15. Guaranteed Preferred Beneficial Interests in Subordinated Notes of Duke Energy or Subsidiaries
Duke Energy and Duke Capital have formed trust subsidiaries for which they own all the common securities. The trust subsidiaries issue and sell preferred securities and invest the gross proceeds in junior subordinated notes issued by the respective parent companies. The trust subsidiaries are wholly owned financing subsidiaries of Duke Energy and Duke Capital, and the respective parent company that issued the debt held by each trust subsidiary has fully and unconditionally guaranteed payment of the preferred securities to preferred note holders. Payment under the guarantee is made only to the extent that the trust subsidiary has legally and immediately available funds for distribution.
Upon the implementation of SFAS No. 150, effective July 1, 2003, as discussed in Note 1, the Guaranteed Preferred Beneficial Interests in Subordinated Notes of Duke Energy Corporation or Subsidiaries were reclassified to Long-term Debt and the related unamortized debt discount was reclassified to Deferred Debt Expense on the Consolidated Balance Sheets. The trust preferred securities are mandatorily redeemable financial instruments under the provisions of SFAS No. 150, since the trust preferred securities are redeemable in cash, at par value, on or prior to a specified maturity date, ranging from 2029 to 2039. In addition, Duke Energy has the option to redeem these financial instruments before their maturity date any time after five years from the date of issuance, or upon the occurrence of certain contingent events. Also, effective July 1, 2003, in accordance with the provisions of SFAS No. 150, the amortization of related debt issue costs and interest payments associated with the trust preferred securities have been classified on the Consolidated Statements of Operations as Interest Expense rather than Minority Interest Expense. In accordance with the requirements of SFAS No. 150, prior period amounts were not reclassified.
In June 2003, prior to the implementation of SFAS No. 150, Duke Capital redeemed $250 million of its 7.375% trust preferred securities due in 2038. An approximate loss of $8 million on the early extinguishment of the trust preferred securities was recorded as Dividends and Premiums on Redemption of Preferred and Preference Stock in the Consolidated Statements of Operations. In December 2003, subsequent to the implementation of SFAS No. 150, Duke Capital redeemed $350 million of its 7.375% trust preferred securities due in 2038. An approximate loss of $10 million on the early extinguishment of the trust preferred securities was recorded as Interest Expense in the Consolidated Statements of Operations.
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. Consistent with SFAS No. 150, beginning January 1, 2004, the amortization of related debt issue costs and interest payments associated with the trust preferred securities will be classified on the Consolidated Statements of Operations as Interest Expense rather than Minority Interest Expense. As permitted by FIN 46R, prior period amounts have not been reclassified.
The following table details the Guaranteed Preferred Beneficial Interests in Subordinated Notes of Duke Energy Corporation or Subsidiaries as of the December 31, 2002 Consolidated Balance Sheet. See Note 14 for details on the December 31, 2003 outstanding balance of the debt to affiliates related to the trust preferred securities.
Trust Preferred Securities
| Issued | Rate | Due | December 31, 2002 | |||||
|---|---|---|---|---|---|---|---|---|
| (in millions) | ||||||||
| 1997 | 7.20 | % | 2037 | $ | 350 |
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| 1998 | 7.375 | % | 2038 | 350 |
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| 1998 | 7.375 | % | 2038 | 250 |
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| 1999 | 8.375 | % | 2029 | 250 |
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| 1999 | 7.20 | % | 2039 | 250 |
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| Unamortized debt discount | (42) |
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| Total | $ | 1,408 |
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Included in Minority Interest Expense on the Consolidated Statements of Operations are dividends related to the trust preferred securities of $55 million for 2003, and $108 million for 2002 and 2001.