12. Assets Held for Sale and Discontinuted Operations
During 2003, Duke Energy began activities to sell certain long-lived assets or businesses, which are classified as Assets Held for Sale on the Consolidated Balance Sheets as of December 31, 2003 in accordance with SFAS No. 144.
As a result of the continued decline in the merchant energy industry, during 2003 Duke Energy decided to sell certain turbines and related equipment owned by DENA. In connection with the sales plan, a loss of $66 million was recorded, which represents the excess of the carrying value over the estimated fair value of the turbines and related equipment, less estimated costs to sell, and was included in (Losses) Gains on Sales of Other Assets, net in the Consolidated Statements of Operations. Fair value of the turbines was based primarily on comparable third party sales. (See Note 23.)
In order to eliminate exposure to international markets outside of Latin America and Canada, in 2003 Duke Energy decided to pursue a possible sale or initial public offering of International Energy's Asia-Pacific power generation and natural gas transmission business. This business is expected to be sold or spun-off within twelve months. As a result of this decision, International Energy recorded a pre-tax loss, which represents the excess of the carrying value over the estimated fair value of the business, less estimated costs to sell. Fair value of the business was estimated based primarily on comparable third party sales and analysis from outside advisors. This loss was included in Discontinued Operations—Net Loss on Dispositions in the Consolidated Statements of Operations.
Additionally in 2003, International Energy restructured and began exiting its operations in Europe. This business is expected to be sold or the contracts matured over the next twelve months. Also in 2003, International Energy sold its Dutch gas marketing business for $84 million and sold a power generation plant in France for $79 million. Duke Energy recorded a pre-tax net gain on these sales, which was included in Discontinued Operations—Net Loss on Dispositions in the Consolidated Statements of Operations. An income tax benefit was recorded in 2003, primarily associated with the goodwill impairment recognized in 2002 for the gas marketing business in Europe, the 2003 sale of that business and certain other exit costs. This tax benefit was included in Discontinued Operations—Net Loss on Dispositions in the Consolidated Statements of Operations.
During 2003, Duke Energy decided to exit the merchant finance business conducted by DCP. As a result, Duke Energy recorded a pre-tax loss, which represents the excess of the carrying value of the notes receivable over the fair value, less costs to sell. Fair value of the notes receivable was estimated based primarily on discounted cash flow analysis. The loss was included in Discontinued Operations—Net Loss on Dispositions, in the Consolidated Statements of Operations. Duke Energy expects that the remaining notes receivable portfolio will either mature or be sold within twelve months.
Crescent routinely develops real estate projects and operates those facilities until they are substantially leased and a sales agreement is finalized. If a project has distinguishable operations and cash flows and Crescent does not retain any continuing involvement in the project after it is sold and cash flows of the sold projects have been eliminated from Crescent's ongoing operations, SFAS No. 144 requires these real estate projects be classified as discontinued operations. During 2003, Crescent sold three retail centers and one apartment complex, all located in Florida, for a total sales price of approximately $77 million. The pre-tax gain on these sales was included in Discontinued Operations—Net Loss on Dispositions, in the Consolidated Statements of Operations.
Negotiations for dispositions or transfers of some of these assets are at various stages with prospective buyers. In the event that Duke Energy agrees to dispose of assets at prices less than their December 31, 2003 carrying value, additional losses would be recorded.
The following table presents the carrying amount as of December 31, 2003 of the major classes of assets and liabilities held for sale in the Consolidated Balance Sheets. These assets and liabilities are intended to be either disposed of or transferred in the sales transactions.
Summarized Balance Sheet Information for Assets Held for Sale
| (in millions) | ||
|---|---|---|
| Current assets | $ | 424 |
| Investments and other assets | 379 | |
| Property, plant and equipment, net | 1,065 | |
| Total assets held for sale | $ | 1,868 |
| Current liabilities | $ | 651 |
| Long-term debt | 514 | |
| Deferred credits and other liabilities | 223 | |
| Total liabilities associated with assets held for sale | $ | 1,388 |
Additionally in 2003 Duke Energy initiated efforts to focus on its core energy business, exiting businesses not considered strategic. The following operations were discontinued and sold in 2003.
DEFS sold two packages of assets for a total sales price of $90 million. The gain on these sales was included in Discontinued Operations—Net Loss on Dispositions in the Consolidated Statements of Operations. The assets sold consisted of various gas processing plants and gathering pipelines in Mississippi, Texas, Alabama, Louisiana and Oklahoma.
DEM sold Duke Energy Hydrocarbons LLC for approximately $83 million. Duke Energy recorded a loss on the sale, which was included in Discontinued Operations—Net Loss on Dispositions, in the Consolidated Statements of Operations.
International Energy completed the sale of its 85.7% majority interest in P.T. Puncakjaya Power (PJP) in Indonesia for $78 million. The sale resulted in a reduction to Duke Energy's consolidated indebtedness of $259 million. Duke Energy recorded a loss on the sale, which was included in Discontinued Operations—Net Loss on Dispositions in the Consolidated Statements of Operations.
Discontinued Operations
| Operating Revenues | Operating Loss | Loss on Disposition | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Pre-tax Operating Income (Loss) | Income Tax Expense (Benefit) | Operating Income (Loss), Net of Tax | Pre-tax Gain (Loss) on Dispositions | Income Tax Expense (Benefit) | Gain (Loss) on Dispositions, Net of Tax | |||||||||||||||
| (in millions) | ||||||||||||||||||||
| Year Ended December 31, 2003 | ||||||||||||||||||||
| Field Services | $ | 160 |
$ | 3 |
$ | 2 |
$ | 1 |
$ | 18 |
$ | 7 |
$ | 11 |
||||||
| International Energy | 759 |
(29) |
(4) |
(25) |
(242) |
(119) |
(123) |
|||||||||||||
| Other Operations | 35 |
(3) |
— |
(3) |
(28) |
(11) |
(17) |
|||||||||||||
| Total consolidated | $ | 954 |
$ | (29) |
$ | (2) |
$ | (27) |
$ | (252) |
$ | (123) |
$ | (129) |
||||||
| Year Ended December 31, 2002 |
|
|
|
|
|
|
|
|||||||||||||
| Field Services | $ | 194 |
$ | (23) |
$ | (9) |
$ | (14) |
$ | — |
$ | — |
$ | — |
||||||
| International Energy | 133 |
(256) |
7 |
(263) |
— |
— |
— |
|||||||||||||
| Other Operations | 57 |
25 |
9 |
16 |
— |
— |
— |
|||||||||||||
| Total consolidated | $ | 384 |
$ | (254) |
$ | 7 |
$ | (261) |
$ | — |
$ | — |
$ | — |
||||||
| Year Ended December 31, 2001 |
|
|
|
|
|
|
|
|||||||||||||
| Field Services | $ | 240 |
$ | — |
$ | — |
$ | — |
$ | — |
$ | — |
$ | — |
||||||
| International Energy | 107 |
(18) |
(3) |
(15) |
— |
— |
— |
|||||||||||||
| Other Operations | 74 |
13 |
3 |
10 |
— |
— |
— |
|||||||||||||
| Total consolidated | $ | 421 |
$ | (5) |
$ | — |
$ | (5) |
$ | — |
$ | — |
$ | — |
||||||
The 2002 discontinued operations pre-tax operating income (loss) for International Energy included a goodwill impairment loss of $194 million, which was not deductible for tax purposes until 2003 when the business was restructured.