchase Business Combination.” Under prorating provisions of the acquisition agreement that ensured that approximately 50% of the total consideration was paid in cash and 50% in stock, each common share of Westcoast entitled the holder to elect to receive 43.80 in Canadian dollars, or either 0.7711 of a share of Duke Energy common stock or of an exchangeable share of a Duke Energy Canadian subsidiary, or a combination thereof. The cash portion of the consideration was funded with the proceeds from the issuance of $750 million in mandatory convertible securities (Equity Units) in November 2001 (see Note 18) along with incremental commercial paper. The commercial paper was repaid using the proceeds from the October 2002 public offering of Duke Energy Common Stock (see Note 18).

The acquisition of Westcoast was consistent with Duke Energy’s natural gas pipeline strategy to expand its footprint between key supply and market areas in North America. During its evaluation, Duke Energy identified revenue enhancement opportunities through expansion projects and business integration, cost reduction initiatives, and the divestiture of several non-strategic business lines and assets. These initiatives, when combined with the ongoing earnings contributions from Westcoast’s pipelines and distribution businesses, supported a purchase price in excess of the fair value of Westcoast’s assets, which resulted in the recognition of goodwill. The Westcoast acquisition was accounted for using the purchase method, and goodwill of approximately $2.3 billion was recorded in the transaction, of which approximately $57 million is expected to be deductible for income tax purposes. Of this amount, $52 million was allocated for tax purposes to Empire State Pipeline which was sold in February 2003 (see Note 22).

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the acquisitions date.

		Preliminary Purchase Price Allocation for Westcoast Acquisition
			(in millions)
		Current assets		$	2,080
		Investments and other assets			1,191
		Goodwill			2,279
		Property, plant and equipment			5,177
		Regulatory assets and deferred debits			806
		Total assets acquired			11,533
		Current liabilities			1,635
		Long-term debt			4,190
		Deferred credits and other liabilities			1,662
		Minority interests			560
		Total liabilities assumed			8,047
		Net assets acquired		$	3,486

As of December 31, 2002, Duke Energy is still awaiting additional third party information to finalize the purchase accounting.

The following unaudited pro forma consolidated financial results are presented as if the acquisition had taken place at the beginning of the periods presented.

		Consolidated Pro Forma Results for Duke Energy, including Westcoast (unaudited)		For the years ended December 31,
				2002				2001
				(in millions, except per share amounts)
		Income Statement Data
		Operating revenues		$	15,981			$	20,464
		Income before cumulative effect of change in accounting    principle			1,071				2,189
		Cumulative effect of change in accounting principle, net of tax			—				(96	)
		Preferred and preference stock dividends			13				14
		Earnings available to common stockholders		$	1,058			$	2,079
		Common Stock Data
		Weighted-average shares outstanding			846				817
		Earnings per share (before cumulative effect of change in    accounting principle)
		Basic		$	1.25			$	2.66
		Diluted		$	1.25			$	2.63
		Earnings per share
		Basic		$	1.25			$	2.54
		Diluted		$	1.25			$	2.52

Dispositions. Duke Engineering & Services, Inc. (DE&S). On May 1, 2002, Duke Energy completed the sale of portions of its DE&S business unit to Framatome ANP, Inc. (a nuclear supplier) for $74 million. Some minor assets and two components of DE&S were not part of the sale and remain components of Other Energy Services. Duke Energy established Energy Delivery Services (EDS) in the second quarter of 2002 from the transmission and distribution services component of DE&S. EDS supplies electric transmission, distribution and substation services to customers. Duke Energy also retained its ownership interest in Duke COGEMA Stone & Webster, LLC (DCS), the prime contractor on the U.S. Department of Energy Mixed Oxide Fuel project. Operating results in 2002 include the pre-tax gain of $26 million on the sale of DE&S, or an after-tax gain of $0.02 per basic share.

DukeSolutions, Inc. (DukeSolutions). On May 1, 2002, Duke Energy completed the sale of portions of DukeSolutions to Ameresco, Inc. for $6 million. The portions that were not sold remain a component of Other Energy Services. Operating results in 2002 include the pre-tax loss on the sale of DukeSolutions of $25 million, or an after-tax loss of $0.02 per basic share.