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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
For Quarter Ended September 30, 2002
  
Commission File Number 0-23977
 
 
DUKE CAPITAL CORPORATION
(Exact name of Registrant as Specified in its Charter)
 
 
Delaware
  
51-0282142
(State or Other Jurisdiction of Incorporation)
  
(IRS Employer Identification No.)
 
526 South Church Street
Charlotte, NC 28202-1904
(Address of Principal Executive Offices)
(Zip code)
 
704-594-6200
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨            
 
All of the Registrant’s common shares are directly owned by Duke Energy Corporation (File No. 1-4928), which files reports and proxy materials pursuant to the Securities Exchange Act of 1934.
 
Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date.
 
Number of shares of Common Stock, no par value, outstanding at October 31, 2002
   
1,010
 

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DUKE CAPITAL CORPORATION
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2002
INDEX
 
Item
       
Page
   
PART I. FINANCIAL INFORMATION
     
1.
     
1
      
1
      
2
      
4
      
5
      
6
2.
     
21
3.
     
37
4.
     
44
   
PART II. OTHER INFORMATION
     
1.
     
45
6.
     
45
      
46
 
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
 
Duke Capital Corporation’s reports, filings and other public announcements may contain or incorporate by reference statements that do not directly or exclusively relate to historical facts. Such statements are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. You can typically identify forward-looking statements by the use of forward-looking words, such as “may,” “will,” “could,” “project,” “believe,” “anticipate,” “expect,” “estimate,” “continue,” “potential,” “plan,” “forecast” and other similar words. Those statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. Those factors include:
 
 
•
 
state, federal and foreign legislative and regulatory initiatives that affect cost and investment recovery, have an impact on rate structures, and affect the speed at and degree to which competition enters the electric and natural gas industries;
 
 
•
 
the outcomes of litigation and regulatory proceedings or inquiries;
 
 
•
 
industrial, commercial and residential growth in our service territories;
 
 
•
 
the weather and other natural phenomena;
 
 
•
 
the timing and extent of changes in commodity prices, interest rates and foreign currency exchange rates;

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•
 
changes in environmental and other laws and regulations to which we and our subsidiaries are subject or other external factors over which we have no control;
 
 
•
 
the results of financing efforts, including our ability to obtain financing on favorable terms, which can be affected by various factors, including our credit ratings and general economic conditions;
 
 
•
 
the level of creditworthiness of counterparties to our transactions;
 
 
•
 
the amount of collateral required to be posted from time to time in our transactions;
 
 
•
 
growth in opportunities for our business units, including the timing and success of efforts to develop domestic and international power, pipeline, gathering, processing and other infrastructure projects;
 
 
•
 
the performance of electric generation, pipeline and gas processing facilities;
 
 
•
 
the extent of success in connecting natural gas supplies to gathering and processing systems and in connecting and expanding gas and electric markets; and
 
 
•
 
the effect of accounting pronouncements issued periodically by accounting standard-setting bodies.
 
In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described.
 

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PART I. FINANCIAL INFORMATION
 
Item 1.    Financial Statements.
 
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In millions)
 
    
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
  
    
2002
     
2001
   
2002
     
2001
  
Operating Revenues
                                  
Sales of natural gas and petroleum products
   
$
1,145
 
   
$
996
   
$
3,567
 
   
$
6,213
 
Transportation and storage of natural gas
   
 
429
 
   
 
253
   
 
1,202
 
   
 
731
 
Electric generation
   
 
841
 
   
 
735
   
 
1,805
 
   
 
2,077
 
Trading and marketing net margin (loss)
   
 
(118
)
   
 
774
   
 
(51
)
   
 
1,002
 
Other
   
 
278
 
   
 
612
   
 
832
 
   
 
1,260
 
    
  
  
  
Total operating revenues
   
 
2,575
 
   
 
3,370
   
 
7,355
 
   
 
11,283
 
    
  
  
  
Operating Expenses
                                  
Natural gas and petroleum products purchased
   
 
896
 
   
 
1,060
   
 
2,797
 
   
 
5,488
 
Purchased power
   
 
467
 
   
 
187
   
 
742
 
   
 
601
 
Operation and maintenance
   
 
727
 
   
 
842
   
 
1,820
 
   
 
1,983
 
Depreciation and amortization
   
 
267
 
   
 
216
   
 
693
 
   
 
545
 
Property and other taxes
   
 
66
 
   
 
41
   
 
190
 
   
 
125
 
    
  
  
  
Total operating expenses
   
 
2,423
 
   
 
2,346
   
 
6,242
 
   
 
8,742
 
    
  
  
  
Operating Income
   
 
152
 
   
 
1,024
   
 
1,113
 
   
 
2,541
 
Other Income and Expenses
   
 
33
 
   
 
17
   
 
102
 
   
 
55
 
Interest Expense
   
 
258
 
   
 
140
   
 
596
 
   
 
425
 
Minority Interest Expense
   
 
3
 
   
 
51
   
 
76
 
   
 
234
 
    
  
  
  
(Loss) Earnings Before Income Taxes
   
 
(76
)
   
 
850
   
 
543
 
   
 
1,937
 
Income Tax (Benefit) Expense
   
 
(43
)
   
 
320
   
 
163
 
   
 
705
 
    
  
  
  
(Loss) Income Before Cumulative Effect of Change in Accounting Principle
   
 
(33
)
   
 
530
   
 
380
 
   
 
1,232
 
Cumulative Effect of Change in Accounting Principle, net of tax
   
 
—  
 
   
 
—  
   
 
—  
 
   
 
(69
)
    
  
  
  
Net (Loss) Income
   
$
(33
)
   
$
530
   
$
380
 
   
$
1,163
 
    
  
  
  
 
See Notes to Consolidated Financial Statements.

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CONSOLIDATED BALANCE SHEETS
(In millions)
 
    
September 30, 2002
(unaudited)
   
December 31,
2001
ASSETS
              
Current Assets
              
Cash and cash equivalents
   
$
368
   
$
263
Receivables
   
 
5,237
   
 
5,098
Inventory
   
 
683
   
 
503
Unrealized gains on mark-to-market and hedging transactions
   
 
3,057
   
 
2,275
Other
   
 
534
   
 
411
    
  
Total current assets
   
 
9,879
   
 
8,550
    
  
Investments and Other Assets
              
Investments in affiliates
   
 
2,204
   
 
1,480
Goodwill, net of accumulated amortization
   
 
3,941
   
 
1,729
Notes receivable
   
 
609
   
 
576
Unrealized gains on mark-to-market and hedging transactions
   
 
4,032
   
 
2,824
Other
   
 
1,904
   
 
1,919
    
  
Total investments and other assets
   
 
12,690
   
 
8,528
    
  
Property, Plant and Equipment
              
Cost
   
 
29,395
   
 
21,147
Less accumulated depreciation and amortization
   
 
3,820
   
 
3,120
    
  
Net property, plant and equipment
   
 
25,575
   
 
18,027
    
  
Regulatory Assets and Deferred Debits
   
 
878
   
 
185
    
  
Total Assets
   
$
49,022
   
$
35,290
    
  
 
See Notes to Consolidated Financial Statements.

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CONSOLIDATED BALANCED SHEETS
(In millions, except share amounts)
 
    
September 30,
2002
(unaudited)
     
December 31,
2001
LIABILITIES AND STOCKHOLDER'S EQUITY
                
Current Liabilities
                
Accounts payable
   
$
4,454
 
   
$
4,111
Notes payable and commercial paper
   
 
1,936
 
   
 
1,466
Taxes accrued
   
 
421
 
   
 
114
Interest accrued
   
 
251
 
   
 
191
Current maturities of long-term debt
   
 
909
 
   
 
254
Unrealized losses on mark-to-market and hedging transactions
   
 
2,562
 
   
 
1,523
Other
   
 
1,408
 
   
 
1,789
    
  
Total current liabilities
   
 
11,941
 
   
 
9,448
    
  
Long-term Debt
   
 
15,295
 
   
 
9,124
    
  
Deferred Credits and Other Liabilities
                
Deferred income taxes
   
 
2,544
 
   
 
2,215
Unrealized losses on mark-to-market and hedging transactions
   
 
3,370
 
   
 
1,957
Other
   
 
1,968
 
   
 
589
    
  
Total deferred credits and other liabilities
   
 
7,882
 
   
 
4,761
    
  
Commitments and Contingencies
                
Guaranteed Preferred Beneficial Interests in Subordinated
Notes of Duke Capital Corporation
   
 
825
 
   
 
824
    
  
Minority Interests in Financing Subsidiary
   
 
—  
 
   
 
1,025
    
  
Minority Interests
   
 
1,905
 
   
 
1,221
    
  
Common Stockholder's Equity
                
Common stock, no par, 3,000 shares authorized,
1,010 shares outstanding
   
 
—  
 
   
 
—  
Paid-in capital
   
 
6,578
 
   
 
4,184
Retained Earnings
   
 
4,864
 
   
 
4,521
Accumulated other comprehensive (loss) income
   
 
(268
)
   
 
182
    
  
Total common stockholder's equity
   
 
11,174
 
   
 
8,887