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 September 30, 2004

Commission File Number 0-23977

DUKE CAPITAL LLC

(Exact name of Registrant as Specified in its Charter)

Delaware

20-1107586

(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 SEPTEMBER 30, 2004

INDEX


Item		Page
PART I. FINANCIAL INFORMATION

1.	Financial Statements	1
	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2004 and 2003, as revised	1
	Consolidated Balance Sheets as of September 30, 2004 and December 31, 2003	2
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2004 and 2003, as revised	4
	Notes to Consolidated Financial Statements	5
2.	Management’s Discussion and Analysis of Results of Operations and Financial Condition	38
3.	Quantitative and Qualitative Disclosures about Market Risk	58
4.	Controls and Procedures	59

PART II. OTHER INFORMATION

1.	Legal Proceedings	60
6.	Exhibits	61
	Signatures	62

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 the areas served by Duke Capital

•

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

•

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, liquified natural gas, 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

•

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 September 30,						Nine Months Ended September 30,
	2004			2003			2004			2003
				(as Revised - see Note 1)						(as Revised - see Note 1)
Operating Revenues
Non-regulated electric, natural gas, natural gas liquids and other	$	3,259		$	3,366		$	9,577		$	10,116
Regulated natural gas		585			590			2,202			2,105

Total operating revenues		3,844			3,956			11,779			12,221

Operating Expenses
Natural gas and petroleum products purchased		2,360			2,458			7,361			7,839
Operation, maintenance and other		456			585			1,416			1,487
Depreciation and amortization		250			264			747			773
Fuel used in electric generation and purchased power		229			368			731			721
Property and other taxes		62			49			193			184
Impairment and other related charges		22			—			25			—
Impairment of goodwill		—			254			—			254

Total operating expenses		3,379			3,978			10,473			11,258

Gains on Sales of Investments in Commercial and Multi-Family Real Estate		28			36			149			47
Losses on Sales of Other Assets, net		(2	)		(80	)		(367	)		(78	)

Operating Income (Loss)		491			(66	)		1,088			932

Other Income and Expenses
Equity in earnings of unconsolidated affiliates		35			35			111			86
(Losses) gains on sales and impairments of equity investments		(14	)		33			(14	)		266
Other income and expenses, net		39			26			101			73

Total other income and expenses		60			94			198			425

Interest Expense		273			277			808			797
Minority Interest Expense (Benefit)		61			(11	)		142			68

Earnings (Loss) From Continuing Operations Before Income Taxes		217			(238	)		336			492
Income Tax Expense (Benefit)		1,215			(111	)		1,233			137

(Loss) Income From Continuing Operations		(998	)		(127	)		(897	)		355
Discontinued Operations
Net operating (loss) income, net of tax		(11	)		(13	)		(8	)		4
Net (loss) gain on dispositions, net of tax		(1	)		36			268			47

(Loss) Income From Discontinued Operations		(12	)		23			260			51

(Loss) Income Before Cumulative Effect of Change in Accounting Principle		(1,010	)		(104	)		(637	)		406
Cumulative Effect of Change in Accounting Principle, net of tax and minority interest		—			—			—			(133	)

Net (Loss) Income	$	(1,010	)	$	(104	)	$	(637	)	$	273

See Notes to Consolidated Financial Statements.

DUKE CAPITAL LLC

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In millions)


	September 30, 2004		December 31, 2003
ASSETS
Current Assets
Cash and cash equivalents	$	2,802	$	986
Receivables (net of allowance for doubtful accounts of $209 at September 30, 2004 and $236 at December 31, 2003)		2,195		2,484
Inventory		499		483
Assets held for sale		125		424
Unrealized gains on mark-to-market and hedging transactions		1,135		1,472
Other		483		467

Total current assets		7,239		6,316

Investments and Other Assets
Investments in unconsolidated affiliates		1,294		1,380
Goodwill		4,002		3,962
Notes receivable		225		260
Unrealized gains on mark-to-market and hedging transactions		1,646		1,815
Assets held for sale		236		1,444
Investments in residential, commercial and multi-family real estate (net of accumulated depreciation of $24 at September 30, 2004 and $32 at December 31, 2003)		1,280		1,331
Other		901		1,336

Total investments and other assets		9,584		11,528

Property, Plant and Equipment
Cost		25,279		25,660
Less accumulated depreciation and amortization		5,206		4,457

Net property, plant and equipment		20,073		21,203

Regulatory Assets and Deferred Debits		1,114		1,060

Total Assets	$	38,010	$	40,107

See Notes to Consolidated Financial Statements.

DUKE CAPITAL LLC

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In millions)


	September 30, 2004		December 31, 2003
LIABILITIES AND MEMBER’S/STOCKHOLDER’S EQUITY
Current Liabilities
Accounts payable	$	1,475	$	2,018
Notes payable and commercial paper		41		52
Taxes accrued		620		—
Interest accrued		222		229
Liabilities associated with assets held for sale		41		651
Current maturities of long-term debt		3,068		1,192
Unrealized losses on mark-to-market and hedging transactions		964		1,185
Other		1,375		1,425

Total current liabilities		7,806		6,752

Long-term Debt, including debt to an affiliate of $258 at December 31, 2003		11,182		13,652

Deferred Credits and Other Liabilities
Deferred income taxes		3,505		2,360
Unrealized losses on mark-to-market and hedging transactions		1,225		1,698
Liabilities associated with assets held for sale		14		737
Other		1,109		1,159

Total deferred credits and other liabilities		5,853		5,954

Commitments and Contingencies

Minority Interests		1,587		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

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