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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 11-K
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ANNUAL REPORT
Pursuant to Section 15(d) of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1998
Commission File Number 1-4928
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TAX CREDIT EMPLOYEE STOCK OWNERSHIP PLAN
OF PANENERGY CORP
AND PARTICIPATING AFFILIATES
(Full title of the plan)
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DUKE ENERGY CORP.
(Name of issuer of the securities held pursuant to the plan)
5400 WESTHEIMER COURT
P.O. BOX 1642
HOUSTON, TEXAS 77251-1642
(Address, including zip code, of principal executive office)
(713) 627-5400
(Telephone number, including area code)
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<PAGE>
TAX CREDIT EMPLOYEE STOCK OWNERSHIP PLAN
OF PANENERGY CORP
AND PARTICIPATING AFFILIATES
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
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FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
Independent Auditors' Report............................................................ 3
Statement of Net Assets Available for Benefits
December 31, 1998 and 1997......................................................... 4
Statement of Changes in Net Assets Available for Benefits
Years Ended December 31, 1998 and 1997.............................................. 4
Notes to Financial Statements........................................................... 5
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SCHEDULES
Schedule IV - Item 27d - Schedule of Reportable Transactions,
Year Ended December 31, 1998....................................................... S-1
ALL OTHER SCHEDULES ARE OMITTED BECAUSE THEY ARE NOT APPLICABLE OR NOT REQUIRED.
</TABLE>
2
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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, 1998 and 1997, and the
related statements of changes in net assets available for benefits for the years
then ended. 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, 1998 and 1997, and the changes in net assets available for
benefits for each of the years in the two-year period ended December 31, 1998 in
conformity with generally accepted accounting principles.
As discussed in Note 1, effective December 31, 1998 the assets and
liabilities of the Plan were transferred to, and assumed by, the Duke Energy
Corp. Retirement Savings Plan.
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 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.
Houston, Texas
May 28, 1999
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<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>
1998 1997
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<S> <C> <C>
Northern Trust Company Collective Short Term Investment Fund................................ $ - $ 2,043
Accrued interest receivable................................................................. - 719
Accrued dividends receivable................................................................ - 113
Common stock of Duke Energy Corporation..................................................... - 24,736,400
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Total Investments....................................................................... - 24,739,275
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Net Assets Available for Benefits........................................................... $ - $ 24,739,275
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</TABLE>
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1998 1997
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<S> <C> <C>
Employees' contributions (Note 1)........................................................... $ - $ 2,847,277
Employers' contributions (Note 1)........................................................... - 8,693,751
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Total contributions................................................................. - 11,541,028
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Net unrealized appreciation of investments.................................................. 3,243,776 3,962,810
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Dividend income............................................................................. 950,952 479,435
Interest income............................................................................. 9,402 46,823
Realized gain (loss)........................................................................ (33,933) (159,959)
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Total investment income............................................................. 926,421 366,299
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Withdrawals................................................................................. 2,104,361 732,241
Other disbursements......................................................................... - 1,241
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Total disbursements................................................................. 2,104,361 733,482
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Increase in Net Assets Available for Benefits............................................... 2,065,836 15,136,655
Net Assets Available for Benefits, beginning of year........................................ 24,739,275 9,602,620
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Transfer of Net Assets To Duke Energy Corporation Retirement Savings Plan................... 26,805,111 -
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Net Assets Available for Benefits, end of year.............................................. $ - $ 24,739,275
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</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 or Company) 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, 1998, there were 4,734 individuals participating in the
Plan.
On December 31, 1998, the Plan was merged into, and it's liabilities assumed
by and it's assets transferred to, the Duke Energy Corporation Retirement
Savings Plan (now the Duke Energy Retirement Savings 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 1998 and 1997, expenses totaling $49,682 and $17,959,
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
5
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 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 to 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 Corp. common stock is stated at fair value
based upon quotations obtained from a 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
Contributions and earnings received by the Plan's trust will be invested in
Duke Energy Corp. common stock. During 1998 and 1997, The Northern Trust
Company, Chicago, Illinois, was trustee of the Plan.
Dividend income is reinvested in Duke Energy Corp. 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 allocated to their plan accounts and to
tender such shares in response to a tender or exchange offer.
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<PAGE>
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,
1998. 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.
5. RECONCILIATION TO IRS FORM 5500
The Plan's audited financial statements are materially consistent with the
amounts reported on the IRS Form 5500.
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<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_______________________________________
S.P. Meyer
Administrative Committee
Date: May 28, 1999
8
<PAGE>
SCHEDULE IV
TAX CREDIT EMPLOYEE STOCK OWNERSHIP PLAN
OF PANENERGY CORP
AND PARTICIPATING AFFILIATES
ITEM 27D - SCHEDULE OF REPORTABLE TRANSACTIONS
DECEMBER 31, 1998
($ Millions)
<TABLE>
<CAPTION>
NUMBER OF HISTORICAL REVALUED REALIZED
INVESTMENT TRANSACTIONS PRICE/PROCEEDS COST COST GAIN(LOSS)
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<S> <C> <C> <C> <C> <C>
PURCHASES:
Northern Trust Company Collective
Short Term Investment Fund 22 $ 2,092,330 $ - $ - $ -
Common Stock of Duke Energy Corp* 8 948,620 - - -
SALES:
Northern Trust Company Collective
Short Term Investment Fund 16 $ 2,338,724 $ 2,338,724 $ - $ -
Common Stock of Duke Energy Corp* 11 1,133,095 884,197 1,167,028 (33,933)
"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.
</TABLE>
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o Party-in-interest
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT.
S-1
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
May 28, 1999, 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, 1998 and 1997, 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, 1998 Annual Report on Form 11-K of the Tax Credit Employee Stock
Ownership Plan of PanEnergy Corp and Participating Affiliates.
/s/ KPMG LLP
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KPMG LLP
Houston, Texas
June 25, 1999
