================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM 11-K
------------------
ANNUAL REPORT
Pursuant to Section 15(d) of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1997
Commission File Number 1-4928
-----------
TAX CREDIT EMPLOYEE STOCK OWNERSHIP PLAN
OF PANENERGY CORP
AND PARTICIPATING AFFILIATES
(Full title of the plan)
---------
DUKE ENERGY CORPORATION
(Name of issuer of the securities held pursuant to the plan)
422 SOUTH CHURCH STREET
CHARLOTTE, NORTH CAROLINA 28202
(Address, including zip code, of principal executive office)
(704) 594-0887
(Telephone number, including area code)
================================================================================
1
<PAGE>
TAX CREDIT EMPLOYEE STOCK OWNERSHIP PLAN
OF PANENERGY CORP
AND PARTICIPATING AFFILIATES
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
-----------
FINANCIAL STATEMENTS
Page
Independent Auditors' Report.............................................. 3
Statement of Net Assets Available for Benefits
December 31, 1997 and 1996........................................... 4
Statement of Changes in Net Assets Available for Benefits
Years Ended December 31, 1997 and 1996................................ 4
Notes to Financial Statements............................................. 5
-------------
SCHEDULES
Schedule I - Item 27a - Schedule of Assets Held for Investment Purposes,
December 31, 1997.................................................... S-1
Schedule IV - Item 27d - Schedule of Reportable Transactions,
Year Ended December 31, 1997......................................... S-1
ALL OTHER SCHEDULES ARE OMITTED BECAUSE THEY ARE NOT APPLICABLE
OR NOT REQUIRED.
2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Administrative Committee
Tax Credit Employee Stock Ownership Plan
of PanEnergy Corp and Participating Affiliates:
We have audited the accompanying statements of net assets available for
benefits of the Tax Credit Employee Stock Ownership Plan of PanEnergy Corp and
Participating Affiliates (the Plan) as of December 31, 1997 and 1996, and the
related statements of changes in net assets available for benefits for each of
the years in the two-year period ended December 31, 1997. These financial
statements are the responsibility of the Plan's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the net assets available for benefits of the Plan as
of December 31, 1997 and 1996, and the changes in net assets available for
benefits for each of the years in the two-year period ended December 31, 1997 in
conformity with generally accepted accounting principles.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules as listed in
the accompanying index are presented for the purpose of additional analysis and
are not a required part of the basic financial statements but are supplementary
information required by the Department of Labor's Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security Act of
1974. The supplemental schedules and have been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, are fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
KPMG Peat Marwick LLP
Houston, Texas
June 19, 1998
3
<PAGE>
TAX CREDIT EMPLOYEE STOCK OWNERSHIP PLAN
OF PANENERGY CORP
AND PARTICIPATING AFFILIATES
STATEMENT OF NET ASSETS AVAILBLE FOR BENEFITS
AS OF DECEMBER 31
<TABLE>
<CAPTION>
<S> <C> <C>
1997 1996
------------- ----------
Northern Trust Company Collective Short Term Investment Fund................................ $ 2,043 $ 57,923
Accrued interest receivable................................................................. 719 152
Accrued dividends receivable................................................................ 113 -
Common stock of PanEnergy Corp (cost $7,316,777)............................................ - 9,544,545
Common stock of Duke Energy Corp. (cost $18,737,709)........................................ 24,736,400 -
----------------------------------
Net Assets Available for Benefits........................................................... $ 24,739,275 $ 9,602,620
============= ============
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
<S> <C> <C>
1997 1996
------------- ----------
Employees' contributions (Note 1)........................................................... $ 2,847,277 $ 1,811,107
Employers' contributions (Note 1)........................................................... 8,693,751 5,491,827
------------- -------------
Total contributions................................................................. 11,541,028 7,302,934
------------- ------------
Net unrealized appreciation of investments in common stock.................................. 3,962,810 2,227,768
-------------- ------------
Dividend income............................................................................. 479,435 64,316
Interest income............................................................................. 46,823 6,600
Realized gain (loss)........................................................................ (159,959) -
--------------- ------------------
Total investment income............................................................. 366,299 70,916
--------------- -------------
Withdrawals................................................................................. 732,241 -
Other disbursements......................................................................... 1,241 -
-----------------------------------
Total disbursements................................................................. 733,482 -
--------------- ------------------
Increase in Net Assets Available for Benefits............................................... 15,136,655 9,601,618
Net Assets Available for Benefits, beginning of year........................................ 9,602,620 1,002
-------------- ----------------
Net Assets Available for Benefits, end of year.............................................. $ 24,739,275 $ 9,602,620
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
4
<PAGE>
TAX CREDIT EMPLOYEE STOCK OWNERSHIP PLAN
OF PANENERGY CORP
AND PARTICIPATING AFFILIATES
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF THE PLAN
ORGANIZATION
The Employees' Stock Ownership Plan of Panhandle Eastern Pipe Line Company
and Participating Subsidiaries (the Original TRASOP) was adopted by the Board of
Directors of Panhandle Eastern Pipe Line Company on December 3, 1975 and
subsequently was assumed by PanEnergy Corp (formerly Panhandle Eastern
Corporation) in 1981. In January 1991, the Original TRASOP was merged into, and
the Original TRASOP accounts were thereafter maintained under, the Employees'
Savings Plan of PanEnergy Corp and Participating Affiliates (the ESP), a cash or
deferred profit sharing plan qualified under Sections 401(k) and 401(a) of the
Internal Revenue Code (the Code).
PanEnergy Corp (PanEnergy) determined that utilizing the ESP for any
post-1994 company tax credit or related employee contributions would
substantially complicate ESP administration, resulting in significant additional
costs and possible confusion among ESP participants. Accordingly, PanEnergy
determined that it is in the best interests of PanEnergy and eligible employees
of its participating subsidiaries to separately maintain the Tax Credit Employee
Stock ownership Plan of PanEnergy Corp and Participating Affiliates (the Plan)
with respect to any such contributions. The Plan was established effective
January 1, 1995.
On December 31, 1997, there were 5,287 individuals participating in the
Plan.
CONTRIBUTIONS
Contributions to the Plan by PanEnergy in 1997 were made as certain
investment tax credits were claimed by PanEnergy on its 1996 federal tax return.
It is expected that no future contributions after 1997 will be made to the Plan.
Such actions will not affect any vested benefits of members (unless required in
order to comply with qualification requirements by the Code and the Employee
Retirement Income Security Act of 1974 (ERISA), as amended) and no such action
would cause any part of the assets held in trust to be used for purposes other
than the exclusive benefit of the members or their beneficiaries.
EXPENSES
All costs and expenses incurred in administering the Plan, if not paid by
PanEnergy or participating subsidiaries, shall be paid by the trustee from Plan
assets. During 1997 and 1996, expenses totaling $17,959 and $57,246,
respectively, were paid by PanEnergy and/or participating subsidiaries.
PROVISIONS OF THE PLAN
The Plan is a defined contribution plan sponsored by PanEnergy for the
benefit of eligible employees of its participating subsidiaries. The Plan,
administered by an Administrative Committee (the Committee) appointed by the
Board of Directors of PanEnergy , is subject to provisions of ERISA.
Under the terms of the Plan, any eligible employee may become a participant
of the Plan as of January 1, 1995 or the first day of any month thereafter, upon
completing a one-year period of service, as defined. An eligible employee is any
employee of a participating subsidiary other than (1) an employee whose
employment is governed by a collective bargaining agreement unless such
agreement provides for the employee's participation in the Plan, (2) a
non-resident alien who has no United States source income or who is on a
"Non-U.S. Payroll", (3) an
5
<PAGE>
employee employed pursuant to a written employment contract that provides that
the employee shall not participate in the Plan , or (4) a leased employee. A
leased employee is someone who is not an employee of the Company but who
provides services to the Company through a leasing organization.
In order to be eligible to receive an allocation of a Company Basic
Contribution (a Basic Contribution), to make a Participant Contribution or to
receive a subsequent Company Matching Contribution (a Matching Contribution), a
participant, generally, must be eligible to participate in the Plan on the last
day of the year or has terminated employment during the year while eligible to
participate in the Plan and such termination was due to (1) death, (2)
disability qualifying the participant for benefits under a participating
subsidiary's long-term disability plan or (3) at the time of such termination,
the participant was eligible to elect an immediate early or normal retirement
benefit under the Retirement Income Plan of PanEnergy Corp and Participating
Affiliates. The amount of a participant's allocation of Basic or Matching
Contributions and the ability of the participant to make a Participant
Contribution may be restricted to satisfy Code limitations.
The Basic Contribution for a year is allocated to the Plan account of each
eligible participant in an amount which bears proportionally the ratio of the
eligible participant's W-2, Box 1 compensation (as an eligible employee and
subject to a $100,000 annual maximum per participant) to total W-2, Box 1
compensation (as an eligible employee and subject to a $100,000 annual maximum
per participant) of all eligible participants for the year. Contributions by
PanEnergy and participating subsidiaries of the Matching Contributions for the
year are allocated to the account of each participant in an amount equal to the
participant's contribution for the year. The Basic and Matching Contribution for
a year shall not exceed the total tax credit available (and elected by
PanEnergy) for such contribution for the year.
Each participant will at all times be 100% vested in their Plan account.
Generally, distribution of a participant's Plan account may not occur until the
participant's separation from service or termination of the Plan. Unless a
participant elects to receive a distribution of his account in cash, any
distribution from the Plan will be made in shares of Duke Energy common stock,
with the value of any fractional shares paid in cash.
2. BASIS OF PRESENTATION
The accompanying financial statements have been prepared on the accrual
basis in conformity with generally accepted accounting principles and present
the Plan's net assets available for benefits, at fair values, and changes in net
assets available for benefits.
The investment in Duke Energy common stock in 1997 and PanEnergy common
stock in 1996 is stated at fair values based upon quotations obtained from the
National Security Exchange at the balance sheet date. Purchases and sales of
securities are recorded on a trade date basis. Net realized gains and losses on
disposition of investments are reported on the revalued cost method, which is
the fair value of the investment at the beginning of the Plan year or historical
cost if the investment was acquired during the Plan year.
3. INVESTMENT PROGRAMS
On November 25, 1996, PanEnergy and Duke Power Company (Duke) announced a
definitive merger agreement for a tax-free, stock-for-stock transaction. Under
the agreement, each share of PanEnergy common stock would be converted into the
right to receive 1.0444 common shares of Duke. On June 18, 1997, the merger was
closed, Duke changed its name to Duke Energy Corporation (Duke Energy) and
PanEnergy became a wholly-owned subsidiary of Duke Energy. The Plan's trust
converted its shares of PanEnergy common stock into shares of Duke Energy common
stock and generally, contributions and earnings received thereafter by the
Plan's trust will be invested in Duke Energy common stock. During 1997 and 1996,
The Northern Trust Company, Chicago, Illinois, was trustee of the Plan.
Dividend income is reinvested in Duke Energy common stock (prior to June 18,
1997, in PanEnergy common stock) and is allocated annually on the basis of each
participant's pro rata holdings in the Plan. Generally, the Plan passes through
to participants the right to vote shares of Duke Energy common stock (prior to
June 18, 1997,
6
<PAGE>
PanEnergy common stock) allocated to their plan accounts and to tender such
shares in response to a tender or exchange offer.
4. FEDERAL INCOME TAXES
In a determination letter dated November 18, 1996, the Internal Revenue
Service held that the Plan met the requirements of Section 401(a) of the Code,
and that the trust established thereunder was entitled to exemption from federal
income tax under the provisions of Section 501(a) of the Code. The Plan has been
amended since receiving this determination letter. However, the Committee and
its legal counsel believe the Plan is currently designed and operated in
compliance with the applicable requirements of the Code. Therefore, they believe
the Plan was qualified and the related trust was tax-exempt as of December 31,
1997.
PanEnergy intends that the Plan and its related trust, continue to so qualify.
Contributions made by the Company for the benefit of a member will not be
required to be included in the member's taxable income until the year or years
in which such contributions are distributed to the member.
8. RECONCILIATION TO IRS FORM 5500
The Plan's audited financial statements are materially consistent with the
amounts reported on the IRS Form 5500.
7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Administrative Committee has duly caused this annual report to be
signed on its behalf by the undersigned thereunto duly authorized.
TAX CREDIT EMPLOYEE STOCK OWNERSHIP PLAN
OF PANENERGY CORP AND
PARTICIPATING AFFILIATES
By___________________________________________
D.R. Church
Administrative Committee
Date: June 19, 1998
8
<PAGE>
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Duke Energy Corporation
We consent to incorporation by reference in the registration statement (No.
333-29587) on Form S-8 of Duke Energy Corporation of our report dated June 19,
1998, relating to the statements of net assets available for benefits of the Tax
Credit Employee Stock Ownership Plan of PanEnergy Corp and Participating
Affiliates as of December 31, 1997 and 1996, and the related statements of
changes in net assets available for benefits for the years then ended; and the
related schedules, which report appears in the December 31, 1997 Annual Report
on Form 11-K of the Tax Credit Employee Stock Ownership Plan of PanEnergy Corp
and Participating Affiliates.
KPMG Peat Marwick LLP
Houston, Texas
June 26, 1998
9
<PAGE>
SCHEDULE I
TAX CREDIT EMPLOYEE STOCK OWNERSHIP PLAN
OF PANENERGY CORP
AND PARTICIPATING AFFILIATES
ITEM 27A - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
DECEMBER 31, 1997
($ Millions)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SHARES/PAR
INVESTMENT VALUE COST FAIR VALUE
- --------------------------------------------------- ----------- -------------- -------------
Common Stock of Duke Energy Corp* 446,707 $ 18,737,709 $ 24,736,400
Northern Trust Company Collective Short Term
Investment Fund 2,043 2,043 2,043
-------------- -------------
$ 18,739,752 $ 24,738,443
============ ============
SCHEDULE IV
ITEM 27D - SCHEDULE OF REPORTABLE TRANSACTIONS
DECEMBER 31, 1997
($ Millions)
NUMBER OF HISTORICAL
REVALUED REALIZED
INVESTMENT TRANSACTIONS PRICE/PROCEEDS COST COST GAIN
---------- ------------ -------------- ---- ---- ----
PURCHASES:
Northern Trust Company Collective
Short Term Investment Fund 33 $ 12,172,126 $ - $ - -
Common Stock of Duke Energy Corp* 6 12,051,157 - - -
SALES:
Northern Trust Company Collective
Short Term Investment Fund 13 $ 11,963,544 $ 11,963,544 $ - $ -
Common Stock of Duke Energy Corp* 1 150,015 118,087 154,041 (4,026)
</TABLE>
"REPORTABLE TRANSACTIONS" REPRESENT A SINGLE OR SERIES OF RELATED TRANSACTIONS
THAT EXCEEDED 5% OF THE FAIR MARKET VALUE OF PLAN ASSETS AT THE BEGINNING OF THE
YEAR.
- --------------
* Party-in-interest
S-1
