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The year 2002 was one of enormous challenge – for our company, our industry and the economy at large. And it was a year of disappointment for shareholders who have come to rely on Duke Energy’s ability to provide steady returns.
Our best efforts and outlook proved no match for the harsh realities of 2002: An economy of fits and starts, unprecedented turmoil in the U.S. merchant energy sector, accelerating upheaval in both credit and equity markets, and an unrelenting bear market all combined to create the greatest crisis in investor confidence and public trust since the Depression.
External factors were certainly challenging. And while we marshaled all of our resources and knowledge to address the dynamic changes within our sector, we were not fully prepared to deal with eroding market conditions. Our forecasts for U.S. power supply and demand missed the mark, and collapsing markets left us long in power supply and overexposed to a dramatic drop in the price of electricity.
Our reported year-end earnings per share were $1.22, including the effect of certain charges related to ice storm damage, restructuring costs, and goodwill and asset impairments. Without those charges, ongoing earnings were $1.88 per share. Our stock price fell from a 52-week high of $39.80 to $19.54 at year-end. Total return to shareholders, including dividends paid during the year and the decrease in our stock price, declined 48 percent in 2002.
If the law of gravity prevailed in 2002, so did the theory of relativity. Amid a landscape of fallen merchant energy providers, Duke Energy has fared comparatively well. We are among the few in our sector to retain investment-grade credit ratings. Our Duke Power and Duke Energy Gas Transmission businesses provided reliable earnings and solid cash flow, helping compensate for the sharp downturn in our merchant energy business.
I’m proud of our staying power, our operational performance in the face of adversity, and our steadfast commitment to value creation. But there are no bragging rights in basic business survival – and we’re never content with “better than most.” So this letter and the commentary that follows will address what happened in 2002 – and, more importantly, what we’re doing to manage through the current economic and market weakness and ensure we are well positioned for the future.
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