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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 March 31, 2004

 

Commission File Number 1-4928

 

DUKE ENERGY CORPORATION

(Exact name of Registrant as Specified in its Charter)

 

North Carolina   56-0205520
(State or Other Jurisdiction of Incorporation)   (IRS Employer Identification No.)

 

526 South Church Street

Charlotte, NC 28202-1803

(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 and (2) has been subject to such filing requirements for the past 90 days.

Yes x No¨

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes x No ¨

 

Indicate the number of shares outstanding of each of the Issuer’s classes of common stock, as of the latest practicable date.

 

Number of shares of Common Stock, without par value, outstanding at April 30, 2004............914,883,510

 

DUKE ENERGY CORPORATION

FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2004

INDEX

 

Item

    Page
PART I. FINANCIAL INFORMATION     

1.

   

Financial Statements

    1
    

Consolidated Statements of Operations for the Three Months Ended March 31, 2004 and 2003

    1
    

Consolidated Balance Sheets as of March 31, 2004 and December 31, 2003

    2
    

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2004 and 2003

    4
    

Notes to Consolidated Financial Statements

    5

2.

   

Management’s Discussion and Analysis of Results of Operations and Financial Condition

    30

3.

   

Quantitative and Qualitative Disclosures About Market Risk

    45

4.

   

Controls and Procedures

    46
PART II. OTHER INFORMATION     

1.

   

Legal Proceedings

    47

6.

   

Exhibits and Reports on Form 8-K

    47
    

Signatures

    49

 

 

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

 

Duke Energy 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 Duke Energy’s intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside Duke Energy’s 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 investigations, proceedings or inquiries

 

  • Industrial, commercial and residential growth in Duke Energy’s service territories

 

  • The weather and other natural phenomena

 

  • The timing and extent of changes in commodity prices, interest rates and foreign currency exchange rates

 

  • General economic conditions, including any potential effects arising from terrorist attacks and any consequential hostilities or other hostilities

 

i

  • Changes in environmental and other laws and regulations to which Duke Energy and its subsidiaries are subject or other external factors over which Duke Energy has no control

 

  • The results of financing efforts, including Duke Energy’s ability to obtain financing on favorable terms, which can be affected by various factors, including Duke Energy’s credit ratings and general economic conditions

 

  • Lack of improvement or further declines in the market prices of equity securities and resultant cash funding requirements for Duke Energy’s defined benefit pension plans

 

  • The level of creditworthiness of counterparties to Duke Energy’s transactions

 

  • The amount of collateral required to be posted from time to time in Duke Energy’s transactions

 

  • Growth in opportunities for Duke Energy’s business units, including the timing and success of efforts to develop domestic and international power, pipeline, gathering, processing and other infrastructure projects

 

  • Competition and regulatory limitations affecting the success of Duke Energy’s divestiture plans, including the prices at which Duke Energy is able to sell its assets

 

  • 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

 

  • The effect of accounting pronouncements issued periodically by accounting standard-setting bodies and

 

  • Conditions of the capital markets and equity markets during the periods covered by the forward-looking statements

 

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 Duke Energy has described. Duke Energy undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

ii

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

DUKE ENERGY CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In millions, except per-share amounts)

 

     Three Months Ended
March 31,
  
     2004
     2003
  

Operating Revenues

                 

Non-regulated electric, natural gas, natural gas liquids, and other

    $ 3,612     $ 4,014  

Regulated electric

      1,251       1,279  

Regulated natural gas

      982       879  
    
 

Total operating revenues

      5,845       6,172  
    
 

Operating Expenses

                 

Natural gas and petroleum products purchased

      3,032       3,492  

Operation, maintenance and other

      888       674  

Fuel used in electric generation and purchased power

      564       548  

Depreciation and amortization

      436       431  

Property and other taxes

      154       140  
    
 

Total operating expenses

      5,074       5,285  
    
 

(Losses) Gains on Sales of Other Assets, net

      (338 )     2  
    
 

Operating Income

      433       889  
    
 

Other Income and Expenses

                 

Equity in earnings of unconsolidated affiliates

      34       34  

Gains on sales of equity investments

      —         14  

Other income and expenses, net

      25       26  
    
 

Total other income and expenses

      59       74  

Interest Expense

      356       326  

Minority Interest Expense

      38       50  
    
 

Earnings From Continuing Operations Before Income Taxes

      98       587  

Income Tax Expense from Continuing Operations

      33       195  
    
 

Income From Continuing Operations

      65       392  

Discontinued Operations

                 

Net operating income, net of tax

      7       3  

Net gain (loss) on dispositions, net of tax

      239       (8 )
    
 

Income (Loss) From Discontinued Operations

      246       (5 )

Income Before Cumulative Effect of Change in Accounting Principle

      311       387  

Cumulative Effect of Change in Accounting Principle, net of tax and minority interest

      —         (162 )
    
 

Net Income

      311       225  

Dividends and Premiums on Redemption of Preferred and Preference Stock

      2       3  
    
 

Earnings Available For Common Stockholders

    $ 309     $ 222  
    
 

Common Stock Data

                 

Weighted-average shares outstanding

                 

Basic

      912       897  

Diluted

      915       897  

Earnings per share (from continuing operations)

                 

Basic

    $ 0.07     $ 0.43  

Diluted

    $ 0.07     $ 0.43  

Earnings per share (from discontinued operations)

                 

Basic

    $ 0.27     $ —    

Diluted

    $ 0.27     $ —    

Earnings per share (before cumulative effect of change in accounting principle)

                 

Basic

    $ 0.34     $ 0.43  

Diluted

    $ 0.34     $ 0.43  

Earnings per share

                 

Basic

    $ 0.34     $ 0.25  

Diluted

    $ 0.34     $ 0.25  

Dividends per share

    $ 0.275     $ 0.275  

 

See Notes to Consolidated Financial Statements

 

1

DUKE ENERGY CORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In millions)

 

     March 31,
2004
    December 31,
2003

ASSETS

              

Current Assets

              

Cash and cash equivalents

    $ 1,500    $ 1,160

Receivables, net

      2,689      2,888

Inventory

      878      1,156

Assets held for sale

      297      424

Unrealized gains on mark-to-market and hedging transactions

      1,320      1,566

Other

      1,056      694
    
  

Total current assets

      7,740      7,888
    
  

Investments and Other Assets

              

Investments in unconsolidated affiliates

      1,365      1,398

Nuclear decommissioning trust funds

      960      925

Goodwill

      3,932      3,962

Notes receivable

      232      260

Unrealized gains on mark-to-market and hedging transactions

      1,635      1,857

Assets held for sale

      2,089      1,444

Other

      887      1,117
    
  

Total investments and other assets

      11,100      10,963
    
  

Property, Plant and Equipment

              

Cost

      46,719      47,157

Less accumulated depreciation and amortization

      12,641      12,171
    
  

Net property, plant and equipment

      34,078      34,986
    
  

Regulatory Assets and Deferred Debits

              

Deferred debt expense

      326      275

Regulatory assets related to income taxes

      1,194      1,152

Other

      913      939
    
  

Total regulatory assets and deferred debits

      2,433      2,366
    
  

Total Assets

    $ 55,351    $ 56,203
    
  

 

See Notes to Consolidated Financial Statements

 

2

DUKE ENERGY CORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In millions)

     March 31,
2004
    December 31,
2003

LIABILITIES AND COMMON STOCKHOLDERS’ EQUITY

              

Current Liabilities

              

Accounts payable

    $ 2,000    $ 2,317

Notes payable and commercial paper

      275      130

Taxes accrued

      291      14

Interest accrued

      305      304

Liabilities associated with assets held for sale

      883      651

Current maturities of long-term debt

      1,489      1,200

Unrealized losses on mark-to-market and hedging transactions

      993      1,283

Other

      1,397      1,799
    
  

Total current liabilities

      7,633      7,698
    
  

Long-term Debt, including debt to affiliates of $516 at March 31, 2004 and $876 at December 31, 2003

      20,034      20,622
    
  

Deferred Credits and Other Liabilities

              

Deferred income taxes

      4,280      4,120

Investment tax credit

      162      165

Unrealized losses on mark-to-market and hedging transactions

      1,556      1,754

Liabilities associated with assets held for sale

      305      737

Other

      5,546      5,524
    
  

Total deferred credits and other liabilities

      11,849      12,300
    
  

Commitments and Contingencies

              

Minority Interests

      1,723      1,701
    
  

Preferred and preference stock without sinking fund requirements

      134      134
    
  

Common Stockholders’ Equity

              

Common stock, no par, 2 billion shares authorized; 914 million and 911 million shares outstanding at March 31, 2004 and December 31, 2003, respectively

      9,598      9,519

Retained earnings

      4,121      4,060

Accumulated other comprehensive income

      259      169
    
  

Total common stockholders’ equity

      13,978      13,748
    
  

Total Liabilities and Common Stockholders’ Equity

    $ 55,351    $ 56,203
    
  

 

See Notes to Consolidated Financial Statements

 

3

DUKE ENERGY CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In millions)

 

     Three Months Ended
March 31,
  
     2004
     2003
  

CASH FLOWS FROM OPERATING ACTIVITIES

                 

Net income

    $ 311     $ 225  

Adjustments to reconcile net income to net cash provided by operating activities

                 

Depreciation and amortization (including amortization of nuclear fuel)

      476       484  

Cumulative effect of change in accounting principle

      —         162  

Net losses (gains) on sales of equity investments and other assets