RESULTS OF OPERATIONS Operating revenues increased $5.9 billion, or 27 percent, to $27.9 billion in 2001. The advance in revenue was driven by the Europe segment with an increase of $5.7 billion, which reflected strong growth in wholesale energy sales and the effect of businesses acquired in 2001 and 2000. Revenues also increased in US Electric, US Gas, and US Energy, partially offset by a decline in Australia due to the translation effect of a stronger US dollar. Gross margin (operating revenue less energy purchased for resale and fuel consumed) increased $576 million, or 8 percent, to $8.1 billion in 2001. The gross margin increase was driven primarily by an increase in wholesale trading and risk-management activity in the US Energy segment; lower regulatory earnings cap adjustments that benefited revenues in US Electric; and the impact of acquisitions in Europe. Gross margin declined in US Gas primarily due to the prior-year sale of the gas processing business and in Australia in US dollar terms due largely to the stronger US dollar. Gross margin in 2001 was favorably impacted by a $377 million net effect of mark-to-market valuations of wholesale trading positions and new commercial and industrial retail contracts. We expect approximately 61 percent of our net unrealized mark-to-market valuations to mature within one year and approximately 86 percent within three years. The amounts realized may change as a result of market fluctuations. Operation and maintenance expenses increased $636 million, or 20 percent, to $3.8 billion in 2001. The increase included unusual items of a net $206 million loss on disposals and transfers of four generating plants in the UK and charges of $31 million in the Europe segment related to the Enron bankruptcy. Operation and maintenance expenses in Europe rose, primarily representing the effect of acquisitions and costs to support growth in trading operations and competitive activities in UK retail operations. The US Energy segment’s expenses grew due largely to expansion of trading and retail energy services operations in anticipation of the introduction of competition in the Texas electricity market. In the US Electric segment, costs increased due primarily to higher generation maintenance, bad debts driven primarily by higher revenues, and transmission costs. The US Gas segment’s increase reflected higher bad-debt expenses driven primarily by higher revenues and higher maintenance costs, partially offset by the absence of costs related to the gas processing business sold in 2000. All other operating expenses increased $132 million, or 7 percent, to $2 billion in 2001. This increase was driven by higher gross receipts taxes in the US Electric and US Gas segments due to higher revenues on which such taxes are based. Other income (deductions) — net decreased from income of $238 million in 2000 to a deduction of $117 million in 2001. The 2001 period included a $125 million loss ($88 million after-tax), after transaction costs, on the sale of the UK electricity distribution business. The 2000 period included gains from sales of investments and assets as described in the segment results below. The change also reflected a $35 million ($23 million after-tax) increased equity loss in the Pinnacle One Partners, L.P. (Pinnacle), telecommunications joint venture, reflecting a full year of results in 2001 compared to a partial year in 2000. In 2001, there was an income tax benefit of $24 million compared to income tax expense of $337 million in 2000. The change resulted largely from the tax effects of the UK generation plant transactions that reflected retained UK tax benefits, reductions of related deferred tax liabilities, and benefits from foreign tax credits for US tax purposes. Excluding the effects of the UK plant transactions, the effective tax rate was 31 percent in 2001 compared to 27 percent in 2000. The increase was primarily due to higher state income taxes. Income before extraordinary items decreased $85 million, or 9 percent, to $831 million in 2001 as a result of the unusual items and operations results described above. In connection with the restructuring of our US operations, we recorded $154 million of extraordinary charges (net of income tax benefits) in the fourth quarter of 2001 as a result of debt refinancing costs necessary to transition our business to deregulation and the effects of the pending regulatory settlement. Net income available for common stock in 2001 decreased $249 million, or 28 percent, to $655 million. Earnings per share were $2.52 in 2001 compared to $3.43 in 2000. A 2 percent decline in average shares outstanding had a favorable impact of $0.06 on the comparison of earnings per share.