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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, 1999 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.)
422 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 April 30,
1999.........................1,010
<PAGE>
DUKE CAPITAL CORPORATION
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
INDEX
<S> <C> <C>
ITEM PAGE
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PART I. FINANCIAL INFORMATION
1. Financial Statements....................................................................................1
Consolidated Statements of Income for the Three Months Ended March 31, 1999 and 1998................1
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1999 and 1998............2
Consolidated Balance Sheets as of March 31, 1999 and December 31, 1998..............................3
Notes to Consolidated Financial Statements..........................................................5
2. Management's Discussion and Analysis of Results of Operations and Financial Condition..................11
PART II. OTHER INFORMATION
1. Legal Proceedings......................................................................................19
6. Exhibits and Reports on Form 8-K.......................................................................19
Signatures.............................................................................................20
</TABLE>
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
From time to time, the Company may make statements regarding its assumptions,
projections, expectations, intentions or beliefs about future events. These
statements are intended as "forward-looking statements" under the Private
Securities Litigation Reform Act of 1995. The Company cautions that assumptions,
projections, expectations, intentions or beliefs about future events may and
often do vary from actual results and the differences between assumptions,
projections, expectations, intentions or beliefs and actual results can be
material. Accordingly, there can be no assurance that actual results will not
differ materially from those expressed or implied by the forward-looking
statements. Factors that could cause actual achievements and events to differ
materially from those expressed or implied in such forward-looking statements
include state and federal legislative and regulatory initiatives that affect
cost and investment recovery, have an impact on rate structures and affect the
speed and degree to which competition enters the natural gas industry;
industrial, commercial and residential growth in the service territories of the
Company and its subsidiaries; the weather and other natural phenomena; the
timing and extent of changes in commodity prices and interest rates; changes in
environmental and other laws and regulations to which the Company is subject or
other external factors over which the Company has no control; the results of
financing efforts; growth in opportunities for the Company's business units;
achievement of year 2000 readiness; and the effect of accounting policies issued
periodically by accounting standard-setting bodies.
i
<PAGE>
PART I.FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
DUKE CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN MILLIONS)
Three Months Ended
March 31,
-------------------------
1999 1998
----------- ------------
OPERATING REVENUES
Sales, trading and marketing of natural gas
and petroleum products $ 2,014 $ 1,976
Transportation and storage of natural gas 379 387
Trading and marketing of electricity 439 537
Other 285 193
---------- ----------
Total operating revenues 3,117 3,093
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OPERATING EXPENSES
Natural gas and petroleum products purchased 1,940 1,869
Purchased power 404 538
Other operation and maintenance 415 322
Depreciation and amortization 89 92
Property and other taxes 32 15
---------- ----------
Total operating expenses 2,880 2,836
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OPERATING INCOME 237 257
---------- ----------
OTHER INCOME AND EXPENSES 35 46
---------- ----------
EARNINGS BEFORE INTEREST AND TAXES 272 303
INTEREST EXPENSE 65 58
MINORITY INTERESTS 29 9
---------- ----------
EARNINGS BEFORE INCOME TAXES 178 236
INCOME TAXES 79 89
---------- ----------
INCOME BEFORE EXTRAORDINARY ITEM 99 147
EXTRAORDINARY GAIN (LOSS), NET OF TAX 660 (8)
---------- ----------
NET INCOME $ 759 $ 139
========== ==========
See Notes to Consolidated Financial Statements.
1
<PAGE>
DUKE CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN MILLIONS)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
1999 1998
---------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 759 $ 139
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 95 94
Extraordinary (gain) loss (660) 8
Deferred income taxes (5) (6)
Transition cost recoveries (payments), net 23 (1)
(Increase) decrease in
Receivables 55 270
Inventory 19 35
Other current assets (3) 24
Increase (decrease) in
Accounts payable (58) (338)
Taxes accrued 70 47
Interest accrued (11) (5)
Other current liabilities (4) (19)
Other, net 47 33
--------- ----------
Net cash provided by operating activities 327 281
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital and investment expenditures (1,961) (275)
Proceeds from sale of subsidiaries 1,900 -
Proceeds from sales and other, net 20 11
---------- ----------
Net cash used in investing activities (41) (264)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of long-term debt 318 28
Payments for the redemption of long-term debt (26) (79)
Net change in notes payable and commercial paper (20) (15)
Other, net (58) (34)
---------- ----------
Net cash provided by (used in) financing activities 214 (100)
---------- ----------
Net increase (decrease) in cash and cash equivalents 500 (83)
Cash received from business acquisitions - 35
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 64 94
--------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 564 $ 46
========= ==========
SUPPLEMENTAL DISCLOSURES
Cash paid for interest, net of amount capitalized $ 78 $ 59
Cash paid for income taxes $ 65 $ 42
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE>
<TABLE>
<CAPTION>
DUKE CAPITAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
March 31, December 31,
1999 1998
(unaudited)
------------------- ------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 564 $ 64
Receivables 1,786 1,767
Inventory 148 214
Current portion of natural gas transition costs 100 100
Unrealized gains on mark-to-market transactions 1,241 1,457
Other 154 218
------------------- ------------------
Total current assets 3,993 3,820
------------------- ------------------
INVESTMENTS AND OTHER ASSETS
Investments in affiliates 938 902
Pre-funded pension costs 340 340
Goodwill, net 641 495
Notes receivable 242 244
Unrealized gains on mark-to-market transactions 1,217 396
Other 258 169
------------------- ------------------
Total investments and other assets 3,636 2,546
------------------- ------------------
PROPERTY, PLANT AND EQUIPMENT
Cost 9,682 11,020
Less accumulated depreciation and amortization 1,843 3,866
------------------- -------------------
Net property, plant and equipment 7,839 7,154
------------------- ------------------
REGULATORY ASSETS AND DEFERRED DEBITS
Debt expense 46 58
Regulatory asset related to income taxes 15 15
Natural gas transition costs 57 80
Environmental clean-up costs 76 87
Other 90 96
------------------- ------------------
Total regulatory assets and deferred debits 284 336
------------------- ------------------
TOTAL ASSETS $ 15,752 $ 13,856
=================== ==================
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
<TABLE>
<CAPTION>
DUKE CAPITAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE AMOUNTS)
March, December 31,
1999 1998
(unaudited)
---------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,419 $ 1,406
Notes payable and commercial paper 10 29
Taxes accrued 827 159
Interest accrued 44 57
Current maturities of long-term debt 563 258
Unrealized losses on mark-to-market transactions 1,271 1,387
Other 424 466
--------- -----------
Total current liabilities 4,558 3,762
-------- -----------
LONG-TERM DEBT 2,583 2,884
---------- -----------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes 1,262 1,460
Environmental clean-up liabilities 279 148
Unrealized losses on mark-to-market transactions 1,120 362
Other 332 334
---------- -----------
Total deferred credits and other liabilities 2,993 2,304
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MINORITY INTERESTS 202 253
---------- -----------
GUARANTEED PREFERRED BENEFICIAL INTERESTS IN SUBORDINATED
NOTES OF DUKE CAPITAL CORPORATION 580 580
---------- -----------
COMMON STOCKHOLDER'S EQUITY
Common stock, no par, 3,000 shares authorized,
1,010 shares outstanding - -
Paid-in capital 2,969 2,969
Retained earnings 1,867 1,104
---------- -----------
Total common stockholder's equity 4,836 4,073
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TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 15,752 $ 13,856
========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
DUKE CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL
Duke Capital Corporation (collectively with its subsidiaries, "the Company") is
a wholly owned subsidiary of Duke Energy Corporation. The Company provides
financing and credit enhancement services for its subsidiaries. The Company
conducts its operating activities through its six business segments:
o Natural Gas Transmission
o Field Services
o Trading and Marketing
o Global Asset Development
o Other Energy Services
o Real Estate Operations
These segments were defined as a result of the Company adopting Statement of
Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an
Enterprise and Related Information," in December 1998.
Natural Gas Transmission, through its Northeast Pipelines, provides interstate
transportation and storage of natural gas for customers primarily in the
Mid-Atlantic and New England states. Until the sale of the Midwest Pipelines on
March 29, 1999, Natural Gas Transmission also provided interstate transportation
and storage services in the midwest states. See further discussion of the sale
of the Midwest Pipelines in Note 4 to the Consolidated Financial Statements. The
interstate natural gas transmission and storage operations are also subject to
the rules and regulations of the Federal Energy Regulatory Commission (FERC).
Field Services gathers, processes, transports and markets natural gas and
produces and markets natural gas liquids (NGLs). Field Services operates
gathering systems in western Canada and ten contiguous states that serve major
gas-producing regions in the Rocky Mountain, Permian Basin, Mid-Continent and
onshore and offshore Gulf Coast areas.
Trading and Marketing markets natural gas, electricity and other energy-related
products across North America. The Company owns a 60% interest in Trading and
Marketing's operations, with Mobil Corporation owning a 40% minority interest.
Global Asset Development develops, owns and operates energy-related facilities
worldwide. Global Asset Development conducts its operations primarily through
Duke Energy North America, LLC (formerly Duke Energy Power Services, LLC) and
Duke Energy International, LLC.
Other Energy Services provides engineering, consulting, construction and
integrated energy solutions worldwide, primarily through Duke Engineering &
Services, Inc., Duke/Fluor Daniel and DukeSolutions, Inc.
Real Estate Operations conducts its business through Crescent Resources, Inc.,
which develops high quality commercial and residential real estate projects and
manages forest holdings in the southeastern United States.
5
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION. The consolidated financial statements include the accounts of the
Company and all majority-owned subsidiaries. These consolidated financial
statements reflect all normal recurring adjustments that are, in the opinion of
management, necessary to present fairly the financial position and results of
operations for the respective periods. Amounts reported in the Consolidated
Statements of Income are not necessarily indicative of amounts expected for the
respective years due to the effects of seasonal temperature variations on energy
consumption.
COMMODITY INSTRUMENTS. Effective January 1, 1999, the Company adopted Emerging
Issues Task Force Consensus No. 98-10, "Accounting for Contracts Involved in
Energy Trading and Risk Management Activities" for certain energy forward
contracts. This accounting standard requires entities involved in energy trading
activities to record energy trading contracts using the mark-to-market method of
accounting. Under this methodology, the contracts are adjusted to market value,
and the gains and losses are recognized in current period income and are
included in the Consolidated Statements of Income as Natural Gas and Petroleum
Products Purchased. In prior years, these contracts were accounted for under the
accrual method of accounting. Under this methodology, gains and losses were
recognized as the contract settled. While implementation of this accounting
standard affected certain components of financial position, the cumulative
effect of the change in accounting method on the Consolidated Statements of
Income for the period ended March 31, 1999 was immaterial.
EXTRAORDINARY ITEM. In January 1998, TEPPCO Partners, L.P., in which a
subsidiary of the Company has a 2% general partner interest and a 19.1% limited
partner interest, redeemed certain First Mortgage Notes. A non-cash
extraordinary loss of $8 million, net of income tax of $5 million, was recorded
related to costs of the early retirement of debt.
For a description of the 1999 extraordinary item, see Note 4 to the Consolidated
Financial Statements.
RECLASSIFICATIONS. Certain amounts have been reclassified in the Consolidated
Financial Statements to conform to the current presentation.
3. RELATED PARTY TRANSACTIONS
Certain balances due to or from related parties included in the Consolidated
Balance Sheets at March 31, 1999 and December 31, 1998 are as follows:
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March 31, December 31,
IN MILLIONS 1999 1998
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Receivables $ - $ 6
Accounts payable 112 129
Taxes accrued 732 73
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4. BUSINESS ACQUISITIONS/DISPOSITIONS
UNION PACIFIC RESOURCES' GATHERING, PROCESSING AND MARKETING OPERATIONS. On
March 31, 1999, the Company, through its wholly owned subsidiary, Duke Energy
Field Services, Inc., completed the $1.35 billion acquisition of the natural gas
gathering, processing, fractionation and NGL pipeline business from Union
Pacific Resources (UPR), as well as UPR's natural gas and NGL marketing
activities (collectively, "the UPR acquisition"). The acquisition was accounted
for by the purchase method. The assets and liabilities of the UPR acquisition
have been consolidated in the Company's financial statements as of March 31,
1999. The excess of the purchase price over the fair value of the net
identifiable assets and
6
<PAGE>
liabilities acquired of $158 million has been recorded as goodwill and will be
amortized on a straight-line basis over 15 to 20 years.
The Company agreed to take responsibility for certain environmental liabilities
associated with the UPR acquisition. During due diligence procedures prior to
the acquisition, the Company identified environmental contamination at certain
UPR facilities. Soil and groundwater contamination at the identified UPR sites
will be addressed in conjunction with the Company's remediation plans. Also,
other environmental matters, such as the status of air emission permits at some
facilities, may require corrective action. The estimated cost to remediate these
conditions at March 31, 1999 is $157 million, which is included in Environmental
Clean-up Liabilities on the Consolidated Balance Sheets. Under the terms of the
purchase agreement, all environmental liabilities in excess of $40 million will
be considered a reduction in the purchase price. The total amount of
environmental liabilities is currently being negotiated. Any adjustment to
estimated environmental clean-up costs or other estimated amounts will be
recorded as an adjustment to goodwill.
PEPL COMPANIES AND TRUNKLINE LNG. On March 29, 1999, the Company, through its
wholly owned subsidiaries, PanEnergy Corp and Texas Eastern Corporation, sold
Panhandle Eastern Pipe Line Company (PEPL), Trunkline Gas Company and additional
storage related to those systems (collectively, the PEPL Companies), which
substantially comprised the Midwest Pipelines, along with Trunkline LNG Company
(Trunkline LNG), to CMS Energy Corporation (CMS). The sales price of $2.2
billion involved cash proceeds of $1.9 billion and CMS's assumption of existing
PEPL debt of approximately $300 million. The sale resulted in an extraordinary
gain of $660 million, net of income tax of $404 million. Under the terms of the
agreement with CMS, the Company is retaining certain assets and liabilities,
such as the Houston office building, certain environmental, legal and tax
liabilities, and substantially all intercompany balances. Management believes
that the retention of these items will not have a material adverse effect on
consolidated results of operations or financial position.
- --------------------------------------------------------------------------------
COMBINED OPERATING RESULTS OF THE PEPL COMPANIES AND TRUNKLINE LNG FOR THE
PERIOD FROM JANUARY 1, 1999 THROUGH MARCH 28, 1999(A) (In millions)
- --------------------------------------------------------------------------------
Operating Revenues $126
Operating Expenses 57
Other Income, Net 4
------------
Earnings Before Interest and Taxes $ 73
- ------------------------------------------------------------------- ------------
(A) Excludes intercompany building rental revenue, allocated corporate expenses,
building depreciation and certain other costs to be retained by the Company.
7
<PAGE>
5. BUSINESS SEGMENTS
The Company's reportable segments are strategic business units that offer
different products and services and are each managed separately. Management
evaluates segment performance based on earnings before interest and taxes
(EBIT). Segment earnings before interest and taxes, presented in the
accompanying table, includes intersegment sales accounted for at prices
representative of unaffiliated party transactions. Segment assets are provided
as additional information in the accompanying table and are net of intercompany
advances, intercompany notes receivable and investments in subsidiaries.
<TABLE>
<CAPTION>
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BUSINESS SEGMENT DATA (In millions)
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<S> <C> <C> <C> <C> <C>
Capital and
Unaffiliated Intersegment Total Investment
Revenues Revenues Revenues EBIT Expenditures
------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31, 1999
Natural Gas Transmission $ 378 $ 24 $ 402 $208 $ 42
Field Services 234 110 344 12 1,445
Trading and Marketing 2,242 44 2,286 33 5
Global Asset Development 88 20 108 32 382
Other Energy Services 154 - 154 (5) 8
Real Estate Operations 28 - 28 18 60
Other Operations (A) (7) 13 6 (26) 19
Eliminations - (211) (211) - -
------------------------------------------------------------------
Total Consolidated $3,117 $ - $3,117 $272 $1,961
- -----------------------------------------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31, 1998
Natural Gas Transmission $ 379 $ 31 $ 410 $209 $73
Field Services 530 140 670 48 70
Trading and Marketing 2,003 9 2,012 13 1
Global Asset Development 36 1 37 9 85
Other Energy Services 115 - 115 7 4
Real Estate Operations 30 - 30 22 42
Other Operations (A) - 1 1 (5) -
Eliminations - (182) (182) - -
------------------------------------------------------------------
Total Consolidated $3,093 $ - $3,093 $303 $275
- -----------------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------
SEGMENT ASSETS (In millions)
- -------------------------------------------------------------------
March 31, December 31,
1999 1998
--------------------------------
Natural Gas Transmission $ 3,925 $ 4,996
Field Services 3,671 1,893
Trading and Marketing 3,652 3,233
Global Asset Development 2,266 2,061
Other Energy Services 390 376
Real Estate Operations 759 724
Other Operations (A) 1,348 759
Eliminations (259) (186)
---------------- ---------------
Total Consolidated $15,752 $13,856
- -------------------------------------------------------------------
(A) Includes communication services and certain unallocated corporate items.
</TABLE>
8
<PAGE>
6. RISK MANAGEMENT AND FINANCIAL INSTRUMENTS
FOREIGN CURRENCY INSTRUMENTS. In anticipation of the purchase of Empresa
Nacional de Electricidad S.A. (Endesa-Chile) (see Note 9 to the Consolidated
Financial Statements), the Company entered into foreign currency forwards and
swap contracts to obtain Chilean pesos for the purchase. These financial
instruments were accounted for using the mark-to-market method of accounting.
Under this methodology, the instruments are adjusted to market value, and gains
and losses are recognized in current period income and are included in the
Consolidated Statements of Income as Other Income and Expenses. Unrealized gains
and losses are recorded in the Consolidated Balance Sheets as Unrealized Gains
or Losses on Mark-to-Market Transactions. The forward contracts, with a notional
contract amount of 120.7 billion Chilean pesos (USD $245 million) at March 31,
1999, mature in April 1999. The swaps, with a notional contract amount of
approximately 74 billion Chilean pesos (USD $150 million) at March 31, 1999,
mature April 20, 1999 to July 20, 1999. The weighted average fixed exchange
rates of the forward and swap contracts are 492.6 and 492.7 Chilean pesos to
U.S. dollars, respectively. The fair value of the contracts as of March 31, 1999
was approximately $2 million.
7. LONG-TERM DEBT
Associated with the purchase of certain assets in Australia and New Zealand, the
Company borrowed approximately $300 million in both Australian and New Zealand
dollars during the first quarter of 1999. The loans, with interest rates ranging
from 4.340% to 5.2209%, mature in July 1999.
8. COMMITMENTS AND CONTINGENCIES
LITIGATION. Under the terms of the agreement with CMS discussed in Note 4 to the
Consolidated Financial Statements, the Company is retaining certain legal and
tax liabilities including the following matters.
On April 25, 1997, a group of affiliated plaintiffs that own and/or operate
various pipeline and marketing companies and partnerships primarily in Kansas
filed suit against PEPL, a former subsidiary of the Company, in the U.S.
District Court for the Western District of Missouri. The plaintiffs alleged that
PEPL has engaged in unlawful and anti-competitive conduct with regard to
requests for interconnects with the PEPL system for service to the Kansas City
area. Asserting that PEPL has violated the antitrust laws and tortiously
interfered with the plaintiffs' business expectancies, the plaintiffs pursued
compensatory and punitive damages. In February 1999, this case was settled. The
court entered an order dismissing the case on March 3, 1999. The settlement did
not have a material adverse effect on consolidated results of operations or
financial position.
On May 13, 1997, Anadarko Petroleum Corporation (Anadarko) filed suits against
PEPL and other affiliates, as defendants, both in the United States District
Court for the Southern District of Texas and state district court of Harris
County, Texas. Pursuing only the federal court claim, Anadarko claims that it
was effectively indemnified by the defendants against any responsibility for
refunds of Kansas ad valorem taxes which are due purchasers of gas from
Anadarko, retroactive to 1983. On October 20, 1998 and January 15, 1999, the
FERC issued orders on ad valorem tax issues, finding that first sellers of gas
were primarily liable for refunds. The FERC also noted that claims for indemnity
or reimbursement among the parties would be better addressed by the United
States District Court for the Southern District of Texas. The Company believes
the resolution of this matter will not have a material adverse effect on
consolidated results of operations or financial position.
The Company and its subsidiaries are also involved in other legal, tax and
regulatory proceedings before various courts, regulatory commissions and
governmental agencies regarding matters arising in the ordinary course of
business, some of which involve substantial amounts. Where appropriate, the
Company has made accruals in accordance with SFAS No. 5, "Accounting for
Contingencies," to provide for such matters. Management believes that the final
disposition of these proceedings will not have a material adverse effect on
consolidated results of operations or financial position.
9
<PAGE>
OTHER COMMITMENTS AND CONTINGENCIES. In January 1998, the Company acquired a
9.8% ownership in Alliance Pipeline. This pipeline is designed to transport
natural gas from western Canada to the Chicago-area market center for
distribution throughout North America. The pipeline is scheduled to begin
commercial operation in late 2000. In addition to buying an ownership interest
in the pipeline project, the Company has a contractual commitment for 67.25
million cubic feet per day of capacity on the line over 15 years for an
estimated total of $315 million.
In 1993, the U.S. Department of the Interior announced its intention to seek
additional royalties from gas producers as a result of payments received by such
producers in connection with past take-or-pay settlements, and buyouts and
buydowns of gas sales contracts with natural gas pipelines. The Company's
pipelines, with respect to certain producer contract settlements, may be
contractually required to reimburse or, in some instances, to indemnify
producers against such royalty claims. The potential liability of the producers
to the government and of the pipelines to the producers involves complex issues
of law and fact which are likely to take substantial time to resolve. If
required to reimburse or indemnify the producers, the Company's pipelines will
file with the FERC to recover a portion of these costs from pipeline customers.
Periodically, the Company may become involved in contractual disputes with
natural gas transmission customers involving potential or threatened abrogation
of contracts by the customers. If the customers are successful, the Company may
not receive the full value of anticipated benefits under the contracts.
In the normal course of business, certain of the Company's subsidiaries and
affiliates enter into various contracts for energy services which contain
certain schedule and performance requirements. Risk management techniques are
used to mitigate their exposure associated with such contracts. Certain
subsidiaries of the Company have guaranteed performance under some of these
contracts. In addition, the Company and certain subsidiaries of the Company have
guaranteed debt agreements of affiliates and have provided surety bonds and
letters of credit.
Management believes that these commitments and contingencies will not have a
material adverse effect on consolidated results of operations or financial
position.
9. SUBSEQUENT EVENT
On February 18, 1999, the Company announced its intent to make a concurrent cash
tender offer in Chilean pesos in Chile and the United States for 51% of the
outstanding shares of Endesa-Chile for an estimated total cash outlay of
approximately $2.1 billion based on current exchange rates. On April 21,
following a competitive counter offer, the Company reached the conclusion that
Endesa-Chile could not be acquired on terms favorable to the Company's
shareholder and withdrew the tender offer.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
INTRODUCTION
Duke Capital Corporation (collectively with its subsidiaries, "the Company") is
a wholly owned subsidiary of Duke Energy Corporation (Duke Energy). The Company
provides financing and credit enhancement services for its subsidiaries and
conducts its operations through six business segments:
o Natural Gas Transmission
o Field Services
o Trading and Marketing
o Global Asset Development
o Other Energy Services
o Real Estate Operations
These segments were defined as a result of the Company adopting Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information," in December 1998.
Natural Gas Transmission, through its Northeast Pipelines, provides interstate
transportation and storage of natural gas for customers primarily in the
Mid-Atlantic and New England states. Until the sale of the Midwest Pipelines on
March 29, 1999, Natural Gas Transmission also provided interstate transportation
and storage services in the midwest states. For further discussion of the sale
of the Midwest Pipelines, see Note 4 to the Consolidated Financial Statements.
The interstate natural gas transmission and storage operations are also subject
to the rules and regulations of the Federal Energy Regulatory Commission.
Field Services gathers, processes, transports and markets natural gas and
produces and markets natural gas liquids (NGLs). Field Services operates
gathering systems in western Canada and ten contiguous states that serve major
gas-producing regions in the Rocky Mountain, Permian Basin, Mid-Continent and
onshore and offshore Gulf Coast areas.
Trading and Marketing markets natural gas, electricity and other energy-related
products across North America. The Company owns a 60% interest in Trading and
Marketing's operations, with Mobil Corporation owning a 40% minority interest.
Global Asset Development develops, owns and operates energy-related facilities
worldwide. Global Asset Development conducts its operations primarily through
Duke Energy North America, LLC (Duke Energy North America) (formerly Duke Energy
Power Services, LLC) and Duke Energy International, LLC (Duke Energy
International).
Other Energy Services provides engineering, consulting, construction and
integrated energy solutions worldwide, primarily through Duke Engineering &
Services, Inc. (Duke Engineering & Services), Duke/Fluor Daniel and
DukeSolutions, Inc.
Real Estate Operations conducts its business through Crescent Resources, Inc.,
which develops high quality commercial and residential real estate projects and
manages forest holdings in the southeastern United States.
Management's Discussion and Analysis should be read in conjunction with the
Consolidated Financial Statements.
11
<PAGE>
RESULTS OF OPERATIONS
For the three months ended March 31, 1999, net income was $759 million,
including an after-tax extraordinary gain of $660 million, compared to net
income of $139 million for the same period in 1998. The increase in net income
is primarily due to the 1999 extraordinary gain, which resulted from the sale of
the Midwest Pipelines.
Operating income for the three months ended March 31, 1999 decreased to $237
million compared to $257 million for the same period in 1998. Earnings before
interest and taxes (EBIT) were $272 million and $303 million for the three
months ended March 31, 1999 and 1998, respectively. Operating income and
earnings before interest and taxes are affected by the same fluctuations for the
Company and each of its business segments. The only significant variable between
the two amounts is gains on the sale of assets which are included in Other
Income and Expenses on the Consolidated Statements of Income. Gains on sales of
assets include a $14 million gain on an investment sale by Global Asset
Development in 1999 and a $31 million gain on an asset sale by Field Services in
1998. Earnings before interest and taxes by business segment are summarized
below, and are discussed by business segment thereafter.
- --------------------------------------------------------------------------------
EARNINGS BEFORE INTEREST AND TAXES BY BUSINESS SEGMENT (In millions)
- --------------------------------------------------------------- ----------------
Three Months Ended
March 31,
---------------------------
1999 1998
---------------------------
Natural Gas Transmission $208 $209
Field Services 12 48
Trading and Marketing 33 13
Global Asset Development 32 9
Other Energy Services (5) 7
Real Estate Operations 18 22
Other Operations (A) (26) (5)
--------------------------
Consolidated EBIT $272 $303
- --------------------------------------------------------------------------------
(A) Includes communication services and certain unallocated corporate items.
Included in the amounts discussed hereafter are intercompany transactions that
are eliminated in the Consolidated Financial Statements.
NATURAL GAS TRANSMISSION
- --------------------------------------------------------------------------------
Three Months Ended
March 31,
----------------------------
(In millions, except where noted) 1999 1998
- --------------------------------------------------------------------------------
Operating Revenues $402 $410
Operating Expenses 202 210
----------------------------
Operating Income 200 200
Other Income, Net of Expenses 8 9
----------------------------
EBIT $208 $209
============================
Throughput - TBtu (A) 811 778
- --------------------------------------------------------------------------------
(A) Trillion British thermal units
Earnings before interest and taxes for the Natural Gas Transmission segment
decreased $1 million for the three months ended March 31, 1999 compared to the
same period in 1998. Earnings before interest and taxes for the Northeast
Pipelines increased $6 million for the three months ended March 31, 1999
compared to the prior year quarter, primarily as a result of increased income
from market expansion
12
<PAGE>
projects and lower operating expenses. Partially offsetting these benefits was
the non-recurrence of a 1998 refund from a state property tax ruling.
Earnings before interest and taxes for the Midwest Pipelines decreased $7
million for the three months ended March 31, 1999 compared to the prior year
quarter, primarily due to decreased throughput. The sale of the Midwest
Pipelines to CMS Energy Corporation (CMS) closed on March 29, 1999.
FIELD SERVICES
- --------------------------------------------------------------------------------
Three Months Ended
March 31,
----------------------------
(In millions, except where noted) 1999 1998
- --------------------------------------------------------------------------------
Operating Revenues $344 $670
Operating Expenses 332 653
----------------------------
Operating Income 12 17
Other Income, Net of Expenses - 31
----------------------------
EBIT $ 12 $ 48
============================
Natural Gas Gathered and Processed/Transported,
TBtu/d (A) 3.4 3.7
NGL Production, MBbl/d (B) 107.6 106.4
Natural Gas Marketed, TBtu/d 0.4 0.3
Average Natural Gas Price per MMBtu (C) $1.75 $2.20
Average NGL Price per Gallon $0.23 $0.29
- --------------------------------------------------------------------------------
(A) Trillion British thermal units per day
(B) Thousand barrels per day
(C) Million British thermal units
Earnings before interest and taxes for Field Services decreased $36 million for
the three months ended March 31, 1999 compared to the same period in 1998. The
decrease resulted from a $31 million gain on the sale of two NGL fractionation
facilities in 1998, which is included in other income. Gross revenues and
expenses also decreased as a result of the November 1998 sale of Duke Energy
Transport and Trading Co., which gathers, stores, transports and markets crude
oil and operates two NGL pipelines, to TEPPCO Partners, L.P., a company in which
the Company has a 21.1% ownership interest. Low average NGL prices, which
decreased $0.06 per gallon, or 20.7%, from March 31, 1998 to March 31, 1999,
continue to have a significant impact on earnings for Field Services; however,
decreased earnings resulting from lower NGL prices were partially offset by a
gain on hedging activities.
TRADING AND MARKETING
- --------------------------------------------------------------------------------
Three Months Ended
March 31,
-----------------------------
(In millions, except where noted) 1999 1998
- --------------------------------------------------------------------------------
Operating Revenues $2,286 $2,012
Operating Expenses 2,257 2,000
----------------------------
Operating Income 29 12
Other Income, Net of Expenses 4 1
----------------------------
EBIT $ 33 $ 13
=============================
Natural Gas Marketed, TBtu/d 11.0 7.9
Electricity Marketed, GWh (A) 21,837 23,892
- --------------------------------------------------------------------------------
(A) Gigawatt-hours
13
<PAGE>
Earnings before interest and taxes for Trading and Marketing increased $20
million for the three months ended March 31, 1999 compared with the same period
in 1998. The increase results primarily from higher natural gas and electricity
trading margins compared to the same period in 1998 when a significant decline
in energy price volatility resulted in decreased trading margins. Partially
offsetting the current year increase in income were higher operating expenses
resulting from business growth.
GLOBAL ASSET DEVELOPMENT
- --------------------------------------------------------------------------------
Three Months Ended
March 31,
-----------------------------
(In millions) 1999 1998
- --------------------------------------------------------------------------------
Operating Revenues $108 $37
Operating Expenses 101 32
----------------------------
Operating Income 7 5
Other Income, Net of Expenses 25 4
----------------------------
EBIT $ 32 $ 9
- --------------------------------------------------------------------------------
Earnings before interest and taxes for Global Asset Development increased $23
million for the three months ended March 31, 1999 compared with the same period
in 1998. The increase is primarily due to increased contributions from new
projects in California, Australia and Chile and a $14 million gain on the sale
of its investment in the Mecklenburg Cogeneration facility, which is included in
other income.
OTHER ENERGY SERVICES
- --------------------------------------------------------------------------------
Three Months Ended
March 31,
-----------------------------
(In millions) 1999 1998
- --------------------------------------------------------------------------------
Operating Revenues $154 $115
Operating Expenses 159 108
----------------------------
EBIT $ (5) $ 7
- --------------------------------------------------------------------------------
Earnings before interest and taxes for Other Energy Services decreased $12
million for the three months ended March 31, 1999 compared with the same period
in 1998, primarily due to decreased earnings from projects of Duke Engineering &
Services.
REAL ESTATE OPERATIONS
- --------------------------------------------------------------------------------
Three Months Ended
March 31,
-----------------------------
(In millions) 1999 1998
- --------------------------------------------------------------------------------
Operating Revenues $28 $30
Operating Expenses 10 8
----------------------------
EBIT $18 $22
- --------------------------------------------------------------------------------
Earnings before interest and taxes for Real Estate Operations decreased $4
million, or 18.2%, for the three months ended March 31, 1999 compared with the
same period in 1998. This resulted from decreased project and land sales, which
were partially offset by increased developed lot sales.
OTHER OPERATIONS
Earnings before interest and taxes for Other Operations decreased $21 million
for the three months ended March 31, 1999 compared with the same period in 1998.
This decrease primarily resulted from mark-to-
14
<PAGE>
market losses on corporately managed long-dated energy risk positions used to
hedge exposure to commodity prices, primarily NGLs. As these positions are
liquidated over the next 18 months, actual results will be allocated back to
Field Services.
OTHER IMPACTS ON EARNINGS AVAILABLE FOR COMMON STOCKHOLDERS
For the three months ended March 31, 1999, interest expense increased $7
million, or 12.1%, over the comparable period in 1998 due to higher average debt
balances outstanding.
Minority interest increased $20 million primarily as a result of dividends
incurred for the Company's trust preferred securities, $600 million of which
were issued after the first quarter in 1998. Excluding these dividends, minority
interests relate primarily to the trading and marketing joint venture with Mobil
Corporation.
The sale of the Midwest Pipelines to CMS closed on March 29, 1999 and resulted
in a $660 million extraordinary gain, net of income tax of $404 million. (See
further discussion in Liquidity and Capital Resources, Investing Cash Flows
section below and in Note 4 to the Consolidated Financial Statements.) In
January 1998, TEPPCO Partners L.P., in which the Company has a 21.1% ownership
interest, redeemed certain First Mortgage Notes which resulted in the Company
recording a non-cash extraordinary loss of $8 million, net of income tax of $5
million, related to its share of costs of the early retirement of debt.
LIQUIDITY AND CAPITAL RESOURCES
INVESTING CASH FLOWS
Capital and investment expenditures were approximately $1,961 million for the
three months ended March 31, 1999 compared to approximately $275 million for the
same period in 1998. Increased capital and investment expenditures during the
period were primarily due to business expansion for the Field Services and
Global Asset Development segments discussed below.
On January 22, 1999, Global Asset Development's international division, Duke
Energy International, completed the $315 million purchase of power generation
and transmission assets in western Australia and New Zealand from Broken Hill
Proprietary Company Limited (BHP), including an ownership interest in a pipeline
in western Australia. This acquisition also includes a development proposal for
a cogeneration plant and a portfolio of international and Australian-based
projects.
Global Asset Development's domestic division, Duke Energy North America, began
construction of the Hidalgo Energy project located in South Texas, which is
targeted to begin producing power in mid-2000. For the 510 megawatt gas-fired
merchant plant, Duke/Fluor Daniel will serve as the construction contractor, a
Natural Gas Transmission pipeline will deliver the natural gas supply, and
Trading and Marketing will provide energy management services and market the
plant's output.
On March 31, 1999, Field Services completed the $1.35 billion acquisition of the
natural gas gathering, processing, fractionation and NGL pipeline business from
Union Pacific Resources along with its natural gas and NGL marketing activities
(collectively, "the UPR acquisition"). Additionally, the Company agreed to take
responsibility for certain environmental liabilities associated with the UPR
acquisition. During due diligence procedures prior to the acquisition, the
Company identified environmental contamination at certain UPR facilities. Soil
and groundwater contamination at the identified UPR sites will be addressed in
conjunction with the Company's remediation plans. Also, other environmental
matters, such as the status of air emission permits at some facilities, may
require corrective action. The estimated cost to remediate these conditions at
March 31, 1999 is $157 million, which is included in Environmental Clean-up
Liabilities on the Consolidated Balance Sheets.
15
<PAGE>
On March 29, 1999, the Company, through its wholly owned subsidiaries, PanEnergy
Corp and Texas Eastern Corporation, sold Panhandle Eastern Pipe Line Company
(PEPL), Trunkline Gas Company and additional storage related to those systems,
which substantially comprised the Midwest Pipelines, along with Trunkline LNG
Company, to CMS. The sales price of $2.2 billion included cash proceeds of $1.9
billion and CMS's assumption of existing PEPL debt of approximately $300
million.
FINANCING CASH FLOWS
The Company plans to continue to significantly grow several of its business
segments: Field Services, Trading and Marketing, Global Asset Development and
Other Energy Services. These growth opportunities, along with debt repayments
and operating and investing requirements, are expected to be funded by cash from
operations, external financing and the proceeds from the sale of the Midwest
Pipelines.
Financings for first quarter 1999 include various bank borrowings of Global
Asset Development related to the purchase of BHP. These borrowings total
approximately $300 million at interest rates of 4.340% to 5.2209% and mature in
July 1999.
Under its commercial paper facilities, the Company had the ability to borrow up
to $1.55 billion at both March 31, 1999 and December 31, 1998. The Company's
various bank credit facilities totaled approximately $1.7 billion at each of
March 31, 1999 and December 31, 1998. At March 31, 1999, $499 million was
outstanding under the commercial paper facilities and $76 million was
outstanding under the bank credit facilities.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
RISK POLICIES
The Company is exposed to market risks associated with commodity prices,
interest rates and foreign exchange rates. Comprehensive risk management
policies have been established by Duke Energy's Corporate Risk Management
Committee (CRMC) to monitor and control these market risks. The CRMC is chaired
by the Chief Financial Officer and primarily comprises senior executives. The
CRMC has responsibility for oversight of all corporate energy risk management
and approving energy financial exposure limits, as well as responsibility for
oversight of interest rate risk, foreign currency risk and credit risk. Changes
in the Company's market risk since December 31, 1998 follows.
COMMODITY PRICE RISK
As a result of Field Services' acquisition from Union Pacific Resources on March
31, 1999, the Company's exposure to market fluctuations in the prices of NGLs
increased. As of March 31, 1999, if NGL prices average one cent per gallon less
in 1999, earnings before income taxes will decrease by approximately $18
million. The Company generally does not maintain a material inventory of NGLs or
actively trade commodity derivatives related to NGLs.
FOREIGN OPERATIONS RISK AND INTEREST RATE RISK
In anticipation of the Company's purchase of Empresa Nacional de Electricidad
S.A. (Endesa-Chile) (see further discussion in Current Issues, Subsequent
Event), the Company entered into foreign currency forward and swap contracts to
obtain Chilean pesos for the purchase. Exposures to foreign currency risks
associated with these instruments were managed through established policies and
procedures. (See Note 6 to the Consolidated Financial Statements.) The foreign
currency risk is measured by periodically performing sensitivity analysis to
assess the impact of a hypothetical change in the Chilean peso to U.S. dollar
exchange rate. At March 31, 1999, if the Chilean peso to U.S. dollar exchange
rate increased
16
<PAGE>
(decreased) by 10%, earnings before interest and taxes would decrease (increase)
by approximately $25 million.
CURRENT ISSUES
YEAR 2000 READINESS PROGRAM
STATE OF READINESS
The Company initiated its Year 2000 Readiness Program in 1996 and began a formal
review of computer-based systems and devices that are used in its business
operations both domestically and internationally. These systems and devices
include customer information, financial, materials management and personnel
systems, as well as components of natural gas production, gathering, processing
and transmission, and electric generation, distribution and transmission.
The Company's goal is to provide energy services reliably and safely to its
customers - now, on January 1, 2000 and beyond. By "Year 2000 ready," the
Company means that it has executed the Year 2000 approach described below and
management believes the business will not suffer a material adverse impact to
consolidated financial results caused by Year 2000 events. However, the Year
2000 issue is complex and the Year 2000 readiness of customers, suppliers and
others beyond our control can affect our business operations.
The Company is using a three-phase approach to address Year 2000 issues: 1)
inventory and preliminary assessment of computer systems, equipment and devices;
2) detailed assessment and remediation planning; and 3) conversion, testing and
contingency planning. The Company is employing a combination of systems repair,
planned systems replacement activities, systems retirement and workarounds to
achieve Year 2000 readiness for its business and process control systems,
equipment and devices. Most of the Company's business units have substantially
completed the first two phases throughout their business operations, and are in
various stages of the third and final phase. Field Services, Global Asset
Development and Other Energy Services' goal is to have critical systems,
equipment and devices year 2000 ready by September 1999. All other business
units', including Natural Gas Transmission, goal is to have critical systems,
equipment and devices year 2000 ready by mid-1999.
The Company conducts an analysis of Year 2000 issues for potential acquisitions.
In addition, the Company is monitoring Year 2000 readiness of key third parties.
Third parties include vendors, customers, U.S. governmental agencies, foreign
governments and agencies, and other business associates. While the Year 2000
readiness of third parties cannot be controlled, the Company is attempting to
assess the readiness of third parties and any potential implications to its
operations. Alternate suppliers of critical products, goods and services are
being identified, where necessary.
COSTS
Management believes it is devoting the resources necessary to achieve Year 2000
readiness in a timely manner. Current estimates for total costs of the program,
including internal labor as well as incremental costs such as consulting and
contract costs, are approximately $8 million, of which approximately $2.2
million had been incurred as of March 31, 1999. These costs exclude replacement
systems that, in addition to being Year 2000 ready, provide significantly
enhanced capabilities which will benefit operations in future periods.
17
<PAGE>
RISKS
Management believes it has an effective program in place to manage the risks
associated with the Year 2000 issue in a timely manner. Nevertheless, since it
is not possible to anticipate all future outcomes, especially when third parties
are involved, there could be circumstances in which the Company would
temporarily be unable to deliver energy or energy services to its customers.
Management believes that the most reasonably likely worst case scenario would be
small, localized interruptions of service, which likely would be rapidly
restored. In addition, there could be a temporary reduction in energy needs of
customers due to their own Year 2000 problems. In the event that such a scenario
occurs, it is not expected to have a material adverse impact on consolidated
results of operations or financial position.
CONTINGENCY PLANS
Year 2000 contingency planning is currently underway to address continuity of
business operations for all periods during which Year 2000 impacts may occur.
The Company is participating in multiple industry efforts to facilitate
effective Year 2000 contingency plans, and intends to complete its own Year 2000
contingency plans by mid-1999. These plans address various Year 2000 risk
scenarios that cross departmental, business unit and industry lines as well as
specific risks from various internal and external sources, including supplier
readiness.
Based on assessments completed to date and compliance plans in process,
management believes that Year 2000 issues, including the cost of making critical
systems, equipment and devices ready, will not have a material adverse effect on
the Company's business operation or consolidated results of operations or
financial position. Nevertheless, achieving Year 2000 readiness is subject to
risks and uncertainties, including those described above. While management
believes the possibility is remote, if the Company's internal systems, or the
internal systems of external parties, fail to achieve Year 2000 readiness in a
timely manner, the Company's business, consolidated results of operations or
financial condition could be adversely affected.
SUBSEQUENT EVENT
On February 18, 1999, the Company announced its intent to make a concurrent cash
tender offer in Chilean pesos in Chile and the United States for 51% of the
outstanding shares of Endesa-Chile for an estimated total cash outlay of
approximately $2.1 billion based on current exchange rates. On April 21,
following a competitive counter offer, the Company reached the conclusion that
Endesa-Chile could not be acquired on terms favorable to the Company's
shareholder and withdrew the tender offer.
18
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
For information concerning litigation and other contingencies, see Note 8 to the
Consolidated Financial Statements, "Commitments and Contingencies".
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
(27) Financial Data Schedule (included in electronic filing only)
(b) Reports on Form 8-K
A Current Report on Form 8-K filed on January 26, 1999 contained
disclosures under Item 5, Other Events.
A Current Report on Form 8-K filed on February 24, 1999 contained
disclosures under Item 7, Financial Statements, Pro Forma Financial Information
and Exhibits.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DUKE CAPITAL CORPORATION
(Registrant)
/s/ Richard J. Osborne
------------------------
Richard J. Osborne
Vice President and
Chief Financial Officer
/s/ Jeffrey L. Boyer
---------------------
Jeffrey L. Boyer
May 17, 1999 Controller
20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Duke Capital Corporation Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0001051116
<NAME> DUKE CAPITAL CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 564000
<SECURITIES> 0
<RECEIVABLES> 1786000
<ALLOWANCES> 0
<INVENTORY> 148000
<CURRENT-ASSETS> 3993000
<PP&E> 9682000
<DEPRECIATION> 1843000
<TOTAL-ASSETS> 15752000
<CURRENT-LIABILITIES> 4558000
<BONDS> 2583000
0
0
<COMMON> 0
<OTHER-SE> 4836000
<TOTAL-LIABILITY-AND-EQUITY> 15752000
<SALES> 2832000
<TOTAL-REVENUES> 3117000
<CGS> 2344000
<TOTAL-COSTS> 2759000
<OTHER-EXPENSES> 121000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 65000
<INCOME-PRETAX> 178000
<INCOME-TAX> 79000
<INCOME-CONTINUING> 99000
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<EXTRAORDINARY> 660000
<CHANGES> 0
<NET-INCOME> 759000
<EPS-PRIMARY> 0 <F1>
<EPS-DILUTED> 0 <F1>
<FN>
<F1>Not meaningful since Duke Capital Corporation is a
wholly-owned subsidiary.
</FN>
</TABLE>
