DUKE CAPITAL LLC - 10-Q Quarterly Report

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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 0-23977

DUKE CAPITAL LLC

(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 28202-1803

(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 ¨ No x

All of the Registrant’s limited liability company member interests 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, as amended.

DUKE CAPITAL LLC

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	28
3.	Quantitative and Qualitative Disclosures about Market Risk	41
4.	Controls and Procedures	42

PART II. OTHER INFORMATION

1.	Legal Proceedings	43
6.	Exhibits and Reports on Form 8-K	43
	Signatures	44

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

Duke Capital LLC’s (Duke Capital) 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 Capital’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 Capital’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 Capital’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

•

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

•

The results of financing efforts, including Duke Capital’s ability to obtain financing on favorable terms, which can be affected by various factors, including Duke Capital’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 Capital’s defined benefit pension plans

•

The level of creditworthiness of counterparties to Duke Capital’s transactions

•

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

•

Growth in opportunities for Duke Capital’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 Capital’s divestiture plans including the prices at which Duke Capital 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 Capital has described. Duke Capital undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Item 1.

Financial Statements.

DUKE CAPITAL LLC

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In millions)


	Three Months Ended March 31,
	2004			2003
Operating Revenues
Non-regulated electric, natural gas, natural gas liquids, and other	$	3,305		$	3,597
Regulated natural gas		982			879

Total operating revenues		4,287			4,476

Operating Expenses
Natural gas and petroleum products purchased		2,730			2,999
Operation, maintenance and other		573			374
Depreciation and amortization		256			251
Fuel used in electric generation and purchased power		242			246
Property and other taxes		82			67

Total operating expenses		3,883			3,937

(Losses) Gains on Sales of Other Assets, net		(352	)		1

Operating Income		52			540

Other Income and Expenses
Equity in earnings of unconsolidated affiliates		34			34
Gains on sales of equity investments		—			14
Other income and expenses, net		11			22

Total other income and expenses		45			70
Interest Expense		273			265
Minority Interest Expense		38			39

(Loss) Earnings From Continuing Operations Before Income Taxes		(214	)		306
Income Tax (Benefit) Expense		(63	)		100

(Loss) Income From Continuing Operations		(151	)		206
Discontinued Operations
Net operating income, net of tax		8			2
Net gain on dispositions, net of tax		239			—

Income From Discontinued Operations		247			2
Income Before Cumulative Effect of Change in Accounting Principle		96			208
Cumulative Effect of Change in Accounting Principle, net of tax and minority interest		—			(133	)

Net Income	$	96		$	75

See Notes to Consolidated Financial Statements.

DUKE CAPITAL LLC

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In millions)


	March 31, 2004		December 31, 2003
ASSETS
Current Assets
Cash and cash equivalents	$	1,471	$	986
Receivables, net		2,377		2,482
Inventory		462		698
Assets held for sale		297		424
Unrealized gains on mark-to-market and hedging transactions		1,231		1,472
Other		840		467

Total current assets		6,678		6,529

Investments and Other Assets
Investments in unconsolidated affiliates		1,357		1,380
Goodwill		3,932		3,962
Notes receivable		232		260
Unrealized gains on mark-to-market and hedging transactions		1,596		1,815
Assets held for sale		2,089		1,444
Other		1,007		1,336

Total investments and other assets		10,213		10,197

Property, Plant and Equipment
Cost		26,196		26,808
Less accumulated depreciation and amortization		4,764		4,489

Net property, plant and equipment		21,432		22,319

Regulatory Assets and Deferred Debits		1,104		1,060

Total Assets	$	39,427	$	40,105

See Notes to Consolidated Financial Statements.

DUKE CAPITAL LLC

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In millions)


	March 31, 2004		December 31, 2003
LIABILITIES AND MEMBER’S/STOCKHOLDER’S EQUITY
Current Liabilities
Accounts payable	$	1,837	$	2,018
Notes payable and commercial paper		54		52
Taxes accrued		219		—
Interest accrued		221		229
Liabilities associated with assets held for sale		883		651
Current maturities of long-term debt		1,230		1,192
Unrealized losses on mark-to-market and hedging transactions		901		1,185
Other		1,127		1,425

Total current liabilities		6,472		6,752

Long-term Debt, including debt to an affiliate of $258 at March 31, 2004 and December 31, 2003		13,627		13,652

Deferred Credits and Other Liabilities
Deferred income taxes		2,451		2,360
Unrealized losses on mark-to-market and hedging transactions		1,497		1,698
Liabilities associated with assets held for sale		305		737
Other		1,126		1,157

Total deferred credits and other liabilities		5,379		5,952

Commitments and Contingencies
Minority Interests		1,723		1,701

Member’s/Common Stockholder’s Equity
Common stock, no par, 3,000 shares authorized, 1,010 shares outstanding		—		—
Paid-in capital		—		8,564
Retained earnings		—		2,884
Member’s equity		11,540		—
Accumulated other comprehensive income		686		600

Total member’s/common stockholder’s equity		12,226		12,048

Total Liabilities and Member’s/Stockholder’s Equity	$	39,427	$	40,105

See Notes to Consolidated Financial Statements.

DUKE CAPITAL LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In millions)


	Three Months Ended March 31,
	2004			2003
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	96		$	75
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		259			267
Cumulative effect of change in accounting principle		—			133
Losses (gains) on sales of equity investments and other assets		94			(15	)
Deferred income taxes		(64	)		14
(Increase) decrease in
Net realized and unrealized mark-to-market and hedging transactions		220			(105	)
Receivables		211			(956	)
Inventory		230			167
Other current assets		(323	)		(196	)
Increase (decrease) in
Accounts payable		(264	)		1,161
Taxes accrued		218			231
Other current liabilities		(218	)		101
Other, assets		271			101
Other, liabilities		50			131

Net cash provided by operating activities		780			1,109

CASH FLOWS FROM INVESTING ACTIVITIES
Capital and investment expenditures, net of refund		(345	)		(537	)
Net proceeds from the sale of equity investments and other assets, and sales of and collections on notes receivable		138			306
Other		10			36

Net cash used in investing activities		(197	)		(195	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt		72			117
Payments for the redemption of long-term debt		(67	)		(582	)
Notes payable and commercial paper		(14	)		(141	)
Distributions to minority interests		(418	)		(837	)

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