Duke Energy 2Q/05_CIN

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Duke Energy 2Q/05_CIN

  1. 1. N E W S R E L E A S E Cinergy Corp. 139 East Fourth Street P.O. Box 960 Cincinnati, OH 45201-0960 News contact: Steve Brash 513-287-2226 (w) 513-543-7489 (c) Angeline Protogere 317-838-1338 (w) 317-367-3306 (p) Investor contact: Brad Arnett 513-287-3024 Website: www.cinergy.com FOR IMMEDIATE RELEASE – July 28, 2005 (Revised on July 29, 2005 to include additional operating statistics on Schedules 5 and 7) CINERGY REPORTS SECOND QUARTER EARNINGS Webcast of Analyst Conference Call Scheduled Today for 9:00 a.m. EDT on Cinergy.com CINCINNATI – Cinergy Corp. (NYSE:CIN) today reported net income for the second quarter of 2005 of $51 million, or $0.25 per share on a diluted basis, compared with net income of $59 million, or $0.32 per share on a diluted basis in the second quarter of 2004. Earnings for the second quarter of 2005 were negatively impacted by ($0.04) per share resulting from the recognition of unrealized mark-to-market losses on gas, fuel and power contracts that hedge gas storage and generation assets. These contracts, which are economic hedges, do not meet the accounting requirements to qualify for accrual accounting. Earnings for the quarter were also reduced by ($0.07) per share for severance payments and certain costs incurred in connection with the proposed merger with Duke Energy announced in May 2005. Excluding these impacts, adjusted earnings for the second quarter of 2005 were $0.36 per share, compared with $0.43 per share for the second quarter of 2004. In 2004, earnings were impacted in the second quarter by losses from similar unrealized mark-to-market adjustments of ($0.02) per share and by charges of ($0.09) per share for implementation costs relating to the company’s “CIN-10” continuous improvement initiative, costs associated with exiting a non-regulated energy service and the write-down of certain investments. Cinergy uses adjusted earnings internally for analysis of performance and for reporting results to the Board of Directors to provide a more meaningful representation of Cinergy’s fundamental earnings power. The company also uses adjusted earnings when communicating its earnings outlook to analysts and investors. (more)
  2. 2. Page 2. Cinergy reports second quarter earnings “While results from our regulated businesses and our other core electric generation activities continue to meet our expectations, we are disappointed with this quarter’s results from our commercial gas operations,” said James E. Rogers, chairman, president and chief executive officer. “Our commercial gas group has consistently contributed to earnings over the last few years, and we’re taking the necessary steps to restore their contribution in the future. Michael J. Cyrus, formerly executive vice president and chief executive officer of the Regulated Businesses, has returned to the leadership of the Commercial Businesses, where he successfully grew the power and gas commercial businesses for Cinergy from 2000 through the first half of 2004.” “Our commercial gas group clearly missed our expectations this quarter,” said Cyrus. “We’re moving quickly to restore the success of this business by making necessary organizational changes, attacking operating costs by consolidating support functions and again executing on our strengths in the physical and financial markets.” Unaudited consolidated statements of income for the quarter and year-to-date ended June 30, 2005 and 2004, and unaudited consolidated balance sheets as of June 30, 2005 and December 31, 2004 can be found on Schedules 1 and 2 of this release. Reconciliations of items included in GAAP earnings but excluded from adjusted earnings can be found on Schedules 3 and 4 of this release. Business Segment Results The Commercial Businesses segment reported adjusted earnings of $0.09 per share in the second quarter of 2005 compared with adjusted earnings of $0.23 per share in the same period of 2004. The segment realized a ($0.13) per share decrease from its gas marketing, trading and origination activities. Increases in fuel costs that are not yet reflected in the prices charged to residential and non-retail customers and increases in operation and maintenance expenses further reduced earnings by a combined ($0.05) per share. Higher margins realized from generation assets serving Ohio commercial and industrial customers and higher margins from portfolio optimization activities partially offset these decreases. (more)
  3. 3. Page 3. Cinergy reports second quarter earnings Second quarter adjusted earnings from the Regulated Businesses segment were $0.27 per share in 2005, compared with $0.22 per share from a year earlier. The increase in earnings was primarily due to an increase in electric gross margins resulting from the electric rate increase approved for PSI Energy, Inc in May 2004. Partially offsetting the increased margins was increased operation and maintenance expenses, higher financing costs, dilution and higher depreciation expense, which resulted from increased plant in service and higher depreciation rates associated with PSI’s electric rate increase. Adjusted earnings for the Power Technology and Infrastructure Services segment were flat (or $0.00 per share) for the second quarter of 2005, as compared to a ($0.02) per share loss from the prior year. Complete details of second quarter and year-to-date 2005 results compared to 2004 can be found on Schedules 5 through 8 of this release. Earnings Guidance After taking into consideration the results from the commercial gas business during the quarter and the prospects for that business during the remainder of the year, the company is lowering its previously issued earnings guidance for 2005 to a range of $2.50 to $2.65 per share on an adjusted basis. With regard to 2006, Cinergy is evaluating the ongoing earnings contribution of the commercial gas operations as well as other items in the context of completing its normal budgeting process. Until that process is concluded and the company issues updated 2006 guidance, the company's preliminary 2006 earnings estimate previously provided is no longer applicable. The company’s earnings guidance is based on adjusted earnings. The corresponding GAAP equivalent for 2005 earnings guidance is $2.27 to $2.42 per share. (more)
  4. 4. Page 4. Cinergy reports second quarter earnings Other Activities In May, Cinergy announced that it had reached a definitive merger agreement with Duke Energy to create an energy company with approximately $36 billion in market capitalization and 5.4 million retail customers. Under the merger agreement, each common share of Cinergy will be converted to 1.56 shares of Duke Energy upon closing of the merger. The companies also began the process of filing merger review proceedings in the five states served by their regulated subsidiaries and at the federal level. The approvals are expected to be received in the summer of 2006. Cinergy’s operating companies, PSI Energy and The Cincinnati Gas & Electric Co., announced that they had signed a definitive agreement with subsidiaries of Allegheny Energy, Inc., to acquire the 512-megawatt Wheatland generating facility for approximately $100 million. Located in Knox County, Indiana, Wheatland’s natural gas-fired output will be used to bolster the reserve margins on the PSI and/or CG&E systems. Regulatory approvals or clearances have been received from the Federal Energy Regulatory Commission and the U.S. Justice Department, and other regulatory approvals are pending. The transaction is expected to close in the third quarter of 2005. Cinergy Corp. has a balanced, integrated portfolio consisting of two core businesses: regulated operations and commercial businesses. Cinergy’s regulated public utilities in Ohio, Indiana, and Kentucky serve 1.5 million electric customers and about 500,000 gas customers. In addition, its Indiana regulated company owns 7,000 megawatts of generation. Cinergy’s competitive commercial businesses have 6,300 megawatts of generating capacity with a profitable balance of stable existing customer portfolios, new customer origination, marketing and trading, and industrial-site cogeneration. Cinergy’s integrated businesses make it a Midwest leader in providing both low-cost generation and reliable electric and gas service. (more)
  5. 5. Page 5. Cinergy reports second quarter earnings Forward-Looking Statements This document 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. These forward-looking statements include statements regarding benefits of the proposed mergers and Restructuring Transactions, integration plans and expected synergies, anticipated future financial operating performance and results, including estimates of growth. These statements are based on the current expectations of management of Duke and Cinergy. There are a number of risks and uncertainties that could cause actual results to differ materially from the forward-looking statements included in this document. For example, (1) the companies may be unable to obtain shareholder approvals required for the transaction; (2) the companies may be unable to obtain regulatory approvals required for the transaction, or required regulatory approvals may delay the transaction or result in the imposition of conditions that could have a material adverse effect on the combined company or cause the companies to abandon the transaction; (3) conditions to the closing of the transaction may not be satisfied; (4) problems may arise in successfully integrating the businesses of the companies, which may result in the combined company not operating as effectively and efficiently as expected; (5) the combined company may be unable to achieve cost-cutting synergies or it may take longer than expected to achieve those synergies; (6) the transaction may involve unexpected costs or unexpected liabilities, or the effects of purchase accounting may be different from the companies’ expectations; (7) the credit ratings of the combined company or its subsidiaries may be different from what the companies expect; (8) the businesses of the companies may suffer as a result of uncertainty surrounding the transaction; (9) the industry may be subject to future regulatory or legislative actions that could adversely affect the companies; and (10) the companies may be adversely affected by other economic, business, and/or competitive factors. Additional factors that may affect the future results of Duke and Cinergy are set forth in their respective filings with the Securities and Exchange Commission (“SEC”), which are available at www.duke-energy.com/investors and www.cinergy.com/investors, respectively. Duke and Cinergy undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Additional Information and Where to Find It In connection with the proposed transaction, a registration statement of Duke Energy Holding Corp., which includes a joint proxy statement of Duke and Cinergy, and other materials has been filed with the SEC on July 1, 2005. WE URGE INVESTORS TO READ THE REGISTRATION STATEMENT AND PROXY STATEMENT AND THESE OTHER MATERIALS CAREFULLY BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT DUKE, CINERGY, DUKE ENERGY HOLDING CORP., AND THE PROPOSED TRANSACTION. Investors may obtain free copies of the registration statement and proxy statement as well as other filed documents containing information about Duke and Cinergy at http://www.sec.gov, the SEC’s website. Free copies of Duke’s SEC filings are also available on Duke’s website at www.duke- energy.com/investors, and free copies of Cinergy’s SEC filings are also available on Cinergy’s website at www.cinergy.com/investors. Participants in the Solicitation Duke, Cinergy and their respective executive officers and directors may be deemed, under SEC rules, to be participants in the solicitation of proxies from Duke’s or Cinergy’s stockholders with respect to the proposed transaction. Information regarding the officers and directors of Duke is included in its definitive proxy statement for its 2005 Annual Meeting filed with the SEC on March 31, 2005. Information regarding the officers and directors of Cinergy is included in its definitive proxy statement for its 2005 Annual Meeting filed with the SEC on March 28, 2005. More detailed information regarding the identity of potential participants, and their direct or indirect interests, by securities, holdings or otherwise, will be set forth in the registration statement and proxy statement and other materials to be filed with the SEC in connection with the proposed transaction.
  6. 6. Schedule 1 CINERGY CORP. CONSOLIDATED STATEMENTS OF INCOME For the Periods Ended June 30, 2005 and 2004 (unaudited) (dollars in thousands, except per share amounts) Quarter Ended Year To Date 2005 2004 2005 2004 Operating Revenues Electric $914,338 $870,236 $1,840,635 $1,728,672 Gas 79,598 108,082 392,694 458,928 Other 120,327 75,419 225,183 154,795 Total Operating Revenues 1,114,263 1,053,737 2,458,512 2,342,395 Operating Expenses Fuel, emission allowances and purchased power 312,714 298,756 617,677 592,646 Gas purchased 56,089 47,420 264,689 270,936 Costs of fuel resold 93,087 59,062 178,849 116,524 Operation and maintenance 351,121 332,358 682,910 643,194 Depreciation 130,455 114,331 256,941 219,188 Taxes other than income taxes 65,083 65,072 144,015 147,319 Total Operating Expenses 1,008,549 916,999 2,145,081 1,989,807 Operating Income 105,714 136,738 313,431 352,588 Equity in Earnings of Unconsolidated Subsidiaries 13,576 7,331 18,411 10,079 Miscellaneous Income (Expense) - Net 14,535 5,033 16,875 (10,475) Interest Expense 68,649 70,276 132,712 137,671 Preferred Dividend Requirements of Subsidiaries 858 858 1,716 1,716 Income Before Taxes 64,318 77,968 214,289 212,805 Income Taxes 13,610 19,464 46,225 51,286 Net Income $50,708 $58,504 $168,064 $161,519 Average Common Shares Outstanding - Basic 198,492 180,236 197,066 179,749 Earnings Per Common Share - Basic $0.25 $0.33 $0.85 $0.90 Average Common Shares Outstanding - Diluted 199,441 182,277 198,075 182,106 Earnings Per Common Share - Diluted $0.25 $0.32 $0.85 $0.89 Cash Dividends Declared Per Common Share $0.48 $0.47 $0.96 $0.94 Note: Prior year data has been reclassified to conform with current year presentation.
  7. 7. Schedule 2 CINERGY CORP. CONSOLIDATED BALANCE SHEETS (unaudited) (in thousands) June 30 December 31 2005 2004 ASSETS Current Assets Cash and cash equivalents $148,178 $164,541 Notes receivable, current 122,976 214,513 Accounts receivable less accumulated provision for doubtful accounts of $5,455 at June 30, 2005, and $5,514 at December 31, 2004 939,715 1,061,140 Fuel, emission allowances, and supplies 502,482 444,750 Prepayments and other 279,138 174,624 Energy risk management current assets 352,397 381,146 Total current assets 2,344,886 2,440,714 Property, Plant, and Equipment - at Cost Utility plant in service 10,386,087 10,076,468 Construction work in progress 377,517 333,687 Total utility plant 10,763,604 10,410,155 Non-regulated property, plant, and equipment 4,798,284 4,700,009 Accumulated depreciation 5,355,813 5,180,699 Net property, plant, and equipment 10,206,075 9,929,465 Other Assets Regulatory assets 988,308 1,030,333 Investments in unconsolidated subsidiaries 488,411 513,675 Energy risk management non-current assets 306,495 138,787 Notes receivable, non-current 182,815 193,857 Other investments 125,192 125,367 Goodwill and intangible assets 154,047 132,752 Restricted funds held in trust 313,692 358,006 Other 147,685 119,361 Total other assets 2,706,645 2,612,138 Total Assets $15,257,606 $14,982,317 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable $1,255,484 $1,348,576 Accrued taxes 128,713 216,804 Accrued interest 59,016 54,473 Notes payable and other short-term obligations 865,257 958,910 Long-term debt due within one year 478,046 219,967 Energy risk management current liabilities 370,960 310,741 Other 134,525 171,188 Total current liabilities 3,292,001 3,280,659 Non-current Liabilities Long-term debt 3,975,072 4,227,741 Deferred income taxes 1,554,037 1,597,120 Unamortized investment tax credits 95,413 99,723 Accrued pension and other postretirement benefit costs 732,361 688,277 Regulatory liabilities 575,729 557,419 Energy risk management non-current liabilities 299,541 127,340 Other 205,247 225,298 Total non-current liabilities 7,437,400 7,522,918 Total Liabilities 10,729,401 10,803,577 Cumulative Preferred Stock of Subsidiaries Not subject to mandatory redemption 62,818 62,818 Common Stock Equity Common stock - $0.01 par value; authorized shares - 600,000,000; issued shares - 198,668,812 at June 30, 2005 and 187,653,506 at December 31, 2004; outstanding shares - 198,528,683 at June 30, 2005 and 187,524,229 at December 31, 2004 1,987 1,877 Treasury shares at cost - 140,129 at June 30, 2005, (4,766) (4,336) and 129,277 shares at December 31, 2004 Paid-in capital 2,941,747 2,559,715 Retained earnings 1,594,053 1,613,340 Accumulated other comprehensive income (loss) (67,634) (54,674) Total common stock equity 4,465,387 4,115,922 Total Liabilities and Equity $15,257,606 $14,982,317 Note: Prior year data has been reclassified to conform with current year presentation.
  8. 8. Schedule 3 CINERGY CORP. RECONCILIATION OF GAAP EPS TO ADJUSTED EPS - 2005 (unaudited) Q1 Q2 Total Regulated Businesses EPS As Reported $ 0.39 $ 0.24 $ 0.63 Special Items: Merger and Severance Costs - 0.03 0.03 EPS Adjusted $ 0.39 $ 0.27 $ 0.66 Commercial Businesses EPS As Reported $ 0.23 $ 0.02 $ 0.25 Special Items: Merger and Severance Costs - 0.03 0.03 Mark-to-Market Effect on Asset Hedges 0.12 0.04 0.16 EPS Adjusted $ 0.35 $ 0.09 $ 0.44 Power Technology & Infrastructure Services EPS As Reported $ (0.02) $ (0.01) $ (0.03) Special Items: Merger and Severance Costs 0.00 0.01 $ 0.01 EPS Adjusted $ (0.02) $ - $ (0.02) Cinergy Corp. EPS As Reported $ 0.60 $ 0.25 $ 0.85 Special Items 0.12 0.11 $ 0.23 EPS Adjusted $ 0.72 $ 0.36 $ 1.08
  9. 9. Schedule 4 CINERGY CORP. RECONCILIATION OF GAAP EPS TO ADJUSTED EPS - 2004 (unaudited) Q1 Q2 Total Regulated Businesses EPS As Reported $ 0.44 $ 0.19 $ 0.63 Special Items: CIN-10 Implementation Costs - 0.03 0.03 EPS Adjusted $ 0.44 $ 0.22 $ 0.66 Commercial Businesses EPS As Reported $ 0.25 $ 0.17 $ 0.42 Special Items: CIN-10 Implementation Costs and Other Charges - 0.04 0.04 Mark-to-Market Effect on Asset Hedges (0.05) 0.02 (0.03) EPS Adjusted $ 0.20 $ 0.23 $ 0.43 Power Technology & Infrastructure Services EPS As Reported $ (0.12) $ (0.04) $ (0.16) Special Items: Impairment Writedowns and Other Charges 0.11 0.02 0.13 EPS Adjusted $ (0.01) $ (0.02) $ (0.03) Cinergy Corp. EPS As Reported $ 0.57 $ 0.32 $ 0.89 Special Items 0.06 0.11 0.17 EPS Adjusted $ 0.63 $ 0.43 $ 1.06 For 2004, the Regulated and Commercial segments have each been restated from prior presentations to reflect the reclassification of PSI's off- system sales from the Commercial Businesses to the Regulated Businesses.
  10. 10. Schedule 5 CINERGY CORP. BUSINESS SEGMENT SUMMARY INFORMATION For the Quarter Ended June 30 (unaudited) (dollars in thousands, except per share amounts) 2005 2004 Regulated Businesses Net Income………………………………………………………… $ 49,659 $ 34,260 Earnings Per Share - diluted……………………………………… $ 0.24 $ 0.19 Operational Statistics: Electric Retail MWh Sales and Transportation………………… 12,802,042 12,836,087 Gas Retail Mcf Sales and Transportation……………………… 13,343,597 13,350,193 Electric Customers (End of Period)…………………………… 1,562,722 1,543,967 Gas Customers (End of Period)………………………………… 509,238 509,444 Commercial Businesses Net Income………………………………………………………… $ 3,518 $ 31,255 Earnings Per Share - diluted……………………………………… $ 0.02 $ 0.17 Operational Statistics: Electricity Trading Volumes (MWhs)…………………………… 43,004,049 37,914,408 Physical and Financial Gas Trading (Bcf/d)…………………… 56.1 48.5 Power Technology & Infrastructure Services Net Income………………………………………………………… $ (2,469) $ (7,011) Earnings Per Share - diluted……………………………………… $ (0.01) $ (0.04) For 2004, the Regulated and Commercial segments have each been restated from prior presentations to reflect the reclassification of PSI's off-system sales from the Commercial Businesses to the Regulated Businesses.
  11. 11. Schedule 6 CINERGY CORP. BUSINESS SEGMENT EARNINGS DRIVER ANALYSIS For the Quarter Ended June 30, 2005 (unaudited) Regulated Businesses Earnings Per Share - diluted - 2004 (Adjusted*) $0.22 Weather………………………………………………………… 0.01 Price increases………………………………………………… 0.11 Regulatory deferrals…………………………………………… 0.02 Regulatory transition charge amortization………………… (0.01) Operation and maintenance………………………………… (0.03) Depreciation………………………………………………….. (0.03) Financing and dilution………………………………………… (0.03) Other - net……………………………………………………… 0.01 Earnings Per Share - diluted - 2005 (Adjusted*) $0.27 Commercial Businesses Earnings Per Share - diluted - 2004 (Adjusted*) $0.23 Price increases………………………………………………… 0.03 Fuel costs……………………………………………………… (0.03) Optimization activities………………………………………… 0.05 Operation and maintenance………………………………… (0.02) Power marketing, trading and origination…………………… (0.02) Gas marketing, trading and origination …………………… (0.13) Financing and dilution………………………………………… 0.02 Other - net……………………………………………………… (0.04) Earnings Per Share - diluted - 2005 (Adjusted*) $0.09 Power Technology & Infrastructure Services Earnings Per Share - diluted - 2004 (Adjusted*) ($0.02) Results of investments…………………………………….… 0.02 Earnings Per Share - diluted - 2005 (Adjusted*) $0.00 For 2004, the Regulated and Commercial segments have each been restated from prior presentations to reflect the reclassification of PSI's off-system sales from the Commercial Businesses to the Regulated Businesses. * See Schedules 3 and 4 for a reconciliation to the most comparable GAAP measure.
  12. 12. Schedule 7 CINERGY CORP. BUSINESS SEGMENT SUMMARY INFORMATION For the Year to Date June 30 (unaudited) (dollars in thousands, except per share amounts) 2005 2004 Regulated Businesses Net Income………………………………………………………… $ 125,555 $ 115,121 Earnings Per Share - diluted……………………………………… $ 0.63 $ 0.63 Operational Statistics: Electric Retail MWh Sales and Transportation………………… 26,112,328 26,203,453 Gas Retail Mcf Sales and Transportation……………………… 51,880,766 55,144,422 Electric Customers (End of Period)…………………………… 1,562,722 1,543,967 Gas Customers (End of Period)………………………………… 509,238 509,444 Commercial Businesses Net Income………………………………………………………… $ 48,710 $ 75,991 Earnings Per Share - diluted……………………………………… $ 0.25 $ 0.42 Operational Statistics: Electricity Trading Volumes (MWhs)…………………………… 93,321,328 83,518,522 Physical and Financial Gas Trading (Bcf/d)…………………… 63.8 47.1 Power Technology & Infrastructure Services Net Income………………………………………………………… $ (6,201) $ (29,593) Earnings Per Share - diluted……………………………………… $ (0.03) $ (0.16) For 2004, the Regulated and Commercial segments have each been restated from prior presentations to reflect the reclassification of PSI's off-system sales from the Commercial Businesses to the Regulated Businesses.
  13. 13. Schedule 8 CINERGY CORP. BUSINESS SEGMENT EARNINGS DRIVER ANALYSIS For the Year to Date June 30, 2005 (unaudited) Regulated Businesses Earnings Per Share - diluted - 2004 (Adjusted*) $0.66 Weather………………………………………………………… (0.01) Electric and gas sales volumes……………………………… 0.01 Price increases………………………………………………… 0.23 Regulatory deferrals…………………………………………… 0.04 Regulatory transition charge amortization………………… (0.04) Operation and maintenance………………………………… (0.07) Depreciation…………………………………………………… (0.08) Financing and dilution………………………………………… (0.08) Earnings Per Share - diluted - 2005 (Adjusted*) $0.66 Commercial Businesses Earnings Per Share - diluted - 2004 (Adjusted*) $0.43 Weather………………………………………………………… (0.01) Electric sales volumes………………………………………… 0.01 Price increases………………………………………………… 0.07 Fuel costs……………………………………………………… (0.06) Optimization activities………………………………………… 0.15 Operation and maintenance………………………………… (0.03) Power marketing, trading and origination…………………… 0.02 Gas marketing, trading and origination……………………… (0.13) Financing and dilution………………………………………… 0.01 Other - net……….…………………………………………… (0.02) Earnings Per Share - diluted - 2005 (Adjusted*) $0.44 Power Technology & Infrastructure Services Earnings Per Share - diluted - 2004 (Adjusted*) ($0.03) Results of investments……………………………………… 0.01 Earnings Per Share - diluted - 2005 (Adjusted*) ($0.02) For 2004, the Regulated and Commercial segments have each been restated from prior presentations to reflect the reclassification of PSI's off-system sales from the Commercial Businesses to the Regulated Businesses. * See Schedules 3 and 4 for a reconciliation to the most comparable GAAP measure.

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