Sparked primarily by customer conversion to natural gas and a colder than normal fourth quarter, KeySpan Corp. announced record 2002 consolidated earnings from continuing operations, less preferred stock dividends, of $391.6 million, or $2.77 per share, compared to earnings of $338.8 million, or $2.45 per share, for the same period in the prior year.

KeySpan’s fourth quarter consolidated earnings from continuing operations, less preferred stock dividends, also recorded a jump. Earnings were $147.1 million, or $1.03 per share, compared to $94.9 million, or $0.68 per share, for the same period in the prior year — excluding 2001 special items.

In addition to the strong contribution from its gas distribution business, KeySpan said results were further enhanced by the continued solid performance in the electric business, profitability in energy services and the recent increase in gas commodity prices realized by the company’s gas exploration and production operations. In addition, results continue to benefit from lower interest costs, and the elimination of the amortization of goodwill expense.

“These solid results reflect our ability to effectively execute our focused strategy and grow our core businesses,” said Robert B. Catell, CEO. “Our aggressive marketing campaigns should add $64 million in new gross profit margin to our gas business, which represents another year of record growth. The electric business benefited from the new peaking units that we added earlier in the year and the more than 97% availability of our New York and Long Island generation plants during the summer peak period. In addition, our energy services business achieved profitability in the quarter.”

Earnings Before Interest and Taxes (EBIT) for KeySpan’s Gas Distribution segment jumped from $173.7 million for 4Q 2001 to $204.3 million in 4Q 2002, while full year contributions rose from $492.4 million in 2001 to $524.3 million for 2002.

The company noted that the Gas Distribution segment serving New York City, Long Island and New England recorded quarterly performance that benefited from colder weather, which was approximately 8% colder than normal in New York and New England. Despite the extraordinarily warm weather experienced earlier in the year, KeySpan said the gas distribution segment for 2002 achieved higher EBIT due to record gas customer growth as the company completed more than 57,000 gas installations.

The Exploration and Production unit jumped from a loss of $16 million for last year’s 4Q to a positive $35 million for 4Q 2002, however, full year EBIT fell to $95.5 million from $120 million for 2001. The company’s gas exploration and production operations come primarily from its 66% ownership of The Houston Exploration Co., as well as pipeline and other investments.

The Electric Services segment posted 4Q 2002 EBIT of $66 million, an increase over the $54 million turned in from the segment for the same quarter of 2001. Full year contributions rose from $283.5 million in 2001 to $309.7 million for 2002. KeySpan said the main drivers of this performance were the two new Long Island electric generating peaking units, strong energy sales due to the hotter than normal summer weather and a solid contribution from the Long Island Power Authority contracts.

Looking ahead to full-year 2003, KeySpan said its earnings guidance remains at $2.45 to $2.60 per share, including the effect of the recently announced sale of common stock. The guidance breakdown includes earnings from continuing core operations of approximately $2.15 to $2.20 per share and earnings from E&P operations of approximately $0.30 to $0.40 per share. In addition, KeySpan said it is once again reaffirming its commitment to maintaining the dividend at the current annual rate of $1.78 per share.

“Our long term strategic focus remains on growing our core businesses and monetizing our non-core assets as market conditions permit,” said Catell. “In 2002, we took a number of steps to strengthen our financial position — which supports our growth strategy — and our recent equity sale continues our efforts. Our core gas and electric businesses continue to grow through customer conversions to natural gas and new electric generation additions. We expect our energy services business to continue to be profitable in 2003. With the effective execution of our strategy, we expect to continue to enhance shareholder value.”

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