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14. Debt and Credit FacilitiesSummary of Debt and Related Terms
(a) Upon the implementation of SFAS No. 150, effective July 1, 2003, the trust preferred securities were reclassified to Long-term Debt from Guaranteed Preferred Beneficial Interests in Subordinated Notes of Duke Energy Corporation or Subsidiaries. Additionally, upon the adoption of the provisions of FIN 46R as of December 31, 2003, Duke Energy's remaining trust subsidiaries that had issued the trust preferred securities were deconsolidated since Duke Energy was not the primary beneficiary of the trust subsidiaries. This resulted in Duke Energy reflecting debt to affiliates in the December 31, 2003 Long-term Debt balance. (b) Includes $172 million of Duke Energy pollution control bonds as of December 31, 2003 and 2002. As of December 31, 2003, $40 million was secured by first and refunding mortgage bonds and $77 million was secured by a letter of credit, and as of December 31, 2002, $117 million was secured by first and refunding mortgage bonds. (c) Includes $150 million as of December 31, 2003 and $1,150 million as of December 31, 2002 that was classified as Long-term Debt on the Consolidated Balance Sheets. The weighted-average days to maturity were 18 days as of December 31, 2003 and 20 days as of December 31, 2002. (d) Upon the implementation of SFAS No. 150, effective July 1, 2003, the preferred stock with sinking fund requirements was reclassified to Long-term Debt from Preferred and Preference Stock with Sinking Fund Requirements. As of December 31, 2003, there were 250,000 issued and outstanding shares of 6.75% Preferred Stock, Series X issued in 1993. (e) As of December 31, 2003, $437 million of debt was denominated in Brazilian reais with the principal indexed annually to Brazilian inflation and $3,673 million of debt was denominated in Canadian dollars. As of December 31, 2002, $675 million of debt was denominated in Australian dollars, $346 million of debt was denominated in Brazilian reais with the principal indexed annually to Brazilian inflation and $3,462 million of debt was denominated in Canadian dollars. (f) Excludes $883 million of long-term debt, notes payable and commercial paper denominated in Australian dollars related to International Energy's Australian operations. As of December 31, 2003, International Energy's Australian operations were classified as discontinued operations, and the debt associated with the Australian operations was reclassified to Current and Non-Current Liabilities Associated with Assets Held for Sale as the debt is intended to be transferred in the sale transaction and subsequently retired. (g) Weighted-average rates on outstanding short-term notes payable and commercial paper was 1.7% as of December 31, 2003 and 2.6% as of December 31, 2002. Floating Rate Debt. Unsecured debt, secured debt and other debt included $2,717 million of floating-rate debt as of December 31, 2003, and $3,545 million as of December 31, 2002. Floating-rate debt is primarily based on commercial paper rates or a spread relative to an index such as a London Interbank Offered Rate for debt denominated in U.S. dollars, and Banker's Acceptances for debt denominated in Canadian dollars. As of December 31, 2003, the average interest rate associated with floating-rate debt was 1.8%. Convertible Debt. As of December 31, 2003, unsecured debt included $770 million of 1.75% convertible senior notes due in 2023. These senior notes, which were issued in May 2003, are convertible to Duke Energy common stock at a premium of 40% above the May 1, 2003 closing common stock market price of $16.85 per share. Upon conversion, the senior notes are potentially convertible into approximately 32.6 million shares of common stock. The conversion of these senior notes into shares of Duke Energy common stock is contingent on the occurrence of certain events during specified periods. These events include whether the price of Duke Energy common stock reaches specified thresholds, the credit rating of Duke Energy falls below certain thresholds, the holders put the senior notes back to Duke Energy, the convertible notes are called for redemption by Duke Energy, or specified transactions have occurred. The conditions that permit such conversion were not satisfied as of December 31, 2003. Therefore, the contingently issuable shares of common stock were not included in the calculation of diluted earnings per share for the year ended December 31, 2003. Holders of the senior notes may require Duke Energy to purchase all or a portion of their senior notes for cash on May 15, 2007, May 15, 2012, and May 15, 2017, at a price equal to the principal amount of the senior notes plus accrued interest, if any. Duke Energy may redeem for cash all or a portion of the senior notes at any time on or after May 20, 2007, at a price equal to the sum of the issue price plus accrued interest, if any, on the redemption date. Additionally, as of December 31, 2003 and 2002, unsecured debt included $1,625 million of Equity Units. The Equity Units consist of senior notes of Duke Capital, and forward purchase contracts obligating the investors to purchase shares of Duke Energy's common stock in 2004. The number of shares of common stock to be issued in 2004 will be based on the price of the common stock at the date of maturity of the forward purchase contract. Based upon the price of the common stock on December 31, 2003, the forward purchase contracts to be settled in May 2004 and November 2004 will result in the issuance of approximately 22.5 million shares of common stock and 18.7 million shares of common stock, respectively. The issuable shares of common stock under the forward purchase contracts were not included in the calculation of diluted earnings per share for the year ended December 31, 2003 as their effect was antidilutive. Secured Debt. Accounts Receivable Securitization. During 2003, Duke Energy completed a securitization of certain accounts receivable through Duke Energy Receivables Finance Company, LLC (DERF), a newly formed, bankruptcy remote, special purpose subsidiary. DERF is a wholly owned limited liability company with a separate legal existence from its parent, and its assets are not intended to be generally available to creditors of Duke Energy. As a result of the securitization, Duke Energy sold, and will continue to sell on a daily basis to DERF, certain accounts receivable arising from the sale of electricity and/or related services as part of Duke Energy's franchised electric business. The proceeds from the initial sale of the accounts receivable to DERF were used for general corporate purposes in its franchised electric business, which included the repayment of outstanding commercial paper. In order to fund its purchases of accounts receivable, DERF entered into a two-year $300 million secured credit facility, with a commercial paper conduit administered by Citicorp North America, Inc. The credit facility and related securitization documentation contain several covenants, including covenants with respect to the accounts receivable held by DERF as well as a covenant requiring that the ratio of Duke Energy consolidated indebtedness to Duke Energy consolidated capitalization not exceed 65%. As of December 31, 2003, the interest rate associated with the credit facility, which is based on commercial paper rates, was 1.5% and $300 million was outstanding under the credit facility. The securitization transaction was not structured to meet the criteria for sale treatment under SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” and accordingly is reflected as a secured borrowing in the Consolidated Financial Statements. As of December 31, 2003, the $300 million outstanding balance of the credit facility was secured by approximately $446 million of accounts receivable held by DERF. The obligations of DERF under the credit facility are non-recourse to Duke Energy. Other Assets Pledged as Collateral. As of December 31, 2003, secured debt also consisted of various project financings, including THOR Investors, LLC, Maritimes & Northeast Pipeline, LLC, Maritimes & Northeast Pipeline, LP and certain projects at Crescent. A portion of the assets, ownership interest and business contracts in these various projects are pledged as collateral. Additionally, as of December 31, 2003, substantially all of Franchised Electric's electric plant in service was subject to a mortgage lien securing the first and refunding mortgage bonds. Related Party Debt. Other debt included $78 million related to a loan with D/FD as of December 31, 2003, and $282 million as of December 31, 2002. As part of the D/FD partnership agreement, excess cash has been loaned, without stated repayment terms, at current market rates to Duke Energy and Fluor Enterprises, Inc. The weighted-average rate of this loan was 1.52% as of December 31, 2003 and 2.50% as of December 31, 2002. During 2003, Duke Energy and Fluor Corporation announced that the D/FD partnership will be dissolved. The D/FD partners have adopted a plan for an orderly wind-down of the business targeted for completion in July 2005. The entire outstanding balance of the loan with D/FD has been classified as Current Maturities of Long-term Debt and Preferred Stock on the December 31, 2003 Consolidated Balance Sheet. Additionally, upon the adoption of the provisions of FIN 46R as of December 31, 2003, as discussed in Note 1, Duke Energy's remaining trust subsidiaries that had issued the trust preferred securities were deconsolidated since Duke Energy was not the primary beneficiary of the trust subsidiaries. The deconsolidation of the remaining trust subsidiaries resulted in Duke Energy reflecting debt to affiliates of $876 million to the trust subsidiaries in Long-term Debt on the December 31, 2003 Consolidated Balance Sheet. As of December 31, 2003, the debt to affiliates consisted of the following issuances: $360 million of 7.20% notes due in 2037, $258 million of 7.20% notes due in 2039 and $258 million of 8.375% notes due in 2029. Duke Energy has the option to repay this debt to affiliates early, and could potentially repay all of this debt to affiliates in 2004. Maturities, Call Options and Acceleration Clauses.Annual Maturities as of December 31, 2003
(a) Excludes short-term notes payable and commercial paper of $130 million. Annual maturities after 2008 include $1,400 million of long-term debt with call options, which provide Duke Energy with the option to repay the debt early. Based on the years in which Duke Energy may first exercise its redemption options, it could potentially repay $1,050 million in 2004, $100 million in 2005, and $250 million in 2006. Duke Energy may be required to repay certain debt should its credit ratings fall to a certain level at Standard & Poor's (S&P) or Moody's Investor Service (Moody's). As of December 31, 2003, Duke Energy had $19 million of senior unsecured notes which mature serially through 2012 that may be required to be repaid if Duke Energy's senior unsecured debt ratings fall below BBB- at S&P or Baa3 at Moody's, and $30 million of senior unsecured notes which mature serially through 2016 that may be required to be repaid if Duke Energy's senior unsecured debt ratings fall below BBB at S&P or Baa2 at Moody's. As of March 1, 2004, Duke Energy's senior unsecured credit rating was BBB at S&P and Baa1 at Moody's. Subsequent Debt Issuances and Redemptions. In February 2004, Duke Capital remarketed $875 million of its 5.87% senior notes due in 2006. As a result of the remarketing, the interest rate on the notes was reset to 4.302%. The remarketing was required under the terms of the Equity Units originally issued in March 2001. Proceeds from the remarketed senior notes were used to purchase U.S. Treasury securities being held by a collateral agent to satisfy the forward stock purchase contracts component of the Equity Units. In May 2004, Duke Energy intends to receive $875 million from the collateral agent, and to issue approximately 22.5 million shares of Duke Energy common stock pursuant to the forward stock purchase contracts. Additionally, in February 2004, Duke Capital issued $200 million of 4.37% senior unsecured notes due in 2009 and $288 million of 5.50% senior unsecured notes due in 2014 in exchange for $475 million of the principle amount of remarketed senior notes. After the exchange, $400 million of the principal amount of the remarketed senior notes remained outstanding. Also, in February 2004, Duke Energy announced that on March 26, 2004, it will redeem the entire issue of 7.20% Duke Energy debt to an affiliate due in 2037. The redemption price will be approximately $360 million, and the redemption is not anticipated to have a material impact on Duke Energy's Consolidated Statements of Operations. Available Credit Facilities and Restrictive Debt Covenants. During 2003, Duke Energy, Duke Capital, Westcoast, Union Gas, DEFS and Duke Australia Finance Pty Ltd. (a wholly owned subsidiary of Duke Energy) replaced portions of their expiring credit facilities, thereby reducing the total amount of credit facilities available by approximately $2.2 billion. The credit facilities that have replaced the expired credit facilities are included in the following table which summarizes Duke Energy's credit facilities and related amounts outstanding as of December 31, 2003. The majority of the credit facilities support commercial paper programs. The issuance of commercial paper, letters of credit and other borrowings reduces the amount available under the credit facilities. Duke Energy's credit agreements contain various financial and other covenants. Failure to meet those covenants beyond applicable grace periods could result in acceleration of due dates of certain borrowings and/or termination of the agreements. As of December 31, 2003, Duke Energy was in compliance with those covenants. In addition, certain of the credit agreements contain cross-acceleration provisions that may allow for acceleration of payments or termination of the agreements upon: (1) nonpayment or (2) acceleration of other significant indebtedness of the applicable borrower or certain of its subsidiaries. None of the credit agreements contain material adverse change clauses. Credit Facilities Summary as of December 31, 2003
(a) Credit facility contains an option allowing borrowing up to the full amount of the facility on the day of initial expiration for up to one year. (b) Credit facility contains a covenant requiring the debt-to-total capitalization ratio to not exceed 65%. (c) Credit facility contains an interest coverage covenant. (d) Credit facility is denominated in Canadian dollars, and was 200 million Canadian dollars as of December 31, 2003. (e) Credit facility is denominated in Canadian dollars, and was 100 million Canadian dollars as of December 31, 2003. (f) Credit facility contains a covenant requiring the debt-to-total capitalization ratio to not exceed 75%. Credit facility is denominated in Canadian dollars, and was 340 million Canadian dollars as of December 31, 2003. (g) Credit facility contains a covenant requiring the debt-to-total capitalization ratio to not exceed 53%. (h) Credit facility is guaranteed by Duke Capital, is denominated in Australian dollars, and was 316 million Australian dollars as of December 31, 2003. (i) Credit facility pertains to operations that are classified as discontinued operations as of December 31, 2003. Therefore, the outstanding debt associated with the credit facility was reclassified to Current and Non-Current Liabilities Associated with Assets Held for Sale on the December 31, 2003 Consolidated Balance Sheet. (j) Credit facility is guaranteed by Duke Capital, is denominated in Australian dollars, and totaled 312 million Australian dollars as of December 31, 2003. Duke Australia Pipeline Finance Pty Ltd. is a wholly owned subsidiary of Duke Energy. (k) Various operating credit facilities and credit facilities that support commodity, foreign exchange, derivative and intra-day transactions are not included in this credit facilities summary. Duke Energy has approximately $2,900 million of credit facilities which expire in 2004. It is Duke Energy's intent to resyndicate less than the total $2,900 million of expiring credit facilities. Other Loans. During 2003 and 2002, Duke Energy had loans outstanding against the cash surrender value of the life insurance policies that it owns on the lives of its executives. The amounts outstanding were $467 million as of December 31, 2003 and $428 million as of December 31, 2002. The amounts outstanding were carried as a reduction of the related cash surrender value that is included in Other Assets on the Consolidated Balance Sheets. |
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